MULTIMEDIA POLSKA GROUP CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 WITH INDEPENDENT AUDITOR S REPORT

Transcription

1

2

3

4 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 WITH INDEPENDENT AUDITOR S REPORT

5 Consolidated financial statements for the year ended 31 December 2008 (in thousand PLN) CONSOLIDATED INCOME STATEMENT...4 CONSOLIDATED BALANCE SHEET...5 CONSOLIDATED CASH FLOW STATEMENT...6 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY...7 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY...8 Notes to the consolidated financial statements General Information Composition of the Group Composition of the Management Board of the Parent Company Approval of Consolidated Financial Statements Material Accounting Estimates and Judgments Accounting Judgments Estimation Uncertainty Basis of Preparation of the Consolidated Financial Statements Statement of Compliance Measurement Currency and Reporting Currency of Consolidated Financial Statements Changes in the Adopted Accounting Policies New Standards and Interpretations which have been issued but are not yet effective Changes in Estimates Key Accounting Policies Consolidation Rules Currency Translations Property, Plant and Equipment Goodwill Intangible Assets Leases Impairment Losses on Non-Financial Assets Cost of External Financing Financial Assets Impairment of Financial Assets Derivative Financial Instruments and Hedges Inventories Trade and Other Receivables Cash and Cash Equivalents Interest-Bearing Loans, Borrowings and Debt Securities Trade and Other Payables Provisions Retirement Benefits Share-Based Payment Transactions Revenue Income Tax Earnings per Share Segment Information Revenue and Expenses Other Operating Revenue Other Operating Expenses Finance Revenue Finance Costs Income Tax

6 Consolidated financial statements for the year ended 31 December 2008 (in thousand PLN) Tax Liabilities Effective Tax Rate Deferred Income Tax Assets and Liabilities of the Company Social Benefit Fund Earnings per Share Dividends Paid and Declared Property, Plant and Equipment Leases Liabilities under Financial Leases Intangible Assets Goodwill and Intangible Assets with Indefinite Useful Lives Impairment Test Non-current receivables Prepayments and deferred costs Employee Benefits Employee Share Option Plan Retirement Benefits and Other Post-Employment Benefits Inventories Trade and Other Receivables Cash and Cash Equivalents Share Capital, Reserve Capital and Other Reserves Share Capital Reserve Capital Undivided Financial Results and Restrictions on Dividend Payment Minority Interest Interest-Bearing Bank Loans and Borrowings Provisions Changes in Provisions Trade and Other Payables (Current) Contingent Liabilities Court Proceedings Tax Settlements Waste Electric and Electronic Equipment Reasons for Differences Between Changes in Balance Sheet Statement and Cash Flow Statement Related Parties Entity with Significant Influence on the Group Company Shares held by Members of the Management and Supervisory Board Loans Extended to Management Board Members Other Transactions with Management Board Members Remuneration of the Management and Supervisory Board Information on Remuneration for Certified Auditor or Authorised Entity to Audit Financial Statements Goals and Policies of Financial Risk Management Interest Rate Risk Foreign Currency Risk Credit Risk Liquidity Risk Carrying Value and Fair Value of Financial Instruments Capital Management Employment Structure Events Subsequent to the Balance sheet date

7 Consolidated financial statements for the year ended 31 December 2008 (in thousand PLN) 40. Financial Statements for Year Ended 31 December 2007 Restated due to Separation of Relationships with Customers from Goodwill Consolidated Income Statement for the year ended 31 December Consolidated Balance Sheet as at 31 December Consolidated cash flow for the year ended 31 December

8 Consolidated financial statements for the year ended 31 December 2008 (in thousand PLN) CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2008 Continued operations Note Year ended 31 December 2008 Year ended 31 December 2007 Restated Subscriber-generated and interoperator revenues Other sales revenue Sales revenue Depreciation and amortisation Materials External services Taxes and charges Payroll Other employee benefits Other expenses Value of goods and materials sold Operating expenses Gross profit on sales Other operating revenue Other operating expenses Operating profit Finance revenue Finance costs Profit/(loss) before tax Income tax expense Net profit/(loss) Net profit/(loss) Attributable to: Equity holders of the parent Minority interest 1 1 Earnings per share (in PLN): basic earnings for the reporting period

9 Consolidated financial statements for the year ended 31 December 2008 (in thousand PLN) CONSOLIDATED BALANCE SHEET as at 31 December 2008 Note 31 December December 2007 Restated ASSETS Non-current assets Property, plant and equipment Goodwill Intangible assets Financial assets 2 15 Non-current receivables Prepayments and deferred costs Deferred tax assets Currents assets Inventories Trade and other receivables Income tax receivables Prepayments and deferred costs Current investments, including SWAP contracts Cash and cash equivalents TOTAL ASSETS EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Share capital Share premium Treasury shares (39 222) (4 386) Other reserve capital Retained earnings Minority interest Total equity Non-current liabilities Interest-bearing loans and borrowings Other non-current liabilities Deferred income Provisions Deferred income tax liabilities Current liabilities Interest-bearing loans and borrowings and other Trade and other payables Income tax liabilities - 52 Accruals Deferred income Provisions Total liabilities TOTAL EQUITY AND LIABILITIES

