| Slovenské telekomunikácie, a.s. Consolidated Financial Statements Prepared in accordance with International Accounting Standards General information These consolidated financial statements have been prepared by Slovenské telekomunikácie, a.s. ("the Company") for Slovenské telekomunikácie, a.s., its subsidiaries RK Tower, s.r.o. and RK Transmission, s.r.o. and its joint venture EuroTel Bratislava, a.s., together ("the Group"). The Company is incorporated as a joint stock company in the Slovak Republic at 1 April 1999. On 4 August 2000 Deutsche Telekom AG obtained control of the Company by acquisition of 51% of shares of Slovenské telekomunikácie, a.s. The transaction involved a purchase of existing shares from the Slovak Government as well as issuance of new shares. The Slovak Government retained 49% of shares in the Company. The Directors are responsible for establishing the direction and policies of the Group and are accountable to the owners of the Group. The Group had a monopoly position on the provision of basic voice telephony services in the Slovak Republic until 1 January 2003. It supplies fixed-line telecommunication services in the Slovak Republic and owns and operates majority of the telecommunications facilities therein. The Group provides local, national and international telephony services and a wide range of other telecommunications services including leased circuits, data networks and internet access. It also provides residential and business customers with products ranging from standard telephones to computer communication networks. Through its joint venture, EuroTel Bratislava, a.s., it operates an analogue technology NMT 450 mobile telephony network and a DCS technology 900 MHz and 1 800 MHz frequency mobile telephony network. The Group has a peripheral business as the owner and operator of radio and television transmission equipment.
| 2002 | 2001
Staff numbers | Number | Number
Average staff numbers employed during the year | 9,804 | 12,068
Reporting currency The consolidated financial statements are presented in millions of Slovak crowns ("Sk million"). Registered address
The registered address is: | Námestie slobody 6 817 62 Bratislava Slovak Republic
Mark von Lillienskiold Chief Financial Officer and Member of the Board of Directors 18 February 2003 Consolidated Income Statement for the year ended 31 December
(All amounts are in millions of Slovak crowns)
| Notes | 2002 | 2001
Revenue | 13 | 18,840 | 20,110
Operating costs | 14 | (15,038) | (16,036)
Profit on sale of discontinued operations | 15 | 51 | -
Profit from operations |  | 3,817 | 4,074
Share of results of joint venture | 2 | 408 | 261
Profit on sale of subsidiary | 2 | 54 | -
Financial income - ne | 16 | 207 | 164
Profit before tax |  | 4,486 | 4,499
Taxation | 17 | (1,018) | (577)
Net profit |  | 3,468 | 3,922
The consolidated financial statements on pages 48 to 73 were authorised for issue on behalf of the Board of Directors on 18 February 2003 by:
Ing. tefan Bugár Deputy Chairman of the Board of Directors | Dr. Mark von Lillienskiold Chief Financial Officer and Member of the Board of Directors
Consolidated Balance Sheet at 31 December
(All amounts are in millions of Slovak crowns)
| Notes | 2002 | 2001
ASSETS |  |  |
Non-current assets |  |  |
Property, plant and equipment | 1 | 42,862 | 43,226
Investments in joint venture | 2 | 2,044 | 1,745
Investments held to maturity | 3 | - | 737
Total non-current assets |  | 44,906 | 45,708
Current assets |  |  |
Inventories | 4 | 409 | 396
Assets held for sale | 5 | 419 | -
Investments held to maturity | 3 | 282 | -
Receivables and prepayments | 6 | 3,335 | 3,648
Income tax prepayment |  | 157 | -
Cash and cash equivalents | 7 | 12,711 | 12,512
Total current assets |  | 17,313 | 16,556
Total assets |  | 62,219 | 62,264
EQUITY AND LIABILITIES |  |  |
Share capital and reserves |  |  |
Share capital |  | 26,028 | 26,028
Share premium |  | 11,632 | 11,632
Statutory reserve |  | 517 | 330
Retained earnings |  | 8,669 | 7,096
Total share capital and reserves |  | 46,846 | 45,086
Non-current liabilities |  |  |
Borrowings | 9 | 5,322 | 6,470
Deferred tax | 10 | 4,339 | 4,413
Other payables | 20 | 352 | 43
Provisions | 12 | 50 | 99
Total non-current liabilities |  | 10,063 | 11,025
Current liabilities |  |  |
Trade and other payables | 11 | 4,243 | 4,476
Income tax payable |  | - | 1,066
Borrowings | 9 | 793 | 259
Provisions | 12 | 274 | 352
Total current liabilities |  | 5,310 | 6,153
Total liabilities |  | 15,373 | 17,178
Total equity and liabilities |  | 62,219 | 62,264
Consolidated Statement of changes in shareholders' equity
(All amounts are in millions of Slovak crowns)
| Notes | Share capital | Share premium | Statutory reserve fund | Retained earnings | Total Equity
Year ended 31 December 2001 |  |  |  |  |  |
At 1 January 2001 |  |  |  |  |  |
- as previously reported |  | 26,028 | 11,632 | 292 | 3,321 | 41,273
- effect of adopting IAS 39 |  | - | - | - | (109) | (109)
- as restated |  | 26,028 | 11,632 | 292 | 3,212 | 41,164
Allocation to funds |  | - | - | 38 | (38) | -
Net profit for the year |  | - | - | - | 3,922 | 3,922
At 31 December 2001 |  | 26,028 | 11,632 | 330 | 7,096 | 45,086
Year ended 31 December 2002 |  |  |  |  |  |
At 1 January 2002 |  | 26,028 | 11,632 | 330 | 7,096 | 45,086
Dividends | 8 | - | - | - | (1,708) | (1,708)
Allocation to funds |  | - | - | 187 | (187) | -
Net profit for the year |  | - | - | - | 3,468 | 3,468
At 31 December 2002 |  | 26,028 | 11,632 | 517 | 8,669 | 46,846
Consolidated Cashflow Statement at 31 December
(All amounts are in millions of Slovak crowns)
| Note | 2002 | 2001
Net cash flows from operating activities | 18 | 5,250 | 10,877
Cash flows from investing activities |  |  |
Proceeds from the disposal of subsidiary | 2 | 59 | 2
Purchase of property, plant and equipment |  | (3,915) | (5,745)
Proceeds from sale of property, plant and equipment |  | 124 | 48
Proceeds from non-current investment settlement |  | 398 | -
Investment income |  | 83 | 85
Disposal of activity, net of cash disposed | 15 | 139 | -
Interest received |  | 644 | 578
Net cash used in investing activities |  | (2,468) | (5,032)
Cash flows from financing activities |  |  |
Proceeds from long-term borrowings |  | - | 439
Repayment of loans |  | (241) | (1,457)
Payment of finance lease liabilities |  | (40) | (96)
Interest paid |  | (594) | (775)
Dividends paid to group shareholders | 8 | (1,708) | -
Net cash from financing activities |  | (2,583) | (1,889)
Net increase in cash and cash equivalents |  | 199 | 3,956
Cash and cash equivalents at 1 January |  | 12,512 | 8,556
Cash and cash equivalents at 31 December |  | 12,711 | 12,512
Accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below: (a) Basis of preparation These consolidated financial statements have been prepared in accordance with and comply with International Accounting Standards ("IAS") for Slovenské telekomunikácie, a.s. ("the Company") and its subsidiary undertakings and joint venture, (together "the Group"). The consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of derivative financial instruments. (b) Accounting for subsidiaries, associates and joint ventures Investments in associates and jointly controlled entities are accounted for by the equity method of accounting. Jointly controlled entities are those in which the Group shares control of the operations with its joint venture partners. Associate undertakings are those undertakings in which the Group has a significant influence, but which it does not control. Equity accounting involves recognising in the income statement the Group's share of the associates' or joint ventures' profit or loss for the year. The Group's interest in such entities is carried in the balance sheet at an amount that reflects its share of the net assets and includes goodwill on acquisition. Unrealised gains on transactions between the Group and its associates and jointly controlled entities are eliminated to the extent of the Group's interest in such entities; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Equity accounting is discontinued when the carrying amount of the investment in an associated undertaking reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the associated undertaking. Investments in subsidiaries are accounted for by full consolidation. Subsidiaries are those in which the Group is controlling the subsidiary in a way, that it has the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. Full consolidation involves the presentation of the consolidated financial statements in a way as of a single enterprise. All transactions, balances and unrealised surpluses and deficits on transactions within the Group have been eliminated in the consolidation. Where necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies of the Group. Subsidiaries whose assets and activities are not material either individually, nor in aggregate, are not consolidated, but are included in the investments at costs. (c) Property, plant and equipment (i) Cost All fixed assets, other than land, are carried at cost less accumulated depreciation. Land is stated at values attributed to it in the legislation, which transferred ownership to the Group. All new purchased land is carried at acquisition cost. Cost includes all costs directly attributable to bringing the asset to working condition for its intended use. In the case of the network this comprises all expenditure up to the distribution points within customers' premises, and includes contractors' fees, materials, direct labour and borrowing costs on loans used to finance capital projects during the course of construction. Enhancement costs are capitalised when it is probable that future economic benefits, in excess of the original assessed standard of performance of the existing asset, will flow to the enterprise. Maintenance, repairs and minor renewals are charged to income as incurred. Borrowing costs that are attributable to the purchase or construction of a property, plant and equipment are capitalised, during the period of time that is required to complete the asset for its intended use. All other borrowing costs are expensed as incurred. Items that are retired or otherwise disposed of are eliminated from the balance sheet, along with the corresponding accumulated depreciation. Any gain or loss resulting from such retirement or disposal is included in other operating costs. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating profit. (ii) Depreciation Depreciation is calculated on property, plant and equipment on a straight-line basis from the time they are available for use, so as to write down their cost or valuation to their estimated residual values over their remaining useful lives. The useful economic lives assigned to the various categories of property, plant and equipment are:
Freehold buildings | 25 to 50 years
Duct, cable and other outside plant | 30 years
Exchange equipment and related equipment | 4 to 13 years
Radio and television equipment | 8 to 30 years
Software | 2 to 5 years
Other fixed assets | 6 to 25 years
No depreciation is provided on freehold land. Management is continuing to assess network development plans. The effect of any future revisions to expected useful economic lives as a result of this exercise will be reflected in the depreciation charge for future periods. During 2002, the management undertook a review of fixed assets in connection with restructuring and the re-focus on the core business. The review resulted in change of economic useful life of certain radio related equipment and the reclassification of certain assets from fixed assets to assets held for sale. Where the carrying amount of an asset is greater than its recoverable amount, it is written down immediately to its estimated recoverable amount. Prior to 1 January 1994, the Group's fixed asset registers were maintained in accordance with Slovak tax legislation and therefore in order to calculate the accumulated depreciation, estimates have been made using the above useful economic lives. The estimated difference at 31 December 2002 reduced the accumulated depreciation balance by Sk 1.0 billion (2001: Sk 1.1 billion) from the values shown in the fixed asset records. (d) Leased assets Leases of property, plant and equipment where the Group has substantially all the benefits and risks of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the estimated present value of the underlying lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in debt. The interest element of the finance charge is charged to the income statement over the lease period. The property, plant and equipment acquired under finance leasing contracts is depreciated over the useful life of the asset. Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. (e) Investments At 1 January 2001 the Group adopted IAS 39 and classified its investments into following categories: held-to-maturity, available-for-sale and trading investments. The classification is dependent on the purpose for which the investments were acquired. Investments with fixed maturity that the management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale, these are included in non-current assets unless management has the expressed intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Investments that are acquired principally for the purpose of generating a profit from short term fluctuations in price are classified as trading investments. Management determines the appropriate classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. All purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Available-for-sale investments and trading investments are subsequently carried at fair value, whilst held-to-maturity investments are carried at amortised cost using the effective yield method. Realised gains and losses arising from changes in the fair value of available-for-sale investments are included in the income statement in the period in which they arise. During the period the Group did not hold any investments classified as trading investments or available for sale investments. (f) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is calculated on weighted average cost basis. Net realisable value is the estimated selling price in the ordinary course of business, less selling expenses. Provision is made against slow-moving and obsolete inventories. (g) Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. Such provision for impairment of trade receivables is established if there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar borrowers. Bad debts are written off during the year in which they are identified. Amounts payable to and receivable from the same international operators are shown net in the balance sheet when a right of set-off exists. (h) Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of the cashflow statement, cash and cash equivalents comprise cash in hand, deposits held at call with banks, net of bank overdrafts. In the balance sheet, bank overdrafts are included in borrowings in current liabilities. (i) Borrowings Borrowings are recognised initially at the proceeds received, net of transaction cost incurred. In subsequent periods, borrowings are stated at amortised cost using the effective yield method, any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. (j) Provisions Provisions are recognised when the Group 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. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. Costs related to the ongoing activities of the Group are not provided in advance. Restructuring Restructuring provisions comprise employee termination payments, and are recognised in the period in which the Group becomes legally or constructively committed to payment. Employee termination benefits are recognised only after either an agreement with the appropriate employee representative is in place specifying the terms of redundancy and the numbers of employees affected or after individual employees have been advised of the specific terms. Onerous contracts The Group recognises a provision for onerous contracts when the expected benefits to be derived from the contract are less than the unavoidable costs of meeting the obligation under the contract. The provision is reversed when the future benefits exceed the cost of meeting the obligation under the contract. (k) Revenue recognition Revenues are recognised upon delivery of products and customer acceptance and on the performance of the services. Installation fees and directly related costs are deferred over the estimated customer relationship period to achieve a better allocation of these revenues and costs to the period they relate to. Carrier Service revenues are derived from calls and other traffic that originate in the mobile networks or outside Slovakia but use Group's network. The Group pays a proportion of the call revenue collected from its customers to mobile operators and other telecommunication companies for calls and other traffic that originate in Group's network but use mobile operators' or international network. Revenues and costs are shown gross in these consolidated financial statements. (l) Operating costs Operating costs are charged in the accounting period to which they relate. (m) Marketing costs Marketing costs are charged to expense as incurred. (n) Dividends Dividends on ordinary shares are recognised in equity in the period in which they are declared. (o) Financial instruments Financial instruments carried on balance sheet include cash, bank balances, investments, receivables, trade creditors, leases and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. (p) Foreign currency translation Transactions denominated in foreign currencies are translated into Slovak crowns at the date of the transaction. Outstanding monetary items at the balance sheet date are reported at the closing rate. Non-monetary items are reported using the exchange rate at the date of the transaction. Realised and unrealised exchange differences are recognised as income or expenses for the accounting period in which they arise. Where such gains and losses are incurred as part of the operating activities they are included within operating costs. Where they arise on foreign currency financing activities they are included within net interest and other charges. (q) Deferred income taxes Deferred income tax is provided, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities in the balance sheet and their carrying values in the consolidated financial statements. Tax rates enacted or substantively enacted by the balance sheet date are used to determine deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. The Group offsets deferred tax assets and deferred tax liabilities as the Group has a legally enforceable right to set off current tax assets against current tax liabilities and where the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority. (r) Social security and pension schemes The Group makes contributions to the Government's health, retirement benefit and unemployment schemes at the statutory rates in force during the year, based on gross salary payments. Throughout the year, the Group made contributions amounting to 38% (2001: 38%) of gross salaries up to a monthly salary between Sk 24,000 to Sk 32,000 to such schemes, together with contributions by employees of a further 12.8% (2001: 12.8%). The cost of these payments is charged to the income statement in the same period as the related salary cost. The Group has no obligation to contribute to these schemes beyond these statutory rates. The Group does not participate in any other schemes. (s) Employee benefits In accordance with an annually renegotiated collective labour agreement, the Group is required to pay on retirement an amount of between Sk 24,000 and Sk 65,000 depending on the length of service, starting with at least five years continuous service. These benefits are restricted to those employees who retire during the period for which the labour agreement is in place. The Group is not under a legal or constructive obligation to continue providing such benefits beyond the period of such agreement and therefore no provisions beyond the period of agreement are recognised. (t) Comparatives Certain comparatives have been reclassified to conform with current year presentation. Financial risk management (1) Financial risk factors The Group's activities expose it to a variety of financial risks, including the effects of: changes in debt and equity market prices, foreign currency exchange rates and interest rates. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as foreign exchange contracts and interest rate swaps to hedge certain exposures. Risk management is carried out by a treasury sub-unit under various policies approved by Board of Directors of the Company. The treasury sub-unit identifies, evaluates and hedges financial risks in co-operation with the operating units. There are policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and investing excess liquidity. (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to EUR and USD. The main foreign currency exposures arise from foreign currency borrowings and contract commitments. The Group hedges the foreign currency exposure of its contract commitments to purchase certain production parts mainly from Germany and Austria. The Group uses foreign currency deposits, investments, forward contracts and foreign currency swaps to hedge its exposure to foreign currency risk in the local reporting currency. (ii) Interest rate risk The Group's income and operating cash flows are substantially independent of changes in market interest rates. The Group policy is to maintain approximately 70% of its borrowings in fixed rate instruments. At the year end 2002 88% (2001 88%) was at fixed rates. The Group uses interest rate swaps to optimise the portion of fixed to floating interest rate ratio based on current market conditions with the aim to reach 70% ratio. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (mainly semiannually), the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts. (iii) Credit risk The credit risk policy defines products, maturities of products and limits for financial counter-party. The Group keeps limit of credit exposure to any financial institution. These limits are reviewed on regular basis. (2) Accounting for derivative financial instruments and hedging activities Derivative financial instruments are recognised in the balance sheet at cost and subsequently are remeasured at their fair value. The method of recognising the resulting gain or loss is dependent on the nature of the item being hedged. On the date a derivative contract is entered into, the Group designates certain derivatives as either: (i) a hedge of the fair value of a recognised asset or liability (fair value hedge) or (ii) a hedge of a forecast transaction or of a firm commitment (cash flow hedge) The Group does not have any fair value hedges or cash flow hedges at 31 December 2002, which qualify for hedge accounting under the rules in IAS 39. Certain derivative transactions, which provide effective economic hedges under the Group's risk management policies, do not qualify for hedge accounting under the rules in IAS 39. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting under IAS 39 are recognised immediately in the income statement. The fair value is periodically reviewed and any change in fair value is transferred to the income statement. Upon adoption of IAS 39 at 1 January 2001 the fair value of derivatives is recognised in retained earnings. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting under IAS 39, any cumulative gain or loss existing in equity at that time remains in equity and is recognised, when the committed or forecast transaction ultimately is recognised in the income statement. However, if a committed or forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. The fair values of various derivative instruments used are disclosed in Note 20. (3) Fair value estimation The fair value of publicly traded derivatives is based on quoted market prices at the balance sheet date. The fair value of interest rate swaps is calculated as the present value of the 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 Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Quoted market prices or dealer quotes for the specific or similar instruments are used for long-term debt. Other techniques, such as option pricing models and estimated discounted value of future cash flows, are used to determine fair value for the remaining financial instruments. The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments. Notes to the consolidated financial statements 1 Property, plant and equipment
(All amounts are in millions of Slovak crowns)
| Land and Buildings | Duct, cable and other outside plant | Telephone exchanges and related equipment | Radio and television equipment | Other fixed assets | Capital work in progress including advances (CIP) | Total
At 1 January 2002 |  |  |  |  |  |  |
Cost | 7,301 | 24,665 | 32,917 | 4,510 | 5,908 | 461 | 75,762
Accumulated depreciation | (1,663) | (7,758) | (16,469) | (2,978) | (3,610) | (58) | (32,536)
Net book value | 5,638 | 16,907 | 16,448 | 1,532 | 2,298 | 403 | 43,226
Opening net book amount | 5,638 | 16,907 | 16,448 | 1,532 | 2,298 | 403 | 43,226
Additions | - | - | - | - | - | 5,789 | 5,789
Transfer from CIP | 194 | 686 | 2,717 | 191 | 1,095 | (4,883) | -
Disposals | (87) | - | - | (8) | (10) | - | (105)
Discontinued operation (Note 15) | (6) | (1) | (21) | - | (93) | - | (121)
Transfers to assets held for sale (Note 5) | (371) | - | (36) | - | (12) | - | (419)
Depreciation charge (Note 14) | (76) | (765) | (3,608) | (435) | (599) | (25) | (5,508)
Closing net book value | 5,292 | 16,827 | 15,500 | 1,280 | 2,679 | 1,284 | 42,862
At 31 December 2002 |  |  |  |  |  |  |
Cost | 6,891 | 25,306 | 35,072 | 4,588 | 6,279 | 1,324 | 79,460
Accumulated depreciation | (1,599) | (8,479) | (19,572) | (3,308) | (3,600) | (40) | (36,598)
Net book value | 5,292 | 16,827 | 15,500 | 1,280 | 2,679 | 1,284 | 42,862
During 2002, the management undertook a review of fixed assets in connection with a re-focus on the core business. The review resulted in: (i) the change of economic useful life of certain radio related equipment. The additional depreciation of Sk 127 million is included in total depreciation charge (Note 14); (ii) the transfer of certain fixed assets to assets held for sale. (Note 5). The Group will continue to conduct such reviews. Assets subject to finance lease with a net book value of Sk 73 million (2001: Sk 163 million) are included in "other fixed assets". No land or buildings were pledged as collateral as of 31 December 2002 and 2001. 2 Investments in subsidiaries and joint ventures Details of the Group's subsidiaries and joint venture are given below.
