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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the three and nine months periods ended September 30, 2000
Polska Telefonia Cyfrowa Sp. z o.o.
(Exact Name of Registrant as Specified in Its Charter)
Al. Jerozolimskie 181, 02-222 Warsaw
(Address of Principal Executive Offices)
Poland
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
--------------------------- ---------------------
Indicate by check mark whether the registrant by furnishing the information
contained in the Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
--------------------------------- ------------------------
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): N/A
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Polska Telefonia Cyfrowa Sp. z o.o., is a limited liability company (spolka z
ograniczona odpowiedzialnoscia) organized under the laws of the Republic of
Poland. PTC is located in Warsaw, Poland and was registered in the Regional
Court in Warsaw, XVI Commercial Department on December 27, 1995. The principal
activities of PTC are providing cellular telephone communication services in
accordance with GSM 900 and 1800 licenses granted by the Minister of
Telecommunications and sale of cellular telephones and accessories compatible
with its cellular services.
In the following report for the convenience of the reader we understand:
10 3/4% NOTES as 10 3/4% Senior Subordinated Guaranteed Notes due July 1, 2007
which were issued by PTC International Finance B.V., our wholly owned finance
subsidiary organized under the laws of The Netherlands. Notes are fully and
unconditionally guaranteed by us (the "Company Guarantee"). PTC International
Finance B.V. has no independent operations and does not file separate reports
under the Securities Exchange Act of 1934 (the "Exchange Act").
11 1/4% NOTES as 11 1/4% Senior Subordinated Guaranteed Discount Notes due
December 1, 2009, which were issued by PTC International Finance II S.A., our
wholly owned finance subsidiary organized under the laws of Luxembourg. Notes
are fully and unconditionally guaranteed by us (the "Company Guarantee"). PTC
International Finance II S.A. and PTC International Finance (Holding) B.V.
essentially have no independent operations and do not file separate reports
under the Securities Exchange Act of 1934 (the "Exchange Act").
FORM 6-K as quarterly report on Form 6-K according to SEC rules and
requirements,
ZLOTY OR PLN refers to Polish currency,
U.S. DOLLARS, USD OR $ refers to United States currency,
DEUTSCHMARK OR DM refers to German currency and its exchange rate is fixed
against Euro,
EUROS refers to the single currency of those member states of the European Union
that entered the third stage of economic and monetary union pursuant to the
Maastricht Treaty on January 1, 1999.
NBP as National Bank of Poland
FIXING RATE as exchange rate quoted for accounting purposes by the National Bank
of Poland. The Federal Reserve Bank of New York does not certify for customs
purposes a non buying rate for Zloty. For the convenience of the reader, this
Form 6-K contains translations of certain Zloty amounts into U.S. dollars at the
rate of PLN 4.5404= $1.00, the exchange rate quoted for accounting purposes by
the NBP, the Polish central bank, on September 30, 2000. 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.
FINANCIAL STATEMENTS as financial statements for the three and nine months
periods ended September 30, 2000 attached to this Form 6-K. They have been
prepared in accordance with International Accounting Standards ("IAS"), which
differs in certain respects from generally accepted accounting principles in the
United States ("U.S. GAAP") (see Note 26 to the Financial Statements). Unless
otherwise stated herein, all financial information presented in this Form 6-K
has been prepared in accordance with IAS.
Our registered office and its headquarters are located at Al. Jerozolimske 181,
02-222 Warsaw; telephone (+48 22 573-6000).
2
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION 4
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ITEM 1. FINANCIAL STATEMENTS 4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 4
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS 14
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PART II. OTHER INFORMATION 16
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SIGNATURES 18
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3
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Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
This Quarterly Report on Form 6-K contains certain" forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements are statements other than historical information or statements of
current condition. Some forward looking statements may be identified by use of
such terms as "believes", "anticipates", "intends", or "expects". These
forward-looking statements relate to the plans, objective sand expectations of
our future operations. In light of the risks and uncertainties inherent in all
such projected operation matters, the inclusion of forward-looking statements in
this report should not be regarded as a representation by us or any other person
that our objectives or plans will be achieved or that any of our operating
expectations will be realized. Our revenues and results of operations are
difficult to forecast and could differ materially from those projected in the
forward-looking statements contained in this report as a result of numerous
factors including among others, the following: (i) changes in customer rates per
minute; (ii) foreign currency fluctuations; (iii) termination of certain service
agreements or inability to enter into additional service agreements; (iv)
inaccuracies in our forecast of traffic growth; (v) changes in or developments
under domestic or foreign laws, regulations, licensing requirements or
telecommunications standards; (vi) foreign political or economic instability;
(vii) changes in the availability of transmission facilities; (viii) loss of the
services of key officers; (ix) loss of a customer which provides us with
significant revenues; (x) highly competitive market conditions in the industry;
(xi) concentration of credit risk; and (xii) availability of long term
financing. The foregoing review of the important factors should not be
considered as exhaustive.