10 Consolidated financial statements for the year ended 31 December 2008 (in thousand PLN) CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 December 2008 Notes Year ended 31 December, 2008 Year ended 31 December 2007 Restated Cash flows from operating activities Profit/(loss) before tax Adjustments for: Participation in the profit (loss) of affiliated entities, valued using the 1 1 equity method Depreciation and amortisation Interest and dividends, net Foreign exchange gains/(losses) (1 770) (162) Gain/(loss) from investing activities Change in inventories Change in trade and other receivables (27 244) Change in current payables except bank loans Change in accruals and prepayments (1 737) Change in provisions 233 (93) Income tax paid (9 727) (3 285) Other adjustments liquidation of property, plant and equipment impairment of property, plant and equipment (1 561) finance fees SWAP interest paid (706) (4 825) - provision for share options other Net cash flows from operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment and intangibles Purchase of property, plant and equipment and intangibles ( ) ( ) Acquisition of an organized part of an enterprise 20 (17 634) - Acquisition of subsidiary, net of cash acquired - - Interest received SWAP contracts paid (1 523) 1 Repayment of loans granted - 21 Granting of loans (88) - Other - - Net cash flows from investing activities ( ) ( ) Cash flows from financing activities Payment of finance lease liabilities (46) (85) Proceeds from loans/borrowings Repayment of loans and borrowings (81 958) ( ) Redemption of own shares (34 905) (4 386) Dividends paid to equity holders of the parent (33 897) - Interest and fees paid (28 673) (21 981) Net cash flows from financing activities ( ) ( ) Net change in cash and cash equivalents ( ) ( ) Net foreign exchange differences Cash and cash equivalents at the beginning of the period Profit/(loss) on valuation of cash in foreign currencies Cash and cash equivalents at the end of the period In order to bring these data to full compability, the cost of interest paid on SWAP contracts in 2007 was reclassified from financing activities to investing activities. Notes to the consolidated financial statements attached on pages 9 to 68 are an integral part of these financial statements 6

11 Consolidated financial statements for the year ended 31 December 2008 (in thousand PLN) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2008 Share capital Share premium Treasury shares Foreign exchange gains/losses Other reserve capital Retained earnings Total Minority Interest * Total equity At 1 January (4 386) Merger adjustments Profit (loss) from valuation of available-for-sale financial assets Profit (loss) from valuation of cash flow hedges Exchange rate differences Deferred tax Income/(costs) for the period recognised directly in equity after deferred tax Profit/(loss) for the period Total income/costs for the period Issue of shares Options for shares Redemption of own shares - - (34 836) - (69) - (34 905) - (34 905) Purchase of minority interest Distribution of prior years profit (35 203) (33 897) (1) (33 898) Reserve capital to the amount of 1/3 of the share capital - (49 108) Other additions/disposals* - ( ) At 31 December (39 222) * In accordance with the Resolution of the Extraordinary General Meeting of Multimedia Polska S.A. the Company created a special purpose reserve fund devoted to dividend payment ( Dividend Fund ). PLN 149,542 thousand from share premium, PLN 62,183 thousand from previous years profit and PLN 1,306 thousand from reserve capital which arose as a result of distribution of profit for 2007 were transferred to the Dividend Fund. The reserve capital in the amount of PLN 53 million representing 1/3 of the share capital cannot be used for other purposes. Notes to the consolidated financial statements attached on pages 9 to 68 are an integral part of these financial statements 7

12 Consolidated financial statements for the year ended 31 December 2008 (in thousand PLN) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2007 Restated Share capital Share premium Treasury shares Foreign exchange gains/losses Other reserve capital Retained earnings * Total Minority interest Total equity At 1 January Profit (loss) from valuation of available-for-sale financial assets Profit (loss) from valuation of cash flow hedges Exchange rate differences Deferred tax Income/(costs) for the period recognised directly in equity after deferred tax Profit/(loss) for the period Total income/costs for the period Options for shares Redemption of own shares - - (4 386) - (8) - (4 394) - (4 394) Purchase of minority interest Distribution of prior years profit (44 262) At 31 December (4 386) Notes to the consolidated financial statements attached on pages 9 to 68 are an integral part of these financial statements 8

