<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
FOR THE THREE MONTHS ENDED MARCH 2000
POLSKA TELEFONIA CYFROWA SP. Z O.O.
(Exact Name of Registrant as Specified in Its Charter)
AL. JEROZOLIMSKIE 181, 02-222 WARSAW
(Address of Principal Executive Offices)
POLAND
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
-------------- -------------
Indicate by check mark whether the registrant by furnishing the information
contained in the Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
-------------- -------------
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): N/A
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Polska Telefonia Cyfrowa Sp. z o.o., is a limited liability company (spolka z
ograniczona odpowiedzialnoscia) organized under the laws of the Republic of
Poland. References to the "10-3/4% Notes" are to the 10-3/4% Senior Subordinated
Guaranteed Discount Notes due July 1, 2007 which were issued by PTC
International Finance B.V., our wholly-owned finance subsidiary organized under
the laws of The Netherlands. References to the "11-1/4% Notes" are to the
11-1/4% Senior Subordinated Guaranteed Discount Notes due December 1, 2009,
which were issued by PTC International Finance II S.A. our wholly-owned finance
subsidiary organized under the laws of Luxembourg. Both the 10-3/4% Notes and
11-1/4% Notes are fully and unconditionally guaranteed by us (the "Company
Guarantee"). PTC International Finance B.V., PTC International Finance (Holding)
B.V. and PTC International Finance II, S.A. essentially have no independent
operations and do not file separate reports under the Securities Exchange Act of
1934 (the "Exchange Act").
We publish our Financial Statements in Polish Zloty. In this quarterly report on
Form 6-K (the "Form 6-K"), references to "Zloty" or "PLN" are to Polish
currency, references to "U.S. dollars," "USD" or "$" are to United States
currency, references to "Deutschmark" or "DM" are to German currency and
references to "Euros" are to the single currency of the countries of the
European Union (the "EU") that entered the third stage of economic and monetary
union pursuant to the Maastricht Treaty on January 1, 1999.
The Federal Reserve Bank of New York does not certify for customs purposes a
noon buying rate for Zloty. For the convenience of the reader, this Form 6-K
contains translations of certain Zloty amounts into U.S. dollars at the rate of
PLN 4.1428=$1.00, the exchange rate quoted for accounting purposes by the
National Bank of Poland ("NBP"), the Polish central bank, on March 31, 2000 (the
"Fixing Rate"). These translations should not be construed as representations
that such Zloty amounts actually represent such U.S. dollar amounts or could be,
or could have been, converted into U.S. dollars at the rates indicated or at any
other rate.
Our Financial Statements for the three months ended March 31, 2000 (the
"Financial Statements") attached to this Form 6-K have been prepared in
accordance with International Accounting Standards ("IAS"), which differs in
certain respects from generally accepted accounting principles in the United
States ("U.S. GAAP") (see Note 26 to the Financial Statements). Unless otherwise
stated herein, all financial information presented in this Form 6-K has been
prepared in accordance with IAS.
Our registered office and its headquarters are located at Al. Jerozolimske 181,
02-222 Warsaw; telephone (480 22 573-6000).
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SELECTED FINANCIAL DATA 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 6
RESULTS OF OPERATIONS 6
OVERVIEW 6
NET SALES 7
COST OF SALES 8
OPERATING EXPENSES 9
INTEREST AND OTHER FINANCIAL EXPENSES, NET 9
TAXATION 9
INFLATION AND CURRENCY EXCHANGE FLUCTUATIONS 10
LIQUIDITY AND CAPITAL RESOURCES 12
SIGNIFICANT TRANSACTIONS AND AGREEMENTS 14
HEDGING TRANSACTIONS 14
LEGAL PROCEEDINGS 14
INTERCONNECT 14
INTERNET - VOIP 14
DATA SECURITY 14
SHAREHOLDERS AND BOARD MEMBERS 15
APPOINTMENT OF NEW DIRECTOR OF STRATEGY, MARKETING AND SALES 15
CHANGES IN OWNERSHIP 15
CHANGES IN SUPERVISORY BOARD 15
BUSINESS ENVIRONMENT 16
THE COMPANY ON THE WIRELESS MARKET 16
SIGNATURES 17
</TABLE>
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SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
PLN $(1) PLN
--- ---- ---
(in thousands) (in thousands)
STATEMENT OF OPERATIONS DATA
International Accounting Standards
Net Sales:
<S> <C> <C> <C>
Service revenues and fees 743,730 179,524 443,218
Sales of telephones and accessories 52,165 12,592 45,934
---------- ---------- ----------
Total net sales 795,895 192,116 489,152
Cost of sales:
Cost of services sold (306,282) (73,931) (180,416)
Cost of sales of telephones and accessories (222,926) (53,811) (148,733)
---------- ---------- ----------
Total cost of sales (529,208) (127,742) (329,149)
---------- ---------- ----------
Gross margin 266,687 64,374 160,003
Operating expenses:
Selling and distribution costs (129,165) (31,178) (83,170)
Administration and other operating costs (38,037) (9,181) (20,692)
---------- ---------- ----------
Total operating expenses (167,202) (40,359) (103,862)
---------- ---------- ----------
Operating profit 99,485 24,014 56,141
Interest and other financial expense, net (66,094) (15,954) (183,314)
---------- ---------- ----------
(Loss) profit before taxation 33,391 8,060 (127,173)
---------- ---------- ----------
Taxation expense (1,847) (446) 3,078
========== ========== ==========
Net (loss)/income 31,544 7,614 (124,095)
========== ========== ==========
U.S. GAAP
Revenues 795,895 192,116 489,152
Cost of sales (526,920) (127,189) (327,729)
Operating expenses (167,202) (40,360) (113,330)
Interest and other financial expense, net (59,066) (14,258) (203,610)
Taxation expense (1,847) (446) 6,016
---------- ---------- ----------
Net profit/(loss) 40,860 9,863 (149,501)
OTHER FINANCIAL AND OPERATING DATA
EBITDA (IAS) (1) 208,003 50,210 108,136
EBITDA (US GAAP)(2) 208,003 50,210 98,668
Subscribers at the end of the period 2,005,368 1,751,475
Monthly churn rate(3) 1.7% 3.6%
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 2000 AT DECEMBER 31, 1999
----------------- --------------------
BALANCE SHEET DATA
International Accounting Standards
<S> <C> <C> <C>
Long-term assets 4,173,657 1,007,448 4,011,762
Total assets 5,368,235 1,247,679 5,953,964
Long-term liabilities, provisions and deferred taxes 3,806,644 918,858 4,606,954
Total liabilities 5,168,885 1,295,798 5,786,158
Shareholders' equity 199,350 48,120 167,806
U.S. GAAP
Long-term assets 4,113,230 990,862 3,969,987
Total assets 5,398,745 1,303,163 5,939,661
Shareholders' equity 119,203 28,774 78,343
</TABLE>
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- ---------------------------------------
(1) Solely for the convenience of the reader, Zloty amounts have been translated
into U.S. dollars at the rate of PLN 4.1428 per $1.00, the Fixing Rate
announced by the National Bank of Poland on March 31, 2000. The translated
amounts should not be construed as representations that the Zloty has been,
could have been, or could in the future be converted into U.S. dollars at
this or any other rate of exchange.
(2) EBITDA represents operating profit (loss) before depreciation and
amortization. EBITDA is included as supplemental disclosure because it is
generally accepted as providing useful information regarding a company's
ability to service and incur debt. EBITDA should not, however, be considered
in isolation as a substitute for net income, cash flow provided from
operating activities or other income or cash flow data or as a measure of a
company's profitability or liquidity.
(3) The churn rate is calculated as the average of the monthly churn rates in
the relevant period. The monthly churn rate is calculated as the total
number of voluntary and involuntary deactivations and suspensions during the
relevant month expressed as a percentage of the average number of
subscribers for the month (calculated as the average of the month end total
number of subscribers and the total number of subscribers at the end of the
previous month).
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
RESULTS OF OPERATIONS
OVERVIEW
Our company was formed in December 1995, and was awarded a fifteen-year
non-exclusive GSM 900 license (the "License") in February 1996 by the Polish
Ministry of Communications. Thereafter, we commenced construction of our GSM
network, and in September 1996, started offering services to subscribers under
the brand name Era GSM. Since that time, we have experienced rapid growth and
development. In August 1999, we were awarded the only nationwide fifteen-year,
non-exclusive GSM 1800 license and from March 1, 2000, we have been offering our
services in both frequencies: 900 and 1800. The following table sets forth
information about our subscribers and GSM cellular network coverage as at the
dates indicated:
<TABLE>
<CAPTION>
AS OF THE QUARTER ENDED MARCH 31,
2000 1999
Customers:
<S> <C> <C>
Net customer additions 253,893 156,963
Total Customers 2,005,368 937,703
of which:
Post-paid customers 1,577,149 702,714
Pre-paid customers 428,219 234,989
Growth of total customers from the end of the same
quarter in the prior year (%) 114% 128%
Average Monthly Churn (%) 1.7% 3.6%
Traffic:
Average monthly revenue per customer (PLN)
130 175
Change from prior year (%) (25.7)% (14.3%)
Coverage of GSM cellular network in Poland:
Geographical area covered 87% 80%
Population Covered 97% 91%
</TABLE>
We recorded a net profit of PLN 31.5 million in the first three months of 2000,
as compared with a net loss of PLN 124.1 million during the same period in 1999.
Operating profits increased to PLN 99.5 million in the first three months of
2000, compared with PLN 56.1 million for the same period in 1999. The strong
growth in net sales and gross margin in service revenues and fees was largely
offset by increased cost of sales for promotional telephones and accessories.
The difference between profit for the first three months of 2000 and net loss
for the three months of 1999 principally results from the net interest and other
financial expenses, decreased from PLN 183.3 million at the end of first quarter
1999 to PLN 66.1 million at the end of first quarter of this year. The decrease
in net interest and other financial expenses principally results from an
increase of foreign exchange gains from PLN 1.8 million in the first
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quarter of 1999 to PLN 109.9 million in the same period of 2000, and a decrease
in foreign exchange losses from PLN133.5 million for the three months ended
March 31, 1999 to PLN 56.0 million for the three months ended March 31, 2000. In
summary, the net foreign exchange loss of PLN 131.7 million in the first quarter
of 1999 was transformed into the gain of PLN 53.9 million in the first quarter
of 2000.
