Telekomunikacja Polska S.A.
13 August 2003
PART 2
FORWARD CONTRACTS AND CURRENCY AND INTEREST RATE SWAPS
Type of Designation Hedged Notional Interest Maturity Fair value (8)
instrument item value as at
30 June 2003 31
30 June December
receive pay receive pay 2003 2002
(millions) (PLN millions)
CCIRS(1) Cash Series B EUR 100 PLN 388 6.125% 15.25% 2004 18 (23)
flow Bonds
hedge
CCIRS(1) Cash Series B EUR 200 PLN 796 6.125% 13.77% 2004 89 (49)
flow Bonds
hedge
CCIRS(1) Cash Series B EUR 100 PLN 392 6.125% 13.83% 2004 50 (19)
flow Bonds
hedge
CCIRS(1) Cash Series C EUR 100 PLN 400 6.125% 13.8% 2004 16 (25)
flow Bonds
hedge
CCIRS(1) Cash Series E EUR 100 PLN 338 6.625% 14.78% 2006 73 28
flow Bonds
hedge
CCIRS(1) Cash Series E EUR 50 PLN 172 6.625% 14.75% 2006 34 11
flow Bonds
hedge
CCIRS(1) Cash Series D EUR 25 PLN 85 6.5% 14.27% 2007 15 4
flow Bonds
hedge
CCIRS(1) Cash Series E EUR 50 PLN 182 6.6875% 11.36% 2003 - 8
(4) flow Bonds
hedge
CCIRS(1) Fair 5-year USD 200 PLN 852 7.125% 6M 2003 (44) (44)
value Series A WIBOR+1.87%
hedge Bonds
CCIRS(1) Fair 10-year USD 100 PLN 423 7.75% 6M 2008 12 (5)
value Series A WIBOR+2.98%
hedge Bonds
CCIRS(1) Fair 10-year USD 100 PLN 410 7.75% 6M 2008 33 17
value Series A WIBOR+2.65%
hedge Bonds
CCIRS(1) Fair 10-year USD 50 PLN 205 7.75% 6M 2008 23 16
value Series A WIBOR+1.95%
hedge Bonds
CCIRS(1) Fair 10-year USD 50 PLN 206 7.75% 6M 2008 23 16
value Series A WIBOR+1.9%
hedge Bonds
CCIRS(1) Fair 10-year USD 50 PLN 204 7.75% 6M 2008 26 19
value Series A WIBOR+1.75%
hedge Bonds
CCIRS(1) Fair 10-year USD 25 PLN 102 USD 1 million 6M 2008 4 (0)
value Series A paid WIBOR+3.9%
hedge Bonds semi-annually
CCIRS(1) Fair 10-year USD 25 PLN 102 USD 1 million 6M 2008 4 (0)
value Series A paid WIBOR+3.9%
hedge Bonds semi-annually
CCIRS(1) Fair 10-year USD 50 PLN 191 7.86436% 6M 2008 18 -
value Series A WIBOR+4.3%
hedge Bonds
CCIRS(1) Fair 10-year USD 50 PLN 191 USD 2 million 6M 2008 18 -
value Series A paid WIBOR+4.33%
hedge Bonds semi-annually
CCIRS(1) Fair 10-year USD 50 PLN 190 7.86436% 6M 2008 19 -
value Series A WIBOR+4.415%
hedge Bonds
CCIRS(1) Fair 10-year USD 25 PLN 95 USD 1 million 6M 2008 17 -
value Series A paid WIBOR+4.52%
hedge Bonds semi-annually
CCIRS(1) Fair 10-year USD 25 PLN 94 USD 1 million 6M 2008 10 -
value Series A paid WIBOR+4.56%
hedge Bonds semi-annually
CCIRS(1) Fair 10-year USD 25 PLN 94 USD 1 million 6M 2008 10 -
value Series A paid WIBOR+4.52%
hedge Bonds semi-annually
CCIRS(1) Fair 10-year USD 25 PLN 94 USD 1 million 6M 2008 9 -
value Series A paid WIBOR+4.90%
hedge Bonds semi-annually
CCIRS(1) Fair 10-year USD 25 PLN 93 USD 1 million 6M 2008 9 -
value Series A paid WIBOR+5.12%
hedge Bonds semi-annually
CCIRS(1) Fair 10-year USD 25 PLN 93 USD 1 million 6M 2008 9 -
value Series A paid WIBOR+5.06%
hedge Bonds semi-annually
CCIRS(1) Fair 10-year USD 25 PLN 92 USD 1 million 6M 2008 9 -
value Series A paid WIBOR+5.15%
hedge Bonds semi-annually
