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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(MARK ONE)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
OR
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1999 (No Fee Required)
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM N/A TO N/A (NO FEE
REQUIRED)
COMMISSION FILE NUMBER 333-7668
POLSKA TELEFONIA CYFROWA SP. Z O.O.
(Exact Name of Registrant as Specified in Its Charter)
POLAND
(Jurisdiction of Incorporation or Organization)
AL. JEROZOLIMSKE 181, 02-222 WARSAW
(Address of Principal Executive Offices)
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None None
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SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(TITLE OF CLASS)
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(D)
OF THE ACT:
10 3/4% Senior Subordinated Guaranteed Discount Notes Due July 1, 2007
11 1/4% SENIOR SUBORDINATED GUARANTEED DISCOUNT NOTES DUE DECEMBER 1, 2009
INDICATE THE NUMBER OF OUTSTANDING SHARES OF EACH OF THE ISSUER'S CLASSES OF
CAPITAL OR COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THE ANNUAL
REPORT.
471,000 Outstanding Ordinary Shares of PLN 1,000 per Share
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES ___ NO ___
INDICATE BY CHECK MARK WHICH FINANCIAL STATEMENT ITEM THE REGISTRANT HAS ELECTED
TO FOLLOW.
ITEM 17 ___ ITEM 18 ___
NAME AND ADDRESS OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS FROM
THE SECURITIES AND EXCHANGE COMMISSION:
Alexander Lloyd
Clifford Chance
200 Aldersgate Street
London EC1A 4JJ
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We, Polska Telefonia Cyfrowa Sp. z o.o., are 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 which was
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. a company organized
under the laws of Luxembourg which is a wholly owned finance subsidiary of PTC
International Finance (Holding) B.V., which in return is our second wholly owned
finance subsidiary organized under the laws of the Netherlands. 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 annual report
on Form 20-F (the "Form 20-F"), 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 those member states 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. As at January 1,
1999, the Euro replaced the "ECU", the European Currency Unit at a ratio of one
Euro to one ECU.
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 20-F
contains translations of certain Zloty amounts into U.S. dollars at the rate of
PLN 4.1483 = $1.00, the exchange rate quoted for accounting purposes by the
National Bank of Poland ("NBP"), the Polish central bank, on December 31, 1999
(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 year ended December 31, 1999 (the
"Financial Statements") attached to this Form 20-F 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 28 to the Financial Statements). Unless otherwise
stated herein, all financial information presented in this Form 20-F has been
prepared in accordance with IAS.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THIS ANNUAL
REPORT ON FORM 20-F CONTAINS CERTAIN FORWARD LOOKING STATEMENTS (AS DEFINED IN
SECTION 21E OF THE EXCHANGE ACT) WITH RESPECT TO OUR PLANS TO COMPLETE ITS
CELLULAR NETWORK, EXPECTATIONS AS TO FUNDING ITS CAPITAL REQUIREMENTS AND OTHER
STATEMENTS OF EXPECTATION, BELIEF, FUTURE PLANS AND STRATEGIES, ANTICIPATED
DEVELOPMENTS AND OTHER MATTERS THAT ARE NOT HISTORICAL FACTS. THESE FORWARD
LOOKING STATEMENTS ARE ACCOMPANIED BY, AND SHOULD BE READ IN CONJUNCTION WITH,
AN EXPLANATION OF FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE EXPRESSED AS SUCH FORWARD LOOKING STATEMENTS. BY THEIR NATURE,
FORWARD LOOKING STATEMENTS INVOLVE RISK AND UNCERTAINTY, AND THE FACTORS
DESCRIBED IN THE CONTEXT OF SUCH FORWARD LOOKING STATEMENTS, AND OTHER FACTORS
REFERRED TO IN THIS ANNUAL REPORT ON FORM 20-F, PARTICULARLY IN ITEM 1.
"DESCRIPTION OF BUSINESS" AND ITEM 9. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," COULD CAUSE ACTUAL RESULTS AND
DEVELOPMENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN OR IMPLIED BY SUCH
FORWARD LOOKING STATEMENTS. WE ARE CLAIMING THE BENEFITS OF THE SAFE HARBOR
PROVISION REFERRED TO ABOVE.
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
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PART I
Item 1. Description of Business..................................... 4
Item 2. Description of Property..................................... 17
Item 3. Legal Proceedings........................................... 17
Item 4. Control of Registrant....................................... 18
Item 5. Nature of Trading Market.................................... 19
Item 6. Exchange Controls and Other Limitations Affecting Security 19
Holders.....................................................
Item 7. Taxation.................................................... 20
Item 8. Selected Financial Data..................................... 21
Item 9A. Management's Discussion and Analysis of Financial Condition 24
and Results of Operations...................................
Item 9B. Qualitative and Quantitative Disclosures About Market 31
Risk........................................................
Item 10. Directors and Officers of Registrant........................ 33
Item 11. Compensation of Directors and Officers...................... 33
Item 12. Options to Purchase Securities From Registrant or 33
Subsidiaries................................................
Item 13. Interest of Management in Certain Transactions.............. 34
PART II
Item 14. Description of Securities to be Registered.................. 37
PART III
Item 15. Defaults Upon Senior Securities............................. 37
Item 16. Changes in Securities and Changes in Security for Registered 37
Securities..................................................
PART IV
Item 17. Financial Statements........................................ 37
Item 18. Financial Statements........................................ 37
Item 19. Financial Statements and Exhibits........................... 38
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
We are the largest GSM wireless telephony services provider in Poland with
1.8 million subscribers and a 44.7% share of the total Polish wireless market as
of December 31, 1999. We have both a national GSM 900 and a national GSM 1800
license. As of December 31, 1999, our GSM network covered approximately 84.4% of
the geographic area of Poland representing approximately 95% of the total Polish
population. We are completing the initial roll out of our SDH microwave backbone
network that will connect certain key portions of our network and will reduce
reliance on leased lines, provide better transmission quality and reduce
operating costs. The initial phase of this SDH microwave backbone network is
expected to be complete by the end of the second quarter of 2000. In addition,
we plan to selectively roll out GSM 1800 service, which will allow us to
increase capacity and to offer seamless nationwide dual-band (GSM 900/1800)
service. All our products and services are sold under the brand "Era GSM", one
of the most recognized brand names in Poland. To distribute our products and
services, we use a network of 31 dealers with 844 points of sale, a direct sales
force of 88 representatives and a national network of 46 retail outlets.
We have achieved rapid growth in our subscriber base since we launched
service in September 1996. For the year ended December 31, 1999, we generated an
average of approximately 81,000 net subscriber additions per month. Since July
1999, we have experienced monthly churn of approximately 2.2%, which is at a
level comparable with that achieved by Western Europe and U.S. wireless
providers. As of December 31, 1999, we provided wireless service to
approximately 1.4 million post-paid subscribers and 365,000 pre-paid
subscribers. For the year ended December 31, 1999, we had revenue and EBITDA of
PLN 2,592.1 million (US$ 624.8 million) and PLN 598.3 million (US$ 144.2
million), respectively. Historical revenues and EBITDA for the year ended
December 31, 1999 increased by 60.9% and 36.2%, respectively, as compared to the
same period in 1998.
We provide a broad range of high-quality wireless telephone services,
including call forwarding, call waiting, voicemail, account information, short
messaging services, information services and wireless internet access.
Additionally, we offer a range of differentiated tariff plans to attract and
retain subscribers with varying service needs. In particular, our strategic
focus has been on acquiring and retaining high volume users, converting select
pre-paid customers to post-paid plans and minimizing churn to increase recurring
cash flow from each subscriber. We also provide roaming capabilities to our
subscribers through 141 international roaming agreements with GSM operators in
74 countries, including all European countries with GSM services.
Historically, we have benefited from the experience, expertise and support
of Deutsche Telekom MobilNet GmbH ("DeTeMobil"), Elektrim S.A. ("Elektrim"), and
MediaOne International B.V. ("MediaOne" -- formerly US West International B.V.).
Both DeTeMobil and MediaOne have significant experience in operating cellular
networks in other Central European markets and worldwide. Elektrim is one of
Poland's leading industrial and manufacturing groups, focusing on power
construction and engineering, electro-technical equipment and
telecommunications. Employees seconded from our shareholders have trained and
supervised a number of local managers, who now hold key positions in the
Company, including the Director General and the Director of Strategy, Marketing
& Sales. As of December 31, 1999, the number of seconded employees was 11,
representing less than 1% of the work force.
SERVICES AND PRODUCTS
POST-PAID SERVICES
We offer subscribers a basic post-paid service package, consisting of
network access, call divert and forwarding, short message service, calling line
identity (clip) and voice mail which are all pursuant to six alternative tariff
plans. The variety in tariff plans permit subscribers to select the monthly
fees, air-time charges and value added services that best suit their service
requirements and frequency of calls. A potential subscriber commences service
upon payment of the purchase price of the handset and the subscriber identity
module ("SIM") card.
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We have reduced the activation fee from time to time, in connection with
particular promotions in order to attract subscribers. Nevertheless, our basic
activation fee remains slightly above that charged by competitors. Currently, we
do not offer free activation or SIM cards as part of our promotional campaigns
so as to prevent the attraction of subscribers who are lower service users and,
who may present higher credit risks than subscribers willing to pay the full
activation fee.
Our tariff structure for services consists of a monthly service fee,
air-time charges and additional monthly charges for the use of certain value
added services. Our services are offered through six tariff plans that vary the
monthly service fee inversely with per minute air-time charges. The "Halo" or
"Hello" plan, is a bridge plan from the pre-paid service (a lower monthly fee
and a higher per minute charge). The "Bialy" or "White" plan, is designed for
low volume consumers (less than 80 minutes of air-time for outgoing calls per
month). The "Po Prostu" or "Plain and Simple" plan is designed for consumers who
prefer a consistent per minute charge (a slightly higher monthly charge and a
flat per minute charge anytime anywhere in Poland). The "Blekitny" or "Blue"
plan is designed for medium volume consumers (between 80 and 280 minutes of
air-time for outgoing calls per month). The "Granatowy" or "Navy Blue" plan,
which is designed for high volume consumers (more than 280 minutes of air-time
for outgoing calls per month). The "VIP" plan, which is designed for high-end,
high-volume subscribers (a high monthly charge and a very low per minute
charge). In addition, to optimize our network utilization, calls within our
network from 11:00 PM to 6:00 AM are offered at night zone pricing, which is the
lowest per minute price of all available tariffs.
The following table sets forth a summary of our tariff rates (excluding the
22% VAT charged on the sale of services in Poland), applicable as of October 15,
1999 for domestic calls by an Era GSM subscriber:
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AIR-TIME AIR-TIME PERCENTAGE OF
TARIFF RATES(1) -- TARIFF RATES(1) -- TOTAL
MONTHLY OUTSIDE ERA GSM WITHIN ERA GSM SUBSCRIBERS
ACTIVATION SERVICE --------------------- --------------------- -------------
TARIFF PACKAGE CHARGE FEE PEAK OFF-PEAK PEAK OFF-PEAK NIGHT 1998 1997
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(PLN) (PLN) (PLN/MIN) (PLN/MIN) (PLN/MIN) (PLN/MIN) (PLN/MIN)
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Hello................ 99.00 19.90 2.39 0.89 1.74 0.74 0.24 N/A N/A
White................ 99.00 39.90 1.69 0.89 1.54 0.74 0.24 74.3% 67.6%
Plain and Simple..... 99.00 59.90 1.00 1.00 1.00 1.00 0.24 N/A N/A
Blue................. 99.00 89.90 1.09 0.59 0.94 0.44 0.24 18.0% 23.6%
Navy Blue............ 99.00 129.90 0.89 0.49 0.74 0.34 0.24 7.7% 8.8%
VIP.................. 99.00 199.90 0.55 0.55 0.55 0.55 0.24 N/A N/A
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(1) Our subscribers pay for the first minute of each call regardless of the
call's length and then for each thirty-second interval (or portion thereof)
thereafter.
We have not increased the rates on any of our packages since we began
offering services to our subscribers in September 1996. On February 1, 1998, VAT
charged on the cost of telecommunications services was increased from 7% to 22%
thereby increasing the final cost of telecommunications services to our
subscribers
Due to relatively low average household incomes in Poland (less than PLN
2,500 per month), we believe that many of our subscribers, including medium- and
high-volume users, prefer to enroll in a tariff plan with a lower monthly
service charge. We believe that a certain number of our Hello plan subscribers
will migrate to the Plain and Simple, Blue or Navy Blue plans as they become
accustomed to using our services.
PRE-PAID SERVICES
Since June 1998, we have offered a pre-paid GSM service package under the
product name "Tak Tak." This pre-paid service enables our customers to take
advantage of a GSM service without paying a monthly subscription fee or entering
into a contract. Our Tak Tak pre-paid service is designed to appeal to those who
want to limit the amount they spend on their mobile calls. We offer two types of
pre-paid tariff services: i)"You and Me", which provides a 15% discount to our
subscribers for up to two of their favorite callers; and ii) "All Day", which
provides our subscribers with a flat per minute price all day and a lower more
competitive price on calls
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from 11.00 PM to 6.00 AM. We believe that Tak Tak has become synonymous with
pre-paid cellular service in Poland.
Our customers who choose pre-paid service can purchase either a SIM pack
starting from approximately PLN 99 (a SIM card, which is required to open a
pre-paid account, with a stored value of PLN 50) or the pre-paid bundle pack (a
handset and a SIM pack) for approximately PLN 299 to PLN 449 depending on the
handset chosen. Our subscribers can then purchase pre-paid vouchers of different
denominations and validity periods. Pre-paid vouchers are sold in all of our
company retail stores and in over 5,500 other outlets including national news
stands, gas stations, Era GSM stores and through dealers. If the pre-paid
account is not topped up with a new voucher within a six-month period, the
pre-paid account expires and any remaining balance is forfeited. As of December
31, 1999, our total subscribers included 365,155 Tak Tak customers.
The following table sets forth the charges to the pre-paid card for local
and national calls:
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CALLS OUTSIDE THE ERA GSM CALLS WITHIN THE ERA GSM
NETWORK(1) NETWORK(1)
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OFF-PEAK AND OFF-PEAK AND
PREPAID TARIFF PACKAGE PEAK WEEKENDS PEAK WEEKENDS NIGHT
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(PLN/MIN) (PLN/MIN) (PLN/MIN) (PLN/MIN) (PLN/MIN)
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You and Me tariff.................... 2.59 1.20 1.74 0.94 0.24
All Day tariff..................... 1.99 1.99 1.39 1.39 0.24
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(1) Our subscribers pay for the first minute of each call, regardless of the
call's length and then for each thirty second interval (or portion thereof)
thereafter.
VALUE ADDED SERVICES
In addition to providing basic GSM telecommunications services, we also
provide call divert and voice mail to all subscribers of our basic services, and
voice mail to all our pre-paid customers. Our subscribers pay only for the
additional air-time used in accessing these services. We also provide additional
value added services, and are continually developing new services to meet the
needs of the evolving Polish market and to create new revenue streams. ERANET,
our internet service, combines internet access with an email address that
delivers messages directly to our subscriber's handset. Fax and data services
are available for an additional monthly fee, and short message service is
charged per message with the exception of INFO ERA, which is a short message
service information service charged on a monthly basis. Our other services such
as conference calling and calling line identity are included in the price of
premium tariff plans. Subscribers of our regular plans may purchase these
services separately. "Between us," our family and friends discount program,
gives our subscribers a 15% discount on calls to their two (pre-paid) and three
(post-paid) favorite numbers, while packages of low-priced minutes provide more
value to our subscribers who call regularly and incentive for passive users to
call more often.
As the market for GSM services develops over time, we intend to introduce
additional value added services. We anticipate that these additional services
will include advanced voice mail services that allow our subscribers to not only
(i) send and receive messages, but also to (ii) forward, prioritize and send
messages to multiple recipients, and to (iii) fax mail, which provides the same
features of advanced voice mail for faxes.
HANDSETS AND ACCESSORIES
We sell handsets and accessories separately from GSM services, and
subscribers may also purchase a SIM card either with or without a handset. We
sell a variety of handsets ranging from basic to the most advanced models
manufactured by some of the world's leading manufacturers of mobile telephones,
including Alcatel, Ericsson, Motorola, Nokia, Panasonic and Siemens. In
connection with certain promotions, we offer reduced price handsets that can
only be used on our own network. The accessories we offer are priced
competitively and are designed to enhance the convenience and functionality of a
subscriber's handset, including carrying cases, batteries, car kits and
recharging equipment. See Item 9. "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Cost of Sales."
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We do not intend to achieve positive overall margins on handset sales. We
do not discount handsets except in connection with service subscriptions. See
"Marketing and Distribution -- Marketing Activities." In addition, certain
discounted handsets sold during a promotion are configured so as to accept only
ERA SIM cards (a "SIM lock"). We intend to use SIM locks only to recoup the
discounted cost of the handset and we will enable subscribers to unlock the
handset on request in order to permit its use on other networks once we have
recovered the discounted cost.
We believe that the prominent position of our major shareholders within the
cellular telecommunications market provides us a substantial benefit when
negotiating with handset vendors.
INTERNATIONAL ROAMING
Our digital wireless network uses GSM technology. GSM is the world's most
widely used digital wireless technology, with more than 253 million users in
more than 131 countries as of November 1999. Because GSM is a standardized
technology used throughout most of Europe and internationally, our subscribers
can make and receive calls outside their home calling area in other locations
that also operate a cellular telecommunications network on the GSM standard. As
of December 31, 1999, we had entered into 141 international roaming agreements
with GSM operators in 74 countries. The agreements cover all of the principal
countries in Europe. In general, these international roaming agreements provide
that when our subscribers use the services of a corresponding GSM network
operator in another country, we are responsible for payments of charges for
those services used in accordance with the corresponding GSM network operator's
tariff. We pass these charges through to the relevant subscriber, together with
an additional surcharge of 15%.
Currently, we receive relatively small amounts of revenue from charges for
roaming calls. Although we expect these revenues to increase along with the
network and subscriber base, we do not expect overall revenues from charges for
roaming calls to be material to overall results of operations. See Item 9.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Revenues."
CUSTOMER SERVICE
We believe that high-quality customer service plays an important role in
distinguishing us from our competitors, expanding our subscriber base and
sustaining customer loyalty. On December 31, 1999, we employed 733 customer
service representatives in the Customer Service Center located in Warsaw who
operate a 24-hour toll-free customer service hotline for subscribers, including
directory assistance, mobile telephone service guidance, billing and other
information. We also have installed information systems to quickly activate
service for new subscribers and to provide clear and accurate monthly bills. We
have introduced an internet home page to provide information about us, our
available services and our network, and to allow customers to subscribe to our
services, as well as to order handsets at a 15% discount from the normal list
price. In 1998, we were awarded ISO 9002 status for customer service. We are
currently the only company in Poland to have been awarded this status for
customer service. Furthermore, we provide additional customer support services,
such as handset repair, at our 30 customer service centers located in our retail
outlets.
BILLING AND SUBSCRIBER MANAGEMENT
The integrity and flexibility of our billing and subscriber management
system are important components to our strategy of providing efficient and
responsive customer service as it provides accurate and timely subscriber
information and analysis. DeTeMobil supervised the installation of the our
billing and subscriber management system and continues to provide us with
operational training and technical support.
Our subscribers are billed on a monthly basis and may pay their bills
either at our retail stores, banks or post offices. We also use data obtained
from our billing system to generate a customer lifetime value profile for each
of our subscribers. This contributes to the development of our different tariff
packages and the measurement of the effectiveness of our promotional and
advertising campaigns, which we then use in developing our new services and
marketing strategies.
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As in other emerging-market countries, Poland does not have a nationwide
credit bureau for individuals, and it is difficult to verify the
creditworthiness of potential subscribers. We do, however, have an internal
credit risk management team that conducts credit checks on our new subscribers,
primarily by verifying addresses and through bank references, and we are in the
process of developing a credit risk profile model. We also have created a
proprietary credit database and use our billing system to generate subscriber
usage reports on customers that have exceeded pre-assigned credit limits or have
failed to pay their bill. Based on these reports, our credit and risk management
team can contact subscribers, and depending on the circumstances, a subscriber's
service may be deactivated. We also provide independent dealers and retail
stores with weekly electronic subscriber management reports. Additionally, our
dealer commission structure is linked to the life of each subscriber
acquisition. Overall, we aggressively pursue collections and disconnect
subscribers who pose a credit risk.
The effective management of our customer churn has allowed us to maximize
profitability and cash flows. Since the beginning of 1997, our average monthly
churn rate has been 2.4%. However, during the fourth quarter of 1998 and the
first quarter of 1999, our monthly churn increased. In response, we initiated a
handset upgrade program for valued customers, instituted improved credit
information sharing throughout the national distribution network, and launched
the first loyalty plan in the Polish telecommunications sector. Under our
customer loyalty program, our long-standing customers benefit from awards such
as Era GSM merchandise, free air time and other rewards from our exclusive
partners, which include LOT Polish Airlines, British Airways, Panasonic and
Kodak.
MARKETING AND DISTRIBUTION
Our marketing and distribution efforts are designed to develop brand
leadership for "Era GSM", including "Tak Tak", and to enable us to target
specific segments of the Polish telecommunications market, particularly those
subscriber profiles with high customer lifetime values. Currently, we target the
professional and business segments with post-paid products and the mass market
with pre-paid products.
MARKETING ACTIVITIES
Our marketing efforts currently are focused on potential subscribers who
are likely to recognize the enhancements in productivity that may result from
having a mobile phone, and others who are unable to otherwise access wireline
telephony because of the long waiting times for telephone installation common in
Poland. Our primary target market for GSM services is small-to-medium-size
businesses, professionals and large corporations who generally use tariff plans
consistent with high volume usage, such as the Blue, Navy Blue or VIP tariff
plans. We seek to attract business subscribers by providing certain value added
services, including call waiting and conference call facilities, free of charge
as part of the Blue, Navy Blue and VIP tariff plans.
We have used extensive national advertising campaigns to create awareness
and to promote the benefits of subscribing to an Era GSM service. We advertise
primarily through television advertising and also use print media, billboards
and radio advertising. The brand name "Era GSM" was selected after an extensive
name search and customer research program because it is short and easy to
remember. We have also developed the product name "Tak Tak" to promote our
pre-paid services. We believe Tak Tak has become synonymous with pre-paid
services in Poland. In October 1999, we launched a consumer loyalty program
called "Stokrotka" or "Gratitude," which is the first major type of such program
offered in the telecommunications industry in Poland. This campaign is designed
to provide our subscribers incentives based on usage, payment and longevity.
Using a program similar to airline mileage award programs, our subscribers are
awarded benefits such as Era GSM merchandise and free cellular air-time.
We also believe that demand for GSM services in Poland is stimulated by
promotional campaigns in which reduced prices for GSM services and accessories
are offered. We have engaged in such campaigns from time to time, including
offering handsets at reduced prices and reduced activation fees during specific
periods. In general, however, we avoid promotional techniques, such as providing
free air-time or waiving activation or monthly fees, because we believe that
these types of incentives tend to attract passive or inactive subscribers as
well as subscribers who are higher credit risks.
We disallow subscribers who purchase services as a result of a promotional
campaign to change tariff plans or cancel their subscriber contracts prior to
the expiration of a minimum period (generally two years), except by
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paying us an additional amount equal to the discount on the full cost of their
handset. Other subscribers may change tariff plans at will upon payment of a
small fee to us and may cancel their subscriber contract upon one month's notice
to us without charge.
DISTRIBUTION CHANNELS
We have established distribution channels through a number of independent
dealers and our own retail stores and sales force.
Our largest distribution channel is our network of 31 independent dealers,
which operated through 844 outlets, consisting primarily of retail stores, as of
December 31, 1999. In addition to our services and products, these dealers
typically sell other electric products, such as cameras and office automation
equipment. During 1999, our dealers accounted for the acquisition of 77.5% of
the basic service subscribers. We generally enter into an agreement with each of
our dealers, which provides that the dealer will not market or sell
telecommunications services of our competitors. Our ability to enforce this
provision may be limited by the terms of our GSM Licenses and Polish
anti-monopoly regulation. Our dealer agreements generally have no predetermined
term but may be cancelled by either party at any time subject to three months'
notice.
We pay our dealers a commission based on the number of new subscribers
acquired and a bonus for acquiring subscribers in excess of quarterly targets
established by us. We retain the right to "claw back" a certain percentage of
the commission paid to a dealer to the extent that our subscribers do not remain
an active service user during a period of up to six months after activation. We
established a Partnership Incentive Plan to award our dealers that achieve high
volumes of activations per point of sale and are timely with payments to us for
product and activation sales. The Partnership Incentive Plan provides for
increased commissions and additional bonuses to our dealers. We also offer our
dealers a cooperative advertising plan whereby we pay a portion of the dealer's
cost of advertising.
We provide our dealers with handsets during promotions at a price slightly
lower than the promotion price. Those handsets that remain unsold at the end of
a promotion may be returned to us. We also cooperate with dealers to increase
our brand awareness by providing them with ancillary point of sale materials,
event financing, packaging, brochures and promotional stands.
Our retail distribution channels currently consist of 46 owned retail
stores. These stores are located in the central, high traffic areas of Polish
cities and only sell our cellular services, handsets and ancillary products. Our
employees at the retail stores are paid a salary, plus commissions based on the
number of activations they sell. During 1999, our retail channel accounted for
17.3% of the total number of new subscribers for our basic services.
We believe that our retail stores are a valuable promotional vehicle for
our services and products, offering a wider range of customer services and
support than those offered by our dealers at the relevant point of sale. Each of
our retail stores has customer service staff capable of immediately activating a
new subscriber as well as responding to billing and other inquiries from our
current subscribers. We also provide handset servicing in the retail stores,
including providing our subscribers with temporary replacement handsets in the
event that the broken handset is returned to the manufacturer for repair.
We believe that our direct sales force provides an important resource to
our strategy of increasing the proportion of our subscribers using the Blue,
Navy Blue and VIP tariff plans, as well as attracting higher usage customers.
Our direct sales force has 88 representatives responsible for the acquisition
and servicing of our major business accounts. Our representatives are paid a
base salary plus a commission for each new activation. During 1999, our direct
sales channel accounted for 5.2% of the total number of new subscribers for our
basic services.
We believe that our retail sales and direct sales force, by offering higher
quality service, can achieve a higher level of sales to high-volume subscribers
than through dealers, and in the case of our direct sales force, a more focused
marketing effort on desirable major accounts.
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NETWORK AND FACILITIES
NETWORK INFRASTRUCTURE
Assisted by our internal engineering specialists, DeTeMobil employees
designed and planned our network infrastructure and utilized DeTeMobil's
proprietary cell site planning software to do so. We now rely on our internal
engineering employees to operate and maintain our network, assisted by four
secondees from DeTeMobil. Components, subsystems and interfaces constituting our
network have been (and continue to be) supplied on a turnkey basis by Siemens
and Ericsson. In addition, we have recently entered into an agreement with
Alcatel to also supply us with network equipment.
