INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE 6-MONTH PERIOD ENDED 30 JUNE 2009 TOGETHER WITH INDEPENDENT AUDITORS REPORT
Interim condensed financial statements for the 6-month period ended 30 June 2009 INTERIM CONDENSED INCOME STATEMENT...3 INTERIM CONDENSED STATEMENT OF COMPREHENSIVE INCOME...4 INTERIM CONDENSED BALANCE SHEET...5 INTERIM CONDENSED CASH FLOW STATEMENT...6 INTERIM CONDENSED STATEMENT OF CHANGES IN EQUITY...7 INTERIM CONDENSED STATEMENT OF CHANGES IN EQUITY...8 NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS...9 1. General Information...9 2. Identification of the Financial Statements...9 3. Composition of the Management Board of the Company...9 4. Investments of the Company...10 5. Basis of Preparation of the Interim Condensed Financial Statements...10 6. Summary of Significant Accounting Policies...11 7. Changes in Estimates...13 8. Seasonality...13 9. Segment Information...13 10. Income Tax...17 11. Dividends Paid and Declared...17 12. Property, Plant and Equipment...17 12.1. Acquisitions and Disposals...17 12.2. Impairment...17 13. Leases...17 14. Financial Assets Shares, Long-term Loans...18 15. Prepayments and Deferred Costs...19 16. Employee Benefits...19 17. Inventories...20 18. Other Financial Assets...20 19. Cash and Cash Equivalents...20 20. Share Capital, Reserve Capital and Other Reserves...21 20.1. Share Capital...21 20.2. Reserve Capital...24 20.3. Nature and Purpose of Other Capitals...24 21. Interest-Bearing Bank Loans and Borrowings...24 22. Equity Securities...26 23. Provisions...27 24. Trade and Other Payables (Current)...28 25. Contingent Liabilities...28 25.1. Court Proceedings...28 25.2. Tax Settlements...29 26. Deferred Revenue and Accrued Expenses...29 27. Investment Liabilities...29 28. Reasons for Differences Between Changes in Balance Sheet Statement and Cash Flow Statement...30 29. Related Parties...30 29.1. Transactions with Subsidiaries...30 29.2. Entity with Significant Influence on the Company...32 29.3. Transactions with Management and Supervisory Board Members...32 29.4. Company Shares held by Members of the Management and Supervisory Board...32 29.5. Transactions with Top Management under Share Option Plan...33 30. Goals and Policies of Financial Risk Management...33 31. Capital Management...33 32. Events Subsequent to the Balance Sheet Date...34 1
Interim condensed financial statements for the 6-month period ended 30 June 2009 33. Financial Statements for Year 2008 Restated due to Merger of Multimedia Polska S.A. with Zicom Sp. z o.o. and Separation of Relationships with Customers from Goodwill...35 33.1. Income Statement for the Year 2008...35 33.2. Cash Flow for the Year 2008...36 2
Interim condensed financial statements for the 6-month period ended 30 June 2009 INTERIM CONDENSED INCOME STATEMENT for the 6-month period ended 30 June 2009 Continued operations Note 3-months period ended 30 June 2009 unaudited 6-months period ended 30 June 2009 unaudited 3-months period ended 30 June 2008 Restated, unaudited 6-months period ended 30 June 2008 Restated Subscriber-generated and interoperator revenues 111 190 219 554 96 961 192 707 Other sales revenue 3 041 5 877 5 163 9 436 Sales revenue 114 231 225 431 102 124 202 143 Depreciation and amortisation 31 232 61 698 25 202 50 023 Materials 3 824 7 206 3 147 6 110 External services 40 936 82 095 33 585 68 878 Taxes and charges 3 739 6 717 3 304 6 687 Payroll 14 854 29 368 14 281 27 356 Other employee benefits 2 345 4 425 2 242 3 936 Other expenses 787 1 507 800 1 547 Value of goods and materials sold 49 126 33 73 Gross profit on sales 16 465 32 289 19 530 37 533 Other operating revenue 1 510 1 919 224 648 Other operating expenses 636 1 546 1 375 1 624 Operating profit 17 339 32 662 18 379 36 557 Finance revenue 6 082 6 291 28 248 30 434 Finance costs 4 710 12 648 6 439 13 713 Profit/(loss) before tax 18 711 26 305 40 188 53 278 Income tax expense 10 4 006 5 598 3 500 8 513 Net profit/(loss) 14 705 20 707 36 688 44 765 Discontinued operation (Loss) for the reporting period from discontinued operations - - - - Net profit /(loss) 14 705 20 707 36 688 44 765 Earnings per share (in PLN) Basic earnings for the reporting period (based on consolidated net profit) 0.09 0.17 0.07 0.16 Notes included on pages 9 to 36 are an integral part of these interim condensed financial statements. This is a translation of interim condensed financial statements originally issued in Polish 3
Interim condensed financial statements for the 6-month period ended 30 June 2009 INTERIM CONDENSED STATEMENT OF COMPREHENSIVE INCOME for the 6-month period ended 30 June 2009 3-months period ended 30 June 2009 6-months period ended 30 June 2009 3-months period ended 30 June 2008 6-months period ended 30 June 2008 Restated unaudited unaudited Restated, unaudited Note Profit for the period 14 705 20 707 36 688 44 765 Other comprehensive income - - - - Available-for-sale financial assets - - - - Cash flow hedges - - - - Actuarial gains/(losses) on defined benefit pension plans - - - - Income tax relating to components of other comprehensive income - - - - Total net other comprehensive income - - - - TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 14 705 20 707 36 688 44 765 Notes included on pages 9 to 36 are an integral part of these interim condensed financial statements. This is a translation of interim condensed financial statements originally issued in Polish 4
