FORM 6 - K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13a or 15d - 16 of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2001
_____________________________
EuroTel Bratislava, a.s.
(Exact name of co-registrant and parent guarantor as specified in its Articles
of Association)
_____________________________
Vajnorska 100/A
831 03 Bratislava
Slovak Republic
(Address of principal executive offices)
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 this 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):82 N/A
INDEX
Page
----
PART I - Financial Information............................................................ 3
ITEM 1. Financial Statements......................................................... 3
Consolidated Balance Sheets..................................................... 3
Consolidated Statements of Operations........................................... 4
Condensed Consolidated Statements of Cash Flows................................. 5
Consolidated Statement of Changes in Shareholders' Equity....................... 6
Notes to the Condensed Consolidated Financial Statements........................ 7
ITEM 2. Management's Discussion and Analysis of Results of Operation and
Financial Condition.................................................................. 20
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk................... 30
PART II - Other Information............................................................... 31
ITEM 1. Legal Proceedings............................................................ 31
ITEM 2. Changes in Securities and Use of Proceeds.................................... 31
ITEM 3. Defaults upon Senior Securities.............................................. 31
ITEM 4. Submission of Matters to Vote of Security Holders............................ 31
ITEM 5. Other Information............................................................ 31
ITEM 6. Exhibits and Reports on Form 8-K............................................. 31
2
EuroTel Bratislava, a.s.
Part 1- Financial Information
Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheets
(in thousands of Slovak Crowns) (unaudited)
As of As of
December 31, June 30,
------------ --------
Notes 2000 2001
------------ --------
ASSETS
Non-current assets
Property and equipment................................................. 5,144,356 4,900,870
Licenses............................................................... 745,214 710,282
Deferred finance charges............................................... 327,187 -
Deferred expenses...................................................... 48,237 36,343
Deferred tax asset..................................................... 223,715 11,495
---------- ----------
6,488,709 5,658,990
---------- ----------
Current assets
Inventories............................................................ 2 136,923 150,072
Receivables, prepayments and deferred expenses......................... 920,160 1,081,835
Current investments.................................................... 3 3,559,842 3,604,716
Cash and cash equivalents.............................................. 1,483,765 1,574,137
---------- ----------
6,100,690 6,410,760
---------- ----------
Total assets........................................................... 12,589,399 12,069,750
========== ==========
LIABILITIES AND EQUITY
Shareholders' equity
Share capital.......................................................... 938,735 3,734,735
Accumulated deficit.................................................... (642,112) (220,463)
---------- ----------
4 296,623 3,514,272
---------- ----------
Non-current liabilities
Subordinated shareholder loans......................................... 3,058,929 -
Long term notes........................................................ 5 7,699,300 7,083,910
Deferred revenues...................................................... 48,237 36,343
---------- ----------
10,806,466 7,120,253
---------- ----------
Current liabilities
Trade, other payables and deferred revenues............................ 1,265,111 1,224,995
Accrued interest - long term notes..................................... 221,199 210,230
---------- ----------
1,486,310 1,435,225
---------- ----------
Total liabilities and equity........................................... 12,589,399 12,069,750
========== ==========
The accompanying notes form an integral part of these consolidated financial
statements.
3
EuroTel Bratislava, a.s.
Consolidated Statements of Operations
(in thousands of Slovak Crowns) (unaudited)
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
Notes 2000 2001 2000 2001
(restated) (restated)
---------- ---------- ---------- ----------
Revenues.................... 6, 8 1,433,602 1,876,523 2,701,006 3,638,121
Cost of sales and services.. 7, 8 (573,375) (828,173) (1,114,152) (1,521,324)
--------- --------- --------- ---------
Gross profit................ 860,227 1,048,350 1,586,854 2,116,797
Operating expenses.......... (692,700) (801,595) (1,342,863) (1,531,136)
--------- --------- --------- ---------
Operating profit............ 167,527 246,755 243,991 585,661
Finance costs............... 9 (491,067) (72,700) (995,545) (204,473)
--------- --------- --------- ---------
Income / (loss) before tax.. (323,540) 174,055 (751,554) 381,188
Income taxes................ 10 73,540 (77,501) 178,047 (146,219)
--------- --------- --------- ---------
Net income / (loss)......... (250,000) 96,554 (573,507) 234,969
========= ========= ========= =========
The accompanying notes form an integral part of these consolidated financial
statements.
4
EuroTel Bratislava, a.s.
Condensed Consolidated Statements of Cash Flows
(in thousands of Slovak Crowns) (unaudited)
Six months ended June 30,
-------------------------------------
2000 2001
(restated)
--------------- -------------
Cash flows from operations............................................ 867,744 1,256,823
Interest paid......................................................... (131,008) (429,178)
Interest received..................................................... 54,998 89,481
Income tax paid....................................................... (16,575) (5,257)
-------- --------
Net cash flows from operating activities.............................. 775,159 911,869
-------- --------
Cash flows from investing activities
Purchase of property and equipment.................................... (262,699) (648,284)
Purchase of current investments....................................... - (2,403,399)
Proceeds from disposal of property and equipment...................... 1,555 669
Proceeds from disposal of current investments......................... - 2,229,517
-------- --------
Net cash used in investing activities................................. (261,144) (821,497)
-------- --------
Cash flows from financing activities
Proceeds from borrowings - third parties.............................. 7,284,770 -
Proceeds from shareholder loans....................................... 615,962 -
Repayment of borrowings - third parties............................... (4,083,375) -
Payment of deferred finance charges................................... (290,783) -
--------- --------
Net cash flows from financing activities.............................. 3,526,574 -
--------- --------
Net (decrease) / increase in cash and cash equivalents............... 4,040,589 90,372
--------- --------
Cash and cash equivalents at beginning of period...................... 503,741 1,483,765
--------- --------
Cash and cash equivalents at end of period............................ 4,544,330 1,574,137
========= =========
The accompanying notes form an integral part of these consolidated financial
statements.
5
EuroTel Bratislava, a.s.
Consolidated Statement of Changes in Shareholders' Equity
(in thousands of Slovak Crowns) (unaudited)
Retained/
Earnings
Ordinary Share Preferred (Accumulated
Shares Premium Shares deficit) Total
------ ------- ------ -------- -----
Balance as of December 31, 1999........................ 765,470 1,035 172,230 (75,434) 863,301
========= ===== ======= ======== =========
Net loss for the six months ended June 30, 2000........ - - - (573,507) (573,507)
--------- ----- ------- -------- ---------
Balance as of June 30, 2000............................ 765,470 1,035 172,230 (648,941) 289,794
========= ===== ======= ======== =========
Balance as of December 31, 2000........................ 765,470 1,035 172,230 (642,112) 296,623
========= ===== ======= ======== =========
Capitalization of shareholder loans (See Note 4)....... 2,796,000 - - - 2,796,000
Adjustment related to statutory tax foreign exchange
losses on retired shareholder loans (See Note 4)...... - - - 186,680 186,680
Net income for the six months ended June 30, 2001...... - - - 234,969 234,969
--------- ----- ------- -------- ---------
Balance as of June 30, 2001............................ 3,561,470 1,035 172,230 (220,463) 3,514,272
========= ===== ======= ======== =========
The accompanying notes form an integral part of these consolidated financial
statements.
6
EuroTel Bratislava, a.s.
Notes to Condensed Consolidated Financial Statements
(in thousands of Slovak Crowns) (unaudited)
1. Basis of Preparation
These consolidated financial statements have been prepared in accordance with
and comply with International Accounting Standards ("IAS"). The financial
information contained in these financial statements is unaudited. The financial
statements do not form the statutory accounts of EuroTel, which are prepared
separately in accordance with Slovak law and accounting practice.
The consolidated financial statements and accompanying notes have been presented
in thousands of Slovak Crowns.
In the opinion of management, the accompanying financial statements of EuroTel
contain all adjustments necessary to present fairly, in all material respects,
EuroTel's consolidated financial position as of June 30, 2001, and the results
of operations and cash flows for the three months and six months ended June 30,
2001 and June 30, 2000. All such adjustments are deemed to be of a normal
recurring nature. The financial statements should be read in conjunction with
the financial statements and the related notes included in EuroTel's financial
statements as of December 31, 2000 and 1999 and for each of the years then
ended. The results of operations for the three months and six months ended June
30, 2001 are not necessarily indicative of the results to be expected for the
full year.
2. Inventories
As of As of
December 31, June 30,
------------ --------
2000 2001
------------ --------
GSM
Mobile phones and accessories......................................... 97,112 110,461
SIM cards............................................................. 36,038 33,709
------- -------
133,150 144,170
NMT
Mobile phones and accessories......................................... 1,054 1,146
MDNS
MDNS inventory........................................................ 2,719 4,756
------- -------
136,923 150,072
======= =======
EuroTel uses an aging analysis of inventory that approximates the amount that
would have been provided for under specific identification. Inventories are
shown net of allowances of Sk33,711 and Sk14,787 as of December 31, 2000 and
June 30, 2001, respectively.
7
EuroTel Bratislava, a.s.
Notes to Condensed Consolidated Financial Statements
(in thousands of Slovak Crowns) (unaudited)
3. Current Investments
EuroTel has invested in a portfolio of Euro denominated government bonds. The
bonds mature in periods ranging from one to twelve months from the balance sheet
date. The bonds pay interest at fixed rates with effective interest rates
ranging from 4.27% to 5.06%. As of December 31, 2000 and as of June 30, 2001 the
fair value of the securities was substantially the same as their carrying value.