Our infrastructure of cellular networks is based upon the division of the
geographical area covered by our network into a number of cells that have
diameters ranging from a few hundred meters to up to 30 kilometers. Each cell
contains one or more transceivers at a base-station ("BTS") that communicate by
radio signal with active cellular subscribers in the cell. Transmissions between
cellular telephones and BTSs generally cover no more than the diameter of the
cell, and therefore can be made at relatively low power. In a GSM cellular
network, the BTSs installed in each cell are connected to base station
controllers ("BSCs"), which in turn, are connected to a mobile switching center
("MSC"). MSCs are connected to other MSCs in the same network and to other fixed
cellular networks. MSCs control the routing (and call record) of calls and allow
cellular telephone users to move freely from cell to cell while continuing
calls. Connections between BTSs, BSCs and MSCs consist of transmission lines,
including fibre optic cables, copper cables and microwave links.
The major elements of our GSM network are: (i) the Base Station Subsystem
which as of December 31, 1999, was made up of 2,637 Base Stations controlled by
84 Base Station Controllers; (ii) the 17 Mobile Switching Centers and (iii) the
Operations and Maintenance Subsystem and the Network Management Center, both of
which are located in Warsaw and enable us to centrally manage and coordinate
network operations and maintenance. From our Network Management Center in
Warsaw, we monitor service over our entire network. To mitigate the effects of
potential switching failures or failures of other network elements, we have
installed back up equipment and have constructed alternative routes between our
critical network elements. As of December 31, 1999, our network covered
approximately 84.4% of the geographic area of Poland representing approximately
95% of the total Polish population.
We were granted nationwide GSM Licenses to operate in the 900 MHz bandwidth
(license granted February 1996) and in the 1800 MHz bandwidth (license granted
in August 1999). The increase in available bandwidth will create significant
additional capacity for both our voice and data services.
The smaller cell radius of GSM 1800, requires a larger amount of network
equipment, and generally raises the cost of operating such a system,
particularly in rural areas. Although we have commenced operation of our GSM
1800 service in March 2000, we intend to selectively roll-out this service. The
costs of building-out our GSM 1800 network will be lessened by the fact that we
intend for this network to primarily serve urban, densely populated areas and
other areas of high telephone usage, in which our GSM 900 network already
features a high density of BTSs and relatively small cell sizes. Calls will be
switched between our GSM 900 and 1800 networks to maximize capacity and
efficiency, but our customers will not notice any difference or interruption as
calls are switched between the networks.
Several transmission lines for GSM network connections between BTSs, BSCs
and MSCs have been leased from TPSA. In order to reduce dependence on TPSA, we
have entered into a contract with Ericsson to construct a SDH microwave backbone
network. Our SDH microwave backbone network will connect the major centers
served by our GSM networks, and will reduce but not eliminate our need for
leased lines from TPSA. We expect that the initial phase of the roll-out of our
SDH microwave backbone network will be completed in the second quarter of 2000.
NETWORK QUALITY
Our network has been designed to provide comprehensive high-density
coverage in major urban centers within Poland. The high density of coverage in
urban areas, which results from using cells of approximately one kilometer in
diameter as opposed to cells of approximately 30 kilometers in diameter in rural
areas, enables
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subscribers to receive and make wireless transmissions anywhere within those
urban areas, including inside buildings. We believe that our ability to provide
indoor reception and transmission in major urban areas is a significant
advantage in the Polish cellular telecommunications market. We also believe that
our focus on high-density coverage in urban areas at the early stage of our
network development has been more economical than attempting to increase density
of coverage in these locations at a later stage.
We regularly monitor congestion on our network and attempt to alleviate
congestion by adding BTSs where necessary. During 1999, we had an average
dropped call rate (the percentage of calls not completed or involuntarily
terminated because all circuits are busy or because access to our network is
unavailable measured between 8:00 AM and 10:00 PM Monday through Friday) of
approximately 1.5%. The dropped call rate depends both on the performance our
network and, to the extent a call is originated or terminated in another
network, on the performance of that other network. We are unable to accurately
estimate the dropped call rate for calls transferred from one of our own mobile
switching centers to a wireline subscriber. The additional capacity granted
under our GSM 1800 License will further alleviate congestion on our network,
which should also decrease our dropped call rate. Additionally, we were awarded
ISO 9002 status in 1999 for the operational quality of our Network Management
Center's monitoring activities.
We have been assigned six digit telephone numbers with the prefixes 602,
604 and 606 and consequently, have the ability to generate approximately three
million numbers. We believe, therefore, that we have sufficient numbers to meet
anticipated subscriber demand. Moreover, we believe that additional telephone
numbers would be available if and when we needed them.
SUPPLIERS
Ericsson and Siemens designed, manufactured, delivered, installed,
commissioned and prepared our GSM network, including mobile switching centers,
base stations and base station controllers, operation support systems and cross
connect systems equipment. These suppliers now provide maintenance and repair
services for our network, and we intend to utilize these suppliers, together
with Alcatel, to provide new equipment necessary for our GSM 1800 network and
the completion of the final stages of our GSM 900 network. We believe, however,
that there are a number of other companies capable of supplying GSM network
equipment, given the compatibility and interchangeability of equipment among
different vendors ensured by GSM standard specifications.
CELL SITE PLANNING
Cell site planning, which historically we carried out jointly with our
major suppliers, is now principally done internally. Our design for network
coverage is determined with the aid of a specialized software package developed
by DeTeMobil. We have entered into an agreement with DeTeMobil governing our
continued use of this software.
NETWORK CONSTRUCTION
Our GSM 900 network covers 84.4% of Poland's geography and 95% of Poland's
population. We have established a project management team that reviews the
progress of our GSM 900 network build-out on a monthly basis to ensure that the
pace of the build-out is sufficient to meet the requirements of our GSM 900
License. In addition, with each of our major suppliers, we have entered into
contracts of intent relating to network equipment purchases for 1999 and a
portion of 2000. These arrangements contemplate that the suppliers will receive
financial incentives for achieving certain targets related to the schedule for
our network build-out.
Our GSM 1800 network construction is underway and we expect to commence GSM
1800 operations in March 2000. There is only one requirement in our GSM 1800
License relating to achieving specified levels of population or geographic
coverage. Under the terms of our GSM 1800 License we must achieve combined
geographic coverage by both of our GSM 900 and 1800 networks, taken together, of
90% by June 2004. Our GSM 900 License requires 84.9% GSM 900 geographic coverage
by the end of 2000. Since the achievement of required coverage is less pressing
under our GSM 1800 License, we intend to roll-out our GSM 1800 network
selectively, choosing areas most in need of the higher capacity afforded by such
networks. The costs of further
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construction of our networks will thus become primarily "variable" costs rather
than "fixed" costs, as decisions to expand will be driven principally by
increases in call volume, rather than the need to meet license requirements.
MAINTENANCE OF THE NETWORK
Each of our network construction agreements provide that the vendor is
obligated to provide maintenance, spare parts and relevant upgrades for the
software and hardware supplied under such agreements for a period of 15 years
following the date of our commercial acceptance of the relevant component. The
suppliers warrant equipment for 24 months from the date of acceptance and
provide maintenance training to our employees. With respect to software, each
supplier is required to (i) take action to remedy any defect or malfunction in
the software provided within four hours of the occurrence of a defect or
malfunction, or reimburse us for the services of a third party, (ii) provide a
help desk to support us, (iii) release upgrades or updates for its software to
us, and (iv) cooperate with us on the management of release procedures for its
software. With respect to hardware, each supplier is required to (i) make
replacement parts available to us at market rates, (ii) repair and replace parts
of our network pursuant to either a monthly account with us or compensation on a
case by case basis and (iii) make us aware of and offer to provide us such
enhancements, upgrades and evolutionary improvements to hardware in our network.
THE LICENSES
GSM 900 LICENSE TERMS
General. Following a competitive tender, on February 23, 1996 we received
a license which granted us: (i) a concession to provide telecommunications
services according to European telecommunications GSM standards in the 900 MHz
frequency band, (ii) a permit to install and use GSM network equipment, (iii) an
allocation of 37 channels within the 900 MHz frequency band and (iv) an
allocation of telephone numbers with the prefix 602 and 604.
Fees. We are required to pay to the Polish government a fee equal to the
Zloty equivalent of Euro 217,731,831 for our GSM concession. This fee is payable
in six installments with the first installment due upon the grant of the license
and one installment on each March 31 thereafter. We paid Euro 101,494,831 of
this fee in 1996, Euro 1,980,000 on March 31, 1997, Euro 8,107,000 on March 31,
1998, Euro 15,730,000 on March 31, 1999, and will be required to pay Euro
34,320,000 on March 31, 2000 and Euro 56,100,000 on March 31, 2001. See Notes 18
and 19 to the Financial Statements as of and for the years ended December 31,
1999 and 1998, respectively. In addition, we are required to pay to the Polish
State Radiocommunication Agency an annual fee for each of the permit and
frequency allocation in an amount that is determined under the ordinance of the
Ministry of Finance and the Ministry of Communications. This amount was set at
PLN 2,368,000 for the first year of operation (following the award of our GSM
900 License), PLN 3,872,000 for the second year, PLN 3,990,000 for the third
year and PLN 4,500,000 for each of the following years.
In addition, we are required to pay an initial fee of PLN 500 for the
permit and frequency allocation for each base station and PLN 250 for any
changes in this permission. We are also obligated to pay a fixed annual fee of
PLN 160 for each of the channels used by each base station.
Term. Our GSM 900 License was issued for a term of fifteen years and
provides that we may make an application to extend the term for an agreed period
one year prior to its expiration date. Our GSM 900 License is not transferable.
Therefore, any transfer of business would require a revocation and reissuance of
our GSM 900 License. In addition, the approval of the Ministry of Communications
is required in the event that an acquisition of our shares or any rights to our
shares by a single entity would, together with any shares or rights currently
held by that entity, result in that entity having rights to an ownership
percentage of our shares in excess of any of 10%, 25%, 33% or 50%.
Under the terms of our GSM 900 License, we are not entitled to request
additional frequency until five years after the commencement of commercial
operations and we are subject to compliance with the terms and
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conditions of our GSM 900 License. In November 1997, however, the Ministry of
Communications allocated us eight additional channels.
License Conditions. Our GSM 900 License is subject to a number of
commercial and technical conditions. While Polish law provides that our GSM 900
License may be revoked or limited in the event that we fail to meet any of these
conditions, we believe that we are currently in material compliance with all of
our GSM 900 License conditions.
Our GSM 900 License contains certain coverage and technical criteria,
including a requirement that the dropped call rate not exceed 5% during peak
hours and that we attain geographical coverage of 63.4%, 79.6%, 84.2% and 84.9%
and population coverage of 73.1%, 90.1%, 94.8% and 95.6% by the end of 1997,
1998, 1999 and 2000, respectively. We have met the coverage requirements for
each year ended 1997, 1998 and 1999, respectively.
Our GSM 900 License requires us to provide certain emergency connections
free of charge and to provide certain priority services to Polish governmental
entities.
Our GSM 900 License generally requires us to comply with certain
competition and anti-monopoly rules currently in force in Poland. Our GSM 900
License also specifically prohibits exclusive arrangements with "service
providers." We believe, however, that our dealers are not "service providers" as
the term is used in our GSM 900 License with reference to air-time providers,
and therefore, our exclusive contracts with our dealers do not constitute a
violation of our GSM 900 License conditions. See "-- Marketing and
Distribution."
In its original form, our GSM 900 License prohibited the establishment of
transmission links between elements of our GSM network and required us to lease
transmission lines from TPSA. Our GSM 900 License also prohibited any form of
interconnection between our network and other wireless networks including
wireless networks outside Poland, without using TPSA's transmission lines. On
January 17, 1997, however, pursuant to a complaint from the Polish Ombudsman,
the Polish Supreme Administrative Court repealed these prohibitions on the
grounds that the Minister of Communications had insufficiently substantiated the
rationale for imposing this repeal. In response, the Minister of Communications
issued a decision dated May 13, l997, amending our GSM 900 License to permit us
to install and use a transmission infrastructure to connect elements of our own
GSM network. We are still required to use transmission lines leased from TPSA to
interconnect each mobile switching center and to interconnect our network with
that of TPSA's unless TPSA is unable to provide such leased lines to us within
one month following the request. Also, the interconnection with other mobile
telephony networks was permitted only between mobile switching centers, which
meant in practice that we had to use leased lines from TPSA to connect with
other mobile telephony networks. On April 27, 1998 the Supreme Administrative
Court repealed these restrictions on the grounds that the Minister of
Communications did not provide sufficient reasons for its decision and on the
grounds that the restrictions might be incompatible with the competition
provisions of the Europe Agreement dated 16 December 1991. Pursuant to this
judgement, we are free to connect components of our network and to interconnect
with other cellular providers in Poland without the use of leased lines from
TPSA. We are also free to lease lines from other operators which can provide
such service. This judgement also allows us to build the SDH microwave backbone
network.
We currently lease transmission lines from TPSA to interconnect the
elements of our GSM network. Tariffs for the lease of these transmission lines
are based on the distance between elements of our GSM network and the length and
capacity of the relevant transmission line. The Polish Office for Competition
and Consumer Protection found these increases to be anti-competitive. Pursuant
to the Interconnect Decision, described below, we are entitled to a 60% discount
on TPSA's standard leased line tariffs and certain additional incremental
discounts. See "-- Interconnect Agreements." We may, in appropriate
circumstances, seek to lease transmission lines from third parties such as
railway or electricity companies.
GSM 1800 LICENSE TERMS
General. On August 11, 1999 we received a license granting us: (i) a
concession to provide telecommunications services according to European
telecommunications GSM/DCS standards in the 1800 MHz frequency band; (ii) a
permit to install and use GSM/DCS network equipment; (iii) an allocation of 48
channels within the
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1800 MHz frequency band; and (iv) an allocation of telephone numbers with the
prefix 606. This license permitted us to use these new 1800 MHz frequencies
beginning March 1, 2000. We have begun to install the necessary GSM/DCS
equipment and commenced offering GSM 1800 service in selected areas on March 1,
2000.
Fees. We are required to pay to the Polish government a fee equal to the
Zffioty equivalent of Euro 100,293,000 for our GSM/DCS concession which is
payable in four installments. We paid Euro 50,146,500 of this fee in 1999 and we
will be required to pay Euro 16,715,500 on each of August 31, 2000, 2001 and
2002. See Notes 18 and 19 to the Financial Statements as of and for the years
ended December 31 1999 and 1998, respectively. In addition, we are required to
pay to the Polish State Radiocommunication Agency an annual fee for each of the
permit and frequency allocation in an amount that is determined under the
ordinance of the Ministry of Finance and the Ministry of Communications. This
amount has been set at PLN 3,072,000 for the first year of license operations,
PLN 3,648,000 for the second year, PLN 4,224,000 for the third year and PLN
4,800,000 for each of the following years.
Term. Our GSM 1800 License was issued for a term of fifteen years and
provides that we may make an application to extend the term for an agreed period
one year prior to its expiration date. Our GSM 1800 License is not transferable.
Therefore, any transfer of business would require a revocation and reissuance of
our GSM 1800 License. In addition, the approval of the Ministry of
Communications is required in the event that an acquisition of our shares or
rights to acquire our shares by a single entity would, together with any shares
or rights currently held by that entity, result in that entity having rights to
an ownership percentage of our shares in excess of any of 10%, 25%, 33% or 50%.
License Conditions. Our GSM 1800 License is subject to a number of
commercial and technical conditions. While Polish law provides that our GSM 1800
License may be revoked or limited in the event that we fail to meet any of these
conditions, we believe that we are currently in material compliance with all of
our GSM 1800 License conditions.
Similar to our GSM 900 License, our GSM 1800 License requires that we meet
certain coverage and technical criteria, including a requirement that the
dropped call rate not exceed 5% during peak hours and that we attain
geographical coverage combined with the 900 MHz and 1800 MHz frequencies of 90%
by July 2004.
Our GSM 1800 License requires us to provide certain emergency connections
free of charge and to provide certain priority services to Polish governmental
entities.
Our GSM 1800 License generally requires us to comply with certain
competition and anti-monopoly rules currently in force in Poland. Our GSM 1800
License also specifically prohibits exclusive arrangements with other service
providers. We believe, however, that our dealers are not "service providers" as
the term is used in our GSM 1800 License with reference to air-time providers,
and therefore, exclusive contracts with our dealers will not constitute a
violation of our GSM 1800 License conditions. See "-- Marketing and
Distribution."
Our GSM 1800 License prohibits the establishment of transmission links
between elements of our GSM network and requires us to lease transmission lines
from TPSA. In addition, our GSM 1800 License prohibits the establishment of
transmission links between components of our own network and the TPSA network or
other cellular networks. Our GSM 1800 License also prohibits us from any form of
interconnection between our network and other cellular networks including
cellular networks outside Poland, without using TPSA's transmission lines.
Similar provisions under the original GSM 900 License, however, were repealed by
the Polish Supreme Administrative Court on January 17, 1997 and on April 27,
1999. We anticipate that the Polish Ombudsman and the Supreme Administration
Court will find that these restrictions should be repealed; however, this repeal
is not guaranteed.
We intend to lease transmission lines from TPSA in order to interconnect
the elements of our GSM 1800 network. Generally, tariffs for the lease of these
transmission lines are based on the distance between the elements of our GSM
network and the length and capacity of the relevant transmission line. The
current TPSA interconnect agreement covers the leasing of transmission lines
from TPSA for the GSM 1800 network, as the GSM 1800 MHz license is permission to
extend the network capacity rather than build a new network.
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COMPETITION
We are one of three wireless communications providers in Poland providing
GSM mobile telecommunications services in both the 900 MHz and 1800 MHz
frequency band. We believe that the existing level of competition is likely to
increase in all areas of the Polish telecommunications market over the next few
years, particularly in light of the anticipated liberalization of the Polish
domestic and international long distance markets in coming years. Increased
competition, in the form of both new entrants and existing operators that widen
the scope of their telecommunication activities, could force us and our
competitors to take measures that could raise subscriber acquisition costs or
reduce the share of net new subscriber additions.
We face competition primarily from Polkomtel (a joint venture between Tele
Danmark A.S., Vodafone AirTouch and Polish companies), and Centertel, (a joint
venture between TPSA and France Telecom Mobiles International) and wireline
telephone services. Polkomtel was awarded its GSM 900 License in February 1996
and currently provides services under the trade name "Plus GSM" and was awarded
its GSM 1800 License in September 1999. Polkomtel is completing the process of
building out its GSM 900 network. In November 1997, the Ministry of
Communications awarded eight additional channels in the 900 MHz frequency band
(which had previously been reserved for military use) to each operator.
Centertel provides analog and GSM 1800 digital wireless telecommunications
services in Poland. Centertel launched its analog service in June 1992 and as of
December 31, 1999 reported approximately 147,000 subscribers. Centertel's analog
network has the most coverage of any of the Polish mobile networks, covering
approximately 93% of the territory and 98% of the population. Centertel
announced that it intends to invest only in the maintenance and any necessary
technical upgrades of its analog network. In March 1998, Centertel launched its
GSM 1800 service and as of December 31, 1999, reported approximately 537,000
subscribers. Their network is being constructed to cover the area designated by
the terms of Centertel's GSM 1800 license, which includes ten of Poland's
largest metropolitan areas and four arterial transport routes. As of December
1999, Centertel claimed its network covered 29% of the territory of Poland and
approximately 42.5% of the population. Centertel has a GSM 900 license since
July 1999. Centertel competes on price terms against other networks.
We also compete with wireline telecommunications providers in Poland,
principally TPSA, insofar as low wireline penetration rates and long waiting
times for telephone installation have encouraged consumers who are otherwise
unable to access wireline telephony to acquire mobile telecommunications
services. TPSA currently owns approximately 96% of Poland's existing fixed-line
telecommunications infrastructure and is the only entity within Poland that i)
provides domestic long distance telecommunications services (although additional
domestic long distance licenses may be issued in 2000) or is ii) authorized to
provide international telecommunications services. Consequently, wireless
telecommunications operators are required to enter into interconnection
agreements with TPSA in order to complete calls made from or to receive calls
made to their networks. See "-- Interconnect Agreements."
In October 1998, the Ministry of Communications commenced the privatization
of TPSA with an initial public offering of 25% of the total number of its
outstanding shares. The government of Poland also intends to sell additional
shares to a strategic investor, and is considering bids from other
telecommunication companies. The privatization of TPSA, including the investment
in TPSA by a strategic investor, may result in increased investment by TPSA in
wireline telephone penetration (or wireless telephone services through its
investment in Centertel) or other telecommunications technology and in increased
services for TPSA subscribers, potentially lessening demand for our services.
In addition to the privatization of TPSA, the government has furthered its
efforts to liberalize and increase competition in the telecommunications
industry in Poland by announcing its intention to auction at least three
additional domestic long distance telephone licenses in 2000 and an additional
international long distance telephone license in 2003. Similar liberalization in
other countries suggests that Poland's liberalization may lead to continued
tariff re-balancing (increased local call rates) which would make cellular
service more price competitive with fixed line service. No assurance can be
given, however, that these benefits will be obtained as a result of
liberalization. However, the increase in competition in the market and any
potential investments by TPSA in wireline telephone penetration will result in
more overall telephone lines in Poland, which in turn should increase overall
subscriber usage.
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INTERCONNECT AGREEMENTS
Like other wireless operators, our wireless network requires
interconnection with a fixed-line network to enable subscribers to initiate and
receive calls to and from persons using fixed-line networks or other cellular
networks. We therefore require a switched access arrangement with TPSA,
Polkomtel and Centertel. The terms of these arrangements, particularly with
TPSA, are important to financial results.
TPSA is the only entity in Poland currently permitted to provide domestic
long distance and international telecommunications services and is Poland's
largest provider of fixed-line telecommunications services. Prior to May 22,
1997, we operated with TPSA on a bill and keep system for domestic calls on the
basis of an agreement (the "TPSA Initial Agreement"). On May 22, 1997, the
Ministry of Communications issued a decision (the "Interconnect Decision")
establishing a system of interconnect payments whereby we would pay TPSA for
calls terminating in TPSA's network and TPSA would pay us for calls terminating
in our network. In addition, the Interconnect Decision reduced the proportion of
our tariff payable to TPSA for international calls to 67%. While we subsequently
settled interconnection charges with TPSA on the basis of the Interconnect
Decision for all periods since the Interconnect Decision was issued, TPSA
thereafter appealed the Interconnect Decision to the Supreme Administrative
Court. While this appeal has not been withdrawn, we nevertheless entered into an
Agreement on the Terms and Conditions of Co-operation and Mutual
Interconnection, dated December 9, 1998 (the "Framework Agreement"), with TPSA,
pursuant to which TPSA paid us an amount of PLN 6.6 million for interconnect
charges covering the period from the beginning of our commercial activity in
September 1996 to May 21, 1997. In addition to acknowledging the Interconnect
Decision, the Framework Agreement established a cooperative environment between
us and TPSA with respect to communications in case of network problems and
future negotiations in the event there are significant market changes. On
December 9, 1999, the TPSA Framework Agreement was amended to provide for a
settlement process and calculation in the event we cancelled the use of leased
lines.
In addition to TPSA, we entered into an agreement in 1999 with Netia
Telekom, a fixed line service provider. Under the agreement, interconnect points
were established in three major Polish cities (Gdansk, Lublin and Katowice)
during 1999 and in Warsaw during the first quarter of 2000. Additional
interconnect points are planned for other cities (Poznan and Bydgoszcz) by the
end of the second quarter 2000.
We have also entered into a contract with Ericsson to construct a microwave
backbone transmission network in order to minimize the use of leased lines. We
believe that, when completed, our backbone network will reduce cost of sales and
dependence on external suppliers. Construction of the initial phase of our
backbone network began in November 1998 and is expected to be completed by June
2000. The backbone transmission network will reduce but not eliminate our need
for leased lines and interconnection fees, as our backbone transmission network
will not offer the complete geographic coverage of Poland that TPSA lines do,
but rather will cover connections between areas of major population density and
high call volume. Further, we will have to continue to interconnect with TPSA to
provide international coverage. In addition, we successfully petitioned to amend
our GSM 900 License in May 1997 to waive the requirement to utilize lines leased
from TPSA in conducting GSM 900 operations; however, our GSM 1800 License still
requires the utilization of lines leased from TPSA in conducting GSM 1800
operations. We have petitioned for an amendment to its GSM 1800 License similar
to the amendment obtained for our GSM 900 License. Although we believe our
chances to obtain such an amendment are good, no assurance can be given that
such an amendment will be obtained.
We also entered into an interconnect agreement with Polkomtel on December
17, 1997 that provides Polkomtel subscribers direct access to our network and
our subscribers direct access to the Polkomtel's network on a symmetric billing
basis whereby we (Polkomtel and us) pay each other an agreed upon charge for the
time our respective subscribers use each other's network.
EMPLOYEES
As of December 31, 1999, we had 2,606 employees, including 1,523 in sales,
marketing and strategy, 667 in network operations and 416 in finance and
administration. Eleven of our employees are expatriates seconded from either
DeTeMobil or MediaOne. Our employees, other than seconded employees, enter into
an initial three-
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month employment contract. After completion of this initial contract, our
employees enter into an employment contract of indefinite term subject to
termination upon a stated notice period.
Our employees are not covered by any collective bargaining agreements. We
do not have any history of strikes or work stoppages and no material
labor-related claims are pending. We believe that relations with our employees
are good.
We do not currently have a pension plan or stock option plan, but the
introduction of a pension plan is under consideration.
ITEM 2. DESCRIPTION OF PROPERTY
Our principal properties consist of telecommunications network
infrastructure and related buildings throughout Poland. The majority of base
station sites are leased for a minimum period of five to ten years. As of
December 31, 1999, we entered into lease agreements for 3,172 base station
sites. We have a financial lease for our main office space in Warsaw and
operating leases for office space in Katowice, Poznan, Gdansk and Krakow. We
also lease each of our retail stores.
ITEM 3. LEGAL PROCEEDINGS
Interconnect. We have neither received a judgement from the Supreme
Administrative Court regarding TPSA's appeal of the Interconnect Decision, nor
has TPSA withdrawn this appeal despite the interconnect agreement between the
two companies. See item 1. "Description of Business -- Interconnect Agreements".
Internet License. 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.
Data Security. An investigation by the General Inspector for Personal Data
Protection's office was conducted in the fourth quarter of 1999 of our sales
practices. 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
GIODO 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.
17
<PAGE> 18
ITEM 4. CONTROL OF REGISTRANT
The following table sets forth information regarding the ownership of our
471,000 ordinary shares outstanding.
