[ptc2003ias002.jpg]



























POLSKA TELEFONIA CYFROWA SP. Z O.O.



CONSOLIDATED FINANCIAL STATEMENTS

TOGETHER WITH REPORTS OF

INDEPENDENT PUBLIC ACCOUNTANTS

FOR THE YEARS ENDED

DECEMBER 31, 2003

, DECEMBER 31, 200
2

AND DECEMBER 31, 200
1

































#





POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES

Consolidated Income Statements

for the years ended December 31, 200
3
, December 31, 200
2
 and December 31, 200
1

(in thousands of PLN)













|Notes                                 | Year ended
December 31,
200
3 | Year ended
December 31,
200
2 | Year ended
December 31,
200
1
|------------------------------------- | ----------------------------- | ----------------------------- | -----------------------------
|                                      |                               |                               |                              
|Net sales                             | 6                             | 5,601,277                     | 4,929,824                    
|                                      |                               |                               |                              
|Cost of sales                         | 7                             | (3,594,121)                   | (2,989,193)                  
|                                      |                               | -------------------           | ---------------------        
|Gross margin                          |                               | 2,007,156                     | 1,940,631                    
|                                      |                               |                               |                              
|Operating expenses                    | 7                             | (8
45,
788)                   | (790,115)                    
|                                      |                               | --------------------          | ---------------------        
|Operating profit                      |                               | 1,161,368                     | 1,150,516                    
|                                      |                               |                               |                              
|Non-operating items                   |                               |                               |                              
|Interest and other financial income   | 8                             | 336,577                       | 266,454                      
|Interest and other financial expenses | 9                             | (763,233)                     | (848,132)                    
|                                      |                               | --------------------          | --------------------         
|Profit before taxation                |                               | 734,712                       | 568,838                      
|                                      |                               |                               |                              
|Taxation charge                       | 10                            | (80,790)                      | (222,362)                    
|                                      |                               | -------------------           | --------------------         
|Net profit for the year               |                               | 653,922                       | 346,476                      
|                                      |                               | ===========                   | ============                 







































































The accompanying notes are an integral part of these

consolidated financial statements.

- # -





POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES

Consolidated Balance Sheets

as at December 31, 200
3
 and December 31, 200
2

(in thousands of PLN)







|                                                  | Notes | As at
December 31,
2003 | As at
December 31,
2002
|------------------------------------------------- | ----- | ----------------------- | -----------------------
|Current assets                                    |       |                         |                        
|Cash and cash equivalents                         | 26    | 20,880                  | 54,412                 
|Short-term investments and other financial assets | 11    | 110,538                 | 12,143                 
|Debtors and prepayments                           | 12    | 751,122                 | 620,749                
|Inventory                                         | 13    | 185,866                 | 234,545                
|                                                  |       | ------------
------     | ----------------       
|                                                  |       | 1,068,406               | 921,849                
|Long-term assets                                  |       |                         |                        
|Property, plant and equipment                     | 14    | 3,023,831               | 3,438,686              
|Intangible fixed assets                           | 15    | 2,829,980               | 2,651,130              
|Financial assets                                  | 16    | 248,373                 | 171,288                
|Deferred costs and other long-term assets         | 17    | 122,880                 | 82,091                 
|                                                  |       | --------------------    | --------------------   
|                                                  |       | 6,225,064               | 6,343,195              
|                                                  |       | --------------------    | --------------------   
|Total assets                                      |       | 7,293,470               | 7,265,044              
|                                                  |       | ===========             | ===========            
|Current liabilities                               |       |                         |                        
|Accounts payable                                  | 18    | 290,405                 | 285,277                
|Amounts due to State Treasury                     | 18    | 69,385                  | 57,756                 
|Interest-bearing liabilities                      | 18    | 101,445                 | 121,122                
|Accruals                                          | 20    | 220,595                 | 185,569                
|Deferred income and other liabilities             | 18    | 211,787                 | 224,358                
|                                                  |       | -----------------       | -----------------      
|                                                  |       | 893,617                 | 874,082                
|Long-term liabilities                             |       |                         |                        
|Interest-bearing liabilities                      | 19    | 3,811,750               | 4,583,365              
|Non-interest-bearing liabilities                  | 19    | 118,357                 | 165,159                
|Deferred tax liability                            | 10    | 290,563                 | 268,171                
|Provisions for liabilities and charges            | 20    | 91,952                  | 21,740                 
|                                                  |       | -------------------     | -------------------    
|                                                  |       | 4,312,622               | 5,038,435              
|                                                  |       | -------------------     | -------------------    
|Total liabilities                                 |       | 5,206,239               | 5,912,517              
|                                                  |       | -------------------     | -------------------    
|Capital and reserves                              | 21    |                         |                        
|Share capital                                     |       | 471,000                 | 471,000                
|Additional paid-in capital                        |       | 409,754                 | 409,754                
|Hedge reserve                                     |       | (3,262)                 | (86,649)               
|Accumulated profit                                |       | 1,
209,739              | 558,422                
|                                                  |       | -------------------     | --------------------   
|                                                  |       | 2,087,231               | 1,352,527              
|                                                  |       | --------------------    | --------------------   
|Total equity and liabilities                      |       | 7,293,470               | 7,265,044              
|                                                  |       | ===========
=           | ====
========          











The accompanying notes are an integral part of these

consolidated financial statements.

POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

for the years ended December 31, 200
3
, December 31, 200
2
 and December 31, 200
1

(in thousands of PLN)







|                                                                                     | Year ended
December 31,  200
3 | Year ended
December 31,  
2002 | Year ended
December 31,  200
1
|------------------------------------------------------------------------------------ | ------------------------------ | ------------------------------ | ------------------------------
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                |                               
|Net profit before taxation                                                           | 734,712                        | 568,838                        | 454,100                       
|Adjustments for:                                                                     |                                |                                |                               
|Depreciation and amortization                                                        | 9
42
,272                      | 909,983                        | 850,572                       
|Charge to provision
and write-offs of doubtful debtors                               | 33,242                         | 29,224                         | 67,626                        
|Charge to provision for inventory                                                    | 4,136                          | 7,333                          | 11,151                        
|Charge to provision for construction in progress                                     | 13,223                         | -                              | -                             
|Other provisions long-term                                                           | 25,762                         | 1,089                          | 7,744                         
|Foreign exchange (gains)/losses, net and changes in financial instruments fair value | 90,067                         | 145,394                        | (91,609)                      
|L

oss/(gain)
 on disposal of tangibles and intangibles                              | 12,874                         | 10,804                         | (1,582)                       
|Interest expense, net                                                                | 336,589                        | 436,283                        | 469,539                       
|                                                                                     | --------------------           | --------------------           | --------------------          
|Operating cash flows before working capital changes                                  | 2,192,877                      | 2,108,948                      | 1,767,541                     
|                                                                                     |                                |                                |                               
|D
ecrease/(increase)
 in inventory                                                   | 44,543                         | (74,764)                       | 31,025                        
|Increase in debtors, prepayments and deferred cost                                   | (174
,761
)                    | (101,165)                      | (129,383)                     
|Increase
 in trade payables and accruals                                             | 124,038                        | 90,529                         | 24,560                        
|                                                                                     | -----------------
---          | --
------------------          | -------------------           
|Cash from operations                                                                 | 2,18
6
,
697                   | 2,023,548                      | 1,693,743                     
|                                                                                     |                                |                                |                               
|Interest paid                                                                        | (501,754
)                     | (482,978)                      | (450,820)                     
|Interest received                                                                    | 14,798                         | 17,182                         | 15,213                        
|Income taxes paid                                                                    | (98,357)                       | (1,618)                        | (1,325)                       
|Realization of financial instruments                                                 | (78,784
)                      | (32,973)                       | (94,411)                      
|                                                                                     | --------------------           | ---
-----------------          | --
------------------         
|Net cash from operating activities                                                   | 1,522
,600                     | 1,523,161                      | 1,162,400                     
|                                                                                     |                                |                                |                               
|CASH FLOWS USED IN INVESTING ACTIVITIES:                                             |                                |                                |                               
|Purchases of intangible fixed assets                                                 | (12
7,274
)                    | (257,314)                      | (1,372,058)                   
|Purchases of tangible fixed assets                                                   | (287,811
)                     | (379,923)                      | (1,128,118)                   
|Proceeds from short-term investments                                                 | -                              | 91,456                         | 199,699                       
|Proceeds from sale of equipment and intangibles                                      | 11,201                         | 18,344                         | 25,250                        
|                                                                                     | ------------------             | ------------------             | ---
------------------        
|Net cash used in investing activities                                                | (403
,
884)                    | (527,437)                      | (2,275,227)                   
|                                                                                     |                                |                                |                               
|CASH FLOWS (USED IN)/
FROM FINANCING ACTIVITIES:                                     |                                |                                |                               
|(Repayment of)/net proceeds from Bank Credit Facilities                              | (468,708)                      | (322,201)                      | 1,288,594                     
|Repayment of Loan Facility                                                           | -                              | -                              | (836,158)                     
|(Redemption of)/proceeds from the Notes                                              | (709,621)                      | (655,622)                      | 704,141                       
|                                                                                     | --------------------           | -----------------
-            | -------------------           
|Net cash (used in)/from financing activities                                         | (1,178,329)                    | (977,823)                      | 1,156,577                     
|                                                                                     |                                |                                |                               
|Net (decrease)/increase in cash and cash equivalents                                 | (59,
613
)                     | 17,901                         | 43,750                        
|                                                                                     |                                |                                |                               
|Effect of foreign exchange changes
on cash and cash equivalents                      | 114                            | (12)                           | (362)                         
|                                                                                     |                                |                                |                               
|Cash and cash equivalents at beginning of period
(see Note 26)                       | 54,400                         | 36,511                         | (6,877)                       
|                                                                                     | -----------------              | -----------------              | ------------------            
|Cash and cash equivalents at end of period
(see Note 26)                             | (5,099)                        | 54,400                         | 36,511                        
|                                                                                     | ==========                     | ==========                     | ===========                   





The accompanying notes are an integral part of these

consolidated financial statements.

POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

for the years ended December 31, 200
3
, December 31, 200
2
 and December 31, 200
1

(in thousands of PLN)







|                                                 | Share Capital    | Additional
paid-in capital | Hedge reserve   | Accumulated profit/(loss) | Total               
|------------------------------------------------ | ---------------- | -------------------------- | --------------- | ------------------------- | --------------------
|                                                 |                  |                            |                 |                           |                     
|Balance as at January 1, 2001                    | 471,000          | 409,754                    | -               | (193,807)*                | 686,947             
|                                                 |                  |                            |                 |                           |                     
|Effects
 of adopting IAS 39                      | -                | -                          | -               | (21,468)                  | (21,468)            
|                                                 |                  |                            |                 |                           |                     
|Fair value losses on cash flow hedge, net of tax | -                | -                          | (96,955)        | -                         | (96,955)            
|                                                 |                  |                            |                 |                           |                     
|Net profit for the period                        | -                | -                          | -               | 427,221                   | 427,221             
|                                                 | ---------------- | ----------------           | --------------- | ----------------          | -----------------   
|Balance as at December 31, 2001                  | 471,000          | 409,754                    | (96,955)        | 211,946                   | 995,745             
|                                                 | ==========       | ==========                 | =========       | =========                 | ==========          
|                                                 |                  |                            |                 |                           |                     
|Balance as at January 1, 2002                    | 471,000          | 409,754                    | (96,955)        | 211,946                   | 995,745             
|                                                 |                  |                            |                 |                           |                     
|Cash flow hedge:                                 |                  |                            |                 |                           |                     
|                                                 |                  |                            |                 |                           |                     
|net fair value loss,

net of tax                 | -                | -                          | (17,717)        | -                         | (17,717)            
|                                                 |                  |                            |                 |                           |                     
|reclassified and reported in net profit          | -                | -                          | 30,210          | -                         | 30,210              
|                                                 |                  |                            |                 |                           |                     
|deferred tax on reclassified item                | -                | -                          | (8,459)         | -                         | (8,459)             
|                                                 |                  |                            |                 |                           |                     
|deferred tax change in rates                     | -                | -                          | 6,272           | -                         | 6,272               
|                                                 |                  |                            |                 |                           |                     
|Net profit for the period                        | -                | -                          | -               | 346,476                   | 346,476             
|                                                 | ---------------- | ----------------           | --------------- | ---------------           | --------------------
|Balance as at December 31, 2002                  | 471,000          | 409,754                    | (86,649)        | 558,422                   | 1,352,527           
|                                                 | ==========       | ==========                 | =========       | =========                 | ============        
|                                                 |                  |                            |                 |                           |                     
|Balance as at January 1, 2003                    | 471,000          | 409,754                    | (86,649)        | 558
,422                  | 1,352,527           
|                                                 |                  |                            |                 |                           |                     
|Cash flow hedge:                                 |                  |                            |                 |                           |                     
|                                                 |                  |                            |                 |                           |                     
|net fair value gain,

net of tax                 | -                | -                          | 75,886          | -                         | 75,886              
|                                                 |                  |                            |                 |                           |                     
|hedging instrument
replacement,
net of tax       | -                | -                          | (
7,833)        | -                         | (7,833)             
|                                                 |                  |                            |                 |                           |                     
|reclassified and reported in net profit          | -                | -                          | 20,388          | -                         | 20,388              
|                                                 |                  |                            |                 |                           |                     
|deferred tax on reclassified item                | -                | -                          | (5,505)         | -                         | (5,505)             
|                                                 |                  |                            |                 |                           |                     
|deferred tax change in rates                     | -                | -                          | 451             | -                         | 451                 
|                                                 |                  |                            |                 |                           |                     
|Net profit for the period                        | -                | -                          | -               | 653,922                   | 653,922             
|                                                 |                  |                            |                 |                           |                     
|Effect of subsidiary closing  (see Note 2)       | -                | -                          | -               | (2,605
)                  | (2,605
)            
|                                                 | ---------------- | ----------------           | --------------- | -------------------       | --------------------
|Balance as at December 31, 2003                  | 471,000          | 409,754                    | (3,262
)        | 1,209,739                 | 2,087,231           
|                                                 | ==========       | ==========                 | =========       | ===========               | ============        

* The amount of PLN 193,807 representing accumulated deficit as at January 1, 2001 includes PLN 11,736 (decrease of accumulated deficit) of the revenue recognition retrospective adjustment
..

























The accompanying notes are an integral part of these

consolidated financial statements.

POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

for the years ended December 31, 200
3
, December 31, 200
2
 and December 31, 200
1

(in thousands of PLN)





1.

Incorporation and Principal Activities



Polska Telefonia Cyfrowa Sp. z o.o. (the Company) is located in Warsaw, Al. Jerozolimskie 181 and was incorporated by the Notarial Deed dated December 20, 1995 and entered on the National Court Register kept by the
District Court in Warsaw, XIX Economic Department of National Court Register, Entry No. KRS 0000029159.



The principal activities of the Company are providing cellular telephone communication services in accordance with the GSM 900 and 1800 licenses granted by the Minister of Communications and the sale of cellular telephones and accessories compatible with its cellular services. On December 20, 2000 the Minister of Communications granted the Company a license to provide telecommunication services according to the Universal Mobile Telecommunication System (UMTS) standard. The UMTS
services
should be implemented
not earlier than on January 1,
2004 and not later than on January 1, 2006
(see Notes 2, 3.5 and 

15).