Interim condensed financial statements for the 6-month period ended 30 June 2009 INTERIM CONDENSED BALANCE SHEET as at 30 June 2009 Note 30 June 2009 unaudited 31 December 2008 ASSETS Non-current assets Property, plant and equipment 12 609 632 576 061 Goodwill 56 356 57 854 Intangible assets 55 819 57 682 Financial assets 14 189 558 189 150 Non-current receivables 1 231 1 111 Prepayments and deferred costs 15 212 286 912 808 882 144 Currents assets Inventories 17 1 127 4 829 Income tax receivables 448 2 278 Trade and other receivables 48 120 57 543 Other financial assets 18 282 6 421 SWAP contracts - 948 Prepayments and deffered costs 15 6 412 2 282 Cash and cash equivalents 19 678 21 331 57 067 95 632 TOTAL ASSETS 969 875 977 776 EQUITY AND LIABILITIES Issued capital Share capital 153 190 157 700 Share premium 3 830 38 620 Treasury shares (4 446) (39 222) Other reserve capital 332 277 266 663 Retained earnings 24 176 69 621 Total equity 20 509 027 493 382 Non-current liabilities Interest-bearing loans and borrowings, finance leases 21 201 613 225 070 Provisions 23 121 121 Other non-current liabilities - - Deferred income 26 1 374 1 426 Deffered income tax liabilities 5 291 10 016 208 399 236 633 Current liabilities Trade and other payables 24 76 051 89 905 Income tax liabilities - - Interest-bearing loans and borrowings, finance leases 21 143 230 126 141 Accruals 26 16 185 14 247 Deferred income 26 16 261 16 842 Provisions 23 722 626 252 449 247 761 Total liabilities 460 848 484 394 TOTAL EQUITY AND LIABILITIES 969 875 977 776 Notes included on pages 9 to 36 are an integral part of these interim condensed financial statements. This is a translation of interim condensed financial statements originally issued in Polish 5
Interim condensed financial statements for the 6-month period ended 30 June 2009 INTERIM CONDENSED CASH FLOW STATEMENT for the 6-month period ended 30 June 2009 Note 6-months period ended 30 June 2009 unaudited 6-months period ended 30 June 2008 Restated Cash flows from operating activities Profit/(loss) before tax 26 305 53 278 Adjustments for: 61 407 18 140 Depreciation and amortisation 61 698 50 023 Interest and dividends, net 4 139 (15 322) Foreign exchange gains/(losses) 1 831 132 Gain/(loss) from investing activities (156) 11 Change in trade and other receivables 28 7 431 16 842 Change in inventories 26 (208) Change in current payables except bank loans 28 (5 019) (31 843) Change in accruals and prepayments (3 094) 105 Change in provisions 96 7 012 Income tax paid (6 652) (9 296) Other adjustments 1 107 684 - sale of fixed assets (under construction) (344) (246) - liquidation of property, plant and equipment 16 414 - impairment of property, plant and equipment (108) (168) - finance fees 968 886 - SWAP interest paid (1) (645) - provision for share options 511 303 - other 65 140 Net cash flows from operating activities 87 712 71 418 Cash flows from investing activities Proceeds from sale of property, plant and equipment and intangibles 12 442 13 468 Purchase of property, plant and equipment and intangibles (97 910) (111 115) Acquisition of subsidiary, net of cash acquired and organized part of enterprise - (4 861) Dividends received 5 982 26 373 Interest received 3 213 SWAP contracts paid 949 346 Repayment of loans granted 6 341 11 000 Granting of loans (197) - Net cash flows from investing activities (72 390) (64 576) Cash flows from financing activities Share buy-back (6 341) (28 435) Payment of finance lease liabilities (1 195) (1) Proceeds from loans/borrowings 16 410 - Repayment of loans and borrowings (40 498) (40 943) Interest and fees paid (9 884) (11 973) Disposal of fixed assets for leasing 7 088 - Other 360 (75) Net cash flows from financing activities (34 060) (81 427) Net increase/(decrease) in Cash and Cash equivalents (18 738) (74 585) Cash and cash equivalents at the beginning of the period 21 331 163 201 Profit/(loss) on valuation of cash in foreign currencies (1 915) - Cash and cash equivalents at the end of the period 19 678 88 616 Notes included on pages 9 to 36 are an integral part of these interim condensed financial statements This is a translation of interim condensed financial statements originally issued in Polish 6
Interim condensed financial statements for the 6-month period ended 30 June 2009 INTERIM CONDENSED STATEMENT OF CHANGES IN EQUITY for the 6-month period ended 30 June 2009 (unaudited) Share capital Share premium Treasury shares Other reserve capital Retained earnings Total At 1 January 2009 157 700 38 620 (39 222) 266 663 69 621 493 382 Total comprehensive income for the period - - - - 20 707 20 707 Issue of shares - - - - - - Transaction costs - - - - - - Share options - - - 511-511 Share options (Share Option Plan) - - 1 882 (1 114) - 768 Share buy-back - - (6 328) (13) - (6 341) Share redemption (4 510) (34 790) 39 222 78 - - Purchase of minority interest - - - - - - Distribution of prior years profit - - - 66 152 (66 152) - Other additions/disposals - - - - - - At 30 June 2009 153 190 3 830 (4 446) 332 277 24 176 509 027 Notes included on pages 9 to 36 are an integral part of these interim condensed financial statements This is a translation of interim condensed financial statements originally issued in Polish 7
Interim condensed financial statements for the 6-month period ended 30 June 2009 INTERIM CONDENSED STATEMENT OF CHANGES IN EQUITY for the 6-month period ended 30 June 2008 Restated Share capital Share premium Treasury shares Other reserve capital Retained earnings Total At 1 January 2008 157 700 237 154 (4 386) 66 057 38 658 495 183 Total comprehensive income for the period - - - - 44 765 44 765 Issue of shares - - - - - - Transaction costs - 116 - - - 116 Share options - - - 303-303 Share options (Share Option Plan) - - - - - - Share buy-back - - (28 378) (57) - (28 435) Distribution of prior years profit - - - 1 305 (35 202) (33 897) Other additions/disposals - - - - (76) (76) At 30 June 2008 157 700 237 270 (32 764) 67 608 48 145 477 959 Notes included on pages 9 to 36 are an integral part of these interim condensed financial statements This is a translation of interim condensed financial statements originally issued in Polish 8