Results of operations
Operational overview
During the third quarter of year 2000, we attracted 415,240 subscribers (gross
adds), 11.8 percent more than in the second quarter of 2000 and 17.2 percent
more than in the third quarter of 1999, bringing the total number of
subscribers to 2.5 million. New subscribers consist of 274,127 postpaid
subscribers and 141,113 Tak Tak (prepaid) users. Compared to the same period in
1999, the overall subscriber base at the end of September increased by over
67.8 percent to 2,516,965 from the subscriber base of 1,499,989 at the end of
the third quarter of 1999. At the end of September 2000, prepaid subscribers
totaled 615,966 and represented 24.5 percent of all subscribers versus 319,436
and 21.3 percent at the end of the third quarter 1999. We also recorded
significant growth in the postpaid subscriber base from 1,180,553 to 1,900,999
in the twelve months ending on September 30, 2000. The significant increase in
the number of new adds gross is attributed to the promotional campaigns
launched in the third quarter of year 2000 according the fourth anniversary of
the commercial launch of the services by our company.
4
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<TABLE>
<CAPTION>
Postpaid % YoY Prepaid %YoY Total subscriber %YoY
subscribers subscribers number
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
Gross adds
<S> <C> <C> <C> <C> <C> <C>
Q3 1999 286,294 180.5% 67,879 -24.3% 354,173 84.7%
Q3 2000 274,127 -4.2% 141,113 107.9% 415,240 17.2%
Total
subscribers
Q3 1999 1,180,553 116.3% 319,436 213.9% 1,499,989 131.6%
Q3 2000 1,900,999 61.0% 615,966 92.8% 2,516,965 67.8%
</TABLE>
As the Polish wireless market is more than four years old and has become more
developed and matured we are proud that we were able to acquire more customers
during the third quarter of 2000 than we acquired during the third quarter of
1999.
A slowdown in the rate of growth of postpaid subscribers is due to the maturing
stage of wireless systems on Polish market. Anyway the portion of postpaid
subscribers in the new gross adds is still very high and reached 66 percent in
the third quarter of 2000.
In the third quarter of year 2000 the overall Polish wireless market grew to
approximately 5.8 million subscribers which translates to approximately 15.1
percent penetration.
Our subscriber base represents approximately 42.3 percent of the total wireless
market and 43.1 percent of the GSM wireless market. That positions PTC as the
leader among wireless services providers in Poland.
Strong growth in the subscriber base is a result of significant increase of
gross adds and also decrease in the churn rate. In the third quarter of 2000 the
average monthly churn rate was 2.01 percent compared to 2.4 percent in the same
period of 1999. The churn decreased by 0.39 basis points compared to the third
quarter of 1999.
The average monthly churn rate for the postpaid customers was 1.97 percent and
the average monthly churn for the prepaid customers was 2.16 percent. Looking at
the prepaid churn rate it is necessary to take into consideration the fact that
PTC does disconnect the prepaid customers after 6 months from the purchase of
the activation card if the account is not recharged with another coupon.
The dropping churn rate compared to the same period in 1999 can be attributed to
our Loyalty Program, new tariff plans, market segmentation and value-added
services. It reflects the customers' satisfaction and proves the high quality of
our services.
The significant increase in the subscriber base was accompanied by high level of
monthly Minutes of Use per user. The third quarter of year 2000 brought a
stabilization in Minutes of Use. Calculated on a monthly basis as a subscribers
average, Minutes of Use were set at the level of 161 minutes, what is comparable
to 161 Minutes of Use in the second quarter of 2000. Compared to the third
quarter of 1999 the current Minutes of Use decreased from 187 minutes. In the
third quarter of 2000 the average Minutes of Use were 183 minutes for the
postpaid customers and 90 minutes for prepaid customers.
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Postpaid Prepaid Total subscriber
subscribers subscribers base
--------------------------------------------------------------------------------
Outgoing MOUs per subscriber
Q3 2000 86.7 23.7 71.7
Total MOUs per subscriber
Q3 2000 182.8 90.0 160.6
In the third quarter of 2000 the average revenue from services and fees per user
(ARPU) was PLN 132. This result shows a stabilization in ARPU reported also in
the second quarter of year 2000. The ARPU coming from post paid subscribers
accounted for PLN 159 and ARPU coming from prepaid subscribers was set at the
level of PLN 47.
In order to stimulate increased usage, PTC introduced "cheaper minute packages",
flat rate tariff plans for specific market segments and various value-added
services as well as a number of new products. PTC expects that over time this
will have a positive effect on its overall revenue growth. Looking forward, PTC
anticipates that based on the growth of the Polish economy and the wireless
market, wireless phones will increasingly be used not only as a mechanism for
personal voice communication, but for internet and other forms of
telecommunication as well. PTC believes that the continued increase in usage of
these value added services will have a positive impact on ARPU.