The following table sets forth our gross margin by net sales category for the
periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
2000 1999
---- ----
(in thousands of PLN)
<S> <C> <C>
Net service revenues and fees 743,730 443,218
Cost of services sold (306,282) (180,416)
-------- --------
Gross margin from service revenues and fees 437,448 262,802
-------- --------
Gross margin percentage of net service
and fees revenue 58.8% 59.3%
Sales of telephones and accessories 52,165 45,934
Cost of sales of telephones and accessories (222,926) (148,733)
-------- --------
Gross margin from sales of telephones and accessories (170,761) (102,799)
-------- --------
Gross margin percentage of net telephones
and accessories revenue (327.3%) (223.8%)
-------- --------
Gross margin 266,687 160,003
======== ========
Gross margin percentage of total net revenues 33.5% 32.7%
======== ========
</TABLE>
NET SALES
Our net sales were PLN 795.9 million in the first three months of 2000, as
compared with PLN 489.2 million during the same period in 1999. Net sales
consist primarily of service revenues and fees, comprised of air-time tariffs,
monthly service fees and service activation fees. Air-time tariffs include
revenues from incoming and outgoing calls and revenues from the sale of pre-paid
air-time minutes.
Our service revenues and fees were PLN 743.7 million during the first three
months of 2000, as compared with PLN 443.2 million during the same period in
1999. The growth in service revenues and fees primarily reflects an increase in
the number of our total subscribers to over 2 million as of March 31, 2000,
including 428,219 Tak Tak pre-paid GSM service subscribers, as compared with
937,703 total subscribers with 234,989 Tak Tak users as of March 31, 1999. The
increase in customer base, however, was partially offset by a decrease in the
monthly average revenue per subscriber to PLN 130 for the three months ended
March 31, 2000, from PLN 175 per month for the same period in 1999.
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In order to harmonize tariff plans and better target various markets, we
introduced new tariff plans in the first quarter of 2000 including: (i) a new
tariff Halo 20 (with 20 free minutes included in the monthly fee) which replaced
the Halo tariff; (ii) Between Us (with discounted minutes for three chosen
numbers); (iii) extended bundle of discounted minutes attached to each existing
tariff plan; and (iv) discounted minutes to our ERA Business tariff assigned for
business customers.
Sales of handsets and accessories were PLN 52.2 million during the first three
months of 2000, as compared with PLN 45.9 million during the same period in
1999. Since the beginning of operations, we have conducted many promotional
campaigns in which we offered reduced prices for handsets and activation fees
during specific periods. As a result of these promotional campaigns, a
significant number of new subscribers have been added, although revenues from
sales of handsets and accessories have been negatively affected by promotional
discounting of the cost of handsets and accessories to subscribers.
Net interconnect income of PLN 121.2 million is included in the gross margin
from service revenues and fees for the first three months of 2000, which is
comprised of PLN 163.5 million in gross sales and PLN 42.3 million of expense.
For the same period in 1999, the net interconnect income was PLN 73.3 million,
consisting of PLN 96.2 million in gross sales and PLN 22.9 million of expense.
We have interconnect agreements with TPSA (Telekomunikacja Polska S.A.),
Polkomtel, Netia Telekom and Telefonia Lokalna (contract signed April 4, 2000).
Interconnect agreements with Centertel and El-Net are still under negotiations.
COST OF SALES
Our costs of sales were PLN 529.2 million in the first three months of 2000, as
compared with PLN 329.1 million in the same period in 1999. Gross margin was PLN
266.7 million in the first three months of 2000, as compared with a gross margin
of PLN 160.0 million in the same period in 1999. As a percentage of net sales,
gross margin represented 33.5% and 32.7% in the first three months of 2000 and
1999, respectively.
The increase in gross margin for the three months ended March 31, 2000,
primarily reflects growth in our subscriber base, resulting in increased revenue
from air-time charges and monthly service fees. This increased revenue, however,
was partially offset by the cost of sales of handsets and accessories during the
period, which continued to exceed the amount that we charged our subscribers for
those items as a result of our continued use of promotions to attract
subscribers. As a general matter, Management does not intend to achieve positive
overall margins on our sales of equipment and intends to sell these items to
ensure a sufficient supply of GSM equipment in the market place.
The continuous growth of our GSM network has resulted in increased demand for
transmission capacity. Presently, lines leased from TPSA, the main Polish wire
line operator, provide a large portion of the transmission capacity. We have
entered into a contract with Ericsson Radio
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Systems AB to construct a new "backbone" transmission network in order to
minimize the use of the leased lines. We believe that when completed, the
backbone network will reduce the cost of sales and our dependence on external
suppliers. Currently we are running the first three connections of the
Synchronos Digital Herarchy ("SDH") backbone and additional connections. We also
plan to have the city rings operational by the end of the second quarter.
OPERATING EXPENSES
Our operating expenses were PLN 167.2 million during the first three months of
2000, as compared with PLN 103.9 million in the same period in 1999.
Selling and distribution costs were PLN 129.2 million in the three months ended
March 31, 2000, as compared with PLN 83.2 million in the same period in 1999.
The selling and distribution costs for the three months ended March 31, 2000
included proportional increases in advertising costs for promotions associated
with our continued marketing roll-out, sales force salaries and wages, and
charges to the doubtful debtors provision. The charge to doubtful debtors
provision increased to PLN 37.6 million for the three months ended March 31,
2000 from PLN 25.4 million for the three months ended March 31, 1999. This was a
result of the increase in the revenues driven by air-time and access fees.
Administration and other operating costs were PLN 38.0 million for the three
months ended March 31, 2000, as compared with PLN 20.7 million for the same
period in 1999. The increase in operating cost for the first three months of
2000, as compared with the same period in 1999, were primarily due to increased
employee hiring and external services to support our growth.
INTEREST AND OTHER FINANCIAL EXPENSES, NET
Combined interest and other financial expenses net for the three months ended
March 31, 2000 were PLN 66.1 million, as compared to PLN 183.3 million for the
same period in 1999.
Net interest expenses were PLN 120.0 million for the three months ended March
31, 2000, as compared to PLN 51.6 million for the three months ended March 31,
1999. Interest on the Bank Credit Facility accrues continuously. Interest is
payable each year as individual draw downs mature. Interest on the 10-3/4% Notes
is payable starting January 1, 2003 for the accrued portion of the prior six
months balance, but for the 11-1/4% Notes the first interest is payable on June
1, 2000
As a result of the appreciation of the Zloty in relation to other major
currencies, we incurred a net foreign exchange gain of PLN 53.9 million in the
first three months of 2000, as compared to a net foreign exchange loss of PLN
131.7 million during the same period in 1999. (See further discussion in the
Inflation and Currency Fluctuation section of this document)
TAXATION
Our profits before taxes were PLN 33.4 million for the three months ended March
31, 2000, compared to a loss before taxes of PLN 127.1 million for the three
months ended March 31, 1999. We incurred a net profit of PLN 31.5 million in the
three months ended March 31, 2000,
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compared to a net loss of PLN 124.1 million for the same period in 1999, after
reflecting the accounting effect of taxation.
In accordance with the requirements of the Polish tax authorities, the cost of
the GSM 900 and 1800 Licenses is recorded on a cash basis, which is the most
significant component of our total deferred tax liability of PLN 138.0 million
as at March 31, 2000, as compared to a deferred tax liability of PLN 102.5
million as at December 31, 1999. We also recorded a deferred tax asset relating
to the realization of accrued expenses and certain tax loss carry forwards of
PLN 200.4 million as at March 31, 2000 as compared to PLN 172 million as at
December 31, 1999. (See Note 11 to the Financial Statements)
According to the tax regulations, the Corporate Income Tax rates have been
reduced. In January 2000, the new tax rate was changed from 34% for the year
1999, to 30% for the year 2000.
INFLATION AND CURRENCY EXCHANGE FLUCTUATIONS
In connection with its transition from a state-controlled economy to a free
market economy, Poland experienced high levels of inflation and significant
fluctuation in the exchange rate for the Zloty. The Polish government has
adopted policies to slow the annual rate of consumer price inflation. For the
twelve months ended March 31, 2000, annualized consumer price inflation in
Poland was 10.3% according to the Polish Office of Statistics. Since the launch
of our operations in 1996, cumulative inflation in Poland has been 48.2%.
The Polish Communications Law provides that the Ministry of Communications may
impose a ceiling on the prices that we and other telecommunications service
providers can charge for our services.
Our sales revenues are denominated in Polish Zlotys. A significant portion of
our expenses and liabilities, however, are denominated in other currencies.
These include our liability to the Polish government for the GSM 900 and GSM
1800 Licenses, which are linked to the Euro and payable in Zlotys, liabilities
to our suppliers of network capital equipment and handsets, which are generally
denominated and/or linked to Deutschmarks, French Francs or U.S. dollars.
Additionally, the 10-3/4 Notes, 11-1/4 Notes and shareholder loans are
denominated in U.S. dollars or Euros. As a result, operating income and cash
flows are and will remain significantly exposed to appreciation in these
non-Polish currencies against the Polish Zloty.
Future currency exchange fluctuations are expected to continue to have a
significant effect on the financial condition and results of operations. To
manage this currency risk we have entered into foreign currency forward
transactions. Our hedging policy allows for the use of forwards, swaps and
options for minimizing currency and interest rate risks.
As of March 31, 2000, we concluded a set of short-term transactions (foreign
currency forwards and non-deliverable forwards) to hedge the foreign currency
liabilities that are scheduled to come due in the next 12 months.
Starting in late 1998 and continuing through the current year, we drew funds
from the Bank Credit Facility and exhausted the Zloty denominated first tranche
in order to minimize the negative effects of currency exchange fluctuations. To
minimize our foreign currency risk we
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have changed the payment currency for our contracts with our main suppliers from
foreign currency to Zloty. Additionally, replacing the Bank Credit Facility will
increase the Zloty portion of the debt.
The table below summarizes our foreign currency denominated long-term
obligations including, the future value of cash payments for principal and
interest, with the exception of the Bank Credit Facility which only represents
future principal payments due to its structure of variable interest rates and
continued revolving for each drown down.
EXPECTED MATURITY DATE
(IN THOUSANDS OF ZLOTY)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total Present
Value
3/31/00
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GSM 900 License - 222,436 - - - - 222,436 210,028
- ------------------------------------------------------------------------------------------------------------------------------
GSM 1800 License 66,277 66,277 66,277 - - - 198,831 175,876
- ------------------------------------------------------------------------------------------------------------------------------
10-3/4 Notes - - - 112,764 112,764 1,387,262 1,612,790 829,072
- ------------------------------------------------------------------------------------------------------------------------------
11-1/4 Notes 207,690 203,729 203,729 203,729 203,729 2,829,563 3,852,169 1,857,023
- ------------------------------------------------------------------------------------------------------------------------------
Shareholder Loans - - - - - 710,482 710,482 334,777
- ------------------------------------------------------------------------------------------------------------------------------
Headquarters Lease 22,326 29,768 29,768 29,768 29,768 299,962 441,360 216,644
- ------------------------------------------------------------------------------------------------------------------------------
Weighted Average
Effective Interest
Rate 11.1416 11.1416 11.1416 11.1416 11.1416 11.1416 11.1416 11.1416
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Tab. 1 Our foreign currency denominated long-term obligations.