As of As of
December 31, June 30,
------------ ----------
2000 2001
------------ ----------
Opening net book amount............................................ - 3,559,842
Additions.......................................................... 4,329,302 2,403,399
Disposals.......................................................... (881,240) (2,229,517)
Amortization of discount........................................... 8,841 9,142
Foreign exchange differences....................................... 102,939 (138,150)
--------- ---------
Closing net book amount............................................ 3,559,842 3,604,716
========= =========
4. Shareholders' Equity
Upon formation of EuroTel Bratislava, a.s., two classes of shares were issued,
ordinary shares and preferred shares.
On December 17, 1999, EuroTel's shareholders approved an increase in both
ordinary and preferred share capital by capitalizing shareholder loans with a
carrying value of Sk334,400. As a result, the total number of ordinary shares
issued and outstanding at December 31, 2000 was 765,470, of which 390,390 and
375,080 were issued to Slovak Telecom ("ST") and Atlantic West B.V. ("AWBV")
respectively. The total number of preferred shares issued and outstanding at
December 31, 2000 was 172,230, all of which were issued to ST.
On March 22, 2001, EuroTel's shareholders approved an increase in ordinary share
capital by capitalizing shareholder loans and interest accrued thereon through
December 31, 2000 with an aggregate value of Sk3,058,929. As a result, the total
number of ordinary shares issued and outstanding at June 30, 2001 was 3,561,470,
of which 1,816,350 and 1,745,120 were issued to ST and AWBV respectively. The
total number of issued and outstanding preferred shares remains 172,230, all of
which are held by ST.
The capitalization was effected at a blend of exchange rates in effect during
the loan periods giving rise to Sk186,680 increase in equity, (net of taxes of
Sk76,249).
Each class of shares has a nominal value of Sk1 per share and carries one vote
per share. The preferred shares have the right to share in profits of EuroTel
solely through the payment of a preference dividend of one Slovak Crown per
share prior to the payment of the dividend to the holders of ordinary shares.
Ordinary shares carry the right to share equally in the profits of EuroTel
through the payment of a dividend as and when declared. Share premiums represent
the excess of each owner's total initial capital contribution over their
proportionate contribution to EuroTel's registered capital prior to the
transformation of EuroTel into a joint stock company.
EuroTel cannot make any dividend payment or other distribution unless certain
criteria set forth in the indenture agreement are satisfied (see Note 5).
8
EuroTel Bratislava, a.s.
Notes to Condensed Consolidated Financial Statements
(in thousands of Slovak Crowns) (unaudited)
5. Long Term Notes
As of As of
December 31, June 30,
------------ ----------
2000 2001
------------ ----------
Long term notes............................................................ 7,699,300 7,392,700
Less: deferred finance charges............................................. - (308,790)
---------- ----------
7,699,300 7,083,910
========== ==========
On March 23, 2000 EuroTel issued through Slovak Wireless Finance Company B.V.
("SWFC"), a wholly owned subsidiary, 11.25% Series A Senior Guaranteed Notes
("Series A Notes"). The Series A Notes were issued in an aggregate principal
amount of Euro 175 million. On August 18, 2000, the United States Securities and
Exchange Commission ("SEC") declared effective a registration statement filed by
EuroTel and SWFC. Pursuant to that registration statement, SWFC offered to
exchange new 11.25% Series B Senior Guaranteed Notes ("Series B Notes") due 2007
for all outstanding Series A Notes that SWFC issued on March 23, 2000. In
aggregate, Euro 172.2 million of Series A Notes were exchanged for an equivalent
amount of Series B Notes. The Series B Notes are substantially identical in
terms to the Series A Notes, except that the Series B Notes are registered with
the SEC. There are currently Euro 2.8 million of Series A Notes still
outstanding.
The Series A and B Notes will mature on March 30, 2007, and SWFC will be
required to repay the Series A and B Notes on that date at 100% of the principal
amount. The obligations of SWFC under the Series A and B Notes are fully and
unconditionally guaranteed by EuroTel. Interest is payable semiannually in
arrears on March 30 and September 30 of each year commencing on September 30,
2000. The fair value of the notes at December 31, 2000 and June 30, 2001 was
Sk7,352,832 and Sk7,688,408, respectively.
The covenants that govern the Series A and B Notes include a Debt to Earnings
before interest, tax, depreciation and amortization (EBITDA) ratio, excluding
subordinated shareholder loans. The maximum permitted debt under this ratio is
limited to 6:1 up to March 23, 2002 and 5:1 thereafter until maturity of the
Series A and B Notes. Debt incurred in respect of certain capital expenditures
and other permitted debt is excluded from this calculation.
There are restrictions on payment of dividends or distributions other than those
paid in compliance with the Series A and B Notes, on purchase, repurchase,
redemption, acquisition or retirement for value of any capital stock and
subordinated obligations and on any principal or interest payments on the
subordinated shareholder loans. The restricted payments test includes reference
to EBITDA from the issue date to the end of EuroTel's most recent fiscal quarter
less the product of 1.75 and the consolidated interest expense for such period.
During the period, EuroTel reclassified deferred finance charges related to
issue of its long term notes. The finance charges are included in the initial
measurement of the notes in accordance with IAS 39. As of June 30, 2001, the
deferred finance charges of Sk308,790 are not reported as a separate asset in
the balance sheet and are offsetting the long term notes liability. There is no
impact on earnings or equity associated with this adjustment. The charges
incurred in obtaining financing are deferred and amortized to expense over the
debt service period using the effective interest method.
9
EuroTel Bratislava, a.s.
Notes to Condensed Consolidated Financial Statements
(in thousands of Slovak Crowns) (unaudited)
6. Revenues
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2000 2001 2000 2001
(restated) (restated)
--------- --------- --------- ---------
Mobile service revenues............................ 1,178,435 1,540,216 2,200,237 2,979,971
Mobile equipment and other sales (a)
Mobile equipment sales........................... 60,318 152,689 120,503 278,953
Other revenues (a)............................... 77,325 67,189 175,363 147,542
--------- --------- --------- ---------
137,643 219,878 295,866 426,495
--------- --------- --------- ---------
Managed data network services ("MDNS")
MDNS service revenues............................ 115,670 115,386 201,919 230,166
MDNS equipment revenues.......................... 1,854 1,043 2,984 1,489
--------- --------- --------- ---------
117,524 116,429 204,903 231,655
--------- --------- --------- ---------
1,433,602 1,876,523 2,701,006 3,638,121
========= ========= ========= =========
Service Revenues
Total service revenues, which exclude revenues from the sale of mobile equipment
and MDNS equipment, were as follows:
Three months ended June 30, Six months ended June 30,
---------------------------- --------------------------
2000 2001 2000 2001
(restated) (restated)
---------- ----------- ---------- ---------
Service revenues (a)............................... 1,371,430 1,722,791 2,577,519 3,357,679
========= ========= ========= =========
(a) During 2000, EuroTel changed its accounting policy with respect to the
treatment of activation revenues. This change in accounting policy has been
accounted for retrospectively and the effect of the change is set out in
Note 8.
7. Cost of Sales and Services
Three months ended Six months ended
June 30, June 30,
----------------------- ----------------------
2000 2001 2000 2001
(restated) (restated)
------- ------- ------- -------
Mobile service cost of sales
Interconnect.................................... 169,900 232,586 321,506 454,321
Roaming......................................... 56,868 69,890 108,418 128,931
Leased circuits................................. 61,405 58,676 118,312 114,491
License and other costs......................... 14,369 14,778 26,925 29,192
------- ------- ------- -------
302,542 375,930 575,161 726,935
------- ------- ------- -------
Mobile equipment and service commissions
Equipment, SIM cards, accessories and spare
parts (a)...................................... 193,049 372,126 390,396 644,467
Service commissions (a)......................... 40,397 42,499 76,264 75,646
------- ------- ------- -------
233,446 414,625 466,660 720,113
------- ------- ------- -------
Managed data network services cost of sales........ 37,387 37,618 72,331 74,276
------- ------- ------- -------
573,375 828,173 1,114,152 1,521,324
======= ======= ========= =========
10
EuroTel Bratislava, a.s.
Notes to Condensed Consolidated Financial Statements
(in thousands of Slovak Crowns) (unaudited)
7. Cost of Sales and Services (continued)
Cost of Services
Depreciation and amortization are not included in cost of sales and services but
under operating expenses. Total service cost of goods sold, which excludes the
cost of mobile equipment and MDNS equipment sold, were as follows:
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
2000 2001 2000 2001
(restated) (restated)
------- ------- ------- -------
Cost of services (a)............................... 383,338 455,387 721,184 876,207
======= ======= ======= =======
(a) During 2000, EuroTel changed its accounting policy with respect to the
treatment of activation costs. This change in accounting policy has been
accounted for retrospectively and the effect of the change is set out in
Note 8.
8. Activation Revenues and Activation Costs - Change in Accounting Policy
During 2000, EuroTel changed its accounting policy with respect to the treatment
of activation revenues and activation costs. The effect of the change in the
accounting policy is as follows:
Three months ended Six months ended
June 30, June 30,
------------------- ------------------
Effect on revenues and costs of sales 2000 2001 2000 2001
------- ------- ------- -------
Increase in revenue from mobile equipment
and other sales ............................. 21,863 21,706 35,612 40,700
(Increase) / decrease in cost of sales of
equipment, SIM cards, accessories and spare
parts ....................................... (1,552) (1,595) 408 (5,425)
(Increase) / decrease in service commissions . (20,311) (20,111) (36,020) (35,275)
------- ------- ------- -------
Net effect on income ......................... -- -- -- --
======= ======= ======= =======
As of As of
December 31, June 30,
------------ --------
Effect on assets and liabilities 2000 2001
------------ --------
Increase in deferred expenses (non-current)................. 48,237 36,343
Increase in deferred expenses (current)..................... 99,759 70,953
Increase in deferred revenues (non-current)................. 48,237 36,343
Increase in deferred revenues (current)..................... 99,759 70,953
11
EuroTel Bratislava, a.s.