13 Consolidated financial statements for the year ended 31 December 2008 Notes to the consolidated financial statements (in thousand PLN) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. General Information Multimedia Polska Group (the Group ) is composed of Multimedia Polska Spółka Akcyjna (the Parent Company or the Company ) and its subsidiaries (see Note 2). These consolidated financial statements of the Group cover the year ended 31 December 2008 and comparable data for the year ended 31 December The Parent Company is registered with the National Court Register kept by the District Court, VIII Commercial Division of the National Court Register, under entry No The Parent Company has been assigned industry identification No. REGON The Company s registered office is located in Gdynia, at ul. Tadeusza Wendy 7/9. The duration of the Parent Company and its subsidiaries is unlimited. The Group s main activity is the provision of a wide range of telecommunications services, in particular radio, television, internet and telephony over cable television systems. 2. Composition of the Group The Group comprises Multimedia Polska S.A. and the following subsidiaries: Company Registered office Business profile % of share in capital held by Multimedia Polska S.A. 1 Tele Top Grupa Multimedia Polska Sp.z o.o. (TOP) 2 Multimedia Polska - Zachód Sp. z o.o. (TNZ) 3 Multimedia Polska - Południe S.A. (TNPD) 4 Telewizja Kablowa Brodnica Sp. z o.o. 5 Przedsiębiorstwo Handlowo Usługowe Sotel Sp. z o.o. Gdynia, ul.t.wendy 7/9 Gdynia, ul.t.wendy 7/9 Gdynia, ul.t.wendy 7/9 Brodnica, ul. Witosa 12 Pruszcz Gdański, ul. Obrońców Pokoju 6 6 Intertel Sp. z o.o. Trzebinia, ul. Kościuszki 50 7 Zicom Sp. z o.o. Tarnów, ul. Głowackiego 33 - film and video production - voice, data and other telecommunications services - voice, data and other telecommunications services - cable television, other building installation - cable television, data transmission services - telephony and data transmission services - telephony and data transmission services % 99.9% 100.0% 100.0% 100.0% 100.0% 94.1% 94.1% merged with Multimedia Polska S.A. merged with Multimedia Polska S.A. merged with Multimedia Polska S.A % 100.0% 100.0% The composition of the Group changed during the 12 months ended 31 December On 17 April 2008, the District Court for Gdańsk-Północ, VIII Commercial Division of the National Court Register, registered the merger of Multimedia Polska S.A. (the acquirer) with Przedsiębiorstwo Handlowo - Usługowe Sotel Sp. z o.o. and Intertel Sp. z o.o. (the acquirees, both companies wholly owned by Multimedia Polska S.A.). In accordance with the merger plan adopted on 30 November 2007, the merger was performed according to the simplified procedure in compliance with Art of the Commercial Companies Code, by transferring all assets of PHU Sotel Sp. z o.o. and Intertel Sp. z o.o. to Multimedia Polska S.A. On 29 August 2008, the District Court for Gdańsk-Północ, VIII Commercial Division of the National Court Register, registered the merger of Multimedia Polska S.A. (the acquirer) with Zicom Sp. z o.o. (the acquiree, the company wholly owned by Multimedia Polska S.A.). 9

14 Consolidated financial statements for the year ended 31 December 2008 Notes to the consolidated financial statements (in thousand PLN) In accordance with the merger plan adopted on 31 March 2008 and pursuant to Resolution No. 22 of the Ordinary General Shareholders Meeting dated 30 June 2008, the merger was performed according to the simplified procedure in compliance with Art and Art of the Commercial Companies Code by transferring all assets of ZICOM Sp. z o.o. to Multimedia Polska S.A. On 26 February 2009 the Management Board of Multimedia Polska S.A. announced its intention to merge Multimedia Polska S.A. and Multimedia Polska - Zachód Sp. z o.o. In accordance with the plan of merger, the merger will be effected in accordance with Art and Art of the Commercial Companies Code by transferring all assets of Multimedia Polska - Zachód Sp. z o.o. to Multimedia Polska S.A. The merger of Multimedia Polska S.A. and Multimedia Polska - Zachód Sp. z o.o. is aimed at reducing operating expenses associated with the operation of subsidiaries and simplifying managing and reporting processes within Multimedia Polska Group. As at 31 December 2008 and 31 December 2007, the percentage of voting rights held by the Group in subsidiaries corresponded to the percentage held in the share capital of those entities. 3. Composition of the Management Board of the Parent Company As at 31 December 2008, the Management Board of the Parent Company consisted of: Andrzej Rogowski President of the Management Board The composition of the Management Board did not change during the reporting period nor during the period up to the date of authorisation of these consolidated financial statements. 4. Approval of Consolidated Financial Statements These consolidated financial statements were approved for publication by the Management Board on 2 April Material Accounting Estimates and Judgments 5.1. Accounting Judgments The application of accounting policies to the issues specified below and in the accompanying notes was based primarily on accounting estimates as well as on the professional judgment of the Management Board. - Classification of Lease Agreements: The Group classifies an operating or financial lease based on an evaluation of the extent to which the risks and benefits arising from possession of the lease items are allocated to the lessor and the lessee. This evaluation is based on the economic content of each transaction. The Group is a party to lease agreements which, in the Management Board s opinion, meet the criteria for being classified as financial leases. The Management Board has determined that it retains all the significant risks and rewards of ownership of these properties and so accounts for them as financial leases. - Determination of Fair Value of Acquired Companies Net Assets: In the process of acquiring control over another entity, the Group performs a valuation of its assets, liabilities and contingent liabilities, on the basis of which it determines the entity s fair value. The judgment of the Management Board is based on assumptions used for net assets valuation to fair value. A business is defined in IFRS 3 as an integrated set of activities and assets conducted and managed for the purpose of providing: a) a return to investors; or 10