We are exposed to interest rate risk primarily as a result of the Bank Credit
Facility, which at the end of the first quarter of 2000 consisted of a PLN loan
of 570 million at a rate of WIBOR plus 0.75% per annum The table below presents
principal payments under the Bank Credit Facility, including principal and
related weighted average interest rates for the balance drawn under the facility
as of March 31, 2000. The weighted average interest rates computed do not
consider the rate at which individual draw downs on the loan will be refinanced.
Each draw down has a short-term maturity date, which can be rolled over, subject
to the annual repayment schedule for the entire facility.
EXPECTED MATURITY DATE
(IN THOUSANDS OF ZLOTY)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Bank Credit 2000 2001 2002 2003 2004 Thereafter Total Present
Facility Value
3/31/00
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
(in thousands of PLN)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable Rate
(PLN) 150,563 181,184 179,262 173,297 151,734 130,171 966,213 570,000
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted Average
Effective
Interest Rate 18.9146 18.9146 18.9146 18.9146 18.9146 18.9146 18.9146 18.9146
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Tab. 2 Principal payments under the Bank Credit Facility
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity requirements arise primarily from the need to fund capital
expenditures for the expansion of our business, GSM 900 and GSM 1800 license
fees and for our working capital requirements. On December 17, 1997, we entered
into a loan facility arranged by Citibank (Poland) S.A. and Citibank
International plc. The lenders agreed to make loans to us, on a term loan,
guarantee or revolving credit basis (as desired) in the aggregate principal
amount of not more than DM 672.0 million (the "Bank Credit Facility") subject to
PTC having met required liquidity and credit-rating conditions. The Bank Credit
Facility consists of two tranches: (i) an offshore tranche of up to DM 420.0
million may be drawn in Deutschmark, U.S. dollars, Euro or other freely
convertible currencies as agreed by the lenders; and (ii) a domestic tranche
equal to the Zloty equivalent of DM 252.0 million available to be drawn in
Zloty. At the end of March 2000, the combined loan limit for us under Zloty and
Deutchmark tranche was PLN 570 million. To date, we are only draw downing the
Zloty denominated tranche.
On August 24, 1999, the operating shareholders extended to us USD 75.0 million
in subordinated loans to fund the GSM 1800 license and provide continued
liquidity as follows: Elektrim, Zloty equivalent of USD 39.8 million; DeTe
Mobil, USD 17.6 million; and MediaOne, USD 17.6 million. Each shareholder loan
bears an interest rate of 12.5% compounded semi-annually on June 17th and
December 17th. The full loan balance and all accrued interest are due on June
19, 2006. However, interest may be due earlier dependent on our ability to meet
the Bank Credit Facility covenants.
In November 1999, we issued 11-1/4% Notes of USD 150 million and Euro 300
million with a maturity date in 2009. The interest is payable on June 1 and
December 1 each year starting with June 1, 2000. We were obliged to establish
two escrow accounts to secure the 11-1/4% Notes and to pay the first five
scheduled interest payments on the 11-1/4% Notes. On May 2, 2000, we closed the
exchange offer of our 11 -1/4% Notes into freely traded 11-1/4% Senior
Subordinated Guaranteed Notes.
Our net cash generated from operating activities during the three months ended
March 31, 2000 was PLN 33.6 million, as compared to PLN 59.4 million during the
three months ended March 31, 1999. Non-cash provisions and net non-operating
items for the same period totaled PLN 180.9 million and PLN 239.3 million, at
the end of first quarter of 2000 and 1999 respectively, and principally reflect
depreciation and amortization, provisions for doubtful debtors, unrealized
foreign exchange losses and accrued interest expense. In addition, cash used in
net working capital items for the first quarter of 2000 was PLN 92.1 million, as
compared to cash generated from net working capital items of PLN 8.9 million for
the same period in 1999. This was primarily due to increased cash used to
purchase inventory.
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Our net cash used in investing activities was PLN 380.4 million for the three
months ended March 31, 2000, as compared to PLN 270.2 million for the three
months ended March 31, 1999, principally reflecting payments to suppliers of
network capital equipment used in the ongoing build-out of our GSM 900 and 1800
network and payment of GSM 900 license fee. Our net cash used in financing
activities was PLN 514.8 million for the three months ended March 31, 2000, as
compared to net cash generated from financing activities PLN 216.7 million for
the three months ended March 31, 1999, reflecting repayment of long-term
borrowings.
Management anticipates that capital expenditures for the remaining three
quarters of 2000 will total approximately PLN 1.8 million, including
expenditures related to our backbone network. We also expect that the level of
our capital expenditures will remain significant for the medium term, as we
upgrade our network capacity, coverage and quality.
In order to implement the current business plan, we will need to raise EUR 650
million to fund anticipated working capital requirements, capital expenditures
and other operating needs. We are in the process of negotiating with various
financial institutions to replace the current DM 672.0 million equivalent Bank
Credit Facility with a larger one. The negotiations with the debt organizers are
commenced and we expect to complete negotiations by the end of the first half of
2000. Furthermore, we expect to utilize the new Bank Credit Facility prior to
the end of 2000.
13
<PAGE> 14
SIGNIFICANT TRANSACTIONS AND AGREEMENTS
HEDGING TRANSACTIONS
We have entered into our first hedging transactions with different Polish and
multinational banks. We have managed to hedge a significant part of our foreign
currency risk for the next 12 months and will continue to hedge on a 12-month
rollover basis. We will also try to increase the PLN portion of the Bank Credit
Facility as one of our points in the process of minimizing currency risk
exposure. In an effort to minimize our currency risk exposure we also
renegotiated contracts with our main suppliers to enable us to make payments in
Polish Zloty.
LEGAL PROCEEDINGS
INTERCONNECT
As a result of our initial interconnect negotiations with TPSA the Supreme
Administrative Court issued a decision (the "Interconnect Decision") regarding
our settlement process with TPSA for interconnect payments. TPSA appealed the
Court's decision. We have neither received a judgment from the Supreme
Administrative Court regarding TPSA's appeal of the Interconnect Decision, nor
has TPSA withdrawn this appeal despite the interconnect agreement between us.
INTERNET - VoIP
On February 1, 2000, we received a summons from the State Telecommunications and
Postal Inspection (PITiP) as a result of an inspection conducted by the agency
in January 2000 of our Internet access services (VoIP). The summons ordered us
to cease providing international telephone service over the Internet network. In
response, we applied for reconsideration of the case, and on February 10, 2000,
we received a decision from the Minister of Communications which rendered the
summons invalid. It was determined that we could continue to offer Internet
access services for subscribers who have data transmission service until May
2000, when it is anticipated that a new regulation will be prepared by the
Ministry of Communications. We will also participate in preparing the new
Internet access regulations in conjunction with the Ministry.
DATA SECURITY
An investigation into our sales practices by the General Inspector for Personal
Data Protection's ("GIODO") office was conducted in the fourth quarter of 1999.
Although the post-control protocol report resulting from the inspection neither
outlined a legal situation or suggested changes, it did reveal that we require
our customers to provide more identification than the office generally believes
is necessary. In our opinion, such documentation is necessary to verify the
identity of our subscribers who enter into an extended agreement for
telecommunications services, and also, to assist us in minimizing the risk of
subscriber fraud. Together with other telecom operators in Poland, we submitted
a proposal to the Ministry of Communications regarding changes to the existing
law. The Ministry of Communications has not taken a position on the matter, nor
has it responded to the proposal. However, a new telecommunication regulation
regarding this issue should be approved at the end of this year or early next
14
<PAGE> 15
year, and is anticipated to include the paragraphs allowing the collection of
personal data, which according to the GIODO is not currently allowed.
SHAREHOLDERS AND BOARD MEMBERS
APPOINTMENT OF NEW DIRECTOR OF STRATEGY, MARKETING AND SALES
As of March 1, 2000, Wojciech Ploski replaced Karim Khoja as the Director of
Strategy, Marketing and Sales. Mr. Ploski began working with us in May 1996 as
the Deputy Director of Marketing (Products and Logistics). In September 1997, he
assumed the position of Director of Logistics and Sales. Mr. Ploski was one of
the main developers of our direct, indirect and retail sales network and the
purchasing department. Prior to joining us, Mr. Ploski worked for Curtis Company
for ten years where he held variety of positions, including Executive Director
of the television factory in Mlawa and the Commercial Director of Curtis
International. Mr. Ploski holds a degree from the Warsaw University of
Technology, Telecommunication Department.
CHANGES IN OWNERSHIP
DeTeMobil sought an injunction to prevent the acquisition of 3% of company
shares by Elektrim on our registry books in the Warsaw Regional Court, XX
Commercial Division, but the Court did not grant the injunction. DeTeMobil has
appealed this decision to the Court of Appeal in Warsaw, but the court confirmed
that Elektrim had a right to buy additional company shares. DeTeMobil's claim
seeks a declaration that a portion of shares involved in Elektrim's announced
acquisition should have been sold to DeTeMobil in recognition of its first
refusal rights under the shareholders agreement. DeTeMobil has directed its
claim to the International Arbitration Court in Vienna, but at this time there
is no resolution of this arbitration and the time of the resolution is still
uncertain.
On March 23, 2000, the transfer of ownership between Deutche Telekom AG and
MediaOne was finalized and Deutche Telekom became the owner of MediaOne
International B.V. with its 22.5% of company shares, owning presently, directly
or indirectly, 45% of company shares.
CHANGES IN SUPERVISORY BOARD
Following changes in our ownership the Supervisory Board has been changed.
Starting April 11, 2000, Dieter Schumacher and Dr. Klaus Tebbe replaced Stephen
D. Boyd and William A. Noris in their positions on the Company's Supervisory
Board members.
15
<PAGE> 16
BUSINESS ENVIRONMENT
THE COMPANY ON THE WIRELESS MARKET
As of March 1, 2000, all three wireless service providers in Poland actively
operate in both GSM 900 and GSM 1800 frequencies. We introduced new tariffs and
products with the launch of GSM 1800 frequency: including, (i) the new tariff -
Halo 20, with 20 free minutes, which replaced the original Halo tariff; (ii) the
new tariff Between Us, with discounted minutes for three chosen numbers; (iii)
an extended bundle of discounted minutes attached to each existing tariff; (iv)
a discounted connections offered in the Era Business tariff; and (v) a Citibank
co-sponsored Visa credit card. We were the first telecommunication company in
Poland to offer the Visa card co-sponsored with Citibank, which was launched on
April 1, 2000. Citibank-Era credit cards allow our subscribers to take advantage
of discounted and specially offered Citibank and PTC services, for example:
daily information on credit card activity via SMS, discounted value-added
services, a free GSM information line and additional loyalty program points.