Notes to Condensed Consolidated Financial Statements
(in thousands of Slovak Crowns) (unaudited)
9. Finance Costs
------------------- -------------------
Three months ended Six months ended
June 30, June 30,
2000 2001 2000 2001
------- ------- ------- --------
Write-off of deferred finance charges and
prepayment penalties (a) ................... -- -- 333,625 --
Interest expense on borrowings ............. 291,493 205,611 461,087 418,182
Arrangement fees and other finance expenses,
net ....................................... 6,724 11,812 18,673 20,596
Capitalized interest (b) ................... (3,485) (1,919) (9,094) (3,971)
Interest income ............................ (39,882) (55,018) (54,998) (113,848)
Foreign exchange losses / (gains) .......... 236,217 (87,786) 246,252 (116,486)
------- ------- ------- --------
491,067 72,700 995,545 204,473
======= ====== ======= =======
a) The write-off of the existing deferred finance charges and prepayment
penalties relates to the early extinguishment of the Syndicated and
International Finance Corporation loans which were repaid with the proceeds
from the issuance of senior guaranteed notes (see Note 5). The write-off of
existing deferred finance charges and prepayment penalties amounted to
Sk189,730 and Sk143,895 respectively for the six months ended June 30,
2000.
b) Capitalization rates used to determine capitalized interest were as
follows:
Three months ended June 30, Six months ended June 30,
--------------------------- ---------------------------
2000 2001 2000 2001
---- ---- ---- ----
Capitalization rates......................... 11.3% 8.1% 10.5% 7.9%
==== === ==== ===
12
EuroTel Bratislava, a.s.
Notes to Condensed Consolidated Financial Statements
(in thousands of Slovak Crowns) (unaudited)
10. Income Taxes
A reconciliation between the reported income tax charge / (credit) and the
theoretical amount that would arise using the statutory tax rates is as follows:
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
2000 2001 2000 2001
-------- ------- -------- -------
Income / (loss) before tax (323,540) 174,055 (751,554) 381,188
======== ======= ======= =======
Income tax at 29% ...................... (93,827) 50,477 (217,951) 110,545
Nondeductible provision for doubtful
accounts (a) .......................... 7,449 5,087 21,919 11,478
Nondeductible provision for inventory .. (1,066) 947 (1,761) (5,488)
Increase in valuation allowance ........ 3,691 -- 15,103 --
Forgiven interest on shareholder loans . -- 18,280 -- 18,280
Other, net ............................. 10,213 (1,363) 4,643 1,157
------- ------ -------- -------
(73,540) 73,428 (178,047) 135,972
------- ------ -------- -------
Income tax expense for the period
The tax charge for the period comprises:
Deferred tax charge / (credit) (b) .. (73,540) 73,428 (178,047) 135,972
Tax charge in respect of current and
prior periods ...................... -- 1,700 -- 4,990
Withholding tax charged to income ... -- 2,373 -- 5,257
------- ------ -------- -------
(73,540) 77,501 (178,047) 146,219
======= ====== ======== ========
(a) Uncollectible receivables are not tax deductible until certain statutory
collection requirements are not complied with.
(b) The deferred tax credit is the result of unrealized foreign exchange losses
which are not considered tax deductible under current Slovak tax
legislation until realized, accruals including interest on shareholder
loans and interest on long term notes which are not considered tax
deductible under current Slovak tax legislation until paid, and tax loss
carryforwards.
11. Capital Commitments
EuroTel had the following contractual capital commitments:
As of As of
December 31, June 30,
------------ ---------
2000 2001
------------ ---------
Capital expenditures that have been contracted for but have not been
provided for in the financial statements................................. 658,069 1,118,783
============ =========
These commitments principally relate to the network, with the majority of
payments expected to occur within one year. These commitments are cancelable
without significant penalty.
13
EuroTel Bratislava, a.s.
Notes to Condensed Consolidated Financial Statements
(in thousands of Slovak Crowns) (unaudited)
12. Related Party Transactions
In the normal course of business EuroTel purchases certain telecommunications
services from and sells certain services to ST. EuroTel has certain lease
agreements with ST. Related party transactions with AWBV constitute management
fees paid for consulting services and payments for seconded employees. In
addition, EuroTel had outstanding long term borrowings from its shareholders. On
March 22, 2001, EuroTel's shareholders approved an increase in ordinary share
capital by capitalizing all shareholder loans and interest accrued thereon
through December 31, 2000 (see Note 4). EuroTel also purchases and sells in the
normal course of business telecommunications services from the following related
parties: EuroTel Praha and Radiomobil in the Czech Republic, DeTeMobil in
Germany, Max.mobil in Austria, Westel 900 in Hungary, Omnitel in Italy and PTC
in Poland.
EuroTel's transactions with the aforementioned related parties, all of which
were undertaken on an arms length basis, were as follows:
Three months Six months
ended June 30, ended June 30,
2000 2001 2000 2001
---- ---- ---- ----
Sales to ST .......................... 132,567 239,702 370,952 487,798
Purchases from ST .................... 221,937 183,965 449,211 360,211
Lease expense paid to ST ............. 13,200 10,388 18,147 20,870
Sales to EuroTel Praha ............... 17,144 16,440 34,236 32,192
Purchases from EuroTel Praha ......... 8,798 8,705 16,642 16,784
Sales to other related parties ....... 20,231 21,399 43,205 45,626
Purchases from other related parties.. 12,189 12,790 24,022 24,482
Management fees paid to AWBV ......... 7,934 4,659 18,896 11,016
Directors and management fees ........ 4,062 3,040 7,030 9,304
13. Contingencies
Litigation
EuroTel is not involved in any legal proceedings outside of the normal course of
business. Management does not believe the resolution of EuroTel's legal
proceedings will have a material adverse effect on its financial conditions,
results of operations or cash flows.
Taxation
The taxation system in Slovakia is at an early stage of development and is
subject to varying interpretations and changes, which may be retroactive. In
Slovakia, tax periods remain open for tax audits for 6 years.
Concentration of Risk
EuroTel faces foreign exchange risk as its revenues are denominated in Slovak
Crowns, while most of its debt and a significant portion of capital expenditures
are denominated in other currencies. These include payments for GSM network
equipment and for mobile phone handsets, which are generally denominated in
Euros. Any devaluation of the Slovak Crown against the Euro that EuroTel is
unable to offset through price adjustments will require the use of a larger
portion of revenues for capital expenditures and for debt service. This would
cause an adverse effect on EuroTel's financial position and results of
operations. EuroTel has not engaged in any hedging activities.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising EuroTel's customer base. Ongoing
credit evaluations of customers' financial condition are performed and,
generally, no collateral is required. EuroTel maintains provisions for potential
credit losses and such losses, in the aggregate, have not exceeded management's
expectations.
14
EuroTel Bratislava, a.s.
Notes to Condensed Consolidated Financial Statements
(in thousands of Slovak Crowns) (unaudited)
14. Segment Information
Management considers EuroTel to operate in two business segments based on
services provided: mobile telecommunications services and managed data network
services. There was no inter-segment revenue recognized. EuroTel tracks and
manages financial results for its segments down to the gross profit level.
Operating expenses not attributable to reportable segments include all operating
expenses except for amortization of licenses and depreciation relating to
cellular plant and equipment and managed data network services equipment. Assets
attributable to segments include cellular plant and equipment and managed data
network services equipment and the related construction in progress as well as
licenses, inventory and trade receivables. Unallocated assets include computer
equipment, motor vehicles, furniture and fixtures, tax and other receivables,
prepayments, deferred finance charges and cash.
The information in the following tables is disclosed in the same manner and
amounts as used by the chief operating decision-maker to make operational
decisions and allocate resources.
EuroTel's segment financial information was as follows:
Mobile Managed
Communications Data Network
Services Services Unallocated Total
(restated) (restated)
-------- -------- ----------- ----------
Three months ended June 30, 2000
Revenues (a) ................. 1,316,079 117,523 -- 1,433,602
Cost of sales and services (a) (535,988) (37,387) -- (573,375)
--------- ------- --------- ---------
Gross profit ................. 780,091 80,136 -- 860,227
Operating expenses ........... (223,588) (14,384) (454,728) (692,700)
--------- ------- --------- ---------
Operating profit ............. 556,503 65,752 (454,728) 167,527
Finance costs ................ -- -- (491,067) (491,067)
--------- ------- --------- ---------
Income / (loss) before tax ... 556,503 65,752 (945,795) (323,540)
Income taxes ................. -- -- 73,540 73,540
--------- ------- --------- ---------
Net income / (loss) .......... 556,503 65,752 (872,255) (250,000)
========= ======= ========= =========
Depreciation ................. (205,946) (13,051) (88,977) (307,974)
Amortization ................. (17,642) (1,333) -- (18,975)
15
EuroTel Bratislava, a.s.