Interim condensed financial statements for the 6-month period ended 30 June 2009 NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS 1. General Information Multimedia Polska S.A. (the Company ) is a joint-stock company with registered office located in Gdynia, at ul. Tadeusza Wendy 7/9 that has publicly traded shares. The Company was incorporated by virtue of Notarial Deed of June 21, 1991. On August 1, 2005, pursuant to a ruling of the District Court for Gdańsk-Północ, VIII Commercial Division, the Company changed its legal form from a limited liability company (spółka z ograniczoną odpowiedzialnością) into a joint-stock company (spółka akcyjna). The Company is registered with the National Court Register kept by the District Court, VIII Commercial Division of the National Court Register, under entry No. 0000238931. The Company has been assigned industry identification No. REGON 190007345. The duration of the Company is unlimited. The Company s main activity is the provision of a wide range of telecommunications services, in particular radio, television, internet and telephony over cable television systems. The Company is the parent company of the Multimedia Polska Group. 2. Identification of the Financial Statements The interim condensed financial statements of Multimedia Polska S.A. have been drawn for the 6-month period ended 30 June 2009 and contain comparative data for the 6-month period ended 30 June 2008 and as at 31 December 2008. The income statement and respective notes cover also the 3-month period ended 30 June 2009 and contain comparative data for the 3-month period ended 30 June 2008 these data were not subject to review or audit by an independent auditor. In 2008 took place the merger of Multimedia Polska S.A. with Sotel Sp. z o.o., Intertel Sp. z o.o. (17 April 2008) and Zicom Sp. z o.o. (27 August 2008). Comparative data in the income statement and cash flow statement were presented as if the merger took a place on the day of the change of control. In 2008, the Company seperated relations with customers from goodwill arising on the merger and the purchase of organized parts of enterprises. Comparative data in the income statement and the cash flow statement are presented as if the separation had taken place on the day of the change of control (Note 33). These interim condensed financial statements for the 6-month period ended 30 June 2009 were approved for publication by the Management Board on 26 August 2009. The Company has also prepared interim condensed consolidated financial statements for the 6-month period ended 30 June 2009 has been approved by the Management Board for publishing on 26 August 2009. 3. Composition of the Management Board of the Company As at 30 June 2009, the Management Board of the 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 interim condensed financial statements. 9
Interim condensed financial statements for the 6-month period ended 30 June 2009 4. Investments of the Company The Company holds investments in the following subsidiaries: Company Registered office Business profile % of share in capital held by Multimedia Polska S.A. 30.06.2009 31.12.2008 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) Gdynia, ul.t.wendy 7/9 - film and video production 99.9% 99.9% 4 Telewizja Kablowa Brodnica Sp. z o.o. Gdynia, ul.t.wendy 7/9 Gdynia, ul.t.wendy 7/9 Gdynia, ul.t.wendy 7/9 - voice, data and other telecommunications services - voice, data and other telecommunications services - cable television, other building installation 100.0% 100.0% 100.0% 100.0% 94.1% 94.1% On 26 February 2009, the Management Board of Multimedia Polska S.A. announced its intention to merge Multimedia Polska S.A. (the Acquirer) and Multimedia Polska - Zachód Sp. z o.o. (the Acquiree). On 28 April 2009, the Company s Annual General Meeting adopted resolution no. 15 regarding the merger of those companies. On 17 July 2009, the District Court for Gdańsk- Północ of Gdańsk VIII Economic Division of the National Court Register registered the merger of Multimedia Polska S.A. with Multimedia Polska Zachód Sp. z o.o. In accordance with the plan of merger, the merger was effected in accordance with Art. 492.1.1 and Art. 516.6 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 30 June 2009 and 31 December 2008, the percentage of voting rights held by the Company in subsidiaries corresponded to the percentage held in the share capital of those entities. 5. Basis of Preparation of the Interim Condensed Financial Statements These interim condensed financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ), in particular in accordance with IAS 34 and IFRSs endorsed by the European Union. At the date of authorisation of these condensed financial statements, in light of the current process of IFRS endorsement in the European Union and the nature of the Company s activities, there is no difference between the IFRSs applied by the Company and the IFRSs endorsed 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 ). These interim condensed financial statements have been prepared on a historical cost basis, except for financial instruments, which have been measured at fair value. These interim condensed financial statements are presented in thousands of Polish zloty ( PLN ), except when otherwise indicated. These interim condensed financial statements of the Company have been prepared on the assumption that the Company will continue as going concerns. As at the date of approval of these interim condensed financial statements, the Management Board is not aware of any facts or circumstances that would indicate a threat to the continued operation of the Company. As at 30 June 2009, current liabilities of the Company presented in the balance sheet were higher than current assets by PLN 195 million. It was generally caused by the following events: 10
