Notes to the Consolidated Financial Statements

1. Corporate information

			Share capital owned by the Group
Entity	Location	Scope of activities	31 December 2009	31 December 2008
PTK-Centertel Sp. z o.o.	Warsaw, Poland	Mobile telephony services, construction and operation of mobile telecommunications networks.	100.00%	100.00%
TP EmiTel Sp. z o.o.	Kraków, Poland	TV and radio signals broadcasting, construction, lease and maintenance of technical infrastructure	100.00%	100.00%
OPCO Sp. z o.o.	Warsaw, Poland	Facilities management and maintenance.	100.00%	100.00%
Otwarty Rynek Elektroniczny S.A.	Warsaw, Poland	Provision of complex procurement solutions, including advisory, implementation and operation of e-commerce platform and IT systems, hosting.	100.00%	100.00%
TP Edukacja i Wypoczynek Sp. z o.o.	Warsaw, Poland	Hotel services, training and conference facilities.	100.00%	100.00%
TP MED Sp. z o.o. (1)	Warsaw, Poland	Medical and health care services.	–	100.00%
TP Invest Sp. z o.o. ("TP Invest")	Warsaw, Poland	Services for Group entities, holding management.	100.00%	100.00%
–Telefon 2000 Sp. z o.o.	Warsaw, Poland	No operational activity.	100.00%	100.00%
–TP TelTech Sp. z o.o.	Łódź, Poland	Monitoring of alarm signals, servicing telecommunications networks, design and development of telecommunications systems.	100.00%	100.00%
–Telefony Podlaskie S.A.	Sokolów Podlaski, Poland	Local provider of fixed-line, internet and cable TV services.	55.11%	55.11%
Contact Center Sp. z o.o. (2)	Warsaw, Poland	Call-center services and telemarketing.	100.00%	100.00%
–Virgo Sp. z o.o.	Warsaw, Poland	Advisory services, financial operations.	100.00%	100.00%
Pracownicze Towarzystwo Emerytalne Telekomunikacji Polskiej S.A.	Warsaw, Poland	Management of employee pension fund.	100.00%	100.00%
Fundacja Orange (3)	Warsaw, Poland	Charity foundation.	100.00%	100.00%
Wirtualna Polska S.A. ("WP")	Gdańsk, Poland	Internet portal and related services including internet advertising.	100.00%	100.00%
TPSA Finance B.V.	Amsterdam, The Netherlands	Financial and investment operations.	100.00%	100.00%
–TPSA Eurofinance B.V.	Amsterdam, The Netherlands	Financial and investment operations.	100.00%	100.00%
–TPSA Eurofinance France S.A.	Paris, France	Financial and investment operations.	99.99%	99.96%
PayTel S.A. (1)	Warsaw, Poland	E-commerce and electronic services, including GSM prepaid services, bill charging and processing of electronic financial transactions.	100.00%	–
–PayTel Sp. z o.o. (4)	Warsaw, Poland	As at 31 December 2009 the entity no longer exists.	–	100.00%
Ramsat S.A.(1)	Modlnica, Poland	Distributor of PTK Centertel and TP S.A. products on mass and business market.	100.00%	–
–Prado Sp. z o.o. (5)	Kraków, Poland	Distributor of PTK Centertel and TP S.A. products on business market.	100.00%	–

• (1) see Note 5.
• (2)in May 2009 the previous name of TP Internet was changed to Contact Center.
• (3)in April 2009 the previous name of Fundacja Grupy TP was changed to Fundacja Orange.
• (4)in December 2009 the entity merged with PayTel S.A.
• (5)in January 2010 the entity merged with Ramsat S.A.

In the 12 months ended 31 December 2009 and 2008, the voting power held by the Group was equal to the Group's interest in the share capital of all of its subsidiaries. Significant acquisitions or divestitures are described in Note 5.

The Group owns shareholdings in the following associates:

As at 31 December 2009 and 2008, TP Invest held a 25% interest in Telefony Opalenickie S.A., a local fixed line telecommunications operator.

As at 31 December 2009 and 2008, WP held a 20% interest in Polskie Badania Internetu Sp. z o.o. which conducts studies on Internet use in Poland.

As at 31 December 2009 and 2008, PTK Centertel held a 25% interest in Mobile TV Sp. z o.o.

The investments in those associates are accounted for using the equity method.

1.3. The Management Board of the Company

The Management Board of the Company at the date of the preparation of these Consolidated Financial Statements was as follows:

Maciej Witucki – President of the Management Board, Chief Executive Officer,
Vincent Lobry – Vice President in charge of Marketing and Strategy,
Piotr Muszyński – Vice President in charge of Operations,
Roland Dubois – Board Member, Chief Financial Officer

The Supervisory Board of the Company at the date of the preparation of these Consolidated Financial Statements was as follows:

Prof. Andrzej K. Koźmiński – Chairman of the Supervisory Board, Independent Member of the Supervisory Board
Olivier Barberot – Deputy Chairman of the Supervisory Board
Olivier Faure – Secretary of the Supervisory Board
Antonio Anguita – Member of the Supervisory Board
Vivek Badrinath – Member of the Supervisory Board
Timothy Boatman – Independent Member of the Supervisory Board
Jacques Champeaux – Member of the Supervisory Board
Ronald Freeman – Independent Member of the Supervisory Board
Dr. Mirosław Gronicki – Independent Member of the Supervisory Board
Marie-Christine Lambert – Member of the Supervisory Board
Prof. Jerzy Rajski – Independent Member of the Supervisory Board
Raoul Roverato – Member of the Supervisory Board
Prof. Jerzy Rajski – Independent member of the Supervisory Board
Dr. Wiesław Rozłucki – Independent member of the Supervisory Board

The following changes occurred in the Management Board of the Company in the year ended 31 December 2009:

On 26 March 2009, the Supervisory Board of TP S.A. reappointed Mr Maciej Witucki as the President of the Management Board of TP S.A. and appointed Mr Mariusz Gaca as a Member of the Management Board of TP S.A.

On 6 August 2009, Mr Ireneusz Piecuch resigned from the Management Board of TP S.A.

On 15 September 2009:

• the Supervisory Board of TP S.A. appointed Mr Vincent Lobry as a Vice President of the Management Board of TP S.A. in charge of Marketing and Strategy,
• the Supervisory Board of TP S.A. appointed Mr Piotr Muszyński, a Member of the Management Board of TP S.A. in charge of Operations, as a Vice President of the Management Board of TP S.A.,
• Mr Mariusz Gaca resigned from the Management Board of TP S.A. and was appointed as the President of the Management Board of PTK Centertel Sp. z o.o.,
• Mr Richard Shearer resigned from the Management Board of TP S.A.

Mr Jacek Kałłaur resigned from the Management Board of TP S.A. and his mandate expired on 4 November 2009.

The following changes occurred in the Supervisory Board of the Company in the year ended 31 December 2009:

On 16 January 2009, the Extraordinary General Meeting appointed Mr Olivier Faure to the Supervisory Board of TP S.A. Mr Olivier Faure had been co-opted by the Supervisory Board of TP S.A. on 25 September 2008.

On 23 April 2009, the Annual General Meeting appointed Mrs Marie-Christine Lambert and Mr Raoul Roverato to the Supervisory Board of TP S.A. and renewed the mandates of the following Members, whose term of office expired as of the day of this General Meeting: Mr Andrzej K. Koźmiński, Mr Olivier Barberot, Mr Vivek Badrinath, Mr Jerzy Rajski and Mr Wiesław Rozłucki. On the same day the term of office expired for the following Members of the Supervisory Board of TP S.A.: Mrs Stephane Pallez and Mr Georges Penalver.

2. Statement of compliance and basis for preparation

These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") adopted for use by the European Union. IFRSs comprise standards and interpretations approved by the International Accounting Standards Board ("IASB") and the International Financial Reporting Interpretations Committee ("IFRIC").

Comparative amounts for the year ended 31 December 2008 have been compiled using the same basis of preparation.

The Consolidated Financial Statements have been prepared under the historical cost convention, except for the fair value applied to derivative financial instruments, financial assets available for sale, assets held for sale and debt that is hedged against exposure to changes in fair value.

The financial data of all entities constituting the Group included in these Consolidated Financial Statements were prepared using uniform group accounting policies.

These Consolidated Financial Statements are prepared in millions of Polish złoty ("PLN") and were authorised for issuance by the Management Board on 22 February 2010.

The principles applied to prepare financial data relating to the year ended 31 December 2009 are described in Note 3 and are based on:

• all standards and interpretations endorsed by the European Union and applicable to the reporting period beginning 1 January 2009;
• IFRSs and related interpretations adopted for use by the European Union whose application will be compulsory for periods beginning after 1 January 2009 but for which the Group has opted for earlier application;
• accounting positions adopted by the Group in accordance with paragraphs 10 to 12 of IAS 8.

Use of estimates

In preparing the Group's accounts, the Company's management is required to make estimates, insofar as many elements included in the financial statements cannot be measured with precision. Management reviews these estimates if the circumstances on which they were based evolve, or in the light of new information or experience. Consequently, estimates made as at 31 December 2009 may be subsequently changed. The main estimates made are described in the following notes:

	Note	Type of information disclosed
3.5.11, 10	Impairment of cash generating units and individual tangible and intangible assets	Key assumptions used to determine recoverable amounts: impairment indicators, models, discount rates, growth rates.
3.5.12, 17.2	Impairment of loans and receivables	Methodology used to determine recoverable amounts.
3.5.14, 12	Income tax	Assumptions used for recognition of deferred tax assets.
3.5.16, 26	Employee benefits	Discount rates, inflation, salary increases, expected average remaining working lives.
3.5.12, 25	Fair value of derivatives and other financial instruments	Model and assumptions underlying the measurement of fair values.
3.5.15, 28, 32	Provisions	Provisions for termination benefits and restructurings: discount rates and other assumptions. The assumptions underlying the measurement of provisions for claims and litigation.
3.5.8, 3.5.9	Useful lives of tangible and intangible assets	The useful lives and the amortisation method.
3.5.17, 27	Share-based payments	Model and key assumptions used to determine fair value of equity instruments granted: exercise price, historical volatility, risk-free interest rate, expected dividend yield, etc.
28	Dismantling costs	The assumptions underlying the measurement of provision for the estimated costs for dismantling and removing the asset and restoring the site on which it is located.
3.5.3, 6	Revenue	Allocation of revenue between each separable component of a packaged offer based on its relative fair value. Straight-line recognition of revenue relating to service access fees. Reporting revenue on a net versus gross basis (analysis of Group's involvement acting as principal versus agent).
3.5.13	Allowance for slow moving and obsolete inventories	Methodology used to determine net realisable value of inventories.

Use of judgements

Where a specific transaction is not dealt with in any standard or interpretation, management uses its judgement in developing and applying an accounting policy that results in information that is relevant and reliable, in that the financial statements:

• represent faithfully the Group's financial position, financial performance and cash flows,
• reflect the economic substance of transactions,
• are neutral,
• are prudent, and
• are complete in all material respects.

The main judgements made as at 31 December 2009 relate to provisions for claims and litigation and contingent liabilities.
Details are described in Note 32.

3. Significant accounting policies

This note describes the accounting principles applied to prepare the consolidated financial statements for the year ended 31 December 2009.

3.1. Application of new standards, amendments and interpretations

Adoption of standards, amendments to standards and interpretations which are compulsory as at January 1, 2009
The following standards or amendments to standards and interpretations (already endorsed or in the process of being endorsed by the European Union) have become effective and are compulsory as at January 1, 2009:

• IFRS 8 "Operating Segments",
• Revised IAS 23 "Borrowing Costs",
• Revised IAS 1 "Presentation of Financial Statements",
• Amendment to IFRS 2 "Share-based Payment – Vesting Conditions and Cancellations",
• Amendments to IFRS 7 "Financial Instruments: Disclosures" – improving disclosures about financial instruments,
• Amendments to IAS 32 "Financial Instrument: Presentation" and to IAS 1 "Presentation of Financial Statement – Puttable Financial Instruments and Obligations Arising on Liquidation",
• Improvements to International Financial Reporting Standards – a collection of amendments to IFRSs, the amendments are effective, in most cases, for annual periods beginning on or after 1 January 2009,
• Amendments to IFRS 1 "First-time Adoption of International Financial Reporting Standards" and IAS 27 "Consolidated and Separate Financial Statements – Cost of an Investment in Subsidiary, Jointly Controlled Entity or Associate",
• IFRIC 15 "Agreements for the Construction of Real Estate",
• IFRIC 16 "Hedges of a Net Investment in a Foreign Operation" applicable for financial years beginning on or after 1 October 2008,
• Amendments to IAS 39 "Financial Instruments: Recognition and Measurement" and IFRS 7 "Financial Instruments: Disclosures" – Reclassification of financial assets.

Except for revised IAS 1, IFRS 8 and revised IAS 23, the adoption of the standards and interpretations presented above did not result in any significant changes to the Group accounting policies and to presentation of the financial statements.

Adoption of revised IAS 1 and IFRS 8

Changes resulting from adoption of IAS 1 (as revised in 2007) and IFRS 8 are described in the subsequent section "Changes in presentation of the financial statements".

Adoption of revised IAS 23

Starting from 1 January 2009, borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset shall be capitalised as part of the cost of that asset. Until 2008 the Group followed the benchmark treatment suggested by IAS 23 and all borrowing costs were expensed as incurred. The Group has not acquired, constructed or produced assets that would necessarily take a substantial period of time to get ready for their intended use or sale during 2009. As a result the Group has not capitalised any borrowing costs in 2009.

Adoption of standards, amendments to standards and interpretations which are compulsory as at 1 July 2009

IFRIC 18 "Transfers of Assets from Customers" has become effective and compulsory for any transfer of assets from customers received on or after 1 July 2009. This interpretation has not been endorsed by the European Union. The adoption of this interpretation did not result in any significant changes to the Group accounting policies.

The adoption of the standards and interpretations described above did not result in any changes to the Group's comparative consolidated balance sheet. The Group did not restate or reclassify any items presented in the comparative consolidated balance sheet and reclassifications in the consolidated income statement were insignificant. As a result the Group does not present the consolidated balance sheet as at 1 January 2008.

Standards and interpretations issued but not yet adopted

Management has not opted for early application of the following standards and interpretations (already endorsed or in the process of being endorsed by the European Union):

• Revised IFRS 3 "Business Combinations" applicable for financial years beginning on or after 1 July 2009,
• Revised IAS 27 "Consolidated and Separate Financial Statements" applicable for financial years beginning on or after 1 July 2009,
• Amendments to IAS 39 "Financial Instruments: Eligible Hedged Items" applicable for financial years beginning on or after 1 July 2009,
• IFRIC 17 "Distribution of Non-cash Assets to Owners" applicable for financial years beginning on or after 1 July 2009,
• Improvements to International Financial Reporting Standards – a collection of amendments to IFRSs, the amendments are effective, in most cases, for annual periods beginning on or after 1 January 2010. These amendments have not been endorsed by the European Union,
• Amendments to IAS 32 "Financial Instruments: Presentation" applicable for financial years beginning on or after 1 February 2010,
• Revised IAS 24 "Related Party Disclosures" applicable for financial years beginning on or after 1 January 2011. These amendments have not been endorsed by the European Union,
• IFRS 9 "Financial Instruments" applicable as of 1 January 2013. This standard has not been endorsed by the European Union,
• IFRIC 19 "Extinguishing Financial Liabilities with Equity Instruments" applicable for financial years beginning on or after 1 July 2010. This interpretation has not been endorsed by the European Union,
• Amendments to IFRIC 14 "Prepayments of a Minimum Funding Requirement" applicable since 1 January 2011. These amendments have not been endorsed by the European Union.
• Amendments to IFRS 2 "Share-based Payment" – Group cash-settled share-based payment transactions, effective for annual periods beginning on or after 1 January 2010. These amendments have not been endorsed by the European Union.

Management is currently analyzing the practical consequences of these new standards and interpretations and the impact of their application on the financial statements.

3.2. Accounting positions adopted by the Group in accordance with paragraphs 10 to 12 of IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors"

The accounting position described below is not specifically (or is only partially) dealt with by any IFRS standards or interpretations endorsed by the European Union. The Group has adopted accounting policies which it believes best reflect the substance of the transactions concerned.

Multiple-elements arrangements

When accounting for multiple-elements arrangements (bundled offers) the Group has adopted the provisions of Generally Accepted Accounting Principles in the United States, Emerging Issue Task Force No. 00-21 "Accounting for revenue arrangements with multiple deliverables" (see Note 3.5.3 Separable components of packaged and bundled offers).

3.3. Options available under IFRSs and used by the Group

Certain IFRSs offer alternative methods of measuring and recognising assets and liabilities. In this respect, the Group has chosen:

	Standards and amendments	Option used
IAS 2	Inventories	Recognition of inventories at their original cost determined by the weighted average unit cost method.
IAS 16	Property, plant and equipment	Property, plant and equipment are measured at amortised historical cost less any accumulated impairment loss.
IAS 19	Employee benefits	Recognition of actuarial gains and losses on pensions and other post employment benefit obligations according to the corridor method. This method consists of recognising a specified portion of the net cumulative actuarial gains and losses that exceed 10% of the greater of (i) the present value of the defined benefit obligation; and (ii) the fair value of plan assets, over the average expected remaining working life of the employees participating in the plan.
IAS 20	Government grants and disclosure of government assistance	Government grants related to assets decrease the carrying government assistance amount of the assets. Government grants related to income are deducted from the related expenses.
IAS 38	Intangible assets	Intangible assets are measured at amortised historical cost less any accumulated impairment loss.