<TABLE>
<CAPTION>
NUMBERS OF SHARES PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------------------------ ------------------ --------------------
<S> <C> <C>
Elektrim Telekomunikacja Sp. zo.o.(1)...................... 226,079 47.9998%
Panska 77/79
00-834 Warszawa
DeTeMobil Deutsche Telekom MobilNet GmBH................... 105,975 22.5%
Landgrabenweg 151
53227 Bonn Germany
MediaOne International B.V.(2)............................. 105,975 22.5%
Foppingadreef 20-22
BS Amsterdam
The Netherlands
Polpager Sp. z o.o......................................... 18,840 4.0%
ul. Zurawia 24/4
00-515 Warsaw, Poland
Elektrim Autoinvest S.A.(3)................................ 5,181 1.1%
ul. Panska 85
00-834 Warsaw, Poland
Carcom WARSZAWA Sp. z o.o.(4).............................. 8,949 1.9%
Ul. Krucza 16/22
00-526 Warsaw, Poland
Elektrim S.A............................................... 1 0.0002%
Panska 77/79
00-834 Warszawa
</TABLE>
- ---------------
(1) Elektrim S.A. owns 51% and Vivendi S.A. (a French telecommunication
company) owns 49% of the outstanding shares in Elektrim Telekomunikacja Sp.
zo.o.
(2) On March 23, 2000, DeTeMobil acquired 100% ownership in MediaOne
International B.V.
(3) Elektrim S.A. owns 45% of the outstanding capital of Elektrim Autoinvest
S.A, but has 51% management control.
(4) Elektrim S.A. and Vivendi S.A. each own 50% of the outstanding capital of
Carcom WARSZAWA Sp. z o.o.
On March 23, 2000, MediaOne Group Inc. sold its wholly-owned subsidiary,
MediaOne International B.V. (a 22.5% share owner in our company) to Deutsche
Telekom. As a result, Deutsche Telekom currently owns 45% of our outstanding
shares: 22.5% directly through DeTeMobil and 22.5% indirectly through the
acquisition of MediaOne International B.V.
In August 1999, Elektrim S.A. announced that it had acquired an additional
15.8% of our shares for a purchase price of U.S. $679.4 million. Prior to August
1999, Elektrim S.A. owned 34.1% of the shares. DeTeMobil is disputing the
transfer of shares for a portion (representing approximately 3.0% of the shares)
of Elektrim's announced acquisition based on the claim that DeTeMobil had the
first rights of refusal to purchase these shares under our shareholders
agreement. DeTeMobil sought an injunction to prevent such transfer of shares on
our registry book in the Warsaw Regional Court, but the Court denied the
injunction. DeTeMobil has announced that it will appeal this decision. DeTeMobil
also announced in October the commencement of an arbitration claim (at the
International Arbitration Court in Vienna) against Elektrim S.A. and certain
smaller shareholders. The claim seeks the declaration that a portion of our
shares involved in Elektrim's announced
18
<PAGE> 19
acquisition should have been sold to DeTeMobil in recognition of its first
refusal rights. The timing of the resolution of this arbitration is uncertain.
On December 9, 1999, Elektrim S.A. registered with the Warsaw Regional
Court the transfer of 226,079 (47.9998%) of our shares to Elektrim
Telekomunikacja Sp. z o.o. Elektrim S.A. retained one share (0.0002%) of direct
ownership. At the request of Elektrim S.A., the Management Board also filed
these changes in our share registry book and filed the new list of shareholders
with the Warsaw Regional Court. However, two of five Management Board members
did not follow the request and did not sign the change in our share registry
book and the new list of shareholders, as they had reservations given
DeTeMobil's dispute over the right of first refusal to purchase 3% of our shares
which were earlier acquired by Elektrim S.A. The new list of shareholders
together with formal statements of the two Board members' reservations were
filed with the Court. DeTeMobil sought an injunction with the Warsaw Regional
Court to not accept the change in our share registry book and new list of
shareholders, which was later rejected by the Court on February 16, 2000.
If the issues relating to Elektrim's announced acquisition are settled in
Elektrim's favor, Elektrim will undisputably own, directly or indirectly, 51.0%
of our shares. However, the Shareholders Agreement provides that many important
actions cannot be approved by the Supervisory Board unless all members of the
Supervisory Board who are present at meetings and who were appointed by the
"Operating Parties" vote or consent to approve of such actions. At the time of
Elektrim's announced acquisition of minority shares, the Operating Parties were
DeTeMobil, Elektrim S.A. and MediaOne. As of the filing of this Form 20-F, our
Operating Parties are DeTeMobil and Elektrim Telekomunikacja Sp. z o.o. The
Shareholders Agreement also requires that at least one member of each of the
Operating Parties be in attendance at all meetings. The actions which must be
approved by representatives of all of the Operating Parties include amendments
to our five-year business plan and annual budgets, acquisitions or dispositions
of assets above certain values, incurrence of indebtedness (other than in the
ordinary course of business or below certain limits) and entry into long-term
contracts (with certain exceptions). The Supervisory Board includes nine
members, of which currently include two appointed by each of DeTeMobil,
Elektrim, and MediaOne. Elektrim's two seats on the Board will belong to
Elektrim Telekomunikacja Sp. z o.o. and MediaOne's two seats on the Board will
belong to DeTeMobil as a consequence of the share transfers aforementioned. The
three other Board members have been historically appointed by our smaller Polish
shareholders, whose shares are part of Elektrim's announced acquisition.
Consequently, Elektrim Telekomunikacja Sp. z o.o. will be entitled to appoint
two of such members, and may be entitled to appoint the third of such members as
well.
ITEMS 5. NATURE OF TRADING MARKET
Our 10 3/4% Senior Subordinated Guaranteed Discount Notes due July 1, 2007
of the principal amount of approximately US$253.2 million are traded in the
over-the-counter market and there is no active public trading market for such
securities.
Our 11 1/4% Senior Subordinated Guaranteed Discount Notes due December 1,
2009 of an aggregate principal amount of Euro 300.0 million and US$ 150.0
million were replaced through an exchange offering in March 2000. The terms of
the Exchange Notes are substantially identical to the old Notes, except that
they can be freely traded.
There is no established trading market for our equity securities.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
The export or import of capital to or from Poland is regulated by the
Foreign Exchange Law of December 2, 1994 (the "Foreign Exchange Law"). With
certain exceptions, the Foreign Exchange Law requires a foreign exchange permit
for the transfer of the currency from Poland in amounts exceeding Euro 5,000.
On June 18, 1997, we were granted a foreign exchange permit by the National
Bank of Poland, valid until July 31, 2007, that allowed us to issue a guarantee
of amounts payable by PTC International B.V. in respect of the 10 3/4% Notes for
an amount up to $550 million, including amounts payable on redemption,
repurchase or at final maturity, interest and any additional amounts, and to
transfer amounts payable under our Company
19
<PAGE> 20
Guarantee outside Poland. The Polish Foreign Exchange Law has since been
modified, and as the 11 1/4% Notes were issued from a wholly owned foreign
subsidiary and as we have only provided a guarantee of these bonds, a foreign
exchange permit was not required in the issuance of the 11 1/4% Notes.
ITEM 7. TAXATION
THE NETHERLANDS
The following general summary is based upon the tax laws of The Netherlands
as in effect on the date of filing this Form 20-F and is subject to any change
that may come into effect after that date.
(a) All payments under the Notes may be made free of withholding or
deduction for or on account of any tax of whatsoever nature imposed,
levied, withheld or assessed by The Netherlands or any political
subdivision or taxing authority thereof or therein;
(b) A holder of a Note who derives income from a Note or who realizes a
gain on the disposal or redemption of a Note will not be subject to
Dutch taxation on income or capital gains unless:
(i) the holder is, or is deemed to be, resident in The Netherlands; or
(ii) such income or gain is attributable to an enterprise or part
thereof which is carried on through a permanent establishment or
a permanent representative in The Netherlands; or
(iii) the holder has, directly or indirectly, a substantial interest or
a deemed substantial interest in the Issuer and such interest or
the Notes do not form part of the assets of an enterprise; or
(iv) if the holder is an individual not having a substantial interest
or deemed substantial interest in the Issuer, any of certain
connected persons has a substantial interest or a deemed
substantial interest in the Issuer and such interest or the Notes
do not form part of the assets of an enterprise;
(c) Dutch net wealth tax will not be levied on a holder of a Note unless
the holder is an individual and:
(i) the holder is, or is deemed to be, resident in The Netherlands; or
(ii) such Note is attributable to an enterprise or part thereof that
is carried on through a permanent establishment or a permanent
representative in The Netherlands;
(d) Dutch gift, estate or inheritance taxes will not be levied on a
transfer of a Note by way of gift, or on the death of an individual
holder unless:
(i) the holder is, or is deemed to be, resident in The Netherlands; or
(ii) the transfer is construed as a gift made by or on behalf of a
person who, at the time of the gift or death, is, or is deemed to
be, resident in The Netherlands; or
(iii) such Note is attributable to an enterprise or part thereof that
is carried on through a permanent establishment or a permanent
representative in The Netherlands;
(e) There is no Dutch registration tax, capital tax, stamp duty or any
other similar tax or duty other than court fees and contributions for
the registration with the Trade Register of the Chamber of Commerce
payable in The Netherlands in respect of or in connection with the
execution, delivery and enforcement by legal proceedings (including
any foreign judgment in the courts of The Netherlands) of any
agreement relating to the issue of the Notes or the execution and
delivery of the Notes or the performance of the Issuer's obligations
under the Notes;
(f) There is no Dutch value added tax payable in respect of payments in
consideration for the issue of a Note or in respect of the payment of
interest or principal under the Notes or the transfer of the Notes;
(g) A holder of a Note will not become resident, or deemed to be
resident, in The Netherlands by reason only of the holding of a Note
or the execution and delivery of the Notes.
20
<PAGE> 21
POLAND
The following general summary is based upon the income tax laws of Poland
and interpretations thereof by the Polish Ministry of Finance as in effect on
the date of filing this Form 20-F and is subject to any change that may come
into effect after that date.
PAYMENTS OF PRINCIPAL, INTEREST AND REDEMPTION PREMIUM UNDER THE NOTES
All payments of interest, principal and redemption premium under the Notes
by PTC International Finance may be made free of withholding taxes withheld or
assessed by Poland or any political subdivision or taxing authority thereof or
therein. A holder of a Note who derives income from a Note or who realizes a
gain on the disposal or redemption of a Note will be subject to Polish taxation
on income or capital gains if the holder is, or is deemed to be, resident in
Poland for the purposes of the relevant provisions in the tax laws of Poland.
PAYMENTS OF PRINCIPAL, INTEREST AND REDEMPTION PREMIUM UNDER THE COMPANY
GUARANTEE TO HOLDERS OF THE NOTES
Generally, a Polish withholding tax of 20% applies to payments under the
Company Guarantee of interest and the initial issue discount in respect of the
Notes, in each case paid to non-residents of Poland. Withholding tax may,
however, be reduced by an appropriate double taxation treaty to which Poland is
a party and the "interest" article of which provides for full or partial
exemption from withholding on interest payments. Treaties providing for full
exemption from withholding on interest payments are currently in effect between
Poland and (i) the United States and (ii) the United Kingdom, among others.
The difference between the issue price and the redemption price of the
Notes in the case of early redemption may be treated as income obtained in
Poland if paid out by us pursuant to the terms of the Company Guarantee.
STAMP DUTY CONSEQUENCES OF THE ASSUMPTION BY US OF THE OBLIGATIONS OF THE ISSUER
UNDER THE NOTES
Polish stamp duty at a rate of 2% applies to any sale of property rights
that are to be exercised in Poland. Accordingly, in the event that we assume the
obligations of the Issuer on the Notes, Polish stamp duty may apply to sales or
dispositions of the Notes or any right therein by holders of Notes.
ITEM 8. SELECTED FINANCIAL DATA
The following information should be read in conjunction with item 9
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements (including the Notes thereto) included
elsewhere in this Form 20-F. The Financial Statements have been prepared in
accordance with International Accounting Standards, which differ in certain
respects from U.S. GAAP. See Note 28 to the Financial Statements as of and for
the years ended December 31, 1999, 1998, and 1997, respectively. The financial
data set forth below has been audited by Arthur Andersen Sp. z o.o., independent
auditors. The financial data included below as of and for the years ended
December 31, 1999, 1998 and 1997 have been derived from the audited Financial
Statements, and in our opinion, includes all adjustments (consisting of normal
recurring accruals) necessary for the fair presentation of our financial data
for such period.
21
<PAGE> 22
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999 1998 1997
-------------------------- ----------- ----------
PLN US$(1) PLN PLN
(IN THOUSANDS, EXCEPT SUBSCRIBER AND CHURN RATE DATA)
<S> <C> <C> <C> <C>
INTERNATIONAL ACCOUNTING STANDARDS
Net Sales:
Service revenues and fees...................... 2,369,444 571,184 1,445,340 534,439
Sales of telephones and accessories............ 222,617 53,665 165,471 112,623
---------- -------- --------- --------
Total net sales................................ 2,592,061 624,849 1,610,811 647,062
---------- -------- --------- --------
Cost of sales:
Cost of services sold.......................... (939,037) (226,367) (613,898) (330,112)
Cost of sales of telephones and accessories.... (723,814) (174,484) (334,516) (181,037)
---------- -------- --------- --------
Total cost of sales............................ (1,662,851) (400,851) (948,414) (511,149)
---------- -------- --------- --------
Gross margin................................... 929,210 223,998 662,397 135,913
Operating expenses:
Selling and distribution costs................. (454,807) (109,637) (277,123) (139,685)
Administration and other operating costs....... (157,752) (38,028) (104,152) (46,910)
---------- -------- --------- --------
Total operating expenses....................... (612,559) (147,665) (381,275) (186,595)
---------- -------- --------- --------
Operating profit (loss)........................ 316,651 76,333 281,122 (50,682)
Interest and other financial income (expenses),
net.......................................... (398,263) (96,006) (165,799) (74,001)
---------- -------- --------- --------
Profit (loss) before taxation.................. (81,612) (19,673) 115,323 (124,683)
Taxation (charge) benefit...................... (40,891) (9,857) (109,807) 4,247
---------- -------- --------- --------
Net income (loss).............................. (122,503) (29,530) 5,516 (120,436)
---------- -------- --------- --------
U.S. GAAP
Revenues....................................... 2,592,061 624,849 1,610,811 647,062
Cost of sales.................................. (1,656,459) (399,310) (948,031) (504,652)
Operating expenses............................. (622,027) (149,947) (384,860) (196,570)
Interest and other financial income (expenses),
net.......................................... (416,487) (100,399) (188,564) (104,698)
Taxation....................................... (37,953) (9,149) (108,516) 7,983
---------- -------- --------- --------
Net income (loss).............................. (140,865) (33,956) (19,160) (150,875)
---------- -------- --------- --------
OTHER FINANCIAL AND OPERATING DATA
EBITDA (IAS) (2)............................... 598,348 144,239 439,413 25,690
EBITDA (U.S. GAAP) (2)......................... 588,880 141,957 432,280 19,263
Subscribers at end of period................... 1,751,475 -- 780,740 295,179
Monthly churn rate(3).......................... 2.6 -- 2.2 2.2
</TABLE>
22
<PAGE> 23
BALANCE SHEET DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997
----------- -----------
PLN US$(1) PLN PLN
(IN THOUSANDS, EXCEPT SUBSCRIBER AND CHURN RATE DATA)
<S> <C> <C> <C> <C>
INTERNATIONAL ACCOUNTING STANDARDS
Long-term assets and deferred taxes........... 4,011,762 967,086 2,331,345 1,473,602
Total assets.................................. 5,953,964 1,435,278 2,754,401 1,928,642
========= ========= ========= =========
Long-term liabilities, deferred tax
liabilities and provisions.................. 4,606,954 1,110,564 1,892,329 1,500,020
Total liabilities............................. 5,786,158 1,394,826 2,464,092 1,643,842
========= ========= ========= =========
Shareholders' equity.......................... 167,806 40,452 290,309 284,800
U.S. GAAP
Long-term assets.............................. 3,969,987 957,015 2,283,177 1,477,858
Total assets.................................. 5,939,661 1,431,830 2,750,018 1,888,576
========= ========= ========= =========
Shareholders' equity.......................... 78,343 18,886 219,208 238,375
</TABLE>
- ---------------
(1) Solely for the convenience of the reader, Zloty amounts have been
translated into U.S. dollars at the rate of PLN 4.1483 per $1.00, the
Fixing Rate announced by the National Bank of Poland on December 31, 1999.
The Fixing Rate announced for the years ended December 31, 1998 and 1997 by
the National Bank of Poland were PLN 3.504 per $1.00 and PLN 3.518 per
$1.00, respectively. 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).
23
<PAGE> 24
ITEM 9A. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with item 8
"Selected Financial Data," and with our Financial Statements and the Notes
thereto included elsewhere in this Form 20-F. The Financial Statements, and the
related financial information set forth in this section, have been prepared in
accordance with International Accounting Standards, which differ in certain
respects from U.S. GAAP. For a description of the material differences between
International Accounting Standards and U.S. GAAP see Note 28 to the Financial
Statements as of and for the three years ended December 31, 1999, 1998 and 1997,
respectively. In addition, for a reconciliation of financial results under
International Accounting Standards and Polish statutory accounting regulations,
see Note 27 to the Financial Statements as of and the three years ended December
31, 1999, 1998, and 1997, respectively.
OVERVIEW
Formed in December 1995, we were awarded a 15-year non-exclusive GSM 900
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 our subscribers under the brand name Era GSM. Since that
time, we have experienced rapid growth and development. In August 1999, we were
granted a GSM 1800 License, also on a 15-year non-exclusive basis. Our GSM 1800
License will enable us to substantially enhance call volume capacity,
particularly in major urban centers. We commenced services under our GSM 1800
License on March 1, 2000.
The following table sets forth information about our subscribers and GSM
cellular network coverage as of the dates indicated:
<TABLE>
<CAPTION>
AS OF OR FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1999 1998 1997
--------- ------- -------
<S> <C> <C> <C>
CUSTOMERS:
Net customer additions...................................... 970,735 485,561 258,436
Total Customers............................................. 1,751,475 780,740 295,179
of which:
Post-paid customers....................................... 1,386,320 597,582 295,179
Pre-paid customers........................................ 365,155 183,158 0
Growth of total customers from prior year end (%)........... 124% 164% 703%
Churn (%)................................................... 28.4% 26.2% 25.8%
TRAFFIC:
Average monthly revenue per customer (PLN).................. 159 227 245
Change from prior year (%)................................ (28)% (12)% 6%
Coverage of GSM cellular network in Poland:
Geographical area covered................................. 84.4% 80% 65%
Population Covered........................................ 95% 91% 75%
</TABLE>
FACTORS AFFECTING REVENUES
The main source of our revenue is airtime tariffs, which consist primarily
of charges for calls that originate or terminate in the Era GSM network. Other
significant revenue sources include monthly service fees, service activation
fees and revenues from the sale of telephones and accessories. Airtime tariffs
include revenues from incoming and outgoing calls, a relatively small amount of
charges for "roaming" calls and revenue from the sale of pre-paid airtime cards.
Airtime charges are paid by the initiators of calls, and where one of our
subscribers travels outside Poland, that subscriber is also charged for the
international and roaming charges on their incoming calls. We anticipate that,
as our network and subscriber base grows and our business matures in coming
years, airtime revenues and monthly service fees will account for an increasing
proportion of our total revenues, while the proportion of total revenues derived
from sales of handsets and accessories, as well as new subscriber activation
fees, will decrease.
24
<PAGE> 25
Our revenues depend on the number of active subscribers, call volume and
harmonized tariff pricing, and strong segmentation focus. Continued subscriber
and call volume growth will depend on a number of factors, including pricing and
promotions, as well as general economic and market conditions, the level of
competition for obtaining new subscribers and the capacity and coverage of our
network. We expect that average minutes of use and revenue per subscriber will
fall as the cellular penetration level in Poland increases, especially if
increases in our subscriber base occurs primarily among those segments of the
population with relatively low usage rates, such as non-business subscribers.
This trend has been accentuated over the last twelve-month period by the
increase in our pre-paid subscriber base.
Our total number of subscribers is affected by the number of new subscriber
activations and by our rate of churn. New subscriber activations are driven by
the success of marketing efforts and unmet demand for telecommunications
services in Poland resulting from the growth of the Polish economy and low
wireline penetration rates. "Churn" refers to disconnected subscriptions, either
voluntary (due to our subscribers switching to competing networks or terminating
their use of cellular communications services) or involuntary (due to nonpayment
of bills or suspected fraudulent use). In 1999, 1998 and 1997, our average
monthly churn rate was 2.6%, 2.2% and 2.2%, respectively. The most significant
cause of our increase in churn in 1998 was our policy to terminate subscribers
for nonpayment of bills in accordance with their contractual obligations. As is
the case in a number of emerging market countries, Poland does not have a
nationwide credit bureau for individuals, and it is difficult to verify the
creditworthiness of potential individual subscribers. While every new subscriber
must satisfy certain standard documentation requirements, we monitor the usage
of our subscribers that exceed pre-assigned credit limits or fail to pay their
bill to better measure creditworthiness after activation. In 1998, we also
strengthened our billing and collection systems, thereby increasing the ability
to identify subscribers who should be terminated from our services. We also
believe that the growing proportion of pre-paid subscribers in our overall
subscriber base may increase our churn rate because pre-paid subscribers are not
contractually bound to continue to use our services.
We seek to minimize voluntary customer churn by providing a high quality
network, loyalty programs and extensive customer service at competitive prices.
In order to better enable us to recover subscriber acquisition costs from churn,
we require our subscribers who purchase services during promotional campaigns to
pay a fee, equal to the discount on the full cost of their handset or activation
fee, if they change tariff plans or cancel their subscriber contract prior to
the expiration of a minimum period (generally two years). We have also recently
launched a bonus award program similar to airline mileage award programs which
is based on minutes of airtime used by customers. Our success of any customer
retention or cost recovery measures; however, will depend to a large extent upon
competitive factors beyond our control. In particular, the tariff structure and
minimum subscription period requirements implemented by our principal
competitors will be a significant factor.
Our revenues are also affected by our subscriber mix, with business users
generally having higher average call volume than private users, particularly
pre-paid subscribers, and "passive subscribers" (subscribers that continue to
pay subscription fees but use their handsets infrequently or not at all). Future
call volume will depend on the prices we charge for services, calling patterns,
the availability within Poland of wireline telephones, taxes on
telecommunication services and general economic and market factors.
Tariff pricing, consisting of the rates we charge subscribers for airtime,
monthly service and service activation, is significantly dependent on
competitive factors. We offer six post-paid tariff structures and two pre-paid
tariff structures, with different airtime and monthly access charges catering to
the usage patterns of different subscriber market segments. Airtime tariffs for
domestic calls vary depending on the time of day a call is made, while tariffs
for international calls vary according to the destination of the call. We charge
separately for certain of the value-added services offered, such as call
waiting, short message service and data and facsimile transmission. There have
been no increases in our prices on any of our tariff plans since first
introduced, except from time to time, we run promotions in which our price for
service activation, handsets or both have been reduced for the promotion period.
Tariffs for inbound traffic are set by interconnect agreements with TPSA,
Polkomtel and Netia. Our level of prices in the future, however, will depend on
the level of competition in the Polish GSM telecommunications services market,
the general level of Polish price inflation, other changes in factors affecting
underlying costs, and increased competition from other technologies, including
both cellular and
25
<PAGE> 26
other mobile telecommunications systems, as well as the availability within
Poland of wireline telephones and any limitations on price increases imposed by
regulators.
In 1997, VAT charged on the cost of telecommunications services in Poland
was 7%. In February 1998, however, VAT charged on the cost of telecommunications
services was increased to 22%. The new VAT rate increased the final cost of
telecommunications services to our subscribers. However, the impact of this
higher tax rate on our subscriber demand and revenues was offset by the
significant increase in our overall number of subscribers.
Prior to May 22, 1997, calls between our network and the competitors'
networks, TPSA, Polkomtel and Centertel, were governed by interim interconnect
arrangements pursuant to which calls were generally billed by each operator on a
"bill and keep" basis (i.e., the operator of our network in which the call
initiated was entitled to retain all of the amount charged for the call). On May
22, 1997, however, the Ministry of Communications issued the Interconnect
Decision, that replaced the "bill and keep" system with a system of reciprocal
interconnect payments. In December 1998, we entered into a Framework Agreement
with TPSA which established a financial settlement on the basis of the
interconnect decision for all periods since we commenced commercial operations
in September 1996, resulting in a payment by TPSA to us of PLN 6.2 million on
January 26, 1999. However, TPSA appealed the Interconnect Decision to Supreme
Administrative Court and notwithstanding the Framework Agreement, their appeal
has not yet been withdrawn.
FACTORS AFFECTING EXPENDITURES
The principal components of our operating expenditures are cost of sales
and operating expenses, the latter consisting of selling and distribution costs
and administration and other operating costs.
COST OF SALES
Our cost of sales consists primarily of payments to i) equipment suppliers
(principally handsets and related accessories) that we sell to dealers and
subscribers, ii) amortization and depreciation charges associated with licenses
fees and fixed assets, iii) payments for the provision by third parties,
principally TPSA, of leased lines between other operators' networks and our
network, iv) commission payments to the dealers and sales force associated with
subscriber acquisition, and v) payments to other operators, principally TPSA,
for delivering calls that terminate outside our network.
We anticipate that, as our network and subscriber base grows and the
business matures in coming years, the relative proportions of these expenses
will shift away from the cost of merchandise sales (which currently are very
significant because a large majority of new subscribers have not previously
acquired a GSM-capable handset) and fixed asset amortization and depreciation
charges, toward aggregate leased line and interconnection fees, which vary with
call volumes.
Prior to the issuance in May 1997 of the Interconnect Decision, we incurred
no interconnect fees since the operator of the network in which the call
initiated was entitled to retain all of the amount charged for the call. The
Interconnect Decision established a system of interconnect charges in which we
pay TPSA for calls terminating in TPSA's network and TPSA pays for calls
terminating in our network. Since the reciprocal charge system has been in
place, the cost of fees payable by us have been more than offset by increases in
revenue from interconnect fees for incoming calls. In addition, as a result of a
new Framework Agreement with TPSA, we are entitled to a 60% discount on certain
of TPSA's standard leased line tariffs, with additional incremental discounts of
between 5% and 15% for long-term arrangements lasting between one and five
years. Nevertheless, the interconnect fees paid to TPSA and the leasing of lines
from TPSA each make up a significant portion of our expenses.
To reduce dependence on TPSA, we have taken two actions. First, we have
entered into a contract with Ericsson to construct an SDH microwave backbone
network in order to reduce the use of leased lines for GSM 900 operations.
Second, we have entered into an interconnection agreement with Netia Telekom, an
alternative fixed line provider, and are actively pursuing agreements with other
fixed line providers to establish interconnect points throughout Poland.