CCIRS(1) Fair 10-year USD 25 PLN 92 USD 1 million 6M 2008 10 -
value Series A paid WIBOR+5.15%
hedge Bonds semi-annually
CCIRS(1) Fair 10-year USD 25 PLN 93 USD 1 million 6M 2008 9 -
value Series A paid WIBOR+5.12%
hedge Bonds semi-annually
CCIRS(1) Fair 10-year USD 25 PLN 93 7.86436% 6M 2008 6 -
value Series A WIBOR+5.6%
hedge Bonds
CCIRS(1) Fair Series E EUR 50 PLN 183 6.6875% 6M WIBOR+2% 2006 59 36
value Bonds
hedge
CCIRS(1) Trading - USD 100 PLN 351 3M USD 20.95% 2003 - (17)
(4) LIBOR+0.3%
CCIRS(1) Trading - EUR 100 PLN 359 3M EURIBOR 3M WIBOR 2012 78 35
CCIRS(1) Fair Series D EUR 50 PLN 204 6.5625% 6M 2007 40 15
value Bonds WIBOR+1.79%
hedge
CCIRS(1) Fair Series E EUR 25 PLN 100 6.6875% 6M WIBOR+2% 2006 20 9
value Bonds
hedge
CCIRS(1) Fair Series E EUR 25 PLN 100 6.6875% 6M 2006 21 10
value Bonds WIBOR+1.75%
hedge
CCIRS(1) Fair Series D EUR 25 PLN 101 6.5625% 6M 2007 22 10
value Bonds WIBOR+1.59%
hedge
CCIRS(1) Fair Series D EUR 25 PLN 102 6.5625% 6M 2007 21 9
value Bonds WIBOR+1.6%
hedge
CCIRS(1) Fair Series D EUR 25 PLN 100 6.5625% 6M 2007 19 4
value Bonds WIBOR+2.59%
hedge
CCIRS(1) Fair Series D EUR 25 PLN 100 6.5625% 6M 2007 20 4
value Bonds WIBOR+2.52%
hedge
CCIRS(1) Fair Series D EUR 25 PLN 110 EUR 1.6 6M 2007 4 -
value Bonds million paid WIBOR+3.81%
hedge annually
CCIRS(1) Fair European EUR 31 PLN 121 3M EURIBOR 6M 2008 17 3
(6) value Investment WIBOR-0.6%
hedge Bank loan
CCIRS(1) Fair Bankers USD 20 PLN 82 3M USD LIBOR 3M WIBOR - 2003 - (3)
(4) value Trust +0.5% 0.25%
hedge Company
loan
CCIRS(1) Fair Bankers USD 20 PLN 82 3M USD 3M 2003 - (3)
(4) value Trust LIBOR+0.5% WIBOR+0.02%
hedge Company
loan
CCIRS(1) Fair Bankers USD 20 PLN 81 3M USD 3M 2003 - (3)
(4) value Trust LIBOR+0.5% WIBOR+0.15%
hedge Company
loan
CCIRS(1) Fair Bankers USD 20 PLN 82 3M USD 3M 2003 - (4)
(4) value Trust LIBOR+0.5% WIBOR+0.21%
hedge Company
loan
CCIRS(1) Fair Bankers USD 30 PLN 115 3M USD 3M WIBOR 2003 - -
(4) value Trust LIBOR+0.5% -0.27%
hedge Company
loan
CCIRS(1) Fair European EUR 24 PLN 105 3M EURIBOR 3M 2006 5 -
(10) value Investment WIBOR-1.345%
hedge Bank loan
CCIRS(1) Fair European EUR 14 PLN 60 3M EURIBOR 3M 2008 3 -
(11) value Investment WIBOR+1.56%
hedge Bank loan
CCIRS(1) Fair European EUR 31 PLN 133 3M EURIBOR 3M 2008 6 -
(12) value Investment WIBOR-0.8%
hedge Bank loan
CCIRS(1) Fair European EUR 21 PLN 90 3M EURIBOR 3M 2008 4 -
(13) value Investment WIBOR-0,97%
hedge Bank loan
CCIRS(1) Fair European EUR 21 PLN 90 3M EURIBOR 3M 2008 4 -
(14) value Investment WIBOR-1.02%
hedge Bank loan
CCIRS(1) Fair Instituto USD 8 PLN 31 1.25% 6M 2008 2 -
(9) value de WIBOR-3,11%
hedge Credito
Oficial
loan
CCIRS(1) Trading - EUR 50 PLN 197 6.30% 14.78% - 2004 (1) (15)
14.96%
CCIRS(1) Trading - EUR 50 PLN 198 4.70% 12.10% - 2004-2005 3 (21)
12.95%
CCS(2) Trading - EUR 15 PLN 59 - 6.37% - 2007 (3) (11)
6.69%
CCIRS(1) Fair West EUR 10 PLN 38 6M 6M 2003 - 2
(4) value LB/CAI EURIBOR+1.3% WIBOR+2.1%
hedge loan
CCIRS(1) Fair West EUR 10 PLN 38 6M 6M 2004 7 1