3.4. Presentation of the financial statements

Presentation of the balance sheet

In accordance with IAS 1 "Presentation of financial statements", assets and liabilities are presented in the balance sheet as current and non-current.

In accordance with IFRS 5, non-current assets and all directly attributable liabilities that are considered as being held for sale are reported on a separate line in the consolidated balance sheet.

Presentation of the income statement

As allowed by IAS 1 "Presentation of financial statements", expenses are presented by nature in the consolidated income statement.

Earnings per share

The net income per share for each period is calculated by dividing the net income for the period attributable to the equity holders of the Company by the weighted average number of shares outstanding during that period. The weighted average number of shares outstanding is after taking account of treasury shares (see Note 30) and the dilutive effect of the pre-emption rights attached to the bonds issued under TP S.A. incentive programme (see Note 27).

Changes in presentation of the financial statements

Adoption of revised IAS 1

As a result of the endorsement of IAS 1 (as revised in 2007) "Presentation of Financial Statements", the consolidated statement of changes in equity in these Consolidated Financial Statements presents only transactions between shareholders (owner changes), other components being included in a separate consolidated statement of comprehensive income.

Adoption of IFRS 8

IFRS 8 "Operating Segments" supersedes IAS 14 "Segment reporting". IFRS 8 requires the reporting of data relating to the Group operating segments based on the internal reporting used by the Chief Executive Officer in order to decide the allocation of resources and the assessment of the operating segments' performance. The amounts to be disclosed are reported internally to the Chief Executive Officer which may not be IFRS-based numbers. IAS 14 requires information on two levels: business segments based on the nature of the products and services and geographical segments.

For management purposes, the Group is organised into business units based on their products, and has two reportable operating segments as follows:

• Fixed line segment which includes entities offering predominantly telecom services based on fixed line technology, and
• Mobile segment which includes entities offering predominantly telecom services based on mobile technology.

Starting from 2009, the Group evaluates segments' performance on the basis of revenue, capital expenditures, EBITDA (Earnings before interest, tax, depreciation and amortisation) and EBIT (Earnings before interest and tax). Revenue is measured as in the consolidated financial statements. EBITDA, EBIT and capital expenditures are not measures of financial performance under IFRS. EBITDA corresponds to operating income before depreciation and amortisation expense and reversal of impairment/impairment of goodwill and other non-current assets. EBIT corresponds to operating income. Until the end of 2008, the Group evaluated segments' performance, among others, on the basis of GOM (Gross Operating Margin) which, similarly to EBITDA, EBIT and capital expenditures, was not defined under IFRS. GOM corresponded to operating income before employee profit-sharing, share-based payments, depreciation and amortisation expense, reversal of impairment/impairment of goodwill and other non-current assets, gains/ losses on disposal of assets and restructuring costs/reversal of restructuring provision.

Segment performance measures are disclosed in Note 4.

Intra Group sale transactions

In 2009, the Group changed its policy to present income from intra Group sale of goods or services that reflect either shared resources or an internal organisation of an administrative process. Starting from 2009, income generated in such transactions is presented as other operating income. Previously this income was presented as revenue. Comparative amounts for 2008 presented in Note 4 "Segment information" were reclassified accordingly.

Management believes that the current presentation better reflects the nature of transactions concluded. As a result of this reclassification, revenue presented in Note 4 represents sales from activities in the mainstream business that provide goods and services to an external client (being the ultimate customer or an operator).

Changes in presentation of items of operating income

In 2009, the Group changed the presentation of certain items of operating income on the face of the consolidated income statement. The changes comprise the order of the items, presentation of labour expenses in aggregate as one item (wages and employee benefit expenses, employee profit-sharing and share-based payments for the 12 months ended 31 December 2008 amounting to PLN 2,305 million, PLN 24 million and PLN 30 million, respectively). These changes have no impact on operating income or net income for the period.

Management believes that the current presentation better reflects the nature of transactions concluded.

3.5. Significant accounting policies

3.5.1. Consolidation rules

Subsidiaries that are controlled by Telekomunikacja Polska, directly or indirectly, are fully consolidated. Control is deemed to exist when the Group owns more than 50% of the voting rights of an entity, unless it can be clearly demonstrated that such ownership does not constitute control, or when one of the following four criteria is met:

• power over more than one half of the voting rights of the other entity by virtue of an agreement,
• power to govern the financial and operating policies of the other entity under a statute or agreement,
• power to appoint or remove the majority of the members of the management board or equivalent governing body of the other entity,
• power to cast the majority of votes at meetings of the management board or equivalent governing body of the other entity.

Subsidiaries are consolidated from the date on which control is obtained by the Company and cease to be consolidated from the date on which the Company loses control over the subsidiary.

Intercompany transactions and balances are eliminated on consolidation.

3.5.2. Effect of changes in foreign exchange rates

Translation of financial statements of foreign subsidiaries

The financial statements of foreign subsidiaries whose functional currency is not the Polish złoty are translated into the Group presentation currency as follows:

• assets and liabilities are translated at the National Bank of Poland ("NBP") period-end exchange rate,
• items in the income statement are translated at the NBP average rate for the reporting period,
• the translation adjustment resulting from the use of these different rates is included as a separate component of shareholders' equity.

Transactions in foreign currencies

The principles covering the measurement and recognition of transactions in foreign currencies are set out in IAS 21 "The Effects of Changes in Foreign Exchange Rates". Transactions in foreign currencies are converted by the entities constituting the Group into their functional currency at the spot exchange rate prevailing as at the transaction date. Monetary assets and liabilities which are denominated in foreign currencies are remeasured at each balance sheet date at the period-end exchange rate quoted by NBP and the resulting translation differences are recorded in the income statement:

• in other operating income and expense for commercial transactions,
• in financial income or finance costs for financial transactions.

Derivative instruments are measured and recognised in accordance with the general principles described in Note 3.5.12.

Currency hedges that qualify for hedge accounting are recognised in the balance sheet at fair value at each period-end. Gains and losses arising from remeasurement to fair value are recognised:

• in other operating income and expense for fair value hedges of commercial transactions;
• in financial income or finance costs for hedges of financial assets and liabilities;
• in other comprehensive income for the effective portion of the net gain or loss on cash flow hedges.

Gains and losses arising from remeasurement to fair value of currency derivative instruments that economically hedge commercial or financial transactions and do not qualify for hedge accounting are recognised as other operating income / cost or financial income / expense depending on the nature of the underlying transaction. Gains and losses arising from remeasurement to fair value of other currency derivative instruments are recognised as financial income or finance cost.

3.5.3. Revenue

Revenue from the Group's activities is recognised and presented in accordance with IAS 18 "Revenue". Revenue comprises the fair value of the consideration received or receivable for the sale of services and goods in the ordinary course of the Group's activities. Revenue is recorded net of value-added tax and discounts.

Separable components of packaged and bundled offers

Sales of packaged mobile and Internet offers are considered as comprising identifiable and separate components to which general revenue recognition criteria can be applied separately. Numerous service offers on the Group's main markets are made up of two components, a product (e.g. mobile handset / internet modem) and a service. Once the separate components have been identified, the amount received or receivable from the customer is allocated based on each component's fair value. The sum allocated to delivered items is limited to the amount that is not dependent on the delivery of other items. For example, the sum allocated to delivered equipment generally corresponds to the price paid by the end-customer for that equipment and the balance of the amount received or receivable is contingent upon the future delivery of the service.

Offers that cannot be analyzed between separately identifiable components, because the commercial effect cannot be understood without reference to the series of transactions as a whole, are treated as bundled offers. Revenue from bundled offers is recognised in full over the life of the contract. The main example is connection fee: this does not represent a separately identifiable transaction from the subscription and communications, and connection fees are therefore recognised over the average expected life of the contractual relationship.

Equipment sales

Revenue from equipment sales is recognised when the significant risks and rewards of ownership are transferred to the buyer (see also paragraph "Separable components of packaged and bundled offers").

For mobile and broadband services, when equipment is sold through a distributor considered as an agent, handsets or modems/laptops and telecommunications services are a single bundled offering with multiple deliverables, and the handset or modem/laptop revenue from the sale is recognised when a subscriber is connected to the network.

Equipment leases

Equipment lease revenue is recognised on a straight-line basis over the life of the lease agreement, except in the case of finance leases which are accounted for as sales on credit.

Revenues from the sale or supply of content

The accounting for revenue from the sale or supply of content (audio, video, games, etc.) depends on the analysis of the facts and circumstances surrounding these transactions. To determine if the revenue must be recognised on a gross or a net basis, an analysis is performed using the following criteria:

• the Group has the primary responsibility for providing services desired by the customer;
• the Group has inventory risk (the Group purchases content in advance);
• the Group has discretion in establishing prices directly or indirectly, such as by providing additional services;
• the Group has credit risk.

Revenues from the sale or supply of content via the Group's various communications systems (mobile, TV, fixed line, etc.) are recognised:

• gross when the Group is deemed to be the primary obligor in the transaction with respect to the end-customer (i.e. when the customer has no specific recourse against the content provider), when the Group bears the inventory risk, when the Group has a reasonable latitude in setting prices charged to the end-customer, when the Group has credit risk and
• net of amounts due to the content provider when the latter is responsible for supplying the content to the end-customer and for setting the price to subscribers.

Service revenue

Telephone service and Internet access subscription fees are recognised in revenue on a straight-line basis over the service period.

Charges for incoming and outgoing telephone calls are recognised in revenue when the service is rendered.

Revenue from the sale of phone cards in fixed and mobile telephony systems is recognised when they are used or expire.

Revenue from Internet advertising and from the sale of advertising space in online telephone directories is recognised over the period during which the advertisement appears. Revenue from the sale of advertising space in printed telephone directories is recognised when the directory is distributed.

Promotional offers

For certain commercial offers where customers do not pay for service over a certain period in exchange for signing up for a fixed period (time-based incentives), the total revenue generated under the contract is spread over the fixed, non cancellable period.

Loyalty programs

Loyalty programs consist of granting future benefits to customers (such as call credit and product discounts) in exchange for present and past use of the service or purchase of goods.

Points awarded to customers are treated as a separable component to be delivered out of the transaction that triggered the acquisition of the points. Part of the invoiced revenue is allocated to these points based on their fair value taking into account an estimated utilisation rate, and deferred. If the Group supplies the awards itself, revenue allocated to the points is recognised in the income statement when points are redeemed and the Group fulfils its obligations to supply awards. The amount of revenue recognised is based on the number of award credits that have been redeemed in exchange for awards, relative to the total number expected to be redeemed. When a third party supplies the awards and the Group is collecting the consideration on behalf of a third party, revenue is measured as a net amount retained on the Group's own account and is recognised when the third party becomes obliged to supply the awards and is entitled to receive consideration for doing so.

Loyalty programs that exist in the Group are without a contract renewal obligation.

Discounts for poor quality of services or for breaks in service rendering

The Group's commercial contracts may contain service level commitments (delivery time, service reinstatement time). If the Group fails to comply with these commitments, it is obliged to grant the discount to the end-customer. Such discounts reduce revenue. Discounts are recorded when it becomes probable that they will be due based on the non-achievement of contractual terms.

Barter transactions

When goods or services are exchanged for goods or services which are of a similar nature and value, the exchange is not regarded as a transaction which generates revenue. When goods are sold or services are rendered in exchange for dissimilar goods or services, the revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred. When the fair value of the goods or services received cannot be measured reliably, the revenue is measured at the fair value of the goods or services given up, adjusted by the amount of any cash or cash equivalents transferred. The revenue from barter transactions involving advertising is measured in accordance with Interpretation 31 of the Standing Interpretations Committee "Revenue – Barter Transactions Involving Advertising Services".

3.5.4. Subscriber acquisition costs, advertising and related costs

Subscriber acquisition and retention costs, other than loyalty program costs (see Note 3.5.3.), are recognised as an expense for the period in which they are incurred. Advertising, promotion, sponsoring, communication and brand marketing costs are also expensed as incurred.

3.5.5. Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.

3.5.6. Share issuance costs and treasury shares

External costs directly related to share issuance are deducted from the related share premium. Other costs are expensed as incurred.

If TP S.A. or its subsidiaries purchase equity instruments of the Company, the consideration paid, including directly attributable incremental costs, is deducted from equity attributable to the Company equity holders and presented in the balance sheet separately under "Treasury shares" until the shares are cancelled or reissued. The Group does not recognise in the income statement any gain or loss on the purchase, sale, issue or cancellation of its own equity instruments.

Treasury shares are recognised using settlement date accounting.

3.5.7. Goodwill

Goodwill is the excess of the purchase cost of a business combination, including transaction expenses, over the Group's corresponding share in the fair value of the underlying identifiable net assets, including contingent liabilities, at the date of acquisition. Goodwill represents a payment made in anticipation of future economic benefits from assets that are not capable of being individually identified and separately recognised.

Impairment tests and Cash Generating Units

In accordance with IFRS 3 "Business Combinations", goodwill is not amortised but is tested for impairment at least once a year or more frequently when there is an indication that it may be impaired. IAS 36 "Impairment of Assets" requires these tests to be performed at the level of each Cash Generating Unit (CGU) to which the goodwill has been allocated (a Cash Generating Unit is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets). The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the synergies of business combination.

Recoverable amount

To determine whether an impairment loss should be recognised, the carrying value of the assets and liabilities of the CGU (or group of CGUs), including allocated goodwill, is compared to its recoverable amount. The recoverable amount of a CGU is the higher of its fair value less costs to sell and its value in use.

Fair value less costs to sell is the best estimate of the amount realisable from the sale of a CGU in an arm's length transaction between knowledgeable, willing parties, less the costs of disposal. This estimate is determined on the basis of available market information taking into account specific circumstances.

Value in use is the present value of the future cash flows expected to be derived from the CGU or group of CGUs, including goodwill. Cash flow projections are based on economic and regulatory assumptions, license renewal assumptions and forecast trading conditions drawn up by the Group management, as follows:

• cash flow projections are based on the business plan and its extrapolation to perpetuity by applying a declining or flat growth rate reflecting the expected long-term trend in the market,
• the cash flows obtained are discounted using appropriate rates for the type of business concerned.

If the recoverable amount of CGUs to which the goodwill is allocated is less than its carrying amount, an impairment loss is recognised in the amount of the difference. The impairment loss is firstly allocated to reduce the carrying amount of goodwill and then to the other assets of CGUs on a pro rata basis.

Goodwill impairment losses are recorded in the income statement as a deduction from operating income and are not reversed.

3.5.8. Intangible assets (excluding goodwill)

Intangible assets, consisting mainly of licenses, software and development costs, are initially stated at acquisition or production cost comprising its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, any directly attributable costs of preparing the assets for their intended use or sale, and, if applicable, attributable borrowing costs.

When intangible assets are acquired in a business combination, they are initially stated at their fair values. They are generally determined in connection with the purchase price allocation based on their respective market values. When their market value is not readily determinable, cost is determined using generally accepted valuation methods based on revenue, costs or other appropriate criteria. The intangible assets are recognised at the acquisition date separately from goodwill if the asset's fair value can be measured reliably, is identifiable, (i.e. is separable) or arises from contractual or the legal rights irrespective of whether the assets had been recognised by the acquiree before the business combination.

Internally developed trademarks and subscriber bases are not recognised as intangible assets.

Telecommunication licenses

Expenditures to acquire telecommunication licenses are amortised on a straight-line basis over the license period from the date when the network is technically ready and the service can be marketed. For the details of concessions values see Note 15.

Research and development costs

Under IAS 38 "Intangible Assets", development costs are recognised as an intangible asset if and only if the following can be demonstrated:

• the technical feasibility of completing the intangible asset so that it will be available for use,
• the intention to complete the intangible asset and use or sell it and the availability of adequate technical, financial and other resources for this purpose,
• the ability to use or sell the intangible asset,
• how the intangible asset will generate probable future economic benefits for the Group,
• the Group's ability to measure reliably the expenditure attributable to the intangible asset during its development.

Research costs, and development costs not fulfilling the above criteria, are expensed as incurred. The Group's research and development projects mainly concern:

• upgrading the network architecture or functionality;
• developing service platforms aimed at offering new services to the Group's customers.

Development costs recognised as an intangible asset are amortised on a straight-line basis over their estimated useful life, generally not exceeding four years.

Software

Software is amortised on a straight-line basis over the expected life, not exceeding five years.

Useful lives of intangible assets are reviewed annually and are adjusted if current estimated useful lives are different from previous estimates. These changes in accounting estimates are recognised prospectively.

3.5.9. Property, plant and equipment

The cost of tangible assets corresponds to their purchase or production cost or price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, as well as including costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, and, if applicable, attributable borrowing costs.

It also includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, representing the obligation incurred by the Group.

The cost of networks includes design and construction costs, as well as capacity improvement costs. The total cost of an asset is allocated among its different components and each component is accounted for separately when the components have different useful lives or when the pattern in which their future economic benefits are expected to be consumed by the entity varies. Depreciation is established for each component accordingly.

Maintenance and repair costs (day to day costs of servicing) are expensed as incurred.

Government grants

The Group may receive non-repayable government grants in the form of direct or indirect funding of capital projects. These grants are deducted from the cost of the related assets and recognised in the income statement, as a reduction of depreciation, based on the pattern in which the related asset's expected future economic benefits are consumed.