Q1.1999 Q2.1999 Q3. 1999 Q4.1999 Q1. 2000 Q2. 2000 Q3. 2000
ARPU 175 166 158 154 130 131 132
During the third quarter of 2000, PTC continued roll-out of the SDH microwave
backbone and is now running 1800 km of the total length of 3500 km. The full
network will consist of 19 lines and will cover the main communication corridors
and cities around the country. This is scheduled to be ready by the end of the
first quarter of 2001.
PTC is also investing in the build-out of its GSM network to meet the Company's
GSM 900 license agreement as well as to increase the capacity of the network and
improve the quality of the network. PTC is required to cover 84.9% of Poland's
geographic area and 95.6% of the population by the end of the year 2000. These
requirements were already exceeded at the end of the first quarter of 2000 and
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as of September 30, 2000 the PTC network achieved 90.5 percent of geographical
coverage and 98.0 percent of population coverage.
At the end of the third quarter of 2000, total network investment reached PLN
4.1 billion. This includes both network assets of PLN 3.0 billion and license
fees of PLN 1.1 billion.
Financial overview
The following table sets forth income statement data in the thousands of PLN and
as a percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
------------ ------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues 710,351 100% 982,640 100% 1,813,893 100% 2,648,769 100%
Cost of sales
Cost of services sold (248,503) (35.0%) (343,831) (35.0%) (641,651) (35.4%) (991,183) (37.4%)
Cost of sales of
telephone and
accessories (160,141) (22.5%) (224,457) (22.8%) (528,494) (29.1%) (654,384) (24.7%)
Operating expenses
Selling and
distribution costs (136,249) (19.2%) (136,038) (13. 8%) (328,536) (18.1%) (410,795) (15.5%)
Administration and
other operating costs
(44,017) (6.2%) (40,777) (4.2%) (112,516) (6.2%) (129,393) (4.9%)
------------- ------------------------- ------------------------ ----------------------- -----------
(588,910) (82.9%) (745,103) (75.8%) (1,611,197) (88.8%) (2,185,755) (82.5%)
------------- ------------------------- ------------------------ ----------------------- ----------
Profit from
operations 121,441 17.1% 237,537 24.2% 202,696 11.2% 463,014 17.5%
Other income,
expenses
Interest income 2,759 0,4% 8,216 0.8% 3,199 0.2% 33,259 1.3%
Interest expenses (58,924) (8.3%) (143,076) (14.6%) (162,312) (9.0%) (413,694) (15.6%)
Foreign exchange
gains 2,322 0,3% 67,233 6.8% 8,353 0.5% 106,062 4.0%
Foreign exchange
losses (122,659) (17.3%) (107,719) (11.0%) (209,726) (11.6%) (271,022) (10.2%)
------------- ------------------------- ------------------------ ----------------------- -----------
(176,502) (24.9%) (175,346) (18.0%) (360,486) (19.9%) (545,395) (20.5%)
------------- ------------------------- ------------------------ ----------------------- -----------
Profit/(loss) before
taxation (55,061) (7.8%) 62,191 6.2% (157,790) (8.7%) (82,381) (3.0%)
Taxation (9,780) (1.4%) (25,386) (2.6%) (36,245) (2.0%) (23,515) (0.9%)
------------- ------------------------- ------------------------ ----------------------- -----------
Net profit/(loss) (64,841) (9.2%) 36,805 3.6% (194,035) (10.7%) (105,896) (3.9%)
</TABLE>
7
<PAGE>
Three months endied September 30, 2000 to three months ended September 30, 1999
Revenues
Total revenue increased by 38.3 percent to PLN 982.6 million in the third
quarter of 2000 from PLN 710.4 million in the third quarter of 1999. The main
source of revenue during the quarter was air-time, which consists of air-time
tariffs revenues from incoming and outgoing calls, "roaming" charges,
interconnect revenues and revenue from the usage of prepaid air-time cards.
Other significant revenue comes from monthly service fees, service activation
fees and revenues from the sale of telephones and accessories.
Total revenues comprise service revenues and fees and revenue on sales of
telephone and accessories.
The increase in service revenues and fees by 44.5 percent to PLN 944.1 million
in the third quarter of 2000 from PLN 653.2 million in the same period of year
1999 is a result of an increase in subscribers number by 67.8 percent during
last twelve months, as a result of total wireless market growth, offset
partially by a decrease in rate per minute of use which followed the
introduction of bundles of cheaper minutes to stimulate the increase in minutes
of use. Services from revenues and fees represented 96.1 percent of total
revenues.