26
<PAGE> 27
We believe that, when completed, our backbone network will reduce our cost
of sales and dependence on external suppliers. Construction of the initial phase
of our backbone network began in November 1998 and is expected to be completed
by the end of the second quarter of 2000. The backbone network will reduce, but
not eliminate, our need for leased lines and related fees, as our backbone
network will not offer the complete geographic coverage of Poland that TPSA
lines do, but rather will cover connections between areas of major population
density and high call volume. Although we successfully petitioned to amend our
GSM 900 License in May 1997 and April 1998 to no longer require the utilization
of lines leased from TPSA to conduct GSM 900 operations, our GSM 1800 License
still requires the use of lines leased from TPSA for GSM 1800 operations. We
have petitioned for an amendment to our GSM 1800 License similar to the
amendment obtained for our GSM 900 License. Although we believe our chances to
obtain such an amendment are good, no assurance can be given that such an
amendment will be obtained. We will continue to interconnect with TPSA to
provide international coverage.
OPERATING EXPENSES
Our operating expenses consist of: i) selling and distribution costs (other
than fixed commissions to the dealers and sales force which acquire subscribers
that are included in cost of sales), including advertising costs and provisions
for doubtful debtors; and ii) administration and other operating costs,
including external services and operations and staffing costs associated with
headquarters and regional offices.
RESULTS OF OPERATIONS
OVERVIEW
We recorded a net loss of PLN 122.5 million during 1999, as compared with a
net profit of PLN 5.5 million in 1998 and a net loss of PLN 120.4 million 1997.
Operating profits increased to PLN 316.7 million in 1999, compared with
operating profit of PLN 281.1 million for 1998 and operating loss of PLN 50.7
million for 1997. The strong growth in net sales and gross margin in service
revenue and fees was largely offset by increased cost of sales for promotional
telephones and accessories. The net loss for 1999 also reflects an increase in
net interest and other financial expense to PLN 398.3 million, as compared to
PLN 165.8 million and PLN 74.0 million for 1998 and 1997, respectively. In light
of our limited operating history and speed of growth, financial results for
these periods are unlikely to be indicative of future financial results.
The following table sets forth the gross margin by net sales category for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- -------
(IN THOUSANDS OF PLN)
<S> <C> <C> <C>
Net service revenues and fees.............................. 2,369,444 1,445,340 534,439
Cost of services sold...................................... 939,037 613,898 330,112
--------- --------- -------
Gross margin from service revenues and fees................ 1,430,407 831,442 204,327
Gross margin percentage of net service and fees revenue.... 60.4% 57.5% 38.2%
Sales of telephones and accessories........................ 222,617 165,471 112,623
Cost of sales of telephones and accessories................ 723,814 334,516 181,037
--------- --------- -------
Gross margin from sales of telephones and accessories...... (501,197) (169,045) (68,414)
Gross margin percentage of net telephones and accessories
revenue.................................................. (225.1)% (102.2)% (60.7)%
Net sales.................................................. 2,592,061 1,610,811 647,062
Cost of sales.............................................. 1,662,851 948,414 511,149
--------- --------- -------
Gross margin............................................... 929,210 662,397 135,913
Gross margin percentage of total net revenues.............. 35.8% 41.1% 20.1%
</TABLE>
NET SALES
Net sales were PLN 2,592.1 million in 1999, as compared with PLN 1,610.8
million and PLN 647.1 million for 1998 and 1997, respectively. Service revenues
and fees were PLN 2,369.4 million during 1999, as compared
27
<PAGE> 28
with PLN 1,445.3 million in 1998 and PLN 534.4 million in 1997. Service revenues
and fees included interconnect income of PLN 523.0 million for 1999, as compared
to PLN 300.7 million and PLN 79.0 million for 1998 and 1997, respectively. The
growth in service revenues and fees primarily reflects an increase in the number
of subscribers to approximately 1.8 million as of December 31, 1999 (including
365,000 Tak Tak pre-paid GSM service subscribers), as compared with 781,000 and
295,000 subscribers as of December 31, 1998 and 1997, respectively. This trend
was partially offset by a decrease in average revenue per subscriber to PLN 159
for the year ended December 31, 1999 as compared to PLN 227 for 1998 and PLN 245
for 1997.
Sales of telephones and accessories were PLN 222.6 million during 1999, as
compared with PLN 165.5 million in 1998 and PLN 112.6 million in 1997. Since
beginning operations, we have conducted several promotional campaigns in which
reduced prices for handsets and activation fees during specific periods were
offered. As a result of these promotional campaigns, a significant number of new
subscribers have been added, although revenues from sales of telephones and
accessories have been negatively affected by promotional discounting of the cost
of telephones and accessories to our subscribers.
COST OF SALES
Total cost of sales were PLN 1,662.9 million during 1999, as compared with
PLN 948.4 million and PLN 511.1 million in 1998 and 1997, respectively. Gross
margin was PLN 929.2 million in 1999, as compared with a gross margin of PLN
662.4 million in 1998 and PLN 135.9 million in 1997. As a percentage of net
sales, gross margin represented 35.8%, 41.1% and 20.1% in 1999, 1998 and 1997,
respectively.
The decrease in gross margin as a percentage of net sales from 1998 to 1999
of 5.3% is the result of increased gross losses on sales of telephones and
accessories of PLN 332.2 million, which were more than offset by the increase in
gross profit from service revenues and fees of PLN 599.0 million, reflecting
strong growth in our subscriber base. During 1999, we increased promotional
activities, in particular sales of telephones and accessories below cost in an
effort to attract subscribers. As a general matter, we do not intend to achieve
positive overall margins on sales of telephones and accessories. We believe that
a significant majority of future sales and margins will be derived from airtime
revenues and monthly service fees rather than activation fees and the sale of
telephones and accessories, and that discounts on these latter items will have a
decreasing impact upon financial results of operations.
Cost of sales for services included interconnect costs of PLN 131.6 million
for 1999, compared to PLN 77.5 million and PLN 32.4 million for 1998 and 1997,
respectively.
OPERATING EXPENSES
Operating expenses were PLN 612.6 million during 1999, as compared with
PLN 381.3 million in 1998 and PLN 186.6 million in 1997. As a percentage of net
sales, however, operating expenses during the year ended December 31, 1999 were
23.6%, as compared with 23.7% and 28.8% in the years ended December 31, 1998 and
1997, respectively. The decrease in operating expenses as a percentage of net
sales reflects the continued increase in revenue and the fixed nature of certain
operating expenditures.
Selling and distribution costs were PLN 454.8 million in the year ended
December 31, 1999, as compared with PLN 277.1 million for 1998 and PLN 139.7
million for 1997. The selling and distribution costs for the year ended December
31, 1999 include significant but proportional increases in advertising costs for
promotions associated with the 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 143.9 million for the year ended
December 31, 1999 from PLN 90.7 million for 1998 and PLN 43.7 million for 1997.
This was primarily a result of a substantial increase in the number of
subscribers and the creation of a nearly full provision for doubtful debtors for
prior years.
Administration and other operating costs, which include external services
fees and operating and staffing costs associated with headquarters and regional
offices, were PLN 157.7 million for the year ended December 31, 1999, as
compared with PLN 104.2 million and PLN 46.9 million in 1998 and 1997,
respectively. The increase in
28
<PAGE> 29
administrative costs for 1999 as compared with the same period in 1998 was
primarily due to increased employee hiring and external services to support
growth.
A portion of the increased wages and salaries in 1999 was directly offset
by lower cost for social insurance benefits. In 1999, the Polish Government
implemented a shared contribution plan between employers and employees for
social insurance pursuant to which a portion of the contribution burden was
shifted from the employer to the employees. We therefore was required to
equalize the impact of this shift to employees by increasing their compensation
accordingly.
INTEREST AND OTHER FINANCIAL EXPENSES
Interest and other financial expenses, net for the year ended December 31,
1999 were PLN 398.3 million, as compared to PLN 165.8 million and PLN 74.0
million for 1998 and 1997, respectively. This reflects increased interest
charges and foreign exchange losses primarily due to borrowings and currency
exposure under the Bank Credit Facility, Shareholder Loans, and 10 3/4% Notes
for the purpose of funding our network build-out. Interest charges and foreign
exchange losses from the 11 1/4% Notes were minimal as this obligation
originated in late 1999.
Net interest expenses were PLN 247.5 million for the year ended December
31, 1999, as compared to PLN 123.8 million and PLN 31.8 million for 1998 and
1997, respectively. Cash interest will not accrue on the 10 3/4% Notes prior to
July 1, 2002. Commencing January 1, 2003 cash interest will be payable on
January 1 and July 1 each year thereafter. Interest on the 11 1/4% Notes and the
Bank Credit Facility accrues continuously, and is payable each half-year for the
11 1/4% Notes and as individual short-term drawdowns mature for the Bank Credit
Facility.
As a result of the depreciation of the Zloty in relation to other major
currencies, we have incurred a net foreign exchange loss of PLN 150.7 million in
1999, as compared to a net foreign exchange loss of PLN 42.0 million and
PLN 42.2 million during 1998 and 1997, respectively. See Item 9B. "Quantitative
and Qualitative Disclosures of Market Risk -- Inflation and Currency Exchange
Fluctuations."
Since September 1997, interest and other financial expense, net, has also
included imputed interest expense and net foreign exchange losses on our
obligations to the Polish government in respect of our GSM 900 License (for
which our fee payable to the Polish government is linked to Euros payable in
Zlotys on March 31 of each year). Pursuant to International Accounting
Standards, imputed interest and foreign exchange losses were: i) capitalized in
the cost of our GSM 900 License during the development of our GSM 900 system;
and ii) will be capitalized for our GSM 1800 License through March 1, 2000.
These expenses, which are not reflected in the amount of interest and other
financial expenses, net set forth in the statement of operations, amounted to
PLN 19.0 million in 1999 (for the GSM 1800 License), nothing in 1998, and
PLN 17.9 million in 1997 (for the GSM 900 License).
TAXATION AND OTHER EXPENSES
The loss before taxation was PLN 81.6 million for the year ended December
31, 1999 compared to a profit before taxation of PLN 115.3 million for 1998 and
a loss before taxation of PLN 124.7 million for 1997. After accounting for
taxation, we incurred a comprehensive net loss of PLN 122.5 million in the year
ended December 31, 1999 compared to a net profit of PLN 5.5 million for 1998 and
a net loss of PLN 120.4 million for 1997. In 1999, several one-time adjustments
were recognized, including losses from the reconciliation of network equipment
for PLN 6.2 million, expensed leasehold improvements of PLN 0.2 million, and
additional increases in bad debt provisions in 1999 pertaining to 1998 of
PLN 21.3 million.
In accordance with the requirements of the Polish tax authorities, the cost
of our GSM 900 License and GSM 1800 License are recorded on a cash basis, which
are the most significant component of the total deferred tax liability of
PLN 102.5 million as of December 31, 1999, as compared to a deferred tax
liability of PLN 64.0 million and PLN 2.0 million as of December 31, 1998 and
1997, respectively. We have also recorded a deferred tax asset relating to the
realization of accrued expenses of PLN 75.2 million as of December 31, 1999 as
29
<PAGE> 30
compared to the realization of accrued expenses and certain tax loss carry
forwards of PLN 66.7 million and PLN 42.3 million as of December 31, 1998 and
1997, respectively. See Note 11 to the Financial Statements.
We recorded income tax expense of PLN 40.9 million in 1999, compared with
an income tax expense of PLN 109.8 million in 1998 and an income tax benefit of
PLN 4.2 in 1997. After discussions with Polish tax authorities in 1998, we
decided to change the tax treatment of the cost of our GSM 900 License from
amortization over 15 years to cash basis. As a result, the tax returns for 1996
and 1997 have been restated and the resulting increase in tax loss carry
forwards has also been reflected in the deferred tax computation for 1998. The
change in the tax treatment of our GSM 900 License also resulted in a deferred
tax liability of PLN 102.5 million, PLN 63.2 million and PLN 2.0 million in
1999, 1998 and 1997, respectively. In 1998, we also adopted International
Accounting Standard 12 (revised) "Income Taxes" in accounting for income taxes.
The revised standard permits us to record a deferred tax asset when there is a
reasonable expectation of realization while the previous standard required a
higher level of certainty. This change in accounting for income taxes was
applied retroactively. See Note 11 to the Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Historically, our liquidity requirements have arisen primarily from the
need to fund capital expenditures for the expansion of the business and for
working capital needs. We expect to continue to incur substantial additional
capital expenditures in order to expand and improve the quality of our network.
Our management anticipates that total capital expenditures in 2000 will be
PLN 2.2 billion, including expenditures related to network development.
On December 17, 1997, we entered into a Bank Credit Facility arranged by
Citibank (Poland) S.A. and Citibank International plc. The lenders agreed to
make loans to us, on a term loan or revolving credit basis (at our option) in an
aggregate principal amount of not more than DM 672 million, subject to liquidity
and credit rating conditions. At the end of 1999, we were eligible for the full
loan limit of this facility. This Bank Credit Facility consists of two tranches:
(i) an offshore tranche of up to DM 420.0 million may be drawn in Deutschmarks,
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. As of December 31, 1999, we drew down
PLN 1,076.6 million under the Bank Credit Facility, which consisted of DM 237.7
million and PLN 570 million. We have established overdraft facilities with Bank
Rozwoju Eksportu S.A. These overdraft facilities are limited to the Polish Zloty
equivalent of DM 25 million by terms of the Bank Credit Facility.
On August 24, 1999, the major shareholders extended to us US$ 75.0 million
in subordinated loans to fund our GSM 1800 License and to provide continued
liquidity. The respective amounts of those loans from our shareholders were as
follows: Elektrim S.A., Zloty equivalent of US$ 40.0 million; DeTeMobil,
US$ 17.5 million; and MediaOne, US$ 17.5 million. Each shareholder loan bears an
interest rate of 12.5% compounded semi-annually on June 17 and December 17. The
full balances of these loans and accrued interest are due on June 19, 2006.
However, interest may be due earlier dependent on our ability to meet Bank
Credit Facility covenants. The shareholder loans remain with the same
shareholders that extended them to us, regardless the subsequent changes in our
shareholder ownership.
On November 23, 1999, PTC International Finance II S.A., issued Senior
Subordinated Guaranteed Notes for the aggregate principal amount of Euro 300.0
million and US$ 150.0 million to fund future network capital construction and
operating growth. The 11 1/4% Notes bear an interest rate of 11 1/4% with
interest due commencing June 1, 2000 and payable each December 1 and June 1
thereafter. Although the 11 1/4% Notes mature on December 1, 2009, they can be
redeemed up to 35% of the initial aggregate principal amount prior to December
1, 2002 and either the whole or any part of the principal amount after December
1, 2004. The 11 1/4% Notes rank equally with the previously issued 10 3/4%
Notes, which are also guaranteed on a senior subordinated basis.
Net cash generated from operating activities during the year ended December
31, 1999 was PLN 342.7 million, as compared to net cash generated of PLN 163.8
million and net cash used of PLN 113.4 million during 1998 and 1997,
respectively. Non-cash provisions and net non-operating items for the same
periods totaled PLN 725.2 million, PLN 334.0 million and PLN 186.1 million,
respectively, and principally reflect depreciation, amortization, provisions for
doubtful debtors, unrealized foreign exchange losses and interest expense
resulting
30
<PAGE> 31
from business growth and expanded financial activities. In addition, net cash
used for working capital items was PLN 275.3 million for the year ended December
31, 1999, as compared to net cash used for working capital items of PLN 171.9
million and PLN 174.8 million in 1998 and 1997, respectively. This was primarily
due to increased cash used by subscriber receivables and inventory build up.
Net cash used in investing activities was PLN 1,828.3 million in 1999 as
compared to PLN 1,004.7 million and PLN 152.7 million in 1998 and 1997,
respectively. Investing cash flows reflect PLN 985.3 million, PLN 966.6 million
and PLN 176.3 million in payments during 1999, 1998 and 1997, respectively, to
suppliers of tangible fixed assets, which consist primarily of network capital
equipment used in the ongoing build-out of our GSM network. These amounts are
less than actual purchases of fixed assets, which totaled PLN 1,146.9 million in
1999, PLN 1,013.6 million in 1998 and PLN 636.6 million in 1997, the difference
reflecting the ability to defer payment on a significant portion of purchases.
In general, our network equipment supply agreements with each of our major
suppliers of network equipment (Ericsson, Siemens and Alcatel) permit deferred
payments on our network equipment purchases until equipment is installed, placed
in commercial operation and formally accepted.
We also expect that our level of capital expenditures will remain
significant for the medium term, as we continue to expand network capacity,
coverage, and quality in order to expand services offered under the new GSM 1800
License.
Net cash generated from financing activities was PLN 2,604.0 million in
1999 as compared to PLN 618.4 million and PLN 479.8 million in 1998 and 1997,
respectively. These amounts reflect the net proceeds from long-term bank
borrowings in 1998, the issuance of the Notes in 1997 and 1999, and shareholder
loans in 1999. In addition, we entered into a finance lease relating to the new
headquarters building in March 1997, for which the future minimum lease payments
total PLN 453.0 million over 15 years.
As a result of the foregoing, the net cash for the year ended December 31,
1999 increased by PLN 1,118.4 million, but decreased by PLN 222.5 million in
1998, and increased by PLN 213.7 million in 1997.
YEAR 2000 COMPLIANCE
In cooperation with shareholders, equipment suppliers, energy suppliers,
programmers and other telecommunications operators, we implemented a
comprehensive project to minimize Year 2000-related computer hardware or
software malfunctions. As a result of this initiative, we have successfully
prevented operational disruptions in 2000. Actual incremental costs incurred on
our Year 2000 project through December 31, 1999 were approximately USD 794,000,
overspending the USD 650,000 budget for this initiative.
ITEM 9B. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
INFLATION AND CURRENCY EXCHANGE FLUCTUATIONS
In connection with its transition from a state controlled to a free market
economy, Poland experienced high levels of inflation and significant fluctuation
in the exchange rate for the Zloty. The government adopted policies that slowed
the annual rate of consumer price inflation from nearly 250% in 1990 to
approximately 13.2% in 1997, 8.6% in 1998 and 9.8% in 1999 according to the
Polish Office of Statistics. Since the launch of operations in 1996, the
cumulative inflation in Poland has been 38.6%. The Polish Communications Law
provides that the Ministry of Communications may impose a ceiling on the prices
that telecommunications service providers can charge for their services.
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 our GSM 900 and GSM 1800
Licenses, which are linked to Euro and payable in Zloty, and liabilities to
suppliers of network capital equipment and handsets, which are generally
denominated in Deutschmarks, French Francs or U.S. dollars. Additionally, the
10 3/4%, 11 1/4% 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 flow are and will remain
significantly exposed to an appreciation in these non-Polish currencies against
the Zloty.
31
<PAGE> 32
Future currency exchange fluctuations are expected to continue to have a
significant effect on our financial condition and results of operations. We
intend to enter into both short and long-term transactions to hedge the risk of
exchange rate fluctuations, to the extent hedging arrangements on commercially
satisfactory terms are obtainable. There is no assurance that we will be able to
obtain hedging arrangements on commercially satisfactory terms. At the end of
1999, we had no open hedging transactions, although, our hedging policy allows
for the use of forwards, swaps and options for minimizing currency and interest
rate risks. As an alternative, we may attempt to structure foreign currency
liabilities to be broadly in line with the currency basket employed by the
National Bank of Poland. This technique will not eliminate foreign exchange
losses; however, we believe the technique may improve the management of the
magnitude of these losses. Starting in late 1998 and continuing through the
current year, we drew funds mainly from the Bank Credit Facility and exhausted
the Zloty denominated tranche first in order to minimize the negative effects of
currency exchange fluctuations.
The table below summarizes foreign currency denominated long-term
obligations:
<TABLE>
<CAPTION>
PRESENT
VALUE
OBLIGATION 2000 2001 2002 2003 2004 THEREAFTER TOTAL 12/31/99
- ---------- ------- ------- ------- ------- ------- ---------- --------- ------------
(SEE NOTE 19
TO FINANCIAL
STATEMENTS)
(IN THOUSANDS OF PLN)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GSM 900 License................. 143,077 233,875 -- -- -- -- 376,952 358,586
GSM 1800 License................ 69,685 69,685 69,685 -- -- -- 209,055 180,571
10 3/4% Notes................... -- -- -- 112,914 112,914 1,389,104 1,614,932 808,446
11 1/4% Notes................... 214,800 210,703 210,703 210,703 210,703 2,926,429 3,984,041 1,867,231
Bank Credit Facility (DM
Tranche)...................... 18,596 18,596 18,596 165,987 190,548 183,975 596,298 522,038
Shareholder Loans............... -- -- -- -- -- 711,421 711,421 325,075
Headquarters Lease.............. 29,807 29,807 29,807 29,807 29,807 300,363 449,398 218,339
Weighted Average Effective
Interest Rate................. 9.9037 9.9037 9.9037 9.9037 9.9037 9.9037 9.9037 9.9037
</TABLE>
We are exposed to interest rate risk primarily as a result of the Bank
Credit Facility which at the end of 1999 consisted of loans of DM 237.7 million
and PLN 570.0 million at a rate of LIBOR or WIBOR plus 0.95% before and 0.75%,
respectively after March 1, 1999. The table below presents information about the
Bank Credit Facility including estimated principal and interest cash flows based
on weighted interest rates by expected maturity dates for the balance drawn
under the Bank Credit Facility as of December 31, 1999. The weighted average
interest rates computed assumes individual drawdowns on the loan will be
refinanced at the same rate. Each drawdown has a short-term maturity date, which
can be rolled over, subject to the annual repayment schedule for the entire
Facility.
<TABLE>
<CAPTION>
PRESENT
VALUE
BANK CREDIT FACILITY 2000 2001 2002 2003 2004 THEREAFTER TOTAL 12/31/99
- -------------------- ------- ------- ------- ------- ------- ---------- --------- ------------
(SEE NOTE 19
TO FINANCIAL
STATEMENTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable Rate (DM).............. 18,596 18,596 18,596 165,987 190,548 183,975 596,298 522,038
The Weighted Average Effective
Interest Rate................. 3.6709 3.6709 3.6709 3.6709 3.6709 3.6709 3.6709 3.6709
Variable Rate (PLN)............. 137,588 169,669 169,693 166,161 147,193 128,226 918,530 585,671
Weighted Average Effective
Interest Rate................. 16.6383 16.6383 16.6383 16.6383 16.6383 16.6383 16.6383 16.6383
</TABLE>
32
<PAGE> 33
ITEM 10: DIRECTORS AND OFFICERS OF REGISTRANT
DIRECTORS
<TABLE>
<CAPTION>
MEMBER OF
SUPERVISORY BOARD
NAME APPOINTED BY SINCE
- ---- ------------ -----------------
<S> <C> <C>
Piotr Mroczkowski (Chairman)............................... Elektrim 1996
Moritz Gerke (Deputy Chairman)............................. DeTeMobil 1997
Jacek Walczykowski (Secretary)............................. Elektrim 1999
Jan Kolodziejczak.......................................... Elektrim 1999
Steve Boyd................................................. MediaOne 1998
Michael Gunther............................................ DeTeMobil 1997
William "Bill" Norris...................................... MediaOne 1999
Jan Waga................................................... Kulczyk Holding 1996
Andrzej Wojcik............................................. BRE 1996
</TABLE>
Members of the Supervisory Board have not changed since the transfers of
shareholder ownership in our company took place in 1999 (Elektrim S.A.'s
acquisition of minority shareholders and transfer of shares to Elektrim
Telekomunikacja) and in the first quarter of 2000 (DeTeMobil's acquisition of
MediaOne).
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
MEMBER OF
MANAGEMENT BOARD
NAME POSITION SINCE
- ---- -------- ----------------
<S> <C> <C>
Boguslaw Kulakowski.................... Director General 1999
Wojciech Ploski........................ Director of Strategy, Marketing & Sales 2000
Wilhelm Stueckemann.................... Director of Network Operations 1996
Stanislaw Majewski..................... Director of Finance 1999
Ryszard Pospieszynski.................. Director of Administration 1996
</TABLE>
As of March 1, 2000 Wojciech Ploski replaced Karim Khoja as the Director of
Stategy, Marketing and Sales. Mr. Khoja, however, will remain with us through
the transition of share ownership from MediaOne to DeTeMobil.
Mr. Ploski began working with us in May 1996 as the Deputy Director of
Marketing (Product 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 the Company, Mr. Ploski worked for the Curtis Company, a
television manufacturer, for ten years where he held variety of positions,
including the 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, Telecommunications Department.
ITEM 11. COMPENSATION FOR DIRECTORS AND OFFICERS
For the year ended December 31, 1999, we directly paid an aggregate of PLN
6,462,315 to the members of the Supervisory Board and the Management Board,
including compensation for salary, bonuses and pension plans. In addition, some
of the members of the Management Board were paid by the respective shareholders
which have seconded them. We have reimbursed those shareholders for those
payments in the total amount of PLN 3,034,844 for the year ended December 31,
1999.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
None.
33
<PAGE> 34
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
We have entered into service agreements with each of DeTeMobil, Elektrim
and MediaOne. These agreements relate to the licensing and development of
software and computer databases, and arrangements for management, sales and
technological support, including secondment of employees of DeTeMobil, Elektrim
and MediaOne.
AGREEMENTS WITH DETEMOBIL
Framework Agreement for Secondment. Under the DeTeMobil Framework
Agreement for Secondment of Employees, DeTeMobil allows its employees to be
seconded to us depending on need, for discrete or extended periods of time for
the purpose of assistance with research and management operations. The term of
the Framework Agreement is one year and it is automatically renewable by either
party unless terminated in writing three months prior to the end of the period.
Under the Agreement, we have the right to request the secondment of an
employee of DeTeMobil by specifying the skills needed. Pursuant to the Framework
Agreement, we are given a specified period during which to accept or reject the
secondment candidate identified by DeTeMobil and during which we are entitled to
interview several other candidates from DeTeMobil for secondment.
We have all rights to any inventions developed by the seconded employee
alone or together with regular company employees during the time of secondment.
We are obligated to compensate DeTeMobil for any seconded employee as well as
pay any value-added tax applicable under Polish law. DeTeMobil has
responsibility for meeting any filing requirements associated with applicable
tax, social security, procurement of visas and work permits, although we have
agreed to assist DeTeMobil with meeting these requirements.
Framework Agreement. Pursuant to the DeTeMobil Framework Agreement,
DeTeMobil provides us with technical, managerial, logistical and administrative
know-how support services, including product development and research skills.
DeTeMobil also provides us with personnel support in the performance of specific
services where requested when possible. The term of the Framework Agreement is
one year and it is automatically renewable unless terminated in writing by
either party, three months prior to the end of the period.
DeTeMobil may not disclose work results with third parties without the
consent, but may use the knowledge, experience and results obtained from any
services provided for its own purposes. We also agreed with DeTeMobil that any
damage compensation resulting from liability due to gross negligence would be
limited to the amount of the specific service order not to exceed DM 500,000.
Under the Framework Agreement, compensation for DeTeMobil is provided in
Deutschmarks according to daily and monthly fee schedules. The monthly rates are
based on 40-hour work weeks. In addition, we pay DeTeMobil for the provision of
technical know-how (not including new know-how, the price of which is set forth
in service orders). We are also obligated to pay any applicable tax under Polish
law.