We are also a participant in the loyalty program Stokrotka launched on October
15, 1999. As of February 15, 2000, our post-paid subscribers can exchange their
points for telephone accessories or partner awards. At end of March 2000,
967,889 customers participated in the program, and 399 had redeemed their
awards.
During the first quarter of 2000 we were recognized with several service awards,
including (i) Byk Sukcesu (Bull of Success) by Success magazine for the
"Connection of Poles to each other and connection of Poland with the rest of the
world;" (ii) Zlota Antena (Golden Antenna) conferred by Telecommunication World
for Eranet - the first internet link in a wireless system; and (iii) were
honored by Your Mobile magazine for our information services SMS, Halo tariff
and VoIP.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POLSKA TELEFONIA CYFROWA Sp. z o.o.
(Registrant)
By: /s/ Boguslaw Kulakowski
-----------------------
Boguslaw Kulakowski, Director General
By: /s/ Wilhelm Stuckemann
-----------------------
Wilhelm Stuckemann, Director of Network Operations
May 10, 2000
17
<PAGE> 18
POLSKA TELEFONIA CYFROWA SP. Z O.O.
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE THREE MONTHS PERIODS ENDED
MARCH 31, 2000 AND MARCH 31, 1999
<PAGE> 19
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE MONTH PERIODS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTES THREE MONTHS ENDED THREE MONTHS ENDED MARCH
----- MARCH 31, 2000 31, 1999
-------------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
NET SALES 7 795,895 489,152
COST OF SALES 8 (529,208) (329,149)
-------- --------
GROSS MARGIN 266,687 160,003
OPERATING EXPENSES 8 (167,202) (103,862)
-------- --------
OPERATING PROFIT 99,485 56,141
NON-OPERATING ITEMS
Interest and other financial income 9 124,710 2,064
Interest and other financial expenses 10 (190,804) (185,378)
-------- --------
INCOME/(LOSS) BEFORE TAXATION 33,391 (127,173)
TAXATION (CHARGE)/BENEFIT 11 (1,847) 3,078
-------- --------
COMPREHENSIVE NET INCOME/(LOSS) 31,544 (124,095)
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
- 1 -
<PAGE> 20
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS AT MARCH 31, 2000 AND DECEMBER 31, 1999
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTES AT AT
----- MARCH 31, DECEMBER 31,
--------- ------------
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 24 228,592 1,095,509
Short-term investment 12 197,849 198,468
Debtors and prepayments 13 374,538 409,410
Accounts receivable from
State Treasury 13 75,991 54,835
Inventory 14 317,608 183,980
--------- ---------
1,194,578 1,942,202
LONG-TERM ASSETS
Tangible fixed assets, net 15 2,765,207 2,573,905
Intangible fixed assets, net 16 1,032,431 1,050,775
Financial assets 12 291,122 301,829
Deferred cost 17 84,897 85,253
--------- ---------
4,173,657 4,011,762
--------- ---------
TOTAL ASSETS 5,368,235 5,953,964
========= =========
CURRENT LIABILITIES 18 1,362,241 1,179,204
LONG-TERM INTEREST-BEARING LIABILITIES 19 3,776,413 4,578,412
DEFERRED TAX LIABILITY, NET 11 29,012 27,322
PROVISIONS FOR LIABILITIES AND CHARGES 20 1,219 1,220
--------- ---------
TOTAL LIABILITIES 5,168,885 5,786,158
--------- ---------
SHAREHOLDERS' EQUITY
Share capital 21 471,000 471,000
Accumulated deficit (271,650) (303,194)
--------- ---------
199,350 167,806
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 5,368,235 5,953,964
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
- 2 -
<PAGE> 21
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTH PERIODS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 1999
---------- ----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES: (see Note 24)
<S> <C> <C>
NET INCOME/(LOSS) BEFORE TAXATION 33,391 (127,173)
ADJUSTMENTS FOR:
Depreciation and amortization 108,518 51,995
Charge to provision for doubtful debtors 37,623 25,416
Charge to provision for inventory 2,044 1,000
Other provisions and special funds (1) (629)
Unrealized foreign exchange (gains)/losses, net (87,235) 109,399
Loss on disposal of tangibles and intangibles 5,826 (7)
Interest expense, net 120,044 51,614
Other -- (2)
---------- ----------
OPERATING CASH FLOWS BEFORE WORKING CAPITAL CHANGES 220,210 111,613
Increase in inventory (135,672) (14,883)
Increase in debtors, prepayments and deferred cost (23,971) (38,210)
Increase in trade payables and accruals 67,630 61,995
---------- ----------
CASH FROM OPERATIONS 128,197 120,515
Interest paid (94,631) (35,557)
Income taxes paid -- (25,549)
---------- ----------
NET CASH GENERATED FROM OPERATING ACTIVITIES 33,566 59,409
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of intangible fixed assets (110,083) (54,772)
Purchases of tangible fixed assets (278,061) (215,721)
Proceeds from sale of equipment and intangibles 144 7
Interest received 7,581 305
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (380,419) (270,181)
CASH FLOWS (USED IN)/FROM
FINANCING ACTIVITIES:
(Repayment of)/proceeds from long-term borrowings (514,802) 220,896
Net change in overdraft facility -- (4,163)
---------- ----------
NET CASH (USED IN)/GENERATED FROM FINANCING ACTIVITIES (514,802) 216,733
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (861,655) 5,961
EFFECT OF FOREIGN EXCHANGE CHANGES ON CASH AND CASH (5,262) 59
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,095,509 5,695
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 228,592 11,715
========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
- 3 -
<PAGE> 22
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR
THE THREE MONTH PERIODS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARE ACCUMULATED TOTAL
----- ----------- -----
CAPITAL DEFICIT
------- --------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1999 471,000 (180,691) 290,309
(RESTATED)
Change in accounting policy with -- 593 593
respect to implementation of IAS 38
Comprehensive net loss for the period, -- (124,688) (124,688)
as originally reported
------- -------- -------
BALANCE AT MARCH 31, 1999 471,000 (304,786) 166,214
(RESTATED, UNAUDITED) ======= ======= ========
BALANCE AT JANUARY 1, 2000 471,000 (303,194) 167,806
Comprehensive net income for the period -- 31,544 31,544
------- -------- -------
BALANCE AT MARCH 31, 2000 471,000 (271,650) 199,350
(UNAUDITED) ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
- 4 -
<PAGE> 23
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
1. INCORPORATION AND PRINCIPAL ACTIVITIES
Polska Telefonia Cyfrowa Sp. z o.o. (the "Company") was incorporated under
Polish Law as a limited liability company based on a Notarial Act dated
December 20, 1995. The Company is located in Warsaw, Al. Jerozolimskie 181
and was registered in the Regional Court in Warsaw, XVI Commercial
Department on December 27, 1995.
The principal activities of the Company are providing cellular telephone
communication services in accordance with the GSM 900 and 1800 licenses
(see Note 4b.) granted by the Minister of Telecommunications and the sale
of cellular telephones and accessories compatible with its cellular
services.
During 1996 the Company signed an interim interconnect agreement with
Telekomunikacja Polska S.A. ("TPSA") on a "bill and keep" basis. On May
22, 1997 the Ministry of Communications issued a decision with respect to
new interconnect arrangements between the Company and TPSA. The decision
was binding for both parties, however, certain terms, including the
effective date, were still to be agreed. The decision defined
interconnect, international and leased-lines settlements with TPSA.
In the course of 1997, TPSA filed in the Supreme Administrative Court an
appeal against the above mentioned decision. In the appeal, it challenges
the entitlement of the Minister to issue the above decision on the basis
that the established interconnect rates are not fair.
On December 9, 1998, the Company signed a framework agreement with TPSA
defining the terms of mutual interconnect arrangements. Notwithstanding
the interconnect frame agreement, TPSA appeal to the Supreme
Administrative Court has not been withdrawn.
On February 1, 2000, the Company received a summons from the State
Telecommunications and Postal Inspection as a result of an inspection
conducted by the agency in January 2000 of the Company's Internet
services. The summons ordered the Company to cease providing international
telephone service over the Internet network. In response, the Company
applied for reconsideration of the case, and on February 10, 2000, the
Company received a decision from the Minister of Communications which
rendered the summons invalid. It was determined that the Company could
continue to offer Internet access services for subscribers who have data
transmission service until May 2000, when it is anticipated that a new
regulation will be prepared by the Ministry of Communications.
- 5 -
<PAGE> 24
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
2. PRINCIPLES OF CONSOLIDATION
a. GROUP ENTITIES
All intercompany balances and transactions are eliminated in
consolidation. The condensed consolidated financial statements include the
financial statements of Polska Telefonia Cyfrowa Sp. z o.o. and its
wholly-owned subsidiaries, PTC International Finance B.V. and PTC
International Finance (Holding) B.V.
On June 17, 1997, PTC International Finance B.V. was incorporated under
the laws of the Netherlands for the purpose of issuing long-term Notes
("10-3/4 Notes", see Note 19). The Company has acquired 40 fully-paid
shares with a par value of 1,000 Netherlands Guilders each, issued by PTC
International Finance B.V. PTC International Finance B.V. has no
subsidiaries of its own.
On November 5, 1999 PTC International Finance II S.A. was incorporated
under the laws of Luxembourg and on November 16, 1999, PTC International
Finance (Holding) B.V. was incorporated under the laws of the Netherlands
for the purpose of issuing long-term Notes ("11-1/4 Notes", see Note 19).
The Company has acquired 40 fully-paid shares with a par value of 1,000
Netherlands Guilders each, issued by PTC International Finance (Holding)
B.V. Additionally, the Company has acquired 125 fully-paid shares with a
par value of 1,000 Euro each issued by PTC International Finance II S.A.
and contributed all of its shares except one, (owned by the Company, but
held locally, due to legal requirements) to PTC International Finance
(Holding) B.V. in exchange for 1 additional share of PTC International
Finance (Holding) B.V. Thus, PTC International Finance II S.A. became a
fully owned subsidiary of PTC International Finance (Holding) B.V. PTC
International Finance II S.A. has no subsidiaries of its own.
b. REPORTING CURRENCY
The Company primarily generates and expends cash through its operating
activities in Polish zloty ("PLN"). Additionally, all of the receivables
and the large part of its short-term liabilities are PLN denominated.