15 Consolidated financial statements for the year ended 31 December 2008 Notes to the consolidated financial statements (in thousand PLN) b) lower costs or other economic benefits directly and proportionately to policyholders or participants. A business venture usually covers incoming and outgoing items which are or which will be used to generate revenues. If there is goodwill in a given set of activities and assets, it is assumed that the given set represents a business venture. - The Classification of a Business Combination In accordance with the terms and conditions of the credit facility agreement and the Group s development plans, the Group purchases assets and organized parts of enterprises. In the opinion of the Management Board, the purchase of assets is defined as a purchase of property, plant and equipment which allows the Group to activate new subscribers. In the process of a business combination, the Group acquires assets together with subscribers associated with them Estimation Uncertainty Presented below are key assumptions regarding the future as well as other major sources of uncertainty existing as at the balance sheet date, which entail a material risk of considerable adjustments to the carrying value of assets and liabilities in the subsequent financial year. - Impairment of Property, Plant and Equipment and Intangible Assets, including Goodwill The Group tested property, plant and equipment and intangible assets, including goodwill for impairment. As at the balance sheet date, the Group tested for impairment goodwill acquisitions and business combinations (Note 20.1). All segments of the Group were tested and the testing did not indicate any impairment. There were no indications of impairment of tangible or intangible assets. If at the date of the testing, the recoverable amount of a cash-generating unit to which goodwill was allocated is lower than its carrying value, an impairment loss is recognised. For the purpose of the test, goodwill was allocated to cash-generating units corresponding to business segments connected with television, Internet and telephony. The test for impairment was performed based on five-year cash flow projections that may be recoverable from these assets, including a residual period with an assumed cash flow growth rate of 2.0%. For the purpose of impairment testing, the Group used the after-tax discount rate of 10.0%. The adopted pre-tax discount rate, calculated in accordance with IAS 36, is 11.9%. As at the balance sheet date, the Group tested customer relationships with an indefinite useful life based on an analysis of increases in subscriber numbers and revenues recorded to date, separately for each asset (relationship). On that basis, the Group determined five-year cash inflow projections of economic benefits that will flow to an owner of an asset, separately for each asset. For the purpose of impairment testing, the Group used the discount rate of 10.0%. The test did not indicate any impairment of goodwill or relations with customers. - Valuation of Provisions Provisions for employee benefits are determined using actuarial methods. The assumptions made are presented in note Deferred Tax Assets and Liabilities The Group recognises a deferred tax asset on the assumption that taxable income will be generated in the future, against which the asset can be used. Any deterioration in future financial performance might render the assumption invalid. - Valuation Allowance for Receivables The Group made a valuation allowance for receivables, assessed the probability of collecting overdue receivables and estimated the value of uncollectible receivables, for which it made valuation allowances. - Depreciation and Amortisation Rates Depreciation and amortisation rates are determined based on the estimated useful lives of tangible and intangible fixed assets. These rates are reviewed by the Group every year based on current assumptions. 11