Interim condensed financial statements for the 6-month period ended 30 June 2009 - in the first half of 2009, the Company entered into finance lease agreements, which increased current liabilities by PLN 6,188 thousand, - in the first half of 2009, the Company repaid an instalment totalling PLN 40 million. The facility will continue to be repaid in semi-annual instalments, - in 2009, pursuant to annexes to the loan agreement between Multimedia Polska S.A. (Lender) and Multimedia Polska- Południe S.A. (Borrower), the loan amount was increased which resulted in an increase of current liabilities of PLN 6 million. As at 30 June 2009, the total amount of the debt, including interest, amounted to PLN 34,989 thousand. The Company s current liabilities presented in the balance sheet as at 30 June 2009 in the amount of PLN 252 million include deferred income of PLN 16 million which will not be paid by the Company and also a PLN 35 million loan forwarded by susbsidiary as discussed above, for which the Company will decide the moment of payment. Those items excluded, current liabilities were higher than current assets by PLN 144 million. The Company generates PLN 15 million of net cash inflows from operating activities per month. Information presented above means that in the period from July to December 2009, the Company is able to generate net cash inflows of PLN 90 million. In the first half of 2009, the Company generated sufficient cash flows to finance ongoing operations. During 6- month period ended 30 June 2009, net cash receipts from operating activities of the Company amounted to PLN 87.7 million. In the same period, the Company also generated a satisfactory EBITDA of PLN 93.8 million. The Company 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 6 months ended 30 June 2009 and in the 6-month period ended 30 June 2008, no one-off events occurred. In the comparable period as of 31 December 2008, the current liabilities of the Company were higher than current assets by PLN 152 million. Net cash inflows from operating activities of the Company for the 6- month period ended 30 June 2008 amounted to PLN 71.4 million, in the same period EBITDA amounted to PLN 86.6 million. The Company is in the process of negotiating with the banks the possibility of refinancing the existing credit facility and taking out a new credit facility to finance new investments and potencial acquisitions. As a result of the new financing, working capital would amount to about PLN 300 million at the end of 2009 and the debt ratio would not exceed 2.5 during the whole financing period (unaudited data). The interim condensed financial statements do not include all the information and disclosures required in annual financial statements, and should be read in conjunction with the Company s annual financial statements as at 31 December 2008. 6. Summary of Significant Accounting Policies The accounting policies adopted in the preparation of the interim condensed financial statements are consistent with those followed in the preparation of the Company s annual financial statements for the year ended 31 December 2008, except for the amendments and adoption of new Standards and Interpretations applicable to annual reporting periods beginning on or after 1 January 2009 as noted below: IAS 1 Presentation of Financial Statements (revised in September 2007) the Standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented as a single line. In addition the Standard introduces the statement of comprehensive income: it presents all items of recognised income and expense, either in one single statement, or in two linked statements. The Company presents the statement of comprehensive income in two linked statements. IAS 23 Borrowing costs (revised in March 2007) the revised Standard requires capitalisation of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. The implementation of this amendment did not have an 11
Interim condensed financial statements for the 6-month period ended 30 June 2009 impact on the financial position or performance of the Company, as this policy has been applied by the Company regarding the costs of external funding. IFRS 2 Share-based payment: Vesting Conditions and Cancellations the amendment clarifies the definition of a vesting condition and prescribes the treatment for an award that is effectively cancelled. The implementation of this amendment did not have an impact on the financial position or performance of the Company, as no events occurred to which the amendments may relate to. Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements: Puttable Financial Instruments and Obligations Arising on Liquidation provide a limited scope exception for puttable instruments to be classified as equity if they fulfil a number of specified criteria. The implementation of these amendments did not have any impact on the financial position or performance of the Company, as the Company had not issued such instruments. Interpretation IFRIC 13 Loyalty Programmes- interpretation requires customer loyalty credits to be accounted for as a separate component of the sales transaction in which they are granted. The implementation of this Interpretation did not have impact on the financial position or performance of the Company, as the Company does not maintain a loyalty programme. Changes that result from Improvements to IFRS. The changes did not have an impact on the financial position or performance of the Company. Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 27 Consolidated and Separate Financial Statements: Cost of an investment in a subsidiary, jointly-controlled entity or associate the amendments to IFRS 1 allow an entity to determine the cost of investment in subsidiaries, jointly-controlled entities or associates in its opening IFRS financial statements in accordance with IAS 27 or using the deemed cost. The amendments to IAS 27 require that all dividends from a subsidiary, jointlycontrolled entity or associate are recognised in the income statement in the separate financial statements of the parent company. The revision to IAS 27 is applied prospectively. The new requirements did not affected neither financial position nor performance of the Company because the Company did not received any dividends paid before acquisition of a subsidiary, jointly-controlled entity or associate. Amendments to IFRS 7 Financial Instruments: Disclosures the amended standard requires additional disclosures on re-measurement to fair value and on liquidity risk. The fair value measurements are to be disclosed by source of inputs using a three level hierarchy for each class of financial instrument. In addition, reconciliation between the opening and closing balances for Level 3 fair value measurements is now required, as well as disclosure for significant transfers between Level 1 and Level 2 fair value measurements. The amendments also clarify the requirements for liquidity risk disclosures. Amendments concerning liquidity