Therefore, Management has designated the PLN as the reporting (functional)
currency of the Company.
The accompanying condensed consolidated financial statements are reported
in thousands of PLN.
- 6 -
<PAGE> 25
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
3. ACCOUNTING STANDARDS
The Company maintains its books of account in accordance with accounting
principles and practices employed by enterprises in Poland as required by
Polish accounting regulations. The accompanying financial statements
reflect certain adjustments not reflected in the Company's statutory books
to present these statements in accordance with standards issued by the
International Accounting Standards Committee. These adjustments and their
effect on earnings for the three months periods ended March 31, 2000 and
March 31, 1999 are shown in Note 25 to these Financial Statements.
The differences between International Accounting Standards ("IAS") and
generally accepted accounting principles in the United States ("U.S.
GAAP") and their effect on net results for the three months periods ended
March 31, 2000 and March 31, 1999 have been presented in Note 26 to these
Financial Statements.
The IAS rules that were mandatory as of 31 March 2000 were applied to
these financial statements. In addition, each of the following new
standards have been adopted early and applied throughout all of the
periods presented herein:
IAS 16 (revised 1998) "Property, Plant and Equipment",
IAS 22 (revised 1998) "Business Combinations",
IAS 36 "Impairment of Assets",
IAS 37 "Provisions, Contingent Liabilities and Contingent Assets",
IAS 38 "Intangible Assets".
The effect of the adoption of the new standards is discussed in Note 5.
In Management's opinion, the financial statements for the three months
periods ended March 31, 2000 and March 31, 1999 include all adjustments
necessary for a fair statement of the results for the period. All such
adjustments are of normal, recurring nature.
- 7 -
<PAGE> 26
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
4. PRINCIPAL ACCOUNTING POLICIES
a. TANGIBLE FIXED ASSETS
Tangible fixed assets are shown at historical cost less accumulated
depreciation.
Depreciation is calculated using the straight-line method over the
estimated useful life of the asset. The following depreciation rates have
been applied:
<TABLE>
<CAPTION>
ANNUAL RATE ESTIMATED
----------- ---------
IN % USEFUL LIVES IN YEARS
---- ---------------------
<S> <C> <C>
Leasehold improvements Lease term
Buildings 2.5% 40
Plant and equipment 4.0 - 30.0% 3.3 - 25
Motor vehicles 12.5 - 30.0% 3.3 - 8
Other 10.0 - 20.0% 5 - 10
</TABLE>
b. INTANGIBLE FIXED ASSETS
License
The Company has acquired from the Polish State, represented by the
Ministry of Communications, a license to provide telecommunication
services according to ETSI/GSM standard in the 900 MHz band, including a
permit to install and utilize telecommunication equipment and network, and
allocation of frequencies in the ETSI/GSM 1800 MHz band ("the GSM 900
license").
The GSM 900 license was acquired on February 23, 1996 and has been valued
at the present value of the payments due to the State. For the period of
development of the GSM 900 system, the cost of interest and foreign
exchange losses were capitalized in the cost of the asset. This
development period terminated during the third quarter of 1997. The GSM
900 license is amortized over the period of its validity, i.e. 15 years
from the date of acquisition on a straight-line basis.
On August 11, 1999 the Ministry of Communications granted the Company a
license to provide telecommunication services according to ETSI/GSM
standard in the 1800 MHz band, including a permit to install and utilize
telecommunication equipment and network, and allocation of frequencies in
the ETSI/GSM 1800 MHz band ("the GSM 1800 license"). The GSM 1800 license
is valid for 15 years from the date of acquisition, though it allowed
starting operations of relevant services from March 1, 2000.
- 8 -
<PAGE> 27
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
4. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
b. INTANGIBLE FIXED ASSETS (CONTINUED)
The GSM 1800 license has been valued at the present value of the payments
due plus the cost of interest and foreign exchange losses capitalized
during the development period. The development period terminated together
with the start of operational validity of the GSM 1800 license on March 1,
2000. The GSM 1800 license will be amortized over the period of its
operational validity, i.e. 14.5 years.
The above-described GSM 900 license and the GSM 1800 license are not
transferable assets.
Other intangible fixed assets
Other intangible assets are stated at cost less accumulated amortization.
Amortization is calculated using the straight-line method over the
estimated useful life of the asset. The following amortization rates have
been applied:
<TABLE>
<CAPTION>
ANNUAL RATE
-----------
IN %
----
<S> <C>
Computer software 10.0 - 50.0%
Trademarks 6.7%
</TABLE>
c. DEBTORS
Amounts due from debtors are shown net of provisions for doubtful
accounts. The provisions are based on specific amounts due where
realization is unlikely and on a general basis, calculated using historic
collection experience.
d. INVENTORIES
Inventories are stated at the lower of cost and net realizable value. Cost
is determined principally under the average method. Provisions are set for
obsolete, slow moving and damaged inventory and are deducted from the
related inventory balances.
e. SPECIAL FUNDS
Special funds consist primarily of the social fund. The social fund is an
employer's obligation based on a government mandated calculation based on
number of employees and the monthly minimum wage in Poland. The amounts
calculated under this formula must be used for the benefits of the
employees.
- 9 -
<PAGE> 28
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
4. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
f. FOREIGN CURRENCY
Transactions denominated in foreign currencies are recorded in the local
currency (the Polish Zloty) at actual exchange rates prevailing at the
date of the transaction. Monetary assets and liabilities denominated in
foreign currencies are reported at the rates of exchange prevailing at the
end of the period. Any gain or loss arising from a change in exchange
rates subsequent to the date of the transaction is recorded in the
statement of operations as a foreign exchange gain or loss and included in
non-operating items in the statement of operations, unless capitalized as
discussed in point (b) above (license) and (l) below (borrowing costs).
g. VACATION PAY
Vacation pay is accrued when earned by employees.
h. TAXATION
The income tax charge is based on profit for the period and takes into
account deferred taxation. Deferred taxation is calculated using the
liability method. Under the liability method the expected tax effects of
temporary differences are determined using enacted tax rates and reported
either as liabilities for taxes payable or assets representing the amounts
of income taxes recoverable in future periods in respect of deductible
temporary differences and the carryforward of unused losses. Temporary
differences are the differences between the carrying amount of an asset or
liability in the balance sheet and its taxable base.
Deferred tax assets are recognized for all deductible temporary
differences to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences can be
utilized.
i. NET SALES
Net sales consists of the value of sales (excluding value added tax) of
goods and services in the normal course of business but excludes
extraordinary disposals of inventory and other assets.
Revenue is recognized when services are provided or goods are shipped out.
Sales allowances are accounted in the same period when the related portion
of revenue is recognized.
- 10 -
<PAGE> 29
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
4. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
j. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments approximates the
reported carrying amounts because of their short-term nature and/or
floating market interest rates, except for long-term Notes, finance leases
and GSM license liability, as disclosed in Note 19.
k. USE OF ESTIMATES
Preparation of financial statements requires Management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
l. CAPITALIZATION OF BORROWING COSTS
Borrowing costs (including interest, foreign exchange gains and losses and
the discount relating to the present value of license payments) that are
attributable to the acquisition, construction or production of qualifying
assets are capitalized as part of the cost of those assets. The borrowing
costs capitalized are only those incurred during the period of
construction or production of assets.
m. ADVERTISING EXPENSE
The Company charges the cost of advertising to expense as incurred.
- 11 -
<PAGE> 30
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
4. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
n. CONCENTRATION OF CREDIT RISK
The Company operates in one industry segment, providing cellular telephone
communication services. Substantially all of the Company's trade debtors
are Polish businesses and individuals. Further, the Company has
established a network of dealers within Poland to distribute its products.
The dealers share many economic characteristics and receivables from each
of these dealers present similar risk to the Company. Concentrations of
credit risk with respect to trade receivables are limited due to the large
number of customers comprising the Company's customer base. Ongoing credit
evaluations of customers' financial condition are performed and generally,
no collateral is required. The Company maintains provisions for potential
credit losses and such losses, in the aggregate, have not exceeded
management's estimates. No single customer accounts for 10% or more of
revenues.
The balance of receivables as at March 31, 2000 representing the total net
credit risk exposure at date is presented in Note 13.
5. CHANGES IN ACCOUNTING POLICIES
a. DEVELOPMENT AND START-UP COSTS CAPITALIZED
In the fourth quarter of 1999, the Company has adopted IAS 38 "Intangible
Assets" in accounting for its intangible assets. The resulting change in
accounting policy regarding development and start-up costs was applied
retrospectively, resulting in a negative adjustment to the opening balance
of accumulated deficit of PLN 15,063 as at January 1, 1997. The resulting
adjustment to the opening balance of accumulated deficit as at January 1,
1999 resulted in an increase by PLN 6,530. Additionally, the net loss
reported for the three months period ended March 31, 1999 was decreased by
PLN 593.
- 12 -
<PAGE> 31
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
6. FOREIGN CURRENCY MANAGEMENT POLICIES
Sales revenues are denominated in Polish Zloty. A significant portion of
expenses and liabilities, however, are denominated in other currencies.
These include liabilities to the Polish government for the GSM 900 license
and GSM 1800 license, which are linked to Euro and payable in Polish
zloty, and liabilities to suppliers of handsets, which are generally
denominated in Deutschmarks, French Francs or U.S. dollars. Additionally,
the 10-3/4 Notes, 11-1/4 Notes and shareholder loans are denominated in
U.S. dollars or Euros, and a significant portion of the Bank Credit
Facility is denominated in Deutschmarks. As a result, operating income and
cash flows are and will remain significantly exposed to an appreciation in
these non-Polish currencies against the Polish zloty.
Future currency exchange fluctuations are expected to continue to have a
significant effect on the financial condition and results of operations.
To manage the currency risk the Company entered into foreign currency
forward transactions. The Company's hedging policy allows for the use of
forwards, swaps and options for minimizing currency and interest rate
risks.
As of March 31, 2000 the Company concluded the set of short-term
transactions (foreign currency forwards and NDF) to hedge the foreign
currency liabilities that are scheduled to come due in the next 12 months.
These transactions are booked at their fair value. Their valuation
resulted in a loss of PLN 6,351 for the three month period ended March 31,
2000.
Starting in late 1998 and continuing through the current year, the Company
drew funds from the bank credit facility and exhausted the Polish zloty
denominated tranche first in order to minimize the negative effects of
currency exchange fluctuations.
In 1999 the Company has entered into new contracts with its network
capital equipment suppliers. Under the contracts all new deliveries and
services are charged and settled in zloty.
In order to manage foreign currency risk, the Company would have to change
payment currency with its other suppliers from foreign currency to Zloty
and also replace the Bank Credit Facility with an increased Zloty portion
of the debt.