Billing and Customer Care Upgrade Agreement. On December 3, 1998, we
entered into an agreement with DeTeMobil to provide enhancements to our billing
and customer care system (BSCS Pink) which was delivered in 1999.
Payments. We incurred cost of PLN 27.5 million in aggregate for all
DeTeMobil services rendered, including employee secondments, for 1999.
AGREEMENTS WITH ELEKTRIM
Elektrim Service Agreement. We entered into an agreement (the "Service
Agreement") with Elektrim in May 1996 to render services to us in respect of
securing the commercial side of contracts, pursuant to which Elektrim prepares
and implements contracts relating to the development of digital GSM mobile
network. Under the Service Agreement, Elektrim provides us with a working team,
consisting of a minimum of five persons, and performs specific services
including preparation and negotiation of the commercial, financial and legal
aspects of contracts with suppliers. The Elektrim working team supervises
meetings with the contractors and the transfer of
34
<PAGE> 35
payments on time and performs administrative functions such as arranging and
coordinating customs clearance and submitting, filing and processing claims
based on quality defects or quantity shortage.
Civil Works Agreement. On December 15, 1999 we entered into a two-year
agreement with Elektrim Volt, one of the companies included under the umbrella
of Elektrim's ownership. This agreement is to provide civil works labor in the
construction and development of our mobile network.
AGREEMENTS WITH MEDIAONE
All agreements between us and MediaOne listed below were in place for past
operating periods and will either continue or will be transitioned to be
serviced by DeTeMobil in the future as a result of the March 23, 2000
acquisition of MediaOne by DeTeMobil.
MediaOne Framework Agreement. On December 13, 1996, we entered into a
Framework Agreement with MediaOne under which MediaOne agreed to provide us with
marketing and sales assistance. Once we requested services, there follows a
period during which we must accept or reject MediaOne's offer of service.
MediaOne may not use outside contractors and must perform the tasks itself
unless the parties agree otherwise. The term of the Framework Agreement is one
year and it is automatically renewable unless terminated in writing by either
party, three months prior to the end of the period.
We compensate MediaOne for employees seconded from them to us and for
specific technical services in accordance with daily and monthly fee schedules.
To the extent we agree that MediaOne may engage third parties in the provision
of services, we bear the cost of third party services. In addition, we are
obligated to pay MediaOne for know-how relating to sales and marketing.
Project Outline Agreement. We entered into a Project Outline Agreement
with MediaOne on April 14, 1997 that sets forth the conditions of cooperation
between the parties with respect to the creation, development and delivery of
software and related services and expires on December 7, 2001. Pursuant to the
Project Outline Agreement, MediaOne granted us the exclusive right to use
software developed by MediaOne or its subcontractors upon request ("individual
software") as well as a non-exclusive license to use software otherwise
developed and owned by MediaOne or its subcontractors (the "standard software").
We agreed not to use the standard software to support the operation of third
party networks. MediaOne supports the use of individual and standard software
provided to us and our employees, including a training program consisting of
four courses, a support services help desk, software updates, and problem
resolution emergency numbers.
Under the Project Outline Agreement, we acquired three major software
products from MediaOne, in addition to a database that together, form the core
of the Telecommunications Management Network System. The system provides access
to network information and enhances network management. In 1997 we paid MediaOne
an aggregate of US $2,110,000 in fixed fees for software licenses and for the
integration and delivery by MediaOne of the software it provides.
Implementation Agreement. On April 14, 1997, we reached an agreement with
MediaOne regarding the type of software to be supplied pursuant to the Project
Outline Agreement, the service and training obligations of MediaOne under the
Project Outline Agreement and the fees to be paid to MediaOne. Pursuant to the
Implementation Agreement, MediaOne provides us with computer platforms and
communications equipment to link several major operating software packages to
each other and to the Telecommunications Management Network System, a management
information base, as well as computer platforms and data communications
equipment which connects networks equipment acquired from suppliers.
In addition to the services provided under the Framework Agreement and the
Project Outline Agreement, we acquired a targeted list of 800,000 potential
subscribers from MediaOne Polska S.A., a wholly-owned subsidiary of MediaOne,
which operated a telephone directory business in Poland.
We incurred cost of PLN 14.8 million in aggregate for MediaOne seconded
employees, specific technical services and sales and marketing know-how for
1999.
35
<PAGE> 36
SHAREHOLDERS AGREEMENT
Our original shareholders with a 5% or greater ownership interest,
Elektrim, MediaOne, DeTeMobil, Polpager Sp. z o.o., Elektrim-Autoinvest S.A. and
Kulczyk Holding S.A. which together held 90.1% of our outstanding ordinary
shares, entered into a Shareholders Agreement dated December 21, 1995. The
Shareholders Agreement was amended on March 11, 1997 pursuant to which Elektrim,
DeTeMobil and MediaOne (together the "Operating Parties") control the
Supervisory Board and appoint the senior executive officers. Under the
Shareholders Agreement, certain actions require the unanimous approval of the
Operating Parties. See "-- Control by Operating Parties."
Transfer Restrictions/Call Options. The Shareholders Agreement prohibits
the holders of our shares from transferring any shares without the prior consent
of the Supervisory Board. This consent will be given in cases of transfer of the
entire interest of a party to another party if (i) the transferee assumes any
and all obligations of the transferor to us and the other shareholders; (ii) the
transfer is permitted under the terms of our GSM 900 License and all other
applicable laws; and (iii) no party can establish by clear evidence that the
transfer would result in a material commercial injury to us. Notwithstanding the
foregoing, Elektrim and Elektrim Autoinvest S.A. may transfer their shares to
one of the existing shareholders; provided that Elektrim retains at least a 26%
interest in the company. The Supervisory Board may establish procedures that
require the shareholder intending to transfer its shares, to first offer the
shares to the remaining shareholders. To date, the Supervisory Board has not
established any such procedures.
Each shareholder who is party to the Shareholders Agreement (except Kulczyk
and Elektrim-Autoinvest) has granted the Operating Parties an option to purchase
its shares at an exercise price equal to the shareholder's proportionate share
of the net asset value of the company plus all capital contributions made after
the financial statement date for the last completed fiscal year. The option
becomes exercisable when either the shareholder admits in writing that it has
materially defaulted or an arbitration court declares the shareholder in
material default. A material default occurs, among other events, when the
shareholder (i) defaults in making a payment for new shares subscribed for in
writing; (ii) is in material default of any obligation under the Shareholders
Agreement; (iii) becomes subject to any liquidation or bankruptcy or settlement
or similar proceeding that remains unresolved for thirty days; (iv) files a
petition under bankruptcy or similar proceedings; or (v) admits in writing its
inability to pay debts when due.
Control by Operating Parties. Under the Shareholders Agreement, the
business is controlled by a Supervisory Board, which is authorized to assume the
responsibilities and powers of our shareholders meeting to the extent permitted
by Polish law, and managed by a Management Board.
Certain actions by us require the unanimous consent of all the Operating
Parties. These include: (i) the acquisition of shares of or entry into
partnership with another entity; (ii) any extension of the business outside
Poland; (iii) a change in business purpose from providing 900 MHz GSM services
or surrender of the 900 MHz License; (iv) the adoption of the business plan,
dividend policy, share transfer restrictions, accounting principles and any
revisions to the overall strategy; (v) the disposal of assets in excess of PLN
500,000, incurring any debts or financing and granting any mortgage or lien over
assets, granting any loan to third parties in excess of an annual aggregate
amount of PLN 100,000 or to any individual in excess of PLN 10,000; (vi) any
change in the competence, voting and rules of procedure of the Supervisory Board
and the Management Board restructuring the management; and (vii) the entry into
any contract for more than one year or any amount in excess of PLN 500,000.
Covenant Not to Compete. Pursuant to the terms of the Shareholders
Agreement, our shareholders party thereto are prohibited from entering into any
GSM business (selling equipment and providing services) in Poland (including
businesses involving use of DCS 1800 and similar technology) but may provide
other telephony services in Poland. The shareholders are also prohibited from
assisting third party competitors, except in the ordinary course of business as
currently conducted.
The shareholders party to the Shareholders Agreement may engage in a
competing business with the explicit approval of the Supervisory Board.
36
<PAGE> 37
SHAREHOLDER LOANS
On August 24, 1999, three operating shareholders extended loans to us on
substantially identical terms. The total amount of the loans was the Zloty
equivalent of $75 million, provided by our shareholders as follows: $39,843,750
from Elektrim S.A. and $17,578,125 from each of DeTeMobil and MediaOne. These
loans are subordinated to senior debt. Each loan bears interest at 12.5%
annually and must be repaid by June 19, 2006. The maturity of the loans may be
accelerated if: (i) we default on any payment due under them, (ii) amounts owed
by us under the Bank Credit Facility or in respect of the Notes are declared to
be immediately due and payable, or (iii) we are judicially declared to be or
admit to being insolvent. The terms of the Notes and the Indentures prohibit
payment of these loans unless such payment is permitted by the covenant under
the Notes. The shareholder loans remain with the same shareholders that extended
them to us, regardless the subsequent changes in our shareholder ownership.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
None.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
Not applicable.
PART IV
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
See pages F-1 through F-40
37
<PAGE> 38
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-1
Consolidated statements of operations for the years ended
December 31, 1999, 1998 and 1997.......................... F-2
Consolidated balance sheets at December 31, 1999 and 1998... F-3
Consolidated statements of cash flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-4
Statements of changes in equity for the years ended December
31, 1999. 1998 and 1997................................... F-5
Notes to the consolidated financial statements.............. F-6
</TABLE>
EXHIBITS
10.1 Agreement with Elektrim Volt S.A. for civil works services, dated December
15, 1999.
38
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and 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/ Wojciech Ploski
------------------------------------
Wojciech Ploski, Director of
Strategy,
Marketing & Sales
March 21, 2000
39
<PAGE> 40
POLSKA TELEFONIA CYFROWA SP. Z O.O.
CONSOLIDATED FINANCIAL STATEMENTS
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND DECEMBER 31, 1998
40
<PAGE> 41
[LOGO]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Supervisory Board of
Polska Telefonia Cyfrowa Sp. z o.o.
We have audited the accompanying consolidated balance sheets of Polska
Telefonia Cyfrowa Sp. z o.o. (a Polish limited liability company) and its
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, consolidated statements of changes in equity and
consolidated statements of cash flows for each of the three years ended December
31, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States and International Standards on Auditing. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Polska
Telefonia Cyfrowa Sp. z o.o. and its subsidiaries, as at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years ended December 31, 1999 in accordance with Statements of
International Accounting Standards issued by the International Accounting
Standards Committee ("IAS").
Accounting practices used by the Company in preparing the accompanying
financial statements conform with IAS but do not conform with accounting
principles generally accepted in the United States ("US GAAP"). A description of
these differences and a reconciliation of net income and shareholders' equity
from accounting principles generally accepted under IAS and US GAAP are set
forth in Note 28.
[SIG]
Warsaw, Poland
March 6, 2000
F-1
<PAGE> 42
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS OF PLN)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
NOTES 1999 1998 1997
----- ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES...................................... 7 2,592,061 1,610,811 647,062
COST OF SALES.................................. 8 (1,662,851) (948,414) (511,149)
---------- ---------- ----------
GROSS MARGIN................................... 929,210 662,397 135,913
OPERATING EXPENSES............................. 8 (612,559) (381,275) (186,595)
---------- ---------- ----------
OPERATING PROFIT/(LOSS)........................ 316,651 281,122 (50,682)
NON-OPERATING ITEMS
Interest and other financial income............ 9 58,042 21,398 35,651
Interest and other financial expenses.......... 10 (456,305) (187,197) (109,652)
---------- ---------- ----------
(LOSS)/INCOME BEFORE TAXATION.................. (81,612) 115,323 (124,683)
TAXATION (CHARGE)/BENEFIT...................... 11 (40,891) (109,807) 4,247
---------- ---------- ----------
COMPREHENSIVE NET (LOSS)/INCOME................ (122,503) 5,516 (120,436)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 43
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS OF PLN)
<TABLE>
<CAPTION>
AT AT
DECEMBER 31, DECEMBER 31,
NOTES 1999 1998
----- ------------ ------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................ 25 1,095,509 5,695
Short-term investments................................... 12 198,468 --
Debtors and prepayments.................................. 13 409,410 253,585
Accounts receivable from State Treasury.................. 13 54,835 85,064
Inventory................................................ 14 183,980 75,946
--------- ---------
1,942,202 420,290
DEFERRED TAX ASSET, NET.................................. 11 -- 2,766
LONG-TERM ASSETS
Tangible fixed assets, net............................... 15 2,573,905 1,671,182
Intangible fixed assets, net............................. 16 1,050,775 629,404
Financial assets......................................... 12 301,829 --
Deferred cost............................................ 17 85,253 30,759
--------- ---------
4,011,762 2,331,345
--------- ---------
TOTAL ASSETS............................................. 5,953,964 2,754,401
========= =========
CURRENT LIABILITIES...................................... 18 1,179,204 571,763
LONG-TERM INTEREST BEARING LIABILITIES................... 19 4,578,412 1,890,218
DEFERRED TAX LIABILITY, NET.............................. 11 27,322 --
PROVISIONS FOR LIABILITIES AND CHARGES................... 20 1,220 2,111
--------- ---------
TOTAL LIABILITIES........................................ 5,786,158 2,464,092
--------- ---------
SHAREHOLDERS' EQUITY
Share capital............................................ 21 471,000 471,000
Accumulated deficit...................................... (303,194) (180,691)
--------- ---------
167,806 290,309
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... 5,953,964 2,754,401
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 44
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS OF PLN)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(SEE NOTE 25)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS)/INCOME BEFORE TAXATION.................. (81,612) 115,323 (124,683)
ADJUSTMENTS FOR:
Depreciation and amortization...................... 281,697 158,291 76,372
Charge to provision for doubtful debtors........... 143,890 90,694 43,714
Charge to provision for inventory.................. 4,410 (3,309) 5,009
Other provisions and special funds................. (891) 835 655
Unrealized foreign exchange losses, net............ 143,602 10,880 37,806
Loss on disposal of tangibles and intangibles...... 8,146 983 216
Interest expense, net.............................. 247,527 123,770 31,801
Other.............................................. -- (593) 614
---------- ---------- --------
OPERATING CASH FLOWS BEFORE WORKING CAPITAL
CHANGES.......................................... 746,769 496,874 71,504
Increase in inventory.............................. (110,918) (38,328) (14,271)
Increase in debtors, prepayments and deferred
cost............................................. (266,196) (219,943) (173,612)
Increase in trade payables and accruals............ 101,849 86,406 13,072
---------- ---------- --------
CASH GENERATED FROM/(USED IN) OPERATIONS........... 471,504 325,009 (103,307)
Interest paid...................................... (103,220) (47,526) (10,118)
Income taxes paid.................................. (25,549) (113,668) --
---------- ---------- --------
NET CASH GENERATED FROM/(USED IN) OPERATING
ACTIVITIES....................................... 342,735 163,815 (113,425)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of intangible fixed assets............... (346,019) (52,855) (18,677)
Purchases of tangible fixed assets................. (985,298) (966,649) (176,272)
Purchases of short-term investments, net........... (511,603) 5,084 22,934
Proceeds from sale of equipment and intangibles.... 7,309 894 3,932
Interest received.................................. 7,277 8,816 15,422
---------- ---------- --------
NET CASH USED IN INVESTING ACTIVITIES.............. (1,828,334) (1,004,710) (152,661)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings................. 487,972 593,870 --
Proceeds from senior subordinated debt issuance,
net.............................................. 1,843,822 -- 479,785
Proceeds from shareholders' loan................... 296,756 -- --
Net change in overdraft facility................... (24,558) 24,558 --
---------- ---------- --------
NET CASH GENERATED FROM FINANCING ACTIVITIES....... 2,603,992 618,428 479,785
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 1,118,393 (222,467) 213,699
EFFECT OF FOREIGN EXCHANGE CHANGES ON CASH AND CASH
EQUIVALENTS...................................... (28,579) 6 11,913
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..... 5,695 228,156 2,544
---------- ---------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR........... 1,095,509 5,695 228,156
========== ========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 45
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED
DECEMBER 31, 1999, DECEMBER 31, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS OF PLN)
<TABLE>
<CAPTION>
CURRENCY
SHARE RETAINED TRANSLATION
CAPITAL EARNINGS ADJUSTMENT TOTAL
------- -------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 (RESTATED)............. 471,000 (65,771) -- 405,229
Change in accounting policy with respect to
implementation of IAS 12 (revised), see Note
5a.............................................. 7,111 7,111
Change in accounting policy with respect to
implementation of IAS 38, see Note 5b........... 4,486 4,486
Currency translation adjustment................... -- -- 7 7
Comprehensive net loss for the year, as originally
reported........................................ -- (132,033) -- (132,033)
------- -------- --- --------
BALANCE AT DECEMBER 31, 1997 (RESTATED)........... 471,000 (186,207) 7 284,800
Change in accounting policy with respect to
implementation of IAS 38, see Note 5b........... 4,047 4,047
Currency translation adjustment................... -- -- (7) (7)
Comprehensive net profit for the year, as
originally reported............................. -- 1,469 -- 1,469
------- -------- --- --------
BALANCE AT DECEMBER 31, 1998 (RESTATED)........... 471,000 (180,691) -- 290,309
Comprehensive net loss for the year............... -- (122,503) -- (122,503)
------- -------- --- --------
BALANCE AT DECEMBER 31, 1999...................... 471,000 (303,194) -- 167,806
======= ======== === ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 46
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE 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.
2. PRINCIPLES OF CONSOLIDATION
A. GROUP ENTITIES
All intercompany balances and transactions are eliminated in consolidation.
The 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
F-6
<PAGE> 47
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 consolidated financial statements are reported 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 years
ended December 31, 1999, December 31, 1998 and December 31, 1997 are shown in
Note 27 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 years ended December 31, 1999, December 31,
1998 and December 31, 1997 have been presented in Note 28 to these Financial
Statements.
The IAS rules that were mandatory as of 31 December 1999 were applied to
these financial statements. In addition, each of the following new standards
have been adopted early and applied throughout all of the years presented
herein:
<TABLE>
<CAPTION>
<S> <C>
(revised 1998) "Property, Plant and Equipment",
IAS
16..
(revised 1998) "Business Combinations",
IAS
22..
"Impairment of Assets",
IAS
36..
"Provisions, Contingent Liabilities and Contingent Assets",
IAS
37..
"Intangible Assets".
IAS
38..
</TABLE>
The effect of the adoption of the new standards is discussed in Note 5.
In Management's opinion, the financial statements for the years ended
December 31, 1999, 1998 and 1997 include all adjustments necessary for a fair
statement of the results for the period. All such adjustments are of normal,
recurring nature.
4. PRINCIPAL ACCOUNTING POLICIES
A. TANGIBLE FIXED ASSETS
Tangible fixed assets are shown at historical cost less accumulated
depreciation.
F-7
<PAGE> 48
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 -- 3.3 -- 8
30.0%
Other...................................................... 10.0 -- 5 -- 10
20.0%
</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 allows starting operations of relevant
services from March 1, 2000.
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 terminates together with the start of
operational validity of the GSM 1800 license. 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>
F-8
<PAGE> 49
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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 consist 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.
F-9
<PAGE> 50
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (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 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
is 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.
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 December 31, 1999 representing the total
net credit risk exposure at date is presented in Note 13.
5. CHANGES IN ACCOUNTING POLICIES
A. DEFERRED TAXES
Effective January 1, 1998 the Company has adopted IAS 12 (revised) "Income
Taxes" in accounting for its income taxes. The resulting change in accounting
policy was applied retrospectively, resulting in a positive adjustment to the
opening balance of retained losses of PLN 23,637 as at January 1, 1997. The
resulting adjustment to the opening balance of retained loss as at January 1,
1998 resulted in a decrease by PLN 30,748. Additionally, the net loss reported
for the year ended December 31, 1997 was decreased by PLN 7,111.
B. 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
retained losses of PLN 15,063 as at
F-10
<PAGE> 51
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 1, 1997. The resulting adjustment to the opening balance of retained
loss as at January 1, 1999 resulted in an increase by PLN 6,530. Additionally,
the net loss reported for the year ended December 31, 1999 was decreased by
PLN 2,367.
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 network capital equipment and 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. The
Company intends to enter into both short and long-term transactions to hedge the
risk of exchange rate fluctuations, to the extent hedging arrangements on
commercially satisfactory terms are obtainable. There is no assurance that the
Company will be able to obtain hedging arrangements on commercially satisfactory
terms. At the end of 1999, the Company had no open hedging transactions,
although, the Company's hedging policy allows for the use of forwards, swaps and
options for minimizing currency and interest rate risks. As an alternative, the
Company may attempt to structure foreign currency liabilities to be broadly in
line with the currency basket employed by the National Bank of Poland. This
technique will not eliminate foreign exchange losses; however, the Company
believes the technique may improve the management of the magnitude of these
losses. Starting in late 1998 and continuing through the current year, the
Company drew funds mainly from the bank credit facility and exhausted the Polish
zloty denominated tranche first in order to minimize the negative effects of
currency exchange fluctuations.
7. NET SALES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Service revenues and fees.......................... 2,369,444 1,445,340 534,439
Sales of telephones and accessories................ 222,617 165,471 112,623
--------- --------- ---------
2,592,061 1,610,811 647,062
========= ========= =========
</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).
F-11
<PAGE> 52
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COSTS AND EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cost of sales:
Cost of services sold............................ 939,037 613,898 330,112
Cost of sales of telephones and accessories...... 723,814 334,516 181,037
--------- --------- ---------
1,662,851 948,414 511,149
Operating expenses:
Selling and distribution costs................... 454,807 277,123 139,685
Administration and other operating cost.......... 157,752 104,152 46,910
--------- --------- ---------
612,559 381,275 186,595
--------- --------- ---------
2,275,410 1,329,689 697,744
========= ========= =========
</TABLE>
The following costs and expenses were included in cost of sales:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Merchandise sold................................... 719,404 334,516 176,028
Depreciation and amortization...................... 257,071 141,078 69,501
Other external services............................ 169,463 127,091 62,356
Commissions........................................ 151,578 89,710 77,653
Interconnect....................................... 131,558 77,490 32,413
Leased lines....................................... 98,714 92,869 49,696
Roaming............................................ 78,861 44,137 16,273
Wages and salaries................................. 27,489 13,314 7,386
Materials and energy............................... 11,168 10,911 6,429
Social security and other benefits................. 9,228 11,194 4,578
Taxes and other charges............................ 5,152 2,493 1,986
Charge to inventory provision...................... 4,410 (3,309) 5,009
Other.............................................. (1,245) 6,920 1,841
--------- ------- -------
1,662,851 948,414 511,149
========= ======= =======
</TABLE>
F-12
<PAGE> 53
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following costs and expenses were included in selling and distribution
costs:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Advertising costs.................................. 159,623 98,223 41,655
Charge to doubtful debtors provision............... 143,890 90,694 43,714
Wages and salaries................................. 70,386 25,851 16,129
External services.................................. 33,773 27,271 17,773
Social security and other benefits................. 18,487 18,554 8,150
Depreciation and amortization...................... 9,563 6,005 4,434
Materials and energy............................... 8,918 4,542 4,464
Taxes and other charges............................ 6,816 3,628 1,201
Other.............................................. 3,351 2,355 2,165
------- ------- -------
454,807 277,123 139,685
======= ======= =======
</TABLE>
The following costs and expenses were included in administration costs:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
External services.................................. 77,623 52,703 21,577
Wages and salaries................................. 41,968 20,496 10,407
Depreciation and amortization...................... 15,063 11,208 2,437
Social security and other benefits................. 10,068 11,928 5,869
Materials and energy............................... 6,240 6,259 948
Taxes and other charges............................ 708 5,158 2,715
Other.............................................. 6,082 (3,600) 2,957
------- ------- -------
157,752 104,152 46,910
======= ======= =======
</TABLE>
9. INTEREST AND OTHER FINANCIAL INCOME
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Foreign exchange gains............................. 45,414 12,816 19,996
Interest income.................................... 12,628 8,582 15,655
------- ------- -------
58,042 21,398 35,651
======= ======= =======
</TABLE>
10. INTEREST AND OTHER FINANCIAL EXPENSES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Interest expense................................... 260,155 132,353 47,456
Foreign exchange losses............................ 196,150 54,844 62,196
------- ------- -------
456,305 187,197 109,652
======= ======= =======
</TABLE>
F-13
<PAGE> 54
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. TAXATION
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Polish current tax charge.......................... (10,555) (76,223) --
Polish net deferred tax (charge)/benefit........... (30,088) (33,197) 4,361
Foreign current tax charge......................... (248) (387) (114)
------- -------- -----
Tax (charge)/benefit............................... (40,891) (109,807) 4,247
======= ======== =====
</TABLE>
Tax losses for the period from December 27, 1995 to December 31, 1996 could
have been offset with future taxable income in three equal installments during
the three years following the loss. The 1996 tax losses were utilized as
follows: PLN 58,006 in 1997, PLN 122,550 in 1998 and PLN 87,112 in 1999. The
unused portion of a tax loss installment expired. There are no other tax losses
carry forward available for future periods.
According to the Polish tax regulations, the tax rates in effect in 1999,
1998 and 1997 were 34%, 36% and 38%, respectively. The tax rates set for years
2000, 2001, 2002, 2003 and 2004 and thereafter are as follows 30%, 28%, 28%, 24%
and 22%, respectively.
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>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Profit/(loss) before taxation...................... (81,612) 115,323 (124,683)
Tax rate........................................... 34% 36% 38%
------- -------- --------
Tax benefit/(charge) using statutory rate.......... 27,748 (41,517) 47,379
Permanent differences............................ (5,643) (5,478) (3,627)
Change in temporary differences for which
realization is not probable and temporary
differences written off....................... (62,053) (44,461) (31,651)
Effect of different tax rate in foreign entity... 559 (59) (10)
Change in tax rates.............................. 14,364 (2,890) (2,833)
Loss carry forward expired....................... (12,049) -- (5,011)
Refiling of 1998 tax return...................... (10,555) -- --
Adjustments to deferred taxes.................... 6,738 (15,402) --
------- -------- --------
Tax (charge)/benefit............................... (40,891) (109,807) 4,247
======= ======== ========
</TABLE>
F-14
<PAGE> 55
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Deferred tax assets in Poland:
Bad debt provision........................................ 71,807 44,375
Unrealized foreign exchange loss, net..................... 37,623 13,562
Accrued interest.......................................... 26,029 10,942
Book versus tax basis of fixed assets..................... 21,631 14,499
Accrued expenses.......................................... 9,457 4,608
Inventory provision....................................... 2,293 1,285
Development costs......................................... 1,719 2,938
Accrued advertising....................................... 1,638 --
Tax losses carry forward.................................. -- 41,667
-------- -------
172,197 133,876
Temporary differences for which realization is not probable
("valuation allowance")................................... (97,037) (67,158)
-------- -------
75,160 66,718
Deferred tax liabilities in Poland:
Book versus tax basis of GSM licenses..................... (102,482) (63,234)
Book versus tax basis of fixed assets..................... -- (718)
-------- -------
(102,482) (63,952)
-------- -------
Net deferred tax asset/(liability).......................... (27,322) 2,766
======== =======
</TABLE>
The increase in valuation allowance results primarily from the increase of
unrealized foreign exchange losses on long-term Notes and bad debt provision for
which tax deductibility is yet uncertain.