risk disclosures do not have significant impact on the liquidity-related disclosures presented previously by the Company. Interpretation IFRIC 15 Agreement for the Construction of Real Estate the interpretation clarifies when and how revenue and related expenses from the sale of a real estate unit should be recognized if an agreement between a developer and a buyer is reached before the construction of real estate is completed. Furthermore, the interpretation provides guidance on how to determine whether an agreement is within the scope of IAS 11 or IAS 18. IFRIC 15 will not have an impact on the financial statements because the Company does not conduct such activity. Interpretation IFRIC 16 Hedges of a Net Investment in a Foreign Operation - the interpretation provides guidance on the accounting for a hedge of a net investment. As such it provides guidance on identifying the foreign currency risks that qualify for hedge accounting in the hedge of a net investment, where within the group the hedging instruments can be held in the hedge of a net investment and how an entity should determine the amount of foreign currency gain or loss, relating to both the net investment and the hedging instrument, to be recycled on disposal of the net investment. IFRIC 16 will not have impact on the consolidated financial statements because the Company does not hedge any net investment in a foreign operation. 12
Interim condensed financial statements for the 6-month period ended 30 June 2009 Early adoption: IFRS 8 Operating Segments replaces IAS 14 Segment Reporting. IFRS 8 introduces a management approach to identification and measurement of reporting segments results. The Company applied IFRS 8 recognizing market segments and presented data in the financial statements for 2008. The Management Board decided to implement IFRS 8 Operating Segments earlier than it was required. 7. Changes in Estimates In the financial statements for the year 2008, the Company recognised customer relations with indefinite useful lives in the amount of PLN 6.6 million. In January 2009, the Company changed the useful life estimate of this asset from indefinite to 10 years and began to amortise it. The Company revised and changed as from 1 January 2009 estimated useful lives of tangible assets. This change increased net profit by about PLN 513 thousand. In 2009, there were no other changes in estimates influencing the current period or future periods. 8. Seasonality The Company s activities are not of seasonal nature. Therefore the results presented by the Company do not fluctuate significantly during the year. 9. Segment Information In accordance with the requirements of IFRS 8 Operating Segments, the Company divides its business activities into four separate segments television, internet, telephony and other services (lease of infrastructure). Financial decisions and allocation of resources are made based on internal financial reports presenting revenues and operating results divided into services representing the segments defined above. The basic measure of profit in the telecommunication industry is EBITDA. Analysis of EBITDA divided into segments is one of the tools in making business decisions by Management. Segmentation is performed on the level of Parent Company Multimedia Polska S.A. and presents the structure of EBITDA. Segmentation has no influence on making business decisions by Management. No operating segments have been aggregated to form the above reportable operating segments. Segmentation is performed on the basis of individual accounting transactions. Most revenues and some variable cost items are allocated directly to specific segments. Other revenues and costs are allocated to a specific segment based on allocation keys such as the structure of RGUs (revenue generating units), structure of fixed assets, intangible assets, revenues from subscriber sales, wholesales, other services, or based on the structure of inventory. Revenues generated by the Company mainly come from individual customers. Revenues from business customers - other operators using the Company s network or services - represent not more than 7% of sales revenue. The television segment covers cable TV, digital TV and products such as Premium packages. The Internet segment is primarily based on providing HFC and DSL internet services. The telephony segment consists of fixed-line telephony services, interconnect services, indirect services and pay phones. All of the segments also include appropriately allocated revenue from other sales, such as sales of activation services, reactivation services and package migrations. Other services/leasing consists of revenues and costs of leasing telecommunication infrastructure, links, bandwidth, network and offices. Not allocated items include finance costs or revenues, income tax charges and the results of transactions which impact the value of fixed assets. Sales revenue comprises revenue from subscriber services and interoperator activities. Other sales revenue contains revenue from the rental of telecommunications infrastructure, lines, bandwidth, networks and premises, as well as revenue from other sales - advertising, licenses and management agreement. Direct variable costs are the charges against the Company for programming charges, copyright, administrative fees, interconnect and bandwidth. Operating costs are the costs of materials and energy, rentals, external services and compensation, taxes, sales and marketing. 13