The principal activities of the Company are not significantly seasonal or cyclical.





Authorization of the consolidated financial statements



These consolidated financial statements have been issued by the Companys
Board of Directors


on 
March 
17, 2004.



2.

Significant events in
2003





















- # -



POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

for the years ended December 31, 200
3
, December 31, 200
2
 and December 31, 200
1

(in thousands of PLN)



















On January 20, 2003 the Company has been informed that Telekomunikacja Polska SA (TP 
SA) lodged cassation to the Supreme Court against the Antimonopoly Courts judge
ment relating to international traffic rates terminating in the Companys network. The Supreme Court rejected the cassation lodged by TP SA on March 9, 2004 (see also Note 4).



On February 12, 2003 the Company repurchased on the market the principal amount of EUR 3,000 thousand of the 10 7⁄8% Notes – 1.5% of the total initial principal amount 
(see Note 19
a).



On March 7, 2003 the Company repurchased on the market the principal amount of EUR 2,000 thousand of the 10 7⁄8% Notes – 1.0% of the total initial principal amount 
(see Note 19
a).



- # -



POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

for the years ended December 31, 200
3
, December 31, 200
2
 and December 31, 200
1

(in thousands of PLN)









On June 30, 2003 the Company exercised its call option and repurchased the outstanding amount of 10 3⁄4% Notes at the principal value of USD 126,215 thousand (see Notes 3.2 and 
1
9a).



On July 1, 2003 the Company was informed that Tele2 (a local operator) had placed a request to the Office for Telecommunication and Post Regulation (OTPR), the Regulator for the Telecommunication Market in Poland, for setting interconnection rates between Tele2 and the Companys network.
 On October 16, 2003 the Company and Tele2 signed an interconnection agreement,
 the rates agreed
related to future interconnect traffic
which are
based on market rates.

- # -



POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

for the years ended December 31, 200
3
, December 31, 200
2
 and December 31, 200
1

(in thousands of PLN)







2.

Significant events in
2003 (cont.)



On July 10, 2003 the Company submitted a joint application with other operators to the OTPR to shift UMTS start obligations to January 2006 from January 2005, at the same time leaving the option to start in 2004 unchanged.



On September 9, 2003, the Regulator for the Telecommunication Market in Poland issued a 
favourable decision to move the UMTS launch deadlines. The Company is required to begin providing commercial UMTS services not later than January 1, 2006. At the same time, the Regulator modified certain provisions of the UMTS license as follows:

•

Moved the date for achieving a 20 percent population coverage of the UMTS services from December 31, 2005 to December 31, 2007.

•

Removed the requirement to achieve 40 percent population coverage.





On October 31, 2003 the Company has liquidated its wholly-owned subsidiary PTC International Finance B.V. (see Note 3.2) as a result of  repurchasing of the remaining 10 3⁄4% Notes in June 2003.



In November 2003 the Polish Parliament approved the reduction of the corporate income tax rate from 27 percent to 19 percent for the year 2004 and thereafter.





In November 2003 the Company repurchased on the market the principal amount of EUR 2,000 thousand (0.7% of the total initial principal amount) of the 111⁄4% Notes and EUR 21,465 thousand of the 10 7⁄8% Notes (10.7% of the total initial principal amount) (see Note 19a).



In November 2003 the Company changed its Notes refinancing plans and effectively shortened the term of coupon payments exposure (see Notes 5a and 23).



In December 2003 the Company repurchased on the market the principal amount of EUR 12,508 thousand (4.2% of the total initial principal amount) of 11 1⁄4% Notes and EUR 4,420 thousand of 10 7⁄8% Notes (2.2% of the total initial principal amount) (see Note 19a). The Company will apply the Luxembourg Stock Exchange to delist the principal amount of the all repurchased in 2003 11 1⁄4% Notes and 10 7⁄8% Notes.



























In December 2003,
as a result of refinancing decision
, the Company discontinued hedge accounting in relation to part of the coupon payments on EUR denominated Notes that will not occur (see Notes 5a and 23). As at December 31, 2003 PLN 55,115 previously recognized in equity and relating to coupons that, as a result of refinancing plans, are no longer expected to occur, has been reported as financial
 income in the
 income statement for 2003.



In December 2003, the Company received a decision of the Regulator for Telecommunication Market in Poland together with Antimonopoly Office that it is considered a significant operator on the Polish telecommunications market in relation to interconnect. This decision
was not effective as at the day of the authorization of the
consolidated financial statements
 as the Company is appealing against this decision. As at the day of the authorization of the
consolidated financial statements no decision concerning the appeal has been issued.







- # -



POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

for the years ended December 31, 200
3
, December 31, 200
2
 and December 31, 200
1

(in thousands of PLN)





3.

Principal Accounting Policies



3.1.

Basis of preparation



The Company maintains its accounting books in accordance with accounting principles and practices employed by enterprises in Poland as required by the
Polish Accounting Standards (PAS). The accompanying consolidated financial statements reflect certain adjustments not reflected in the Company's statutory books to present these statements in accordance with
International Financial Reporting Standards (IFRS)
issued by the International Accounting Standards Board (IASB)
..



The differences between IFRS and generally accepted accounting principles in the United States (US GAAP) and their effect on the net results for the years ended December 31, 2003, 2002 and 2001 have been presented in Note 29 to these consolidated financial statements.



The consolidated financial statements have been prepared under the historical cost convention,

modified by the revaluation of financial assets and financial liabilities held for trading or designated as hedging items.



The preparation of the
consolidated financial statements in conformity with
IFRS
 requires
to
use estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the consolidated financial statements and
reported amounts of revenue and expenses during the reporting period. Although tho

se estimates are based on the
Managements best knowledge of current events
 and actions, actual results ultimately may differ from these estimates.



















The IFRS standards
that were mandatory as at December 31, 200
3 were applied to these consolidated financial statements.



- # -



POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

for the years ended December 31, 200
3
, December 31, 200
2
 and December 31, 200
1

(in thousands of PLN)





3.

Principal Accounting Policies (cont.)















- # -



POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

for the years ended December 31, 200
3
, December 31, 200
2
 and December 31, 200
1

(in thousands of PLN)











- # -

































3.2.

Group Accounting



The
 attached
consolidated financial statements include the financial statements of Polska Telefonia Cyfrowa Sp. z o.o. and its wholly owned subsidiary
 PTC International Finance (Holding) B.V. (consolidated).



All intercompany balances and transactions are eliminated
on consolidation.



On June 17, 1997, PTC International Finance B.V. was incorporated under the laws of the Netherlands for the purpose of issuing longterm Notes. The Company acquired 40 fully paid shares with a par value of 1,000 Netherlands Guilders each, issued by PTC International Finance B.V.  PTC International Finance B.V. ha
d
 no subsidiaries of

 its own. In 2003 the
Company
liquidated its wholly-owned subsidiary PTC International Finance B.V. The subsidiary was incorporated for the purpose of issuing 10 3⁄4% Notes which were fully repurchased by the Company in June 2003 (see Notes 2 and 19a). As
a
result of the liquidation the net assets
of the subsidiary have been transferred to the Companys consolidated
income statement for the year ended December 31, 2003 as other financial income.



On November 5, 1999 PTC International Finance II S.A. was incorporated under the laws of Luxembourg and on November 16, 1999, PTC International Finance (Holding) B.V. was incorporated under the laws of the Netherlands for the purpose of issuing longterm Notes. The Company acquired 40 fully paid shares with a par value of 1,000 Netherlands Guilders each, issued by PTC International Finance (Holding) B.V.





Additionally, the Company acquired 125 fully-paid shares with a par value of EUR 1,000 each issued by PTC International Finance II S.A. and contributed all of its shares except one, (owned by the Company, but held locally, due to legal requirements) to PTC International Finance (Holding) B.V. in exchange for 1 additional share of PTC International Finance (Holding) B.V.  
As a result,
PTC International Finance II S.A. became a fully owned subsidiary of PTC International Finance (Holding) B.V. PTC International Finance II S.A. has no subsidiaries of

 its own.















3.3.

Measurement
Currency



The Company generates and expends cash through its operating activities mostly in Polish zloty ("PLN").
The majority of the Companys receivables,
 a

large part of its short-
term
liabilities and some of long-term liabilities
are
denominated in PLN
.. Therefore, the Management has designated the PLN as the reporting (functional) currency of the Company. The accompanying consolidated financial statements are reported in
PLN thousand
(unless stated
otherwise
).





3.4.

Property, plant and equipment



Property, plant and equipment are shown at historical cost less accumulated depreciation.



The costs of property, plant and equipment include borrowing costs - interests and foreign exchange differences to the extent that they are regarded as an adjustment to interest resulting from payments or valuation of liabilities financing the relevant property, plant and equipment acquisition or construction.

3.

Principal Accounting Policies (cont.)



3.4.

Property, plant and equipment (cont.)











Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is expected that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Company. The renovations are depreciated over the remaining useful life of the related asset.











Depreciation is calculated using the straight-line method over the estimated useful life of the assets. The following depreciation rates have been applied:



|                                         | Annual rate
in % | Estimated
Useful Lives in years
|---------------------------------------- | ---------------- | -------------------------------
|                                         |                  |                                
|Buildings under capital lease            | 2.5%             | 40                             
|Other buildings                          | 4.0%             | 25                             
|Plant and equipment                      | 10.0  -  33.0%   | 3

 10                        
|Motor vehicles                           | 12.5  -  30.0%   | 3 -   8                        
|Other                                    | 10.0  -  30.0%   | 3 - 10                         
|Leasehold improvements (operating lease) |                  | lease term                     
|Land                                     | not depreciated  |                                



Where the
carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.





Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit.

























3.5.

Intangible Fixed Assets



Licenses



Intangible fixed assets include three licenses (GSM 900, GSM 1800 and UMTS licenses), which the Company acquired from the Polish State. Telecommunication licenses are measured at cost less accumulated
amortization
.. As the payments are deferred beyond normal credit terms the cost of license is the cash price equivalent. The difference between this amount and total payments is recognized as an
interest expense over the period of credit unless it is capitalized
to
the license value during its development period. The cost of UMTS license includes also interests on liabilities financing the license acquisition and foreign exchange differences to the extent that they are regarded as an adjustment to interest. The licenses are amortized using the straight-line method over their estimated useful lives, being the period of usage from the date of operational start-up of the underlying service until the end of the licence term

, i.e. GSM 900 license  over 14.5 years (173 months), GSM 1800 license  over 14.5 years (174 months) and UMTS license will be amortized over the period of usage from the date of the operational start-up of the underlying services. For further disclosure see Note 15.



3.

Principal Accounting Policies (cont.)



3.5.

Intangible Fixed Assets (cont.)



Computer software



Costs associated with maintaining computer software programmes are recognized as an expense as incurred. Costs that are directly associated with the
development of identifiable and unique software products controlled by the Company and that
will
probably generate economic benefits exceeding costs beyond one year, are recognized as intangible assets.



Expenditure which enhances or extends the performance of computer software programmes beyond their original specifications is recognized as a capital improvement and added to the original cost of the software.





Computer software development costs
 recognized as assets are amortized using the straight-line method over their useful lives which is from 2 to 5 years for office software and from 1.2 

to 10 years for network software.



Other intangible assets



Expenditure to acquire patents, trademarks and licences other than telecommunication licenses is capitalized and amortized using the straight-line method over their useful life,
not 

exceeding 10 years.





3.6.

Impairment of long-lived assets



Property, plant and equipment and intangible assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognized for the amount by which the carrying amount of the assets exceeds its recoverable amount which is the higher of an assets net selling price and value in use.

Recoverable amount is estimated for an individual asset or, if
this is not possible to do so, it is determined for the cash-generating unit to which asset belongs.













3.7.

Debtors



Amounts due from debtors are measured at cost net of provisions for doubtful accounts. 
The provisions are based on specific amounts due where the
 realization is unlikely and on 
a general basis, calculated using historic collection experience.



3.8.

Inventories



Inventories are stated at the lower of cost and net realizable value. The cost of inventories is principally assigned by using the
weighted average cost formulas.



The Company writes down the cost of inventories to net realizable value
.. The costs of inventories become unrecoverable if those inventories are damaged, become wholly
or
partially obsolete or if their selling price declines.



The current or planned promotions do not affect provisions for handset inventory.





3.

Principal Accounting Policies (cont.)







3.9.

Leasing



The Company acquired its head-office premises under finance lease conditions and initially recognized assets and liabilities in the balance sheet at amounts equal to the present value of the minimum lease payments. In calculating the present value of the minimum lease payments the Companys incremental borrowing rate was used.







The interest element of the leasing finance cost is charged to the income statement over the lease period so as to produce a constant periodic interest rate on the remaining balance of the liability for each period.



The finance lease liability was initially measured at an amortized cost. After the bifurcation of embedded derivative (Index swaps  see Notes 3.14 and 23) it has two components: main liability measured at amortized costs and the indexing (embedded derivative) measured at fair value. See also Property, plant and equipment held under capital lease in Note 14, Finance lease in Note 19c.







3.10.

Borrowings





a.

Notes





The Company is full and unconditional guarantor of the Notes issued by its subsidiaries (see Note 19a). The Notes were recognized at the
fair value of consideration received
less transaction costs plus the call options initial value

.. They are amortized according to effective interest rates. Any difference between the
proceeds (net of transaction costs) and the redemption value including the initial value of options, if bifurcated, is recognized in the income statement over the period of the borrowings.





b.

Bank Credit Facility





Bank Credit Facility was initially recognized at the proceeds received and is subsequently recorded at costs plus accrued interest (see Note 19b). Transaction costs attributable to the
Bank

C
redit Facility are classified as intangible assets.





3.11

Advertising expenses



The Company charges the cost of advertising to expense as incurred.





3.12.

Deferred income tax



Deferred income tax is calculated using the balance sheet liability method. Under the balance sheet liability method the expected tax effects of temporary differences are determined using the
enacted tax rates and reported either as liabilities for taxes payable or assets representing the amounts of income taxes recoverable in future periods in respect of deductible temporary differences and the carry forward of unused tax losses and credits. Temporary differences are the differences between the carrying amount of an asset or a liability in the balance sheet and its tax

base.









3.

Principal Accounting Policies (cont.)



3.12.

Deferred income tax (cont.)



Deferred tax assets are recognized for all deductible temporary differences to the extent that it
is probable that taxable profit will be available against which the deductible temporary
differences can be utilized.



3.13

Provisions



Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation,


and a reliable estimate of the amount can be made. In 2003 the Company revised its estimation of the asset retirement obligation (see Note 20).



3.14.

Derivatives



Derivative financial instruments are initially recognized in the balance sheet at cost

 
and subsequently are remeasured at their fair value. The Company recognizes derivatives

 
embedded in the host contracts and account for them as separate derivatives if economic

 
characteristics and risks of the derivative are not closely related to the host contract.



The gain or loss resulting from remeasurement of derivatives to fair value is recognized in the income statement in the period they occur, unless the derivative is designated to hedge

 
accounting.



The Company designates certain derivatives as hedge of the fair value of a recognized asset or

 
liability (fair value hedge) or hedge of
 forecasted transactions (cash flow hedge) (see Note 5a). Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that are highly effective, are recorded in the income statement, along with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk.



Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that are highly effective are recognized in shareholders equity, net of tax effect. Amounts deferred in shareholders equity are transferred to the income statement and classified as financial income or expense in the period when the hedged forecasted transactions accrue in the income statement.



