Revenues on sales of telephones and accessories decreased by 32.5 percent when
compared to the third quarter of 1999 to PLN 38.5 million in the third quarter
of 2000. The decrease results from the decrease in handsets prices partially
offset by the increase in gross adds by 17.2 percent.. Revenues on sales of
telephone and accessories represented 3.9 percent of the total sale.
Cost of sales
Total cost of sales increased by 39.1 percent to PLN 568.3 million in the third
quarter of 2000 from PLN 408.6 million in the third quarter of 1999. The
increasing trend in cost of sales is in line with the increasing trend in the
revenues what can suggest the fact that Polish wireless market has become more
matured.
Total cost of sales comprise cost of services sold and cost of sales of
telephone and accessories.
The increase in cost of services sold by 38.4 percent to PLN 343.8 million in
the third quarter of 2000 from PLN 248.5 million in the third quarter of 1999 is
a result of an increase in depreciation and amortization from PLN 58.2 million
in the third quarter of 1999 to PLN 116.7 million in the third quarter of 2000.
It also reflects the increase in wages and salaries accompanied by significant
increase in number of employees in the marketing and sales. Cost of services
sold represented 60.5 percent of the total cost of sales and is accounted for
35.0 percent of total revenues.
Cost of sales of telephones and accessories increased by 40.2 percent to PLN
224.5 million in the third quarter of 2000 from PLN 160.1 million in the third
quarter of 1999. This increase reflects increase in the gross adds by 17.2 and
shows the impact of the handsets replacement program (customer retention policy)
as cost of replaced handsets are shown in this position. Cost of sales of
telephones and accessories represented 39.5 percent of total cost of sales. Cost
of sales of telephone and accessories as a percentage of total revenues
decreased from 22.5 percent in the third quarter of 1999 to 22.8 percent in the
third quarter of 2000.
8
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Operating expenses
For the third quarter of 2000, operating expenses decreased by 1.9 percent to
PLN 176.8 million from PLN 180.3 million in the third quarter of 2000 and
decreased also as a percentage of revenues to 17.9 percent from 25.4 percent in
the third quarter of 1999. As the operating expenses consist of selling and
distribution costs and administration and other operating costs the main impact
on the decline of the operating expenses had a strong decrease in administration
and other operating costs. The decline in administration and other expenses
achieved 7.4 percent and is a result of presenting in this caption special
reimbursements from insurance companies for various damages in the equipment and
stocks. Management anticipates that it will not occur in further periods.
Profit from operations
In the third quarter of 2000, profit from operations was PLN 237.5 million
compared to profit from operations of PLN 121.4 million in the third quarter of
1999. Operating margin in the third quarter 2000 was positive 24.2 percent
compared to positive operation margin of 17.1 percent in the third quarter of
1999. The increase in operating margin from third quarter of 1999 to the third
quarter of 2000 is a result of increase in sales, relatively lower selling and
distribution costs and administration and other operating expenses.
Financial expenses
We reported interest and other financial costs, net, of PLN 175.3 million in the
third quarter of 2000, as compared to PLN 176.5 million in the third quarter of
1999. This is primarily due to interest expenses, net, of PLN 134.9 million on
our Senior Bank Facility, High Yield Bonds, capital lease obligations for the
offices and PLN 40.5 million of foreign exchange translation losses, net.
During the quarter, the Polish Zloty depreciated in relation to US$ and
appreciated towards the euro, resulting in a net foreign exchange loss of PLN
40.5 million (US $ 8.9 million) in the third quarter of 2000, compared to a net
foreign exchange loss of PLN 120.3 million (US $ 26.5 million) at the end of the
third quarter of 1999.
The foreign exchange losses in the third quarter of 2000 implied a significant
decrease in financial costs from PLN 304.0 for the second quarter of 2000 to PLN
175.3 million for the third quarter of 2000. Successful hedging policy,
especially a change of the invoicing currency, together with an advantageous
change in the EUR/PLN exchange rate resulted in a reduction of foreign exchange
losses by 42.3 percent from the second quarter to the third quarter of 2000.
Management expect that interest expenses will have a significant impact on net
income/loss due to the structure of financing of the Company.
Also as material portion of our debt facilities is denominated in foreign
currency we are exposed to foreign exchange risk which translates into foreign
exchange losses/gains. Management anticipates that foreign exchange losses/gains
will have a significant impact on net income/loss.
Taxation charge
We recorded a tax charge of PLN 25.4 million in the third quarter of 2000
compared to the tax charge of PLN 9.8 million in the third quarter of 1999.
9
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Nine months ended September 30, 2000 compared to nine months ended September 30,
1999
Revenues
Total revenues increased by 46.0 percent to PLN 2.6 billion in the first nine
months of 2000 from PLN 1.8 billion in the nine first months of 1999. The main
source of revenue during the quarter was air-time, which consists of air-time
tariffs revenues from incoming and outgoing calls, "roaming" charges,
interconnect revenues and revenue from the usage of prepaid air-time cards.