- 13 -
<PAGE> 32
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
7. NET SALES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
2000 1999
---- ----
<S> <C> <C>
Service revenues and fees 743,730 443,218
Sales of telephones and accessories 52,165 45,934
------- -------
795,895 489,152
======= =======
</TABLE>
The Company operates in one segment (providing cellular telecommunication
services and the ancillary sale of cellular telephones and accessories)
and in one market (the Republic of Poland).
8. COSTS AND EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
(UNAUDITED)
2000 1999
---- ----
<S> <C> <C>
Cost of sales:
Cost of services sold 306,282 180,416
Cost of sales of telephones and
accessories 222,926 148,733
------- -------
529,208 329,149
Operating expenses:
Selling and distribution costs 129,165 83,170
Administration and other
operating cost 38,037 20,692
------- -------
167,202 103,862
------- -------
696,410 433,011
======= =======
</TABLE>
- 14 -
<PAGE> 33
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
8. COSTS AND EXPENSES (CONTINUED)
The following costs and expenses were included in cost of sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
2000 1999
---- ----
<S> <C> <C>
Merchandise sold 220,882 147,733
Depreciation and amortization 98,358 46,327
Other external services 51,087 39,403
Commissions 33,620 27,281
Interconnect 42,312 22,887
Leased lines 36,693 23,213
Roaming 22,879 14,108
Wages and salaries 10,486 4,439
Materials and energy 3,228 819
Social security and other benefits 3,267 1,075
Taxes and other charges 3,431 579
Charge to inventory provision 2,044 1,000
Other 921 285
------- --------
529,208 329,149
======= =======
</TABLE>
The following costs and expenses were included in selling and distribution
costs:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
2000 1999
---- ----
<S> <C> <C>
Advertising costs 43,620 32,836
Charge to doubtful debtors provision 37,623 25,416
Wages and salaries 22,598 11,590
External services 11,861 4,423
Social security and other benefits 5,211 3,698
Depreciation and amortization 4,151 2,053
Materials and energy 2,746 1,571
Taxes and other charges 1,139 1,357
Other 216 226
------- ------
129,165 83,170
======= =======
</TABLE>
- 15 -
<PAGE> 34
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
8. COSTS AND EXPENSES (CONTINUED)
The following costs and expenses were included in administration costs:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
2000 1999
---- ----
<S> <C> <C>
External services 18,370 6,310
Wages and salaries 11,096 7,245
Depreciation and amortization 6,009 3,615
Social security and other benefits 3,747 1,914
Materials and energy 1,318 1,012
Taxes and other charges 1,090 596
Other (3,593) --
------ ------
38,037 20,692
====== ======
</TABLE>
9. INTEREST AND OTHER FINANCIAL INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
2000 1999
---- ----
<S> <C> <C>
Foreign exchange gains 109,901 1,759
Interest income 14,809 305
------- -----
124,710 2,064
======= =====
</TABLE>
10. INTEREST AND OTHER FINANCIAL EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
2000 1999
---- ----
<S> <C> <C>
Interest expense 134,853 51,919
Foreign exchange losses 55,951 133,459
------- -------
190,804 185,378
======= =======
</TABLE>
- 16 -
<PAGE> 35
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
11. TAXATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
2000 1999
---- ----
<S> <C> <C>
Polish deferred tax benefit/(charge) (1,690) 3,241
Foreign current tax charge (157) (163)
------- -----
Tax (charge)/benefit (1,847) 3,078
======= =====
</TABLE>
Tax loss carry forwards for the three months period ended March 31, 2000
amounted to PLN 107,200. The losses can be offset against taxable income
if any, during the following nine months of year 2000 or during the five
years after December 31, 2000.
According to the Polish tax regulations, the tax rate in effect in 1999
was 34%. The tax rates set for years 2000, 2001, 2002, 2003 and 2004 and
thereafter are as follows 30%, 28%, 28%, 24% and 22%, respectively.
- 17 -
<PAGE> 36
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
11. TAXATION (CONTINUED)
The numerical reconciliation between tax benefit/(charge) and the
product of accounting profit/(loss) multiplied by the applicable tax
rates is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
(UNAUDITED)
2000 1999
-------- --------
<S> <C> <C>
Profit/(loss) before taxation 33,391 (127,173)
Tax rate 30% 34%
-------- --------
Tax (charge)/benefit using statutory rate (10,017) 43,239
Permanent differences (2,670) (911)
Change in temporary differences for which
realization is not probable and temporary
differences written-off 5,056 (39,245)
Effect of different tax rate
in foreign entities 1,399 (576)
Change in tax rates 5,916 (150)
Tax loss carry forward for which -- (2,217)
realization is not probable
Adjustments to deferred taxes (1,531) 2,938
-------- --------
Tax (benefit)/charge (1,847) 3,078
======== ========
</TABLE>
- 18 -
<PAGE> 37
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
11. TAXATION (CONTINUED)
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Deferred tax assets in Poland:
Bad debt provision 80,798 71,807
Unrealized foreign exchange loss, net 19,485 37,623
Accrued interest 15,878 26,029
Book versus tax basis of fixed assets 17,649 21,631
Accrued expenses 24,160 9,457
Inventory provision 2,866 2,293
Development costs 1,459 1,719
Accrued advertising 5,985 1,638
Tax losses carry forward 32,160 --
-------- --------
200,440 172,197
Temporary differences for which
realization is not probable
("valuation allowance") (91,469) (97,037)
-------- --------
108,971 75,160
Deferred tax liabilities in Poland:
Book versus tax basis of GSM
licenses (137,983) (102,482)
-------- --------
(137,983) (102,482)
-------- --------
Net deferred tax liability (29,012) (27,322)
======== ========
</TABLE>
The amount of valuation allowance consists primarily of the unrealized
foreign exchange losses on long-term Notes and the bad debt provision for
which tax deductibility is yet uncertain.
- 19 -
<PAGE> 38
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
12. SHORT-TERM INVESTMENTS
Short-term investments at March 31, 2000 consisted of the current portion
of US Treasury Bills and Deutsche Treasury Bills, recorded at cost plus
accrued interest which approximate their market value. These Treasury
Bills are part of an escrow fund established to secure payment of interest
during the first two and a half years on the 11-1/4 Notes issued by PTC
International Finance II S.A. in 1999. The long-term portion (PLN 291,122
as of March 31, 2000) of the escrow fund is presented in the balance sheet
under financial assets caption.
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Short-term investments 197,849 198,468
</TABLE>
13. DEBTORS AND PREPAYMENTS
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Trade debtors and accrued income 491,090 505,043
Corporate Income Tax and other taxes
recoverable from State Treasury 75,991 54,835
Prepaid expenses 13,713 27,862
Accounts receivable from shareholders 526 194
Other debtors 38,170 43,145
-------- --------
619,490 631,079
Provision for doubtful debtors (168,961) (166,834)
-------- --------
450,529 464,245
======== ========
</TABLE>
- 20 -
<PAGE> 39
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
14. INVENTORY
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Telephones 270,028 135,362
Accessories and other 57,814 56,808
------- -------
327,842 192,170
Inventory provision (10,234) (8,190)
------- -------
317,608 183,980
======= =======
</TABLE>
15. TANGIBLE FIXED ASSETS, NET
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Land and buildings 194,594 195,771
Plant and equipment 2,073,850 1,954,057
Motor vehicles 11,371 12,061
Other fixed assets 236,899 208,389
Construction in progress 248,493 203,627
--------- ---------
2,765,207 2,573,905
========= =========
</TABLE>
For tangible fixed assets under construction, the Company capitalizes
interest and foreign exchange gains/losses incurred and directly
attributable to the acquisition and construction of the qualifying assets.
The financing costs are capitalized only during the period of construction
of the qualifying assets. During the three months period ended March 31,
2000 the Company capitalized PLN 2,141 of foreign exchange gains and no
interest expense. For the three months period ended March 31, 1999, the
Company capitalized PLN 20,296 of foreign exchange losses and no interest
expense.
- 21 -
<PAGE> 40
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
15. TANGIBLE FIXED ASSETS, NET (CONTINUED)
The movement in each period was as follows:
<TABLE>
<CAPTION>
LAND AND PLANT AND MOTOR OTHER FIXED CONSTRUCTION
BUILDINGS EQUIPMENT VEHICLES ASSETS IN PROGRESS TOTAL
--------- --------- -------- ------ ----------- -----
<S> <C> <C> <C> <C> <C> <C>
COST
At January 1, 1999 80,768 951,995 14,915 48,530 702,567 1,798,775
Additions 119,169 -- -- 4,164 1,023,527 1,146,860
Transfers -- 1,287,060 9,317 182,419 (1,503,373) (24,577)
Disposals -- (1,273) (794) (2,923) (19,094) (24,084)
-------- ---------- ------- -------- ---------- ----------
At December 31, 1999 199,937 2,237,782 23,438 232,190 203,627 2,896,974
-------- ---------- ------- -------- ---------- ----------
DEPRECIATION
At January 1, 1999 814 107,266 6,661 12,852 -- 127,593
Charge 3,352 189,142 5,158 13,678 -- 211,330
Transfers -- (12,190) -- 4 -- (12,186)
Disposals -- (493) (442) (2,733) -- (3,668)
-------- ---------- ------- -------- ---------- ----------
At December 31, 1999 4,166 283,725 11,377 23,801 -- 323,069
-------- ---------- ------- -------- ---------- ----------
NET BOOK VALUE AT 195,771 1,954,057 12,061 208,389 203,627 2,573,905
DECEMBER 31, 1999 ======= ======= ======= ======= ======== =========
COST
At January 1, 2000 199,937 2,237,782 23,438 232,190 203,627 2,896,974
Additions 52 5,784 -- 862 271,255 277,953
Transfers (1) 186,870 856 32,880 (220,605) --
Disposals -- (321) (257) (233) (5,784) (6,595)
-------- ---------- ------- -------- ---------- ----------
At March 31, 2000 199,988 2,430,115 24,037 265,699 248,493 3,168,332
-------- ---------- ------- -------- ---------- ----------
DEPRECIATION
At January 1, 1999 4,166 283,725 11,377 23,801 -- 323,069
Charge 1,228 72,737 1,489 5,225 -- 80,679
Disposals -- (197) (200) (226) -- (623)
-------- ---------- ------- -------- ---------- ----------
At March 31, 2000 5,394 356,265 12,666 28,800 -- 403,125
-------- ---------- ------- -------- ---------- ----------
NET BOOK VALUE AT
MARCH 31, 2000 194,594 2,073,850 11,371 236,899 248,493 2,765,207
(UNAUDITED) ======= ======= ======= ======= ======== ========
</TABLE>
- 22 -
<PAGE> 41
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
15. TANGIBLE FIXED ASSETS, NET (CONTINUED)
Tangible fixed assets held under capital leases (included in above
schedule):
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
LAND BUILDING OTHER LAND BUILDING OTHER
----- ------- ----- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Cost 6,293 193,177 990 6,293 193,177 990
Accumulated depreciation
- (5,394) (66) - (4,166) (41)
----- ------- ------ ----- ------- ------
Net 6,293 187,783 924 6,293 189,011 949
===== ======= ====== ====== ======= ======
</TABLE>
16. INTANGIBLE FIXED ASSETS, NET
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
GSM licenses 940,922 953,226
Computer software 91,351 97,388
Trademark 158 161
--------- ---------
1,032,431 1,050,775
========= =========
</TABLE>
During the three months period ended March 31, 2000 the Company
capitalized PLN 4,887 of foreign exchange gains and 7,132 of interest
expense on intangible assets. During the three months period ended March
31, 1999 the Company did not capitalize any foreign exchange losses or
interest expense on intangible fixed assets.