12. SHORT-TERM INVESTMENTS
Short-term investments at December 31, 1999 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 11 1/4 Notes issued by PTC International Finance
II S.A. in 1999. The long-term portion (PLN 301,829 as of December 31, 1999) of
the escrow fund is presented in the balance sheet under financial assets
caption.
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Short-term investments...................................... 198,468 --
</TABLE>
All of the above funds are restricted to cover payments of the above
mentioned interest coupons.
F-15
<PAGE> 56
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. DEBTORS AND PREPAYMENTS
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Trade debtors and accrued income............................ 505,043 356,675
Corporate Income Tax and other taxes recoverable from State
Treasury.................................................. 54,835 85,064
Prepaid expenses............................................ 27,862 9,480
Accounts receivable from shareholders....................... 194 3,332
Other debtors............................................... 43,145 1,925
-------- --------
631,079 456,476
Provision for doubtful debtors.............................. (166,834) (117,827)
-------- --------
464,245 338,649
======== ========
</TABLE>
14. INVENTORY
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Telephones.................................................. 135,362 50,462
Accessories and other....................................... 56,808 29,264
------- ------
192,170 79,726
Inventory provision......................................... (8,190) (3,780)
------- ------
183,980 75,946
======= ======
</TABLE>
15. TANGIBLE FIXED ASSETS, NET
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Land and buildings.......................................... 195,771 79,954
Plant and equipment......................................... 1,954,057 844,729
Motor vehicles.............................................. 12,061 8,254
Other fixed assets.......................................... 208,389 35,678
Construction in progress.................................... 203,627 702,567
--------- ---------
2,573,905 1,671,182
========= =========
</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 year ended December 31, 1999, the Company capitalized PLN 14,808 of
net foreign exchange losses and no interest expense. For the year ended December
31, 1998, PLN 22,765 of foreign exchange losses and PLN 4,074 of interest
expense was capitalized and for the year ended December 31, 1997, PLN 9,346 of
foreign exchange losses and PLN 1,234 of interest expense was capitalized.
F-16
<PAGE> 57
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The movement in each year 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, 1997................... -- 30,443 6,612 3,130 116,764 156,949
Additions............................ 77 -- 4,427 942 631,157 636,603
Transfers............................ -- 205,974 -- 13,287 (219,261) --
Disposals............................ -- (4,774) (138) (35) -- (4,947)
------- --------- ------ ------- ---------- ---------
At December 31, 1997................. 77 231,643 10,901 17,324 528,660 788,605
------- --------- ------ ------- ---------- ---------
DEPRECIATION
At January 1, 1997................... -- 252 449 1,336 -- 2,037
Charge............................... -- 20,111 2,587 3,884 -- 26,582
Disposals............................ -- (741) (23) (35) -- (799)
------- --------- ------ ------- ---------- ---------
At December 31, 1997................. -- 19,622 3,013 5,185 -- 27,820
------- --------- ------ ------- ---------- ---------
NET BOOK VALUE AT DECEMBER 31,
1997............................... 77 212,021 7,888 12,139 528,660 760,785
======= ========= ====== ======= ========== =========
COST
At January 1, 1998................... 77 231,643 10,901 17,324 528,660 788,605
Additions............................ 80,691 11,377 4,453 2,847 914,276 1,013,644
Transfers............................ -- 709,360 -- 31,469 (740,369) 460
Disposals............................ -- (385) (439) (3,110) -- (3,934)
------- --------- ------ ------- ---------- ---------
At December 31, 1998................. 80,768 951,995 14,915 48,530 702,567 1,798,775
------- --------- ------ ------- ---------- ---------
DEPRECIATION
At January 1, 1998................... -- 19,622 3,013 5,185 -- 27,820
Charge............................... 814 87,741 3,819 9,456 -- 101,830
Disposals............................ -- (97) (171) (1,789) -- (2,057)
------- --------- ------ ------- ---------- ---------
At December 31, 1998................. 814 107,266 6,661 12,852 -- 127,593
------- --------- ------ ------- ---------- ---------
NET BOOK VALUE AT DECEMBER 31,
1998............................... 79,954 844,729 8,254 35,678 702,567 1,671,182
======= ========= ====== ======= ========== =========
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 DECEMBER 31,
1999............................... 195,771 1,954,057 12,061 208,389 203,627 2,573,905
======= ========= ====== ======= ========== =========
</TABLE>
Tangible fixed assets held under capital leases (included in above
schedule):
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999 AT DECEMBER 31, 1998
--------------------------- ---------------------------
LAND BUILDINGS OTHER LAND BUILDINGS OTHER
----- --------- ----- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Cost.................................. 6,293 193,177 990 2,383 78,114 --
Accumulated depreciation.............. -- (4,166) (41) -- (814) --
----- ------- --- ----- ------ --
Net................................... 6,293 189,011 949 2,383 77,300 --
===== ======= === ===== ====== ==
</TABLE>
F-17
<PAGE> 58
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. INTANGIBLE FIXED ASSETS, NET
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
GSM licenses................................................ 953,226 593,066
Computer software........................................... 97,388 36,164
Trademark................................................... 161 174
--------- -------
1,050,775 629,404
========= =======
</TABLE>
During the year ended December 31, 1999 the Company capitalized PLN 3,416
of foreign exchange losses and 15,569 of interest expense on intangible fixed
assets. No financial expenses were capitalized in intangible assets during the
year ended December 31, 1998 and for the year ended December 31, 1997 PLN 17,948
of interest expense was capitalized.
F-18
<PAGE> 59
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The movement in each year was as follows:
<TABLE>
<CAPTION>
GSM COMPUTER TRADE
LICENSES SOFTWARE MARK TOTAL
--------- --------- ----- ---------
<S> <C> <C> <C> <C>
COST
At January 1, 1997.................................. 662,093 7,750 206 670,049
Additions........................................... 38,471 12,881 -- 51,352
Transfers........................................... -- -- -- --
--------- --------- --- ---------
At December 31, 1997................................ 700,564 20,631 206 721,401
--------- --------- --- ---------
AMORTIZATION
At January 1, 1997.................................. 11,398 417 5 11,820
Charge.............................................. 47,312 2,464 14 49,790
Transfers........................................... -- -- -- --
--------- --------- --- ---------
At December 31, 1997................................ 58,710 2,881 19 61,610
--------- --------- --- ---------
NET BOOK VALUE AT DECEMBER 31, 1997................. 641,854 17,750 187 659,791
========= ========= === =========
COST
At January 1, 1998.................................. 700,564 20,631 206 721,401
Additions........................................... -- 26,534 -- 26,534
Transfers........................................... -- (474) -- (474)
--------- --------- --- ---------
At December 31, 1998................................ 700,564 46,691 206 747,461
--------- --------- --- ---------
AMORTIZATION
At January 1, 1998.................................. 58,710 2,881 19 61,610
Charge.............................................. 48,788 7,660 13 56,461
Transfers........................................... -- (14) -- (14)
--------- --------- --- ---------
At December 31, 1998................................ 107,498 10,527 32 118,057
--------- --------- --- ---------
NET BOOK VALUE AT DECEMBER 31, 1998................. 593,066 36,164 174 629,404
========= ========= === =========
COST
At January 1, 1999.................................. 700,564 46,691 206 747,461
Additions........................................... 408,905 82,833 -- 491,738
Transfers........................................... -- -- -- --
--------- --------- --- ---------
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
Transfers........................................... -- -- -- --
--------- --------- --- ---------
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
========= ========= === =========
</TABLE>
F-19
<PAGE> 60
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. DEFERRED COSTS
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Notes issuance cost......................................... 69,897 15,941
Senior debt issuance cost................................... 12,493 14,818
Other....................................................... 2,863 --
------ ------
85,253 30,759
====== ======
</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 DECEMBER 31, AT DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Construction payables....................................... 373,528 225,176
Trade creditors............................................. 329,985 122,398
GSM 900 and GSM 1800 licenses liabilities................... 206,666 63,419
Accruals.................................................... 154,605 66,385
Deferred income............................................. 48,998 32,602
Amounts due to State Treasury............................... 27,790 14,829
Overdraft facility.......................................... -- 24,558
Finance leases payable...................................... 28,080 9,978
Accounts payable to shareholders............................ 6,201 11,939
Payroll..................................................... 3,351 479
--------- ---------
1,179,204 571,763
========= =========
</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. (19.96% as of December 31, 1999). No borrowings were outstanding as of
December 31, 1999 and balance as of December 31, 1998 was PLN 4,430.
Additionally, in December 1998, the Company signed a one-year overdraft facility
with Citibank. The terms provided for maximum borrowings of DEM 15,000 thousand
(balance as of December 31, 1998 PLN 20,128) and interest based on monthly WIBOR
plus 0.5% (17.88% as of December 31, 1998).
F-20
<PAGE> 61
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. LONG-TERM INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Loan facility............................................... 1,076,566 596,830
Long-term Notes............................................. 2,654,021 614,993
Construction payables....................................... -- 278,247
GSM 900 and GSM 1800 license liability...................... 332,491 331,124
Finance leases payable...................................... 190,259 69,024
Shareholders loan........................................... 325,075 --
--------- ---------
4,578,412 1,890,218
========= =========
</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 1,050 million as of December
31, 1999). 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 December 31, 1999 was 67% of the nominal value (USD 170 million or
PLN 704 million) whilst the carrying amount is PLN 808 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 1,873 million as
of December 31, 1999) 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).
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.
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.
The 11 1/4 Notes are expected to be replaced through an exchange offering
on March, 2000. The terms of the Exchange Notes will be substantially identical
to the old Notes, except that they can be freely traded.
Construction payables are liabilities to GSM construction vendors. The
Company began financing these liabilities in 1998 through its loan facility
agreement, discussed below and through operating cash flow. The above December
31, 1998 balance was to be financed through the long-term loan facility and was
hence classified as long-term. However, since September 30, 1999 the loan
facility available was no longer sufficient to ensure that these would be
settled through the facility. Therefore, all construction payables since
September 30, 1999 were classified as short-term.
F-21
<PAGE> 62
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (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 1,077 million, which consisted of DM 238 million (equivalent of
PLN 507 million as of December 31, 1999) and PLN 570 million (equivalent of
DM 267 million as of December 31, 1999) borrowings. The main terms of the
agreement are as follows:
Facility limit............. equivalent of DM 672 million
Interest................... LIBOR or WIBOR plus margin of 0.95% 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 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 at December 31, 1999 the fair market value of the
GSM 900 license liability discounted at 9.52%, amounts to PLN 347 million,
whilst the carrying amount is PLN 359 million.
The balances payable as of December 31, 1999 were:
<TABLE>
<CAPTION>
EURO'000 EURO'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>
The balances payable as of December 31, 1998 were:
<TABLE>
<CAPTION>
EURO'000 EURO'000 PLN'000
MATURITY NOMINAL DISCOUNTED DISCOUNTED
- -------- -------- ---------- ----------
<S> <C> <C> <C>
Due in one year (see Note 18)............................. 15,730 15,496 63,419
Due in year two........................................... 34,320 31,851 130,351
Due in year three......................................... 56,100 49,059 200,773
------- ------ -------
106,150 96,406 394,543
======= ====== =======
</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
December 31, 1999) 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.
F-22
<PAGE> 63
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Social fund................................................. 1,220 778
Other provisions............................................ -- 1,333
----- -----
1,220 2,111
===== =====
</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.
21. SHARE CAPITAL
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Allotted, called-up and fully paid:
471,000 ordinary shares of 1,000 PLN each................... 471,000 471,000
======= =======
</TABLE>
22. RELATED PARTY TRANSACTIONS
ELEKTRIM S.A.
Elektrim S.A. was a 48% shareholder of the Company. In December 1999
Elektrim S.A. sold all of its shares except one share to Elektrim
Telekomunikacja Sp. z o.o. -- its 51% controlled subsidiary. There were no
transactions between the Company and Elektrim Telekomunikacja Sp. z o.o. in
1999.
The Company purchased services from Elektrim S.A. amounting to PLN 5,615
during the year ended December 31, 1999, PLN 11,665 during the year ended
December 31, 1998 and PLN 7,934 during the year ended December 31, 1997. The
Company realized sales of PLN 560 during the year ended December 31, 1999,
PLN 259 in 1998 and PLN 235 in 1997. Net payables outstanding were PLN 925 at
December 31, 1999 and PLN 915 at December 31, 1998. In addition, the Company
accrued PLN 7,439 of interest on shareholders' loan (see Note 19), which remains
outstanding as of December 31, 1999. No such loans existed in 1998.
MEDIAONE INTERNATIONAL B.V.
MediaOne International B.V. is a 22.5% shareholder of the Company. The
Company purchased services from MediaOne amounting to PLN 14,426 plus PLN 386 of
interest during the year ended December 31, 1999, PLN 14,382 in 1998 and
PLN 18,762 in 1997. There were no balances outstanding at December 31, 1999 and
net payables outstanding of PLN 3,423 at December 31, 1998. In addition, the
Company accrued PLN 3,305 of interest on shareholders' loan (see Note 19), which
remains outstanding as of December 31, 1999. No such loans existed in 1998.
DETEMOBIL DEUTSCHE TELEKOM MOBILNET GMBH
DeTeMobil is a 22.5% shareholder of the Company. The Company purchased
services from DeTeMobil amounting to PLN 27,543 during the year ended December
31, 1999, PLN 31,263 in 1998 and PLN 49,989 in 1997. The Company realized sales
of PLN 19,795 during the year ended December 31, 1999, PLN 14,923 in 1998 and
PLN 7,765 in 1997. Net payables outstanding were PLN 5,082 at December 31, 1999
and PLN 4,269 at December 31, 1998. In addition, the Company accrued PLN 3,305
of interest on shareholders' loan (see Note 19), which remains outstanding as of
December 31, 1999. No such loans existed in 1998.
F-23
<PAGE> 64
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Related party transactions were conducted primarily on market terms.
23. FINANCIAL COMMITMENTS
A. FINANCE LEASES (INCLUDED IN LIABILITIES)
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
minimum lease payments under capital leases are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
--------------------------------------
FUTURE VALUE INTEREST DISCOUNTED
------------ -------- ----------
PLN PLN PLN
<S> <C> <C> <C>
Due in
one year............................................... 29,807 1,727 28,080
year two............................................... 29,807 4,676 25,131
year three............................................. 29,807 7,315 22,492
year four.............................................. 29,807 9,673 20,134
year five.............................................. 29,807 11,782 18,025
after year five........................................ 300,363 195,886 104,477
------------ ------- -------
449,398 231,059 218,339
============ ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
--------------------------------------
FUTURE VALUE INTEREST DISCOUNTED
------------ -------- ----------
PLN PLN PLN
<S> <C> <C> <C>
Due in
one year............................................... 10,600 622 9,978
year two............................................... 10,600 1,686 8,914
year three............................................. 10,600 2,639 7,961
year four.............................................. 10,600 3,487 7,113
year five.............................................. 10,600 4,247 6,353
after year five........................................ 119,756 81,073 38,683
------------ ------- -------
172,756 93,754 79,002
============ ======= =======
</TABLE>
The headquarters lease obligation is denominated in USD and payable in PLN.
Its future amount, USD 108,333 thousand, consists of minimum monthly payments of
USD 599 thousand and purchase option of USD 11,825 thousand.
Annually, the Company's lease liabilities are changed based on the U.S.
consumer price index ("CPI"). In 1999, this resulted in an increase in minimum
monthly payments by USD 4.3 thousand (PLN 17.8 thousand as of December 31,
1999).
F-24
<PAGE> 65
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. OPERATING LEASES (NOT INCLUDED IN LIABILITIES)
The minimum annual rentals payable on operating leases are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Operating leases maturity
Due in one year............................................. 17,475 1,547
Due in two years............................................ 9,010 1,148
Due in three years.......................................... 14,201 5,445
Due in four years........................................... 6,253 6,450
Due in five years........................................... 2,345 4,578
Due after five years........................................ 31,896 26,952
------ ------
81,180 46,120
====== ======
</TABLE>
Assets under operating leases include primarily network sites, office
space, retail outlets and warehouse.
C. CAPITAL EQUIPMENT COMMITMENTS (NOT INCLUDED IN LIABILITIES)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Authorized and contracted................................... 319,725 167,396
Authorized and not contracted............................... 1,495,522 1,138,000
--------- ---------
1,815,247 1,305,396
========= =========
</TABLE>
These capital equipment commitments are denominated in Deutschemarks and
amount to approximately DM 852 million at December 31, 1999 and DM 624 million
at December 31, 1998.
24. 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
December 31 1999, the Company had no net profit available for distribution.
25. 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 DECEMBER 31, AT DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Balances deposited with banks:
Current accounts.......................................... 29,422 2,958
Term deposits with original maturity of less then 90
days................................................... 654,305 2,540
Bills with original maturity of less then 90 days......... 410,694 --
Social fund cash.......................................... 468 59
Cash on hand................................................ 620 138
--------- -----
1,095,509 5,695
========= =====
</TABLE>
F-25
<PAGE> 66
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1999 the Company revalued cash on hand and balances
deposited with banks denominated in foreign currencies. The net result of the
revaluation was PLN 28,579 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.
NON-CASH TRANSACTIONS
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Assets acquired under finance lease......................... 119,963 80,497
GSM 1800 license acquisition................................ 389,923 --
</TABLE>
26. EMPLOYMENT
Average headcount in the Company during the presented years was as follow:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Average headcount.................................... 2,170 1,439 853
</TABLE>
27. SUPPLEMENTARY INFORMATION TO IAS FINANCIAL STATEMENTS
A reconciliation of the Company's comprehensive net profit/(loss) and
shareholders' equity under Polish statutory accounting regulations ("PAS") and
International Accounting Standards ("IAS") is summarized as follow:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Comprehensive net profit/(loss) under PAS................ (138,203) 26,913 (132,354)
Foreign translation difference........................... (1,582) 63 --
IAS adjustment for GSM license amortization.............. 4,562 4,520 5,076
IAS adjustment for GSM license discount.................. (22,602) (24,151) (6,431)
Unrealized foreign exchange differences.................. 29,569 8,610 1,676
Finance lease............................................ 1,113 2,104 --
IAS assets adjustment.................................... (964) 11,732 --
Development and start-up costs........................... 3,586 6,324 7,236
Deferred tax benefit/(charge)............................ 2,018 (30,599) 4,361
-------- -------- --------
Comprehensive net profit/(loss) under IAS................ (122,503) 5,516 (120,436)
======== ======== ========
</TABLE>
F-26
<PAGE> 67
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED 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
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Shareholders' equity under PAS....................... 151,681 289,758 262,845
Foreign translation difference....................... (1,652) 56 --
IAS adjustment for GSM license amortization.......... 15,621 11,059 6,539
IAS adjustment for GSM licenses discount............. (53,184) (30,582) (6,431)
Unrealized foreign exchange differences.............. 39,855 10,286 1,676
Finance lease........................................ 3,217 2,104 --
IAS assets adjustment................................ 10,768 11,732 --
Development and start-up costs....................... (5,882) (9,468) (15,792)
Deferred tax benefit................................. 7,382 5,364 35,963
------- ------- -------
Shareholders' equity under IAS....................... 167,806 290,309 284,800
======= ======= =======
</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 (for the GSM 900 license) 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.
28. DIFFERENCES BETWEEN IAS AND U.S. GAAP
The Company's 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 years ended December 31, 1999, December 31, 1998 and
December 31, 1997 and consolidated net assets as of December 31, 1999, December
31, 1998 and December 31, 1997.
F-27
<PAGE> 68
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECONCILIATION OF COMPREHENSIVE NET PROFIT/(LOSS):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Comprehensive net income/(loss) under IAS............ (122,503) 5,516 (120,436)
U.S. GAAP adjustments:
(a) Removal of foreign exchange differences
capitalized for IAS............................. (18,224) (22,765) (30,697)
(b) Depreciation and amortization of foreign
exchange........................................ 6,392 3,931 2,949
(c) Inventory discount policy....................... -- (3,548) 3,548
(d) Development and start-up cost................... (9,468) (3,585) (9,975)
(g) Deferred tax on above........................... 2,938 1,291 3,736
-------- ------- --------
Comprehensive net loss under U.S. GAAP............... (140,865) (19,160) (150,875)
======== ======= ========
</TABLE>
RECONCILIATION OF CONSOLIDATED SHAREHOLDERS' EQUITY:
<TABLE>
<CAPTION>
AT AT AT
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Consolidated shareholders' equity reported under
IAS................................................ 167,806 290,309 284,800
U.S. GAAP adjustments:
(a) Removal of foreign exchange differences
capitalized for IAS............................. (103,240) (85,016) (62,251)
(b) Depreciation and amortization on above.......... 13,777 7,385 3,454
(c) Inventory discounts policy...................... -- -- 3,548
(d) Development and start-up cost................... -- 9,468 13,053
(g) Deferred tax on above........................... -- (2,938) (4,229)
-------- ------- -------
Consolidated shareholders' equity under U.S. GAAP.... 78,343 219,208 238,375
======== ======= =======
</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.
F-28
<PAGE> 69
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (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) INVENTORY DISCOUNTS POLICY
Until December 31, 1997, an inventory provision was recorded for planned
promotional discounts. In January 1998, the Company discontinued this practice
and recognizes loss on promoted inventory in the period when the promotion is
carried out. Should the principles applied in 1998 been used in 1997, the net
loss for the year ended December 31, 1997 would have been decreased by PLN
3,548.
(D) DEVELOPMENT AND START-UP COST
As explained in Note 5.b 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.
(E) 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 December 31, 1999 deferred tax assets, as presented in Note
11, included PLN 27,472 of current portion (PLN 46,723 as at December 31, 1998)
and deferred tax liability included PLN 7,637 of current portion (PLN 5,133 as
at December 31, 1998).
(F) 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.
F-29
<PAGE> 70
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
10.1 Agreement with Elektrim Volt S.A. for civil works services,
dated December 15, 1999.
</TABLE>
<PAGE> 1
AGREEMENT NO. PL.-011417295/446-PTC-ELE/99
concluded on 15th December 1999 by and between:
Elektrim- Volt S.A.
seated in Warsaw, ul. Panska 77/79
entered to the Commercial Register kept by the District Court in Warsaw, XVI
Commercial & Registration Division under the No. B/49347
represented by:
1. Wffiodzimierz Tyszko -- the Vice-president of the Management Board,
the General Manager
2. Paweffi Wyganowski -- the Deputy Commercial Director, the Proxy
hereinafter referred to as the "Contractor"
and
Polska Telefonia Cyfrowa Sp. zo.o.
seated in Warsaw, Al. Jerozolimskie 181,
entered to the Commercial Register kept by the District Court for the capital
city of Warsaw, XVI Commercial & Registration Division under the No. RHB 45740
represented by:
1. Bogusffiaw Kulakowski, the General Manager
2. Wilhelm Stuckemann, Network Operation Director
hereafter referred to as the "Contracting Party".
SECTION 1
SUBJECT MATTER
1.1. The Parties express hereby a will to continue a co-operation in the
area of construction and execution of the investment named "Stacje
Benzynowe Polskiej Telefonii Cyfrowej GSM" hereafter referred to as
the "Facilities". The Parties confirm hereby that as of the date of
this Agreement, the Contractor executes 58 Facilities listed in the
Appendix No. 7 assigned to it by the Contracting Party within the
Agreement concluded between Elektrim S.A. and the Contracting party
on 28th Oct. 1996.
1.2. In reference to the Facilities being executed as provided for in the
Sect. 1.1. hereabove, the Contracting Party confirms hereby that it
will place the order with the Contractor until 30th June 2000, on the
basis of which it will order the performance of solicitation & design
activities and installation & assembly works as provided for in the
Sect. 1.4 hereafter for the same number of the Facilities specified
in the List of 58 Facilities currently being executed that will be
built be the Contractor and accepted by the Contracting Party for use
until 31st December 1999.
1.3. Irrespective of the provisions contained in the Sect. 1.2 hereabove,
the Contracting party guarantees hereby that in time of being this
Agreement in force, it will provide the Contractor with orders for
the execution of new Facilities [in portfolios composed of 5
localizations] unless the Parties agree otherwise, that will enable
the Contractor to have at least 20 Facilities involved in the
investment process.
1.4. Upon the terms & conditions provided in this Agreement, the
Contractor undertakes to fulfill duties associated with a preparation
for the execution of the Facilities and execution of the Facilities
through separate orders placed for particular Facilities, on the
basis of technical instructions concerning the construction of the
stations given by the Contracting Party, and in compliance with the
technical know-how rules, on the basis of the technical documentation
according to the Appendix No. 2, pt 8 confirmed according to the
procedure described in the Sect. 1.1.
<PAGE> 2
The Contractor undertakes hereby to accomplish the following tasks:
a) administration & design activities described in the Appendix No.
1a or 1b;
b) performance of construction & installation works of the
abovementioned Facilities on the basis of designs prepared
according to the instructions contained in the pt 8 of the
Appendix No. 1a or 1b to this Agreement;
c) arrangements with the Contracting Party on the dates of
technological equipment installation (antennas, antenna wires,
containers etc.);
d) provision of a necessary land survey service on the area of works
being performed and performance of a post-performance land survey
inventory;
e) measurements of electro-magnetic field impact and obtaining an
instrument stating a permit given by competent bodies for the use
of the Base Station in compliance with the current provisions of
law.
1.5. The Contractor is obliged to provide the Contracting Party with a
design for the construction of the GSM Digital Telephony Base Station
in due time specified in a separate order.
1.6. The Contracting Party undertakes hereby to approve the abovementioned
draft within 5 working days of the date on which such a design is
delivered to the Contracting Party. Approval of a design is made
through signing the original design and the Documentation Acceptance
Protocol (as provided for in the Appendix No. 2) by the Contracting
Party.
SECTION 2
PRICE FOR THE SUBJECT MATTER
2.1. The Price for the Subject Matter is the amount expressed in PLN that
will be fixed from time to time on the basis of the Orders to this
Agreement placed separately for administration & design activities
(Sect. 1.4.a), and constructions $ installation works (Sect. 1.4b and
1.4e).
2.2. The Price for the Subject Matter includes: the costs of
administration & design activities, and the costs of construction &
installation work performance, the costs of Facility insurance, and
the costs of securing the construction site until the Acceptance
Protocol is signed according to the Appendices Nos. 2, 3.1, 3.2, 3.3,
and 3.4 to this Agreement. The Price for the Subject Matter will be
calculated on the basis of the prices per unit specified in the
Appendix No. 4 and if there is no price per unit provided, on the
basis of KNR according to the Appendix No. 5 to this Agreement.