Other significant revenue comes from monthly service fees, service activation
fees and revenues from the sale of telephones and accessories.
Total revenues comprise service revenues and fees and revenue on sales of
telephone and accessories.
The increase in service revenues and fees by 52.9 percent to PLN 2.5 billion in
the first nine months of 2000 from PLN 1.6 billion in the same period of year
1999 is a result of an increase in subscribers number by 67.8 percent during
last twelve months, as a result of total wireless market growth, offset
partially by a decrease in rate per minute of use which followed the
introduction of bundles of cheaper minutes to stimulate the increase in minutes
of use. Services from revenues and fees represented 95.1 percent of total
revenues.
Revenues on sales of telephones and accessories decreased by 21.7 percent when
compared to the first nine months of 1999 to PLN 130.1 million in the first nine
months of 2000. The decrease is a result of decline in handsets prices partially
offset by the increase in gross adds by 19.4 percent.. Revenues on sales of
telephone and accessories represented 4.9 percent of the total sale.
Cost of sales
Total cost of sales increased by 40.6 percent to PLN 1.6 billion in the first
nine months of 2000 from PLN 1.2 billion in the first nine months of 1999. The
increasing trend in cost of sales is in line with the increasing trend in the
revenues what can suggest the fact that Polish wireless market has become more
matured and stabilized.
Total cost of sales comprise cost of services sold and cost of sales of
telephone and accessories.
The increase in cost of services sold by 54.5 percent to PLN 991.2 million in
the first nine months of 2000 from PLN 641.7 million in the first nine months of
1999 is a result of an increase in depreciation and amortization from PLN 161.9
million in the first nine months of 1999 to PLN 330.5 million in the first nine
months of 2000. It also reflects the increase in wages and salaries accompanied
by significant increase of number of employees in the marketing and sales. Cost
of services sold represented 60.2 percent of the total cost of sales and is
accounted for 37.4 percent of total revenues.
Cost of sales of telephones and accessories increased by 23.8 percent to PLN
654.4 million in the first nine months of 2000 from PLN 528.5 million in the
first nine months of 1999. This increase reflects increase in gross adds by 19.4
and shows the impact of the handsets replacement program (customer retention
policy) as costs of replaced handsets are shown in this position. Cost of sales
of telephone and accessories represented 39.8 percent of total cost of sales.
Cost of sales of telephone and accessories as a percentage of total revenues
decreased from 29.1 percent in the first nine months of 1999 to 24.7 percent in
the first nine months of 2000.
10
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Operating expenses
For the first nine months of 2000, operating expenses increased by 22.5 percent
to PLN 540.2 million from PLN 441.1 million in the first nine months of 2000 but
decreased as a percentage of revenues to 20.4 percent from 24.3 percent in the
first nine months of 1999. As the operating expenses consist of selling and
distribution costs and administration and other operating costs the main impact
on the nominal increase of the operating expenses was on the side of selling and
distribution costs reflecting the increase in employment in the marketing and
sales, as well as opening of several new own shops.
Profit from operations
In the first nine months of 2000, profit from operations achieved PLN 463.0
million compared to profit from operations of PLN 202.7 million in the first
nine months of 1999. Operating margin in the third quarter 2000 was positive
17.6 percent compared to positive operation margin of 11.2 percent in the first
nine months of 1999.
Financial expenses
We reported interest and other financial costs, net, of PLN 545.4 million in the
first nine months of 2000, as compared to PLN 360.5 million in the first nine
months of 1999. This is primarily due to interest expenses, net, of PLN 380.4
million on our Senior Bank Facility, High Yield Bonds, capital lease obligations
for the offices and PLN 165.0 million of foreign exchange translation losses,
net.
During the first nine months of 2000, the Polish Zloty fluctuated in relation to
US$ and euro, resulting in a net foreign exchange loss of PLN 165.0 million in
the first nine months of 2000, compared to a net foreign exchange loss of PLN
201.4 million for the first nine months of 1999. The foreign exchange loss
includes unrealized FX losses of PLN 119.9 million for the first nine months of
2000 and 189.4 million for the first nine months of 1999.
Management expect that interest expenses will have a significant impact on net
income/loss due to the structure of financing of the Company.
Also as material portion of our debt facilities is denominated in foreign
currency we are exposed to foreign exchange risk which translates into foreign
exchange losses/gains. Management anticipates that foreign exchange losses/gains
will have a significant impact on net income/loss.