| Country of incorporation | Interest in capital % | Activities | Method of consolidation
Subsidiaries |  |  |  |
RK Tower, s.r.o. | Slovak Republic | 100% (2001: -) | Broadcasting | Full
RK Transmission | Slovak Republic | 100% (2001: -) | Broadcasting | Full
Joint venture |  |  |  |
EuroTel Bratislava, a.s. | Slovak Republic | 53% (2001: 53%) | Wireless telephony services | Equity accounting
In May 2002 the Group sold its share in the subsidiary Telemont Slovensko, s.r.o. (Note 15). On 21 February 2002, the Group founded a 100% subsidiary Nehnutežnosti, s.r.o. with share capital of Sk 0.2 million. On 5 April 2002, the Group sold Nehnutežnosti, s.r.o. During 2002, certain assets were transferred to RK Tower, s.r.o. and the assets related to radio-communication activities are rented within the Group. Control of EuroTel is shared between the Group and Atlantic West B.V. and hence this investment is considered a joint venture. Neither party has unilateral control over major decisions affecting the joint venture. Pursuant to EuroTel's Shareholders Agreement, the Group has a 51% economic interest in the profits and net assets of the joint venture as shown below:
(All amounts are in millions of Slovak crowns)
| Joint venture |
At 1 January 2002 |  |
Cost | 1,641 |
Share of profit (loss) | 104 |
Opening net book value | 1,745 |
Share of profit before tax | 408 |
Share of income tax (Note 17) | (109) |
Closing net book value | 2,044 |
At 31 December 2002 |  |
Cost | 1,641 |
Share of profit (loss) net | 403 |
Closing net book value | 2,044 |
The following amounts represent the Group's share of the assets and liabilities and revenue and expenses of the joint venture:
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Non-current assets | 4,607 | 3,197
Current assets | 2,141 | 3,058
| 6,748 | 6,255
Non-current liabilities | (3,478) | (3,389)
Current liabilities | (1,146) | (1,036)
| (4,624) | (4,425)
Net assets | 2,124 | 1,830
Sales | 4,663 | 3,891
Income before tax | 408 | 261
Income taxes | (109) | (104)
Profit after tax | 299 | 157
Proportionate interest in joint venture commitments | 122 | 158
The average number of employees in the joint venture in 2002 was 1,060 (2001: 923). 3 Investments held to maturity
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Debt securities | 282 | 737
Debt securities amounting to Sk 282 million (2001: Sk 737 million) are U.S. Dollar and SKK denominated Slovak Government guaranteed bonds maturing within one year from 31 December 2002. The bonds pay interest at a fixed rate of 9.5% to 12.0% and were purchased at a premium ranging from 0.5% to 4.9% to their nominal value.
(All amounts are in millions of Slovak crowns)
Maturity of bonds is as follows: | 2002 | 2001
2002 | - | 385
2003 | 282 | 352
| 282 | 737
In 2001, the Group classified all investments as non-current assets. In 2002, investments with maturity of less than one year were classified as current assets.
| 2002 | 2001
Weighted average of interest earned | 10,02% | 9,39%
4 Inventories
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Cable | 74 | 83
Engineering | 285 | 283
Other | 50 | 30
| 409 | 396
The inventory items are shown after slow-moving provision of Sk 165 million (2001: Sk 214 million). 5 Assets held for sale
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Property - real estate (Note 1) | 371 | -
Related equipment (Note 1) | 48 | -
| 419 | -
As a consequence of the restructuring of the Group (Note 12) certain items of property are no longer required for the purposes for which they were originally purchased. The assets held for sale are carried at their recoverable amount. 6 Receivables and prepayments
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Domestic trade receivables | 2,403 | 1,823
Foreign trade receivables | 323 | 1,089
Amounts due from related parties (Note 21) | 155 | 369
Other receivables | 406 | 298
Prepayments | 48 | 69
| 3,335 | 3,648
All receivables fall due within one year. Trade receivable are shown after a provision for impairment of Sk 757 million (2001: Sk 1,074 million). Foreign trade receivables and amounts due from related parties at 31 December 2002 include amounts due from international operators providing carrier services after set-offs with accounts payable to the same operator, in the amount of Sk 355 million and Sk 150 million respectively. The amounts at 31 December 2001 are shown gross. The offsetting would require adjustment of Sk 601 million and Sk 178 million respectively. (Note 11) 7 Cash and cash equivalents
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Cash | 11,459 | 12,512
Cash equivalents | 1,252 | -
| 12,711 | 12,512
The cash balance of the Group at 31 December 2002 includes Sk 11,179 million (2001: Sk 12,199 million) held in interest-bearing deposits on terms of less than three months. The cash equivalents contain a short-term security on terms of less than three months. There was no cash balance with restricted use as at 31 December 2002 and 2001. 8 Capital and reserves On 1 April 1999 the legal form of the Company was changed from a state company to a joint stock company. Following the corporatisation, the share capital of the Company consisted of 20,717,920 ordinary shares authorised, issued and fully paid at par value of Sk 1,000 per share. Pursuant to privatisation agreement effective 4 August 2000 the Company issued 5,309,580 new ordinary shares with par value of Sk 1,000 per share. The shares were issued at premium totalling Sk 11,632 million. All newly issued shares were subscribed and fully paid by Deutsche Telekom AG. The privatisation transaction also involved a purchase by Deutsche Telekom AG of 7,964,445 existing ordinary shares from the Slovak Government. The combined effect of the transaction was an acquisition of 51% of Slovenské telekomunikácie, a.s. by Deutsche Telekom AG. As of 31 December 2002 the Group had authorised 26,027,500 ordinary shares (2001: 26,027,500) with a par value of Sk 1,000 per share. All issued shares were fully paid. The legal reserve is set up in accordance with Slovak law and is not distributable. The reserve is created from retained earnings to cover possible future losses. In 2002, the Group transferred 5% of prior year statutory profit to the reserve fund. On 3 July 2002 a dividend in respect of 2001 of Sk 1,708 million was approved by General meeting. No dividends were declared in respect of 2002. 9 Interest bearing borrowings
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
International Financial Institution loans | 6,082 | 6,663