Finance leases

Assets acquired under leases that transfer substantially all risks and rewards of ownership to the Group are recorded as assets and an obligation in the same amount is recorded in liabilities. Normally, the risks and rewards of ownership are considered as having been transferred to the Group when at least one condition is met:

• the lease transfers ownership of the asset to the lessee by the end of the lease term,
• the Group has the option to purchase the asset at a price that is expected to be sufficiently lower than fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised,
• the lease term is for the major part of the estimated economic life of the leased asset,
• at the inception of the lease, the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset,
• the leased assets are of such a specialised nature that only the lessee can use them without major modifications.

Assets leased by the Group as lessor under leases that transfer substantially risks and rewards of ownership to the lessee are treated as having been sold.

Derecognition

An item of property, plant and equipment is derecognised on its disposal or when no future economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of an item of property, plant and equipment is recognised in operating income and equals the difference between the net disposal proceeds, if any, and the carrying amount of the item.

Depreciation

Items of property, plant and equipment are depreciated to write off their cost, less any estimated residual value on a basis that reflects the pattern in which their future economic benefits are expected to be consumed. Therefore, the straight-line basis is usually applied over the following estimated useful lives:

Buildings	10 to 30 years
Duct, cable and other outside plant	10 to 30 years
Telephone exchanges and other plant and equipment	5 to 10 years
Computer equipment	3 to 5 years
Vehicles and other	5 to 10 years

Land is not depreciated. Perpetual usufruct rights are amortised over the period for which the right was granted, not exceeding 99 years.

These useful lives are reviewed annually and are adjusted if current estimated useful lives are different from previous estimates. These changes in accounting estimates are recognised prospectively.

3.5.10. Non-current assets held for sale

Non-current assets held for sale are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than continuing use. Those assets are available for immediate sale in their present condition subject only to terms that are usual and customary for sales of such assets and the sale is highly probable.

Non-current assets held for sale are measured at the lower of carrying amount and estimated fair value less costs to sell and are presented in a separate line in the balance sheet if IFRS 5 requirements are met.

Those assets are no longer depreciated. If fair value less costs to sell is less than its carrying amount, an impairment loss is recognised in the amount of the difference. In subsequent periods, if fair value less costs to sell increases the impairment loss is reversed up to the amount of losses previously recognised.

3.5.11. Impairment of non-current assets other than goodwill

International Accounting Standard 36 "Impairment of assets" requires that the recoverable amount of an asset should be estimated whenever there is an indication that the asset may be impaired and an impairment loss should be recognised whenever the carrying amount of an asset exceeds its recoverable amount. Where possible, the recoverable amount is estimated for individual assets. The recoverable amount of such assets is determined at their fair value less cost to sell or their value in use. If it is not possible to estimate the recoverable amount of the individual asset, the Group identified the cash-generating unit ("CGU") to which the asset belongs.

In the case of decline in the recoverable amount of an item of property, plant and equipment or an intangible asset to below its net book value, due to events or circumstances occurring during the period (such as obsolescence, physical damage, significant changes in the manner in which the asset is used, worse than expected economic performance, a drop in revenue or other external indicators), an impairment loss is recognised.

The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. The recoverable amount of an asset is generally determined by reference to its value in use, corresponding to the future economic benefits expected to be derived from the use of the asset and its subsequent disposal. It is assessed by the discounted cash flow method, based on management's best estimate of the set of economic conditions that will exist over the remaining useful life of the asset and the asset's expected conditions of use.

The impairment loss recognised equals the difference between net book value and recoverable amount.

Impairment tests are carried out on individual assets, except where they do not generate independent cash flows. The recoverable amount is then determined at the level of the cash-generating unit (CGU) to which the asset belongs, except where:

• the fair value less costs to sell of the individual asset is higher than its book value; or
• the value in use of the asset can be estimated as being close to its fair value less costs to sell, where fair value can be reliably determined.

Given the nature of its assets and operations, most of the Group's individual assets do not generate cash flow independently from other assets.

3.5.12. Financial assets and liabilities

Financial assets include assets available-for-sale, assets at fair value through profit or loss, hedging derivative instruments, loans and receivables and cash and cash equivalents.

Financial liabilities include borrowings, other financing and bank overdrafts, liabilities at fair value through profit or loss, hedging derivative instruments, trade accounts payable and fixed assets payable, including the UMTS license liability.

Financial assets and liabilities are recognised and measured in accordance with IAS 39 "Financial Instruments: Recognition and Measurement".

A regular way purchase or sale of financial assets is recognised using settlement date accounting.

Management determines the classification of financial assets and liabilities at initial recognition.

Recognition and measurement of financial assets

When financial assets are recognised initially, they are measured at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

Assets available-for-sale

Available-for-sale assets consist mainly of shares in companies and marketable securities that are those non-derivative financial assets that are designated as available for sale or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss. They are measured at fair value and gains and losses arising from remeasurement at fair value are recognised in other comprehensive income. Fair value corresponds to market price for listed securities and estimated fair value for unlisted securities, determined according to the most appropriate financial criteria in each case. Investments in unquoted equity instruments whose fair value cannot be reliably measured are measured at cost, less any impairment losses.

When there is objective evidence that available-for-sale assets are impaired, the cumulative loss included in other comprehensive income is taken to the income statement. A significant or prolonged decline in the fair value of equity instruments below costs is considered as an indicator that the securities are impaired. Impairment losses on equity instruments are not reversed through the income statement.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and include trade receivables, other loans and receivables and cash deposits paid to banks as a collateral for derivatives. They are recognised initially at fair value plus directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest method. Short-term receivables with no stated interest rate are measured at the original invoice amount if the effect of discounting is immaterial. Cash flows on loans and receivables at variable rates of interest are remeasured periodically, to take into account changes in market interest rates.

Loans and receivables are carried in the balance sheet under "Loans and receivables excluding trade receivables", "Trade receivables" and current "Other assets".

At each balance sheet date, the Group assesses whether there is any objective evidence that loans or receivables are impaired. If any such evidence exists, the asset's recoverable amount is calculated. If the recoverable amount is less than the asset's book value, an impairment loss is recognised in the income statement.

Trade receivables that are homogenous and share similar credit risk characteristics are tested for impairment collectively. When estimating the expected credit risk the Group uses historical data as a measure for a decrease in the estimated future cash flows from the group of assets since the initial recognition.

In calculating the recoverable amount of receivables that are individually material and not homogenous, significant financial difficulties of the debtor or probability that the debtor will enter bankruptcy or financial reorganisation are taken into account.

The carrying amount of loans and receivables is reduced through an allowance account. Uncollectable receivables are written off against that account.

Assets at fair value through profit or loss

Financial assets at fair value through profit or loss are the following financial assets held for trading:

• financial assets acquired by the Group principally for the purpose of selling them in the near term;
• financial assets that form a part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking;
• derivative assets not qualifying for hedge accounting as set out in IAS 39.

Cash and cash equivalents

Cash and cash equivalents are held primarily to meet the Group's short-term cash needs rather than for investment or other purposes. They consist of cash in bank and on hand and highly-liquid instruments that are readily convertible into known amounts of cash and are subject to insignificant changes in value.

Recognition and measurement of financial liabilities

Financial liabilities at amortised cost

Borrowings and other financial liabilities are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Financial liabilities measured at amortised cost are carried in the balance sheet under "Financial liabilities at amortised cost excluding trade payables" and "Trade payables".

Transaction costs that are directly attributable to the acquisition or issue of the financial liability are deducted from the liability's carrying value. This is because financial liabilities are initially recognised at fair value that usually corresponds to the fair value of the sums paid or received in exchange for the liability. The costs are subsequently amortised over the life of the debt by the effective interest method.

The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial instrument or, when appropriate, through the period to the next interest adjustment date, to the net carrying amount of the financial liability. The calculation includes all fees and costs paid or received between parties to the contract.

Certain borrowings are designated as being hedged by fair value hedges. Gain or loss on hedged borrowing attributable to a hedged risk adjusts the carrying amount of a borrowing and is recognised in the income statement.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include derivatives that do not qualify for hedge accounting as set out in IAS 39 and are measured at fair value.

Upon initial recognition the Group did not designate financial liabilities as financial liability at fair value through profit or loss.

Recognition and measurement of derivative instruments

Derivative instruments are recognised in the balance sheet and measured at fair value. Derivatives used by the Group are not traded in an active market and their fair value is determined by using standard valuation techniques. Fair value is calculated using the net present value of future cash flows related to these contracts, quoted market forward interest rates, quoted market forward foreign exchange rates or, if quoted forward foreign exchange rates are not available, forward rates calculated based on spot foreign exchange rates using the interest rate parity method.

Except for gains and losses on hedging instruments (as explained below), gains and losses arising from changes in fair value of derivatives classified as financial assets and liabilities at fair value through profit or loss are immediately recognised in the income statement. The interest rate component of derivatives held for trading is presented under interest expense within finance cost. The foreign exchange component of derivatives held for trading that economically hedge commercial or financial transactions is presented under foreign exchange gains or losses within other operating income / expense or finance cost, respectively, depending on the nature of the underlying transaction. The foreign exchange component of other derivatives held for trading is presented under foreign exchange gains or losses within finance cost, net.

The Group treats the whole derivative as its unit of account and presents derivatives either as current or non-current based on the date of last cash flows either within or beyond 12 months from the balance sheet date.

Hedging instruments

Derivative instruments may be designated as fair value hedges or cash flow hedges:

• a fair value hedge is a hedge of the exposure to changes in fair value of a recognised asset or liability or an identified portion of the asset or liability, that is attributable to a particular risk – notably interest rate and currency risks – and could affect profit or loss,
• a cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (such as a future purchase or sale) and could affect profit or loss.

A hedging relationship qualifies for hedge accounting when:

• at the inception of the hedge, there is formal designation and documentation of the hedging relationship,
• at the inception of the hedge and in subsequent periods, the hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk during the period for which the hedge is designated (i.e. the actual results of the hedge are within a range of 80-125 per cent).

The effects of applying hedge accounting are as follows:

• for fair value hedges of existing assets and liabilities, the change in fair value of the hedged portion of the asset or liability attributable to the hedged risk adjusts the carrying amount of the asset or liability in the balance sheet. The gain or loss from the changes in fair value of the hedged item is recognised in profit or loss and is offset by the effective portion of the loss or gain from remeasuring the hedging instrument at fair value. The adjustment to the hedged item is amortised starting from the earliest possible date, and not at the date when a hedged item ceases to be adjusted by a change in the fair value of the hedged portion of liability attributable to the risk hedged,
• for cash flow hedges, the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in other comprehensive income and the ineffective portion of the gain or loss on the hedging instrument is recognised in profit or loss. Amounts recognised directly in other comprehensive income are subsequently recognised in profit or loss in the same period or periods during which the hedged item affects profit or loss. If a hedge of a forecast transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously deferred in other comprehensive income are transferred from other comprehensive income and included in the initial measurement of the cost of the asset or liability.

Derecognition of financial assets and liabilities

Financial assets

A financial asset (or where applicable a part of financial assets or part of a group of similar financial assets) is derecognised when:

• the rights to receive cash flows from the asset have expired,
• the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through' arrangement, or
• the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the assets, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

Fair value measurements

The Group classifies fair value measurements using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities,
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices),
• Level 3: inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

3.5.13. Inventories

Inventories are stated at the lower of cost and net realisable value, except for mobile handsets or other terminals sold in promotional offers. Inventories sold in promotional offers are stated at the lower of cost or probable net realisable value, taking into account future revenue expected from subscriptions. The Group provides for slow-moving or obsolete inventories based on inventory turnover ratios and current marketing plans.

Cost corresponds to purchase or production cost determined by the weighted average cost method. Net realisable value is the estimated selling price in the ordinary course of business, less selling expenses.

3.5.14. Tax expense

The tax expense comprises current and deferred tax.

Current tax

The current income tax charge is determined in accordance with the relevant tax law regulations in respect of the taxable profit. Income tax payable represents the amounts payable at the balance sheet date. If the amount paid on account of current income tax is greater than the amount finally determined, the excess is recognised in the balance sheet as an income tax asset.

Deferred taxes

In accordance with IAS 12 "Income Taxes", deferred taxes are recognised for all temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and their tax bases, as well as for unused tax losses, using the liability method. Deferred tax assets are recognised only when their recovery is considered probable, that is when future taxable profit will be available against which the temporary differences can be utilised. At each balance sheet date unrecognised deferred tax assets are re-assessed. A previously unrecognised deferred tax asset is recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax is not accounted for if it arises from the initial recognition of an asset and liability in a transaction that is not a business combination and at the time of the transaction, affects neither accounting nor taxable profit or loss. IAS 12 requires, in particular, the recognition of deferred tax liabilities on all intangible assets recognised in business combinations (trademarks, subscriber bases, etc.).

A deferred tax asset is recognised for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that, and only to the extent that, it is probable that:

• the temporary difference will reverse in the foreseeable future; and
• taxable profit will be available against which the temporary difference can be utilised.

A deferred tax liability is recognised for all taxable temporary differences associated with investments in subsidiaries and associates except to the extent that both of the following conditions are satisfied:

• the Group is able to control the timing of the reversal of the temporary difference (e.g. the payment of dividends); and
• it is probable that the temporary difference will not reverse in the foreseeable future.

In accordance with IAS 12, deferred tax assets and liabilities are not discounted. Deferred income tax is calculated using the enacted or substantially enacted tax rates at the balance sheet date.

3.5.15. Provisions

In accordance with IAS 37 "Provisions, Contingent Liabilities and Contingent Assets", a provision is recognised when the Group has a present obligation towards a third party and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

The obligation may be legal, regulatory or contractual or it may represent a constructive obligation deriving from the Group's actions where, by an established pattern of past practice, published policies or a sufficiently specific current statement, the Group has indicated to other parties that it will accept certain responsibilities, and as a result, has created a valid expectation on the part of those other parties that it will discharge those responsibilities.

The estimate of the amount of the provision corresponds to the expenditure likely to be incurred by the Group to settle its obligation. If a reliable estimate cannot be made of the amount of the obligation, no provision is recorded and the obligation is deemed to be a "contingent liability".

Contingent liabilities – corresponding to (i) possible obligations that are not recognised because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the Group's control, or (ii) to present obligations arising from past events that are not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or because the amount of the obligation cannot be measured with sufficient reliability – are disclosed in the notes to the Consolidated Financial Statements.

Restructuring

A provision for restructuring costs is recognised only when the general recognition criteria for provisions are met and when the Group:

• has a detailed formal plan for the restructuring, and
• has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it.

Provisions for dismantling and restoring sites

The Group is required to dismantle equipment and restore sites. In accordance with paragraphs 36 and 37 of IAS 37 "Provisions, Contingent Liabilities and Contingent Assets", the provision is based on the best estimate of the amount required to settle the obligation. It is discounted by applying a discount rate that reflects the passage of time and the risk specific to the liability. The amount of the provision is revised periodically and adjusted where appropriate, with a corresponding entry to the asset to which it relates.

3.5.16. Pensions and other employee benefits

Certain employees of the Group are entitled to jubilee awards and retirement bonuses. Jubilee awards are paid to employees upon completion of a certain number of years of service whereas retirement bonuses represent one-off payments paid upon retirement in accordance with the Group's remuneration policies. Both items vary according to the employee's average remuneration and length of service. Jubilee awards and retirement bonuses are not funded. The Group is also obliged to provide certain post-employment benefits such as medical care to some of its retired employees.

The cost of providing benefits mentioned above is determined separately for each plan using the projected unit credit actuarial valuation method. This method sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation which is then discounted. The calculation is based on demographic assumptions concerning retirement age, rates of future salary increases, staff turnover rates, and financial assumptions concerning future interest rates (to determine the discount rate) and inflation.

Actuarial gains and losses on jubilee awards plans are recognised as income or expense when they occur. Actuarial gains and losses on post-employment benefits are recognised as income or expense when the net cumulative unrecognised actuarial gains and losses for each individual plan at the end of the previous reporting year exceed 10% of the defined benefit obligation at that date. These gains or losses are recognised over the expected average remaining working lives of the employees participating in the plans. The present value of the defined benefit obligations is verified at least annually by an independent actuary. Demographic and attrition profiles are based on historical data.

Termination benefits

The Group recognises termination benefits as a liability and an expense when it is demonstrably committed to either terminate the employment of an employee or group of employees before the normal retirement date, or provide termination benefits as a result of an offer made in order to encourage voluntary redundancy. An entity is demonstrably committed to a termination when it has a detailed formal plan for the termination and is without realistic possibility of withdrawal.

Profit sharing plan

A liability and expense for profit sharing with employees is recognised when the entity of the Group has legal or constructive obligation to make such payments as a result of past events and a reliable estimate of the obligation can be made.

Benefits falling due more than 12 months after the balance sheet date are discounted.

3.5.17. Share-based payments

TP S.A. operates an equity-settled, share-based compensation plan under which employees render services to the Company and its subsidiaries as consideration for equity instruments of TP S.A. The fair value of the employee services received in exchange for the grant of the equity instruments is recognised as an expense, with a corresponding increase in equity, over the period in which the service conditions are fulfilled (vesting period).

France Telecom operates its own equity-settled, share-based compensation plan under which employees of the Group render services to the Company and its subsidiaries as consideration for equity instruments of France Telecom. In accordance IFRIC 11 "IFRS 2 – Group and Treasury Share Transactions", the fair value of the employee services received in exchange for the grant of the equity instruments of France Telecom is recognised in these consolidated financial statements as an expense with a corresponding increase in equity, over the period in which the service conditions are fulfilled (vesting period).

The fair value of the employee services received is measured by reference to the fair value of the equity instruments at the grant date.

Vesting conditions, other than market conditions, were taken into account by adjusting the number of equity instruments included in the measurement of the transaction so that, ultimately, the expense recognised for services received is based on the number of equity instruments that are expected to vest.