Taxation charge
We recorded a tax charge of PLN 23.5 million in the first nine months of 2000,
due to operating profit, compared to the tax charge of PLN 36.2 million in the
first nine months of 1999. The decrease in taxation charge is a result of
decrease in Polish deferred tax charge from PLN 35.1 million in the first nine
months of 1999 to PLN 23.4 million in the first nine months of 2000.
Liquidity and capital resources
We have incurred net losses over the past quarters. Several factors contributed
to this situation. First of all we have expanded our network and made
significant capital expenditures for the GSM network build-out as well as for
the SDH backbone build-out, and as a result our depreciation expense has
increased substantially over the last year. Our earnings before interest, taxes
and depreciations (EBITDA) became positive in 1997 and is still improving from
that time. EBITDA for the third quarter of 2000 was PLN 365.2 million compared
to PLN 186.9 million for the same period in 1999. This represents EBITDA growth
of 95.4% compared to 1999 despite the acquisition costs for approximately 415
thousand subscribers. This is primarily a result of reduced administrative and
other expenses as well as strong increase in number of subscribers and
stabilized number of Minutes of Use per user in the third quarter of 2000.
11
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Q1.1999 Q2.1999 Q3.1999 Q4.1999 Q1. 2000 Q2. 2000 Q3. 2000
EBITDA 108 125 186.9 179 208 253 365
Table 1. EBITDA
Our liquidity requirements arise primarily from the need to fund capital
expenditures for the expansion of our business, GSM 900 and GSM 1800 license
fees and for our working capital requirements. On December 17, 1997, we entered
into a loan facility arranged by Citibank (Poland) S.A. and Citibank
International plc. The lenders agreed to make loans to us, on a term loan,
guarantee or revolving credit basis (as desired by) in the aggregate principal
amount of not more than DM 672.0 million (the "Bank Credit Facility") subject to
PTC having met required levels for a number of financial covenants. The Bank
Credit Facility consists of two tranches: (i) an offshore tranche of up to DM
420.0 million may be drawn in Deutschmark, U.S. Dollars, Euro or other freely
convertible currencies as agreed by the lenders; and (ii) a domestic tranche
equal to the Zloty equivalent of DM 252.0 million available to be drawn in
Zloty. At the end of September 2000, we utilized PLN 572.3 million, US$ 25.0
million and DM 40.0 million.
On August 24, 1999 the operating shareholders
extended to us USD 75.0 million in subordinated loans to fund the GSM 1800
license and provide continued liquidity as follows: Elektrim, Zloty equivalent
of USD 39.8 million; DeTeMobil, USD 17.6 million; and MediaOne*, USD 17.6
million. Each shareholder loan bears an interest rate of 12.5 percent compounded
semi-annually on June 17 and December 17. The full loan balance and all accrued
interest are due on June 19, 2006. However, interest may be due earlier
dependent on our ability to meet the Bank Credit Facility covenants.
In November 1999 we issued 11 1/4% Notes of USD 150 million and Euro 300 million
with a maturity date in 2009. The interest is payable on June 1 and December 1
each year starting with June 1, 2000. We were obliged to establish two escrow
accounts to secure the 11 1/4% Notes and to pay the first five scheduled
interest payments on the 11 1/4% Notes. On May 2, 2000 we closed the exchange
offer of our 11 1/4% Notes into freely traded 11 1/4% Senior Subordinated
Guaranteed Notes.
--------------------------------------------------------------------------------
* From March 23, 2000 MediaOne is a part of Deutche Telekom group.
12
<PAGE>
Our net cash generated from operating activities during the nine months ended
September 30, 2000 was PLN 481.3 million, as compared to PLN 405.8 million
during the nine months ended September 30, 1999. Non-cash provisions and net
non-operating items for the same period totaled PLN 986.4 million in 2000 and
PLN 638.1 in 1999, and principally reflect depreciation and amortization,
provisions for doubtful debtors, unrealized foreign exchange losses and accrued
interest expense. In addition, cash used for net working capital items for nine
months of 2000 was PLN 135.0 million as compared to cash generated from net
working capital items of PLN 67.5 million for the same period in 1999. This was
primarily due to increase in debtors, prepayments and deferred costs.
Our net cash used in investing activities was PLN 1.2 billion for the nine
months ended September 30, 2000, as compared to PLN 1.0 billion for the nine
months ended September 30, 1999, principally reflecting payments to suppliers of
network capital equipment used in the ongoing build-out of our GSM 900 and 1800
network, SDH network and payment of GSM 900 and 1800 license fee. Our net cash
used in financing activities was PLN 337.6 million for the nine months ended
September 30, 2000 as compared to net cash generated from financing activities
in the amount of PLN 742.6 million for the nine months ended September 30, 1999,
reflecting repayment of a multicurrency tranche under the Bank Credit Facility.