Derivatives that are designated as cash flow hedges are regularly reviewed for the effectiveness and the gain or loss relating to the ineffective portion of the derivatives is recognized in the income statement immediately.
In the following cases:

-

hedge fails the effectiveness test,

-

hedging instrument is sold, terminated or exercised,

-

the Management decides to undesignate

the Company retains in equity the cumulative gains or losses which were previously reported directly in equity until the forecasted transaction occurs.





The reclassification to the income statement may take place when a previously forecasted transaction is no longer expected to occur.



3.

Principal Accounting Policies (cont.)



3.14.

Derivatives (cont.)



A derivative financial asset (or its portion) is derecognised if the Company loses control of

 
the contractual rights that comprise the derivative financial asset (
or its portion)
.. A 

derivative

 
financial liability (or its part) is removed from
the
balance sheet when, and only when, it is

 
extinguished  that is when the obligation specified in the contract is discharged, cancelled,

 
or expires. For further disclosure see Note 23.















3.15.

Measurement base for financial assets and liabilities



The fair value of derivatives held for trading is based on quoted market price at the balance sheet date. The fair value of cross-currency interest rate swaps (CC swaps)
 is calculated as the present value of estimated future cash flows. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date.





In assessing the
fair value of non-traded derivatives and other financial instruments, the Company uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Option pricing models and estimated discounted value of future cash flows are used to determine the
fair value of options split from the Notes and derivatives split from trade contracts.



All regular way purchases of financial assets are accounted for at the trade date.











3.

Principal Accounting Policies (cont.)



3.15.

Measurement base for financial assets and liabilities (cont.)



The table below presents the measurement categorization of financial assets and liabilities



|Category                                        | Balance sheet item                                                                                       | Measurement                                    
|----------------------------------------------- | -------------------------------------------------------------------------------------------------------- | -----------------------------------------------
|                                                |                                                                                                          |                                                
|Financial assets                                |                                                                                                          |                                                
|Held for trading                                | Cash and cash equivalents,
Derivatives: 
F
orward contracts, Note options, Index swaps, Currency options | Fair value


Fair value model using market data
|Held to maturity                                | Short-term investments                                                                                   | Amortized cost                                 
|Loans and receivables originated by the Company | Trade and other debtors                                                                                  | Original recorded cost                         
|Hedging derivatives                             | CC swaps                                                                                                 | Fair value model using market data             
|                                                | Forward contracts                                                                                        | Fair value model using market data             
|                                                |                                                                                                          |                                                
|Financial liabilities                           |                                                                                                          |                                                
|Held for trading                                | Forward contracts                                                                                        | Fair value model using market data             
|                                                | Index swaps                                                                                              | Fair value model using market data             
|Non-trading liabilities                         | License liabilities                                                                                      | Amortized cost                                 
|                                                | Construction payables                                                                                    | Amortized cost                                 
|                                                | Trade and other creditors                                                                                | Amortized cost                                 
|                                                | Long-term Notes                                                                                          | Amortized cost                                 
|                                                | Finance lease                                                                                            | Amortized cost                                 
|                                                | Bank Credit Facilities                                                                                   | Costs plus accrued interest                    
|                                                | Overdrafts                                                                                               | Costs plus accrued interest                    
|                                                | Accruals                                                                                                 | Original recorded cost                         
|Hedging derivatives                             | CC swaps                                                                                                 | Fair value model using market data             
|                                                | Forward contracts                                                                                        | Fair value model using market data             





3.16.

Revenue recognition



Net sales consist of the value of sales (excluding value added tax) of goods and services in the normal course of business but exclude extraordinary disposals of inventory and other assets. Revenue is recognized when the
services are provided or goods are shipped out. Sales allowances are accounted in the same period when the related portion of revenue is recognized.



The Company set criteria for the recognition of multiple-element transactions and their presentation in the IFRS consolidated financial statements as initiated by SAB 101 and further interpretations, including SAB 104.

















3.

Principal Accounting Policies (cont.)



3.16.

Revenue recognition (cont.)



The multiple-element transactions with post-paid clients are classified as separable or 
non-separable contracts whereas the prepaid services are treated as separable transactions. The initial revenue from a multiple-element arrangement that is non-separable (handset price and activation fee) is deferred and recognized ratably over the average expected life of the customer. The direct cost of a product sold in this contract is also deferred in line with the revenue. The initial excess of cost over the revenue is immediately expensed. The revenue from separable multiple-element transactions and costs related to those transactions are recognized in the income statement as incurred.





























The accounting treatment of revenues and relevant costs for multi-element arrangements is summarized in the following table:



|Multi-element contract (handset, activation and telecommunication service)
|--------------------------------------------------------------------------
|                                                                          
|Accounting treatment                                                      
|Revenue recognition                                                       
|Cost
recognition                                                          



Total sales price of handsets sold together with prepaid service cards is allocated on a pro-rata basis based on the relative fair value of the elements.



3.17.

Transactions in foreign currencies



Foreign currency transactions are translated into measurement currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from settlement of such transactions and from translation of monetary assets and liabilities denominated in foreign currencies using the exchange rates prevailing at the end of the reporting period, are recorded in the income statement, except when capitalized to cost of qualifying assets.



The financial statements of the Companys subsidiary as being integral to the Companys operations are translated using the same standards and procedures as if the transactions had been those of the Company itself.











3.

Principal Accounting Policies (cont.)



3.18.

Capitalization of borrowing costs



Borrowing costs (including interest, foreign exchange gains and losses to the extent that they are regarded as an adjustment to interest, and the discount relating to the present value of license payments) that are attributable to the acquisition, construction or production of qualifying assets are capitalized as a part of the cost of those assets. The borrowing costs capitalized are only those incurred during the period of construction or production of qualifying assets.

































































3.19.

Capital



Additional paid-in capital is classified in the equity as the probability of its payback to the shareholders is low and depends on certain law and contractual restrictions.









3.20.

Presentation of Cash Flow Statement



The Company reconsidered the nature of the overdraft facility as an integral part of the Companys cash management and included the overdraft balance of PLN 25,979 and PLN 12 in cash and cash equivalents in consolidated statements of cash flows for the years ended December 31, 2003 and December 31, 2002, respectively.







3.21.

New accounting standards



The Company will implement effective from January 1, 2004 the new revenue recognition policy,
which adopts best industry practices
, based on EITF 00-21. As a result of
new revenue recognition policy implementation the revenue and costs related to sales of phones and activation will be recognized in income statement
immediately when incurred, except for the contracts where
fair value analysis will indicate revenue (and costs) deferral.



The Company is planning to implement changes to IFRS mandatory from January 1, 2005 and is currently analyzing the potential influence of new standards, including: IFRS 1 First-time Adoption of International Financial Reporting Standards (effective from January 1, 2004), IFRS 2 Share-based Payments, IAS 1 Presentation of Financial Statements, IAS 2 Inventories, IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, IAS 10 Event After the Balance Sheet Date, IAS 15 Information Reflecting the Effects of Changing Prices (withdrawn as at January 1, 2005), IAS 16 Property, Plant and Equipment, IAS 17 Leases, IAS 21 The Effects of Changes in Foreign Exchange Rates, IAS 24 Related Party Disclosures, IAS 27 Consolidated and Separate Financial Statements, IAS 28 Accounting for Investments in Associates, IAS 31 Interests in Joint Ventures, IAS 32 Financial Instruments: Disclosure and Presentation, IAS 33 Earnings per Share IAS 36 Impairment of Assets, IAS 38 Intangible Assets, IAS 39 Financial Instruments: Recognition and Measurement and IAS 40 Investment Property



As at the date of authorization of  the consolidated financial statements the impact of the new standards
has not yet been determined
..













3.

Principal Accounting Policies (cont.)



3.22.











Change in estimates



In 2003 the Company changed its estimation of the asset retirement obligations. As a result of this change the Company increased
 the gross asset at the amount of PLN 44,449, the provision for retirement and restoration costs at the amount of PLN 59,629 and increased the depreciation costs by PLN 17,520 and interest expense by PLN 15,180 in the twelve month period ended December 31, 2003. The depreciation of the asset is calculated using the straight-line method over the useful life of the network equipment related assets.





3.23.

Cash and cash equivalents







Cash comprises cash on hand and demand deposits. Cash equivalents are short term highly liquid investments that are readily convertible to known amount of cash and which are subject to insignificant risk of changes in value.































4.

Events after the balance sheet date



On January 22, 2004 the Company concluded the selection process of vendor who will supply for the development of its third generation mobile network. Siemens Information and Communication
Mobile Group was selected as a supplier of advanced UMTS technology,
to be implemented in the Warsaw area.



On March 9, 2004 the Supreme Court rejected the cassation lodged by TP SA in 2003 against the Antimonopoly Courts judgement relating to international traffic rates terminating in the Companys network (see Note 2).



5.

Financial risk management



The Companys treasury function is responsible for managing financial risk in accordance with the Companys hedging policy. Principle exposures and methods used by the Company to mitigate those exposures are described below.



The hedging policy approved by the Supervisory Board provides principles for overall financial risk management in the Company. This policy sets a framework within which the hedging activity should operate. However, it also allows some discretion in the precise hedging strategy to be adopted, to allow the treasury function to react to market conditions. According to the hedging policy, each year the treasury function prepares a hedging strategy regarding
cash flow and balance sheet
risk, which is later submitted to the Management Board and Supervisory Boards Finance Committee
..



The ultimate responsibility for agreeing the details of the annual hedging strategy rests with the Management Board and the Supervisory Boards
 Finance Committee
based on the recommendations of the Risk Management Committee consisting of the CFO, the Treasurer, the Controller and the Tax Manager. The responsibility for the execution of foreign exchange and interest rate hedge transactions, within the agreed strategy and in conformity with the hedging policy, rests with the treasury function of the Company. On the other hand, the Management Board and the Supervisory Boards Finance Committee
 must approve any actions taken to hedge cash flow and balance sheet

risk.













5.

Financial risk management (cont.)



a.

Foreign exchange risk



A significant proportion of the financing liabilities of the Company is denominated in foreign currencies (EUR and USD). The financial risk management is aimed
at
managing to within acceptable limits both
the volatility of cash flows, in PLN terms, arising from fluctuations in the exchange rate of the PLN against other currencies and
the adverse effect of movements in exchange rates on the earnings and book value of the Company in PLN terms.



The treasury function manages the foreign exchange exposure based on forecasts of cash flows denominated in foreign currencies. These forecasts distinguish between forecasts of cash flows where there is significant certainty as to both the amount and timing of the cash flow (Committed Exposures) and those where there is some uncertainty about the amount and/or timing of the cash flow (Uncommitted Exposures).





Hedge activities are undertaken on the basis of short- to long-term cash flow forecasts provided by treasury function and business units of the Company. The Company normally seeks to cover Committed Exposures by range of means agreed by the Management Board and the Supervisory Boards Finance Committee
 on at least an annual basis, providing hedging can be obtained at acceptable cost. The Company may undertake actions to cover individually identified Uncommitted Exposures providing
 they are in compliance with hedging policy and constitute an
integral part of annually accepted hedging strategies.







The Company does not speculate in foreign currency. Speculation is defined as taking any action to increase an exposure beyond that which exists due to an underlying commercial activity, in the expectation of making a foreign currency gain.



Foreign exchange risk management transactions of the Company may be undertaken using the following instruments:



forward and non-delivery forward transactions (NDF contracts/transactions),



-

currency swaps,

-

CC swaps

,

-

foreign exchange options (currency options)
..



Prior to 2003,

t
he Company hedge
d
 its long-term foreign exchange exposure arising from coupon payments on EUR and USD denominated Notes
with use of
 CC swaps (see Notes 3.14 and 23). In November 2003 the Company changed its Notes refinancing plans and effectively shortened term of coupon payments exposure. As a result maturity of some outstanding CC swap cash flows exceeded the planned date of Notes refinancing. In order to match those CC swap cash flows with the new refinancing plan the Company restructur
ed the outstanding CC swaps. All USD CC swaps were terminated while the remaining planned coupon payments were hedged by new forwards. In respect to EUR CC swaps, cash flows due after Notes refinancing would hedge other expected exposures than coupon payments.

The fair value changes of those CC swaps are reflected in the income statement.





Prior to 2003

t
he Company
hedged
its short- and
medium-term foreign exchange exposure arising from anticipated Notes

repayments of a part of principal on EUR denominated Notes on the respective first call dates by concluding foreign exchange forwards

subordin
ated to Bank Credit Facilities


(see Notes 19b and
23).





5.

Financial risk management (cont.)



a.

Foreign exchange risk (cont.)



In respect of short-term hedging the Company entered into a series of foreign exchange forward and NDF contracts together with foreign exchange options to reduce volatility of current operating and financial cash flows resulting from foreign exchange rate fluctuations (see Note 23).

















b.

Interest rate risk



The Company is exposed to interest rate risk related to short- and long-term credit facilities. Interest rate risk exposure arises from external financing denominated both in domestic and foreign currencies. The Companys interest bearing liabilities are based on fixed and floating interest rates.





Debt liabilities outstanding as at December 31, 2003

 based on fixed interest rate are as follows (see Note 19a):



-

the 11 1⁄4   Notes with a face value of USD 150,000,000

-

the 11 1⁄4   Notes with a face value of EUR 26
8
,
242
,000

-

the 10 7⁄8   Notes with a face value of EUR 1
56
,61
5
,000





Debt liabilities based on floating interest rates consist of Bank Credit Facilities (see 
Note 19b). The Company may utilize all facilities by individual drawdowns for the maturity of one, three, six or twelve months.  The interest rate related to each drawdown is determined at the drawdown date and fixed for the maturity of the respective drawdown.



The interest rate exposure consists of a risk of increasing short-term interest rates, which would result in higher financing costs. Interest rate exposure also arises from the possibility of decreasing long-term interest rates that would result in relative increase of financing costs versus market yields. The Company has limited risk of such a scenario by series of prepayment options embedded into all Notes (Note options).



The Companys interest rate exposure is managed by:

-

varying the maturity periods of investments and borrowings,

-

varying the proportions of debt which bears interest on a fixed and a floating basis,

-

varying the period of time for which the interest rate is fixed in respect to the Bank Credit Facilities.



In addition to the interest rate management tools described above, the Company may, in line with its hedging policy enter into the following interest rate hedging transactions:

-

forward rate agreements (FRAs),

-

interest rate swaps,

-

interest rate options (caps, floors, collars).









5.

Financial risk management (cont.)



c.

Credit risk



Commercial credit risk



The Company operates in one industry segment, providing cellular telephone communication services. Substantially all of the Companys trade debtors are Polish businesses and individuals. Further, the Company has established a network of dealers within Poland to distribute its products. The dealers share many economic characteristics thus receivables from each of these dealers present similar risk to the Company.  The Company generally does not require collateral from its customers.



Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Companys customer base.

















The Company maintains provisions for estimation of

existing
credit losses and such losses in the aggregate, have not exceeded Managements expectations.

With the exception of TP SA, which purchases terminating interconnection services from the Company, no single customer accounts for 10% or more of revenues.





The balance of receivables as at December 31, 2003

, representing the total net commercial credit risk exposure as at this date, is presented in Note 12.









Financial credit risk



There is a risk that the counterparties may be unable to meet their obligations related to financial instruments. This credit risk is monitored and measured by the treasury function in the Company. In order to minimize the risk the Company limits its counterparties to 

a
 
sufficient number of major banks and financial institutions with high financial ratings.