4. Segment information

The Group has two reportable operating segments:

• Fixed line segment which includes entities offering predominantly telecom services based on fixed line technology, and
• Mobile segment which includes entities offering predominantly telecom services based on mobile technology.

Segment performance is evaluated based on revenue, EBITDA, EBIT and capital expenditures. EBITDA corresponds to operating income before depreciation and amortisation expense and reversal of impairment/impairment of goodwill and other non-current assets. EBIT corresponds to operating income.

Telekomunikacja Polska operates in the fixed line telecommunications sector where it provides local, long distance domestic and international public telephony services. In addition, Telekomunikacja Polska provides leased lines, radio-communication and other telecommunications value added services.

The fixed line telecommunications segment also includes other operations linked with the fixed line telecommunications.

The Group's operational activities are conducted in one geographical area, the territory of the Republic of Poland.

The accounting policies are uniform for all segments. Transactions between segments are eliminated on consolidation.

Both segments have dispersed customer base – no single customer generates more than 10% of segment revenue.

Group financing and income tax are managed on a group basis and are not allocated to operating segments.

Basic financial data on the business segments is presented below:

(in PLN millions)	Fixed line telecommunications	Mobile telecommunications	Eliminations and unallocated items	Consolidated
		12 months ended 31 December 2009
Revenue	9,863	7,745	(1,048)	16,560
External	9,121	7,439	–	16,560
Inter-segment	742	306	(1,048)	–
External purchases	(3,586)	(5,028)	1,176	(7,438)
Labour expenses	(2,019)	(334)	–	(2,353)
Other operating expense	(432)	(240)	1	(671)
Other operating income	224	74	(129)	169
Restructuring costs	(23)	–	–	(23)
Gains on disposal of assets	35	–	–	35
EBITDA	4,062	2,217	–	6,279
Depreciation and amortisation	(2,727)	(1,423)	–	(4,150)
Impairment of non-current assets	(32)	(1)	–	(33)
EBIT	1,303	793	–	2,096
Capital expenditures	1,419	788	–	2,207
– financed through own resources	1,397	788	–	2,185
– financed through finance leases	22	–	–	22
		At 31 December 2009
Segment assets	16,029	10,650	(230)	26,449
Investment in associates	3	–	–	3
Unallocated assets	–	–	2,904	2,904
Total assets				29,356
Segment liabilities	3,534	2,742	(230)	6,046
Unallocated liabilities	–	–	6,717	6,717
Total liabilities				12,763
Equity	–	–	16,593	16,593
Total equity and liabilities				29,356
Revenue	10,414	8,620	(869)	18,165
External	9,959	8,206	–	18,165
Inter-segment	455	414	(869)	–
External purchases	(3,663)	(4,900)	964	(7,599)
Labour expenses	(2,055)	(304)	–	(2,359)
Other operating expense	(549)	(334)	20	(863)
Other operating income	196	160	(115)	241
Restructuring costs	(174)	–	–	(174)
Gains on disposal of assets	113	(3)	–	110
EBITDA	4,282	3,239	–	7,521
Depreciation and amortisation	(2,892)	(1,425)	–	(4,317)
Reversal of impairment of non-current assets	109	–	–	109
EBIT	1,499	1,814	–	3,313
Capital expenditures	1,571	1,008	–	2,579
– financed through own resources	1,571	1,008	–	2,579
– financed through finance leases	–	–	–	–
		At 31 December 2008
Segment assets	17,614	11,376	(169)	28,821
Investment in associates	3	–	–	3
Unallocated assets	–	–	2,410	2,410
Total assets				31,234
Segment liabilities	3,995	2,908	(166)	6,737
Unallocated liabilities	–	–	7,267	7,267
Total liabilities				14,004
Equity	–	–	17,230	17,230
Total equity and liabilities				31,234

5. Main acquisitions and divestitures of companies

There were no significant acquisitions and divestitures in the 12 months ended 31 December 2009 except for the transactions described below.

On 24 March 2009, the Group and LUX MED Sp. z o.o. concluded a share sale agreement under which the Group disposed of its 100% shareholding in TP Med Sp. z o.o., for a sales price totalling PLN 19 million.

On 8 April 2009, the Group set up a company PayTel S.A., with a share capital amounting to PLN 12 million. The company was registered on 25 June 2009. The company's activities include electronic payment services.

In May 2009, the Group purchased 100% of the shares in Ramsat S.A. ("Ramsat") – an authorised dealer of PTK-Centertel. The purchase price amounted to PLN 25 million. As a result of accounting as a business combination the Group recognised goodwill in the amount of PLN 22 million, as well as PLN 8 million of the acquirees' non-current assets, PLN 45 million of the acquirees' current assets and PLN 50 million of the acquirees' liabilities which represent carrying amounts of each of those classes determined immediately before the combination.

6. Revenue

(in PLN millions)	12 months ended 31 December 2009	12 months ended 31 December 2008
Fixed line telephony services	5,908	6,783
Subscriptions and voice traffic revenues	4,800	5,775
Interconnect revenues	1,081	966
Payphone revenues	26	41
Other	1	1
Mobile telephony services	7,188	8,023
Voice traffic revenues	4,271	4,591
Interconnect revenues	1,423	1,927
Messaging services and content	1,437	1,495
Other	57	10
Data Services	2,591	2,479
Leased lines	313	358
Data transmission	686	646
Dial–up	14	29
Broadband revenues	1,578	1,446
Radio communications	213	215
Sales of goods and other	660	665
Total revenue	16,560	18,165

Revenue is generated mainly in the territory of Poland. Approximately 2.8% and 2.9% of the total revenue for the 12 months ended 31 December 2009 and 2008, respectively, was received from entities which are not domiciled in Poland, mostly from interconnect services.

7. Operating income and expense

7.1. External purchases

(in PLN millions)	12 months ended 31 December 2009	12 months ended 31 December 2008
Commercial expenses	(2,543)	(2,416)
– cost of handsets and other equipment sold	(1,353)	(1,229)
– commissions, advertising, sponsoring costs and other	(1,190)	(1,187)
Interconnect expenses	(2,179)	(2,624)
Costs relating to network and IT expenses	(974)	(916)
Other external purchases	(1,742)	(1,643)
Total external purchases	(7,438)	(7,599)

Other external purchases include customer support and management services, postage cost, purchase of content qualified as expense, real estate operating and maintenance costs, subcontracting fees, advisory and legal services, rental costs, cost of other services, supplies and equipment for internal use.

During the 12 months ended 31 December 2009, foreign exchange gains/(losses) on cash flow hedges that were transferred from other comprehensive income to external purchases and adjusted rental costs amounted to PLN (3) million. During the 12 months ended 31 December 2008, the Group did not enter into hedges of rental commitments (see Note 13).

7.2. Labour expenses

(in PLN millions, except number of employees)	12 months ended 31 December 2009	12 months ended 31 December 2008
Average number of employees (full time equivalent)	28,096	29,481
Wages and salaries	(1,926)	(1,941)
Social security and other charges	(411)	(412)
Capitalised personnel costs	139	113
Other employee benefits	(94)	(65)
Wages and employee benefit expenses	(2,292)	(2,305)
Employee profit-sharing	(18)	(24)
Share based-payments	(43)	(30)
Total labour expenses	(2,353)	(2,359)

7.3. Other operating income and expense

(in PLN millions)	12 months ended 31 December 2009	12 months ended 31 December 2008
Total other operating income	169	241
Impairment losses on trade and other receivables, net	(109)	(92)
Taxes other than income taxes	(325)	(404)
– property tax and perpetual usufruct charges	(196)	(280)
– fees for subscribers' numbers and telecommunications charges	(27)	(25)
– frequency fee	(66)	(67)
– other taxes	(36)	(32)
Operating foreign exchange losses, net	–	(110)
Other expense and changes in provisions, net	(237)	(257)
Total other operating expense	(671)	(863)

Other operating income includes operating foreign exchange gains, net (PLN 6 million in 2009, PLN 0 million in 2008), as well as late payment interest on trade receivables, recoveries of customer bad debts written-off and other individually immaterial items.

Other expense and changes in provisions include brand fees, changes in provisions for claims and litigation, risks and other charges (see Note 28).

During the 12 months ended 31 December 2009 and 2008, foreign exchange gains/(losses) on cash flow hedges that were transferred from other comprehensive income to other operating income/expense and adjusted foreign exchange differences on hedged UMTS liability amounted to PLN (3) million and PLN 29 million, respectively (see Note 13).

During the 12 months ended 31 December 2009 and 2008, foreign exchange gains/(losses) on derivatives classified as held for trading under IAS 39 and economically hedging commercial transactions presented in other operating income/expense amounted to PLN (21) million and PLN 137 million, respectively.

7.4. Research and development

In the 12 months ended 31 December 2009 and 2008, research and development costs expensed in the income statement amounted to PLN 74 million and PLN 61 million, respectively.

8. Restructuring costs

(in PLN millions)	12 months ended 31 December 2009	12 months ended 31 December 2008
Employee termination	(25)	(178)
Other	2	4
Total restructuring costs	(23)	(174)

Movements in restructuring provisions are described in Note 28.

9. Gains on disposal of assets

(in PLN millions)	12 months ended 31 December 2009	12 months ended 31 December 2008
Disposal of subsidiaries (1)	13	56
Disposals of property, plant and equipment and intangible assets	22	54
Total gains on disposal of assets	35	110

• (1) In the 12 months ended 31 December 2009 includes gain on disposal of TP Med Sp. z o.o.

In the 12 months ended 31 December 2008, gains on disposal of assets include gains on disposal of following assets held for sale:

On 30 July 2008, TP S.A. and the Danish Investor Group, Baltic Property Trust concluded the sale and lease by TP S.A. of a portfolio of selected office buildings in Warsaw for the aggregate price of EUR 168 million, fully paid. These assets belonged to the fixed-line telecommunications reporting segment with net book value of PLN 502 million.

On 20 June 2008, the Group signed a share sale agreement under which the Group disposed of its 100% shareholding in Ditel S.A., for a sales price totalling PLN 65 million. The gain on the disposal, before tax, amounted to PLN 56 million.

In the 12 months ended 31 December 2009, there was no disposal of assets held for sale.

10. Impairment

10.1. Information concerning the Cash Generating Units

Most of the Group's individual assets do not generate cash flow independently from other assets due to the nature of the Group's activities. The entire fixed network, the entire radio diffusion network, the entire mobile network and internet portal are treated as separate Cash Generating Units.

The Group considers certain indicators, including market liberalisation and other regulatory and economic changes in the Polish telecommunications market, in assessing whether there is any indication that an asset may be impaired. As at 31 December 2009 and 2008 the Group performed impairment tests of all Cash Generating Units. No impairment loss was recognised in 2009 and 2008 as a result of these tests.

The following key assumptions were used to determine the value in use of the groups of CGUs:

• market value, penetration rate and market share decisions of the regulator in terms of pricing, accessibility of services, the level of commercial expenses required to replace products and keep up with existing competitors or new market entrants the impact of changes in net revenue on direct costs and
• the level of investment spending, which may be affected by the roll-out of necessary new technologies.

The amounts assigned to each of these parameters reflect past experience adjusted for expected changes over the timeframe of the business plan, but may also be affected by unforeseeable changes in the political, economic or legal framework.

Main CGUs	Fixed network	Mobile network	Radio diffusion network	Internet portal
	At 31 December 2009
Basis of recoverable amount	Value in use	Value in use	Value in use	Value in use
Source used	Business plan	Business plan	Business plan	Business plan
	5 years cash flow projections	5 years cash flow projections	5 years cash flow projections	5 years cash flow projections
Growth rate to perpetuity	0%	0%	1%	1%
Pre-tax discount rate	12.1	12.8	13.9	15.9

Sensitivity of recoverable amounts

At 31 December 2009, in case of fixed network, mobile network and radio diffusion network, a following change in the assumptions:

• a 2.0 basis point increase in the pre-tax discount rate or
• a 3.3 basis point decrease in the perpetual growth rate or
• a 23% fall in cash flow after the fifth year would bring the value in use to the level of the book value.

At 31 December 2009, a change in the assumptions for internet portal:

• a 2.5 basis point increase in the pre-tax discount rate or
• a 4.4 basis point decrease in the perpetual growth rate or
• a 26% fall in cash flow after the fifth year would bring the value in use to the level of the book value.

10.2. Goodwill

In the 12 months ended 31 December 2009 and 2008, there was no goodwill written off. Details regarding impairment tests of goodwill are presented in Note 10.1.

10.3. Other property, plant and equipment and intangible assets

In the 12 months ended 31 December 2009, the impairment loss on property, plant and equipment charged to the income statement amounted to PLN 22 million, primarily including a net impairment reversal as a result of a review of the Group's properties and an impairment loss on liquidated network assets.

In the 12 months ended 31 December 2008, the impairment loss on property, plant and equipment reversed in the income statement amounted to PLN 19 million, primarily including a reversal of impairment loss as a result of a review of the Group's properties.

In the 12 months ended 31 December 2009, the impairment loss on other intangible assets charged to the income statement amounted to PLN 11 million and was recognised as a result of a review of expected future cash flows.

There was no impairment loss on other intangible assets charged to the income statement during the 12 months ended 31 December 2008.

10.4. Assets held for sale

In the 12 months ended 31 December 2009, the Group did not classify any asset as held for sale and there was no change in impairment on asset held for sale.

In the 12 months ended 31 December 2008, the Group reversed the impairment loss in the amount of PLN 90 million as a result of the revaluation of certain properties classified as assets held for sale.

11. Financial income and expense

(in PLN millions)	12 months ended 31 December 2009	12 months ended 31 December 2008
Interest income	37	58
Interest expense	(441)	(591)
– of which derivatives held for trading	(91)	(2)
Changes in fair value of derivatives held for trading	42	(5)
Ineffectiveness on fair value hedges	2	34
– of which change in fair value of hedged debt	–	(6)
– of which change in fair value of fair value hedges	2	40
Ineffectiveness on cash flow hedges	(3)	–
Interest expense and other financial charges	(400)	(562)
Foreign exchange gains / (losses)	(30)	(94)
– on debt	218	(762)
– on hedging derivatives	(7)	513
– on derivatives held for trading	(251)	30
– on financial assets	10	125
Discounting expense	(106)	(120)
Finance costs, net	(499)	(718)

Interest income includes mainly interest on cash and cash equivalents.

Interest expense was calculated using the effective interest method. It includes mainly interest on bonds, bank borrowings, loans and other financial debt carried at amortised cost as well as interest on derivatives that are used to hedge the Group's debt against exposure to changes in fair value or cash flows attributable to interest rate risk.

During the 12 months ended 31 December 2009 and 2008, interest income/(expense) on fair value hedges that adjusted interest expense on hedged debt amounted to PLN (2) million and PLN (141) million, respectively.

During the 12 months ended 31 December 2009 and 2008, interest income/(expense) on cash flow hedges that were transferred from other comprehensive income and adjusted interest expense on hedged debt amounted to PLN (22) million and PLN (42) million, respectively (see Note 13).

During the 12 months ended 31 December 2009 and 2008, interest income/(expense) on derivatives classified as held for trading under IAS 39 and economically hedging debt, presented in interest expense amounted to PLN (83) million and PLN 5 million, respectively.

During the 12 months ended 31 December 2009 and 2008, net gain/(loss) on derivatives held for trading amounted to PLN (300) million and PLN 23 million, respectively and consisted of interest expense, changes in fair value in response mainly to changes in the interest rates and foreign exchange gains and losses.

Foreign exchange gains/(losses) include mainly foreign exchange differences on bonds, bank borrowings, loans and other financial debt carried at amortised cost as well as foreign exchange component of change in fair value of derivatives that are used to hedge the Group's debt against exposure to changes in fair value or cash flows attributable to foreign exchange risk.

During the 12 months ended 31 December 2009 and 2008, foreign exchange gains/(losses) on fair value hedged debt amounted to PLN 9 million and PLN (411) million, respectively. During the 12 months ended 31 December 2009 and 2008, foreign exchange gains/(losses) on fair value hedges that adjusted exchange differences on hedged debt amounted to PLN (12) million and PLN 409 million, respectively.

During the 12 months ended 31 December 2009 and 2008, foreign exchange gains/(losses) on cash flow hedges that were transferred from other comprehensive income and adjusted foreign exchange differences on hedged debt amounted to PLN (7) million and PLN 104 million, respectively (see Note 13).

During the 12 months ended 31 December 2009 and 2008, foreign exchange gains/(losses) on derivatives classified as held for trading under IAS 39 and economically hedging debt, presented in foreign exchange gains/(losses) amounted to PLN (244) million and PLN 37 million, respectively.

During the 12 months ended 31 December 2009 and 2008, discounting expense includes mainly unwinding of discount on UMTS liability in the amount of PLN (47) million and (90) million, respectively, and on jubilee awards and post-employment benefits in the amount of PLN (16) million and PLN (17) million, respectively.

During the 12 months ended 31 December 2009 and 2008, foreign exchange gains/(losses) on derivatives classified as held for trading under IAS 39 and economically hedging discount of UMTS liability were presented in discounting expense and amounted to PLN (24) million and PLN 0 million, respectively.

12. Income tax

(in PLN millions)	12 months ended 31 December 2009	12 months ended 31 December 2008
Current income tax	429	560
Deferred tax change (1)	(104)	(157)
Less: Deferred tax charged to other comprehensive income	10	(2)
Total income tax	315	405

• (1)Excludes deferred tax change as a result of acquisitions and divestitures of subsidiaries (see Note 5).