Finance lease obligations | 33 | 66
Total interest bearing borrowings | 6,115 | 6,729
Less Current portion of interest bearing borrowings | (793) | (259)
Long term portion of interest bearing borrowings | 5,322 | 6,470
Repayments of the long term portion of interest bearing borrowings fall due as follows:
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Between one and two years | 683 | 781
Between two and five years | 2,821 | 2,223
After five years | 1,818 | 3,466
| 5,322 | 6,470
Loans from the World Bank and the European Investment Bank (together the "IFI's"), are subject to restrictive covenants which require the Group to achieve minimum ratios in respect of financial leverage, interest cover and debt service based on the IAS consolidated financial statements. The IFI facilities are guaranteed by the Slovak Government and Syndicated Bank Guarantee. At 18 September 2002 the Group signed a new Syndicated Bank Guarantee for an amount of EUR 93 million which expires in September 2007. As of 31 December 2002 and 2001, there are no assets pledged as collateral for borrowings. At 31 December 2002, the Group has total undrawn loan facilities available of Sk 200 million (2001: Sk 502 million). The facility is available for the period till 31 December 2003. The carrying amount and fair value of interest bearing borrowings are as follows:
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Carrying amount | 6,115 | 6,729
Fair value | 6,387 | 6,906
Interest bearing borrowings can be analysed by currency as follows, after taking into account the impact of the cross currency interest rate swaps outstanding at 31 December 2002:
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Euro and EU member currencies | 5,225 | 4,882
Slovak crowns | 890 | 1,847
| 6,115 | 6,729
The Group is exposed to foreign exchange risk related to foreign currency debt and foreign exchange payments. Further, the Group's major financial market risk exposure is interest rate fluctuations. This is due to changing interest rates in the U.S. and Western Europe affecting the fair value of fixed rate debt. To control interest rate and foreign exchange risk, a combination of fixed and floating rate debt is used within the foreign currency portfolio and interest rate and currency derivative instruments are used (Note 20). Interest bearing borrowings can be analysed into fixed rate and variable rate debt as follows, after taking into account the impact of the cross currency interest rate swaps and interest rate swaps outstanding at 31 December 2002:
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Fixed | 5,383 | 5,962
Floating | 732 | 767
| 6,115 | 6,729
The average effective borrowings cost (total interest payable and other charges for Group's loans and borrowings) for the year ended 31 December 2002 were 5.2% (2001: 6.4%). 10 Deferred tax The movement on the deferred income tax account is as follows:
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
At beginning of year | 4,413 | 5,188
Effect of applying IAS 39 at 1 January 2001 | - | (45)
Capitalised loan to EuroTel | - | (39)
Impact of change in the tax rate from 29% to 25% (Note 17) | - | (706)
Charge to income for the year | (74) | 15
At end of year | 4,339 | 4,413
Deferred income tax (assets) / liabilities and the deferred tax charge in the income statement are attributable to the following items:
(All amounts are in millions of Slovak crowns)
| 31 December 2001 | Credited/charged to income | 31 December 2002
Accelerated tax depreciation | 4,736 | (86) | 4,650
Unrealised foreign exchange gains/losses | (202) | 47 | (155)
Bad debt provision | - | (59) | (59)
Restructuring (Note 12) | (57) | (12) | (69)
Fair value of swaps (Note 20) | (14) | 7 | (7)
Onerous contract (Note 12) | (54) | 54 | -
Leasing | 11 | (9) | 2
Unpaid cash-based services | (7) | (13) | (20)
Retirement obligation | - | (3) | (3)
Net deferred tax (asset) liability | 4,413 | (74) | 4,339
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Deferred tax assets to be recovered after more than one year | (119) | (214)
Deferred tax liabilities to be settled after more than one year | 4,333 | 4,656
| 4,214 | 4,442
11 Trade and other payables
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Amounts due within one year |  |
Domestic trade payables | 2,867 | 2,201
Foreign trade payables | 229 | 715
Amounts due to employees | 270 | 403
Payables to related parties (Note 21) | 66 | 326
Accruals and other payables | 751 | 658
Fair value of swaps (Note 20) | 60 | 173
| 4,243 | 4,476
Foreign trade payables and payables to related parties include amounts due from international operators providing carrier services. (Note 6) 12 Provisions
(All amounts are in millions of Slovak crowns)
| Onerous contract | Restructuring | Legal claims | 2002 Total | 2001Total
Opening carrying amount | 213 | 238 | - | 451 | 320
Additional provisions (Note 14) | - | 317 | 50 | 367 | 556
Unused amount reversed | (203) | - | - | (203) |
Amount used | (10) | (281) | - | (291) | (425)
Closing carrying amount | - | 274 | 50 | 324 | 451
Non -current liabilities | - | - | 50 | 50 | 99
Current liabilities | - | 274 | - | 274 | 352
| - | 274 | 50 | 324 | 451
The Group has signed a business contract for rent of satellite transponders. Provision was created in 2001 to cover the unavoidable costs of meeting the obligation under the contract in excess of the expected benefits. During 2002 the Group has concluded new business contracts generating additional revenue in the following years. The provision was reversed accordingly. The restructuring of the Group's operations will result in the loss of 1,450 jobs in 2003. An agreement has been reached with the local union representatives based on a detailed formal plan that specifies the number of staff involved, location and function. The amount payable to staff to be made redundant was calculated using the method agreed with trade unions. The full amount of these costs to be incurred has been recognised in the current period. The termination benefits are expected to be paid within 12 months from 31 December 2002. The amounts shown include a provision in respect of certain legal claims brought against the Group. In the opinion of directors, after taking appropriate legal advice, the outcome of these legal claims will not result in any significant loss beyond the amounts provided at 31 December 2002. 13 Revenue
(All amounts are in millions of Slovak crowns)
Reporting by product cluster | 2002 | 2001
Traffic charges | 9,108 | 10,209