value LB/CAI EURIBOR+1.3% WIBOR+1.87%
hedge loan
CCIRS(1) Fair West EUR 5 PLN 19 6M 6M 2004 4 1
value LB/CAI EURIBOR+1.95% WIBOR+2.38%
hedge loan
CCIRS(1) Fair West EUR 10 PLN 38 6M 6M 2003 8 3
value LB/CAI EURIBOR+1.3% WIBOR+1.89%
hedge loan
CCIRS(1) Fair West EUR 10 PLN 38 6M 6M 2004 7 2
value LB/CAI EURIBOR+1.3% WIBOR+1.88%
hedge loan
CCIRS(1) Fair West EUR 5 PLN 20 6M 6M 2005 2 (0)
value LB/CAI EURIBOR+1.95% WIBOR+2.23%
hedge loan
CCIRS(1) Fair West EUR 10 PLN 41 6M 3M 2005 5 (0)
value LB/CAI EURIBOR+1.3% WIBOR+1.58%
hedge loan
CCIRS(1) Fair West EUR 5 PLN 20 6M 3M 2005 2 (0)
value LB/CAI EURIBOR+1.95% WIBOR+2.3%
hedge loan
CCIRS(1) Fair West EUR 20 PLN 83 6M EURIBOR + 6M WIBOR 2005 7 -
value LB/CAI 1.30% +1.425%
hedge loan
CCIRS(1) Fair European EUR 10 PLN 42 4.645% 6M 2004 3 (0)
value Investment WIBOR+1.06%
hedge Bank loan
CCIRS(1) Fair European EUR 20 PLN 84 4.645% 3M 2003 - (1)
(4) value Investment WIBOR+1.48%
hedge Bank loan
CCIRS(1) Fair European EUR 10 PLN 41 4.645% 3M 2004 5 1
value Investment WIBOR+1.24%
hedge Bank loan
CCIRS(1) Fair European EUR 10 PLN 41 4.645% 6M 2003 4 (0)
value Investment WIBOR+1.58%
hedge Bank loan
IRS(5) Fair Series 1 PLN 200 PLN 200 7.25% 6M 2005 10 (0)
value Bonds WIBOR+1.71%
hedge
IRS(5) Cash Payments EUR 150 PLN 596 0.8% PLN 1 2008 2 0
(7) flow due to million paid
hedge the bank quarterly
guarantee
commission
FWD(3) Trading - EUR 15 PLN 66 - - 2003 0 -
FWD(3) Trading - PLN 62 EUR 14 - - 2003 (0) -
======= ======= ======= ======= ======= ======= =======
(1) CCIRS - cross currency interest rate swap/swaps
(2) CCS - cross currency swap/swaps
(3) FWD - currency forward/forwards
(4) As at 30 June 2003 the transactions were closed
(5) IRS - Interest rate swap/swaps - only interest payments exchanged
(6) Interest is calculated based on notional amounts of EUR 50 million and PLN
199 million as modified by payment schedule
(7) As at 30 June 2003 this transaction will result in the exchange of total
future payments amounting to EUR 4,849 thousand and PLN 21,538 thousand
calculated on the nominal amount
(8) The positive value stands for financial assets, the negative value -
financial liability. Value 0 or (0) stands for an asset or a liability
below PLN 500 thousand, respectively
(9) As at 30 June 2003 interest is calculated based on notional amounts of EUR
27 million and PLN 100 million as modified by payment schedule
(10) As at 30 June 2003 interest is calculated based on notional amounts of EUR
59 million and PLN 255 million as modified by payment schedule
(11) As at 30 June 2003 interest is calculated based on notional amounts of EUR
35 million and PLN 151 million as modified by payment schedule, starting
from December 2006
(12) As at 30 June 2003 interest is calculated based on notional amounts of EUR
47 million and PLN 205 million as modified by payment schedule
(13) As at 30 June 2003 interest is calculated based on notional amounts of EUR