 

The reconciliation between the effective income tax expense and the theoretical tax calculated based on the Polish statutory tax rate is as follows:

(in PLN millions)	12 months ended 31 December 2009	12 months ended 31 December 2008
Consolidated net income before tax	1,597	2,595
Statutory tax rate	19%	19%
Theoretical tax	303	493
Change in valuation allowance and other (1)	(14)	(113)
(Income not taxable)/expense not deductible for tax purposes, net	26	25
Effective tax	315	405

• (1)Includes reversal of valuation allowance on tax losses and reversal of unutilised deferred tax liability no longer required.

Expenses not deductible for tax purposes consist of certain cost items, which, under Polish tax law, are specifically determined as non-deductible.

Deferred tax assets are recognised for tax losses carried forward to the extent that realisation of the related tax benefit through future taxable profits is probable. The Polish tax system has restrictive provisions for grouping of tax losses for multiple legal entities under common control, such as those of the Group. Thus, each of the Group's subsidiaries may only utilise its own tax losses to offset taxable income in subsequent years. Tax losses are permitted to be utilised over 5 consecutive years with a 50% utilisation restriction for each annual tax loss in a particular year.

The amounts and expiry dates of unused tax losses are as follows:

year of expiration:	(in PLN millions)
2010	62
2011	57
2012	5
2013	68
2014	64
Total	256

During the 12 months ended 31 December 2009 and 2008, the Group entities utilised PLN 40 million and PLN 77 million, respectively, of their tax losses previously incurred.

Deferred income tax

The net deferred tax liabilities/(assets) consist of the following:

(in PLN millions)	Consolidated balance sheet		Consolidated income statement
	At 31 December 2009	At 31 December 2008	12 months ended 31 December 2009	12 months ended 31 December 2008
Property, plant and equipment and intangible assets	146	232	86	116
Impairment of financial assets	(53)	(58)	(5)	18
Finance costs, net	6	13	17	5
Accrued income/expense	(393)	(366)	28	(3)
Employee benefit plans	(44)	(43)	1	(4)
Deferred revenue	(119)	(112)	7	1
Tax losses and other differences	(42)	(62)	(20)	22
Net deferred tax (assets) / liability	(499)	(396)	–	–
Deferred tax income / (expense)	–	–	114	155

Unrecognised deferred tax asset relates mainly to those tax losses, which are expected to expire rather than to be realised, and temporary differences, which based on the Group's management assessment could not be utilised for tax purposes. As at 31 December 2009 and 2008, deductible temporary differences, for which no deferred tax asset was recognised, amounted to PLN 195 million and PLN 371 million gross, of which PLN 168 million and PLN 97 million, respectively, related to tax losses and PLN 27 million and PLN 274 million, respectively, related to other temporary differences.

13. Components of other comprehensive income

13.1. Financial assets available for sale

During the 12 months ended 31 December 2009, no gain/(loss) on financial assets available for sale was recognised in other comprehensive income and there was no reclassification from other comprehensive income to the consolidated income statement.

During the 12 months ended 31 December 2008, losses on financial assets available for sale recognised in other comprehensive income amounted to PLN 1 million. During the 12 months ended 31 December 2008, there was no reclassification from other comprehensive income to the consolidated income statement.

13.2. Cash flow hedges

The change in fair value of cash flow hedges charged to other comprehensive income is presented below:

	12 months ended 31 December 2009			12 months ended 31 December 2008
(in PLN millions)	Before tax	Tax	After tax	Before tax	Tax	After tax
Beginning of period	(30)	6	(24)	(25)	4	(21)
The effective part of gains/(losses) on hedging instrument	(17)	3	(14)	86	(16)	70
The amount transferred to the income statement	35	(7)	28	(91)	18	(73)
The amount transferred to the initial carrying amount of the hedged item	32	(6)	26	–	–	–
End of period	20	(4)	16	(30)	6	(24)

During the 12 months ended 31 December 2009 and 2008, interest income/(expense) on cash flow hedges that were transferred from other comprehensive income and adjusted interest expense on hedged debt amounted to PLN (22) and PLN (42) million, respectively (see Note 11).

During the 12 months ended 31 December 2009 and 2008, foreign exchange gains/(losses) on cash flow hedges that were transferred from other comprehensive income and adjusted foreign exchange differences on hedged debt amounted to PLN (7) and PLN 104 million, respectively (see Note 11).

During the 12 months ended 31 December 2009 and 2008, foreign exchange gains/(losses) on cash flow hedges that were transferred from other comprehensive income and adjusted foreign exchange differences on hedged UMTS licence payables presented under other operating income/expense, amounted to PLN (3) million and PLN 29 million, respectively (see Note 7.3).

During the 12 months ended 31 December 2009, foreign exchange gains/(losses) on cash flow hedges that were transferred from other comprehensive income to external purchases and adjusted rental costs amounted to PLN (3) million. During the 12 months ended 31 December 2008, the Group did not enter into hedges of rental commitments (see Note 7.1).

During the 12 months ended 31 December 2009, foreign exchange gains/(losses) on cash flow hedges of highly probable forecast transactions that were transferred from other comprehensive income and adjusted the initial carrying amount of property, plant and equipment and inventories amounted to PLN (32) million.

During the 12 months ended 31 December 2009, there was no material forecast transaction for which hedge accounting was discontinued as it was no longer expected to occur.

During the 12 months ended 31 December 2008, the Group did not enter into hedge of highly probable forecast transaction

14. Goodwill

Goodwill arising from consolidated subsidiaries is as follows:

	At 31 December 2009			At 31 December 2008
(in PLN millions)	Cost	Accumulated impairment	Net	Cost	Accumulated impairment	Net
Wirtualna Polska	247	(162)	85	247	(162)	85
PTK Centertel	3,909	–	3,909	3,909	–	3,909
Ramsat (1)	22	–	22	–	–	–
Total goodwill	4,178	(162)	4,016	4,156	(162)	3,994

• (1)See Note 5.

15. Other intangible assets

			At 31 December 2009
(in PLN millions)			Cost	Accumulated amortisation	Impairment	Net
Telecommunications licenses			2,345	(921)	–	1,424
Software			4,186	(2,917)	–	1,269
Other intangibles			164	(78)	(12)	74
Total			6,695	(3,916)	(12)	2,767

			At 31 December 2008		At 1 January 2008
(in PLN millions)		Cost	Accumulated amortisation	Impairment	Net	Net
Telecommunications licenses		2,345	(775)	–	1,570	1,715
Software		3,768	(2,484)	(7)	1,277	1,276
Other intangibles		129	(61)	(1)	67	106
Total		6,242	(3,320)	(8)	2,914	3,097

Movements in the net book value of other intangible assets were as follows:

(in PLN millions)					12 months ended 31 December 2009	12 months ended 31 December 2008
Opening balance net of accumulated amortisation and impairment					2,914	3,097
Acquisitions of intangible assets					546	461
Amortisation					(675)	(617)
Impairment					(11)	–
Reclassifications and other, net					(7)	(27)
Closing balance					2,767	2,914

Details of the Group's principal intangible assets (telecommunications licenses) are as follows:

(in PLN millions)					Net book value
		Acquisition date	Concession term	Acquisition value	At 31 December 2009	At 31 December 2008
DCS 1800 Concession		1997	2012	318	66	90
GSM 900 Concession		1999	2014	402	116	142
UMTS Concession		2000	2023	2,495	1,242	1,338
Total telecommunications licenses				3,215	1,424	1,570

16. Property, plant and equipment

		At 31 December 2009
(in PLN millions)		Cost	Accumulated depreciation	Impairment	Net
Land and buildings		3,627	(1,241)	(93)	2,293
Networks and terminals		38,725	(23,684)	(12)	15,029
IT equipment		1,990	(1,504)	–	486
Investment grants		(246)	98	–	(148)
Other		426	(337)	(6)	83
Total		44,522	(26,668)	(111)	17,743

		At 31 December 2008		At 1 January 2008
(in PLN millions)	Cost	Accumulated depreciation	Impairment	Net	Net
Land and buildings	3,622	(1,091)	(115)	2,416	2,477
Networks and terminals	37,575	(21,160)	(14)	16,401	18,002
IT equipment	2,066	(1,255)	–	811	774
Investment grants	(266)	103	–	(163)	(179)
Other	469	(341)	(4)	124	46
Total	43,466	(23,744)	(133)	19,589	21,120

Investment grants relate to certain property, plant and equipment received by TP S.A. from Public Telephone Committees (Społeczne Komitety Telefonizacji).

Movements in the net book value of property, plant and equipment were as follows:

(in PLN millions)	12 months ended 31 December 2009	12 months ended 31 December 2008
Opening balance net of accumulated depreciation and impairment	19,589	21,120
Acquisitions of property, plant and equipment	1,661	2,118
Disposals and retirements, net	(19)	(19)
Depreciation	(3,475)	(3,700)
(Impairment)/reversal of impairment	(22)	19
Reclassifications and other, net	9	51
Closing balance	17,743	19,589

The carrying value of equipment held under finance leases as at 31 December 2009 and 2008 amounted to PLN 22 million and less than PLN 1 million, respectively. During the 12 months ended 31 December 2009, acquisitions of equipment financed through finance leases amounted to PLN 22 million. There were no additions during the 12 months ended 31 December 2008 of equipment held under finance leases. Leased assets cannot be sold, donated, transferred by title or pledged and are a collateral for the related finance lease liability.

17. Financial assets

17.1. Assets available for sale

The Group's assets available for sale are presented below:

(in PLN millions)	At 31 December 2009			At 31 December 2008
	Cost/Fair value	Impairment	Net	Cost/Fair value	Impairment	Net
Main unlisted companies
Exatel	14	(11)	3	14	(11)	3
Other	2	(1)	1	2	(1)	1
Total assets available for sale	16	(12)	4	16	(12)	4

Financial assets available for sale are measured at historical cost less impairment and mainly comprise shares for which there is no active market and fair value cannot be reliably measured except for the shares in ICO Global Communications (Holdings) Limited which are traded on NASDAQ.

17.2. Loans and receivables excluding trade receivables

The Group's loans and receivables excluding trade receivables are presented below:

(in PLN millions)	At 31 December 2009			At 31 December 2008
	Cost	Impairment	Net	Cost	Impairment	Net
Finance lease receivables	19	–	19	13	–	13
Other	5	–	5	13	–	13
Total loans and receivables excluding trade receivables	24	–	24	26	–	26
Current	13	–	13	9	–	9
Non-current	11	–	11	17	–	17

The Group's maximum exposure to credit risk is represented by the carrying amounts of loans and receivables.

17.3. Financial assets at fair value through profit or loss

The Group's assets at fair value through profit or loss are presented below:

	Fair value
(in PLN millions)	At 31 December 2009	At 31 December 2008
Derivatives – held for trading (1)	62	155
Marketable securities – held for trading (1)	9	7
Total assets at fair value through profit or loss	71	162
Current	9	118
Non-current	62	44

• (1)Included in net debt calculation (see Note 19).


The Group’s maximum exposure to credit risk is represented by the carrying amounts of derivatives. The Group enters into derivatives contracts with leading financial institutions. Limits are applied to monitor the level of exposure on the financial counterparties. In case the counterparty’s financial soundness is deteriorating, the Group applies the appropriate measures mitigating the default risk.

17.4. Financial assets measured at fair value

The following tables provide an analysis of the Group’s financial assets that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable (see Note 3.5.12).

	At 31 December 2009
	Fair value measurement
(in PLN millions)	Level 1	Level 2	Level 3	Total
Financial assets at fair value through profit or loss	9	62	–	71
Derivatives – held for trading	–	62	–	62
Marketable securities – held for trading	9	–	–	9
Hedging derivatives	–	57	–	57
Total	9	119	–	128

	At 31 December 2008
	Fair value measurement
(in PLN millions)	Level 1	Level 2	Level 3	Total
Financial assets at fair value through profit or loss	7	155	–	162
Derivatives – held for trading	–	155	–	155
Marketable securities – held for trading	7	–	–	7
Hedging derivatives	–	12	–	12
Total	7	167	–	174

During the 12 months ended 31 December 2009 and 2008, there was no transfer between Level 1 and Level 2 fair value measurements, and no transfer into and out of Level 3 fair value measurement.

18. Trade receivables, other assets (current) and prepaid expenses

(in PLN millions)	At 31 December 2009	At 31 December 2008
Trade receivables (net of impairment) (1), (3)	1,475	1,814
VAT receivables	39	30
Other taxes receivables	3	2
Employee-related receivables (3)	2	5
Other (2)	75	65
Other assets (1)	119	102
Inactivated mobile phones and terminals in the external dealership network	61	94
Other prepaid expenses	39	19
Prepaid expenses	100	113

• (1)Additions to impairment of trade and other receivables (net of reversals) are presented in Note 7.3.
• (2)Mainly includes receivables related to: advances and prepayments to suppliers, sales of fixed assets, rental of equipment and usable areas, reinvoicing cost of advertising and promotion, penalties.
• (3)Classified as loans and receivables under IAS 39.

The Group considers there is no concentration of credit risk with respect to trade receivables due to its large and diverse customer base consisting of individual and business customers.

The Group's maximum exposure to credit risk at the reporting date is best represented by the carrying amounts of those instruments recognised in the balance sheet.

Movement in the impairment of trade, employee-related and other receivables in the 12 months ended 31 December 2009 and 2008 is presented below:

(in PLN millions)	12 months ended 31 December 2009	12 months ended 31 December 2008
Beginning of period	323	375
Net change in impairment	(25)	(52)
End of period	298	323

In the 12 months ended 31 December 2009 and 2008, impaired receivables written off amounted to PLN 250 million and PLN 237 million, respectively.

As at 31 December 2009 and 2008, the analysis of trade receivables that are past due but not impaired is as follows:

At 31 December 2009:

			Past due in the following periods
(in PLN millions)	Carrying amount	Neither impaired nor past due	Less than 180 days	Between 180 and 360 days	More than 360 days
Trade receivables – collectively analysed for impairment	1,463	858	526	51	28
Trade receivables – individually analysed for impairment	12
Total trade receivables, net	1,475

At 31 December 2008:

			Past due in the following periods
(in PLN millions)	Carrying amount	Neither impaired nor past due	Less than 180 days	Between 180 and 360 days	More than 360 days
Trade receivables – collectively analysed for impairment	1,733	1,045	649	16	23
Trade receivables – individually analysed for impairment	81
Total trade receivables, net	1,814

19. Net debt

19.1. Analysis of net financial debt by composition and maturity

Net financial debt corresponds to the total gross financial debt (converted at the period-end exchange rate), after net derivative instruments (liabilities less assets) classified as at fair value through profit or loss, cash flow hedges and fair value hedges, less cash and cash equivalents, cash collateral paid related to derivatives and including the impact of the effective portion of cash flow hedges.

The maturity analysis of the Group's financial liabilities is based on contractual undiscounted payments. As at 31 December 2009 and 2008 amounts in foreign currency were translated at the NBP period-end exchange rates. The variable interest payments arising from the financial instruments were calculated using the latest interest rates fixed before 31 December 2009 and 2008, respectively. Financial liabilities that can be repaid at any time at the Group's discretion are classified as current or non-current, depending on the expected repayment date; non-current balance is assigned to the period of the final contractual maturity date.

The table below provides a breakdown of net financial debt by category and maturity analysis of financial liabilities based on contractual undiscounted cash flows:

At 31 December 2009:

			Undiscounted contractural cash flows (1)
			Within 1 year			Non- current				Total
(in PLN millions)	Note	Carrying amount		1-2 years	2-3 years	3-4 years	4-5 years	More than 5 years	Total non- current
Trade payables (excl. UMTS) (A)	29	2,418	2,418	–	–	–	–	–	–	2,418
UMTS license payables (B)	29	849	62	62	62	62	115	931	1,232	1,294
Bonds	21	4,259	228	1,461	172	172	3,048	–	4,853	5,081
Bank borrowings	21	2,128	302	297	700	953	40	64	2,054	2,356
Finance lease liabilities		21	6	6	6	3	2	–	17	23
Financial liabilities at amortised cost (2)		6,408	536	1,764	878	1,128	3,090	64	6,924	7,460
Derivatives – net (3)	22	181	190	90	55	54	173	–	372	562
Gross financial debt after derivatives (C)		6,589	726	1,854	933	1,182	3,263	64	7,296	8,022
Total financial liabilities (A)+(B)+(C)		9,856	3,206	1,916	995	1,244	3,378	995	8,528	11,734
Marketable securities	17	9
Cash and cash equivalents	20	2,218
Sub – total (D)		2,227
Effective portion of cash flow hedges (E)		20
Net financial debt (C)-(D)+(E)		4,382

• (1)Includes both nominal and interest payments.
• (2)Excluding trade payables and UMTS license payables.
• (3)Both assets and liabilities are included.

At 31 December 2008:

			Undiscounted contractural cash flows (1)
			Within 1 year			Non- current				Total
(in PLN millions)	Note	Carrying amount		1-2 years	2-3 years	3-4 years	4-5 years	More than 5 years	Total non- current
Trade payables (excl. UMTS) (A)	29	3,000	3,000	–	–	–	–	–	–	3,000
UMTS license payables (B)	29	873	63	63	63	63	63	1,062	1,314	1,377
Bonds	21	1,276	58	58	1,310	–	–	–	1,368	1,426
Bank borrowings	21	5,899	2,296	963	1,551	734	968	108	4,324	6,620
Financial liabilities at amortised cost (2)		7,175	2,354	1,021	2,861	734	968	108	5,692	8,046
Derivatives – net (3)	22	(94)	(71)	19	–	(2)	–	(3)	14	(57)
Gross financial debt after derivatives (C)		7,081	2,283	1,040	2,861	732	968	105	5,706	7,989
Total financial liabilities (A)+(B)+(C)		10,954	5,346	1,103	2,924	795	1,031	1,167	7,020	12,366
Marketable securities	17	7
Cash and cash equivalents	20	1,640
Sub – total (D)		1,647
Effective portion of cash flow hedges (E)		(30)
Net financial debt (C)-(D)+(E)		5,404

• (1)Includes both nominal and interest payments.
• (2)Excluding trade payables and UMTS license payables.
• (3)Both assets and liabilities are included.