The balance of financial assets, short-term investments and other financial assets as at December 31, 2003

, representing the total financial credit exposure, is presented in Notes 11 and 16.



6.

Net sales



|                                  | Year ended
December 31,
2003 | Year ended
December 31,
2002 | Year ended
December 31,
2001
|--------------------------------- | ---------------------------- | ---------------------------- | ----------------------------
|                                  |                              |                              |                             
|Service revenues and fees         | 5,411,402                    | 4,753,445                    | 4,123,555                   
|Sales of
handsets
and accessories | 189,875                      | 176,379                      | 221,341                     
|                                  | -------------------          | -------------------          | --------------------        
|                                  | 5,601,277                    | 4,929,824                    | 4,344,896                   
|                                  | ===========                  | ===========                  | ============                



The Company operates in one segment (providing cellular telecommunication services and the ancillary sale of cellular
handsets
and accessories) and in one market (the Republic of Poland). The main sources of the Companys revenue are airtime
charges
, consisting primarily of monthly service fees (from incoming and outgoing calls), and charges for voice
calls and non-voice services
that originate or terminate in the Companys network, and calls placed by the Companys subscribers on foreign networks (roaming calls).

6.

Net sales (cont.)



In 2003 the Company netted PLN 30,329 cost from revenue related to premium calls and premium SMS, as a result of adoption principals of EITF 99-19. The netting is applied to premium calls and premium SMS, when the Company is acting as an agent providing telecommunication services without being the primary obligor in delivery of the relevant service.













7.

Costs and expenses



|                                          | Year ended
December 31, 2003 | Year ended
December 31, 2002 | Year ended
December 31, 200
1
|----------------------------------------- | ---------------------------- | ---------------------------- | -----------------------------
|                                          |                              |                              |                              
|Cost of sales:                            |                              |                              |                              
|Cost of services sold                     | 2,356,497                    | 2,018,636                    | 1,778,687                    
|Cost of sales of
handsets
and accessories | 1,237,624                    | 970,557                      | 948,750                      
|                                          | ------------------           | -----------------            | ------------------           
|                                          | 3,594,121                    | 2,989,193                    | 2,727,437                    
|                                          |                              |                              |                              
|Operating expenses:                       |                              |                              |                              
|Selling and distribution costs            | 610,179                      | 545,404                      | 585,463                      
|Administration and other operating costs  | 235,609                      | 244,711                      | 199,966                      
|                                          | ------------------           | ----------------             | -----------------            
|                                          | 8
45,
788                    | 790,115                      | 785,429                      
|                                          | -------------------          | -------------------          | -------------------          
|                                          | 4,4
39,909                   | 3,779,308                    | 3,512,866                    
|                                          | ===========                  | ===========                  | ===========                  



Costs and expenses include research and development costs that were expensed when incurred. The research and development costs were immaterial in the above periods.



The rental expenses included in costs and expenses amounted to PLN 151,112, PLN 147,133 and
PLN 129,053
for the years ended December 31, 2003, December 31, 2002 and
December 31, 2001
, respectively.







The following costs and expenses were included in cost of sales:



|                              | Year ended
December 31,
2003 | Year ended
December 31,
2002 | Year ended
December 31,
2001
|----------------------------- | ---------------------------- | ---------------------------- | ----------------------------
|                              |                              |                              |                             
|External services             | 1,396,939                    | 1,083,417                    | 869,995                     
|Merchandise sold              | 1,235,771                    | 969,642                      | 949,805                     
|Depreciation and amortization | 842,116                      | 822,993                      | 790,796                     
|Staff costs                   | 79,310                       | 80,626                       | 81,315                      
|Other                         | 39,985                       | 32,515                       | 35,526                      
|                              | -------------------          | -------------------          | -------------------         
|                              | 3,594,121                    | 2,989,193                    | 2,727,437                   
|                              | ===========                  | ===========                  | ===========                 









7.

Costs and expenses (cont.)



The following costs and expenses were included in selling and distribution costs:



|                                              | Year ended
December 31,
2003 | Year ended
December 31,
2002 | Year ended
December 31,
2001
|--------------------------------------------- | ---------------------------- | ---------------------------- | ----------------------------
|                                              |                              |                              |                             
|External services including advertising costs | 297,221                      | 252,651                      | 292,367                     
|Staff costs                                   | 185,258                      | 183,887                      | 158,700                     
|Depreciation and amortization                 | 69,035                       | 58,441                       | 40,213                      
|Other including bad debt expense              | 58,665                       | 50,425                       | 94,183                      
|                                              | ----------------             | ----------------             | ---------------             
|                                              | 610,179                      | 545,404                      | 585,463                     
|                                              | =========                    | ======
===                   | =========                   







The following costs and expenses were included in administration costs:



|                              | Year ended
December 31,
2003 | Year ended
December 31,
2002 | Year ended
December 31,
2001
|----------------------------- | ---------------------------- | ---------------------------- | ----------------------------
|                              |                              |                              |                             
|External services             | 94,505                       | 103,437                      | 87,100                      
|Staff costs                   | 85,655                       | 84,031                       | 77,904                      
|Depreciation and amortization | 31,121                       | 28,549                       | 19,563                      
|Other                         | 24,328                       | 28,694                       | 15,399                      
|                              | ----------------             | ----------------             | ----------------            
|                              | 2
35,609                     | 244,711                      | 199,966                     
|                              | =========                    | ==

========                 | =========                   







8.

Interest and other financial income



|                                  | Year ended
December 31,
2003 | Year ended
December 31,
2002 | Year ended
December 31,
2001
|--------------------------------- | ---------------------------- | ---------------------------- | ----------------------------
|                                  |                              |                              |                             
|Gains on valuation of derivatives | 167,826                      | 130,081                      | 81,944                      
|Foreign exchange gains            | 152,901                      | 119,191                      | 207,911                     
|Interest income                   | 14,798                       | 17,182                       | 26,761                      
|Other financial

 income          | 1,052                        | -                            | -                           
|                                  | ---------------              | ---------------              | ---------------             
|                                  | 336,577                      | 266,454                      | 316,616                     
|                                  | =========                    | =========                    | =========                   







9.

Interest and other financial expenses



|                                   | Year ended
December 31,
200
3 | Year ended
December 31,
200
2 | Year ended
December 31,
200
1
|---------------------------------- | ----------------------------- | ----------------------------- | -----------------------------
|                                   |                               |                               |                              
|Foreign exchange losses            | 339,230                       | 344,551                       | 54,020                       
|Interest expense                   | 348,133                       | 446,673                       | 496,300                      
|Losses on valuation of derivatives | 71,564                        | 50,115                        | 144,226                      
|Other financial expenses           | 4,306                         | 6,793                         | -                            
|                                   | ---------------               | ---------------               | ----------------             
|                                   | 763,233                       | 848,132                       | 694,546                      
|                                   | =========                     | =========                     | =========                    





10.

Taxation



|                                     | Year ended
December 31,
2003 | Year ended
December 31,
2002 | Year ended
December 31,
2001
|------------------------------------ | ---------------------------- | ---------------------------- | ----------------------------
|                                     |                              |                              |                             
|Polish current tax (charge)/benefit  | (8
8,
410)                   | 402                          | -                           
|Polish deferred tax benefit/(charge) | 8,893                        | (220,744)                    | (25,460)                    
|Foreign current tax charge           | (1,273)                      | (2,020)                      | (1,419)                     
|                                     | -----------------            | ----------------             | ----------------            
|Tax charge                           | (80,790)                     | (222,362)                    | (26,879)                    
|                                     | ==========                   | =========                    | =========                   



Tax loss carry forwards available as at December 31, 2003

 amounted to PLN
89,
353

.. The loss can be fully offset against taxable income in year 2004.



According to the Polish tax regulations, the tax rates in effect in 2003 was 27%
 and 28% for both
2002 and 2001
.. The tax rate for 2004

and the
following years is set
to be
19
% (see 

N
ote 

2).



The Company recognized the effect of the change in the income tax rate on deferred tax in the income statement for the period ended December 31, 2003.

10.

Taxation (cont.)



The reconciliation between tax charge and the product of accounting profit or loss multiplied by the applicable statutory tax rates is as follows:







|                                                                      | Year ended
December 31,
2003 | Year ended
December 31,
2002 | Year ended
December 31,
200
1
|--------------------------------------------------------------------- | ---------------------------- | ---------------------------- | -----------------------------
|                                                                      |                              |                              |                              
|Profit before taxation                                                | 73
4,712                     | 568,838                      | 454,100                      
|                                                                      |                              |                              |                              
|Tax rate                                                              | 27%                          | 28%                          | 28%                          
|                                                                      | -----------------            | -----------------            | -----------------            
|Tax charge using statutory rate                                       | (198,372)                    | (159,274)                    | (127,148)                    
|                                                                      |                              |                              |                              
|Non-taxable
differences                                               | (43,055)                     | (15,649)                     | 12,309                       
|                                                                      |                              |                              |                              
|Change in temporary differences for which realization is not probable | 15,779                       | 10,871                       | 32,653                       
|                                                                      |                              |                              |                              
|Effect of different tax rates and rules in foreign entities           | (1,375)                      | 803                          | 1,881                        
|                                                                      |                              |                              |                              
|Change in enacted
tax rates                                           | 128,182                      | (68,184)                     | 51,803                       
|                                                                      |                              |                              |                              
|Refiling of previous years tax return                                | 3,631                        | 402                          | -                            
|                                                                      |                              |                              |                              
|Adjustments to deferred taxes                                         | 14,420                       | 8,669                        | 1,623                        
|                                                                      |                              |                              |                              
|                                                                      | -----------------            | ---------------              | ----------------             
|Tax charge                                                            | (80,790)                     | (222,362)                    | (26,879)                     
|                                                                      | ==========                   | =========                    | =========                    



The deferred tax
expense

credited
to equity after reclassification a part related to CC swaps and forward contracts
to the income statement was PLN
765
in 2003, and deferred tax income credited to equity in 2002 and 2001 was PLN 4,703 and PLN 27,346, re
spectively.











1.

Taxation (cont.)



|                                                                                    | Year ended December 31,
200
3 | Year ended December 31,
2002
|----------------------------------------------------------------------------------- | ----------------------------- | ----------------------------
|                                                                                    |                               |                             
|Deferred tax assets in Poland:                                                      |                               |                             
|Tax loss carry forward                                                              | 16,977                        | 138,659                     
|Bad debt provision                                                                  | 38,306                        | 71,524                      
|Asset retirement provision                                                          | 6,213                         | -                           
|Accrued interest                                                                    | 8,625                         | 37,729                      
|Unrealized foreign exchange loss, net                                               | 43,388                        | 1,661                       
|Financial instruments, net                                                          | -                             | 27,449                      
|Accrued expenses                                                                    | 25,246                        | 51,040                      
|Inventory provision                                                                 | 7,199                         | 9,094                       
|Accrued advertising                                                                 | 3,265                         | 5,677                       
|Revenue recognition                                                                 | 21,227                        | -                           
|                                                                                    | ----------------              | ---------------             
|                                                                                    | 170,446                       | 342,833                     
|                                                                                    |                               |                             
|Temporary differences for which realization is not probable (valuation allowance) | (20,959)                      | (46,568)                    
|                                                                                    | ---------------               | --------------              
|                                                                                    | 149
,487                      | 2
96,265                    
|Deferred tax liabilities in Poland:                                                 |                               |                             
|Book versus tax basis of GSM /UMTS licenses                                         | (360,826)                     | (498,295)                   
|Book versus tax basis of fixed assets                                               | (47,929)                      | (66,141)                    
|Financial instruments, net                                                          | (
31,295)                     | -                           
|                                                                                    | ----------------              | ----------------            
|Net deferred tax liability                                                          | (290,563)                     | (268,171)                   
|                                                                                    | ==========                    | =========                   







The amounts of valuation allowance as at December 31, 200
3
 and December 31, 2002

 consist primarily of the bad debt provision for which tax deductibility is
uncertain. The valuation allowance as at December 31, 2001 amounted to  PLN 54,585.



11.

Short-term investment and other financial assets



|                           | As at
December 31,
2003 | As at
December 31,
200
2
|-------------------------- | ----------------------- | ------------------------
|                           |                         |                         
|Forward contracts          | 68
,
289                | -                       
|Currency options           | 20,826                  | -                       
|CC swaps                   | 10,040                  | -                       
|Trade contract derivatives | 7,784                   | 8,445                   
|Index swaps                | 3,599                   | 3,698                   
|                           | ---------------         | ---------------         
|                           | 110,538                 | 12,143                  
|                           | =========               | =========               



11.

Short-term investment and other financial assets (cont.)



Currency options
are used to reduce the risk of currency fluctuation and are valued based on the market value (see Note 23).



Trade contract derivatives represent short-term portion of the derivatives separated from trade contracts (see also Notes 3.14,
16, 18 and

23

).



Index swaps represent short-term portion of the derivatives bifurcated from Finance lease (see Notes 3.9, 3.14, 19c and 23).







12.

Debtors and prepayments



|                                      | As at
December 31,
2003 | As at
December 31,
2002
|------------------------------------- | ----------------------- | -----------------------
|                                      |                         |                        
|Trade debtors and accrued revenue     | 808,902                 | 710,130                
|Prepaid expenses                      | 12,260                  | 18,412                 
|Other debtors                         | 13,
623                 | 10,427                 
|Amounts due from State Treasury       | 11,908                  | 2,213                  
|Accounts receivable from shareholders | 3,939                   | 1,332                  
|                                      | -----------------       | -----------------      
|                                      | 850,632                 | 742,514                
|Provision for doubtful debtors        | (99,510)                | (121,765)              
|                                      | -----------------       | -----------------      
|                                      | 751,122                 | 620,749                
|                                      | ==========              | ==========             



Movements of the provision for doubtful debtors
were
as follow:





|                | As at
December 31,
200
3 | As at
December 31,
200
2 | As at
December 31,
200
1
|--------------- | ------------------------ | ------------------------ | ------------------------
|                |                          |                          |                         
|Opening balance | (121,765)                | (183,940)                | (221,821)               
|Increase        | (66,445)                 | (86,333)                 | (138,842)               
|Write off       | 55,498                   | 91,399                   | 105,507                 
|Release         | 33,202                   | 57,109                   | 71,216                  
|                | ------------------       | -------------------      | -------------------     
|Closing balance | (99,510)                 | (121,765)                | (183,940)               
|                | ===========              | ===========              | ===========             



13.

Inventory



|                                    | As at
December 31,
200
3 | As at
December 31,
200
2
|----------------------------------- | ------------------------ | ------------------------
|                                    |                          |                         
|Cellular handsets                   | 118,323                  | 163,470                 
|Network spare parts and accessories | 67,543                   | 71,075                  
|                                    | ---------------          | ---------------         
|                                    | 185,866                  | 234,545                 
|                                    | =========                | =========               























14.

Property, plant and equipment



|                         | As at
December 31,
2003 | As at
December 31,
2002
|------------------------ | ----------------------- | -----------------------
|                         |                         |                        
|Land and buildings       | 219,340                 | 224,546                
|Plant and equipment      | 2,171,110               | 2,544,135              
|Motor vehicles           | 5,617                   | 17,343                 
|Other fixed assets       | 535,214                 | 537,254                
|Construction in progress | 92,550                  | 115,408                
|                         | ------------------      | ------------------     
|                         | 3,023,831               | 3,438,686              
|                         | ===========             | ===========            



During the year ended December 31, 200
3
 the Company capitalized PLN 2,713

of foreign exchange losses, PLN 3,590

of interest expense and PLN 287

of hedging
gains on CC swaps and forward contracts
and during the year ended December 31, 200
2
 the Company capitalized PLN 5,459

of foreign exchange
losses
, PLN 10,127

of interest expense and PLN 504

of hedging expenses on CC swaps
..