2.3. The Price for the Subject Matter does not include VAT. VAT will be
added from time to time to the amounts specified in particular VAT
invoices at a rate being in force on the date of VAT invoice issue.
SECTION 3
TERMS OF PAYMENT
3.1. Payment for the performance of this Agreement due to the Contractor
is hereby agreed by the Parties in the following manner:
a) for the performance of administration & design activities
described in the Appendix No. 1a or 1b
-- 100% of a payment upon the submission of a building permit by
the Contractor. If the Contracting Party gives up the execution
of an item previously accepted by it, then the Contracting Party
shall refund the Contractor all documented costs incurred by the
Contractor.
<PAGE> 3
b) for the performance of construction & installation works, and
securing the construction site until the Acceptance Protocol is
signed in the scope of tasks specified in the Sect. 1.4.b and
1.4.e.
-- partial payment equal to the cost of foundations and value of
the lower (according to the pt 1 and 2 of the Appendix No. 4)
after the tower is delivered on the site
-- the rest, up to 100% of the payment -- after the official
delivery of the construction to the Contracting Party: 5% of a
payment according to a final settlement shall be withheld by the
Contracting Party as a warranty security deposit for the period
of 24 months. That security deposit will be refunded before the
lapse of 24 months provided that the Contractor will submit a
bank guarantee or promissory note.
3.2. Payments will be increased by VAT according to the rates in force on
the date of VAT invoice. Payments resulting from particular Orders
will be made by the Contracting Party through transfer to its bank
account operated in Bank Handlowy S.A., VI Branch in Warsaw, No.
10301061-04741000 or to the another bank account specified in the
invoice upon the rules described in the pt 3.1.
3.3. The Contractor will issue invoices within 7 days of the date on which
it has become entitled to a payment.
3.4. The Contracting Party is obliged to pay invoice issued by the
Contractor within 30 days of the date on which an original invoice
has been received.
3.5. The Contracting Party declares that it is VAT payer, and its NIP is:
526-10-40-567, and it obliges hereby the Contractor to issue VAT
invoices in compliance with the terms & conditions of this Agreement
and current regulations concerning VAT invoice issue.
3.6. The Contractor shall issue invoices for: Polska Telefonia Cyfrowa Sp.
z o.o., Al. Jerozolimskie 181, 02-222 Warsaw, and send them to the
Supplier Service Department, address as above along with the Work
Certificate according to the Appendix No. 6.
SECTION 4
TERMS & CONDITIONS OF AGREEMENT PERFORMANCE
4.1. All provisions resulting from this Agreement will be performed in
time specified from time to time in a separate Order.
4.2. The Contractor will submit to the Contracting Party a declaration on
readiness to sign the acceptance Protocol 5 days before expected
acceptance date. On a date agreed, the authorized representatives of
the Contracting Party and the Contractor will commence the activities
connected with the acceptance.
4.3. If the Contracting Party fails to proceed to signing the Acceptance
Protocol on the date agreed as provided for in the pt 4.2, then the
Acceptance Protocol shall be signed on another date agreed, yet the
latest within 5 days after the date specified in a declaration.
4.4. A proper performance of this Agreement will be confirmed by signing
the Acceptance Protocol by the authorized representatives of the
Contracting Party and the Contractor on the form presented in the
Appendices Nos. 3, 3.1, 3.2, 3.3, and 3.4 which shall occur the
latest within 7 working days of the date on which the Contracting
Party is notified in writing by the Contractor about a readiness to
accept the construction.
4.5. If in a progress of acceptance, the Contracting Party finds any
defects, then the Contracting Party will provide the Contractor with
the written list of defects or deficiencies discovered, and it will
fix a term for removal of these defects and deficiencies, yet it may
not be longer than 14 days of the date of acceptance ended by a
refusal to accept. The Contractor shall notify the Contracting Party
about the date of the next acceptance that will go on according to
the same procedure as the first one.
<PAGE> 4
SECTION 5
DUTIES OF THE CONTRACTING PARTY
5.1. The Contracting Party shall appoint the Supervision Inspector who
shall fulfill his duties in compliance with the Act -- Building
Regulations. He/she will be designated each time in a separate order.
5.2. The Contracting Party will provide the Contractor with a report (SIR)
on the basis of which the Contractor will be able to prepare a
construction design.
5.3. The Contracting Party will sign the Acceptance Protocol immediately
after a proper completion of construction & installation works.
SECTION 6
DUTIES OF THE CONTRACTOR
6.1. The Contractor shall be held responsible for any damages caused on
the construction site according to the general provisions of law.
6.2. The Contractor undertakes to prepare a post-performance documentation
as of the date of the Acceptance Protocol in the term specified in a
separate Order.
6.3. The Contractor undertakes to provide any direct information and data
on the progress of works upon each demand of the Contracting party.
6.4. The Contractor is responsible for insuring the construction site.
6.5. The Contractor is liable to its employees for any damages caused to
them in connection with the performance of activities covered by this
Agreement. The Contractor is obliged to provide these employees with
appropriate insurance policies against these damages for the entire
period of performing activities covered by this Agreement. Copies of
these policies shall be presented to the Contracting Party for review
before a construction will be started.
SECTION 7
WARRANTY AND GUARANTEE
7.1. The Contractor gives hereby the Contracting Party a quality warranty
for all works constituting the subject matter of this Agreement.
7.2. Quality warranty is given for 36 months of the date on which the
Contracting Party signs the Acceptance Protocol.
7.3. The Contracting Party may exercise its rights on the basis of a
physical defect guarantee independently of any rights resulting from a
warranty.
7.4. The Contractor gives a 24 month warranty for used materials and
equipment manufactured by producers of particular materials and
equipment in compliance with warranties given by the producers of
particular materials and equipment. The Contractor will provide the
Contracting Party with appropriate warranty instruments of a producer,
and it will provide appropriate attests.
7.5. Any defects or irregularities shall be reported by authorized
representatives of the Contracting Party to the address of the
Contractor specified each time in a separate Order.
7.6. The Contractor is obliged to inform the Contracting Party about each
change in address, phone number, fax number, e-mail to which defects are
supposed to be reported the latest until the end of a day on which a
given change occurred. If the abovementioned duty is not fulfilled, then
reports placed in one of the abovementioned manners is deemed to be
effective towards the Contractor.
<PAGE> 5
7.7. Elimination of defects discovered upon the acceptance of works shall
take place the latest within 14 days of the moment at which the
Contracting Party reports them.
SECTION 8
LIABILITY
8.1. The Contractor is liable for defective construction of the Facilities
upon the terms & conditions of this Agreement, provisions of the Civil
Code and the Act-building regulations.
SECTION 9
LIABILITY OF THE PARTIES FOR VIOLATION OF THIRD PARTY'S RIGHTS
9.1. The Parties guarantee hereby that in a result of concluding this
Agreement, no rights of a third party will be violated, and in the event
of any claims or accusations of a third party rights' violation brought
by any Party, then a Party shall defend at its cost against any such
claims or accusations and it will free the other Party of them, and it
will cover all costs and losses incurred provided that it will
immediately inform the other Party on these claims or accusations, and
it will provide it with all information possessed by it and it will give
the other Party powers of attorney to conduct a required legal
proceeding in a court room and out of court, including composition
arrangements.
9.2. Until a proceeding concerning the claims made against the Contracting
Party is over, the Contractor may sustain a right of the Contracting
Party to use the objects or execute a right given on the basis of this
Agreement or propose the Contracting Party to modify or change it in
such a way that rights of a third party won't be violated. If these
solutions can not be employed due to exorbitant costs, then the
Contractor will refund the Contracting Party a price for the Facility
constituting the subject of claims or accusations of a third party
reduced by depreciation value of such a Facility and costs directly
associated with a preparation of the Contractor for the performance, and
the Contracting Party shall give back that Facility at a cost and risk
of the Contractor.
SECTION 10
CESSION OF RIGHTS & DUTIES
10.1. The Contracting Party may -- without a consent of the Contractor --
cede any rights and payables resulting from this Agreement to the
members of the Bank Consortium as provided for in the Credit Agreement
signed by the Contracting Party on 17th December 1997, and charge these
rights and payables with a registered lien.
10.2. The Contractor has a right to entrust the performance of some of its
obligations resulting from this Agreement to a third party, and it shall
be liable for the activities and avoidances to act by that third party
as if they were of its own.
SECTION 11
PENALTIES & INTERESTS
11.1. If the contractor delays the fulfillment of its obligations resulting
from this Agreement, then the Contracting Party may impose contractual
penalties constituting 0.1% of the Order value per each day of a delay,
yet no more than 5% of a payment.
11.2. For delay in elimination of defects found by the Contracting Party in
a progress of acceptance procedure or discovered in the period of
guarantee or warranty, the Contracting Party may impose a penalty
constituting 0.1% of the Order value per each day of a delay from the
date fixed for elimination of these defects, yet no more than 5% of a
payment.
<PAGE> 6
11.3. Claims due to these contractual penalties don't exclude a right to
claim compensation according to the general provisions of law.
11.4. If the Contracting Party delays making payments resulting from this
Agreement, then the Contractor will be allowed to charge the Contracting
Party with interests.
SECTION 12
FORCE MAJURE
12.1. Any Party may not be held responsible for a failure to perform or
improper performance of its obligations if it proves that such a failure
has been caused by the event beyond its control, and that at a moment of
concluding this Agreement it was impossible to predict such an event,
and the consequences of it that affected a capability of that Party to
perform this Agreement, and the event itself or at least its
consequences could not have been avoided.
12.2. The event mentioned in the pt 12.1 hereabove may result from any or
all of the following circumstances:
a) a war, including: civil war, unrests, turmoil and the acts of
sabotage;
b) natural calamities such as storms, hurricanes, earthquakes,
floods, thunder stroke;
c) explosions, fire, destruction of machines, factory or any kind of
installations;
d) boycott, strike, lock-outs of any kind, "Italian" strike,
occupation of a factory and premises;
e) the acts of authorities of public nature except activities for
which a Party that tries to be relieved from a liability has
assumed a risk on the basis of this Agreement, and except the
circumstances specified in the pt. 12.3.
12.3. It is hereby agreed that a lack of permits required to perform this
Agreement of individual nature given by any public authority does not
constitute an event on a basis of which a Party may be relieved from a
liability.
12.4. Immediately after the occurrence of an event, and after learning
about an impact of such an event on ability to perform this Agreement, a
Party trying to be relieved from a liability shall notify the other
Party about that event and its impact on Party's inability to perform
this Agreement If an event ceases to exist that fact shall be
immediately reported. Within 14 days of the date on which an event
occurred, a Party trying to be relieved from a liability shall obtain a
certificate of Force Majure event issued by the National Chamber of
Commerce in Warsaw, and then it will deliver it to the other Party.
12.5. A reason for relieving from a liability becomes effective from a
moment of an event occurrence or if a certificate of Force Majure has
not been delivered in time limit specified in the pt 12.4 then from a
moment of delivering a Force Majure certificate. A Party that won't
notify about an event and won't submit a Force Majure certificate to the
other Party in time limit specified should be held liable for damages
suffered by the other Party that could have been avoided if a
notification or Force Majure certificate had been delivered on time.
12.6. A reason for relieving from a liability by force of this Clause
relieves a Party, that fails to fulfill its obligations, from the
obligation to pay a compensation, contractual penalties and other
contractual sanctions, except an obligation to pay interests on dues as
long and to the extent to which these reasons continue.
12.7. Moreover, the above reason extends the term if this Agreement by a
justified period of time, and thus excludes a possible right of the
other Party to terminate or withdraw from the Agreement. While defining
a justified period of time, one shall consider an ability of a Party
failing to fulfill its obligations to restart the performance of this
Agreement, and interest of the other Party in receiving a
<PAGE> 7
performance despite a delay. While waiting for a continuation by a Party
that has disrupted that continuation, the other Party may suspend
performance of its obligations.
12.8. If a reason for relieving from a liability continues for more than 30
days, then a Party entitled to have a performance has a right to
withdraw from the Agreement. In such a case, the Parties shall refund
all performances received until now.
SECTION 13
TERRITORY AND TERM
13.1. This Agreement is a general agreement, and it is concluded for the
period of 2 years.
13.2. This Agreement is enforceable on the territory of Poland, and a
detail scope of it will be defined in Orders.
SECTION 14
ORDER WITHDRAWAL
14.1. The Contracting Party reserves a right to withdraw from the execution
of a given Facility with the effect on the date of a withdrawal notice
delivery if it is necessary for technical or commercial reasons. In such
an event, the Contracting Party will refund the Contractor all costs
related to the performance of an Order incurred by the Contractor until
the date of withdrawal from the Order on the basis of the Work
Discontinuation Protocol presented by the Contractor and approved by the
Contracting Party.
14.2. If the Contractor delays commencement or completion of works due to
its fault to such extent that it is not probable that it would be able
to complete them on time agreed with the Contracting Party, then the
Contracting Party may withdraw from an Order before the term for the
performance of these works expires without a necessity to fix additional
term for such performance.
14.3. If the Contractor fulfills obligations resulting from this Agreement
in a defective manner or in a manner contradictory to the Agreement,
then the Contracting Party may demand that he change a manner of a
performance and fix a due date until which the Contractor shall do it.
After expiration of the term fixed by the Contracting Party without any
effect, the Contracting Party may withdraw from an Order or assign
correction or further performance of these works to another Contractor
at a cost and risk of the Contractor.
SECTION 15
FINAL PROVISIONS
15.1. To all cases not regulated in this Agreement, the provisions of the
Polish law shall be applied.
15.2. In regard to disputes resulting from this Agreement, and a
performance of it, the Parties agreeably submit to the jurisdiction of
the Arbitration Court with the National Chamber of Commerce in Warsaw in
compliance with the Rules of that Court.
15.3. Appendices to this Agreement constitute an integral part of it.
15.4. Any amendments and supplements to this Agreement shall be introduced
in writing and both Parties shall accept them, otherwise they will be
null and void.
15.5. Effective date of this Agreement is a day on which both Parties sign
this Agreement, provided that the Supervisory Board of the Contracting
Party will approve it.
15.6. This Agreement has been executed in two identical copies, one copy
for each of the Parties.
<PAGE> 8
<TABLE>
<S> <C>
CONTRACTOR
- ----------------------------------------- CONTRACTING PARTY
-----------------------------------------
/s/ /s/
/s/ /s/
</TABLE>
<PAGE> 9
APPENDIX NO. 1A
AGREEMENT NO. PL-011417295/446-PTC-ELE/99
ADMINISTRATIVE & DESIGN ACTIVITIES
THE EXISTENT FACILITY
* delete information that is unneeded
<TABLE>
<CAPTION>
NO. ACTIVITY SPECIFICATION VALUE
- --- ---------------------- -------------
<S> <C> <C>
1. SEARCHING CANDIDATURES FOR LOCALIZATIONS.................... 1 000,00
-- two to three alternative addresses for each of
localizations ordered
-- oral consent given by the owner for a qualification
visit, and signing a lease/rental agreement
-- taking photos of a facility (site)
-- submission of a written report containing necessary
information and maps with a localization being marked on
them
2. QUALIFICATION VISIT WITH RADIO SERVICES BEING INVOLVED...... 500,00
-- agreement on a date and conditions of a qualification
visit with an owner
-- indication of a selected localization to technical
services of the Contractor
3. CHECKING RIGHTS AND LEGAL TITLES TO A LOCALIZATION.......... 1 300,00
-- preparation and delivery of an official statement
-- checking an ownership
-- preparation of a preliminary assessment with location and
suitability of a localization being taken into account and
prepared upon agreeing with radio services
4. NEGOTIATIONS ON THE TERMS & CONDITIONS OF LEASE/RENTAL...... 1 500,00
-- negotiations on the price for the subject of a
lease/rental with an owner and in agreement with PTC
-- agreement on the contents of a lease/rental agreement 600,00
with and owner and PTC...................................
5. CONCLUSION OF A LEASE/RENTAL AGREEMENT
-- signing on the part of PTC
-- signing on the part of an owner
6. PREPARATION OF THE APPLICATION FOR A DECISION ON THE
PRECONDITIONS OF BUILDING AND LAND DEVELOPMENT
-- preparation of an opinion on the impact of an investment 2 800,00
being designed on natural environment (by an expert entered
in the List of the Ministry of Environment Conservation &
Natural Resources).......................................
-- obtaining necessary maps and land survey maps for design
purposes as specified in an invoice
-- application to a competent electric power establishment
for issuing the conditions governing electric power
allocation
7. OBTAINING A LEGALLY BINDING DECISION ON THE PRECONDITIONS
FOR BUILDING AND LAND DEVELOPMENT
8. PREPARATION OF AN APPLICATION FOR RELEASE OF A BUILDING
PERMIT
-- application to a civic aviation.......................... 200,00
-- application to air forces................................ 200,00
-- application to the Environment Conservation Section in a 800,00
local Office of Architecture.............................
-- application to a local SANEPID branch.................... 800,00
-- arrangements with TP S.A................................. 200,00
-- arrangements with gas services...........................
-- arrangements with the Road & Bridge Region...............
-- tests of soils for design purposes....................... 8 500,00
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
NO. ACTIVITY SPECIFICATION VALUE
- --- ---------------------- -------------
<S> <C> <C>
-- construction design in 6 copies..........................
-- land management design in 6 copies.......................
-- inside installation design in 6 copies...................
-- external power supply design after agreeing with an 2 500,00
electric power establishment.............................
9. APPLICATION FOR RELEASE OF THE DECISION ON A BUILDING 1 500,00
PERMIT......................................................
10. OBTAINING THE LEGALLY BINDING DECISION ON A BUILDING 2 000,00
PERMIT......................................................
-------------
TOTAL....................................................... 24 500,00
=============
</TABLE>
<TABLE>
<S> <C>
CONTRACTOR CONTRACTING PARTY
- ----------------------------------------- -----------------------------------------
/s/ /s/
</TABLE>
<PAGE> 11
APPENDIX NO. 1B
AGREEMENT NO. PL-011417295/446-PTC-ELE/99
ADMINISTRATIVE & DESIGN ACTIVITIES
THE TOWER
<TABLE>
<CAPTION>
NO. DESCRIPTION OF ACTIVITY VALUE
- --- ----------------------- -------------
<S> <C> <C>
1. SEARCHING CANDIDATURES FOR LOCALIZATIONS.................... 1 000,00
-- two to three alternative addresses for each of
localizations ordered
-- oral consent given by the owner for a qualification
visit, and signing a lease/rental agreement
-- taking photos of a facility (site)
-- submission of a written report containing necessary
information and maps with a localization being marked on
them
2. QUALIFICATION VISIT WITH RADIO SERVICES BEING INVOLVED...... 600,00
-- agreement on a date and conditions of a qualification
visit with an owner
-- indication of a selected localization to technical
services of the Contractor
3. CHECKING RIGHTS AND LEGAL TITLES TO A LOCALIZATION.......... 1 300,00
-- preparation and delivery of an official statement
-- checking an ownership
-- preparation of a preliminary assessment with location and
suitability of a localization being taken into account and
prepared upon agreeing with radio services
4. NEGOTIATIONS ON THE TERMS & CONDITIONS OF LEASE/RENTAL...... 1 500,00
-- negotiations on the price for the subject of a
lease/rental with an owner and in agreement with PTC
-- agreement on the contents of a lease/rental agreement
with an owner and PTC.................................... 600,00
5. CONCLUSION OF A LEASE/RENTAL AGREEMENT
-- signing on the part of PTC
-- signing on the part of an owner
6. PREPARATION OF THE APPLICATION FOR A DECISION ON THE
PRECONDITIONS OF BUILDING AND LAND DEVELOPMENT.............. 1 500,00
-- preparation of an opinion on the impact of an investment
being designed on natural environment (by an expert entered
in the List of the Ministry of Environment Conservation &
Natural Resources)....................................... 2 800,00
-- obtaining necessary maps and land survey maps for design
purposes................................................. 1 800,00
-- application to a competent electric power establishment
for issuing the conditions governing electric power
allocation............................................... 400,00
7. OBTAINING A LEGALLY BINDING DECISION ON THE PRECONDITIONS
FOR BUILDING AND LAND DEVELOPMENT........................... 1 300,00
8. PREPARATION OF AN APPLICATION FOR RELEASE OF A BUILDING
PERMIT
-- application to a civic aviation.......................... 200,00
-- application to air forces................................ 200,00
-- application to the Environment Conservation Section in a
local Office of Architecture............................. 800,00
-- application to a local SANEPID branch.................... 800,00
-- arrangements with TP S.A.
-- arrangements with gas services........................... --
-- arrangements with the Road & Bridge Region............... --
-- tests of soils for design purposes....................... 2 000,00
-- construction design in 6 copies.......................... *8 650,00
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
NO. DESCRIPTION OF ACTIVITY VALUE
- --- ----------------------- -------------
<S> <C> <C>
-- land management design in 6 copies....................... 2 000,00
-- inside installation design in 6 copies................... 2 000,00
-- external power supply design after agreeing with an
electric power establishment............................. as in invoice
9. APPLICATION FOR RELEASE OF THE DECISION ON A BUILDING
PERMIT...................................................... 1 500,00
10. OBTAINING THE LEGALLY BINDING DECISION ON A BUILDING
PERMIT...................................................... 2 000,00
TOTAL....................................................... 30 950,00
</TABLE>
<TABLE>
<S> <C>
CONTRACTOR CONTRACTING PARTY
- ----------------------------------------- -----------------------------------------
/s/ /s/
</TABLE>
* for the 1st wind zone 58m -- PLN 10 000,00; for the 3rd wind zone 40m -- PLN
10 925,00; for the 1st wind zone 60-86m -- PLN 14 500,00.
<PAGE> 13
APPENDIX NO. 2
AGREEMENT NO. PL-011417295/446-PTC-ELE/99
DOCUMENTATION ACCEPTANCE PROTOCOL
The List of the Technical Documentation enclosed:
<TABLE>
<CAPTION>
NO. ELABORATION TITLE
- --- -----------------
<S> <C>
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
</TABLE>
The Contractor as a provider of the abovementioned technical documentation
declares hereby that it is a complete documentation as far as a purpose for
which it is supposed to be used is concerned.
<TABLE>
<S> <C>
CONTRACTOR
- ----------------------------------------- CONTRACTING PARTY
-----------------------------------------
/s/ /s/
</TABLE>
<PAGE> 14
ZAFFIACZNIK NR. 3
UMOWA NR. PL-011417295/446-PTC-ELE/99
PROTOKOFFI INSPEKCJI BUDOWLANEJ
Civil Works Inspection Report
<TABLE>
<S> <C>
NUMER STACJI: ADRES:
Site Number: Address:
</TABLE>
DRA PRZEDSTAWIONE PRZEZ WYKONAWCE:____________
DRA delivered by supplier:
DATA KONTROLI:____________
Date of inspection:
<TABLE>
<S> <C>
STATUS STACJI: Site status: WYKONAWCA: Supplier:
[ ] Nowa stacja new site [ ] Ericsson
[ ] Rozbudowa extension [ ] Siemens
[ ] Rekonfiguracja reconfiguration [ ] Elektrim Volt
</TABLE>
<TABLE>
<S> <C>
UCZESTNICY: (PTC): WYKONAWCA:
Participants: Supplier:
</TABLE>
<TABLE>
<CAPTION>
ILOSC STRON USTEREK
PRZEDMIOT KONTROLI* PO NUMER ZAMOWIENIA STOPIEN USTERKI QUALITY OF FAULT LIST
Inspected items* Purchase Order number Fault class pages
- ------------------- --------------------- ---------------- --------------------------
<S> <C> <C> <C>
-- --
-- --
-- --
-- --
-- --
-- --
</TABLE>
- ---------------
* PRZEDMIOT KONTROLI: KONSTRUKCJA BTS'U, PRACE BUDOWLANE, PRACE ELEKTRYCZNE,
KONSTRUKCJE STALOWE.
* Inspected items: BTS construction, Civil work, Electric work, Steel
construction
UWAGI PO INSPEKCJI (zmiany lub rozszerzenia):
Remarks to inspected items:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INFORMACJA O USUNIECIU USTEREK:
Results removal information:
WSZYSTKIE USTERKI USUNIETO / all faults removed DATA KONTROLI:
Date of inspection
<TABLE>
<S> <C>
Uczestnicy: ZAMAWIAJACY: WYKONAWCA:
Participants: Supplier:
Podpisy: PTC WYKONAWCA:
Signature: Supplier:
</TABLE>
<PAGE> 15
Na podstawie podpisanej listy usterek budowlanych
(zaffiaczono . . . . .stron). Wykonawca zgadza sie z zawartymi w dokumencie
opisami usterek budowlanych. Kopia podpisanej listy usterek oraz protokoffi
zostanie przekazana Wykonawcy.
Wykonawca oswiadcza, ze wszystkie uzyte materiaffiy sa zgodne z polskimi
normami i przepisami.
Klasyfikacja usterek: Stopien 1: nieakceptowaine Stopien 2:
akceptowalne -- termin usuniecia usterek dwa tygodnie Stopien 3:
akceptowalne -- termin usuniecia usterek cztery tygodnie.
Based on the signed civil works fault list (annex . . . . .Pages), the
supplier agree with all the faults described on the civil works fault list. One
copy of the signed fault lists and this document will be handed out to the
supplier. Supplier states that all materials used on the site are according to
the Polish norms and regulations.
Fault class (F.Class): F.Class 1: not acceptable F.Class 2:
acceptable -- subject to fault removal within two weeks F.Class 3:
acceptable -- subject to fault removal within four weeks.
DATA:____________
Date:
<TABLE>
<S> <C> <C>
Podpisy: ZAMAWIAJACY: WYKONAWCA:
Signature: PTC Supplier
</TABLE>
<PAGE> 16
ZAFFIACZNIK NR. 3.1
UMOWA NR. PL-011417295/466-PTC-ELE/99
PROTOKOFFI INSPEKCJI BUDOWLANEJ -- (LISTA DOKUMENTOW)
Civil Works Inspection Report -- (list of documentation)
<TABLE>
<S> <C>
NUMER STACJI: ADRES:
Site No: Address:
</TABLE>
NUMER ZAMOWENIA:________________________
Purchase Order number
<TABLE>
<CAPTION>
DOKUMENTY TAK NIE UWAGI Z OPISEM
LP. documents yes no remarks
- --- ------------------------------------------------------------ --- --- --------------
<C> <S> <C> <C> <C>
1. Dziennik budowy.
Building book............................................... [ ] [ ]
2. Projekt boduwlany.
Building design project..................................... [ ] [ ]
3. Uzgodienie projektu z wiascicielem obiektu
Technical Design agreements with owner...................... [ ] [ ]
4. Zgoda Urzedu Wojewodzkiego na instalacie urzadzeni
wytwarzajacych pole elektromagnetyczne.