As at 31 December 2009 and 2008, most of the Group's trade payables mature within 3 months.

19.2. Analysis of net financial debt by currency

	At 31 December 2009
(equivalent value in PLN millions at the period-end exchange rate)	GBP	PLN	EUR	USD	Total
Net financial debt by currency	(1)	(415) (1)	4,760	38	4,382
Impact of derivatives notional amount	–	6,934	(6,823)	(111)	–
Net financial debt by currency after impact of derivatives notional amount	(1)	6,519	(2,063)	(73)	4,382

• (1)Including market value of derivatives.

	At 31 December 2008
(equivalent value in PLN millions at the period-end exchange rate)	PLN	EUR	USD	Total
Net financial debt by currency	3,490 (1)	1,876	38	5,404
Impact of derivatives notional amount	2,242	(2,242)	–	–
Net financial debt by currency after impact of derivatives notional amount	5,732	(366)	38	5,404

• (1)Including market value of derivatives.

20. Cash and cash equivalents

The Group's cash and cash equivalents are as follows:

(in PLN millions)	At 31 December 2009	At 31 December 2008
Cash on hand	–	1
Current bank accounts and overnight deposits	324	981
Deposits up to 3 months	1,022	107
Securities with a maturity up to 3 months	872	551
Total cash and cash equivalents	2,218	1,640

The Group's cash surplus is invested into short-term highly-liquid financial instruments e.g. bank deposits and T-bills. The term of the investments depends on the immediate cash requirements of the Group. Short term deposits are made for varying periods of between one day and one month while investments into T-bills are typically for one to three months. The instruments earn interest which depends on the current money market rates and the term of investment.

As at 31 December 2009 and 2008, cash and cash equivalents included an equivalent of PLN 52 million and PLN 142 million, respectively, denominated in foreign currencies.

The Group's maximum exposure to credit risk at the reporting date is best represented by carrying amounts of cash and cash equivalents. The Group deposits its cash and cash equivalents with leading financial institutions with investment grade. Limits are applied to monitor the level of exposure on the financial counterparties. In case the counterparty's financial soundness is deteriorating, the Group applies the appropriate measures mitigating the default risk.

21. Financial liabilities at amortised cost excluding trade payables

21.1. Bonds

The table below provides an analysis of bonds issued by the Group:

(in PLN millions)						Amount outstanding at (1)
Issuer	Series	Nominal value (in millions of currency)	Nominal interest rate	Issue date	Redemption date	31 December 2009	31 December 2008
TPSA Eurofinance France S.A.	T	300 EUR	4.625%	5 July 2004	5 July 2011	1,258	1,276
TPSA Eurofinance France S.A.	A1	500 EUR	6.000%	22 May 2009	22 May 2014	2,115	–
TPSA Eurofinance France S.A.	A2	200 EUR	6.000%	17 July 2009	22 May 2014	886	–
Total bonds issued by the Group						4,259	1,276
Current						132	28
Non-current						4,127	1,248

• (1)Includes accrued interest and the fair value adjustment to the bonds hedged by fair value hedge.

The weighted average effective interest rate on the Group's bonds, before swaps, amounted to 5.41% as at 31 December 2009 and 4.72% as at 31 December 2008.

The European Medium Term Note issuance programme

On 20 March 2009, the Supervisory Board of TP S.A. formulated a positive opinion on the Management Board's proposal to establish and carry out the European Medium Term Note issuance programme ("the Programme"). The purpose of the Programme is to raise external capital for financing the Group's needs. The Management Board of TP S.A. established the Programme on 6 May 2009. Under the Programme, TPSA Eurofinance France S.A., a subsidiary of TP S.A., may issue debt in the European market up to the aggregate amount equivalent to EUR 1,500 million.

On 22 May 2009, TPSA Eurofinance France S.A. issued under the Programme debt notes totalling EUR 500 million par ("the Debt Notes"). TPSA Eurofinance France S.A. has raised EUR 497 million net from the issue of the Debt Notes. The interest coupon on the Debt Notes is 6.00% of their nominal value per annum, the issue price was at 99.764 per 100 units of their nominal value and their redemption date is 22 May 2014.

On 17 July 2009, TPSA Eurofinance France S.A. issued under the Programme debt notes totalling EUR 200 million par ("the Debt Notes"). The interest coupon on the Debt Notes is 6.00% of their nominal value per annum, the issue price was at 105.12 per 100 units of their nominal value and their redemption date is 22 May 2014. Following the issuance of debt notes of EUR 500 million par that took place on 22 May 2009, the total amount of debt notes issued under the Programme increased to EUR 700 million par.

The arrangers and the initial subscribers were Societe Generale Corporate & Investment Banking and Barclays Capital. The Debt Notes are traded on the Luxembourg Stock Exchange. The Debt Notes are subject to an unconditional and irrevocable guarantee granted by TP S.A. on 6 May 2009. The guarantee covers the performance of all potential obligations of the debt note issuer, i.e. TPSA Eurofinance France S.A., towards the debt note holders, particularly an obligation to effect the redemption payment for the debt notes issued in the Programme, the payment of the interest on the debt notes and any other payments due according to the issue terms and conditions.

21.2. Bank borrowings

The table below provides an analysis of bank borrowings by creditor:

			Amount outstanding at (1)
	Interest rate as		31 December 2009		31 December 2008
Creditor	at 31 December 2009	Repayment date	Currency (millions)	PLN (millions)	Currency (millions)	PLN (millions)
Floating rate
European Investment Bank	1.39% (2)	15 December 2015	50 EUR	206	58 EUR	244
European Investment Bank	0.84% (2)	15 June 2012	83 EUR	343	117 EUR	488
European Investment Bank	4.35% (2)	15 June 2012	130 PLN	130	182 PLN	182
Bayern LandesBank (syndicated)	–	20 February 2011	(1) PLN (4)	(1)	2,517 PLN	2,517
Bank Pekao S.A.	–	30 June 2010	–	–	1,010 PLN	1,010
Bank Handlowy (syndicated)	–	18 April 2010	(1) PLN (4)	(1)	(1) PLN (4)	(1)
European Investment Bank	4.21%-4.60% (2) (3)	17 September 2012 - 15 September 2013	1,399 PLN	1,399	1,403 PLN	1,403
Other bank borrowings	–	–	3 PLN	3	–	–
Fixed rate
Instituto de Credito Oficial	1.25%	2 January 2021	17 USD	49	19 USD	56
Total bank borrowings borrowed by the Group				2,128		5,899
Current				238		2,072
Non-current				1,890		3,827

• (1)Includes accrued interest and bank borrowings issue costs.
• (2)Floating rate determined by the bank every three months.
• (3)Floating rate determined by the bank individually for every drawing.
• (4)Paid arrangement fees.

The weighted average effective interest rate on the Group's bank borrowings, before swaps, amounted to 3.49% as at 31 December 2009 and 6.31% as at 31 December 2008.

22. Derivatives

As at 31 December 2009 and 2008, the majority of the Group's derivatives portfolio constitutes financial instruments for which there is no active market (over-the-counter derivatives) i.e. the interest rate and currency swaps. To price these instruments the Group applies standard valuation techniques, where the prevailing market zero-coupon curves constitute the base for calculation of discounting factors. A fair value of swap transaction represents a discounted future cash flows converted into PLN at the period-end exchange rate. The derivative financial instruments used by the Group are presented below:

Type of instrument (1)	Hedged item	Hedged nominal amount	Maturity	Fair value (4) (in PLN millions)
				Financial Asset	Financial Liability
	At 31 December 2009
Derivative instruments – fair value hedge
CCS	Bonds, currency risk	10 EUR	2011	1	–
CCIRS	Bonds, currency and interest rate risk	180 EUR	2011-2014	6	(4)
IRS	Bonds, interest rate risk	180 EUR	2014	20	–
Total of fair value hedges				27	(4)
Derivative instruments – cash flow hedge
CCS (2)	Bank borrowings, currency risk	31 EUR	2012	–	(8)
IRS	Bank borrowings, interest rate risk	130 PLN	2012	–	(4)
CCS	Bonds, currency risk	130 EUR	2011	9	(24)
CCIRS	Bonds, currency and interest rate risk	303 EUR	2014	–	(78)
IRS	Bonds, interest rate risk	53 EUR	2014	6	–
IRS	Bonds, interest rate risk	1,341 PLN	2014	–	(30)
CCS	UMTS, currency risk	44 EUR	2014	13	–
NDF	Commercial transactions, currency risk	66 EUR	2010	1	(2)
NDF	Commercial transactions, currency risk	10 USD	2010	1	–
Total of cash flow hedges				30	(146)
Derivative instruments – held for trading
CCIRS (3)	Bank borrowings, currency and interest rate risk	28 EUR	2012	14	–
IRS	Bank borrowings, interest rate risk	100 PLN	2010	–	(3)
NDF	Bank borrowings, currency risk	29 USD	2010	–	(6)
NDF	Bank borrowings, currency risk	75 EUR	2010	0	(5)
CCIRS	Bonds, currency and interest rate risk	217 EUR	2011-2014	1	(41)
IRS	Bonds, interest rate risk	951 PLN	2011-2014	–	(19)
IRS	Bonds, interest rate risk	217 EUR	2014	24	–
NDF	Bonds, currency risk	160 EUR	2010	0	(13)
IRS	UMTS, interest rate risk	208 PLN	2014	–	(1)
NDF	UMTS, currency risk	136 EUR	2010	0	(18)
CCIRS	Commercial transactions, currency risk	40 EUR	2011	23	–
NDF	Commercial transactions, currency risk	241 EUR	2010	–	(44)
Total of derivatives held for trading				62	(150)
Total of derivative instruments				119	(300)
Current				2	(91)
Non-current				117	(209)

• (1)CCIRS – cross currency interest rate swap, CCS – cross currency swap, IRS – interest rate swap, NDF – non-deliverable forward, FWD – forward.
• (2)Interest is calculated on notional amounts of EUR 31 million and PLN 137 million, which are subject to adjustment in accordance with repayment schedule.
• (3)Interest is calculated on notional amounts of EUR 28 million and PLN 100 million, which are subject to adjustment in accordance with repayment schedule.
• (4)Value 0 or (0) represents an asset or a liability below PLN 500 thousand, respectively.

Type of instrument (1)	Hedged item	Hedged nominal amount	Maturity	Fair value (4) (in PLN millions)
				Financial Asset	Financial Liability
	At 31 December 2008
Derivative instruments – fair value hedge
CCS	Bonds, currency risk	10 EUR	2011	1	–
Total of fair value hedges				1	–
Derivative instruments – cash flow hedge
CCS (2)	Bank borrowings, currency risk	44 EUR	2012	–	(15)
IRS	Bank borrowings, interest rate risk	182 PLN	2012	–	(10)
CCS	Bonds, currency risk	130 EUR	2011	4	(34)
CCS	UMTS, currency risk	53 EUR	2014	7	–
Total of cash flow hedges				11	(59)
Derivative instruments – held for trading
CCIRS (3)	Bank borrowings, currency and interest rate risk	39 EUR	2012	22	–
IRS	Bank borrowings, interest rate risk	50 PLN	2011	0	–
CCIRS	Commercial transactions, currency risk	40 EUR	2011	21	–
NDF, FWD	Commercial transactions, currency risk	132 EUR	2009	71	(14)
Structured FX options	Commercial transactions, currency risk	90 EUR	2009	41	–
Total of derivatives held for trading				155	(14)
Total of derivative instruments				167	(73)
Current				111	(14)
Non-current				56	(59)

• (1)CCIRS – cross currency interest rate swap, CCS – cross currency swap, IRS – interest rate swap, NDF – non-deliverable forward, FWD – forward.
• (2)Interest is calculated on notional amounts of EUR 31 million and PLN 137 million, which are subject to adjustment in accordance with repayment schedule.
• (3)Interest is calculated on notional amounts of EUR 28 million and PLN 100 million, which are subject to adjustment in accordance with repayment schedule.
• (4)Value 0 or (0) represents an asset or a liability below PLN 500 thousand, respectively.

The periods when the cash flows on cash flow hedges are expected to occur and when they are expected to affect profit and loss are presented below.

At 31 December 2009:

		Principal				Interest
Type of instrument	Hedged item	From	To	Receive and pay	From	To	Receive	Pay
CCS	Bank borrowings	Jun 2009	Jun 2012	Semi- annually	Sep 2004	Jun 2012	–	Quarterly
CCS	Bonds	–	Jul 2011	Maturity	Jan 2005	Jul 2011	–	Semi- annually
IRS	Bank borrowings	–	–	–	Jun 2004	Jun 2012	Quarterly	Quarterly
CCS	UMTS	Sep 2007	Sep 2014	Annually	Dec 2006	Sep 2014	–	Quarterly
CCIRS	Bonds	–	May 2014	Maturity	May 2009	May 2014	Quarterly to Annually	Quarterly
IRS	Bonds	–	–	–	May 2009	May 2014	Quarterly to Annually	Quarterly to Annually
NDF	Commercial transactions	Jan 2010	Jun 2010	Monthly	–	–	–	–

At 31 December 2008:

		Principal				Interest
Type of instrument	Hedged item	From	To	Receive and pay	From	To	Receive	Pay
CCS	Bank borrowings	Jun 2009	Jun 2012	Semi- annually	Sep 2004	Jun 2012	–	Quarterly
CCS	Bonds	–	Jun 2011	Maturity	Jan 2005	Jul 2011	–	Semi- annually
IRS	Bank borrowings	–	–	–	Jun 2004	Jun 2012	Quarterly	Quarterly
CCS	UMTS	Sep 2007	Sep 2014	Annually	Dec 2006	Sep 2014	–	Quarterly

The Group's maximum exposure to credit risk is represented by the carrying amounts of derivatives. The Group enters into derivatives contracts with leading financial institutions. Limits are applied to monitor the level of exposure on the financial counterparties. In case the counterparty's financial soundness is deteriorating, the Group applies the appropriate measures mitigating the default risk.

The following tables provide an analysis of the Group's financial liabilities that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable (see Note 3.5.12).

	At 31 December 2009
	Fair value measurement
(in PLN millions)	Level 1	Level 2	Level 3	Total
Financial liabilities at fair value through profit or loss	–	150	–	150
Derivatives – held for trading	–	150	–	150
Hedging derivatives	–	150	–	150
Total	–	300	–	300

	At 31 December 2008
	Fair value measurement
(in PLN millions)	Level 1	Level 2	Level 3	Total
Financial liabilities at fair value through profit or loss	–	14	–	14
Derivatives – held for trading	–	14	–	14
Hedging derivatives	–	59	–	59
Total	–	73	–	73

During 12 months ended 31 December 2009 and 2008, there was no transfer between Level 1 and Level 2 fair value measurements, and no transfer into and out of Level 3 fair value measurement.

23. Objectives and policies of financial risk management

23.1. Principles of financial risk management

The Group is exposed to some risks arising mainly from financial instruments that are issued and held as part of its operating and financing activities. That exposure can be principally classified as market risk (encompassing currency risk and interest rate risk), liquidity risk and credit risk. The Group manages the financial risks with the objective to limit its exposure to adverse changes in foreign exchange rates and interest rates, to stabilise cash flows and to ensure an adequate level of financial liquidity and flexibility.

The principles of the Group Financial Risk Management Policy have been approved by the Management Board. Operationally, financial risk management is conducted by the Corporate Finance Branch according to developed strategies confirmed by the Treasury Committee under the direct control of the Chief Financial Officer.

Group Financial Risk Management Policy defines principles and responsibilities within the context of an overall financial risk management and covers the following elements:

• risk measures used to identify and evaluate the exposure to financial risks,
• selection of appropriate instruments to hedge against identified risks,
• valuation methodology used to determine the fair value of derivatives,
• methods for testing hedging effectiveness for accounting purposes,
• transaction limits for and credit ratings of the leading financial institutions with which the Group concludes hedging transactions.

23.2. Hedge accounting

The Group has entered into numerous derivative transactions to hedge exposure to currency risk and interest rate risk. The derivatives used by the Group include: cross currency interest rate swaps, cross currency swaps, interest rate swaps, currency options, currency forwards and non-deliverable forwards.

Certain derivative instruments are designated as fair value hedges or cash flow hedges and the Group applies hedge accounting principles as stated in IAS 39 (see Note 3.5.12). The fair value hedges are used for hedging changes in the fair value of financial instruments that are attributable to particular risk and could affect the income statement. Cash flow hedges are used to hedge the variability of future cash flows that is attributable to particular risk and could affect the income statement.

Derivatives are used for hedging activities and it is the Group's policy that the derivative financial instruments are not used for trading (speculative) purposes. However, certain derivatives held by the Group are classified as held for trading as they do not fulfil all requirements of hedge accounting as set out in IAS 39 and hedge accounting principles are not applied to those instruments. The Group considers those derivative instruments as economic hedges because they, in substance, protect the Group against currency risk and interest rate risk.

Detailed information on derivative financial instruments, including hedging relationship, that are used by the Group is presented in Note 22.