The effective capitalization rate used to determine borrowing costs to be capitalized was 20.2

% in 2003

 and 19.0

% in 200
2
..





14.

Property, plant and equipment (cont.)



The movement in each year was as follows:



|                                       | Land and Buildings | Plant and equipment | Motor vehicles | Other fixed assets | Construction
in progress | Total            
|-------------------------------------- | ------------------ | ------------------- | -------------- | ------------------ | ------------------------ | -----------------
|                                       |                    |                     |                |                    |                          |                  
|Cost                                   |                    |                     |                |                    |                          |                  
|As at January 1, 200
2                 | 200,097            | 3,995,617           | 35,221         | 631,026            | 208,114                  | 5,070,075        
|Additions                              | 116                | -                   | -              | 5,949              | 353,082                  | 359,147          
|Transfers                              | 46,492             | 325,242             | 7,412          | 61,973             | (440,755)                | 364              
|Disposals                              | -                  | (82,363)            | (4,683)        | (2,677)            | (5,033)                  | (94,756)         
|                                       | ----------------   | ------------------- | -------------- | ----------------   | ----------------         | -----------------
|As at December 31, 200
2               | 246,705            | 4,238,496           | 37,950         | 696,271            | 115,408                  | 5,334,830        
|                                       | ----------------   | ------------------- | -------------- | ---------------    | ---------------          | ---------------  
|Depreciation                           |                    |                     |                |                    |                          |                  
|As at January 1, 200
2                 | 13,624             | 1,173,664           | 16,421         | 82,556             | -                        | 1,286,265        
|Charge                                 | 5,989              | 582,906             | 8,528          | 78,523             | -                        | 675,946          
|Transfer                               | 2,546              | (3,016)             | -              | 527                | -                        | 57               
|Disposals                              | -                  | (59,193)            | (4,342)        | (2,589)            | -                        | (66,124)         
|                                       | --------------     | ----------------    | -------------- | ---------------    | ----------------         | -----------------
|As at December 31, 2002                | 22,159             | 1,694,361           | 20,607         | 159,017            | -                        | 1,896,144        
|                                       | ---------------    | ----------------    | -------------- | ---------------    | ----------------         | -----------------
|Net book value as at December 31, 2002 | 224,546            | 2,544,135           | 17,343         | 537,254            | 115,408                  | 3,438,686        
|                                       | =========          | ==========          | ========       | ========           | =========                | ==========       







|                                        | Land and Buildings | Plant and equipment | Motor vehicles   | Other fixed assets | Construction
in progress | Total             
|--------------------------------------- | ------------------ | ------------------- | ---------------- | ------------------ | ------------------------ | ------------------
|                                        |                    |                     |                  |                    |                          |                   
|Cost                                    |                    |                     |                  |                    |                          |                   
|As at January 1, 200
3                  | 246,705            | 4,238,496           | 37,950           | 696,271            | 115,408                  | 5,334,830         
|Additions                               | -                  | 4,660               | -                | 6,858              | 279,710                  | 291,228           
|Asset retirement obligation             | -                  | -                   | -                | 44,449             | -                        | 44,449            
|Transfers                               | 887                | 233,534             | 2,898            | 47,286             | (284,605)                | -                 
|Disposals                               | -                  | (45,509)            | (17,272)         | (4,46
2)           | (4,740
)                 | (71,983
)         
|                                        | ---------------    | ----------------    | --------------   | --------------     | ----------------         | ----------------- 
|As at December 31, 2003                 | 247,592            | 4,431,181           | 23,576           | 790,402            | 105,773                  | 5,598,524         
|                                        | ---------------    | ----------------    | --------------   | --------------     | ---------------          | ----------------- 
|Depreciation                            |                    |                     |                  |                    |                          |                   
|As at January 1, 2003                   | 22,159             | 1,694,361           | 20,607           | 159,017            | -                        | 1,896,144         
|Charge                                  | 6,093              | 603,950             | 7,450            | 82,664             | -                        | 700,157           
|Charge from asset retirement obligation | -                  | -                   | -                | 17,520             | -                        | 17,520            
|Provision for construction in progress  | -                  | -                   | -                | -                  | 13,223                   | 13,223            
|Disposals                               | -                  | (38,240)            | (10,098)         | (4,013)            | -                        | (52,351)          
|                                        | ----------------   | ----------------    | ---------------- | ----------------   | -----------------        | ------------------
|As at December 31, 2003                 | 28,252             | 2,260,071           | 17,959           | 255,188            | 13,223                   | 2,
574,693        
|                                        | ----------------   | ----------------    | ---------------- | ----------------   | ----------------         | ----------------- 
|Net book value as at December 31, 2003  | 219,340            | 2,171,110           | 5,617            | 535,214            | 92,550                   | 3,023,831         
|                                        | =========          | ==========          | =========        | ==========         | ==========               | ==========        





14.

Property, plant and equipment (cont.)







In 2003, as a result of change in estimation of the asset retirement obligation, the Company capitalized the cost at the amount of PLN 44,449 to the network equipment



and increased the
depreciation costs by PLN 17,52
0 (see Notes 3.13, 3.22 and 20).









Property, plant and equipment held under capital leases without later improvements
(included in the previous schedule):



|                         | As at
December 31, 200
3 | As at
December 31, 200
2
|------------------------ | ------------------------ | ------------------------
|                         |                          |                         
|                         | Land                     | Buildings               
|                         |                          |                         
|Cost                     | 6,293                    | 197,806                 
|Accumulated depreciation | -                        | (
24,697)               
|                         | ----------               | --------------          
|Net                      | 6,293                    | 173,109                 
|                         | ======                   | ========                



As at January 1, 2002 the Company transferred the improvements made in leased buildings from Other fixed assets to Land and Buildings. As at December 31, 2003 gross value and accumulated depreciation of the improvements amounted to PLN 42,419 (as at December 31, 2002 PLN 41,430) and PLN 3,332 (as at December 31, 2002 PLN 3,069), respectively





..

















15.

Intangible fixed assets



|                              | As at
December 31, 2003 | As at
December 31, 2002
|----------------------------- | ----------------------- | -----------------------
|                              |                         |                        
|GSM and UMTS licenses         | 2,523,010               | 2,335,836              
|Computer and network software | 284,640                 | 287,323                
|Trademark                     | 104                     | 118                    
|Transaction costs             | 22,226                  | 27,853                 
|                              | -------------------     | -------------------    
|                              | 2,829,980               | 2,651,130              
|                              | ===========             | ===========            



During the year ended December 31, 200
3
 the Company capitalized to intangible fixed assets PLN

109,136

of foreign exchange losses, PLN 171,438

of interest expense and PLN 16,273


of hedging
gains on CC swaps and forward contracts. During the year 2003 the Company recognized in income statement financial expenses at the amount of PLN 46,624 as an excess of foreign exchange losses over the amount treated as an adjustment to interest cost.

D
uring the year ended December 31, 2002

 the Company capitalized to intangible fixed assets PLN 104,142

of foreign exchange
losses
, PLN 160,316

of interest expense and PLN 5,394

of hedging expenses on CC swaps
..



The effective annual capitalization rate for the whole period of capitalization from 2000 for external borrowing (i.e. excluding interest and foreign exchange rates from revaluation of UMTS license liability) was
14.6
%.



The Company has no intangible assets generated internally.





15.

Intangible fixed assets (cont.)



The movement in each year was as follows:



|                                       | GSM & UMTS Licenses | Computer and network software | Trade Mark         | Transaction costs | Total              
|-------------------------------------- | ------------------- | ----------------------------- | ------------------ | ----------------- | -------------------
|                                       |                     |                               |                    |                   |                    
|Cost                                   |                     |                               |                    |                   |                    
|As at January 1, 200
2                 | 2,448,862           | 468,941                       | 206                | 35,137            | 2,953,146          
|Additions                              | -                   | 197,480                       | -                  | 7,913             | 205,393            
|Transfers                              | -                   | (364)                         | -                  | -                 | (364)              
|Disposals                              | -                   | (36,100)                      | -                  | -                 | (36,100)           
|Capitalization of borrowing costs      | 269,852             | -                             | -                  | -                 | 269,852            
|                                       | -----------------   | ----------------              | ------------------ | ----------------- | -------------------
|As at December 31, 2002                | 2,718,714           | 629,957                       | 206                | 43,050            | 3,391,927          
|                                       | -----------------   | ----------------              | ------------------ | ----------------- | ------------------ 
|Amortization                           |                     |                               |                    |                   |                    
|As at January 1, 2002                  | 305,751             | 228,539                       | 74                 | 5,972             | 540,336            
|Charge                                 | 77,127              | 150,157                       | 14                 | 6,739             | 234,037            
|Transfers                              | -                   | (57)                          | -                  | -                 | (57)               
|Disposals                              | -                   | (36,005)                      | -                  | -                 | (36,005)           
|Other                                  | -                   | -                             | -                  | 2,486             | 2,486              
|                                       | ----------------    | -----------------             | ------------------ | ----------------- | -------------------
|As at December 31, 2002                | 382,878             | 342,634                       | 88                 | 15,197            | 740,797            
|                                       | -----------------   | ----------------              | ------------------ | ----------------- | ------------------ 
|Net book value as at December 31, 2002 | 2,335,836           | 287,323                       | 118                | 27,853            | 2,651,130          
|                                       | ==========          | ==========                    | ==========         | ==========        | ==========         





|                                       | GSM & UMTS Licenses | Computer and network software | Trade Mark        | Transaction costs | Total             
|-------------------------------------- | ------------------- | ----------------------------- | ----------------- | ----------------- | ------------------
|                                       |                     |                               |                   |                   |                   
|Cost                                   |                     |                               |                   |                   |                   
|As at January 1, 2003                  | 2,718,714           | 629,957                       | 206               | 43,050            | 3,391,927         
|Additions                              | -                   | 141,037                       | -                 | 6,446             | 147,483           
|Disposals                              |                     | (24,651)                      | -                 | -                 | (24,651)          
|Capitalization of borrowing costs      | 264,301             | -                             | -                 | -                 | 264,301           
|                                       | -----------------   | ----------------              | ----------------  | ----------------  | ----------------- 
|As at December 31, 2003                | 2,983,015           | 746,343                       | 206               | 49,496            | 3,779,060         
|                                       | -----------------   | -----------------             | ----------------  | ----------------  | ----------------- 
|Amortization                           |                     |                               |                   |                   |                   
|As at January 1, 2003                  | 382,878             | 342,634                       | 88                | 15,197            | 740,797           
|Charge                                 | 77,127              | 139,277                       | 14                | 8,177             | 224,595           
|Disposals                              | -                   | (20,208)                      | -                 | -                 | (20,208)          
|Other                                  |                     |                               |                   | 3,896             | 3,896             
|                                       | ----------------    | ----------------              | ----------------- | ----------------  | ------------------
|As at December 31, 2003                | 460,005             | 461,703                       | 102               | 27,270            | 949,080           
|                                       | ----------------    | ----------------              | ----------------- | ----------------  | ------------------
|Net book value as at December 31, 2003 | 2,523,010           | 284,640                       | 104               | 22,226            | 2,829,980         
|                                       | ==========          | ==========                    | ==========        | ==========        | ===========       









15.

Intangible fixed assets (cont.)





Licenses



The balance of GSM and UMTS licenses consists of GSM 900, GSM 1800, UMTS and Lease line licenses acquired by the Company from the Polish State, represented by the Minister of Communications.



The GSM 900 license was acquired on February 23, 1996 and issued for a term of 15 years and allows the Company to apply for an extension for an agreed period of
one year prior to its expir
y
 date together with a permit to install and utilize telecommunication equipment and network, and allocation of frequencies in the ETSI/GSM 900 MHz band. The Company was required to pay the Polish government a fee equal to the PLN equivalent of EUR 218 million, which was fully paid by December 31, 2001.



The GSM 900 license is subject to a number of commercial and technical conditions. While Polish law provides that the license may be revoked or limited in the event that the Company fails to meet any of these conditions, the Company believes that it is currently in compliance with all of the GSM 900 license conditions.



The GSM 1800 license was acquired on August 11, 1999 and has been in use since 
March 1, 2000. The Company was required to pay the Polish government a fee equal to the PLN equivalent of EUR 100 million, which was fully paid
by
December 31, 2002.





























Similar to the GSM 900 license, the GSM 1800 license requires that the Company meets certain coverage and technical criteria, including a requirement that the dropped call rate does not exceed 5% during peak hours and that the Company attains geographical coverage combined with the 900 MHz and 1800 MHz frequencies of 90% by June 2004. The Company has already exceeded this level of coverage and complies with the dropped call rate criteria.



On September 29, 2000 the Minister of Communications granted the Company a license to lease the telecommunication lines in the Companys network, including a permit to install and utilize telecommunication equipment and network (the Lease Lines License). The Lease Line License is valid for 15 years from the date when it was delivered to the Company and has been valued at the nominal value as the license fee was paid in a single installment.



On December 20, 2000 the Minister of Communications granted the Company a license to provide telecommunication services according to the UMTS standard in the 2 GHz band, including a permit to install and utilize telecommunication equipment and network, and allocation of frequencies in the 2 GHz band (the UMTS license). The UMTS license is valid for 22 years from the date of acquisition. The Company is required to pay to the Polish government a fee equal to the PLN equivalent of EUR 650 million, which is payable in 22 installments. For further disclosure of liability balance see Note 19d.



The UMTS license requires the Company to attain 20% population coverage by the end of
2007
 and the Company is no longer obliged to meet the original
40% population coverage requirement

(see Note 2).



The above-described GSM 900 license, GSM 1800 license, UMTS license and the Lease Lines licenses are not transferable assets.



16.

Financial assets



|                           | As at
December 31,
200
3 | As at
December 31,
2002
|-------------------------- | ------------------------ | -----------------------
|                           |                          |                        
|Note options               | 123,307                  | 127,029                
|Trade contract derivatives | 28,823                   | 38,207                 
|Forward contracts          | 39,988                   | 5,638                  
|CC swaps                   | 55,115                   | 414                    
|Long term receivables      | 1,140                    | -                      
|                           | ----------------         | ----------------       
|                           | 248,373                  | 171,288                
|                           | =========                | =========              



Note options are prepayment options separated from the Notes.





Trade contract derivatives are separated from trade contracts denominated or linked to currency, which (i) is not the currency of the primary economic environment in which any substantial party to contract operates or (ii) is not a currency in which the price of the related good or service is routinely denominated in international commerce.



17.

Deferred costs and Other long-term assets



|                                   | As at
December 31,
2003 | As at
December 31,
2002
|---------------------------------- | ----------------------- | -----------------------
|                                   |                         |                        
|Multiple-element transaction costs | 118,344                 | 76,011                 
|Other deferred costs               | 3,322                   | 4,939                  
|                                   | ---------------         | ---------------        
|                                   | 121,666                 | 80,950                 
|                                   |                         |                        
|Other long-term assets             | 1,214                   | 1,141                  
|                                   | ---------------         | ---------------        
|                                   | 122,880                 | 82,091                 
|                                   | =========               | =========              



Multiple-element transaction costs
 represent
 the deferred costs from non-separable contracts (see Note 3.16).