50 million and PLN 217 million as modified by payment schedule
(14) As at 30 June 2003 interest is calculated based on notional amounts of EUR
50 million and PLN 217 million as modified by payment schedule
The Company has a number of derivative instruments, which are part of hybrid
financial instruments ('embedded derivatives'). These embedded derivatives
primarily relate to purchase contracts for the delivery of equipment and
services, which are denominated in foreign currency.
In addition, as at 30 June 2003 and 31 December 2002 the Group was a party to
the following put and call option arrangements:
a. Put option issued to the shareholders of Parkiet Media S.A.
As at 24 December 2001 TP Internet Sp. z o.o. issued a put option to the
other shareholders of Parkiet Media S.A. ('PM Shareholders') to buy the
remaining 319,564 shares held by PM Shareholders. The option may be
exercised in 2004 with respect to 50% of the shares held by PM Shareholders
and in 2005 with respect to the remaining shares held by PM Shareholders.
The strike price for the shares is indexed to the revenues and the net
profit of Parkiet Media S.A. in the year prior to the exercise date. Based
on the current forecast of Parkiet Media S.A. results in 2003 and in 2004,
Management believes that the amount to be paid is unlikely to be
significant.
b. Put and call options issued to/acquired from the shareholders of Wirtualna
Polska S.A.
On 26 October 2001,TP Internet Sp. z o.o. ('TP Internet') issued a put
option to the other shareholders of Wirtualna Polska S.A. ('the WP Minority
Shareholders'). Under the terms of this option, TP Internet is obliged to
acquire all shares of Wirtualna Polska held by the WP Minority shareholders.
At the date of signing the option agreement, the WP Minority Shareholders
owned 2,235,002 shares of WP. This put option may be exercised from 1 June
2005 to 1 June 2006 if the monthly average number of unique users of the WP
Internet portal exceeds 3,000,000 in the twelve months prior to the exercise
date of this option. The exercise price for this put option is indexed to
the number of unique users of the WP portal in the period preceding the
exercise date. The maximum exercise price of this put option was agreed to
be USD 66.40 per share. The option can also be exercised earlier if TPSA or
any of its subsidiaries launch a competitive Internet portal.
TP Internet also acquired a call option issued by WP Shareholders to acquire
WP shares held by the WP Minority Shareholders. The option is exercisable
from 1 June 2005 to 1 June 2006. The exercise price for this call option is
indexed to the number of unique users of the WP internet portal in the
period preceding the exercise date on terms similar to those of the put
option described in the preceding paragraph. Under the terms of this
agreement, two shareholders of WP are entitled to retain up to 5% of all
shares of WP and these shares are not subject to this call option.