16 Consolidated financial statements for the year ended 31 December 2008 Notes to the consolidated financial statements (in thousand PLN) 6. Basis of Preparation of the Consolidated Financial Statements These consolidated financial statements have been prepared on a historical cost basis, except for financial instruments, which have been measured at fair value. These consolidated financial statements are presented in thousands of Polish zloty ( PLN ), except when otherwise indicated. These consolidated financial statements of the Group have been prepared on the assumption that the Group companies will continue as going concerns. As at the date of approval of these consolidated financial statements, the Management Board is not aware of any facts or circumstances that would indicate a threat to the continued operation of the Group. As at 31 December 2008, short-term liabilities of the Group presented in the consolidated balance sheet were higher than current assets by PLN 125 million. It was generally caused by: - in 2008 the Company paid out dividends for 2007 totalling PLN 33 million - in 2008 the Company started to repay its long-term credit facility; the Company repaid two instalments totalling PLN 81 million. The facility will be repayable in semi-annual instalments The Group s current liabilities presented in the balance sheet as at 31 December 2008 in the amount of PLN 214 million include deferred income of PLN 17 million which will not be paid by the Group. Excluding the deferred income, current liabilities were higher than current assets by PLN 108 million. As of March 2009 the Company had already repaid the next instalment of the long-term credit facility. The Group generates PLN 21 million of net cash inflows per month. Information presented above means that in the period from April to December 2009, the Group is able to generate revenues of PLN 189 million and the cash surplus of current liabilities over current assets is PLN 63 million. In 2008, the Group generated sufficient cash flows to finance ongoing operations. Net cash receipts from operating activities of the Group amounted to PLN million. The Group also generated a satisfactory EBITDA of PLN million. The Group defines EBITDA as operating profit, adjusted for depreciation and other costs and revenues related to the value of fixed assets. One-off events are not taken into consideration in the calculation of this ratio. During the 12 months ended 31 December 2008 and in the 12-month period ended 31 December 2007, no one-off events occurred. In the comparable period of 31 December 2007, the current liabilities of the Group were lower than current assets by PLN 66.3 million. Net cash inflows from operating activities of the Group amounted to PLN million, in the comparable period PLN million Statement of Compliance These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards ( IFRS ) and IFRSs endorsed by the European Union. As at the date on which these consolidated financial statements were approved for publication, considering the process underway in the European Union of introducing IFRS standards and the operations being conducted by the Group with respect to accounting principles applied by it, there is no difference between the IFRS standards applied by the Group and the IFRS standards approved by the European Union. IFRSs comprise standards and interpretations accepted by the International Accounting Standards Board ( IASB ) and the International Financial Reporting Interpretations Committee ( IFRIC ). The Group companies keep their books of account in accordance with the accounting policies specified in the Accountancy Act dated 29 September 1994 ( the Accountancy Act ) with subsequent changes, and the regulations issued based on it ( Polish Accounting Standards ). These consolidated financial statements include a number of adjustments not included in the books of account of the Group companies, which were made to bring the financial statements of those companies into conformity with IFRS. 12

17 Consolidated financial statements for the year ended 31 December 2008 Notes to the consolidated financial statements (in thousand PLN) 6.2. Measurement Currency and Reporting Currency of Consolidated Financial Statements The Parent Company s and its subsidiaries measurement currency and the reporting currency of these consolidated financial statements is the Polish zloty (PLN). 7. Changes in the Adopted Accounting Policies Presented below are new and amended IFRS standards and new IFRIC interpretations applied by the Group in the current reporting period. Except for the introduction of a few new disclosures, their application had no effect on the financial statements. IFRIC 11 Group and Treasury Share Transactions The Group applied IFRIC 11 and the application had no significant effect on these consolidated financial statements. Amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures These amendments permit reclassification of some financial instruments designed for trading to the category of instruments held until maturity and available-for-sale or to the loans and receivables category. The amendment also permits an entity to transfer instruments available-for-sale to the loans and receivables category in particular circumstances. An entity shall apply those amendments to reclassifications made on 1 July 2008 or after. The Group did not reclassify any financial instruments neither from the category of instruments designed for trading nor from the category of instruments available-for-sale. Interpretation IFRIC 14 and IAS 19; The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction IFRIC 14 clarifies how to determine the limit on the amount of the surplus that can be recognised as an asset in accordance with IAS 19 Employee Benefits. As liabilities related to the particular pension plans are higher than assets, the application of this interpretation does not have any effect on the financial situation or results of the Group. Interpretation IFRIC 12; Service Concession Arrangements The Group applied IFRIC 12 and the application had no significant effect on these consolidated financial statements. Amended IFRS standards and new IFRIC interpretations applied by the Group earlier than is required: IFRS 8 Operating Segments The Group applied IFRS 8 in recognizing market segments and presented data in Note 11. The Management Board decided to implement IFRS 8 Operating Segments earlier than it is required. 8. New Standards and Interpretations which have been issued but are not yet effective The International Accounting Standards Board of the International Financial Reporting Interpretation Committee issued the following standards and interpretations which have not yet become effective: IAS 1 Presentation of Financial Statements (amended in September 2007) effective for annual periods beginning on or after 1 January 2009, IAS 23 Borrowing Costs (amended in March 2007) effective for annual periods beginning on or after 1 January 2009, 13