23.3. Currency risk

The Group is exposed to foreign exchange risk arising from financial liabilities denominated in foreign currencies, namely bonds and bank borrowings denominated in EUR and USD (see Note 21) and trade receivables, trade payables and provisions of which a significant balance relates to the UMTS license payable denominated in EUR (see Note 19 and Note 29).

The Group's foreign exchange hedging policy, minimising the impact of fluctuations in exchange rates, is set on a regular basis. The acceptable exposure to a selected currency is a result of the risk analysis in relation to an open position in that currency, given the financial markets' expectations of foreign exchange rates movements during a specific time horizon.

Within the scope of the given hedging policy, the Group hedges its exposure entering mainly into cross currency swaps, cross currency interest rate swaps and forward currency contracts, under which the Group agrees to exchange a notional amount denominated in a foreign currency into PLN. As a result, the gains/losses generated by derivative instruments compensate the foreign exchange losses/gains on the hedged items. Therefore, the variability of the foreign exchange rates has a limited impact on the consolidated income statement, as well as consolidated other comprehensive income.

As at 31 December 2009, 99.9% (as at 31 December 2008, 45.6%) of the outstanding balance of bonds and bank borrowings denominated in foreign currencies were hedged against currency risk by use of derivative instruments. As at 31 December 2009, 57.0% (as at 31 December 2008, 15.9%) of the outstanding nominal amount of the UMTS license payable was hedged against currency risk.

Starting from the second quarter of 2009, the Group began to hedge the exposure to foreign exchange risk generated by operating and capital expenditures.

The Group uses the sensitivity analysis described below to measure currency risk.

The Group's major exposures to foreign exchange risk (net of hedging activities) and potential foreign exchange gains/losses on these exposures resulting from a hypothetical 10% appreciation/depreciation of the PLN against other currencies are presented in the following table.

(in millions of currency)	Effective exposure after hedging impacting consolidated income statement					Sensitivity to a change of the PLN against other currencies
Financial instrument	31 December 2009		31 December 2008			31 December 2009		31 December 2008
	Currency	PLN	Currency	PLN		+10%  -10% PLN		+10%  -10% PLN
Bonds and bank borrowings (EUR)	–	–	252	1,051		–	–	105	(105)
Bonds and bank borrowings (USD)	2	6	19	56		1	(1)	6	(6)
UMTS license payable (EUR)	135	555	277	1,156		56	(56)	116	(116)
Total		561		2,263		57	(57)	227	(227)

The sensitivity analysis presented above is based on the following principles:

• unhedged portion of the notional amount of financial liabilities (including the UMTS license) is exposed to foreign exchange risk (effective exposure),
• derivatives satisfying hedge accounting requirements and those classified as economic hedges are treated as risk-mitigation transactions,
• cash and cash equivalents are excluded from the analysis.

The changes in fair value of derivatives classified as cash flow hedges of forecast transactions affect consolidated other comprehensive income. The potential foreign exchange gains/losses on these hedges resulting from a hypothetical 10% appreciation/depreciation of the PLN against other currencies are as follows:

(in PLN millions)	Sensitivity of fair value of cash flow hedges to a change of the PLN against other currencies
Hedged item	At 31 December 2009			At 31 December 2008
	+10%	-10%		+10%	-10%
	PLN			PLN
Commercial transactions (EUR)	(27)	27		–	–
Commercial transactions (USD)	(3)	3		–	–
Total amount impacting other comprehensive income	(30)	30		–	–

23.4. Interest rate risk

The interest rate risk is a risk that the fair value or future cash flows of the financial instrument will change due to interest rates changes. The Group has interest bearing financial liabilities consisting mainly of bonds and bank borrowings (see Note 21).

The Group's interest rate hedging policy limiting exposure to unfavourable movements of interest rates is set on a regular basis. The preferable split between fixed and floating rate debt is the result of the analysis indicating the impact of the potential interest rates evolution on the financial costs.

According to the given hedging strategy, the Group uses interest rate swaps and cross currency interest rate swaps to hedge its interest rate risk. As a result of the hedge, the structure of the liabilities changes to the desired one, as liabilities based on the floating/fixed interest rates are effectively converted into fixed/floating obligations.

As at 31 December 2009 and 2008, the Group's proportion between fixed/floating rate debt (including hedging activities) was 46/54% and 21/79%, respectively.

The Group uses the sensitivity analysis described below to measure interest rate risk.

The table below provides the Group's exposures to interest rate risk (net of hedging activities) assuming a hypothetical decrease/increase in the interest rates by 1 percent.

(in PLN millions)	Potential increase /(decrease) in value resulting from 1% change of interest rates
	At 31 December 2009		At 31 December 2008
	+1%	-1%	+1%	-1%
Finance costs, net	63	(64)	58	(58)
Other comprehensive income	2	(2)	3	(3)
Fair value of gross financial debt after derivatives	(88)	88	(41)	41

The sensitivity analysis presented above is based on the following principles:

• finance costs, net include the following items exposed to interest rate risk: a) interest cost on financial debt based on floating rate, after derivatives classified as hedges for accounting purpose and b) the change in the fair value of derivatives that do not qualify for hedge accounting,
• the effective portion of the change in the fair value of derivatives classified as cash flow hedges is recognised directly in other comprehensive income,
• as at 31 December 2009, the fair value of gross financial debt after derivatives (excluding finance lease) was PLN 6,705 million (as at 31 December 2008, PLN 7,059 million).

23.5. Liquidity risk

The liquidity risk is a risk of encountering difficulties in meeting obligations associated with financial liabilities. The Group's liquidity risk management involves forecasting future cash flows, analysing the level of liquid assets in relation to cash flows, monitoring balance sheet liquidity and maintaining a diverse range of funding sources and back-up facilities.

In order to increase efficiency, the liquidity management process is optimised through a centralised treasury function of the Group, as liquid asset surpluses generated by entities constituting the Group are invested and managed by the central treasury. The Group's cash surplus is invested into short-term highly-liquid financial instruments e.g. bank deposits and T-bills.

The Group also manages liquidity risk by maintaining committed, unused credit facilities, which create a liquidity reserve to secure solvency and financial flexibility. As at 31 December 2009, the Group had the following unused credit facilities amounting to PLN 5,801 million (as at 31 December 2008, PLN 2,336 million):

• PLN 3,521 million and EUR 5 million of the credit lines,
• EUR 550 million of back-up credit facility.

Liquidity risk is measured by applying following ratios calculated and monitored by the Group regularly:

• liquidity ratios,
• maturity analysis of undiscounted contractual cash flows resulting from the Group's financial liabilities,
• average debt duration.

The liquidity ratio, which represents the relation between available financing sources (i.e. cash, cash collateral and credit facilities) and debt repayments during next 12 and 18 months is presented in the following table.

(in PLN millions)	Liquidity ratios
	At 31 December 2009	At 31 December 2008
Liquidity ratio – next 12 months (%)	3,517%	196%
Unused credit facilities	5,801	2,336
Cash and cash equivalents	2,218	1,640
Debt repayments (1)	228	2,030
Liquidity ratio (incl. cash collaterals and derivatives) – next 12 months (%)	1,918%	203%
Derivatives (2)	190	(71)
Cash collateral paid	–	–
Liquidity ratio – next 18 months (%)	2,345%	150%
Unused credit facilities	5,801	2,336
Cash and cash equivalents	2,218	1,640
Debt repayments (1)	342	2,645
Liquidity ratio (incl. cash collaterals and derivatives) – next 18 months (%)	1,399%	154%
Derivatives (2)	231	(55)
Cash collateral paid	–	–

• (1)Undiscounted principal payments on debt.
• (2)Undiscounted net cash flows on derivatives; negative / positive amount represents positive / negative net result on cash flows.

The maturity analysis for the remaining contractual undiscounted cash flows resulting from the Group's financial liabilities as at 31 December 2009 and 2008 is presented in Note 19.1. The average duration for the existing debt portfolio as at 31 December 2009 is 3.3 years (as at 31 December 2008, 2.2 years).

23.6. Credit risk

There is no significant concentration of credit risk within the Group.

The main function of the Credit Committee under the control of the Chief Financial Officer is to coordinate and consolidate credit risk management activities across the Group, which involve:

• clients' risk assessment,
• monitoring clients' business and financial standing,
• managing accounts receivable and bad debts.

The policies and rules regarding consolidated credit risk management for the Group were approved by the Credit Committee.

Further information on credit risk is discussed in Notes 17, 18, 20 and 22.

23.7. Price risk

Pursuant to the Polish telecommunication law, prices for telecommunication services should be based on transparent and objective criteria.

In case of operators which are SMPs, UKE determines requirements for regulatory accounting and calculation of costs of telecommunication services. Fees for services provided on the relevant markets in which TP S.A., PTK–Centertel or TP EmiTel is a SMP must be approved by UKE before they become binding.

Cost calculations of wholesale services, which are provided based on regulatory obligations, are subject to examination and approval by UKE. If fees proposed by the operator, which is a SMP, are assessed as not in conformity with relevant regulations, UKE may change these fees.

As described in Note 31.1 c, the President of UKE declared in Memorandum of Understanding that wholesale rates for regulated services, and for Bitstream Access (under certain conditions), will be maintained at unchanged levels until the end of 2012.

Retail prices for services provided on the relevant retail markets where TP S.A. is a SMP and under universal service obligation are subject to UKE acceptance. TP S.A. may launch promotions and price changes which have not been objected to by the President of UKE. Moreover, the retail price increases should be announced with at least one settlement period in advance.

The Group believes that it fulfils all requirements in relation to regulatory accounting and cost calculations as stipulated in the telecommunication law.

23.8. Management of covenants

As at 31 December 2009 and 2008, the Group had no credit facilities or borrowings subject to specific covenants with regard to financial ratios.

24. Management of capital

The Group manages its capital through a balanced financial policy, which aims at providing both relevant funding capabilities for business development and at securing a relevant financial structure and liquidity.

The Group's capital management policy takes into consideration three key elements:

• business performance together with applicable investments and development plans,
• cash distribution policy and debt repayment schedule,
• the Group's rating and financial market environment.

In order to combine these factors the Group periodically establishes a framework for the financial structure. The current Group's objectives in that area are the following:

• Net Gearing ratio – maximum at the range of 35% – 40%,
• Net financial debt to EBITDA ratio – remaining below 1.5

The table below provides the capital ratios as at 31 December 2009 and 2008 and presents the sources of capital involved in their calculation. The Group regards capital as the total of equity and net financial debt.

(in PLN millions)
	At 31 December 2009	At 31 December 2008
Interest bearing bonds and bank borrowings and finance lease	6,408	7,175
Cash and cash equivalents	2,218	1,640
Marketable securities	9	7
Net financial debt before hedging	4,181	5,528
Derivatives (1)	201	(124)
Net financial debt	4,382	5,404
Equity	16,593	17,230
Equity and Net financial debt before hedging	20,774	22,758
Equity and Net financial debt	20,975	22,634
EBITDA	6,279	7,521
Net Gearing before hedging ratio (2)	20.1%	24.3%
Net Gearing ratio (3)	20.9%	23.9%
Net financial debt before hedging / EBITDA ratio	0.7	0.7
Net financial debt / EBITDA ratio	0.7	0.7

• (1)Marked-To-Market valuation of derivative portfolio (excluding effective portion of cash flow hedges).
• (2)Net Gearing before hedging = Net financial debt before hedging / (Net financial debt before hedging + Equity).
• (3)Net Gearing = Net financial debt / (Net financial debt + Equity).

The above policy imposes financial discipline, providing appropriate flexibility needed to sustain profitable development and the Group's cash distribution policy as set on an annual basis with a focus on delivering an attractive remuneration to Group's shareholders. There are no external imposed capital requirements on the Group.

25. Fair value of financial instruments

As at 31 December 2009 and 2008, the carrying amount of cash and cash equivalents, current trade receivables and trade payables, current loans and receivables and current financial liabilities at amortised cost approximates their fair value due to relatively short term maturity of those instruments or cash nature.

As at 31 December 2009 and 2008, the carrying amount of financial liabilities at amortised cost which bear variable interest rates approximates their fair value.

A comparison by classes of carrying amounts and fair values of those Group's financial instruments, for which the estimated fair value differs from the book value, is presented below.

(in PLN millions)	At 31 December 2009		At 31 December 2008
	Carrying amount (1)	Estimated fair value	Carrying amount (1)	Estimated fair value
Bonds with fixed interest rate	4,259	4,403	1,276	1,269
Bank borrowings with fixed interest rate	49	42	56	47
UMTS license payables	849	899	873	823
Total	5,157	5,344	2,205	2,139

• (1)Carrying amount includes accrued interest.

The fair value of financial instruments is calculated by discounting expected future cash flows at the prevailing zero coupon rate. In order to obtain all the necessary zero coupon rates, a theoretical zero coupon curve is constructed for each currency. Such a curve is derived from the SWAP rate curve adjusted by adding the prevailing credit spread for the debt issued by a telecom company with the same rating as the Group has. All the fair value amounts are translated to PLN at the National Bank of Poland period-end exchange rate.

26. Employee benefits

(in PLN millions)	At 31 December 2009	At 31 December 2008
Jubilee awards	151	152
Retirement bonuses and other post-employment benefits	127	145
Salaries, other employee-related payables and payroll taxes due	258	257
Total carrying value of employee benefit obligations	536	554
Current	302	272
Non-current	234	282

Certain employees and retirees of the Group are entitled to long-term employee benefits in accordance with the Group's remuneration policy (see Note 3.5.16). These benefits are not funded. The changes in the present value of liabilities related to employee benefits for the 12 months ended 31 December 2009 and 2008 are detailed in the table below:

	12 months ended 31 December 2009				12 months ended 31 December 2008
(in PLN millions)	Jubilee awards	Retirement bonuses	Other post- employment benefits	Total	Jubilee awards	Retirement bonuses	Other post- employment benefits	Total
Present value of obligation at the beginning of the period	152	87	94	333	167	91	78	336
Current service cost (1)	9	7	1	17	11	9	2	22
Interest cost (2)	7	5	4	16	8	5	4	17
Benefits paid	(36)	(5)	(8)	(49)	(35)	(4)	(7)	(46)
Recognised actuarial (gains)/losses for the period (1)	19	–	1	20	16	–	–	16
Unrecognised actuarial (gains)/losses for the period	–	9	4	13	–	–	20	20
Curtailment (1)	–	–	(23) (3)	(23)	(15)	(14)	(3)	(32)
Present value of obligation at the end of the period	151	103	73	327	152	87	94	333

• (1)Recognised under labour expense.
• (2)Recognised under discounting expense.
• (3)Curtailment of medical care provided to some of the Group's retired employees following the disposal of the Group's shareholding in TP Med Sp. z o.o. (see Note 5).

The valuation of obligations as at 31 December 2009 and 2008 was performed using the following assumptions:

	At 31 December 2009	At 31 December 2008
Discount rate	6.1%	6%
Wage increase rate	3%	3.5%-4%
Inflation rate	2.5%	2.5%
Pension indexing	up to 4%	up to 4%
Expected average remaining working lives (in years)	12.6 – 22.9	12.6 - 22.1

The reconciliation of recognised and unrecognised actuarial gains and losses for the 12 months ended 31 December 2009 and 2008 is presented below:

	12 months ended 31 December 2009				12 months ended 31 December 2008
(in PLN millions)	Jubilee awards	Retirement bonuses	Other post- employment benefits	Total	Jubilee awards	Retirement bonuses	Other post- employment benefits	Total
Unrecognised actuarial gains/(losses) at the beginning of the period	–	(11)	(25)	(36)	–	(11)	(5)	(16)
Actuarial gains/(losses) for the period	(19)	(9)	(5)	(33)	(16)	–	(20)	(36)
Subtotal	(19)	(20)	(30)	(69)	(16)	(11)	(25)	(52)
Actuarial (gains)/losses recognised	19	–	1	20	16	–	–	16
Unrecognised actuarial gains/(losses) at the end of the period	–	(20)	(29)	(49)	–	(11)	(25)	(36)

The reconciliation between present value and carrying value of defined benefit obligation (DBO) as at 31 December 2009 and 2008 is as follows:

	At 31 December 2009				At 31 December 2008
(in PLN millions)	Jubilee awards	Retirement bonuses	Other post- employment benefits	Total	Jubilee awards	Retirement bonuses	Other post- employment benefits	Total
Present value of DBO	151	103	73	327	152	87	94	333
Net cumulative unrecognised actuarial losses at the end of the period		(20)	(29)	(49)	–	(11)	(25)	(36)
Carrying value of DBO	151	83	44	278	152	76	69	297

Present value of defined benefit obligation for the current period and previous four annual periods is presented below:

(in PLN millions)	Jubilee awards	Retirement bonuses	Other post- employment benefits	Total
As at
31 December 2009	151	103	73	327
31 December 2008	152	87	94	333
31 December 2007	167	91	78	336
31 December 2006	177	85	80	342
31 December 2005	208	98	86	392

27. Share-based payments

27.1. Group incentive programme

On 28 April 2006, the General Meeting of Shareholders of TP S.A. approved an incentive programme ("the Program") for the key managers and executives ("the Beneficiaries") of Telekomunikacja Polska and its selected subsidiaries in order to further motivate management in their efforts aimed at the Group development and the Company's value maximisation. On 12 December 2006, the Management Board of TP S.A adopted the Incentive Programme Rules for the members of the Management Board and the key managers of the Group. In order to fulfil the assumptions of the Program on 28 April 2006 the General Shareholders' Meeting decided that TP S.A. will issue not more than 7,113,000 A series bearer bonds ("the Bonds") with priority right over existing shareholders to subscribe for B series shares issued by the Company.