Notes to Condensed Consolidated Financial Statements
(in thousands of Slovak Crowns) (unaudited)
14. Segment Information (continued)
Mobile Managed
Communications Data Network
Services Services Unallocated Total
-------- -------- ----------- -----
Three months ended June 30, 2001
Revenues ....................... 1,760,094 116,429 -- 1,876,523
Cost of sales and services ..... (790,555) (37,618) -- (828,173)
--------- ------- -------- ---------
Gross profit ................... 969,539 78,811 -- 1,048,350
Operating expenses ............. (258,766) (13,029) (529,800) (801,595)
--------- ------- -------- ---------
Operating profit ............... 710,773 65,782 (529,800) 246,755
Finance costs .................. -- -- (72,700) (72,700)
--------- ------- -------- ---------
Income/(loss) before tax ....... 710,773 65,782 (602,500) 174,055
Income taxes ................... -- -- (77,501) (77,501)
--------- ------- -------- ---------
Net income/(loss) .............. 710,773 65,782 (680,001) 96,554
========= ======= ======== =========
Depreciation ................... (241,340) (12,989) (98,172) (352,501)
Amortization ................... (17,426) (40) -- (17,466)
Mobile Managed
Communications Data Network
Services Services Unallocated Total
(restated) (restated)
-------- -------- ----------- ----------
Six months ended June 30, 2000
Revenues (a) ................. 2,496,103 204,903 -- 2,701,006
Cost of sales and services (a) (1,041,821) (72,331) -- (1,114,152)
--------- ------- -------- -------
Gross profit ................. 1,454,282 132,572 -- 1,586,854
Operating expenses ........... (433,979) (27,110) (881,774) (1,342,863)
--------- ------- -------- -------
Operating profit ............. 1,020,303 105,462 (881,774) 243,991
Finance costs ................ -- -- (995,545) (995,545)
--------- ------- -------- -------
Income/(loss) before tax ..... 1,020,303 105,462 (1,877,319) (751,554)
Income taxes ................. -- -- 178,047 178,047
--------- ------- -------- -------
Net income/(loss) ............ 1,020,303 105,462 (1,699,272) (573,507)
========= ======= ========== ========
Depreciation ................. (398,662) (24,443) (185,234) (608,339)
Amortization ................. (35,317) (2,667) -- (37,984)
16
EuroTel Bratislava, a.s.
Notes to Condensed Consolidated Financial Statements
(in thousands of Slovak Crowns) (unaudited)
14. Segment Information (continued)
Mobile Managed
Communications Data Network
Services Services Unallocated Total
-------- -------- ----------- -----
Six months ended June 30, 2001
Revenues ................. 3,406,466 231,655 -- 3,638,121
Cost of sales and services (1,447,048) (74,276) -- (1,521,324)
--------- ------- -------- -------
Gross profit ............. 1,959,418 157,379 -- 2,116,797
Operating expenses ....... (508,164) (26,751) (996,221) (1,531,136)
--------- ------- -------- -------
Operating profit ......... 1,451,254 130,628 (996,221) 585,661
Finance costs ............ -- -- (204,473) (204,473)
--------- ------- -------- -------
Income/(loss) before tax 1,451,254 130,628 (1,200,694) 381,188
Income taxes ............. -- -- (146,219) (146,219)
--------- ------- -------- -------
Net income/(loss) ........ 1,451,254 130,628 (1,346,913) 234,969
========= ======= ========== =======
Depreciation ............. (473,331) (26,652) (193,373) (693,356)
Amortization ............. (34,833) (99) -- (34,932)
Mobile Managed
Communications Data Network
Services Services Unallocated Total
-------- -------- ----------- -----
As of December 31, 2000
Total assets ............. 5,784,203 337,449 6,467,747 12,589,399
========= ======= ========= ==========
Total liabilities ........ 950,628 69,309 11,272,839 12,292,776
========= ======= ========= ==========
Capital expenditure ...... 619,913 51,024 296,106 967,043
========= ======= ========= ==========
As of June 30, 2001
Total assets ............. 5,540,886 307,725 6,221,139 12,069,750
========= ======= ========= ==========
Total liabilities ........ 882,230 46,100 7,627,148 8,555,478
========= ======= ========= ==========
Capital expenditure ...... 327,089 15,277 108,398 450,764
========= ======= ========= ==========
(a) During 2000, EuroTel changed its accounting policy with respect to the
treatment of activation revenues and activation costs. This change in
accounting policy has been accounted for retrospectively and the effect of
the change is set out in Note 8.
17
EuroTel Bratislava, a.s.
Notes to Condensed Consolidated Financial Statements
(in thousands of Slovak Crowns) (unaudited)
15. Reconciliation to United States Generally Accepted Accounting Principles
EuroTel's financial statements are prepared in accordance with IAS, which differ
in certain respects from U.S. GAAP. The principal differences between IAS and
U.S. GAAP are presented and described below, together with explanations of the
adjustments that affect consolidated net loss for the three months and six
months ended June 30, 2000 and consolidated net income for the three months and
six months ended June 30, 2001.
Three months ended Six months ended
June 30, June 30,
--------------------------- ----------------------
2000 2001 2000 2001
-------- -------- -------- --------
Reconciliation of net income/(loss)
Net income/(loss) reported under IAS .............. (250,000) 96,554 (573,507) 234,969
U.S. GAAP adjustments:
- shareholders pushdown (a) .................... (645) (706) (1,290) (1,412)
-------- -------- -------- --------
Presentation of net income/(loss) under U.S. GAAP . (250,645) 95,848 (574,797) 233,557
======== ======== ======== ========
There are no differences between shareholders' equity reported under IAS and
U.S. GAAP.
(a) Shareholder Pushdown
Under IAS, expenses paid by the shareholders on behalf of EuroTel do not
constitute a contribution of capital. In addition, EuroTel is not required to
recognize an expense related to shareholder payments. During the periods
presented, EuroTel had portions of compensation expense paid by its
shareholders. Under U.S. GAAP, EuroTel is required to recognize an expense and a
concurrent contribution of capital by the shareholder for these costs when
material. This transaction has no effect under Slovak law and no effect on net
equity.
(b) Change in Accounting Policy
Until 2000, under IAS and U.S. GAAP, direct activation costs (SIM cards and
sales commissions) were charged to income at the time of activation. In the
fourth quarter of 2000, in accordance with IAS and the Securities and Exchange
Commission Staff Accounting Bulletin No. 101 ("SAB 101") management elected to
defer direct activation costs over the estimated customer relationship period.
This change was enacted to achieve a better allocation of these revenues and
costs to the periods they relate to. EuroTel has restated its comparative
historical financial statements to reflect the retroactive application of this
policy.
Under U.S. GAAP this change is reported in accordance with Statement of
Financial Accounting Standards No. 3 ("FAS 3"). As a result of the adoption of
this new policy net loss reported under U.S. GAAP for the three months and six
months ended June 30, 2000 increased by Sk15,523 (net of tax of Sk6,340) and
Sk25,285 respectively (net of tax of Sk10,327).
(c) Extraordinary Item
Under IAS, EuroTel may not recognize the write-off of the existing deferred
finance charges and prepayment penalties relating to the early extinguishment of
the Syndicated and International Finance Corporation loans as an extraordinary
item (see Note 9). Under U.S. GAAP, EuroTel is required to recognize the write-
off of existing deferred finance charges and prepayment penalties as an
extraordinary item. The extraordinary item has the same impact on the net loss
for the period under review for both U.S. GAAP and IAS.
18
EuroTel Bratislava, a.s.
Notes to Condensed Consolidated Financial Statements
(in thousands of Slovak Crowns) (unaudited)
15. Reconciliation to United States Generally Accepted Accounting Principles
(continued)
(d) Comprehensive Income
In September 1997, the FASB adopted Statement of Financial Accounting Standards
No. 130. "Reporting Comprehensive Income" ("FAS 130") which establishes rules
for the reporting of comprehensive income and its components. EuroTel had no
income components that qualified as comprehensive income under FAS 130 for any
of the periods presented.
(e) Operating Loss Carryforwards
U.S. GAAP requires disclosure of the amounts and expiration dates of net
operating loss carryforwards. Under Slovak Tax Law a company may accumulate
three consecutive years of tax losses for carryforwards. As of June 30, 2001
EuroTel had approximately Sk1,718,158 of net operating loss carryforwards which
expire at the earliest in 2002 if EuroTel does not produce taxable income by
that date. Otherwise, those operating loss carryforwards expire ratably over
five years beginning in the year EuroTel records taxable income.
(f) Deferred finance charges
Under IAS 39, EuroTel offsets the deferred finance charges related to the issue
of its long term notes against the long term notes liability. Under U.S. GAAP in
accordance with Accounting Principles Board Opinion No. 21, "Interest on
Receivables and Payables", deferred finance charges must be reported as a
separate asset in the balance sheet. The "Long term notes" balance and "Deferred
finance charges" balance at June 30, 2001 were Sk7,392,700 and Sk308,790,
respectively, under U.S. GAAP. There was no effect on consolidated net income or
shareholders' equity reported under U.S. GAAP (see Note 5).
19
EuroTel Bratislava, a.s.
Part 1 - Financial Information
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following discussion should be read together with our financial statements,
including the accompanying notes, beginning on page 3. The financial statements
and the accompanying notes have been prepared in accordance with IAS, which
differs in certain respects from U.S. GAAP. For a description of the principal
differences between IAS and U.S. GAAP as they relate to us and a reconciliation
of our net income from IAS to U.S. GAAP, see note 15 of our financial
statements. You should read the statements under "Safe Harbor Statement Under
the Private Securities Litigation Reform Act of 1995" for information about the
presentation of our forward-looking information.
Overview
We are a leading telecommunications company in the Slovak Republic offering
mobile telecommunications and managed data network services. We are one of two
mobile providers licensed to offer nationwide GSM mobile telecommunications
services and we are the sole provider of analog NMT services. We also provide
managed data network services to a variety of domestic and multinational
businesses and Slovak government institutions. As of June 30, 2001, we had
664,555 mobile customers, and 3,047 managed data network customers, consisting
primarily of subscribers to our X.25 and frame relay services. For the three
months ended June 30, 2001, we generated revenues of Sk1,876.5 million, cash
flows from operating activities of Sk662.6 million, EBITDA of Sk616.7 million
and net income of Sk96.6 million. For the six months ended June 30, 2001, we
generated revenues of Sk3,638.1 million, cash flows from operating activities of
Sk911.9 million, EBITDA of Sk1,313.9 million and net income of Sk235.0 million.