Interim condensed financial statements for the 6-month period ended 30 June 2009 Detailed information about business segments for the 6 months ended 30 June 2009 (in PLN thousands, unaudited) are as follows: Television Internet Telephony Other services/ leasing Not allocated Sales Revenue 127 830 55 788 34 013 - - 217 631 - from subsidiaries 2 339 2 339 Other sales revenue 2 175 1 267 1 057 3 301-7 800 - from subsidiaries 959 713 779 1 068 3 519 Direct variable costs (33 666) (5 112) (12 226) - - (51 004) - from subsidiaries (7 787) (7 787) Operating costs (47 577) (19 214) (13 274) (375) - (80 440) - from subsidiaries (2 101) (691) (244) (15) (3 051) Other operating (119) (55) (38) - - (212) revenue/costs EBITDA 48 643 32 674 9 532 2 926-93 775 Other revenue/ costs (11 370) (11 370) Depreciation and (33 496) (16 010) (12 192) - - (61 698) amortisation Net profit 15 147 16 664 (2 660) 2 926 (11 370) 20 707 Total Other revenues/costs for the period of 6 months ended 30 June 2009 in the total amount of PLN (11,370) thousand comprise: - other operating revenue/costs related to the change in value of non-current assets PLN 585 thousand, - finance revenue and costs PLN (6,357) thousand, - current income tax PLN (5,598) thousand. Operating costs recognised in the income statement comprise: direct variable costs, operating costs and amortisation and depreciation. Detailed information about business segments for 3 months ended 30 June 2009 (in PLN thousands, unaudited) are as follows: Television Internet Telephony Other services/ leasing Not allocated Total Sales Revenue 65 027 28 064 17 097 - - 110 188 - from subsidiaries 1 103 1 103 Other sales revenue 1 163 658 576 1 646 4 043 - from subsidiaries 523 391 432 544 1 890 Direct variable costs (16 291) (2 604) (5 927) - - (24 822) - from subsidiaries (3 877) (3 877) Operating costs (24 369) (9 945) (7 206) (192) - (41 712) - from subsidiaries (1 059) (344) (123) (7) (1 533) Other operating revenue/costs 166 51 17 - - 234 EBITDA 25 696 16 224 4 557 1 454-47 931 Other revenue/ costs (1 994) (1 994) Depreciation and (16 944) (8 026) (6 262) - - (31 232) amortisation Net profit 8 752 8 198 (1 705) 1 454 (1 994) 14 705 14
Interim condensed financial statements for the 6-month period ended 30 June 2009 Other revenues/(costs) for the period of 3 months ended 30 June 2009 in the total amount of PLN (1,994) thousand comprise: - other operating revenue/costs related to the change in value of non-current assets PLN 640 thousand, - finance revenue and costs PLN 1,372 thousand, - current income tax PLN (4,006) thousand. Operating costs recognised in the income statement comprise: direct variable costs, operating costs and amortisation and depreciation. Comparable data for the period of 6 months ended 30 June 2008 (restated) were as follows: Television Internet Telephony Other services/ leasing Not allocated Sales Revenue 112 956 49 047 29 565 - - 191 568 - from subsidiaries 2 820 2 820 Other sales revenue 3 484 2 115 1 936 3 040 10 575 - from subsidiaries 2 848 1 720 1 753 1 108 7 429 Direct variable costs (23 420) (6 018) (12 412) - - (41 850) - from subsidiaries (7 801) (7 801) Operating costs (46 664) (17 451) (8 274) (348) - (72 737) - from subsidiaries (2 165) (713) (200) (17) (3 095) Other operating (661) (213) (91) - - (965) revenue/costs EBITDA 45 695 27 480 10 724 2 692-86 591 Other revenue/ costs 8 197 8 197 Depreciation and (21 700) (18 623) (9 700) - - (50 023) amortisation Net profit 23 995 8 857 1 024 2 692 8 197 44 765 Total Other revenues/(costs) for the period of 6 months ended 30 June 2008 in the total amount of PLN 8,197 thousand comprise: - other operating revenue/costs related to the change in value of non-current assets PLN (11) thousand, - finance revenue and costs PLN 16,721 thousand, - current income tax PLN (8,513) thousand. Detailed information about business segments for 3 months ended 30 June 2008 (in PLN thousands, restated, unaudited) are as follows: Television Internet Telephony Other services/ leasing Not allocated Sales Revenue 57 160 24 912 14 652 - - 96 724 - from subsidiaries 1 439 1 439 Other sales revenue 1 835 1 032 1 061 1 472 5 400 - from subsidiaries 1 649 1 000 994 448 4 091 Direct variable costs (11 399) (2 730) (5 692) - - (19 821) - from subsidiaries (4 036) (4 036) Operating costs (24 409) (8 903) (4 106) (153) - (37 571) - from subsidiaries (1 102) (363) (97) (14) (1 576) Other operating (440) (231) (140) - - (811) revenue/costs EBITDA 22 747 14 080 5 775 1 319-43 921 Other revenue/ costs 17 969 17 969 Depreciation and (10 989) (9 409) (4 804) - - (25 202) amortisation Net profit 11 758 4 671 971 1 319 17 969 36 688 Total 15
Interim condensed financial statements for the 6-month period ended 30 June 2009 Other revenues/(costs) for the period of 3 months ended 30 June 2008 in the total amount of PLN 17,969 thousand comprise: - other operating revenue/costs related to the change in value of non-current assets PLN (340) thousand, - finance revenue and costs PLN 21,809 thousand, - current income tax PLN (3,500) thousand. The Company defines EBITDA as operating profit adjusted for depreciation and amortisation and other costs and income resulting from a change in the value of non-current assets. In the calculation of EBITDA, the Company disregards one-off events. EBITDA for the period of 6 months ended 30 June 2009 was stable at PLN 93,775 thousand. For the period of 6 months ended 30 June 2008, EBITDA of the Company was stable at PLN 96,591 thousand. Earnings per segment for the 6 months of 2009 were as follows: TV earnings of PLN 48,643 thousand 51.9 %, Internet - earnings of PLN 32,674 thousand 34.8 %, Telephony - earnings of PLN 9,532 thousand 10.2 %, Earnings from other services (lease) amounted to PLN 2,926 thousand, accounting for 3.1 % of total EBITDA. In the same period of 2008 the earnings by segment were as follows: TV earnings of PLN 45,695 thousand 52.8 %, Internet - earnings of PLN 27,480 thousand 31.7%, Telephony - earnings of PLN 10,724 thousand 12.4%, Earnings from other services (lease) amounted to PLN 2,692 thousand, accounting for 3.1% of total EBITDA. In the second quarter of 2009 EBITDA of the Company was stable at PLN 47,931 thousand. In the same period of 2008 EBITDA was stable at 43,921 thousand. Earnings per segment for the Q2 of 2009 were as follows: TV earnings of PLN 25,696 thousand 53.6 %, Internet - earnings of PLN 16,224 thousand 33.8 %, Telephony - earnings of PLN 4,557 thousand 9.5 %, Earnings from other services (lease) amounted to PLN 1,454 thousand, accounting for 3.1 % of total EBITDA. In the same period of 2008 the earnings by segment were as follows: TV earnings of PLN 22,747 thousand 51.8 %, Internet - earnings of PLN 14,080 thousand 32.1%, Telephony - earnings of PLN 5,775 thousand 13.1%, Earnings from other services (lease) amounted to PLN 1,319 thousand, accounting for 3.0% of total EBITDA Due to the nature of services and transactions performed by the Company, there are no sales/purchases or other transactions between the business segments. The Company provides its services on the territory of the Republic of Poland, which constitutes a single consistent geographic area. Hence, the Company does not make any allocations to geographic segments. 16