18.

Current liabilities



|                                           | As at
December 31,
2003 | As at
December 31, 2002
|------------------------------------------ | ----------------------- | -----------------------
|                                           |                         |                        
|Accounts payable                           |                         |                        
|Trade creditors                            | 146,676                 | 154,808                
|Construction payables                      | 142,223                 | 125,728                
|Accounts payable to shareholders           | 1,506                   | 4,741                  
|                                           | -----------------       | -----------------      
|                                           | 290,405                 | 285,277                
|                                           |                         |                        
|Amounts due to State Treasury              | 69,385                  | 57,756                 
|                                           |                         |                        
|Interest-bearing liabilities               |                         |                        
|Interest accrued on Notes                  | 56,915                  | 76,483                 
|Interest accrued on Bank Credit Facilities | 3,415                   | 26,557                 
|Finance lease payable (see Note 19c)       | 15,136                  | 18,070                 
|Overdraft facilities                       | 25,979                  | 12                     
|                                           | -----------------       | -----------------      
|                                           | 101,445                 | 121,122                
|                                           |                         |                        
|Accruals(see Note 20)                      | 220,595                 | 185,569                
|                                           |                         |                        
|Deferred income and other liabilities      |                         |                        
|Deferred income                            | 183,247                 | 153,100                
|CC swaps                                   | -                       | 43,051                 
|Forward contracts (see Notes 3.14 and 23)  | 22,091                  | 22,258                 
|Social fund                                | 3,890                   | 3,603                  
|Deposits from subscribers                  | 2,364                   | 1,969                  
|Payroll                                    | 195                     | 377                    
|                                           | -----------------       | -----------------      
|                                           | 211,787                 | 224,358                
|                                           | -----------------       | -----------------      
|                                           | 893,617                 | 874,082                
|                                           | ==========              | ==========             



The social fund is an employers obligation
arising from
a government mandated calculation based on number of employees and the monthly minimum wage in Poland. The amounts calculated under this formula must be used for the benefit
 of the employees.



















19.

Long-term liabilities



|                                                        | As at
December 31, 200
3 | As at
December 31,
2002
|------------------------------------------------------- | ------------------------ | -----------------------
|                                                        |                          |                        
|Interest-bearing liabilities                            |                          |                        
|Long-term Notes                                         | 2,510,042                | 2,950,039              
|Bank Credit Facilities                                  | 535,933                  | 990,217                
|UMTS license
 liability                                 | 576,875                  | 438,550                
|Finance lease payable                                   | 155,129                  | 164,045                
|Index swaps (see Notes 3.9, 3.14, 19c and 23)           | 33,771                   | 40,514                 
|                                                        | --------------------     | ---------------------  
|                                                        | 3,811,750                | 4,583,365              
|                                                        |                          |                        
|Non-interest-bearing liabilities                        |                          |                        
|Multiple-element transaction revenue                    | 118,344                  | 76,011                 
|Other non-interest bearing long-term liabilities        | 13                       | -                      
|CC swaps                                                | -                        | 89,148                 
|                                                        | -------------------      | --------------------   
|                                                        | 118,357                  | 165,159                
|                                                        |                          |                        
|Deferred tax liability(see Note 10)                     | 290,563                  | 268,171                
|                                                        |                          |                        
|Provisions for liabilities and charges



(see Note 20) | 91
,952                  | 21,740                 
|                                                        | --------------------     | --------------------   
|                                                        | 4,312,622                | 5,038,435              
|                                                        | ============             | ============           





19.

Long-term liabilities (cont.)



a.

Notes



The Company is full and unconditional guarantor of the following Notes issued by its subsidiaries. The net proceeds from the Notes were loaned to the Company.



|                                                               | 11 1⁄4% Notes                                           | 11 1⁄4% Notes                                           | 10 7⁄8% Notes                                          
|-------------------------------------------------------------- | ----------------------------------------------------- | ----------------------------------------------------- | -----------------------------------------------------
|                                                               |                                                       |                                                       |                                                      
|Issuance date                                                  | November 23, 1999                                     | November 23, 1999                                     | May 8, 2001                                          
|                                                               |                                                       |                                                       |                                                      
|Issuer                                                         | PTC International Finance II S.A.                     | PTC International Finance II S.A.                     | PTC International Finance II S.A.                    
|                                                               |                                                       |                                                       |                                                      
|Nominal value                                                  | EUR 26
8
* million                                    | USD 150

million                                      | EUR 1
57
 **

million                                
|                                                               |                                                       |                                                       |                                                      
|Coupon                                                         | 11 1⁄4                                                  | 11 1⁄4                                                  | 10 7⁄8                                                 
|                                                               |                                                       |                                                       |                                                      
|Interest payment                                               | on each June 1 and December 1                         | on each June 1 and December 1                         | on each January 31 and July 31                       
|                                                               |                                                       |                                                       |                                                      
|Maturity date                                                  | December 1, 2009                                      | December 1, 2009                                      | May 1, 2008                                          
|                                                               |                                                       |                                                       |                                                      
|Registered                                                     | in the United States (SEC);
Luxembourg Stock Exchange | in the United States (SEC);
Luxembourg Stock Exchange | in the United States (SEC);
Luxembourg Stock Exchange
|                                                               |                                                       |                                                       |                                                      
|Market price as at December 31, 200
3
 (% of nominal value)    | 10
9
..
5
0                                           | 1
10

..00                                            | 1
10

..00                                           
|                                                               |                                                       |                                                       |                                                      
|Carrying amount as at December 31, 2003

 (including interest) | 1,255,315                                             | 552,897                                               | 758,745                                              



On June 30, 2003 the Company called all the outstanding 10 3⁄4% Notes with a principal amount of USD 126,215 thousand, constituting 49.85% of the initial total amount of the Notes, at the price of 103.583%. The costs related to the redemption of 10 3⁄4% Notes incurred by the Company amounted to PLN 26,423, which include PLN 17,867 of premium cost and PLN 6,691 of 10 3⁄4% Note call option written off. The Notes were redeemed from investors on July 1, 2003 by the trustee.







*
  In
2003
the Company repurchased on the market 4

..9
% of the total principal amount of the 11 1⁄4% Notes of EUR
14,508
thousand. The principal amount of the repurchased Notes

has been delisted from
the Luxembourg Stock Exchange
..


The amount of EUR 26
8
,
242
 thousand of the 11 1⁄4% Notes remain outstanding as at December 31, 200
3
 and continue to be listed on the Luxembourg Stock Exchange.





** In
2003
the Company repurchased on the market the principal amount of


EUR
30,885
thousand of the 10 7⁄8% Notes (15.4

% of the total initial
principal amount).


The principal amount of the repurchased Notes

has been delisted from
the Luxembourg Stock Exchange
.. The amount of EUR
156,615
thousand of the 10 7⁄8% Notes remain outstanding as at December 31, 200
3
 and continue to be listed on the Luxembourg Stock Exchange.





19.

Long-term liabilities (cont.)



a.

Notes (cont.)



The total financial cost related to
open market buy backs of EUR 11 1⁄4% Notes
and 10 7⁄8% Notes amounted to PLN
20,194
..



The Company has right to the following call options embedded in the respective Notes:



|                       | 11 1⁄4% Notes                                                                                                   | 10 7⁄8% Notes                         
|---------------------- | ------------------------------------------------------------------------------------------------------------- | ------------------------------------
|                       |                                                                                                               |                                     
|Period 1               |                                                                                                               |                                     
|                       |                                                                                                               |                                     
|Date                   | December 1, 2004 – December 1, 2009                                                                           | May 1, 2005 –
May 1, 2008           
|                       |                                                                                                               |                                     
|Redemption amount      | in whole or in part                                                                                           | in whole or in part                 
|                       |                                                                                                               |                                     
|Redemption price range | 105.625%  100.00%

of nominal value                                                                          | 105.438%  100.00%

of nominal value
|                       |                                                                                                               |                                     
|Period 2               |                                                                                                               |                                     
|                       |                                                                                                               |                                     
|Date                   | The Period 2 Issuer Call Option has not been exercised by the Issuer and expired in the last quarter of 2002. | May 8, 2001 
May 1, 2004           
|                       |                                                                                                              
|Redemption amount      | any amount up to 35% of the outstanding principal amount                                                     
|                       |                                                                                                              
|Redemption price range | 110.875% of nominal value                                                                                    



Fair value of the Notes call options

is presented in Note 23.



The Notes
also have

put options, which may be exercised (in any part) at 101% of nominal value by the Noteholders if a change of control event
occurs.

Change of control events are when

: (1) if any person o
r
 group becomes the beneficial owner of 50% or more of the total voting power except for Permitted Holders and as a consequence at least two notches decline in the rating of the Notes or the rating is
withdrawn

, (2) substantially all the assets of the Company are sold or (3) certain changes in the
Supervisory Board.









b.

Bank Credit Facilities



On February 20, 2001 the Company signed the two loan facility agreements (Main Bank Facility Agreement amounting to EUR 550 million and Supplemental Bank Facility Agreement amounting to EUR 150 million (extended from EUR 100 million on September 21, 2001)  together Bank Credit Facilities) with the consortium of banks organized by Deutsche Bank AG London, Deutsche Bank Polska S.A., Dresdner Bank Luxembourg S.A. and the European Bank for Reconstruction and Development.



As at December 31, 2003

 the balance outstanding under the Main BankFacility Agreement amounted to PLN
535.9
million, which consisted of PLN 250 million of the domestic tranche, USD 26 million and EUR 40 million of the multi-currency tranche.







19.

Long-term liabilities (cont.)



b.

Bank Credit Facilities (cont.)



The main terms of the Main Bank Facility Agreement are as follows:



Facilities limits

equivalent of EUR 550 million available under two tranches: the multi-currency

tranche amounting to EUR 292.5 million and the
domestic tranche of EUR 257.5 million available in PLN



Interests

LIBOR, EURIBOR, WIBOR plus negotiated margins



Collateral

pledge on the Companys assets and rights except for future real estates, the escrow fund for Notes and leased assets



Repayment date

quarterly reduction in facility limit starting





from September 30, 2004 to February 20, 2006.



The main terms of the amended Supplemental Bank Facility Agreement are as follows:



Facilities limits

equivalent of EUR 150 million available under two tranches: the multi-currency

tranche amounting to EUR 20 million and the
domestic tranche of EUR 130 million available in PLN



Interests

LIBOR, EURIBOR, WIBOR plus negotiated margins



Collateral

pledge on the Companys assets and rights except for future real estates, the escrow fund for Notes and leased assets



Repayment date

reduction in facility limit starting from September 30, 2005 to March 31, 2007.



As at December 31, 200
3
 the Supplemental Bank Facility was not drawn.



In addition under Bank Credit Facilities the Company is obliged to satisfy as at December 31, 200
3
 the following covenants:

-

Senior Debt to earnings before interest, tax, depreciation and amortization costs (
EBITDA)
* at the level below 3

..
5
:1.0

-

EBITDA to Interest Expense on Senior Debt at the level not less than 3.0:1.0

-

EBITDA to Interest Expense on Total Debt at the level not less than 2.
25
:1.0



*EBITDA
 calculated as

operating profit increased by the amortization and depreciation expenses.



As at the balance sheet date the Company met these covenants with comfortable margin.



19.

Long-term liabilities (cont.)



c.

Finance lease



On March 25, 1997 the Company entered into a finance lease agreement relating to its new headquarters building and underlying land (Finance lease). The headquarters lease obligation is denominated in USD and payable in PLN. The term of the lease is 15 years and the Company has a right to acquire the leased asset at the end of the lease not sooner than on April 30, 2013 and not later than by the July 31, 2013 (the value of the purchase option calculated as the leased space multiplied by the price per square meter amounts to USD 11,825).



The minimum lease payments have been discounted at 11.338% (first building leased in second half of 1998) and at 11.174% (second building leased in July 1999), which approximated the Companys borrowing rate for USD as at the date of acquisition of the leased assets.



The timing and values of lease payments are presented below.



The future value payments under finance leases as at December 31, 200
3
include future indexing of minimal lease payments.



|                                             | As at
December 31, 2003
|-------------------------------------------- | -----------------------
|                                             | Future Value           
|                                             |                        
|Not later than 1 year                        | 30,376                 
|Later than 1 year and not later than 5 years | 130,894                
|Later than 5 years                           | 208,631                
|                                             | ----------------       
|                                             | 369,901                
|                                             | =========              



|                                             | As at
December 31, 2002
|-------------------------------------------- | -----------------------
|                                             | Future Value           
|                                             |                        
|Not later than 1 year                        | 30,956                 
|Later than 1 year and not later than 5 years | 133,388                
|Later than 5 years                           | 253,828                
|                                             | ----------------       
|                                             | 418,172                
|                                             | =========              











19.

Long-term liabilities (cont.)



d.

License fee payables



The fees for the Companys
UMTS license

was
denominated in EUR and payable in installments. These deferred payments have been discounted at
12.06% for short-term and 12.11% for long-term installments of

the UMTS license
, which approximated the Companys borrowing rate for EUR as at the date of acquisition of the license
.. As at December 31, 200
3
 the
value of the UMTS license liability amounted to PLN 577

 million. The
value was calculated as discounted future payments
at
current market interest rates. As at that date there was no GSM 900 or GSM 1800 license liability outstanding.



The maturity of license fee payable as at December 31, 2003 was as follow:



|                      | EUR000 nominal  | EUR000 discounted | PLN000 discounted
|--------------------- | ---------------- | ------------------ | ------------------
|                      |                  |                    |                   
|Between 2 and 5 years | 60,000           | 41,772             | 197,040           
|Over 5 years          | 330,000          | 80,525             | 379,835           
|                      | ---------------- | ----------------   | ----------------  
|                      | 390,000          | 122,297            | 576,875           
|                      | =========        | =========          | =========         



The maturity of license fee payable as at December 31, 2002 was as follow:



|                      | EUR000 nominal  | EUR000 discounted | PLN000 discounted
|--------------------- | ---------------- | ------------------ | ------------------
|                      |                  |                    |                   
|Between 2 and 5 years | 45,000           | 29,477             | 118,502           
|Over 5 years          | 345,000          | 79,610             | 320,048           
|                      | ---------------- | ----------------   | ----------------  
|                      | 390,000          | 109,087            | 438,550           
|                      | =========        | =========          | =========         









20.

Accruals and Provisions for liabilities and charges



|                                                                            | As at
December 31,
2003 | As at
December 31,
2002
|--------------------------------------------------------------------------- | ----------------------- | -----------------------
|                                                                            |                         |                        
|Accruals                                                                    | 220,595                 | 185,569                
|                                                                            |                         |                        
|Provisions for liabilities and charges                                      |                         |                        
|Provision for loyalty program                                               |                         |                        
|Opening balance                                                             | 21,740                  | 20,652                 
|Increase                                                                    | 26,
042                 | 13,498                 
|Decrease                                                                    | (21,
123
)              | (12,410)               
|                                                                            | ----------------        | ----------------       
|Closing balance                                                             | 26
,659                 | 21,740                 
|Provisions for dismantlement and restoration costs (see Note 3.4, 3.13, 14) | 59,629                  | -                      
|Other provisions for liabilities and charges                                | 5
,664                  | -                      
|                                                                            | ----------------        | ----------------       
|                                                                            | 91
,
952                | 21,740                 
|                                                                            | =========               | =========              



The balance of accruals includes mainly operating costs not invoiced and employee bonuses.