The following table sets forth certain information about our network:
As of June 30,
-----------------------------------------
2000 2001
------------------ -----------------
Geographical area of Slovak Republic covered
NMT................................................................ 79% 79%
GSM................................................................ 81% 81%
Population of Slovak Republic covered
NMT................................................................ 96% 96%
GSM................................................................ 98% 98%
Number of base stations
NMT................................................................ 140 139
GSM................................................................ 529 587
Revenues
Our revenues consist of mobile service revenues, mobile equipment and other
sales and managed data network services revenues. Mobile service revenues
include all revenues we receive on a recurring basis from our mobile
telecommunications services and include monthly access fees, airtime charges for
calls that originate on our network and interconnection and roaming fees.
Airtime charges and access fees are the largest source of our mobile revenues
and include fees charged for our value-added services and special features. We
generally set fees on a network-wide basis, although occasionally we negotiate
individual fee agreements with large business customers. Airtime charges are
generally paid by the initiator of the call, commonly referred to as "calling
party pays," except when a customer travels outside the Slovak Republic, in
which case the customer is charged for a portion of the incoming call.
Interconnection and roaming fees include interconnection fees from Slovak
Telecom and Globtel for calls by their customers terminating on our network and
roaming fees for calls by our mobile customers travelling outside of the Slovak
Republic and for visitors using our network in the Slovak Republic.
20
Mobile equipment revenues include all revenues we receive on a non-recurring
basis from our mobile business and include sales of handsets and accessories as
well as one-time activation fees. Managed data network services revenues
consist of revenues generated when we provide our data customers with access and
use of our data network, as well as revenue from the installation and rental of
data transmission equipment.
As a provider of telecommunications services, our revenues are affected by
growth in our customer base, usage of our services and prices charged for each
of the services that we offer. Our revenues are also affected by customer mix,
with business customers generally having higher average call volume than non-
business customers. Continued customer and service usage growth will depend on
a number of competitive factors, including pricing and promotions, the range and
quality of our services, the capacity and coverage of our network, as well as
general economic and market conditions in the Slovak Republic. We expect that
average minutes of use and revenue per customer for our mobile customers will
fall as mobile penetration in the Slovak Republic increases, because many of our
new customers will be non-business customers who use their mobile phones less
frequently.
The following table sets forth certain information about our customers as of and
for the periods indicated:
As of June 30,
----------------------------------------
2000 2001
------------------ -----------------
Mobile customers
NMT Post-paid..................................................... 17,251 15,146
GSM Post-paid..................................................... 172,609 190,666
GSM Pre-paid...................................................... 172,250 458,743
------- -------
Total............................................................. 362,110 664,555
Managed data network connections..................................... 6,404 6,706
Three months ended June 30, Six months ended June 30,
----------------------------------- ---------------------------------
2000 2001 2000 2001
------------- ---------------- ------------- --------------
Average monthly revenue per customer
Post-paid.................................... Sk1,798 Sk1,876 Sk1,708 Sk1,851
Pre-paid..................................... Sk344 Sk330 Sk345 Sk342
Average monthly billable minutes per customer(2)
Post-paid.................................... 233(1) 275 218(1) 267
Pre-paid..................................... 56(1) 50 56(1) 52
Average monthly churn rate
Post-paid.................................... 2.16% 1.42% 2.21% 1.56%
Pre-paid..................................... 1.31% 1.83% 1.09% 1.61%
_____________________
(1) Restated number. Please refer to the Form 6-K filed with the SEC on
February 28, 2001, when making historical comparisons.
(2) We have changed from reporting monthly switched minutes per customer to
reporting monthly billable minutes per customer as we believe billable
minutes to be of more relevance in analyzing our operating performance.
We have experienced tariff reductions in our mobile business as a result of
increased competition with Globtel, our only competitor in the provision of
mobile telecommunications services. Present competition with Globtel is based
mainly on pricing of handsets and services, network quality and coverage, the
range of services offered and customer service. Mobile tariffs in the Slovak
Republic are among the lowest in Europe. We have experienced increasing minutes
of use and mobile service revenue as effective tariffs per minute decline.
Churn
As previously noted, "Churn" refers to customer disconnections or suspensions
of service. Involuntary disconnections or suspensions of service occur when
customers fail to pay or we suspect fraudulent use. Voluntary disconnections or
suspension of service occur when customers switch to a competing mobile network
or terminate their use of mobile services. The rate of churn indicates the
percentage of customers that we need to replace in any given period before we
can achieve net customer growth. Our total average monthly churn rate
21
EuroTel Bratislava, a.s.
was approximately 1.8% in the three months ended June 30, 2000, and 1.7% in the
three months ended June 30, 2001. We recognize that managing churn is an
important factor in maximizing revenue and cash flow.
To minimize voluntary churn, we provide a high-quality network and service at
competitive prices. We use our advanced information technology systems to
understand, monitor and control voluntary churn. We also minimize voluntary
churn through loyalty programs and targeted renewal campaigns for post-paid
customers near the end of their contract. However, the success of our customer
retention and cost recovery measures depends partially upon competitive factors
beyond our control, including our competitor's rate structures, service
offerings and incentive programs.
A significant cause of churn has been our policy to terminate customers for
failure to pay for our services. Under Slovak law, we cannot conduct credit
checks through credit bureaus or other third parties. We established and
maintain our own databases through which we conduct credit checks on potential
customers, but our information is limited. Our inability to check the credit
history of potential customers increases the risk of customer default and our
rate of churn. We experienced an increasing churn rate of pre-paid customers
because these customers are not contractually bound to continue using our
services.
Expenses
Cost of Sales and Services. Cost of sales and services, which does not
include depreciation, principally consists of expenses related to the operation
of our mobile and data networks, including interconnection costs, roaming fees
paid to other mobile operators when our customers use their networks, leased
circuit costs and license fees. Until December 31, 1999, Slovak Telecom paid
for incoming international calls terminating on our network by giving us a
discount of up to 35% on our interconnection costs depending on traffic volume
and on outgoing international calls originating on our network. As a result of
the direct interconnection agreement entered into between us and Globtel on
December 23, 1999, neither we nor Globtel pays Slovak Telecom for
interconnection to our respective networks. Cost of sales and services also
includes the cost of equipment sold to customers, including mobile handsets, SIM
cards, service commissions paid to dealers and accessories. These costs are
proportional to the number of gross customer additions in each period.
Operating Expenses. Operating expenses consist of selling, general and
administrative expenses and depreciation and amortization expenses. Selling,
general and administrative expenses consist of:
. advertising expenses;
. marketing and sales expenses;
. wages and employee benefits;
. network support and maintenance expenses;
. bad debt expense; and
. other general costs such as rent, building maintenance, professional fees
and administrative costs and office supplies.
We reserve for bad debt expense using a formula based on an aging of accounts
receivable. This formula is reflected in our statements of operations. Under
Slovak law, however, we cannot claim the tax benefit of a bad debt write-off
until we pursue all available remedies against a delinquent customer. As a
result, before we can claim the tax benefit of a write-off, a delinquent
customer must either go through a bankruptcy proceeding or we must commence
legal proceedings against this customer and obtain a final adjudication of our
claim. It is not commercially feasible for us to pursue each customer that
fails to make payments on our invoices. Accordingly, our balance sheet will
reflect, over time, higher levels of gross accounts receivable and bad debt
reserves until we can record a tax benefit related to a bad debt write-off under
Slovak law. Our bad debt expense is lower for pre-paid customers.
Depreciation and amortization expenses consist of the depreciation of the
property, plant and equipment used in our mobile and data networks and
amortization of our licenses. These expenses have increased significantly over
recent years because we have constructed our GSM network and they will continue
to increase as we expand our network coverage and capacity.
22
EuroTel Bratislava, a.s.
Finance Costs. Our finance costs include net interest expense (net of
interest income), arrangement fees and other finance expenses and foreign
exchange losses or gains on non-Slovak Crown-denominated debt. We capitalize
borrowing costs that are directly attributable to the purchase of property used
in the development or construction of property, plant or equipment as part of
the cost of such asset during the course of construction. Accordingly, we do
not expense or include these borrowing costs as part of our finance costs. Our
finance costs vary with the level of our debt, interest rates and exchange
losses. Substantially all of our debt is in currencies other than the Slovak
Crown.
Taxes. The corporate tax rate in the Slovak Republic is 29%, effective from
January 1, 2000. Taxes in the Slovak Republic can be reduced by operating losses
which generate tax benefits offsetting taxable income. Legislation put into
effect on January 1, 2000 allows for the carryforward of up to three successive
years of tax losses, inclusive of the 1999 tax year. The cumulative tax benefit
of these carryforwards must be amortized evenly over the next consecutive five
years. Any additional tax losses incurred during the amortization period are
not available as a future tax benefit, including any amortized amount, which
cannot be fully utilized. Prior to the new legislation, only one year of tax
losses could be carried forward at any one time. Taxes are also affected by the
tax deductibility of bad debt expense, which can only be deducted after all
collection remedies are pursued. In addition, only realized foreign exchange
losses are tax deductible under current Slovak tax legislation.
Foreign Exchange Exposure
While the majority of our revenues are in Slovak Crowns, a significant portion
of our expenses and liabilities are in currencies other than the Slovak Crown.