On 23 June 2003, TP Internet acquired 5.83% of shares in WP from the one of
the WP Minority Shareholders and increased its interest in WP share capital
from 50% to 55.83%. At 30 June 2003, the WP Minority Shareholders owned
1,974,481 shares of WP. TP Internet continues negotiations with the WP
Minority Shareholders to acquire all remaining shares in WP. At 30 June
2003, TP Internet recorded a provision of PLN 117 million (see Note 17) for
the difference between the expected purchase price to be paid by TP Internet
and the estimated fair value of the shares held by the WP Minority
Shareholders. The Management of TPSA believes that the purchase price to be
paid for the shares held by the WP Minority Shareholders will be
significantly lower than the exercise price which may have resulted from the
put option described above. However, the final purchase price and
accordingly the amount of the related impairment provision are dependant on
the outcome of future negotiations and may differ from the best estimates
included in these financial statements.
c. Currency put and call options acquired/issued by TPSA
As at 30 June 2003 TPSA was a party to the following foreign currency options:
• call options for EUR 375 million at the strike price of 4.4 PLN/EUR,
• call and put options for EUR 75 million at the strike price of 4.4 PLN/EUR
and 4.25 PLN/EUR, respectively,
• call and put option for EUR 1 million at the strike price of 4.4975 PLN/
EUR and 4.45 PLN/EUR, respectively.
The premium paid by TPSA in relation to the above contracts amounted to PLN 25
million. Fair value of the options as at 30 June 2003 amounted to PLN 21
million. All the above options have been designated as trading contracts in
order to mitigate exposure against foreign currency risk in relation to the EU
access referendum in Poland. As at the date of the preparation of these
financial statements all the above options were closed.
As at 31 December 2002 TPSA was not a party to any foreign currency option
contracts.
30. Supplementary cash flow information
In the six month period ended 30 June 2003 and 30 June 2002 the Group reported
no significant non-cash transactions.
31. Prior period events
These financial statements do not include any significant events relating to
prior periods.
32. Subsequent Events
a. Sale of cable television
On 4 July 2003 an agreement was signed between TP S.A. and Multimedia Polska
Sp. z o.o. with its registered office in Gdynia ('Multimedia Polska'),
pursuant to which TP S.A. sold those assets used in the provision of cable
television services Olsztyn and five other towns in the Olsztyn area , as
well as in Wroc(3)aw, Szczecin and £omianki. The sale price of the assets
amounted to PLN 57 million. In addition, Multimedia Polska will bear the
costs - established at PLN 5 million - connected with the separation of the
assets. Through the cable television network being sold TP S.A. had,
hitherto, provided services to 60,500 subscribers. The transaction is part
of TP S.A.'s strategy of tidying up and disposing of assets unrelated to TP
S.A.'s core activities. In addition, the parties agreed that TP S.A. shall
be Multimedia Polska's strategic provider of data transmission services.
b. Increase in the share capital of TP Internet Sp. z o.o.
On 30 July 2003 Shareholders' Meeting of TP Internet Sp. z o.o. ('TP Internet')
- a subsidiary of TP S.A. - passed a resolutions regarding an increase in the
company's share capital from 460,963,000 PLN to 487,213,000 PLN, ie. by
26,250,000 PLN. The increase in the share capital will be achieved through the
issue of 52,500 new shares with a nominal value of 500 PLN each. All the newly
issued shares were taken up by TP S.A. TP S.A. will pay 26,250,000 PLN for the
new TP Internet shares. When the aforementioned capital increase takes place the
share capital of TP Internet will amount to 487,213,000 PLN, divided into
974,426 shares of a nominal value of 500 PLN each.
33. Bank borrowing covenants
The parent company is a party to certain bank borrowing and guarantee
agreements, which require the Company to maintain certain financial ratios. In
June 2003 the parent company negotiated with the banks certain amendments to
borrowings and guarantee agreements relating to the basis for calculation of
covenants, as well as the increase of the maximum level of ratio defined as the
net debt to EBITDA. As a result, starting from the reporting period ended 30
June 2003, all covenants will be based on consolidated financial statements
instead of standalone financial statements and the ratio of net debt to EBIDTA
will increase from 2.5 to 3.0. The last testing period was the 12-month period
ended 30 June 2003. Based on the Management calculations, the Group met all
covenants included in bank borrowing agreements. Management believes that the
risk of not meeting the covenants included in bank borrowing agreements in the
period of twelve months from 30 June 2003 is remote.
34. Net current liabilities
As at 30 June 2003 the Group reported net current liabilities amounting to
PLN 1,080 million. According to the TPSA's Management this situation does
not present a threat to current liquidity of the significant entities
constituting the Group. In the six months ended 30 June 2003 the net cash
inflows from the Group's operating activities amounted to PLN 3,739 million.