Management anticipates that capital expenditures for whole year 2000 will
achieve approximately US$ 300 million, including expenditures related to our
backbone network. We also expect that the level of our capital expenditures will
remain significant for the medium term, as we upgrade our network capacity,
coverage and quality.
In order to implement the current business plan, we will need to raise EUR 650
million to repay existing Bank Credit Facility and to anticipate working capital
requirements, capital expenditures and other operating needs. We have already
signed the mandate letter with Deutche Bank, European Bank for Reconstruction
and Development and Dresdner Kleinwort Benson. We would like to start utilizing
the new Bank Credit Facility prior to the end of 2000.
Other Matters
Accounting changes
In the fourth quarter of 1999, the Company 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. The
resulting adjustment to the opening balance of accumulated deficit as at January
1, 1999 resulted in an increase by PLN 6,530. Additionally, the net loss
reported for the nine months period ended September 30, 1999 was decreased by
PLN 1,776.
13
<PAGE>
Item 3. Quantitative And Qualitative Disclosures About Market Risks
Interest rate risk
As a fast growing company we have borrowings under Credit Bank Facility, High
Yield Bonds, Shareholders Loan and lease agreements. Only Credit bank Facility
agreement is based on variable interest rates. At any time, a sharp rise in
interest rates could have a material adverse impact upon our cost of working
capital and interest expenses. No material changes have occurred in the quarter
that would impact our exposure to interest rate risk.
We are exposed to interest rate risk primarily as a result of the Bank Credit
Facility, which at the end of the third quarter of 2000 consisted of PLN tranche
of PLN 572.3 million at the rate of WIBOR plus 0,6% p.a. and multicurrency
tranche utilized in US$ for the amount of US$ 25.0 million and DM of 40.0
million at the rate of LIBOR plus 0,6% p.a.. The table below presents principal
payments under the Bank Credit Facility including principal and related weighted
average interest rates for the balance drawn under the facility as of September
30, 2000. The weighted average interest rates computed do not consider the rate
at which individual draw downs on the loan will be refinanced. Each draw down
has a short-term maturity date, which can be rolled over, subject to the annual
repayment schedule for the entire facility.
<TABLE>
<CAPTION>
Principal and interest payments under Credit Bank facility
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------- ----------- ----------- ----------- ----------- ----------- ------------- ----------- -----------
Bank Credit Facility 2000 2001 2002 2003 2004 Thereafter Total Present
Value
9/30/00
--------------------- ----------- ----------- ----------- ----------- ----------- ------------- ----------- -----------
--------------------- ----------- ----------- ----------- ----------- ----------- ------------- ----------- -----------
Variable Rate (PLN)
100,046 187,239 184,411 177,299 154,452 131,604 935,051 572,342
--------------------- ----------- ----------- ----------- ----------- ----------- ------------- ----------- -----------
-----------------------------------------------------------------------------------------------------------------------
Weighted Average Effective Interest Rate 19,96%
-----------------------------------------------------------------------------------------------------------------------
--------------------- ----------- ----------- ----------- ----------- ----------- ------------- ----------- -----------
Variable Rate 5,808 11,616 11,616 11,616 35,230 179,279 255,165 195,234
(multicurrency)
--------------------- ----------- ----------- ----------- ----------- ----------- ------------- ----------- -----------
-----------------------------------------------------------------------------------------------------------------------
Weighted Average Effective Interest Rate 5,95%
-----------------------------------------------------------------------------------------------------------------------
Tab. 1 Principal payments under the Bank Credit Facility (in thousands of Zloty)
</TABLE>
Foreign currency risk
We are subject to foreign currency risk due to debt agreements and agreements
with network equipment and handsets vendors. In order to manage the volatility
relating to our more significant market risks (cash outflows on 12 months
rolling basis), we enter into forward foreign currency exchange contracts, non
deliverable forward exchange currency contracts and foreign currency swaps. A
formalized treasury risk management policy has been implemented in the beginning
of this year and describes the procedures and controls over executing these
transaction. This policy includes also natural hedging issues like: change of
the invoicing currency to PLN and increased Polish Zloty tranche in the Senior
Bank facility. Under the policy we do not hold derivative financial instruments
for trading purposes.
14
<PAGE>
Long term market risk associated with the foreign currency exchange rate
fluctuations is hedged only with the natural hedging which consist of change of
the invoicing currency to PLN as well as the increase of the PLN tranche in the
Credit Bank Facility.
The table below summarizes our foreign currency denominated long-term
obligations, including the future value of cash payments for principal and
interest, with the exception of the Bank Credit Facility which only presents
future principal payments due to its structure of variable interest rates and
continued revolving of each draw down.