Substantially all of our debt is in currencies other than the Slovak Crown. As
a result, our operating income and cash flow may be affected if these other
currencies appreciate against the Slovak Crown. Depreciation of the Slovak
Crown in recent years increased the Slovak Crown cost of servicing our debt as
well as the cost of maintaining and expanding our mobile and data networks. We
recognize foreign exchange gains and losses on monetary assets or liabilities in
foreign currency in the period in which we incur them. We include foreign
exchange gains and losses incurred as part of our operating activities as
operating costs. We include foreign exchange gains and losses arising from
financing activities in finance costs.
We receive some revenues in Euros, U.S. dollars and special drawing rights
from foreign carriers. These non-Slovak Crown-denominated revenues are derived
from roaming fees for calls placed by foreign customers on our network in the
Slovak Republic. Our non-Slovak Crown-denominated revenues represented
approximately 5.1% and 4.3% of our total revenues in the three months ended June
30, 2000 and 2001, respectively.
23
EuroTel Bratislava, a.s.
Results of Operations
Our major revenue and expense categories for the three months and six months
ended June 30, 2000 and 2001 are set forth in the table below.
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- ------------------------------
2000 2001 2000 2001
-------------- ------------ ------------ ------------
(in millions of Slovak Crowns)
Mobile service revenues......................... 1,178.4 1,540.2 2,200.2 2,980.0
Mobile service cost of sales.................... 302.5 375.9 575.1 726.9
-------------- ------------ ------------ ------------
Gross profit from mobile services............... 875.9 1,164.3 1,625.1 2,253.1
Gross margin from mobile services............... 74.3% 75.6% 73.9% 75.6%
Mobile equipment and other sales................ 137.7 219.9 295.9 426.5
Mobile equipment and other cost of sales........ 233.5 414.6 466.8 720.1
-------------- ------------ ------------ ------------
Gross profit (loss) from mobile equipment and
other.......................................... (95.8) (194.7) (170.9) (293.6)
Gross margin from mobile equipment sales........ (69.6)% (88.5)% (57.8)% (68.8)%
Data network service revenues................... 117.5 116.4 204.9 231.6
Data network service cost of sales.............. 37.4 37.6 72.3 74.3
-------------- ------------ ------------ ------------
Gross profit from managed data network services. 80.1 78.8 132.6 157.3
Gross margin from managed data network.......... 68.2% 67.7% 64.7% 67.9%
Total revenues.................................. 1,433.6 1,876.5 2,701.0 3,638.1
Cost of sales and services...................... 573.4 828.1 1,114.2 1,521.3
-------------- ------------ ------------ ------------
Gross profit.................................... 860.2 1,048.4 1,586,8 2,116.8
Gross margin.................................... 60.0% 55.9% 58.7% 58.2%
Selling, general and administration expenses.... 365.8 431.7 696.5 802.9
Depreciation and amortization................... 326.9 369.9 646.3 728.2
-------------- ------------ ------------ ------------
Operating income................................ 167.5 246.8 244.0 585.7
Finance costs................................... 491.0 72.7 995.5 204.5
Tax expense / (benefit)......................... (73.5) 77.5 (178.0) 146.2
-------------- ------------ ------------ ------------
Net income (loss)............................... (250.0) 96.6 (573.5) 235.0
============== ============ ============ ============
Three and Six months ended June 30, 2001 Compared to Three and Six months ended
June 30, 2000
Revenues. Our total revenues increased by Sk442.9 million, or 30.9%, from
Sk1,433.6 million in the three months ended June 30, 2000 to Sk1,876.5 million
in the three months ended June 30, 2001. For the six months ended June 30, 2001,
total revenues increased by Sk937.1 million, or 34.7%, from Sk2,701.0 million in
the first six months of 2000 to Sk3,638.1 million. This increase was primarily
attributable to an increase in the number of our mobile customers, particularly
in our pre-paid customer base.
Mobile service revenues, including interconnection and roaming fees paid by
other operators, increased by Sk361.8 million, or 30.7%, from Sk1,178.4 million
in the three months ended June 30, 2000 to Sk1,540.2 million in the same period
of 2001. For the six months ended June 30, 2001, mobile service revenues
increased by Sk779.8 million, or 35.4%, to Sk2,980.0 million. This increase
reflected an 83.5% increase in the number of our total mobile customers, which
grew from 362,110 as of June 30, 2000 to 664,555 as of June 30, 2001. Average
monthly revenue per customer decreased by 27.7% from Sk1,169 in the three months
ended June 30, 2000 to Sk845 in the three months ended June 30, 2001 and
decreased by 25.9% from Sk1,185 in the six months ended June 30, 2000 to Sk878
in the six months ended June 30, 2001. We believe that this decline was
primarily due to the increased number of non-business mobile customers, who
typically take our pre-paid service and generate lower average monthly revenues
than business customers. Our pre-paid customers increased by 286,493 or 166.3%
from 172,250 as of June 30, 2000 to 458,743 as of June 30, 2001. Deferred
revenue increased by Sk7.4 million, from Sk320.0 million at June 30, 2000 to
Sk327.4 million at June 30, 2001. This
24
EuroTel Bratislava, a.s.
increase is due to an increase of Sk77.9 million in deferred mobile service
revenue due to the increase in the number of customers, offset by a reduction in
deferred activation revenue of Sk70.5 million due to pricing promotions
throughout second quarter 2001 that reduced activation fees for new subscribers,
and the fact that in the first half of 1998 following our launch of GSM service
in 1997 we added more post-paid subscribers than we did in second quarter 2001.
Mobile equipment and other sales increased by Sk82.2 million, or 59.7%, from
Sk137.7 million in the three months ended June 30, 2000 to Sk219.9 million in
the three months ended June 30, 2001. This increase was primarily due to sales
of mobile phone handsets and accessories, which increased by Sk92.4 million, to
Sk152.7 million, in the three months ended June 30, 2001. Offsetting the
increase in sales of mobile phone handsets and accessories was a decrease in
contract penalty revenue of Sk11.0 million. Contract termination penalties
declined in the three months ended June 30, 2001 due to lower churn. The
remaining change in mobile equipment and other sales is due primarily to an
increase in other non-recurring revenues, such as sales of certain value-added
services.
Mobile equipment and other sales increased by Sk130.6 million, or 44.1%, from
Sk295.9 million in the six months ended June 30, 2000 to Sk426.5 million in the
six months ended June 30, 2001. This increase was primarily due to sales of
mobile phone handsets and accessories, which increased by Sk158.5 million, to
Sk279.0 million, in the six months ended June 30, 2001. Offsetting the increase
in sales of mobile phone handsets and accessories was a decrease in contract
penalty revenue of Sk32.7 million. Contract termination penalties declined in
the six months ended June 30, 2001 due to lower churn. The remaining change in
mobile equipment and other sales is due primarily to an increase in other non-
recurring revenues, such as sales of certain value-added services.
Managed data network service revenues decreased by Sk1.1 million, or 0.9%,
from Sk117.5 million in the three months ended June 30, 2000 to Sk116.4 million
in the three months ended June 30, 2001. For the six months ended June 30, 2001,
managed data network service revenues increased by Sk26.7 million, or 13.0%, to
Sk231.6 million. This revenue increase is attributable to an increase in data
network connections, and also a change in the composition of our managed data
network service revenues reflecting a shift towards higher-value services.
Concurrently, revenue from the sale of managed data network equipment declined
by Sk0.9 million, from Sk1.9 million in the three months ended June 30, 2000 to
Sk1.0 million in the three months ended June 30, 2001, due to competitive price
pressures. For the six months ended June 30, 2001 revenue from the sale of
managed data network equipment also declined by Sk1.5 million from Sk3.0 million
in the six months ended June 30, 2000 to Sk1.5 million. The number of total data
customer connections increased by 4.7% from 6,404 as of June 30, 2000 to 6,706
as of June 30, 2001.
Cost of Sales and Services. Cost of sales and services increased by Sk254.7
million, or 44.4%, from Sk573.4 million in the three months ended June 30, 2000
to Sk828.1 million in the three months ended June 30, 2001. As a percentage of
total revenues, cost of sales increased from 40.0% in the three months ended
June 30, 2000 to 44.1% in the three months ended June 30, 2001. The decline in
gross margin results primarily from higher costs of mobile phone handsets sold
resulting from accelerating growth of customer base. For the six months ended
June 30, 2001, costs of sales increased by 36.5%, to Sk1,521.3 million, from
Sk1,114.2 million in the six months ended June 30, 2000. As a percentage of
total revenues, cost of sales increased from 41.3% in the six months ended June
30, 2000 to 41.8% in the six months ended June 30, 2001.