Additionally, based on the arrangements made with banks the Group has unused
bank loan facilities amounting to PLN 3,507 million as at 30 June 2003.
35. Transformation for IFRS purposes
Except for TPSA Finance B.V. and TPSA Eurofinance B.V. the parent company and
its subsidiaries and associates maintain accounts in accordance with the
accounting principles and practices employed by enterprises in Poland, as
required by the Accounting Act. The financial statements set out above include
certain adjustments not reflected in TPSA's consolidated financial statements as
at 30 June 2003 and comparative financial data as at 30 June 2002 and 31
December 2002, prepared under Polish Accounting Standards (PAS) to present these
financial statements in accordance with IFRS, except for non-compliance with IAS
29.
The adjustments to the consolidated financial statements prepared under PAS are
set out below:
Net profit Net profit Net assets Net assets Total assets Total assets
for 6 months for 6 months
ended ended as at as at as at as at
30 June 2003 30 June 2002 30 June 2003 31 December 30 June 2003 31 December
2002 2002
(in PLN millions)
Consolidated PAS 437 18 12,990 12,661 37,122 36,889
a. Capitalisation of 26 57 514 488 525 500
borrowing costs
Telecommunications 1 (4) (20) (21) (884) (825)
concessions
Deferred tax effects (6) 11 (134) (128) (1,241) (1,139)
Distribution from profit (12) (14) (12) (24) - -
for the benefit of
employees and for
special funds
Change in estimates - 18 - - - -
Other 1 (1) (2) (2) - 1
----- ----- ------ ------ ------ ------
Consolidated IFRS 447 85 13,336 12,974 35,522 35,426
===== ===== ====== ====== ====== ======
a. Capitalisation of borrowing costs
According to PAS, only the costs of borrowings financing the construction of
specifically identified assets during their construction period may be
capitalised. In the absence of such borrowings or in cases where the
construction of specifically identified assets has been completed, borrowing
costs are expensed. In the financial statements prepared in accordance with
International Financial Reporting Standards a weighted average
capitalisation rate for all borrowings, used for obtaining qualifying
assets, is applied to the average outstanding balance of construction in
progress (capitalised financial costs were calculated as the average
investments balance multiplied by the average interest rate for loans, bonds
and other borrowings).
b. Telecommunications concessions
According to PAS, telecommunications concessions are reported in the
financial statements at cost less accumulated amortisation, whilst long-term
liabilities arising from future payments for these concessions are reported
at nominal value. In the financial statements prepared in accordance with
International Financial Reporting Standards, such concessions and related
liabilities are initially recorded at the present value of all future cash
flows. Interest and foreign exchange differences related to this liability,
as well as financial costs of borrowings used for financing the concession
are capitalised into the asset until the concession is ready for use. After
the concession has been issued for use, all related financial costs are
expensed as incurred.
c. Deferred tax effects
The deferred tax position has changed as a consequence of adjusting the
financial statements prepared in accordance with PAS by items (a) and (b).
In addition, under IFRS the deferred tax liabilities and the deferred tax
assets are presented in net amount if the entities constituting the Group
have a legally enforceable right to set off the recognised amounts. In the
financial statements prepared in accordance with PAS, the deferred tax
assets and deferred tax liabilities are presented at gross value.
d. Distribution from profit for the benefit of employees and for special funds
In line with Polish business practice, shareholders are allowed to
distribute profits for the benefit of company employees and to increase the
social fund set up for the welfare of employees as well as increase funds
created for specific purposes. In the IFRS financial statements such
distributions are recognised as an operating expense of the period to which
the profit distribution relates.
e. Change in estimates
According to the Polish Accounting Act, which was amended on 1 January 2002,
the changes arising from the amendment relating to prior periods are
reported by adjusting the opening balance of retained earnings. This
provision predominantly relates to changes in the foreign exchange rates
used for the revaluation of assets and liabilities at the balance sheet
date. According to IFRS, changes in estimate are included in the
determination of the net profit or loss in the period of the change.
f. The scope of disclosures
In addition, the captions of consolidated financial statements prepared
according to PAS and IFRS may differ significantly. The scope of disclosures for
consolidated financial statements according to PAS differs from the scope of
disclosures under IFRS.
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