18 Consolidated financial statements for the year ended 31 December 2008 Notes to the consolidated financial statements (in thousand PLN) IFRS 3 Business Combinations (amended in January 2008) effective for annual periods beginning on or after 1 July 2009 as at the date of authorization of these consolidated financial statements, has not been adopted by the EU, IAS 27 Consolidated and Separate Financial Statements (amended in January 2008) effective for annual periods beginning on or after 1 July 2009 as at the date of authorization of these consolidated financial statements, has not been adopted by the EU, IFRS 2 Share-based payment (amended in January 2008) effective for annual periods beginning on or after 1 January 2009, Amendments to IAS 32 and IAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation Instruments (amended in February 2008) - effective for annual periods beginning on or after 1 July 2009, Interpretation IFRIC 13 Customer Loyalty Programmes effective for annual periods beginning on or after 1 July 2008, Changes in interpretation of IFRS (Annual Review of Financial Statements) - effective for annual periods beginning on or after 1 January 2009, Amendments to IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate - effective for annual periods beginning on or after 1 January 2009, Interpretation IFRIC 15 Agreements for the Construction of Real Estate - effective for annual periods beginning on or after 1 January 2009 as at the date of authorization of these consolidated financial statements, has not been adopted by the EU, Interpretation IFRIC 16 Hedges of a Net Investment in a Foreign Operation - effective for annual periods beginning on or after 1 October as at the date of authorization of these consolidated financial statements, has not been adopted by the EU, Amendments to IAS 39 Financial Instruments: Recognition and Measurement: Eligible Hedged Items (introduced in July 2008) - effective for annual periods beginning on or after 1 July as at the date of authorization of these consolidated financial statements has not been adopted by the EU, IFRS 1 First-time Adoption of IFRSs (amended in November 2008) - effective for annual periods beginning on or after 1 July as at the date of authorization of these consolidated financial statements, has not been adopted by the EU, Interpretation IFRIC 17 Distributions of Non-cash Assets to Owners - effective for annual periods beginning on or after 1 July as at the date of authorization of these consolidated financial statements, has not been adopted by the EU, Amendments to IAS 39 and IFRS 7 Reclassification of Financial Assets (introduced in November 2008) effective for annual periods beginning after 1 July as at the date of authorization of these consolidated financial statements, has not been adopted by the EU, Interpretation IFRIC 18 Transfers of Assets from Customers effective for annual periods beginning after 1 July as at the date of authorization of these consolidated financial statements, has not been adopted by the EU. Amendments to IFRS 7 Financial Instruments: Improving Disclosures about Financial Instruments - effective for annual periods beginning on or after 1 January as at the date of authorization of these consolidated financial statements, has not been adopted by the EU, Embedded Derivatives amendments to IFRIC 9 and IAS 39 - effective for annual periods ending on or after 30 June as at the date of authorization of these consolidated financial statements, has not been adopted by the EU, IFRS 8 Operating Segments effective for annual periods beginning on or after 1 January The Management Board plans to implement the New Standards and Interpretations from their effective dates, except IFRS 8 which was applied earlier. It does not expect the adoption of the above standards and interpretations to have any material impact on the accounting policies followed by the Group. In the Management Board s opinion, the implementation of the New Standards and Interpretations will have no material effect on the accounting policies followed by the Group. 14

19 9. Changes in Estimates MULTIMEDIA POLSKA GROUP Consolidated financial statements for the year ended 31 December 2008 Notes to the consolidated financial statements (in thousand PLN) In these consolidated financial statements, the Group recognised the relationships with customers with indefinite useful lives in the amount of PLN 6.6 million. In January 2009, the Group changed the useful life estimate of this asset from indefinite to 10 years and began to amortise it. The Group revised and changed as from 1 January 2008 estimated useful lives of tangible assets. This change decreased net profit by about PLN 3,765 thousand. In 2008 and in the comparable period of 2007, there were no other changes in estimates influencing the current period or future periods. 10. Key Accounting Policies Consolidation Rules These consolidated financial statements include the financial statements of Multimedia Polska S.A. and of its subsidiaries prepared for the period of 12 months ended 31 December The financial statements of subsidiaries, restated to ensure compliance with IFRS, are prepared for the same reporting period as the statements of the Parent Company, using consistent accounting principles and based on uniform principles applicable to business transactions and events of a similar nature. Adjustments are made in order to eliminate any discrepancies in the application of accounting principles. All significant balances and transactions between the Group companies, including unrealized profits and losses on intra-group transactions, have been eliminated in their entirety. Subsidiaries are consolidated starting from the date when the Group assumes control over them and cease to be consolidated when the control is lost. The Parent Company is deemed to exert control when it holds, directly or indirectly, through its subsidiaries, more than 50% of votes in a given company unless it is possible to prove that the ownership of over 50% of votes is not tantamount to exerting control. The Group s ability to influence a given company s financial and operational policies is also deemed as control Currency Translations Transactions denominated in currencies other than the Polish zloty are translated into zloty at the rate effective on the transaction date. As at the balance sheet date, monetary assets and liabilities denominated in currencies other than the Polish zloty are translated into zloty at the mid exchange rate quoted for a given currency by the National Bank of Poland (NBP) at the end of the reporting period. The resulting foreign exchange gains and losses are carried as finance revenue/costs or, where the accounting policies so provide, capitalized in the value of assets. Non-monetary assets and liabilities recognised at historical cost expressed in a foreign currency are disclosed at the exchange rate effective on the transaction date. Non-monetary assets and liabilities carried at fair value expressed in a foreign currency are translated at the exchange rate effective on the date of the fair value measurement. Exchange rates applied for balance-sheet valuation purposes: 31 December December 2007 USD EUR GBP Property, Plant and Equipment Property, plant and equipment are disclosed at acquisition or production cost less depreciation and impairment losses. Property, plant and equipment are initially disclosed at acquisition cost plus any costs directly related to the purchase of the assets and bringing them to working condition for their intended use. This cost also includes the cost of replacing component parts of plant and equipment, which is recognised as incurred if relevant recognition criteria are met. Costs incurred after an asset is placed in service, such as costs of maintenance and repair, are charged to profit or loss as incurred. 15