Cost of sales and services in our mobile business increased by Sk254.5
million, or 47.5%, from Sk536.0 million in the three months ended June 30, 2000
to Sk790.5 million in the three months ended June 30, 2001. This increase was
due to an increase of Sk73.4 million in mobile service costs of sales, due
primarily to additional interconnect costs required to connect our growing
customer base to other networks, and also due to an increase of Sk181.1 million
in costs of sales related to mobile equipment and other sales, which increased
from Sk233.5 million in the three months ended June 30, 2000 to Sk414.6 million
in the three months ended June 30, 2001, on mobile equipment and other sales of
Sk137.7 million and Sk219.9 million, respectively. For the six months ended June
30, 2001, cost of sales and services in our mobile business increased by Sk405.1
million, or 38.9%, as compared to the same period last year, to Sk1,447.0
million. This increase reflects an increase of Sk151.8 million in mobile service
costs of sales, due primarily to additional interconnect costs required to
connect our growing customer base to other networks, and also an increase of
Sk253.3 million in costs of sales related to mobile equipment and other sales,
which increased from Sk466.8 million in the six months ended June 30, 2000 to
Sk720.1 million in the six months ended June 30, 2001, on mobile equipment and
other sales of Sk295.9 million and Sk426.5 million, respectively. Our negative
gross margin on sales of
25
EuroTel Bratislava, a.s.
mobile phone handsets and accessories was (143.7)% in the three months ended
June 30, 2001 and (131.0)% in the six months ended June 30, 2001, as compared to
a negative gross margin of (220.1)% in the three months ended June 30, 2000 and
(224.0%) in the six months ended June 30, 2000. This improvement in margins on
sales of mobile phones and accessories is due to management's continuing efforts
to reduce subsidies on mobile phones sold to new subscribers. Handset subsidies
refer to the mobile telecommunications industry practice of selling mobile phone
handsets at a price below our cost, in order to attract customers to our
service.
Cost of sales and services in our managed data network services business
increased by Sk0.2 million, or 0.5%, from Sk37.4 million in the three months
ended June 30, 2000 to Sk37.6 million in the three months ended June 30, 2001.
For the six months ended June 30, 2001, cost of sales and services in our
managed data network services business increased by Sk2.0 million, or 2.8%, as
compared to the same period last year, to Sk74.3 million. As a percentage of
revenues, cost of sales in our managed data network services business increased
from 31.8% in the three months ended June 30, 2000 to 32.3% in the three months
ended June 30, 2001 and decreased from 35.3% in the six months ended June 30,
2000 to 32.1% in the six months ended June 30, 2001, as we were able to maintain
premium pricing on our services despite a general decline in the price of such
managed data network services.
Operating Expenses. Total operating expenses increased by Sk108.9 million, or
15.7%, from Sk692.7 million in the three months ended June 30, 2000 to Sk801.6
million in the three months ended June 30, 2001. Operating expenses increased by
Sk188.3 million, or 14.0%, to Sk1,531.1 million, in the six months ended June
30, 2001. This increase primarily reflected higher levels of depreciation and
amortization expense, advertising, marketing and sales expense, network support
and maintenance expense and wages and employee benefits.
Depreciation and amortization expense increased by Sk43.0 million, or 13.2%,
from Sk326.9 million in the three months ended June 30, 2000 to Sk369.9 million
in the three months ended June 30, 2001 and by Sk81.9 million, or 12.7%, to
Sk728.2 million in the six months ended June 30, 2001. This increase reflects
additional depreciation expense we incurred relating to the property, plant and
equipment we acquired and constructed to meet the needs of our growing
subscriber base.
Advertising, marketing and sales expense increased by approximately Sk44.2
million, or 50.1%, from Sk88.3 million in the three months ended June 30, 2000
to Sk132.5 million in the three months ended June 30, 2001 and increased by
Sk42.0 million, or 25.8%, to Sk204.9 million in the six months ended June 30,
2001 due largely to the timing of certain promotional activities. We expect
advertising, marketing and sales expenses as a percentage of revenue to decrease
in subsequent quarters in 2001 compared to 2000.
Network support and maintenance expense increased by approximately Sk9.6
million, or 19.3%, from Sk49.7 million in the three months ended June 30, 2000
to Sk59.3 million in the three months ended June 30, 2001. For the six months
ended June 30, 2001, network support and maintenance expense increased by
approximately Sk16.5 million, or 16.5%, to Sk116.5 million. This increase
reflects a continuing growth in repair and maintenance expense for our network
equipment as certain warranties on purchased hardware and software expire.
Wages and employee benefits increased by Sk20.9 million, or 19.4%, from
Sk107.5 million in the three months ended June 30, 2000 to Sk128.4 million in
the three months ended June 30, 2001 due primarily to annual wage increase and
also due to an increase of average number of our employees. For the six months
ended June 30, 2001, wages and employee benefits increased by Sk48.2 million, or
23.3%, to Sk254.7 million also due to higher bonus payments in 2001 reflecting
the achievement of specific financial and operational goals.
Bad debt expense decreased by Sk21.4 million, or 113.2%, from Sk18.9 million
in the three months ended June 30, 2000 to negative Sk(2.5) million in the three
months ended June 30, 2001. Bad debt expense related to fraud, which is netted
against revenues for the relevant period, decreased from Sk11.7 million in the
three months ended June 30, 2000 to Sk6.9 million in the three months ended June
30, 2001. As a percentage of total revenues, our total bad debt expense,
including bad debt related to fraud, decreased from 2.1% in the three months
ended June 30, 2000 to 0.2% in the three months ended June 30, 2001. For the
six months ended June 30, 2001, bad debt expense decreased by Sk20.4 million, or
54.4%, from Sk37.5 million in the six months ended June 30, 2000 to Sk17.1
million in the six months ended June 30, 2001. Bad debt expense related to fraud
decreased from Sk47.6 million in the six months ended June 30, 2000 to Sk20.2
million in the six months ended June 30, 2001. As a percentage of total
revenues, our total bad debt expense, including expense related to fraud,
26
EuroTel Bratislava, a.s.
decreased from 3.1% in the six months ended June 30, 2000 to 1.0% in the six
months ended June 30, 2001. This decline reflects management's ongoing
initiatives focused on reducing bad debt expense, lowering churn rates, and also
reflects an increasing number of pre-paid customers as a percentage of our total
customer base. Changes in our provision for doubtful accounts are determined
based on an aging schedule and also on the specific identification of
uncollectible accounts. Receivables older than 90 days and receivables related
to customer fraud are 100% reserved for in our provision for doubtful accounts.
In order to preserve the tax-deductible status of bad debt expense, our trade
receivables may not be written out of our primary books and records until
certain statutory collection requirements have been complied with.
Due to the factors discussed above, operating income increased from Sk167.5
million in the three months ended June 30, 2000 to Sk246.8 million in the three
months ended June 30, 2001 and increased from Sk244.0 million in the six months
ended June 30, 2000 to Sk585.7 million in the six months ended June 30, 2001.
Finance Costs. Total finance costs decreased by Sk418.3 million, or 85.2%,
from Sk491.0 million in the three months ended June 30, 2000 to Sk72.7 million
in the three months ended June 30, 2001. Interest expense on borrowings
decreased from Sk291.5 million in the three months ended June 30, 2000 to
Sk205.6 million in the three months ended June 30, 2001 as a result of avoided
interest expense in 2001 on capitalized shareholder loans. Amortization of
arrangement fees and other finance expenses increased from Sk6.7 million in the
three months ended June 30, 2000 to Sk11.8 million in the three months ended
June 30, 2001. Foreign exchange gains and losses improved from a loss of
Sk236.2 million in the three months ended June 30, 2000 to a gain of Sk87.8
million in the three months ended June 30, 2001 primarily due to an appreciation
of Slovak Crown against Euro, in which all our borrowings are denominated. The
remaining difference is primarily due to an increase in interest income from
Sk39.9 million to Sk55.0 million, reflecting the investment of excess borrowings
and due to a small change in capitalized interest.
For the six months ended June 30, 2000 total finance costs decreased by
Sk791.0 million, or 79.5%, from Sk995.5 million in the three months ended June
30, 2000 to Sk204.5 million in the six months ended June 30, 2001. Interest
expense on borrowings decreased from Sk461.1 million in the six months ended
June 30, 2000 to Sk418.2 million in the six months ended June 30, 2001 as a
result of avoided interest expense in 2001 on capitalized shareholder loans.
Foreign exchange gains and losses improved from a loss of Sk246.3 million in the
six months ended June 30, 2000 to a gain of Sk116.5 million in the six months
ended June 30, 2001 primarily due to an appreciation of Slovak Crown against
Euro, in which all our borrowings are denominated. In addition, in the six
months ended June 30, 2000 we incurred a one-time write-off of arrangement and
commitment fees of Sk333.6 million, related to a financing repaid in March 2000.
The remaining difference is primarily due to an increase in interest income from
Sk55.0 million to Sk113.8 million, reflecting the investment of excess
borrowings and due to a small change in capitalized interest.
Taxes. Our taxes increased by Sk151.0 million, or 205.4%, from a tax benefit
of Sk73.5 million in the three months ended June 30, 2000 to a tax charge of
Sk77.5 million in the three months ended June 30, 2001. We reported income
before taxes of Sk174.1 million in the three months ended June 30, 2001 compared
to a loss before taxes of Sk323.5 million in the three months ended June 30,
2000. The tax charge on forgiven interest on shareholders loans was Sk18.3
million in three months ended June 30, 2001. For the six months ended June 30,
2001, our tax charge increased by Sk324.2 million, or 182.1%, from a tax benefit
of Sk178.0 million in the six months ended June 30, 2000 to tax charge of
Sk146.2 million in the six months ended June 30, 2001. We reported income before
taxes of Sk381.2 million in the six months ended June 30, 2001 compared to a
loss before taxes of Sk751.5 million in the six months ended June 30, 2000.
Net Income. As a result of the factors discussed above, we reported net
income of Sk96.6 million for the three months ended June 30, 2001 and a net
income of Sk235.0 million for the six months ended June 30, 2001, compared to a
net loss of Sk250.0 million for the three months ended June 30, 2000 and a net
loss of Sk573.5 million for the six months ended June 30, 2000.
27
EuroTel Bratislava, a.s.
Liquidity and Capital Resources
The telecommunications business requires substantial capital to construct and
expand mobile and data network infrastructure and to fund operations,
particularly during the network development stage. Although our initial network
build-out for GSM and managed data network services is substantially complete,
we expect to incur additional capital expenditures to provide the network
capacity needed to serve our increasing customer base, as well as to enhance the
quality and coverage of our service offerings.