Access fees | 3,729 | 3,450
Voice total | 12,837 | 13,659
Value added services | 555 | 660
Data services | 1,637 | 1,522
Terminal equipment | 276 | 351
Fixed network total | 15,305 | 16,192
Carrier Services | 2,321 | 2,693
Online | 132 | 72
Broadcasting | 810 | 832
Other | 272 | 321
| 18,840 | 20,110
Other revenue includes revenue from construction and rental activities and other telecom related services. Revenues for the year ended 31 December 2002 include Sk 862 million of revenues from the joint-venture company (2001: Sk 756 million). Revenue from carrier services in 2002 includes Sk 325 million from other related parties (2001: Sk 524 million). 14 Operating costs
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Staff costs | 3,385 | 4,000
Material and equipment | 1,008 | 1,395
Depreciation (Note 1) | 5,508 | 5,457
Network operators | 3,167 | 3,644
Energy costs | 348 | 344
Repairs and maintenance | 421 | 388
Legal and consulting fees | 277 | 339
Value added services | 122 | 98
Foreign exchange differences (net) | (23) | (7)
Restructuring costs (Note 12) | 317 | 343
Provision for onerous contract (Note 12) | (203) | 213
Provision for bad and doubtful debts and write offs | (193) | 130
Marketing | 328 | 284
Postal expenses | 199 | 191
Other costs | 1,309 | 1,415
| 15,970 | 18,234
Own work capitalised | (932) | (2,198)
| 15,038 | 16,036
Costs for network operators services include Sk 933 million (2001: Sk 1,108 million) of costs incurred to the joint- venture and costs to international network operators of Sk 261 million incurred to other related parties (2001: Sk 397 million). Staff costs include Sk 444 million (2001: Sk 542 million) of contributions to social security scheme and Sk 3 million (2001: Sk 5 million) of remuneration of directors. Own work capitalised comprises direct material and equipment costs, labour and overheads that are attributable to the construction of fixed assets. 15 Discontinued operation In May 2002 the Group sold its share in subsidiary Telemont Slovensko, s.r.o. Subsequently, on 1 June 2002 the Group sold the construction activity to Telemont Slovensko, s.r.o. The sales, results, cash flows and net assets of the construction activity were as follows:
(All amounts are in millions of Slovak crowns)
| 5 months 2002 | 12 months 2001
Sales | 35 | 83
Operating costs | (41) | (120)
Operating (loss)/profit | (6) | (37)
Finance costs | - | -
(Loss)/profit before tax | (6) | (37)
Tax | - | -
(Loss)/profit after tax | (6) | (37)
Operating cash flows | 88 | 59
Investing cash flows | - | (4)
Financing cash flows | - | -
Total cash flows | 88 | 55
(All amounts are in millions of Slovak crowns)
| At 1 June 2002 | At 31 Dec 2001
Property, plant and equipment (Note 1) | 121 | 134
Current assets | 5 | 138
Total assets | 126 | 272
Total liabilities | (2) | (60)
Net assets | 124 | 212
The loss/profit on disposal was determined as follows:
(All amounts are in millions of Slovak crowns)
Net assets sold | 124 |
Proceeds from sale | 139 |
Profit (Loss) on disposal | 15 |
The net cash inflow on sale is determined as follows:
(All amounts are in millions of Slovak crowns)
Proceeds from sale | 139 |
Less: cash and cash equivalents in activity sold | - |
Net cash inflow on sale | 139 |
16 Financial income - net
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Interest expense |  |
International Financial Institutions loans | (307) | (379)
Foreign supplier loans | - | (16)
Interest payable arising on interest rate swaps | (120) | (287)
Finance leases | (7) | (16)
Commitment fees and other financial expense | (95) | (56)
Net foreign exchange gains (losses) | 382 | 25
Total interest payable and other charges | (147) | (729)
Borrowing costs capitalised | - | 2
Borrowing expense total | (147) | (727)
Change in Fair-value and settlement impact of swaps (Note 20) | (183) | 245
Interest income on short term deposits | 644 | 676
Interest income from debt securities held (Note 18) | 73 | 67
Net foreign exchange gains (losses) | (180) | (97)
Net financial income (expense) | 207 | 164
17 Taxation
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Current tax charge | 983 | 1,164
Deferred tax (income) charge (Note 10) | (74) | (691)
Share of income tax of joint venture (Note 2) | 4 | 5
Share of deferred tax of joint venture (Note 2) | 105 | 99
| 1,018 | 577
A reconciliation between the reported income tax expense and the theoretical amount that would arise using the standard tax rates is as follows:
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Net profit before tax | 4,486 | 4,499
Income tax calculated at 25% (2001; 29%) | 1,121 | 1,305
Change in tax rate - deferred tax effect (Note 10) | - | (706)
Effect of income not taxable | (160) | (269)
Effect of expenses not deductible for tax purposes | 109 | 253
Over-provision in respect of previous years | (52) | (6)
| 1,018 | 577
On 4 December 2001 a new Slovak Corporation tax rate of 25% (previously 29%) was enacted effective from 1 January 2002. 18 Net cash flows from operating activities
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Net profit | 3,468 | 3,922
Adjustments for: |  |
Income tax | 1,018 | 577
Depreciation (Note 1,14) | 5,508 | 5,457
Investment income (Note 16) | (73) | (67)
Interest (income) expense net | 69 | (173)
Share of results of associates and joint ventures (Note 2) | (408) | (261)
(Profit)/loss on disposals on fixed assets | (73) | 35
(Profit)/loss on disposal of discontinued operation (Note 15) | (15) | -
Net foreign exchange (gains) losses | (351) | 72
Provision charge (Note 12) | (127) | 131
Operating profit before working capital changes | 9,016 | 9,693
Decrease/(increase) in trade and other receivables | 302 | (278)
(Increase)/decrease in inventories | (15) | 34
(Decrease)/increase in trade and other payables | (1,846) | 350
Cash generated from operations | 7,457 | 9,799
Income taxes (paid)/ received | (2,207) | 1078
Net cash flows from operating activities | 5,250 | 10,877
19 Commitments Capital commitments The Group had the following capital commitments at 31 December:
(All amounts are in millions of Slovak crowns)
| 2002 | 2001
Capital expenditure that has been contracted for but has not been provided for in the consolidated financial statements | 1,109 | 959
The commitments under contractual arrangements principally relate to the telecommunications network, with the majority of payments due within one year. The shared joint venture commitments are shown in Note 2. 20 Financial instruments Movements in derivatives during the year ended 31 December 2002.