<TABLE>
<CAPTION>
Foreign currency long-term obligations
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
2000 2001 2002 2003 2004 Thereafter Total Present
Value
9/30/00
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
GSM 900 License - 224,176 - - - - 224,176 217,923
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
GSM 1800 License - 66,795 66,795 - - - 133,590 118,310
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
10 3/4 Notes - - - 123,587 123,587 1,520,402 1,767,576 957,481
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
11 1/4 Notes 105,743 211,486 211,486 211,486 211,486 2,937,290 3,888,977 1,924,989
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
BCF DM tranche 5,808 11,616 11,616 11,616 35,230 179,279 255,165 195,234
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
Shareholder
Loans - - - - - 778,665 778,665 389,993
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
Headquarters
Lease 8,376 33,506 33,506 33,506 33,506 336,165 478,565 245,399
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
Weighted 10.7652 10.7652 10.7652 10.7652 10.7652 10.7652 10.7652 10.7652
Average
Effective
Interest Rate
----------------- ----------- ------------- ----------- ----------- ----------- ------------- ------------- -------------
Tab. 2 Our foreign currency denominated long-term obligations (in thousands of PLN)
</TABLE>
Inflation
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 Polish government has adopted policies
to slow the annual rate of consumer price inflation. For the twelve months ended
September 30, 2000, annualized consumer price inflation in Poland was 10.3
percent per the Polish Office of Statistics. Since the launch of our operations
in 1996, the cumulative inflation in Poland has been 53.3 percent
15
<PAGE>
Part II. Other Information
Item 1. Legal proceedings
Interconnect dispute with TPSA
As a result of our negotiations with TPSA the Ministry of Telecommunications
issued a decision (the Interconnect Decision) regarding our settlement process
with TPSA. Than shortly after this decision TPSA appealed it with the Supreme
Administrative Court but the Court rejected this case on October 24, 2000
because of formal failure. PTC's role in this process was limited to the
interested party. This Court's decision opened further negotiations with TPSA
and we have already started renegotiations of settlements rates according to the
instructions presented by Ministry of Telecommunication dated June 30, 2000.
Interconnect dispute with Centertel Idea
On October 10, 2000 we submitted to Sad Okregowy w Warszawie XX Wydzial
Gospodarczy (regional court) a citation for payment by PTK Centertel Sp. z o.o.
amounts resulting from the absence of the mutual interconnect agreement. We
insist on the return of benefits received by Centertel from the
telecommunication traffic starting from Centertel and finishing in our network.
In the period between September 16, 1996 and the date of citation, we performed
for the Centertel interconnect services in the amount PLN 17 million. Following
art. 45 of the Civil Code, we submitted for the return of benefits received by
Centertel without the law basis, at our cost and resulting from conscious and
advisable activities of Centertel. As of the date of this report the effect of
this cause was not known yet.
Personal data protection
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. On July 14, 2000 the GIODO issued a decision
in which it is stated that all the transgressions of the existing law should be
removed. On July 28, 2000 we appealed this decision, admitting that the GIODO's
objections are groundless. We made a motion to GIODO for further examination of
the case. After the case in the court of second instance on September 21, 2000
the decision from July 2000 was uphold. PTC appealed the decision to the Supreme
Administrative Court on October 19.
16
<PAGE>
Voice over Internet Protocol
On February 1, 2000, we 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 our Internet services. 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 Ministry 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 a new
regulation would be prepared by the Ministry of Communications. On October 3,
2000 the Ministry of Communication issued the new regulation which allows us to
provide international telephone services over the Internet network without any
limitations. This regulation is valid until the end of December 2000. Starting
January 1, 2001 the new Telecommunication Act will be in force and will regulate
the further offering of Internet access services. It means that all operators in
Poland will be able to use Internet for that purposes from January 1, 2001.
Item 2. Business environment
The third quarter of the year 2000 brought major changes for the Polish
telecommunication sector. In July of this year, the Polish President signed the
new Telecommunication Act which will go into be effect on January 1st 2001. This
new act states among other points:
(1) Foreign ownership restriction will end as of from January 1st 2001
(2) Regulation of the telecommunications industry will be passed to an
Independent Regulator from January 1st 2001.
(3) International Long Distance will be opened to competition on
January 1st 2003
(4) VoIP will be available for all operators
On October 10, 2000, the Minister of Telecommunication opened the biding process
for 5 UMTS licenses on the territory of Poland.
The price for each license was set at the level of EUR 650 million and will be
payable in 13 installments: the first 3 percent (around EUR 20 million) will be
payable within 14 days from the date of issuance of the licenses, next 51
percent will be paid quarterly at the end of each of the first three quarters of
2001. The remaining 9 installments of total 46.0 percent, will be paid yearly
from the year 2004 to the year 2013.
The bidding documentation describes the roll out requirements and other
regulatory issues.
The bidders have to submit the documentation by December 1, 2000. The winners of
the "beauty contest" will be announced by December 28, 2000.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
18
<PAGE>
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 and Sales
November 13, 2000