20 Consolidated financial statements for the year ended 31 December 2008 Notes to the consolidated financial statements (in thousand PLN) At the time of their acquisition, property, plant and equipment are divided into components that are items of significant value, for which different economically useful lives are applied. The costs of major overhauls are also a component part. The Group generates property, plant and equipment internally. The manufacturing cost of property, plant and equipment consists of direct expenditures and indirect costs, in particular personnel costs and other costs of employees and associates participating in the process of construction and modernization of those assets. The details of capitalization principles are described in the capitalization procedure. Property, plant and equipment are depreciated on a straight-line basis over their estimated economic useful lives, as detailed in the following table: Type Land (perpetual usufruct right) Buildings and structures Plant and equipment Office equipment Vehicles Computers Investments in third-party property, plant and equipment Period 5-40 years 9-40 years 2-25 years 1-10 years years 3-10 years 10 years An item of property, plant and equipment may be derecognised if it is sold or if the company does not expect to realize any economic benefits from its further use. Gains or losses on derecognition of an asset (calculated as the difference between net proceeds from its sale, if any, and the carrying value of the asset) are disclosed in the income statement in the period when the asset was derecognised. Assets under construction comprise property, plant and equipment which are under construction or assembly. They are recognised at acquisition or production cost, less any possible impairment. Assets under construction are not depreciated until completed and placed in service. The adopted residual values, useful economic lives and depreciation methods are reviewed and adjusted if required with effect from the beginning of the next financial year. Adjustments involve determination of further useful economic lives and computation of the annual depreciation rate in relation to the net value. Then the established depreciation rate is applied to the gross value of a given item of property, plant and equipment. The costs of each major overhaul are included in the carrying value of property, plant and equipment if relevant recognition criteria are met Goodwill Goodwill relating to the acquisition of a business is initially recognised at acquisition cost, equal to the excess of the purchase price of the business over the buyer s share in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is carried at acquisition cost less accumulated impairment losses. Goodwill is tested for impairment once a year, or more frequently if there is any indication of impairment. Goodwill is not amortised. As at the date of acquisition, goodwill is allocated to each segment of the Group based on the target segment revenue structure for Each unit or set of units to which the goodwill has been allocated: corresponds to the lowest level at which goodwill is monitored for internal management purposes and is not greater than a single business segment as defined in IFRS 8 Operating segments. Impairment is determined for goodwill by assessing the recoverable amount of the business segment to which the goodwill has been allocated. Where the recoverable amount of the business segment is less than the carrying amount, an impairment loss is recognised Intangible Assets Intangible assets acquired in a separate transaction or produced (if they meet the criteria for being recognised under cost of research and development) are initially carried at acquisition or production cost. The acquisition cost of 16