Wojwodship
Authority consent for installation of EMF-related device.... [ ] [ ]
5. Opinia Panstwowej Inspekcji Sanitarnej.
State Sanitary Inspection Opinion........................... [ ] [ ]
6. Kompleksowa ocena oddziaffiywania na srodowisko.
Environmental influence report.............................. [ ] [ ]
7. Pozwolenie na budowe.
Building permission......................................... [ ] [ ]
8. Decyzja o warunkach zabudowy i zagosp, teranu.
General Conditions.......................................... [ ] [ ]
9. Lotnictwo cywilne.
Civil aviation.............................................. [ ] [ ]
10. Lotnictwo wojskowe
Military aviation........................................... [ ] [ ]
11. Oswiadczenie kierownika budowy zgodnie z art. 57 Prawa
Budowlanego.
The statement of the building manager in compliance with art
57 Polish Building Law...................................... [ ] [ ]
12. Opinia geotechniczna.
Geotechnical Opinion........................................ [ ] [ ]
13. Inwentaryzacja geodezyjna powykonawcza.
As built geodetic documentation............................. [ ] [ ]
14. Dokumentacja powykonawcza.
As built documentation...................................... [ ] [ ]
15. Gwarancja na powffioke cynkowa.
Galvanisation guarantee..................................... [ ] [ ]
16. Alesty hutnicze na stal.
Steel certificate........................................... [ ] [ ]
17. Alest na beton.
Concrete certificate........................................ [ ] [ ]
18. Protokoffi odbioru urzadzenia chroniacego przed upadkiem.
Certificate of falling protection system.................... [ ] [ ]
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
DOKUMENTY TAK NIE UWAGI Z OPISEM
LP. documents yes no remarks
- --- ------------------------------------------------------------ --- --- --------------
<C> <S> <C> <C> <C>
19. Kopia zaswiadczen kwalifikacyjnych osob wykonujacych pomiary
elektryczne.
Copy of Qualification certificate for electrical tester..... [ ] [ ]
20. Opis dostepu.
Access description.......................................... [ ] [ ]
21. Protokoffi odbioru od wffiasciciela po wykonanych robotach.
Protocol with the owner about no remarks executed works..... [ ] [ ]
22. Protokoffi pomiaru ochrony przeciwporazeniowej.
Stock protection measurment report.......................... [ ] [ ]
23. Protokoffi pomiaru izolacji obwodow elektrycznych.
Electrical circuits isolation resistance measurment
report...................................................... [ ] [ ]
24. Protokoffi pomiaru izolacji kabla zasitajacego.
Power supply cable isolation measurment report.............. [ ] [ ]
25. Dokumentacja urzadzenia piorunochronnego:
Lighting system documentation:.............................. [ ] [ ]
- protokoffi pomiaru opornosci uziemiania.
- earthing resistance measurment report.
- metryka urzadzenia piorunochronnego.
- lightning system specification list.
- protokoffi badania urzadzenia piorunochronnego.
- committee acceptance statement on lightning system.
</TABLE>
Data:
Date:
<TABLE>
<S> <C> <C>
Podpisy: ZAMAWIAJACY: WYKONAWCA:
Signature: PTC Supplier
</TABLE>
<PAGE> 18
ZALACZNIK NR. 3.2.
UMOWA NR. PL-011417295/446-PTC-ELE/99
POTOKOFFI OTRZYMANIA POZWOLENIA NA UZYTKOWANIE
Using Permit Delivery Report
<TABLE>
<S> <C>
NUMER SITE'U: ADRES:
Site No: Address:
NUMER ZAMOWIENIA:
Purchase Order No:
</TABLE>
<TABLE>
<CAPTION>
OPINIE: TAK NIE UWAGI Z OPISEM
LP Opinions: yes no remarks
- -- --------- --- --- --------------
<S> <C> <C> <C> <C>
1. Powykonawcze pomiary oddzsiaffiywania pol
elektromagnetycznych (pozytywne).
Positive EMF Measurements.................................. [ ] [ ]
2. Panstwowej Inspekcji Ochrony Srodowiska (konieczne do
pozwolenia na uzytkowanie) -- opinia lub kopia wystapienia
do wffiadz.
State Environmental Inspection (necessary for using permit)
-- opinion or copy of the application letter to
authority.................................................. [ ] [ ]
3. Panstwowej Inspekcji Sanitarnej (konieczne do pozwolenia na
uzytkowanie) -- opinia lub kopia wystapienia do wffiadz.
State Sanitary Inspection (necessary for using permit) --
opinion or copy of the application letter to authority..... [ ] [ ]
4. Panstwowej Inspekcji Pracy, (konieczne do pozwolenia na
uzytkowanie) -- opinia lub kopia wystapienia do wffiadz.
State Worksafety Inspection (necessary for using permit) --
opinion or copy of the application letter to authority..... [ ] [ ]
5. Panstwowej Strazy Pozarnej (konieczne do pozwolenia na
uzytkowanie) -- opinia lub kopia wystapienia do wffiadz.
State Fire Department (necessary for using permit) --
opinion or copy of the application letter to authority..... [ ] [ ]
6. Pozwolenie na uzytkowanie.
Using Permit............................................... [ ] [ ]
</TABLE>
Data:________________________
Date:
<TABLE>
<S> <C>
Podpisy: ZAMAWIAJACY: WYKONAWCA:
Signature: Supplier
</TABLE>
<PAGE> 19
ZALACZNIK NR. 3.3
UMOWA NR. PL-011417295/446-PTC-ELE/99
PROTOKOL AKCEPTACJI KONCOWEJ/Final Site Acceptance
TYP ELEMENTU/NE-Type:
DATA/DATE:
<TABLE>
<S> <C>
NUMER PUNKTU: ADRES:
Site No: Address:
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
[ ] NOWY [ ] ROZSZERZENIE [ ] ZMIANA LOKALIZACJI [ ] PUNKT TRANSMISYJNY
NEW EXPANSION RELOCATION TRANSMISSION SITE
</TABLE>
Zobowiazanie dotyczace DRA:____ ____ ____
DRA obligation dd mm yy
Numer zamowienia:
Purchase Order number
Wykonawca:
Supplier
Konfiguracja:
Configuration
WSZYSTKIE USTERKI USUNIETO/all faults removed
PUNKT ZAAKCEPTOWANY/SITE ACCEPTED
ZAMAWIAJACY:
Przez/by:
Nazwisko i stanowisko/Name and
position
Podpis/Signature:
PTC
NYKONAWCA:
Przez/by:
Nazwisko i stanowisko/Name and
position
Podpis/Signature:
<PAGE> 20
ZAFFIACZNIK NR. 3.4
UMOWA NR. PL-011417295/446-PTC-ELE/99
PROTOKOFFI INSPEKCJI TECHNICZNEJ
Technical Inspection Report
<TABLE>
<S> <C>
NUMER STACJI: ADRES:
Site Number: Address:
</TABLE>
DRA PRZEDSTAWIONE PRZEZ WYKONAWCE:____________
DRA delivered by supplier:
DATA KONTROLI:____________
Date of inspection:
<TABLE>
<S> <C>
STATUS STACJI: Site status: WYKONAWCA: Supplier:
[ ] Nowa stacja new site [ ] Ericsson
[ ] Rozbudowa extension [ ] Siemens
[ ] Rekonfiguracja reconfiguration [ ] Inny
Other
</TABLE>
<TABLE>
<S> <C>
UCZESTNICY: ZAMAWIAJACY: WYKONAWCA:
Participants: Supplier:
</TABLE>
<TABLE>
<CAPTION>
TYP NE* PO NUMER ZAMOWIENIA DRUGA STRONA MW STOPIEN USTERKI ILOSC STRON USTEREK
Type of NE* Purchase Order number MW far end Fault class Quantity of Faultlist pages
- --------------------- --------------------- ----------------- ----------------- ---------------------------
<S> <C> <C> <C> <C>
-- --
-- --
-- --
-- --
-- --
-- --
</TABLE>
- ---------------
* TYP NE: BTS, MW SYSTEM, BSC(SIEMENS), TRAU, ANTENNA SYSTEM, DXX(ERICSSON), TMA
UWAGI PO INSPEKCJI (zmiany lub rozszerzenia):
Remarks to inspected items:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INFORMACJA O USUNIECIU USTEREK:
Faults removal information:
WSZYSTKIE USTERKI USUNIETO/all faults removed DATA KONTROLI:
Date of inspection
<TABLE>
<S> <C>
UCZESTNICY: ZAMAWIAJACY: WYKONAWCA:
Participants: Supplier:
Podpisy: PTC WYKONAWCA:
Signature: Supplier:
</TABLE>
Na podstawie podpisanej listy usterek technicznych
(zaffiaczono . . . . .stron). Wykonawca zgadza sie z zawartymi w dokumencie
opisami usterek technicznych. Kopia podpisanej listy usterek oraz protokoffi
zostanie przekazana Wykonawcy.
<PAGE> 21
Wykonawca oswiadcza, ze wszystkie uzyte materiaffiy i urzadzenia sa zgodne
z polskimi normami i przepisami, oraz posiadaja niezbedne homologacie.
Klasyfikacja usterek: Stopien 1: nieakceptowane Stopien 2: akceptowaine
- --termin usuniecia usterek dwa tygodnie. Stopien 3: akceptowaine -- termin
usuniecia usterek cztery tygodnie.
Based on the signed technical fault list (annex . . . . .Pages), the
supplier agreed with the all faults described on the technical fault list. One
copy of the signed fault lists and this document will be handed out to the
supplier. Supplier states that all materials and equipment used on the site are
according to the polish norms and regulations, and possess indispensable
homologations.
Faultclass (F.Class): F.Class 1: not acceptable F.Class 2:
acceptable -- subject to fault removal within two weeks. F.Class 3:
acceptable -- subject to fault removal within four weeks.
DATA:____________
Date:
<PAGE> 22
APPENDIX NO. 4
AGREEMENT NO. PL-011417295/446-PTC-ELE/99
UNIT PRICE LIST
all prices are expressed in PLN and they don't include VAT.
Unit prices for construction, installation, electrical and fitting works
include a purchase, delivery, installation, additional material, labor cost with
the following factors taken into account:
Works at high altitude, work in off-work days, work in hard conditions,
short execution terms, high quality works, works performed with a use of a very
expensive equipment, performance with the exposure to habitants' protests.
<TABLE>
<CAPTION>
NO. WORK SPECIFICATION UNIT OF MEASUREMENT UNIT PRICES
- --- ------------------ -------------------- ----------------
<C> <S> <C> <C>
1 Steel, zinc plated structure of a tower plus
foundations (prefabricate, delivery and
assembly)......................................... Kg of a steel
structure 14,60
2 Reinforced concrete foundations of a tower
(diggings, foundations)........................... M3 of a foundation calculated above
3 Foundations for the container/BTS outdoor
(diggings, foundations)........................... M3 of a foundation 715,00
4 Fencing a base station (in compliance with the
requirements of PTC).............................. m 145,00
5 Internal roads (construction, concrete pavement --
20 cm thick)...................................... m(2) 106,00
6 Internal roads (substructure, payment made of a
concrete blocks -- 8 cm thick).................... m(2) 106,00
7 Road curb......................................... m 30,00
8 Pavement made of mineral crushed material 0 12-30
mm thick (thickness after condensation: 20 cm).... m(2) 60,00
9 Temporary access road made of concrete plates
(preparatory works, assembly, disassembly)........ m(2) 80,00
10 External, permanent access road (diggings,
substructure, pavement made of furnace slag)...... m(2) 38,00
11 External, permanent access road (diggings,
substructure pavement made of concrete)........... m(2) 115,00
12 External, permanent access road (diggings,
substructure, pavement made of crushed mineral
material)......................................... m(2) 75,00
13 External, permanent access road (diggings,
substructure, pavement made of concrete plates)... m(2) 115,00
14 Turn-on of outside power supply line to ZE (for
example, SN line, replacement of a transformer,
rebuilding field etc.)............................ Depending on
measurement taken by
authorized
contractor 0,00
15 Outdoor on-ground power supply line ZE-ZK (without
ZK) insulated cables 35 mm(2)..................... m 50,00
16 Outdoor on-ground power supply line ZE-ZK (without
ZK), non-insulated cables 35 mm(2)................ m 50,00
17 Outdoor cable power supply line ZE-ZK (without
ZK), cable: Al35.................................. m 50,00
18 Outdoor cable power supply line ZE-ZK (without
ZK), cable: Cu25.................................. m 65,00
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
NO. WORK SPECIFICATION UNIT OF MEASUREMENT UNIT PRICES
- --- ------------------ -------------------- ----------------
<C> <S> <C> <C>
19 Outdoor cable power supply line ZE-ZK (without
ZK), cable: Al70.................................. m 75,00
20 Outdoor cable power supply line ZE-ZK (without
ZK), cable: Cu50.................................. m 95,00
21 Outdoor cable power supply line ZE-ZK (without
ZK), cable: Al120................................. m 100,00
22 Outdoor cable power supply line ZE-ZK (without
ZK), cable: Cu95.................................. m 140,00
23 Cable joint (ZK) (in compliance with the
requirements of ZE and PTC)....................... units 1 200,00
24 Turning on visas in the building for a main
distribution point (development or redevelopment
of RG)............................................ Depending on
measurement taken by
authorized
contractor 0,00
25 Electricity metering panel -- TL in outdoor
version........................................... units 950,000
26 Internal cable power supply line (from ZK to
TGSM), underground. VDY 5x10...................... m 55,00
27 Vis in the building -- TL -- TGSM YDY 5x10 (RVS
n/t).............................................. m 45,00
28 TGSM -- outdoor type (in compliance to the
requirements of PTC).............................. units 4 600,00
29 Power supply for GSM equipment -- outdoor (TGSM
outdoor-BTS) OPd 5x4 (in a metal zinc plated
pipe)............................................. m 45,00
30 TGSM -- outdoor type (in compliance to the
requirements of PTC) and electrical system --
indoor (according to PTC standard)................ units 10 500,00
31 Grounding by means of a band iron (fencing,
foundations of a tower, container/ BTS outdoor in
compliance with the requirements of PTC) FeZn
30x4.............................................. m 30,00
32 Earth rod Fe o 20................................. m 25,00
33 Earth rod Cu...................................... m 65,00
34 Lighting protector on a roof -- wire: FeZn o7..... m 19,00
35 Lighting protector on a roof -- cable: LgY50...... m 30,00
36 Lighting protector on a roof -- band iron FeZn
25x4.............................................. m 23,00
37 Air terminals installed on a tower/chimney/mast --
iron band; FeZn 20x3.............................. m 23,00
38 Air terminals installed on a tower/chimney/mast --
iron band; LGY 50................................. m 30,00
39 New lighting protector on the facade of the
building for grounding G100 hm, along with
fasteners and all connections to a pull rod....... m 20,00
40 New lighting protector on the facade of the
building for grounding G100 hm, along with
fasteners and all connections to anchors.......... m 25,00
41 Measurement and protocols (distributor test
protocol/ producer's quality
certificate/certificates, attests, declarations on
equipment and material compliance, protocols of
fire protection assessment, protocols of electric
circuit coating resistance measurement............ set 700
42 Steel, zinc plated cable bridge with a cover for
antenna wiring (between a tower/chimney/mast and a
container)........................................ kg 17,00
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
NO. WORK SPECIFICATION UNIT OF MEASUREMENT UNIT PRICES
- --- ------------------ -------------------- ----------------
<C> <S> <C> <C>
43 Steel, zinc plated cable rack installed on a
tower/chimney/ mast-30 cm wide.................... kg 17,00
44 Steel, zinc plated cable rack installed on a
tower/chimney/ mast-40 cm wide.................... kg 17,00
45 Steel, zinc plated cable rack installed on a
tower/chimney/ mast-60 cm wide.................... kg 17,00
46 Steel, zinc plated structure of platforms and
antenna brackets on chimneys/existent towers
(prefabricate, delivery and assembly) with the
aplinist technique employed....................... kg 34,00
47 Steel, zinc plated structure of platforms and
antenna brackets on chimney/existent towers
(prefabricate, delivery and assembly)............. kg 21,00
48 Pipes, steel support structures on roofs for
antennas that are zinc plated and constructed on
the basis of a technical documentation
(prefabricate, delivery and assembly)............. kg 21,00
49 Preparation of a place on a roof for installation
of steel support structures (peening, puncturing,
concrete, roof insulation. 1 supporting
structure......................................... units 800,00
50 Reinforcing steel, zinc plated and painted
structure according to a technical design for a
power supply set foundation, BTS (prefabricate,
delivery and assembly)............................ kg 24,00
51 Zinc plated, cable channels with a cover installed
on a roof -- 30 cm (for example, on a concrete
blocks) h-15 cm................................... m 75,00
52 Zinc plated, cable channels with a cover installed
on a roof -- 40 cm (for example, on a concrete
blocks) h-15 cm................................... m 85,00
53 Zinc plated, cable channels with a cover installed
on a roof -- 60 cm (for example, on a concrete
blocks) h-15 cm m 110,00
54 Zinc plated, cable channels with a cover installed
on a roof -- 30 cm (for example, on a concrete
blocks) h-15 cm................................... m 70,00
55 Zinc plated, cable channels with a cover installed
on a roof -- 40 cm (for example, on a concrete
blocks) h-15 cm................................... m 80,00
56 Zinc plated, cable channels with a cover installed
on a roof -- 60 cm (for example, on a concrete
blocks) h-15 cm................................... m 100,00
57 Letting a wire through a roof with a waterproof
insulation for a bundle of wires.................. Depending on
measurement 0,00
58 Opening for antenna wires in reinforced concrete
walls, and floors................................. unit 40,00
59 Opening for antenna wires in concrete walls, and
floors............................................ unit 35,00
60 Opening for antenna wires in brick walls, and
floors............................................ unit 35,00
61 Opening for electric wires in reinforced concrete
walls, and floors................................. unit 20,00
62 Opening for electric wires in concrete walls, and
floors............................................ unit 15,00
63 Opening for electric wires in brick walls, and
floors............................................ unit 15,00
64 Opening for electric wires in the existent wire
channel........................................... unit 15,00
65 Passage of wires through the wall of the building
-- type: ROXTEC Frame: type G 4x4................. unit 1 400,00
66 Puncture of a brick wall (20 cm thick) plus
finishing......................................... m2 180,00
67 Puncture of a brick wall (50 cm thick) plus
finishing......................................... m2 230,00
68 Puncture of an reinforced concrete wall (20 cm
thick) plus finishing............................. m2 200,00
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
NO. WORK SPECIFICATION UNIT OF MEASUREMENT UNIT PRICES
- --- ------------------ -------------------- ----------------
<C> <S> <C> <C>
69 Reparation of a wall after destruction (minor
works -- bricking & plastering -- as additional to
painting)......................................... m(2) 18,00
70 Stop of a window plus insulation (for example,
foil, mineral wool STG)........................... m(2) 140,00
71 Removal of the old frame.......................... m(2) 15,00
72 Support for steel construction made of reinforced
concrete used for founding a power supply set,
BTS............................................... m(3) 715,00
73 anti-burglary doors in a special frame, with a 6
point lock, fireproof F 60........................ unit 2 200,00
74 Self-balancing concrete preparation and flowing
out............................................... m(2) 35,00
75 Ant -- electrostatic lining....................... m(2) 92,00
76 Floor painting -- 2 times......................... m(2) 20,00
77 Wall plastering................................... m(2) 30,00
78 Wall painting -- 2 times.......................... m(2) 20,00
79 Ceiling plastering................................ m(2) 35,00
80 Ceiling painting -- 2 times....................... m(2) 25,00
81 Wall construction of steel, zinc plated and
painted panels -- thickness: 80 mm filled with a
polyurethane foam................................. Depending on
Measurement 0,00
82 Ceiling construction of steel, zinc plated and
painted panels -- thickness: 80 mm filled with a
polyurethane foam................................. Depending on
Measurement 0,00
83 Wall construction of gypsum plates (on two sides)
on a steel grid filled with a mineral wool,
finished with angle brackets on corners plus
painting.......................................... m(2) 130,00
84 Wall construction of gypsum plates (on two sides),
fireproof on a steel grid filled with a mineral
wool, finished with angle brackets on corners plus
painting.......................................... m(2) 155,00
85 Construction of a new wall -- thickness: 1/2
brick............................................. m(2) 60,00
86 Construction of a new wall -- thickness: 1
brick............................................. m(2) 90,00
87 Construction of a new wall -- thickness: 1.5
brick............................................. m(2) 120,00
88 Demolition of the existent roof................... m(2) Valuation
89 Reconstruction of a roof plus coverage with
asphalt roof paper (2 times) plus insulation...... m(2) Valuation
90 Reconstruction of a roof plus coverage with
thermo-welded roof paper (2 times) plus
insulation........................................ m(2) Valuation
91 heater (2.0 kW) with a temperature control
device............................................ unit Purchase voucher
+ 15%
92 Ventilation -- capacity: 1200 m(3)/h.............. unit 850,00
93 Ventilation -- capacity: 2400 m(3)/h.............. unit 1 100,00
94 Conditioner (split) heater/cooler of cooling
capacity: 5.0 kW SANYO according to the
requirements of PTC............................... unit 11 500,00
95 Know fire extinguisher (5 liter, standing)........ unit 200,00
96 Table............................................. unit 260,00
97 Small, collapsible table installed on a wall...... unit 260,00
98 Chair............................................. unit 120,00
99 Aluminum ladder (5 level)......................... unit 300,00
100 BHP SOLL system -- a ladder with a guide/ labor
cost/ material/ assembly.......................... m --
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
NO. WORK SPECIFICATION UNIT OF MEASUREMENT UNIT PRICES
- --- ------------------ -------------------- ----------------
<C> <S> <C> <C>
101 BHP SOLL system -- a guide/ labor cost/ material/
assembly.......................................... m --
102 BHP HACA system -- a ladder with a guide/ labor
cost/ material/ assembly.......................... m --
103 BHP HACA system -- a guide/ labor cost/ material/
assembly.......................................... m --
104 'C' rail installed on a chimney/ tower facade/
roof -- 30 cm..................................... unit 45,00
105 'C' rail installed on a chimney/ tower facade/
roof -- 40 cm..................................... unit 50,00
106 'C' rail installed on a chimney/ tower facade/
roof -- 50 cm..................................... unit 65,00
107 Measurement of electromagnetic field impact....... localization 2 500,00
108 Obtaining a permit for the use of a facility...... localization 2 500,00
</TABLE>
<PAGE> 27
APPENDIX NO. 5 TO THE AGREEMENT NO. PL-011417295/446-PTC-ELE/99
RATIOS FOR COST ESTIMATION
CATALOGUES FOR COST ESTIMATION
KNR
SECOCENBUD
RATIOS
<TABLE>
<S> <C>
-- labor cost
R
-- materials
M
-- equipment
S
-- indirect costs
Kp
-- costs of procurement
Kz
-- profit
Z
</TABLE>
MANNER, IN WHICH RATIO VALUES ARE DETERMINED
<TABLE>
<S> <C>
-- PLN 5.00 -- calculated without KP and P
R
-- average prices for materials published in SECOCENBUD for
the investment region
M
-- average prices for equipment published in SECOCENBUD for
the investment region
S
-- 80% on R and S
Kp
-- 18% on M
Kz
-- 25% on R, S and Kp
Z
</TABLE>
<TABLE>
<S> <C>
CONTRACTOR CONTRACTING PARTY
- --------------------------------------------- ---------------------------------------------
/s/ /s/
</TABLE>
<PAGE> 28
LOGO
ZAFFIACZNIK NR. 6 DO UMOWY NR. PL-011417295/446-PTC-ELE/99
WORK CERTIFICATE
POLSKA TELEFONIA CYFROWA SP. Z.O.O.
<TABLE>
<S> <C>
ABC Sp.z o.o. Order No.:
Marszaffikowska 1/1 WZZT
Warszawa 01-345 Region:
Polska Site Ro.:
Contract No: Site Name:
Indent: NE Id:
Date of Issue:
</TABLE>
SERVICES
<TABLE>
<CAPTION>
DESCRIPTION ACCEPTED ON
ITEM PTC CODE QTY PREVIOUS WC
---- ----------- ---- -----------
<C> <S> <C> <C>
10 czynnosci administracyjno-projektowe (w) 131 1 JD
</TABLE>
- --------------------------------------------------------------------------------
Remarks:
<TABLE>
<CAPTION>
PLANNED DATE OF SERVICE DELIVERY** ACTUAL DATE OF SERVICE DELIVERY** DURATION (WEEKS)
- ---------------------------------- --------------------------------- ----------------
<S> <C> <C>
</TABLE>
- --------------------------------------------------------------------------------
**) DRA for equipment, RFI for Civil Works
---------------------------------------------
WC
SIGN-OFF DATE
---------------------------------------------
---------------------------------------------
<TABLE>
<S> <C> <C> <C>
Signature (ERA GSM) Signature (ERA GSM) Suppliers confirmation Suppliers confirmation
RO Head Netw.Roll-out Technical Dept. Commercial Dept.
</TABLE>
- ---------------
*) O -- from order W -- from warehouse
<PAGE> 29
ZAFFIACZNIK NR 7 DO UMOWY NR
PL-011417295/446-PTC-ELE/99
<TABLE>
<CAPTION>
LP NR NAME OF SITE
- -- ----- ------------
<C> <C> <S>
1.. 21132 Konstancin
2.. 21141 Otwock
3.. 27550 Przytyk
4.. 27555 Stare Makosy
5.. 27560 Wierzbica
6.. 26105 Osowa
7.. 26200 Sawin
8.. 22514 Naruszewo
9.. 24069 Nurzec Stacja
10... 24070 Adamowo Zastawa
11... 46102 Bielany
12... 45156 Boszkowo
13... 46141 Borowa
14... 47129 Sokolniki
15... 48127 Legnica
16... 53149 Przysiecz
17... 55142 Kazimierza Wielka
18... 53105 Opole Harcerska
19... 59130 Dynow
20... 59131 Sieniawa
21... 59133 Dukla
22... 36752 Krotoszyny
23... 37754 Ugoszcz
24... 31772 Niepogledzie
25... 31774 upawa
26... 33715 Przywodzie
27... 31771 Debnica
28... 24078 Podkamionka
29... 24538 Ogrodniki
30... 25222 Sadowne
31... 25222 Zyczyn
32... 28009 Lubien
33... 28209 Tomaszowek
34... 28210 Skorkowice
35... 24076 Wyszki
36... 24535 Wiartel
37... 24537 Koncewo
38... 27307 Fajslawice
39... 27561 Ciepielow
40... 29515 Lutowka
41... 29522 Miedzno
42... 29553 Malyn
43... 43036 Konin/Patnow
44... 45026 Leszno-Zaborowo
45... 48027 Legnica-Piekary
46... 44059 Pila/Podlasie
47... 49516 Walbrzych-Rusinowa
48... 40225 Poznan
49... 41057 Zary/Kuniel
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
LP NR NAME OF SITE
- -- ----- ------------
<C> <C> <S>
50... 52151 Ciezkowice
51... 56128 Lisnik Duzy
52... 59151 Rozpucie
53... 58161 Ranizow
54... 59152 Biecz
55... 35206 Bydgoszcz
56... 36015 Torun
57... 38822 Braniewo
58... 38884 Kwidzyn
</TABLE>