The provision for dismantling and restoration costs results from the change of estimation made by the Company in year 2003 (see Note 3.4).





21.

Capital



|                                          | As at
December 31, 200
3 | As at
December 31, 2002
|----------------------------------------- | ------------------------ | -----------------------
|                                          |                          |                        
|Allotted, called-up and fully paid:       |                          |                        
|471,000 ordinary shares of PLN 1,000 each | 471,000                  | 471,000                
|Additional paid-in capital                | 409,754                  | 409,754                
|                                          | ----------------         | ----------------       
|                                          | 880,754                  | 880,754                
|                                          | ==========               | ==========             



As at D
ecember 31, 2003
 Companys shareholder structure was as follows:



|                                    | Number of shares | Number of votes  | Nominal value of shares | Percentage of share capital
|----------------------------------- | ---------------- | ---------------- | ----------------------- | ---------------------------
|Elektrim Telekomunikacja Sp. z o.o. | 226,079          | 226,079          | 226,079                 | 47.9998 %                  
|T  Mobile Deutschland GmbH         | 105,975          | 105,975          | 105,975                 | 22.5 %                     
|MediaOne International B.V.         | 105,975          | 105,975          | 105,975                 | 22.5 %                     
|Polpager Sp. z o.o.                 | 18,840           | 18,840           | 18,840                  | 4.0 %                      
|Carcom Warszawa Sp. z o.o.          | 8,949            | 8,949            | 8,949                   | 1.9 %                      
|Elektrim Autoinvest S.A.            | 5,181            | 5,181            | 5,181                   | 1.1 %                      
|Elektrim S.A.                       | 1                | 1                | 1                       | 0.0002 %                   
|                                    | ---------------- | ---------------- | ----------------        | ----------------           
|                                    | 471,000          | 471,000          | 471,000                 | 100%                       
|                                    | =========        | =========        | =========               | =========                  



22.

Related party transactions



The below transactions consist primarily of roaming services rendered and received as well as consulting expenses.



Management believes that related party transactions were conducted primarily on market terms.



| | As at and for the year ended
December 31,
200
3 | As at and for the year ended
December 31,
200
2 | As at and for the year ended
December 31, 200
1
| | ----------------------------------------------- | ----------------------------------------------- | -----------------------------------------------



Elektrim S.A.





|Inter-company receivables           | 9   | -   | 93 
|----------------------------------- | --- | --- | ---
|Inter-company payables and accruals | 34  | 25  | 23 
|Inter-company sales                 | 120 | 310 | 741
|Inter-company purchases             | 231 | 242 | 272



Elektrim Telekomunikacja Sp. z o.o. (ET)



|Inter-company receivables           | 8     | -     | - 
|----------------------------------- | ----- | ----- | --
|Inter-company payables and accruals | 518   | 368   | - 
|Inter-company sales                 | 94    | 161   | 38
|Inter-company purchases             | 1,970 | 2,039 | - 



T-Mobile Deutschland GmbH, T-Mobile International AG
 (T-Mobile)



|Inter-company receivables           | 3,922  | 1,332  | 521   
|----------------------------------- | ------ | ------ | ------
|Inter-company payables and accruals | 5,770  | 6,447  | 2,897 
|Inter-company sales                 | 27,556 | 23,809 | 24,365
|Inter-company purchases             | 28,340 | 24,866 | 22,128



MediaOne International B.V. (MediaOne)



|Inter-company purchases | - | - | 278
|----------------------- | - | - | ---



Vivendi Telecom International (Vivendi)



There were no material transactions with Vivendi Telecom International.



23.

Derivative financial instruments



|Type of derivative                                                                   | Forward
contracts | Note
options  | Currency options | CC swaps       | Index
swaps    | Trade contract derivatives | Total         
|------------------------------------------------------------------------------------ | ----------------- | ------------- | ---------------- | -------------- | -------------- | -------------------------- | --------------
|Balance as at January 1, 200
3
 asset/(liability)                                    | (16,620)          | 127,029       | -                | (131,785)      | (36,816)       | 46,652                     | (11,540)      
|Cash paid/(received) on realization                                                  | (17,970)          | -             | 20,045           | 89,194         | (5,314)        | (7,171)                    | 78,784        
|Changes in the fair value together with realization reported in the income statement | 124,567           | (3,722)       | 781              | (10,718)       | 11,958         | (2,874)                    | 119,992       
|Changes in the fair value reported in shareholders equity (hedge reserve)           | (3,791)           | -             | -                | 118,464        | -              | -                          | 114,673       
|                                                                                     | -
------------    | ------------- | -------------    | -------------- | -------------- | --------------             | --------------
|Balance as at December 31, 2003

 asset/(liability)                                  | 86,186            | 123,307       | 20,826           | 65,155         | (30,172)       | 36,607                     | 301,909       
|                                                                                     | =======           | ========      | ========         | ========       | ========       | ========                   | ========      



Forward contracts are used by the Company to hedge foreign exchange risk related to operational and financial transactions. The Company applies hedge accounting for financial transactions.



Maturity of forward contracts is as follow:



|                      | Currency | Notional value in currency | Carrying value asset/(liability)
|--------------------- | -------- | -------------------------- | --------------------------------
|                      |          |                            |                                 
|Within 1 year         | USD      | 184
million                | (22,091)                        
|Within 1 year         | EUR      | 115 million                | 68,289                          
|Between 1 and 2 years | EUR      | 60

 million               | 39,988                          
|                      |          |                            | ----------------                
|                      |          |                            | 86,186                          
|                      |          |                            | =========                       



Note options represent the estimated fair values of call options embedded in the Companys Notes. Upon exercise of the call option or upon redemption of the Notes by other means, the fair value of the relevant call option is written back to the income statement immediately. Any reduced interest payments resulting from the redemption of the relevant Notes are recognized as they accrue.

Call option value will be written down in line with planned bonds buy-backs and refinancing.



23.

Derivative financial instruments (cont.)



On March 18, 2003 a new treaty on avoidance of double taxation between Poland and the Netherlands became law. The new treaty will provide for a 5 percent withholding tax on interest payments whereas previously no tax was due. The Republic of Poland has requested an exemption period to the European Union ("EU") Directive  2003/49/EC of June 3, 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different member states providing for no withholding taxes to be levied on interest payments between EU members from January 1, 2004. Should Poland be granted the exemption and should the Company be unable to identify reasonable measures to avoid payment of the withholding tax, the Company may become entitled to redeem the 10 7⁄8% Notes and 111⁄4% Notes at face value plus accrued interests and therefore the Company's Management may decide to execute this tax redemption option. No decision has been taken in this respect as at the date of the authorization of the
consolidated financial statements.



In November 2003 the Company has purchased the currency options
 in order to reduce the risk arising from currency fluctuation. The premium paid represents the initial option value.



CC swaps are designated (except for the contract described below)
as hedges against exposure to changes in future cash flows arising from the foreign exchange risk on the future interest coupon payments.



The following CC swaps have been entered into by the Company:



|Issuance date     | Notional in currency | Notional in PLN | PTC pays   | PTC receives | Maturity date   
|----------------- | -------------------- | --------------- | ---------- | ------------ | ----------------
|                  |                      |                 |            |              |                 
|April 4, 2001     | EUR 60 million       | 217,140         | PLN 15.20% | EUR 11 1⁄4%    | December 1, 2007
|                  |                      |                 |            |              |                 
|May 21, 2001      | EUR 90 million       | 314,640         | PLN 15.26% | EUR 11 1⁄4%    | December 1, 2007
|                  |                      |                 |            |              |                 
|May 23, 2001      | EUR 100 million      | 344,890         | PLN 13.96% | EUR 10 7⁄8%    | May 1, 2007     
|                  |                      |                 |            |              |                 
|December 10, 2001 | EUR 50 million       | 181,700         | PLN 12.69% | EUR 10 7⁄8%    | May 1, 2007     
|                  |                      |                 |            |              |                 
|December 10, 2001 | EUR 75 million       | 271,650         | PLN 13.56% | EUR 11 1⁄4%    | December 1, 2007



The timing of cash flows related to CC swaps is the same as for Notes interest obligation.



As presented in
Note 5a, in November 2003 the Company changed its Notes refinancing plans and effectively shortened the term of coupon payments exposure. As a result the maturity of some outstanding CC swap cash flows would exceed the planned date of Notes refinancing. In order to match those CC swap cash flows with the new refinancing plan the Company restructur
ed
outstanding CC swaps. The USD CC swaps were terminated resulting in PLN 24,522 of the cumulative losses which were previously reported directly in equity being reclassified,
because the forecasted transaction is no longer expected to occur.



In respect to EUR CC swaps, cash flows due after Notes refinancing would hedge other exposure than coupon payments namely EUR borrowings used for refinancing of part of EUR denominated Notes. The Company discontinued hedge accounting in relation to part of the coupon payments on EUR denominated Notes that
are no longer expected to occur (see Notes 5a). As at December 31, 2003 PLN 55,115 thousand previously recognized in equity has been reported as financial income in the income statement for 2003, because the forecasted transaction is no longer expected to occur.























23.

Derivative financial instruments (cont.)



The market value of CC swaps related to the 10 3⁄4% Notes redeemed in June 2003 amounted to a liability of PLN 28,750 and was written off to income in June 2003 at the date of the Notes redemption. In relation to the remaining fixed USD cash flows due to the Company from the counterparty between January 2004 and July 2005 the Company does not apply hedge accounting. The change in fair value of those hedges was taken to income and classified as a forward in assets after the last 10 3⁄4% Note coupon was paid.



In November 2003 this transaction was terminated resulting in PLN 24,271 of finance cost
being reclassification of the cumulative losses which were previously reported directly in equity, because the forecasted transaction is no longer expected to occur.









| |  |  |  |  | 
| |  |  |  |  | 
| |  |  |  |  | 
| |  |  |  |  | 
| |  |  |  |  | 
| |  |  |  |  | 
| |  |  |  |  | 
| |  |  |  |  | 
| |  |  |  |  | 
| |  |  |  |  | 
| |  |  |  |  | 
| |  |  |  |  | 











24.

Financial commitments



a.

Operating leases (not included in liabilities)



In 2003 the Company entered into the operating lease agreements for cars fleet
 management. The minimum annual rentals payable on this agreements are as follows:



|                                             | As at
December 31, 2003
|-------------------------------------------- | -----------------------
|                                             |                        
|Not later than 1 year                        | 6,714                  
|Later than 1 year and not later than 5 years | 20,593                 
|                                             | -------------------    
|                                             | 27,307                 
|                                             | ===========            



The minimum annual rentals payable on operating leases (both cancelable and non-cancelable)
are as follows:



|                                             | As at
December 31, 200
3 | As at
December 31,
2002 | As at
December 31,
2001
|-------------------------------------------- | ------------------------ | ----------------------- | -----------------------
|                                             |                          |                         |                        
|Not later than 1 year                        | 113,250                  | 112,563                 | 118,654                
|Later than 1 year and not later than 5 years | 351,047                  | 354,935                 | 361,141                
|Later than 5 years                           | 173,845                  | 210,353                 | 257,698                
|                                             | -------------------      | -------------------     | -------------------    
|                                             | 638,142                  | 677,851                 | 737,493                
|                                             | ===========              | ===========             | ===========            
|                                             |                          |                         |                        
|Unlimited agreements (yearly)                | 23,147                   | 20,884                  | 22,610                 





24.

Financial commitments (cont.)



a.

Operating leases (not included in liabilities) (cont.)



Assets under operating leases include primarily network sites, office space, retail outlets and warehouses

..





b.

Capital equipment commitments (not included in liabilities)



|                              | As at
December 31,
2003 | As at
December 31,
2002 | As at
December 31, 2001
|----------------------------- | ----------------------- | ----------------------- | -----------------------
|                              |                         |                         |                        
|Authorized and contracted     | 127,839                 | 166,982                 | 393,841                
|Authorized and not contracted | 812,511                 | 574,057                 | 709,780                
|                              | ------------------      | -------------------     | ---------------------  
|                              | 940,350                 | 741,039                 | 1,103,621              
|                              | ==========              | ===========             | ============           





25.

Dividend restriction



The Company's statutory financial statements are prepared in accordance with
PAS
..
Dividends may only be distributed from the net profit reported in the unconsolidated Polish annual statutory financial statements.



As at December 31, 2003 the Company was in compliance with all covenants necessary to allow payment of dividends.



As at the day of authorization of the

 consolidated financial statements the Companys Shareholders Meeting has not made a decision
regarding
2003 profit

distribution
..























26.

Supplementary cash flow information



Cash and cash equivalents consist of cash on hand, balances deposited with banks and short-term, highly liquid investments.



|                                                          | As at
December 31, 2003 | As at
December 31, 2002 | As at
December 31, 2001
|--------------------------------------------------------- | ----------------------- | ----------------------- | -----------------------
|                                                          |                         |                         |                        
|Balances deposited with banks:                            |                         |                         |                        
|Current accounts                                          | 14,612                  | 13,127                  | 10,416                 
|Term deposits with original maturity of less than 90 days | 3,551                   | 40,482                  | 25,609                 
|Social fund cash                                          | 2,533                   | 620                     | 301                    
|Cash on hand                                              | 184                     | 183                     | 185                    
|                                                          | -----------------       | -----------------       | -------------------    
|Cash and cash equivalents                                 | 20,880                  | 54,412                  | 36,511                 
|Bank overdraft                                            | (25,979)                | (12)                    | -                      
|                                                          | -----------------       | -----------------       | -------------------    
|Cash and cash equivalents
including overdrafts            | (5,099)                 | 54,400                  | 36,511                 
|                                                          | ==========              | ==========              | ===========            



















27.

Employment



|                          | As at December 31,
200
3 | As at
December 31,
200
2 | As at December 31,
2001
|------------------------- | ------------------------ | ------------------------ | -----------------------
|                          |                          |                          |                        
|Headcount at the year end | 3,803                    | 3,
702                   | 3,
684                 



28.

Estimation of the fair values



The following table presents the carrying amounts and fair values of the Companys financial instruments outstanding as at December 31, 2003

 and 2002

, in million PLN. The carrying amounts in the table are included in the balance sheet under the indicated captions.



|                                                  | As at
December 31,
2003 | As at
December 31,
2002
|------------------------------------------------- | ----------------------- | -----------------------
|                                                  | million PLN             | million PLN            
|                                                  | Carrying amount         | Fair value             
|                                                  |                         |                        
|Financial Assets                                  |                         |                        
|Cash and cash equivalents                         | 21                      | 21                     
|Short-term investments and other financial assets | 111                     | 111                    
|Debtors and accrued revenue                       | 713                     | 713                    
|Financial assets (long-term)                      | 248                     | 248                    
|                                                  |                         |                        
|Financial Liabilities                             |                         |                        
|Current liabilities and accruals                  | 599                     | 593                    
|Long-term liabilities                             | 3,749                   | 4,356                  



Debtors and accrued revenue, current liabilities and accruals

The carrying amounts are a reasonable estimate of the fair values because of the short maturity of such instruments.



The carrying amounts of forward foreign exchange contracts are based on quoted market forward rates as at the year-end balance sheet dates.



Cash and cash equivalents, short-term investments and financial assets (long-term)

The carrying amounts of cash and cash equivalents approximate fair values. The fair value of publicly traded short-term investments is based on quoted market values.