We believe that our capital resources will provide sufficient financing for
our anticipated capital expenditures and other operating needs under our current
business plan. However, we cannot precisely determine the amount of capital we
will need to operate, because our expenditures will depend on our future
performance, market conditions and other factors, many of which are beyond our
control and therefore cannot be predicted with certainty.
The following table sets forth certain information concerning our historical
cash flows:
Six months ended June 30,
2000 2001
---------------- --------------
(millions of Slovak Crowns)
Net cash flows
From operating activities........................................ 775.2 911.9
Used in investing activities..................................... (261.1) (821.5)
From financing activities........................................ 3,526.6 -
Net Cash from Operating Activities. Net cash from operating activities was
Sk775.2 million in the six months ended June 30, 2000 and Sk911.9 million in the
six months ended June 30, 2001. The increase in cash flow from operating
activities in the six months ended June 30, 2001 resulted from growth in our
customer base as well as from timing differences in working capital items such
as accounts payable. An offsetting the increase in cash flow from operating
activities was an increase by Sk298.2 million of interest paid from Sk131.0
million for the six months ended June 30, 2000 to Sk429.2 million for six months
ended June 30, 2001.
Net Cash Used in Investing Activities. Net cash used in investing activities
is driven primarily by capital expenditures and by the investment of excess cash
in interest-bearing securities. Net cash used in investing activities for
capital expenditures was Sk261.1 million in the six months ended June 30, 2000,
and Sk647.6 million in the six months ended June 30, 2001. Capital expenditures
included expenditures for network equipment and infrastructure, information
technology and other miscellaneous items, such as computer equipment and
software, motor vehicles and other new equipment and fixtures. In the six
months ended June 30, 2001, approximately 68.8% of total capital expenditures
were related to our mobile network. The increase in capital expenditures in the
six months ended June 30, 2001 relative to the same period last year is due to
the addition of network capacity to serve our growing customer base, and to roll
out additional products and services. Net cash used in investing activities in
the six months ended June 30, 2001 included the purchase of Euro-denominated
government bonds of Sk2,403.4 million and proceeds of Sk2,229.5 million from
Euro-denominated government bonds which matured during the period.
Net Cash from Financing Activities. We obtain financing from equity
investments and subordinated loans from our shareholders, notes issued on
international bond markets, and borrowings under bank credit facilities. Net
cash from financing activities was Sk3,526.6 million in the six months ended
June 30, 2000, while there was no net cash flow from financing activities in the
six months ended June 30, 2001.
Debt. As of June 30, 2001, our gross debt consisted of Sk7,392.7 million of
outstanding long-term senior guaranteed notes payable. On March 23, 2000 we
issued Euro 175 million, seven-year senior guaranteed notes at a coupon rate of
11.25%, for total net proceeds of Euro 170.4 million. Euro 90.5 million of the
net proceeds of the offering were used to repay existing long-term borrowings
from third parties; the remaining net proceeds will be used to fund selected
capital additions, customer acquisitions, and general corporate purposes. These
notes provide, among other things, for (i) an 11.25% interest rate; (ii)
restrictions on dividend payments, liens, and future indebtedness; (iii)
restrictions on the sale of certain assets or merging with or into other
companies, and (iv) restrictions on entering into transactions with affiliates.
On August 18, 2000, the SEC declared effective a
28
EuroTel Bratislava, a.s.
registration statement we filed together with our financing subsidiary Slovak
Wireless Finance Company, B.V., pursuant to which SWFC offered to exchange New
Notes for all outstanding Old Notes issued on March 23, 2000. In aggregate, Euro
172.2 million of Old Notes were exchanged for New Notes. The New Notes are
substantially identical in terms to the Old Notes, except that the New Notes are
registered with the SEC. As of June 30, 2001, there were Euro 2.8 million of Old
Notes outstanding. As of June 30, 2001, we believe we were in compliance with
all of our covenants under the Old and the New Notes. During the period, EuroTel
reclassified deferred finance charges related to issue of its long term notes.
The finance charges are included in the initial measurement of the notes in
accordance with IAS 39. For a description of the reclassification, see Note 5
and Note 15 (f) of our financial statements.
On February 6, 2001, EuroTel's Board of Directors approved a proposal to
convert Sk3,058.9 million of subordinated loans from our shareholders into
equity. On March 22, 2001, our shareholders formally approved an increase in
ordinary share capital by capitalizing these shareholder loans and interest
accrued thereon through December 31, 2000 with an aggregate value of Sk3,058.9
million. This transaction was completed in April 2001.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
In this Management's Discussion and Analysis, and elsewhere in this Quarterly
Report, we have made statements about expected future events and financial
results that are forward-looking and subject to risks and uncertainties. For
those statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
Listed below are some important factors which could affect future results and
could cause those results to differ materially from those expressed in the
forward-looking statements: materially adverse changes in the business
environment in Slovakia, such as the devaluation of the Slovak Crown, inflation
levels above those in the U.S. and economic downturns; the effect of changes in
the regulatory environment in Slovakia; our ability to develop new technologies
and recruit and retain qualified personnel; our ability to obtain financing
necessary to pursue business opportunities; and our ability to adapt to rapid
technological change and significant competition.
29
EuroTel Bratislava, a.s.
Part I - Financial Information
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our primary risk exposure includes both interest rate risks and foreign exchange
rate risks. As of June 30, 2001 we had Sk7,393 million and as of December 31,
2000 we had Sk10,758 million in gross debt. During the period, EuroTel
reclassified deferred finance charges related to issue of its long term notes.
The finance charges are included in the initial measurement of the notes in
accordance with IAS 39. For a description of the reclassification, see Note 5
and Note 15 (f) of our financial statements. Our current investments totalled
Sk3,605 million as of June 30, 2001 and Sk3,560 million as of December 31, 2000.
The following table represents material changes in our interest rate risk as of
December 31, 2000 and June 30, 2001.
As of December 31, As of June 30,
----------------------------- ---------------------------
2000 2000 2001 2001
-------------- ---------- -------------- ----------
(millions of Slovak Crowns, except %)
Debt Carrying Value Fair Value Carrying Value Fair Value
Fixed Rate - Euro......................... 7,699 7,353 7,393 7,688
Interest Rate............................. 11.25% - 11.25%
Shareholder Loans
Fixed rate - U.S. dollars................. 3,059 2,215 - -
Interest Rate............................. 10.47% - - -
----------- --------- --------- ---------
Total Debt................................ Sk 10,758 Sk 9,568 Sk 7,393 Sk 7,688
=========== ========= ========= =========
The December 31, 2000 and June 30, 2001 fixed-rate Euro-debt consists entirely
of the senior guaranteed notes we issued on March 23, 2000 and August 18, 2000.
The fair value is based on the market price at December 29, 2000 and June 29,
2001, respectively. The senior guaranteed notes will mature on March 30, 2007.
Interest on the senior guaranteed notes is payable semiannually in arrears, on
March 30 and September 30 of each year commencing on September 30, 2000.
The December 31, 2000 fair value of the shareholder loans is estimated
calculating the net present value of the loans based on an estimated curve
appropriate for the terms of the loan agreements. On March 22, 2001, the
EuroTel's shareholders approved an increase in ordinary share capital by
capitalizing shareholder loans and interest accrued thereon through December 31,
2000 with an aggregate value of Sk3,058.9 million. The process of registering
the increase in share capital in the Slovak Republic has been completed in April
2001.
As of June 30, 2001, all of our current investments and all our debt were
denominated in Euros. To the extent that we engage in transactions and
borrowings in currencies other than the Slovak Crown, we will be exposed to
currency exchange risk. For the six months ended June 30, 2001, we had realized
Sk116.5 million foreign exchange gains as a result of fluctuation in currency
exchange rates.
The sensitivity to changes in exchange rates of our foreign currency position
was determined using current market pricing models. We estimate that a 10%
appreciation or devaluation in the foreign exchange rate of the Euro against the
Slovak Crown at June 30, 2001 would have changed the combined fair value of the
facility, current investments and cash and cash equivalents by Sk280 million.
We have considered the possibility of entering into transactions to reduce
exposures to market risks resulting from fluctuations in foreign exchange rates.
However, there can be no assurances that we will engage in hedging transactions
or that, if we were to do so, these transactions would successfully mitigate our
risk. Despite the potential favorable outcome that such transactions could
have, it may not be feasible or desirable for us to do so, as the costs could
far exceed the possible benefits. As a result, changes in the exchange rate
could have a material adverse effect on our ability to pay off non-Slovak Crown-
denominated indebtedness.
30
EuroTel Bratislava, a.s.
Part II - Other Information
Item 1. Legal Proceedings
We are not aware of any pending or threatened litigation against EuroTel.
We have filed a number of claims against former customers for amounts owed to
EuroTel for services rendered. As of June 30, 2001, no final judgements had
been rendered in respect of these claims. The total amount of these claims is
Sk171.1 million. We do not expect to recover any material amounts in connection
with these claims.
Item 2. Changes in securities and use of proceeds
None.
Item 3. Defaults upon senior securities
None.
Item 4. Submission of matters to vote of security holders
None.
Item 5. Other information
None.
Item 6. Exhibits and reports on form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
31
EuroTel Bratislava, a.s.
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.
EuroTel Bratislava, a.s.
Date: August 14, 2001
By: /s/ Jozef Barta
---------------------------------
Jozef Barta
Chief Executive Officer
By: /s/ Ivan Bosnak
---------------------------------
Ivan Bosnak
Acting Chief Financial Officer