Interim condensed financial statements for the 6-month period ended 30 June 2009 10. Income Tax Major components of income tax expense were as follows: 3-months period ended 30 June 2009 6-months period ended 30 June 2009 3-months period ended 30 June 2008 6-months period ended 30 June 2008 unaudited unaudited Restated, unaudited Restated Current income tax Current income tax charge 3 577 8 482 3 081 9 296 Deferred income tax Relating to origination and reversal of temporary differences 429 (2 884) 419 (783) Income tax expense reported in the income statement 4 006 5 598 3 500 8 513 11. Dividends Paid and Declared On 28 April 2009, the Annual General Shareholders Meeting of Multimedia Polska S.A adopted a resolution regarding the allocation of total net profit generated by the Company in 2008 amounting to PLN 66,152 thousand to reserve capital. 12. Property, Plant and Equipment 12.1. Acquisitions and Disposals During the 6-month period ended 30 June 2009, the Company acquired items of property, plant, equipment and intangible assets and incurred capital expenditure totalling PLN 75,104 thousand (during the 6-month period ended 30 June 2008: PLN 82,496 thousand) and acquired tangible fixed assets under finance lease agreements in the amount of PLN 10,620 thousand. Property, plant and equipment with a net book value of PLN 217 thousand were disposed of by the Company during the 6-month period ended 30 June 2009 (during the 6-month period ended 30 June 2008: PLN 242 thousand) thus realizing the net gain on disposal of PLN 179 thousand (2008: loss on disposal PLN 19 thousand). 12.2. Impairment In the period ended 30 June 2009, the Company reduced impairment write-down of property, plant and equipment by the amount of PLN 23 thousand as a result of disposal of tangible fixed assets (in the respective period of the prior year, the Company reduced impairment write-down of property, plant and equipment by the amount of PLN 120 thousand as a result of liquidation of tangible fixed assets). 13. Leases Finance leases pertain to vehicles, an office building, electronic equipment of server rooms and head-ends and computer systems. In conformance with the lease agreements, there was a transfer of basically the entire risk and benefits arising in the connection with holding the assets. Lease is secured with blank promissory notes. In the first half of 2009, the Company entered into the following finance lease agreements: On 16 March 2009, the Company entered into a transaction with ING Lease (Polska) Sp. z o.o., whereby it sold electronic equipment of server rooms and head-ends. The Company made sure it had continued access to that part of telecom infrastructure by signing a finance lease agreement with the buyer for 3 years. The aggregate value of the subject of the above transaction was PLN 2,791,349.80. This transaction enabled the Company to unfreeze previously invested funds and at the same time to continue unlimited use of these assets. The Company issued two blank promissory notes as collateral for the agreement. The Company settled the transaction as financing on the basis of an assessment of the economic content of each transaction and the terms and conditions of the respective agreements. 17
Interim condensed financial statements for the 6-month period ended 30 June 2009 On 8 April 2009, the Company entered into a transaction with ING Lease (Polska) Sp. z o.o. whereby it sold electronic equipment of server rooms and head-ends. The Company made sure it had continued access to that part of telecom infrastructure by signing a finance lease agreement with the buyer for 2 years. The aggregate value of the subject of the above transaction was PLN 4,296,530.02. The Company issued two blank promissory notes as collateral for the agreement. The Company settled the transaction as financing on the basis of an assessment of the economic content of each transaction and the terms and conditions of the respective agreements. On 11 May 2009, the Company signed a finance lease agreement with ING Lease (Polska) Sp. z o.o. The lease pertains to electronic equipment of server rooms and head-ends with a total value of PLN 7,965,942.01. The Company issued two blank promissory notes as collateral for the agreement. The Company classified the lease agreement as finance lease on the basis of an assessment of the economic content of each transaction and the extent to which the risks and benefits arising from the possession of the lease items are allocated to the lessor and the lessee. On 8 June 2009, the Company signed a finance lease agreement with ING Lease (Polska) Sp. z o.o. The lease pertains to computer equipment with a total value of PLN 2,653,897.01. The Company issued two blank promissory notes as collateral for the agreement. The Company classified the lease agreement as finance lease on the basis of an assessment of the economic content of each transaction and the extent to which the risks and benefits arising from the possession of the lease items are allocated to the lessor and the lessee. On 29 June 2009, the Company signed lease agreements with PSA Finance Polska Sp. z o.o. The lease pertains to vehicles with a total value of PLN 268,096.68, which were received to use in July 2009. The Company issued blank promissory notes as collateral for the agreement. The Company classified the lease agreement as finance lease on the basis of an assessment of the economic content of each transaction and the extent to which the risks and benefits arising from the possession of the lease items are allocated to the lessor and the lessee. As at 30 June 2009 and as at 31 December 2008, minimum future lease payments and the current value of minimum net leases were as follows: 30 June 2009 31 December 2008 (unaudited) Minimum payments Current value of payments Minimum payments Current value of payments Within 1 year 7 193 6 333 279 227 After one year but not more than five years 11 569 10 973 470 431 Total minimum lease payments 18 762 17 306 749 658 Less finance costs (1 456) (91) Current value of minimum lease payments 17 306 658 14. Financial Assets Shares, Long-term Loans 30 June 2009 (unaudited) 31 December 2008 Investments in subsidiares and affiliates gross value 191 962 191 962 Impairment (2 812) (2 812) Long-term loans 408-189 558 189 150 18