Long-term liabilities

The fair value of fixed rate long-term debt is estimated using the expected future payments discounted at market interest rates, except for the publicly traded liabilities, which are quoted at market values. The carrying amount of market-based floating rate long-term loans approximates their fair value.



29.

Differences between IFRS and US GAAP



The Companys consolidated financial statements are prepared in accordance with International Financial Reporting Standards, which differ in certain aspects from US GAAP.



The effects of the principal differences between IFRS and US GAAP in relation to the Companys consolidated financial statements are presented below, with explanations of certain adjustments that affect total comprehensive net income.



Reconciliation of consolidated net income:



|                                                                                      | Year ended December 31, 2003 | Year ended December 31, 2002 | Year ended December 31, 2001
|------------------------------------------------------------------------------------- | ---------------------------- | ---------------------------- | ----------------------------
|                                                                                      |                              |                              |                             
|Net income under IFRS                                                                 | 653,922                      | 346,476                      | 427,221                     
|                                                                                      |                              |                              |                             
|US GAAP adjustments:                                                                  |                              |                              |                             
|(a)
Removal of foreign exchange differences capitalized for IFRS                      | (91,766)                     | (109,601)                    | 107,075                     
|(b)
Depreciation and amortization of foreign exchange differences                     | 9,738                        | 9,528                        | 9,268                       
|(c)
Revenue recognition

(SAB 101/EITF 00-21
)                                        | (96)                         | (45)                         | 1,151                       
|(d)
SFAS 133/IAS 39                                                                   | (5,682)                      | (62,217)                     | (28,072)                    
|(f)
Asset retirement obligations                                                      | 24,285                       | -                            | -                           
|(g

)
Reclassification of CC swaps                                                    | (8,673)                      | -                            | -                           
|(h

)
Deferred tax on above                                                           | 8,732                        | 25,821                       | (8,367)                     
|                                                                                      | -----------------            | -----------------            | -----------------           
|Net income under US GAAP before cumulative effect
of changes in accounting principles | 590,460                      | 209,962                      | 508,276                     
|                                                                                      |                              |                              |                             
|Changes in

a
ccounting
principles
adjustments:                                       |                              |                              |                             
|                                                                                      |                              |                              |                             
|(d)
SFAS 133/IAS 39 implementation                                                    | -                            | -                            | (35,158)                    
|(e)
Transaction costs                                                                 | -                            | -                            | 7,220                       
|(f)
SFAS 143 cumulative effect                                                        | (24,285)                     | -                            | -                           
|(h

)
Deferred tax on above                                                           | 4,614                        | -                            | 6,470                       
|                                                                                      | -----------------            | ----------------             | ----------------            
|Net income under US GAAP                                                              | 570,789                      | 209,962                      | 486,808                     
|                                                                                      | ==========                   | =========                    | =========                   





29.

Differences between IFRS and US GAAP (cont.)



Reconciliation of comprehensive income:



|                                                                   | Year ended December 31, 200
3 | Year ended December 31, 200
2 | Year ended December 31, 200
1
|------------------------------------------------------------------ | ----------------------------- | ----------------------------- | -----------------------------
|                                                                   |                               |                               |                              
|Net income under US GAAP                                           | 570,789                       | 209,962                       | 486,808                      
|                                                                   |                               |                               |                              
|Other comprehensive gain/(loss)
(Hedge Reserve)                    | 86,800                        | 4,408                         | (96,955)                     
|Effect of subsidiary closing  (see Note 2)                         | (2,605)                       | -                             | -                            
|                                                                   | ------------------            | ------------------            | ------------------           
|Total comprehensive income

under US GAAP after subsidiary closing | 654,984                       | 214,370                       | 389,853                      
|                                                                   | ==========                    | ==========                    | ==========                   







Reconciliation of consolidated shareholders’ equity:



|                                                                                                              | As at
December 31,
2003 | As at
December 31,
200
2 | As at
December 31,
2001
|------------------------------------------------------------------------------------------------------------- | ----------------------- | ------------------------ | -----------------------
|                                                                                                              |                         |                          |                        
|Consolidated shareholders equity
under IFRS                                                                  | 2,087,231               | 1,352,527                | 995,745                
|                                                                                                              |                         |                          |                        
|US GAAP adjustments:                                                                                          |                         |                          |                        
|(a)
Removal of foreign exchange differences capitalized for IFRS                                              | (193,356)               | (101,590)                | 8,011                  
|(b)
Depreciation and amortization on above                                                                    | 51,499                  | 41,761                   | 32,233                 
|Revenue recognition

(SAB 101/EITF 00-21
)                                                                    | (579)                   | (483)                    | (438)                  
|(d)
SFAS 133/IAS 39                                                                                           | (95,971)                | (90,289)                 | (56,869)               
|(f)
Asset retirement obligations                                                                              | 24,285                  | -                        | -                      
|(g)
Reclassification of CC swaps                                                                              | (8,673)                 | -                        | -                      
|(
h
)
Deferred tax on above                                                                                   | 26,631                  | 17,899                   | (1,299)                
|(j

)     Hedge reserve                                                                                       | (2,485)                 | (5,898)                  | -                      
|                                                                                                              | --------------------    | ------------
------      | ----------------       
|Consolidated shareholders equity under US GAAP before cumulative effect of

changes in accounting principles | 1,888,582               | 1,213,927                | 977,383                
|                                                                                                              |                         |                          |                        
|C

hanges in accounting principles
adjustments:                                                               |                         |                          |                        
|                                                                                                              |                         |                          |                        
|(d)
SFAS 133/IAS 39 implementation                                                                            | -                       | -                        | 28,797                 
|(f)
SFAS 143                                                                                                  | (24,285)                | -                        | -                      
|(
h
)
Deferred tax on above                                                                                   | 4,614                   | -                        | (6,623)                
|                                                                                                              | --------------------    | --------------------     | -----------------      
|Consolidated shareholders equity 
under US GAAP                                                              | 1,868,911               | 1,213,927                | 999,557                
|                                                                                                              | ============            | ====
===
=====           | ==========             



29.

Differences between IFRS and US GAAP (cont.)



a.

Removal of foreign exchange differences capitalized for IFRS



In accordance with IAS 23 Borrowing Costs, the Company capitalizes financing costs, including interest and foreign exchange gains or losses and hedging gains and losses
, into assets under construction.



For property, plant and equipment under construction, the Company capitalizes interest and foreign exchange gains or losses incurred and directly attributable to the acquisition and construction of the qualifying assets that would have been avoided if the expenditure on the qualifying assets had not been made. The financing costs are capitalized only during the period of construction of the qualifying assets (see Note 14). The Company capitalized financing costs attributable to the acquisition of its GSM 900, GSM 1800 and UMTS licenses, including interest on the related long-term obligation and foreign exchange losses because these licenses are integral parts of the network (see Note 15).



Under Statement of Financial Accounting Standards 52 Foreign Currency Translation, however, foreign exchange differences relating to financing obligations should be included in the income statement of the Company. Consequently, the amounts of foreign exchange differences capitalized in accordance with IAS 23 in the Companys consolidated financial statements are expensed under US GAAP.

























b.

Depreciation and amortization



The US GAAP adjustments for depreciation and amortization shown above represent the amounts of depreciation and amortization charges relating to capitalized foreign exchange

differences and hedging gains and losses
in the Companys IFRS consolidated financial statements. Since under US GAAP these foreign exchange differences and hedging gains and losses
are not permitted to be capitalized and are instead expensed, the depreciation and amortization of these capitalized differences under IFRS has been reversed.



c.

Revenue recognition (SAB 101/

EITF 00-21
)



U

nder IFRS

the Company continues
the revenue recognition policy
applied to prior periods for multi element arrangements.



Under US GAAP, the Company implemented for the arrangements entered into on or after July 1, 2003 principles of EITF 00-21. EITF 00-21 gives detailed interpretation relating to revenue recognition and addresses certain aspects of the accounting of the elements of the multiple-deliverable arrangements as separate units of accounting.



As a result of implementation of EITF 00-21 the Company has identified multiple element arrangements as it pertains to the sale of handsets and the delivery of service. The effect in  the income and expenses for the arrangements entered in the period from July 1, 2003 till December 31, 2003 that are deferred and recognized ratably over the average expected life of the customer under IFRS are immediately recognized in
income statement account under US GAAP. Total revenues of PLN 58,646
and related costs of PLN 58,646
have thus been recorded for US GAAP.



The arrangements entered into before July 1, 2003 are settled under SAB 101 till termination.













29.

Differences between IFRS and US GAAP (cont.)



d.

SFAS 133



Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, requires every derivative instrument (including certain derivative instruments embedded in other contracts) to be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative instruments fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative instruments gains and losses to offset related results on the hedged item in the income statement, to the extent effective, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting.



The Company separates call options from long-term Notes host contract and accounts for as derivatives under IAS 39, while they are not recognized as embedded derivatives for US GAAP purposes.



The accounting change principles under US GAAP advise to include the cumulative effect in the net income of the period of the change. However, for qualifying cash flow hedge instruments a portion (or the entire amount
) of the cumulative effect should be classified
to other comprehensive income (hedge reserve), a component of shareholders equity.

























e.

Transaction costs



IAS 39 requires transaction costs to be included in the initial measurement 
of financial assets and liabilities. 

Under US GAAP these costs should be presented as deferred costs in the amount of PLN 60,524 as at December 31, 2003, PLN 71,258 as at December 31, 2002 and PLN

83,645 as at December 31, 2001
..











f.

SFAS No. 143



On January 1, 2003 the Company adopted SFAS No. 143 Accounting for Asset Retirement Obligations (SFAS No. 143). Upon adoption, the Company recorded the fair value of the liabilities for asset retirement obligations and increased the carrying amount of the associated long-lived asset. The liability is being accreted to its present value each period through charges to operating expense. The capitalized asset retirement cost is being depreciated  over the shorter of the related assets useful life or the period to the expected settlement of the retirement obligation. As a result, the Company recorded an expense
 of PLN 19,671, representing a cumulative effect of the adoption of SFAS No. 143, net of taxes of PLN 4,614. Pro-forma effects for the year ended December 31, 2002 and 2001 assuming SFAS No. 143 was effective as of January 1, 2001, were not material to the liabilities, net income or per share amounts in accordance with US GAAP.







The Company has asset retirement obligations relating primarily to equipment and other leashold improvements installed in leased network sites. Those leases generally contain provisions that require the Company to restore the sites to their original condition at the end of the lease term.

29.

Differences between IFRS and US GAAP (cont.)



f.

SFAS No. 143 (cont.)



The development of the liability for asset retirement obligations for the year ended December 31, 2003 is presented below:





|Cumulative effect change in adoption of accounting principle on liability as at January 1, 2003: | 54,011         
|------------------------------------------------------------------------------------------------ | ---------------
|Accretion expense                                                                                | 4,075          
|New assets retirement obligations incurred                                                       | 1,543          
|                                                                                                 | ---------------
|Liability for asset retirement obligations as at December
31, 2003                               | 59,629         
|                                                                                                 | ======
===     







a.

Reclassification of CC swaps



Under IFRS the Company discontinued hedge accounting and recognized in the income statement for
2003 PLN 55,115 of gains previously recognized in equity (see Notes 2, 5a and 23).
Under US GAAP the cumulative gains at the amount of PLN 8,673 resulting from the hedge accounting discontinuance have been retained as hedge reserve pending completion of forecasted replacement financing cash-flows.



h
..

D

eferred taxation



Under IFRS the Company may, if certain criteria are met, net deferred tax liabilities and assets and present a net balance in the balance sheet. Under US GAAP current and
non-current portions, by tax jurisdiction, of the above should be disclosed separately. As at December 31, 200
3
 the Company recognized PLN
99,930
of net current deferred tax asset (PLN 234,320

as at December 31, 200
2
 and PLN 210,978 as at December 31, 2001

) and PLN
360,896
of net long-term deferred tax liability (PLN 484,592

as at December 31, 200
2
 and PLN 271,021 as at December 31, 2001

).













Under IFRS changes in the fair value of Note options are not taxable transactions, which causes the effective tax rate on US GAAP adjustments different compared to corporate income tax rates for the periods.





i

..

Extraordinary item



In the first quarter of 2001 the Company refinanced the existing Loan Facility by the new Bank Credit Facilities. The intangible asset related to the Loan facility arrangement amounting to PLN 10,122 was written-off, net of a tax benefit of PLN 2,834. According to U.S. GAAP the Company should recognize this costs as an extraordinary item. Under IFRS it is presented under amortization expense.



j.

Other comprehensive income



The hedge reserve under US GAAP constitutes a part of other comprehensive income, 
a component of shareholders equity. The changes in other comprehensive income (hedge reserve) are reflected in accumulated other comprehensive income. A sum of other comprehensive income and net income for the period represents comprehensive income for the period.



29.

Differences between IFRS and US GAAP (cont.)















k
..

SFAS 95



The Company applied
IAS 7 Cash Flow Statement so that
cash flow from operating activities begins with net income before taxation, whereas Statement of Financial Accounting Standards No. 95, Statement of Cash Flows requires cash flow from operating activities to begin with net income after tax. Under IFRS the Company presents the overdraft facility in cash and cash equivalents in consolidated statements of cash flows (see Note 3.20) while under US GAAP the overdraft facility should be presented under financing activity.















l

..

New accounting standards



The implementation of the Statements No. 145 Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Correction, No. 146 Accounting for Costs Associated with Exit or Disposal Activities and FASB issued Interpretation No. 45 (FIN 45) Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Othersfrom January 1, 2003 has not caused material changes to the Companys consolidated financial statements.



In January 2003, the FASB issued Interpretation No. 46 (FIN 46) Consolidation of Variable Interest Entities (VIEs). This interpretation changes the accounting and requirements for consolidation and disclosure of certain entities, including special purpose entities (SPEs). Under FIN 46, an entity is considered a VIE (and subject to consolidation) if its total equity at risk is determined insufficient to finance its activities without additional subordinated financial support, or if its equity investors lack certain characteristics that represent a controlling financial interest. An entity that is considered a VIE would be required to be consolidated by the enterprise that holds a majority of its variable interests (that is, the enterprise that has the most exposure to the economic risks and potential rewards from changes in the values of the VIEs assets and liabilities). The Company has adopted the Interpretations disclosure provisions, effective for all financial statements issued after January 31, 2003, which require all holders of variable interests in VIEs to disclose the nature, purpose, size and activities of the VIEs, including the maximum exposure to losses. The consolidation requirements apply to all new VIEs created on and after February 1, 2003 with transitional provisions for VIEs that existed prior to that date. On December 24, 2003, the FASB issued a revised interpretation to FIN 46 (FIN 46R) to modify some of the provisions of FIN 46 and to exempt certain entities from its requirements. The Company adopted the provisions of FIN 46R to SPEs as at December 31, 2003, and plans to adopt the modified provisions of FIN 46R to all entities that are not SPE as at March 31, 2004. The determination of expected losses and expected residual returns is complex and requires the development of cash flow models. As described in Note 19c, the Company has a single finance lease agreement with Office Park Ltd. The lessor has been considered as a SPE due to single finance lease agreement, however the Company applies lease accounting to this arrangement and the related assets and liabilities are already reflected in the Companys consolidated financial statements. The Company is also reviewing certain dealers contracts to decide if they are VIE. The process of determination of potential VIE has not been finalized yet due to complexity of the analysis.



The Company implemented EITF 00-21 for arrangements entered into on or after July 1, 2003 (see Note 29c).