(All amounts are in millions of Slovak crowns)
| Cross currency swap | Interest rate swap | Total
At 1 January 2002 |  |  |
Fair value | 221 | (5) | 216
Deferred income tax (Note 10) | (32) | 18 | (14)
| 189 | 13 | 202
Movements during the year: |  |  |
Settlement of swaps (Note 16) | (215) | 18 | (107)
Change in fair value (Note 16) | 303 | (13) | 290
Deferred income tax (Note 10) | 25 | (18) | 7
Net balance at 31 December 2002 | 392 | - | 392
Non current liabilities | 339 | - | 339
Current liabilities (Note 11) | 60 | - | 60
Deferred income tax (Note 10) | (7) | - | (7)
Net balance at 31 December 2002 | 392 | - | 392
Upon the adoption of IAS 39 the Group recognised the above derivatives as not qualified for hedge accounting and measured them at fair value. Interest rate swaps The Group has entered into interest rate swap contracts that entitle it to receive interest at fixed rate on notional principal amounts and oblige it to pay interest at floating rates on the same amount which equals the outstanding balance of interest bearing borrowing. Interest rate swaps matured in 2002. Cross currency swaps The Group has entered into cross currency interest rate swap contracts to manage the exposure of the combined effect of fluctuation in foreign currency exchange rates and fluctuation in interest rates on specific transactions: repayments of both foreign currency borrowings and interest charge. At 31 December 2002 the outstanding principal amounts payable by the Group under cross currency interest rate swaps were Sk 857 million and EUR 42 million. The Group expects to receive the income at variable interest rates and to pay an expense at fixed and variable interest rates. At 31 December 2002 the interest rates receivable vary from 1.49% to 2.804% and interest rates payable vary from 3.014% to 9.15%. Cross currency interest rate swaps mature in 2003 and 2010. 21 Related party transactions The Group provides services to State departments and related businesses, in general, on normal commercial terms. The Group receives revenues from and pays expenses to its joint venture EuroTel and to its parent company Deutsche Telekom AG and its subsidiaries, associates and joint ventures, for calls which access each others network and other services. These revenues and costs are based on contractual agreements negotiated on normal commercial terms.
(All amounts are in millions of Slovak crowns)
| Receivables | Payables | Revenues | Expenses
| 2002 | 2001 | 2002 | 2001 | 2002 | 2001 | 2002 | 2001
EuroTel | 65 | 66 | 55 | 68 | 862 | 756 | 948 | 1,108
Deutsche Telecom | 83 | 258 | 2 | 222 | 243 | 363 | 429 | 436
Other | 7 | 45 | 9 | 36 | 82 | 161 | 167 | 106
Directors | - | - | - | - | - | - | 3 | 5
Total | 155 | 369 | 66 | 326 | 1,187 | 1,280 | 1,547 | 1,655
Other includes Deutsche Telecom's subsidiaries, associates and joint ventures. 22 Contingencies The Group is in legal proceedings in the normal course of business and regulatory proceedings initiated by the Anti-Monopoly office of the Slovak Republic regarding the dominant position of Slovenské telekomunikácie, a.s. on the telecommunications market. Management is confident that the Group will suffer no material loss as a result of such proceedings and therefore no provision was made in respect of these disputes in excess of the provision already recorded in the consolidated financial statements (Note 12). The Group's joint venture EuroTel is in legal proceedings in the normal course of business including one administrative proceedings initiated by the Anti-Monopoly Office of the Slovak Republic based on a petition of a Voice over IP technology operator alleging breach of antimonopoly law. The outcome of the proceedings is subject to a certain degree of uncertainty due to the anti-monopoly law in Slovakia being in early stage of development and subject to varying interpretations. Management does not believe that the outcome will have a material adverse effect on EuroTel's financial conditions, results of operations or cash flows. 23 Post balance sheet events Changes in top management Mr. Miroslav Majoro became the new Chief Executive Officer of Slovenské telekomunikácie, a.s. at 1 January 2003. He was appointed to the position by Board of Directors at the meeting held on 9 December 2002. Liberalisation At 1 January 2003 the voice service monopoly position of Slovenské telekomunikácie, a.s. in the public fixed telecommunications network ended on the basis of the Telecommunication Act No. 195/2000 Coll. At 2 January 2003 the Group has submitted the interconnection prices proposal and the Reference Interconnection Offer to the Telecommunications Office of the Slovak Republic. The Reference Interconnection Offer represents the basis for negotiations on interconnection with new operators that have been granted a licence for provisioning of public telephone service after 1 January 2003. The end of the monopoly position of Slovenské telekomunikácie, a.s. caused new responsibilities for the Group. One such responsibility is to provide the access customers with the possibility to choose their conveyance carrier either by the means of the carrier pre-selection or by the means of the call-by-call selection. Slovenské telekomunikácie, a.s. continues to provide the Universal telecommunications service, i.e. a minimum set of services, which are available at a specified quality to all users in the whole territory of the country at an affordable price. The price regulation continues to be based on the price basket. The Group was defined as the operator with the significant influence on the voice service and the leased line market. Change of VAT rate The value added tax rate applicable for telecommunications services has changed from 23% to 20% according to VAT Act No. 289/1995 Coll. and Act No. 637/2002 Coll. effective from 1 January 2003. Introduction of the new technology At 22 January 2003, Slovenské telekomunikácie, a.s., started testing of ADSL (Asymetric Digital Subscriber Line) technology with certain Internet service providers. |