Interim condensed financial statements for the 6-month period ended 30 June 2009 A detailed description is set forth in Note 4 of these financial statements. 15. Prepayments and Deferred Costs 30 June 2009 31 December 2008 (unaudited) Lease 185 110 Car services 59 123 Insurance 522 398 Technical support 525 413 Permissions 416 123 Real estate tax 1 247 - Company Social Benefits Fund 422 - Acquisition costs - 832 Other prepayments and deferred costs 2 703 162 Other 545 407 Total 6 624 2 568 - current 6 412 2 282 - non-current 212 286 The increase of prepayments and deferred costs related to real estate tax results from the nature and settlement cycle of this tax. 16. Employee Benefits Employee Share Option Plan On 11 February 2009, the Management Board of Multimedia Polska S.A. acting under the authorisation granted by the Extraordinary General Meeting in resolution no. 5 dated 19 January 2009 passed resolution no. 5/2009 setting forth the conditions of offering shares to Company employees (Share Option Plan). The goal of the Plan is to provide additional incentive for Key Employees by granting eligible ones a premium (henceforth the Option ). The Plan will be executed in 2009, and subsequently in 2010. On 30 January 2009, acting pursuant to Art. 363.1.2 of the commercial companies code and resolution No. 5 of the Extraordinary General Meeting of the Company dated 19 January 2009, Multimedia acquired 861 thousand treasury shares in a block transaction for a total consideration of PLN 6,328,350 during a trading session at the Warsaw Stock Exchange (Giełda Papierów Wartościowych S.A.). The price per share was PLN 7.35. The Company acquired own shares in order to offer them for purchase by the Company employees in execution of the Company s share option plan. The allocation of shares to eligible employees in the first stage of the Plan was completed on 3 March 2009. In the first stage of the plan, a total of 256 thousand shares at PLN 3.00 each were allocated to 17 key employees. The shares were acquired in Warsaw, outside the regulated market. The cost of the share option plan, being the difference between the buy price paid by the Company for the shares and the sell price at which shares were sold to eligible employees, was PLN 1,113,600. In 2008 and 2007 the Company made a provision of PLN 1,143,677.81 for those costs under payroll. Nine of the employees who were granted shares used the option of taking out a loan from the Company to purchase the shares. The shares were acquired in Warsaw, outside the regulated market. The nine employees are persons having permanent access to inside information and at the same time authorised to make decisions regarding the prospects and development of the Company s business however not managing persons or members of the Company s supervisory bodies. Those persons acquired in aggregate 136,000 shares. The first stage of the Plan did not involve the Company s Management Board. 19
Interim condensed financial statements for the 6-month period ended 30 June 2009 Up to 30 June 2009, in the second stage of the plan, a total of 275 thousand share options at PLN 3.00 each were allocated to employees. Up to 30 June 2009, the cost of the second stage of the share option plan was PLN 510,723.38. The options were valued with the Black-Scholes method, with the use of the following input data: Price on the option grant date PLN 7.35 Strike date 30 January 2010 Employee exit ratio 5% Annual risk-free rate 4.50%. The model assumes that no dividend will be paid during the Plan term. The options will vest on 31 December 2009, provided that a given Beneficiary continues to be employed at the Company on that date. The options granted to a given Beneficiary expire if their employment contract has been terminated or a penalty under the Company work rules has been imposed on the employee. The purchase of shares is to be settled by 30 January 2010. 17. Inventories 30 June 2009 (unaudited) 31 December 2008 Raw materials (At cost) 169 177 Finished goods and work-in-progress 926 4 602 Goods for resale 32 32 Prepaid deliveries - 18 Total inventories 1 127 4 829 During the 6 months ended 30 June 2009 the Company reversed impairment of inventories in the amount of PLN 18 thousand and recognised impairment in the amount of PLN 16 thousand, and for the 6 months ended 30 June 2008, reversed impairment of inventories in the amount of PLN 22 thousand. Pursuant to the loan agreement of 7 September 2005 (amended on 27 December 2005 and 20 June 2006), an agreement was concluded whereby a registered pledge was established over all existing and future movables and property rights. At 30 June 2009 and as at 31 December 2008, the Company had no inventories recognised at net selling prices. 18. Other Financial Assets 30 June 2009 (unaudited) 31 December 2008 Short-term intecompany loans - 6 340 Other short-term loans 282 81 282 6 421 In May 2009, Multimedia Polska- Zachód Sp. z o.o. repaid the last instalment of the intercompany loan granted in December 2005. 19. Cash and Cash Equivalents Cash at banks earns interest at floating rates applicable to overnight deposits. Short-term deposits are placed for periods of different lengths, from overnight up to one month depending on the Company s current cash requirements, and bear interest at rates fixed in advance for such deposits. As at 30 June 2009, the value of 20