21 Consolidated financial statements for the year ended 31 December 2008 Notes to the consolidated financial statements (in thousand PLN) intangible assets acquired in a business combination is equivalent to their fair value as at the date of the combination. Following initial recognition, intangible assets are carried at acquisition or production cost less accumulated amortisation and impairment losses. With the exception of capitalized expenditure on research and development, expenditure on intangible assets produced by the Group is not capitalised and is disclosed under expenses for the period in which it was incurred. As part of its development activities, the Group internally generates its own intangible assets. They comprise the design, implementation and testing of selected solutions for new or improved materials, equipments, products, processes, services or systems. The Group determines whether intangible assets have definite or indefinite useful lives. Intangible assets with indefinite useful lives are amortised throughout their useful lives and tested for impairment each time there is an indication of impairment. The amortisation period and the amortisation method for an intangible asset with a definite useful life are reviewed at each financial year-end or more frequently. Changes in the expected useful life or pattern of consumption of the future economic benefits embodied in the asset are accounted for by changing the amortisation period or amortisation method, as appropriate, and are treated as changes in accounting estimates. Principles of identification of intangible assets and capitalisation of indirect costs, in particular personnel costs and other costs of employees and associates participating in the process of manufacturing intangible assets, are described in the capitalization procedure. Intangible assets with indefinite useful lives and those which are not used are reviewed annually for impairment at the level of individual assets or cash-generating units. Useful lives are reviewed each year, and, if required, they are adjusted with effect from the beginning of the financial year just ended. In December 2008, the Group began reviewing the economic useful lives of customer relations, which were previously deemed as indefinite, and decided that the economic useful lives of customer relations was 10 years. The review was finished in January 2009, and the Group began amortising those items as from January Below is a summary of the policies applied in relation to the Group s intangible assets: Useful lives Amortisation method applied Internally generated or acquired Intangible assets produced by the Company Consistent with economic useful life Patents and licences Indefinite. In the case of patents and licenses used under an agreement concluded for a definite term, it is assumed that the term together with an additional period for which the agreement may be extended represents the useful life. Straight line method Intangible assets with indefinite useful lives are not amortised or revalued. Other intangible assets are amortised throughout the agreement term (1 5 years) using the straight-line method. Computer software Relationships with customers 2-5 years 10 years, Indefinite or in the case of agreements concluded for a definite term, such term is assumed to be the useful life; any period for which the agreement may be extended is not taken into account. Straight line method Internally generated Acquired Acquired Acquired Intangible assets with indefinite useful lives are not amortised. Other intangible assets are amortised throughout the agreement term. Terms vary according to agreements from 5-21 years. 17

22 Consolidated financial statements for the year ended 31 December 2008 Notes to the consolidated financial statements (in thousand PLN) Intangible assets produced by the Company Patents and licences Computer software Relationships with customers Impairment testing Annual review for impairment Intangible assets with indefinite useful lives are reviewed for impairment annually or each time there is an indication of impairment. Other intangible assets are reviewed for impairment on an annual basis. Annual review for impairment Intangible assets with indefinite useful lives are reviewed for impairment annually or each time there is an indication of impairment. Other intangible assets are reviewed for impairment on an annual basis. The following are recognised as relationships with customers: Relationships with customers are an intangible asset arising upon acquisition of cable television networks in relation to which Multimedia Polska S.A. became the CATV operator for the housing areas administered by housing communities and housing cooperatives which were parties to agreements with former operators under which such operators were guaranteed the possibility of providing their services in the area administered by the housing communities and cooperatives. Multimedia Polska S.A. and the housing communities and cooperatives entered into agreements of various terms, which set forth the mutual rights and obligations of the parties in connection with the business conducted by Multimedia Polska S.A. Relationships with customers arising as a result of the Group identifying them as assets when accounting for network acquisition transactions and business combinations because recognition criteria have been met. The relations were measured as at the date of acquisition of the relevant networks or companies and disclosed in the financial statements at fair value as at the transaction date. Gains or losses resulting from derecognition of intangible assets are measured as the difference between the net proceeds from the sale of a given asset and its carrying value, and are disclosed in the income statement upon derecognition of the asset Leases The Group as a Lessee Lease agreements which transfer to the Group substantially all the risks and benefits incidental to ownership of leased property are capitalised at the inception of the lease at the lower of the fair value of the leased asset or the present value of minimum lease payments. Lease payments are apportioned between finance costs and reduction of the outstanding lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance costs are charged directly to the income statement. Property, plant and equipment used under finance lease agreements are depreciated over the shorter of their estimated useful life or the lease term. Leases where the lesser retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments under such arrangements are recognised as costs in the income statement, on a straight-line basis, over the lease term Impairment Losses on Non-Financial Assets As at each balance sheet date, the Group assesses whether there is any evidence of impairment of any of its assets. If the Group finds that there is such evidence, or if the Group is required to perform annual impairment tests, the Group estimates the recoverable amount of a given asset. The recoverable amount of an asset is equal to the higher of the fair value of the asset or cash-generating unit, less the transaction costs, or its value-in-use. The recoverable amount is determined for individual assets, unless a given asset does not generate separate cash inflows largely independent from those generated by other assets or asset groups. If the carrying value of an asset is higher than its recoverable amount, the value of the asset is impaired and an impairment loss is recognised up to the recoverable amount. In assessing value-in-use, the projected cash flows are discounted to their present value using a pre-tax discount rate which reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses related to the assets used in the continued operations are disclosed in other operating revenue. At each balance sheet date, the Group assesses whether there is evidence that any impairment loss recognition made in the previous periods with respect to a given asset that no longer exists or should be reduced. If there is such 18