The Company has no intangible assets generated internally.
- 23 -
<PAGE> 42
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
16. INTANGIBLE FIXED ASSETS, NET (CONTINUED)
The movement in each period was as follows:
<TABLE>
<CAPTION>
GSM COMPUTER TRADE
LICENSES SOFTWARE MARK TOTAL
-------- -------- ---- -----
<S> <C> <C> <C> <C>
COST
At January 1, 1999 700,564 46,691 206 747,461
Additions 408,905 82,833 - 491,738
------- ------ --- ---------
At December 31, 1999 1,109,469 129,524 206 1,239,199
--------- ------- --- ---------
AMORTIZATION
At January 1, 1999 107,498 10,527 32 118,057
Charge 48,745 21,609 13 70,367
--------- ------- --- ---------
At December 31, 1999 156,243 32,136 45 188,424
--------- ------- --- ---------
NET BOOK VALUE AT
DECEMBER 31, 1999 953,226 97,388 161 1,050,775
========= ======= === =========
COST
At January 1, 2000 1,109,469 129,524 206 1,239,199
Additions 2,245 7,250 - 9,495
--------- ------- --- ---------
At March 31, 2000 1,111,714 136,774 206 1,248,694
--------- ------- --- ---------
AMORTIZATION
At January 1, 2000 156,243 32,136 45 188,424
Charge 14,549 13,287 3 27,839
--------- ------- --- ---------
At March 31, 2000 170,792 45,423 48 216,263
--------- ------- --- ---------
NET BOOK VALUE AT
MARCH 31, 2000
(UNAUDITED) 940,922 91,351 158 1,032,431
========= ======= === =========
</TABLE>
- 24 -
<PAGE> 43
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
17. DEFERRED COSTS
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER
2000 31,
(UNAUDITED) 1999
<S> <C> <C>
Notes issuance cost 69,754 69,897
Senior debt issuance cost 12,339 12,493
Other 2,804 2,863
------ ------
84,897 85,253
====== ======
</TABLE>
As explained in Note 19, the Company obtained long-term financing by
issuing 10-3/4 Notes, in July 1997, and 11-1/4 Notes in November, 1999 and
through Citibank loan facility ("Senior debt"), signed in December 1997.
These debt issuance costs have been deferred and are amortized over the
period of financing (10 years for 10-3/4 Notes and 11-1/4 Notes, 8 years
for Senior debt).
18. CURRENT LIABILITIES
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
2000 1999
(UNAUDITED)
<S> <C> <C>
Construction payables 449,052 373,528
Trade creditors 270,862 329,985
GSM licenses liabilities 273,904 206,666
Accruals 143,215 154,605
Notes interest 71,871 -
Deferred income 57,280 48,998
Short-term portion of loan facility 42,750 -
Finance leases payable 28,482 28,080
Amounts due to State Treasury 23,196 27,790
Payroll 841 3,351
Accounts payable to shareholders 788 6,201
--------- ---------
1,362,241 1,179,204
========= =========
</TABLE>
In May 1998, the Company entered into a short-term renewable overdraft
agreement with Bank Rozwoju Eksportu S.A. The terms provided for maximum
borrowings of PLN 30,000 thousand and interest based on monthly WIBOR plus
0.5% p.a. (18.76% as of March 31, 2000). No borrowings were outstanding as
of March 31, 2000 and as of December 31, 1999.
- 25 -
<PAGE> 44
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
19. LONG-TERM INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Long-term Notes 2,614,224 2,654,021
Loan facility 527,250 1,076,566
GSM licenses liability 112,000 332,491
Finance leases payable (see Note 22) 188,162 190,259
Shareholders loan 334,777 325,075
--------- ---------
3,776,413 4,578,412
========= =========
</TABLE>
On July 1, 1997, PTC International Finance B.V., a wholly-owned subsidiary
of the Company, issued 10-3/4 % Senior Subordinated Guaranteed Discount
Notes ("10-3/4 Notes"). The 10-3/4 Notes are unsecured, subordinated
obligations of PTC International Finance B.V. and are limited to an
aggregate principal amount at maturity of approximately USD 253 million
(PLN 1,048 million as of March 31, 2000). The 10-3/4 Notes are issued at a
discount to their principal amount at maturity to generate gross proceeds
of approximately USD 150 million (PLN 493 million at historical exchange
rate). The 10-3/4 Notes will mature on July 1, 2007. Cash interest does
not accrue on the 10-3/4 Notes prior to July 1, 2002. The obligations of
PTC International Finance B.V. under the 10-3/4 Notes are fully and
unconditionally guaranteed by the Company on a senior subordinated and
unsecured basis pursuant to the Company Guarantee. The net proceeds from
the 10-3/4 Notes are loaned to the Company.
The 10-3/4 Notes are traded publicly in the United States and their market
value as of March 31, 2000 was 70% of the nominal value (USD 177 million
or PLN 734 million) whilst the carrying amount is PLN 829 million.
On November 23, 1999, PTC International Finance II S.A., a wholly owned
subsidiary of PTC International Finance (Holding) B.V. that is wholly
owned by the Company, issued 11-1/4% Senior Subordinated Guaranteed
Discount Notes ("11-1/4 Notes"). The 11-1/4 Notes are unsecured,
subordinated obligations of PTC International Finance II S.A. and are
limited to an aggregate principal amount at maturity of Euro 300 million
and USD 150 million (PLN 1,811 million as of March 31, 2000). The 11-1/4
Notes were issued at a discount to their principal amount at maturity to
generate gross proceeds of approximately Euro 296 million and USD 148
million (PLN 1,897 million at historical exchange rate).
- 26 -
<PAGE> 45
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
19. LONG-TERM INTEREST-BEARING LIABILITIES (CONTINUED)
The 11-1/4 Notes will mature on December 1, 2009. Cash interest accrues on
the 11-1/4 Notes and is payable semi-annually, on each June 1 and December
1, beginning in year 2000. The accrued interest on the 11-1/4 Notes is
presented in the balance sheet under the current liabilities caption.
Payment of the first five interest coupons will be made from the funds set
on escrow account and invested in US Treasury Bills and Deutsche Treasury
Bills (see Note 12).
The obligations of PTC International Finance II S.A. under the 11-1/4
Notes are fully and unconditionally guaranteed by the Company on a senior
subordinated and unsecured basis pursuant to the Company Guarantee. The
proceeds from the 11-1/4 Notes are loaned to the Company.
On March 10, 2000 the offer for the 11-1/4 Exchange Notes was issued. The
offer expires on May 2, 2000. The terms of the Exchange Notes are
substantially identical to the old Notes, except that they can be freely
traded. Their market value as of March 31, 2000 was 106% of the nominal
value for the Euro part (Euro 318 million or PLN 1,261 million) and 101.5%
of the nominal value for the USD part (USD 152 million or PLN 631
million). The carrying amounts as of March 31, 2000 were PLN 1,220 million
and PLN 637 million for Euro and USD portions respectively.
- 27 -
<PAGE> 46
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
19. LONG-TERM INTEREST-BEARING LIABILITIES (CONTINUED)
On December 17, 1997 the Company signed a loan facility agreement with a
consortium of banks organized by Citibank N.A. Subsequently, the Company
made drawings of PLN 570 million (equivalent of DM 281 million as of March
31, 2000) borrowings. The main terms of the agreement are as follows:
Facility limit equivalent of DM 672 million
Interest LIBOR or WIBOR
plus margin of 0.75% p.a.
stepping down to 0.40% p.a.
Commitment fee 0.375%
Collateral pledge of Company's assets,
rights and shares
Repayment date reduction in facility limit
starting from December 17, 2000
to December 17, 2005
The short-term portion of the loan facility was presented in the balance
sheet under the current liabilities caption.
The fees for the Company's GSM 900 and GSM 1800 licenses are denominated
in Euro and payable in installments. These deferred payments have been
discounted at 6.78% (GSM 900 license from 1996) and at 9.52% (GSM 1800
license from 1999), which approximated the Company's borrowing rate for
Euro as of the date of acquisition of the license. As of March 31, 2000
the fair market value of the GSM 900 license liability discounted at 9.52%
amounted to PLN 203 million whilst carrying amount was PLN 210 million.
The balances payable as of March 31, 2000 (unaudited) were:
<TABLE>
<CAPTION>
EUR'000 EUR'000 PLN'000
Maturity nominal discounted discounted
-------- ------- ---------- ----------
<S> <C> <C> <C>
Due in one year (see Note 18) 72,815 69,080 273,904
Due in year two 16,716 14,747 58,470
Due in year three 16,716 13,500 53,530
------- ------ -------
106,247 97,327 385,904
======= ====== =======
</TABLE>
- 28 -
<PAGE> 47
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
19. LONG-TERM INTEREST-BEARING LIABILITIES (CONTINUED)
The balances payable as of December 31, 1999 were:
<TABLE>
<CAPTION>
EUR'000 EUR'000 PLN'000
Maturity nominal discounted discounted
-------- ------- ---------- ----------
<S> <C> <C> <C>
Due in one year (see Note 18) 51,035 49,573 206,666
Due in year two 72,815 66,587 277,596
Due in year three 16,716 13,168 54,895
------- ------- -------
140,566 129,328 539,157
======= ======= =======
</TABLE>
In August 1999, the Company's operating shareholders i.e. Elektrim S.A.,
DeTeMobil Deutsche Telekom MobilNet GmbH ("DeTeMobil") and MediaOne
International B.V. ("MediaOne"), extended USD 75 million (PLN 311 million
as of March 31, 2000) in subordinated loans as follows: Elektrim S.A.,
equivalent of USD 40 million, DeTeMobil, USD 17.5 million; and MediaOne,
USD 17.5 million. Each shareholder loan bears an interest rate of 12.5%
compounded semi-annually on June 17 and December 17, however both
principal amounts and accrued interest is due on June 19, 2006.
20. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER
2000 31,
(UNAUDITED) 1999
<S> <C> <C>
Social fund 1,219 1,220
----- -----
1,219 1,220
===== =====
</TABLE>
The social fund is an employer's obligation based on a mandated
calculation based on the number of employees and the monthly minimum wage
in Poland. The amounts calculated under this formula must be used for the
benefits of the employees.
- 29 -
<PAGE> 48
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
21. SHARE CAPITAL
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
2000 1999
(UNAUDITED)
<S> <C> <C>
Allotted, called-up and fully paid:
471,000 ordinary shares of 1,000 PLN each 471,000 471,000
======= =======
</TABLE>
22. FINANCE LEASES
On March 25, 1997 the Company entered into a finance lease agreement
relating to its new headquarters building and underlying land. The term of
the lease is 15 years and the Company has a right to acquire the leased
asset at the end of the lease. The Company relocated to the first building
of its new headquarter in second half of 1998 and to the second building
in July 1999.
The headquarters lease obligation, consisting of two buildings, first
occupied in 1998 and second in August 1999, is denominated in USD and
payable in PLN. The nominal value of future lease payments is USD 106.5
million or PLN 443 million (USD 46.1 million and USD 60.4 million, 1st and
2nd building, respectively), consisting of minimum monthly payments of USD
598.8 thousand (PLN 2,480) and a purchase option of USD 11.8 million or
PLN 48.9 million (USD 5.7 million and USD 6.1 million, 1st and 2nd
building respectively). Annually, the Company's lease liability is changed
based on CPI. In 1999, this resulted in an increase in minimum monthly
payments of USD 4.3 thousand (PLN 17.8 thousand).
23. DIVIDEND RESTRICTION
The Company's statutory financial statements are prepared in accordance
with Polish accounting regulations. Dividends may only be distributed from
the net profit reported in the Polish annual statutory financial
statements. As of March 31 2000, the Company had no net profit available
for distribution.
- 30 -
<PAGE> 49
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
24. SUPPLEMENTARY CASH FLOW INFORMATION
Cash and cash equivalents consist of cash on hand, balances deposited with
banks and short-term, highly liquid investments.
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER
2000 31,
(UNAUDITED) 1999
<S> <C> <C>
Balances deposited with banks:
Current accounts 12,057 29,422
Term deposits with original
maturity of less then 90 days 216,086 654,305
Treasury bills with original
maturity of less then 90 days - 410,694
Social fund cash 184 468
Cash on hand 265 620
------- ---------
228,592 1,095,509
======= =========
</TABLE>
At March 31, 2000 the Company revalued cash on hand and balances deposited
with banks denominated in foreign currencies. The net result of the
revaluation was PLN 5,262 of foreign exchange losses, which were reported
under interest and other financial expenses.
The social fund cash is restricted for the benefits of the employees as
described in Note 4.e.
- 31 -
<PAGE> 50
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
25. SUPPLEMENTARY INFORMATION TO IAS FINANCIAL STATEMENTS
A reconciliation of the Company's consolidated net profit / (loss) under
Polish statutory accounting regulations ("PAS") and International
Accounting Standards ("IAS") is summarized as follow:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Comprehensive net profit / (loss)
under PAS (27,933) (110,294)
Foreign translation difference 169 (2,040)
IAS adjustment for GSM
licenses amortization 1,284 1,141
IAS adjustment for GSM
licenses discount (6,603) (6,394)
Unrealized foreign exchange
differences 66,972 (4,473)
Finance lease 854 (1,389)
IAS assets adjustment (743) (3,782)
Development and start-up costs 896 896
Deferred tax (charge)/benefit (3,352) 2,240
------- --------
Comprehensive net profit / (loss)
under IAS 31,544 (124,095)
======= ========
</TABLE>
- 32 -
<PAGE> 51
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
25. SUPPLEMENTARY INFORMATION TO IAS FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the Company's shareholders' equity under Polish
statutory accounting regulations ("PAS") and International Accounting
Standards ("IAS") is summarized as follow:
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY AT
MARCH 31, DECEMBER 31,
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Shareholders' equity under PAS 123,609 151,681
Foreign translation difference (1,344) (1,652)
IAS adjustment for GSM
licenses amortization 16,905 15,621
IAS adjustment for GSM
licenses discount (59,787) (53,184)
Unrealized foreign exchange
differences 106,827 39,855
Finance lease 4,071 3,217
IAS assets adjustment 10,025 10,768
Development an start-up costs (4,986) (5,882)
Deferred tax benefit 4,030 7,382
-------- --------
Shareholders' equity under IAS 199,350 167,806
======== ========
</TABLE>
The above differences are caused by the following reasons:
- Recognition of the long-term license liabilities at present value
for IAS purposes, while they were recorded at undiscounted nominal
value under Polish accounting regulations. This accounting results
in higher interest expense under IAS, which is partially offset by
lower amortization expense and foreign exchange losses,
- Unrealized foreign exchange gains recognized as financial income for
IAS purposes but deferred for PAS purposes,
- Difference in treatment of assets held under finance lease and other
capital assets written off for PAS purposes,
- Development and start-up costs expensed in IAS according to IAS 38
"Intangible Assets",
- Adjustment to deferred tax on temporary differences in preceding
adjustments.
- 33 -
<PAGE> 52
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
26. DIFFERENCES BETWEEN IAS AND U.S. GAAP
The Company's condensed consolidated financial statements are prepared in
accordance with International Accounting Standards, which differ in
certain respects from U.S. GAAP.
The effect of the principal differences between IAS and U.S. GAAP in
relation to the Company's consolidated financial statements are presented
below, with explanations of certain adjustments that affect total
comprehensive net income/(loss) for the three months periods ended March
31, 2000 and March 31, 1999.
RECONCILIATION OF CONSOLIDATED NET PROFIT/(LOSS):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Consolidated net profit /
(loss) reported under IAS 31,544 (124,095)
U.S. GAAP adjustments:
(a) Removal of foreign
exchange differences 7,028 (20,296)
capitalized for IAS
(b) Depreciation and
amortization of foreign 2,288 1,420
exchange
(c) Development and
start-up cost -- (9,468)
capitalized, net
(f) Deferred tax on above -- 2,938
------ --------
Consolidated net profit /
(loss) under U.S. GAAP 40,860 (149,501)
====== ========
</TABLE>
- 34 -
<PAGE> 53
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
26. DIFFERENCES BETWEEN IAS AND U.S. GAAP (CONTINUED)
RECONCILIATION OF CONSOLIDATED NET ASSETS:
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER
2000 31,
(UNAUDITED) 1999
<S> <C> <C>
Consolidated net assets reported
under IAS 199,350 167,806
U.S. GAAP adjustments:
(a) Removal of foreign exchange
differences capitalized for (96,212) (103,240)
IAS
(b) Depreciation and amortization
on above 16,065 13,777
(c) Development and start-up
costs capitalized - net -- --
------- ------
Consolidated net assets under U.S.
GAAP 119,203 78,343
======== =======
</TABLE>
(a) Removal of foreign exchange differences capitalized for IAS
In accordance with IAS 23 "Borrowing Costs", the Company capitalizes
financing costs, including interest and foreign exchange gains or losses,
into assets under construction.
For tangible fixed assets under construction, the Company capitalizes
interest and foreign exchange gains or losses incurred and directly
attributable to the acquisition and construction of the qualifying assets
that would have been avoided if the expenditure on the qualifying assets
had not been made. The financing costs are capitalized only during the
period of construction of the qualifying assets (see Note 15). As
explained in Note 4.b., the Company capitalized financing costs
attributable to the acquisition of its GSM 900 and GSM 1800 licenses,
including interest on the related long-term obligation and foreign
exchange losses because the GSM 900 and GSM 1800 licenses are integral
parts of the network.
Under Statement of Financial Accounting Standards 52 "Foreign Currency
Translation", however, foreign exchange losses relating to financing
obligations should be included in the statement of operations of the
Company. Consequently, the amounts of foreign exchange differences
capitalized in accordance with IAS 23 in the Company's financial
statements are expensed under U.S. GAAP.
- 35 -
<PAGE> 54
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
26. DIFFERENCES BETWEEN IAS AND U.S. GAAP (CONTINUED)
(b) Depreciation and amortization
The U.S. GAAP adjustments for depreciation and amortization shown above
represent the amounts of depreciation and amortization charges relating to
capitalized foreign exchanges differences in the Company's IAS financial
statements. Since under U.S. GAAP these foreign exchange differences are
not permitted to be capitalized and are instead expensed, the depreciation
and amortization of these capitalized differences under IAS has been
reversed.
(c) Development and start-up cost
As explained in Note 5.a for IAS purposes the Company has adopted IAS 38
"Intangible Assets" in 1999 giving its effect retrospectively. This has
resulted in writing-off of development and start-up cost when they arose
in 1996. For U.S. GAAP purposes the Company has written off in 1997
consulting cost relating to structuring its business processes following
to clarifications of the Emerging Issues Task Force in the United States
and has written off in 1999 start-up cost following the issuance the SOP
98-5 in the United States.
(d) Presentation of deferred taxation
Under IAS, passing certain criteria, the Company may net deferred tax
liabilities and assets and present a net balance in the balance sheet.
Under U.S. GAAP current and non-current portions of the above should be
disclosed separately. As of March 31, 2000 deferred tax assets, as
presented in Note 11, included PLN 90,937 of current portion (PLN 27,472
as at December 31, 1999) and deferred tax liability included PLN 12,162 of
current portion (PLN 7,637 as at December 31, 1999).
- 36 -
<PAGE> 55
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
- -------------------------------------------------------------------------------
26. DIFFERENCES BETWEEN IAS AND U.S. GAAP (CONTINUED)
(e) New U.S. standards
The Financial Accounting Standards Board ("FASB") recently issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), which
requires that companies recognize all derivative as either assets or
liabilities in the balance sheet at fair value. Under SFAS 133, accounting
for changes in fair value of derivative depends on its intended use and
designation. SFAS 133 is effective for fiscal years beginning after June
15, 1999. The Company is currently assessing the effect of this new
standard.
In June 1999, the FASB approved Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133"
("SFAS 137"). SFAS 137 amends the effective date of SFAS 133. SFAS 133
will now be effective for fiscal quarters of all fiscal years beginning
after June 15, 2000. The Company currently is assessing the effect of this
new standard.
- 37 -