As a result of the Program, on 9 October 2007 TP S.A. issued 6,202,408 registered bonds with a nominal value, equal to issue price, of PLN 0.01 each with a pre-emption rights attached to the Bonds to subscribe for Company shares with priority over the existing shareholders. A total of 6,047,710 Bonds were subscribed and allocated to the Beneficiaries. The remaining Bonds which had not been subscribed, in the amount of 154,698 were acquired by an agent acting as a custodian. These Bonds may be allocated in the future to existing or new Beneficiaries in accordance with the terms and conditions of the Program.

A pre-emption rights attached to the Bonds to subscribe for the Company's shares may be exercised within seven years after the end of the restricted period. The restricted period ends on the third anniversary of the issue of the Bonds, inclusive. The redemption of the Bonds will take place on the 10th anniversary of the issue date or, in the case of the Bonds kept by the Agent acting as the custodian, after the expiration of the restricted period. One Bond gives a right to subscribe for one ordinary share with a nominal value of PLN 3. The shares acquired upon exercising pre-emption right attached to the Bond are ordinary bearer shares and are not subject to any restriction in trading. The right to subscribe for the shares shall be vested exclusively in the bondholders. The issue price of the shares is PLN 21.57 per share.

The following table illustrates the number and weighted average exercised price of equity instruments granted by TP S.A.:

	12 months ended 31 December 2009		12 months ended 31 December 2008
	number	weighted average exercised price (PLN)	number	weighted average exercised price (PLN)
Outstanding at the beginning of the period	4,746,102	21.57	6,033,024	21.57
Granted during the year	–	–	–	–
Cancelled during the year	(388,677)	–	(1,286,922)	–
Exercised during the year	–	–	–	–
Expired during the year	–	–	–	–
Outstanding at the end of the year	4,357,425	21.57	4,746,102	21.57
– of which exercisable	55,072	–	55,072	–

The following table illustrates the key assumptions used in calculation of the fair value of equity instruments granted by TP S.A.:

Key assumptions	TP S.A. plan
Dividend yield	6%
Expected volatility	30%
Risk-free interest rate	5.59%
Exercised price	21.57
Vesting period	3 years
The weighted average expected life	7 years
Model used	binomial

During the 12 months ended 31 December 2009 and 2008 the fair value of services received recognised in labour expenses and equity amounted to PLN 4 million and PLN 8 million, respectively.

27.2. France Telecom free share award plan

In 2007 France Telecom established a free share, equity-settled, award plan ("NExT plan"). Under the plan 988,400 shares were offered to employees and executives of the Group. The grant date was established on 18 March 2008 that is the date when the main terms and conditions of the plan were announced personally to TP Group employees. The shares granted can not be sold for a period of two years after the vesting date. The fair value of shares at grant date was PLN 63.57 (an equivalent of EUR 17.95 translated at NBP period-end exchange rate at 18 March 2008).

The plan is contingent upon meeting the following criteria in France Telecom Group:

• performance conditions: achievement of the cash flow set out in the NExT plan in 2007 and 2008 (EUR 6.8 billion and EUR 6.8 billion, respectively), and cost of the plan to be covered by additional cash flow generated over the same period. The cash flow performance condition has been met in 2007 and 2008.
• beneficiaries must be contractually employed by the France Telecom Group at the end of the vesting period.

The following table illustrates the key assumptions used in calculation of the fair value of equity instruments granted by France Telecom to the Group employees:

Key assumptions	France Telecom free share plan
Price of the underlying at the grant date	PLN 76.15 (1)
Subscription price – zero in case of free share award plan	PLN 0.00
Dividend yield	6%
Performance conditions	100%
Risk-free interest rate	3.48%
Lending-borrowing rate	5.24% (2)
Vesting period	2 years
Model used	binomial

• (1)An equivalent of EUR 21.50 translated at NBP period-end exchange rate at 18 March, 2008
• (2)Corresponds to the lending-borrowing rate on France Telecom shares used to calculate the non-transferability costs.

During the 12 months ended 31 December 2009 and 2008, the fair value of services received, recognised in accordance with IFRIC 11 "IFRS 2 – Group and Treasury Share Transactions" in labour expenses and equity, amounted to PLN 39 million and PLN 22 million, respectively.

28. Provisions

For the 12 months ended 31 December 2009 the movements of provisions were as follows:

(in PLN millions)	At 1 January 2009	Increases	Reversals (utilisations)	Reversals (releases)	Discounting effect	At 31 December 2009
Restructuring provisions	229	25	(134)	(2)	8	126
Provisions for claims and litigation (see Note 32), risks and other charges	1,092	73	(42)	(25)	–	1,098
Provisions for dismantling	194	16	(5)	(17)	11	199
Provision for potential tax risks	1	–	–	(1)	–	–
Total provisions for risks and charges	1,516	114	(181)	(45)	19	1,423
Current	1,220					1,208
Non-current	296					215

For the 12 months ended 31 December 2008 the movements of provisions were as follows:

(in PLN millions)	At 1 January 2009	Increases	Reversals (utilisations)	Reversals (releases)	Discounting effect	At 31 December 2008
Restructuring provisions	170	183	(118)	(9)	3	229
Provisions for claims and litigation (see Note 32), risks and other charges	983	221	(102)	(10)	–	1,092
Provisions for dismantling	200	4	(19)	(1)	10	194
Provision for potential tax risks	2	–	–	(1)	–	1
Total provisions for risks and charges	1,355	408	(239)	(21)	13	1,516
Current	1,177					1,220
Non-current	178					296

The discount rate used to calculate the present value of restructuring and dismantling provisions amounted to 6.1% as at 31 December 2009 and 5.50% to 6% as at 31 December 2008.

Restructuring provision

The restructuring provisions consist of the estimated amount of termination benefits for employees scheduled to terminate employment in the Group under the 2009-2011 Social Agreement. As at 31 December 2008, the restructuring provisions included also the costs related to the operational restructuring of satellite capacity rental activities of the Group.

In the fourth quarter of 2008, TP S.A. concluded a new Social Agreement for years 2009-2011 with all TP S.A. trade unions. The new agreement replaced arrangements made in December 2006. Up to a maximum of 4,900 employees may take advantage of the voluntary departure package between 2009 and 2011. The amount of termination benefit varies depending on individual salary, employment duration and year of resignation. The basis for calculation of the employment restructuring provision is the estimated number, remuneration and service period of employees who will accept the voluntary termination until the end of 2011. As at 31 December 2009, 2,440 persons took advantage of the departure package under the 2009-2011 Social Agreement.

The provision for restructuring of satellite activities of the Group was based on the difference between lease costs of transponders and minimum future revenue from this activity resulting from the current customer contracts.

Dismantling provision

The dismantling provision relates to dismantling or removal of items of property, plant and equipment and restoring the site on which it is located. Based on environmental regulations in Poland, items of property, plant and equipment which may contain hazardous materials should be dismantled and utilised by the end of their useful lives by entities licensed by the State for this purpose.

The amount of dismantling provision is based on the estimated: number of items that should be utilised / sites to be restored, period of utilisation / restoration (17-100 years), current utilisation / restoration cost (obtained through a tender process conducted on normal commercial terms) and inflation.

29. Trade payables, other liabilities and deferred income

29.1. Trade payables

(in PLN millions)	At 31 December 2009	At 31 December 2008
Trade payables	1,606	2,097
Fixed assets payables	812	903
UMTS licence payables	849	873
Total trade payables (1)	3,267	3,873
Current	2,477	3,059
Non-current (2)	790	814

• (1)Classified as financial liabilities measured at amortised cost under IAS 39
• (2)It includes only UMTS licence liability

29.2. Other liabilities

(in PLN millions)	At 31 December 2009	At 31 December 2008
VAT payable	143	168
Other taxes payables	20	27
Other	21	16
Total other liabilities	184	211
Current	184	211
Non-current	–	–

29.3. Deferred income

(in PLN millions)	At 31 December 2009	At 31 December 2008
Sales of products and services billed in advance	603	538
Revenue from inactivated mobile phones and terminals in the external dealership network	24	31
Other	9	14
Total deferred income	636	583
Current	583	524
Non-current	53	59

30. Equity

30.1. Share capital

As at 31 December 2008, the share capital of the Company amounted to PLN 4,106 million and was divided into 1,369 million fully paid ordinary bearer shares of PLN 3 each: 1,336 million shares in issue and 33 million treasury shares acquired for the purpose of their redemption. On 16 January 2009, the Extraordinary General Meeting adopted resolutions on redemption of these 33 million treasury shares, and a reduction of the Company's share capital from PLN 4,106 million to PLN 4,007 million, i.e. by PLN 99 million, which was registered on 27 March 2009.

As at 31 December 2009, the share capital of the Company amounted to PLN 4,007 million and was divided into 1,336 million fully paid ordinary bearer shares of PLN 3 each.

The ownership structure of the share capital as at 31 December 2009 was as follows:

(in PLN millions)	% of votes	Nominal value
France Telecom S.A.	49.79	1,995
State Treasury (1)	4.15	166
Other shareholders	46.06	1,846
Total	100.00	4,007

• (1)Data is the number of shares registered by the State Treasury during the General Meeting of Shareholders of TP S.A. on 23 April 2009.

As at 31 December 2008, France Telecom owned 48.58% of shares of the Company and held 49.79% of votes at the General Shareholders' Meeting. As a result of the share capital reduction described above, the percentage of shares owned as at 31 December 2009 has increased to 49.79% and the percentage of votes held remained at 49.79%.

According to the Company's best knowledge, the Polish government has committed itself to grant a priority purchase right to France Telecom S.A. in case of a sale of its remaining share in the Company's capital in a public offer.

Apart from the above, the Company has no information regarding other valid agreements or other events that may result in changes in the proportions of shares held by the shareholders.

30.2. Dividends

On 23 April 2009, the General Shareholders' Meeting of TP S.A. adopted a resolution regarding payment of an ordinary dividend of PLN 2,003 million, i.e. PLN 1.50 per share. On 2 July 2009, TP S.A. distributed PLN 2,003 million of dividends, including PLN 510 million in respect of 2008 profit and PLN 1,493 million of undistributed profits from previous years.

31. Contractual obligations and off balance sheet commitments

31.1 Off-balance sheet contractual obligations and other commitments

At 31 December 2009, Management considers that, to the best of its knowledge, there are no existing off-balance sheet commitments, other than those described below, likely to have a material impact on the current or future financial position of the Group.

a) Commitments related to operating leases

When considering the Group as a lessee, operating lease commitments mainly relate to the lease of buildings, land, vehicles and computer equipment. Lease costs recognised in the consolidated income statement for the years ended 31 December 2009 and 2008 amounted to PLN 412 million and PLN 322 million, respectively. Approximately half of the agreements is denominated in foreign currencies. Some of the above agreements are indexed with price indices applicable for a given currency.

Future minimum lease payments under non-cancellable operating leases, as at 31 December 2009 and 2008, were as follows:

(in PLN millions)	At 31 December 2009	At 31 December 2008
within one year	329	178
after one year but not more than five years	509	524
more than five years	191	163
Total minimum future lease payments	1,029	865

When considering the Group as a lessor, future minimum lease payments under non-cancellable operating leases as at 31 December 2009 and 2008 amounted to PLN 76 million and PLN 40 million, respectively.

b) Investment commitments

Capital commitments contracted for at the balance sheet date but not recognised in the financial statements were as follows:

(in PLN millions)	At 31 December 2009	At 31 December 2008
Property, plant and equipment	224	676
Intangibles	59	78
Total	283	754
Amounts contracted to be payable within 12 months from the balance sheet date	263	699

Capital commitments represent mainly purchases of telecommunications network equipment, IT systems and other software.

c) Memorandum of Understanding with UKE

On 22 October 2009, TP S.A. and UKE signed a Memorandum of Understanding ("MoU") concerning implementation of transparency and non-discrimination in inter-operator relations. According to the MoU, TP S.A. will implement technical and organisational solutions, instead of physical separation of information systems, in order to secure nondiscriminatory relations with other operators including equal access to information. It is anticipated that as TP S.A. fulfils the arrangements, the President of UKE will withdraw the consideration of functional separation of TP S.A. which had been considered by UKE as a regulatory tool to implement effective competition on regulated telecommunication wholesale markets in Poland.

The President of UKE confirmed that wholesale rates for regulated services, and for Bitstream Access (under certain conditions), will be maintained at current levels until the end of 2012. Over the next three years, TP S.A. will invest in the development of 1.2 million broadband access lines (0.479 million new lines and 0.721 million upgraded existing lines), of which 1 million lines will provide bandwidths of at least 6 Mbps.

Management currently estimates that the total cost of this investment would be in the order of PLN 3 billion.

31.2. Assets covered by commitments

The gross book value of the assets held under finance leases amounted to PLN 23 million and PLN 2 million as at 31 December 2009 and 2008, respectively. Leased assets cannot be sold, donated, transferred by title or pledged and are a collateral for the related finance lease liability.

32. Litigation and claims

Contingencies

a. Issues related to the incorporation of Telekomunikacja Polska

Telekomunikacja Polska was established as a result of the transformation of the state-owned organisation Poczta Polska Telegraf i Telefon ("PPTiT") into two entities – the Polish Post Office and Telekomunikacja Polska. During the transformation process and transfer of ownership rights to the new entities, certain items of property and other assets that are currently under Telekomunikacja Polska's control were omitted from the documentation recording the transfer and the documentation relating to the transformation process is incomplete in this respect. This means that Telekomunikacja Polska's rights to certain properties may be questioned.

In addition, as the regulations concerning the transformation of PPTiT are unclear, the division of certain responsibilities of PPTiT may be considered to be ineffective, which may result in joint and several liability in respect of Telekomunikacja Polska's predecessor's obligations existing at the date of transformation.

The share premium in the equity of Telekomunikacja Polska includes an amount of PLN 713 million which, in accordance with the Notary Deed dated 4 December 1991, relates to the contribution of the telecommunication business of PPTiT to the Company. As the regulations relating to the transformation of PPTiT are unclear, the division of certain rights and obligations may be considered to be ineffective. As a result, the share premium balance may be subject to changes.

b. Environmental risk

The Group believes that its activities in respect of telecommunications services do not pose a serious threat to the environment. The Group's business does not engage in any production process which creates a significant threat to rare or non-renewable resources, natural resources (water, air, etc.) or to biodiversity.

The Group activities generate "non-household" waste for which recycling is closely controlled, such as: waste electronic equipment, electronics at end-of-life, batteries and storage cells, cables and treated poles as well as other waste.

The Group has implemented action plans aimed at the limitation of its impact on the environment and at maintaining compliance with Polish regulations on environment protection. The Group has been a subject of environmental audits which have confirmed its compliance with Polish regulations and highlighted achievements in the field of limiting the impact on the environment. To achieve improvements in the area of environmental protection the Group has established an on-going system for monitoring and reporting environmental impact. A dedicated team has been established to carry out on-going supervision regarding regulatory compliance, emission levels, as well as to meet other legal requirements in the area of environmental protection.

The Group has recorded a dismantling provision for obligations related to dismantlement and removal of items of its property, plant and equipment as required by the environmental regulations (see Note 28).

c. Tax contingent liability

Tax settlements, together with other areas of legal compliance (e.g. customs or foreign exchange law) are subject to review and investigation by a number of authorities, which are entitled to impose severe fines, penalties and interest charges. The lack of reference to well established regulations in Poland results in a lack of clarity and integrity. Value added tax, corporate income tax, personal income tax and other taxes or social security regulations are subject to frequent changes which often leads to the lack of well established regulations or legal precedents. Frequent contradictions in legal interpretations both within government bodies and between companies and government bodies create uncertainties and conflicts. These facts create tax risks in Poland that are substantially more significant than those typically found in countries with more developed tax systems.

Tax authorities may examine accounting records up to five years after the end of the year in which the final tax payments were to be made. Consequently, the Group may be subject to additional tax liabilities, which may arise as a result of additional tax audits. Telekomunikacja Polska and certain of its subsidiaries were subject to audits by the tax office in respect of taxes paid. Certain of these audits have not yet been finalised. The Group believes that adequate provisions have been recorded for known and quantifiable risks in this regard (see Note 28).

d. Proceedings by UKE, UOKiK and the European Commission

According to the Telecommunications Act, the President of UKE may impose on a telecommunications operator a penalty of up to a maximum amount of 3% of the operator's prior year's revenue, if the operator does not fulfil certain requirements of the Telecommunications Act. According to the amended Act on Competition and Consumer Protection, which came into force on 21 April 2007, in case of non-compliance with its regulations, the President of the Office of Competition and Consumer Protection ("UOKiK") is empowered to impose on an entity penalties of up to a maximum amount of EUR 50 million for refusal to provide requested information or up to a maximum amount of 10% of an entity's prior year's revenue for a breach of the law.

On 25 September 2006, UKE imposed a fine of PLN 100 million on TP S.A. for the infringement of the obligation to determine service prices on the basis of the cost of its provision, as a result of not implementing the offer to sell Neostrada (Internet services) separately from the fixed line subscription (allocating costs of local loop entirely to fixed line subscription). TP S.A. appealed to the Court of Competition and Consumer Protection ("SOKiK"). On 22 May 2007, the Court invalidated the fine on procedural grounds. UKE appealed this verdict and on 10 April 2008, the Appeal Court revoked the judgment of SOKiK and remanded the case back to consideration by SOKiK. On 2 June 2009, SOKiK suspended the proceeding until the end of the European Commission proceeding against Poland in the European Court of Justice on attempts of UKE to regulate retail prices of broadband services without a prior analysis of a relevant market, the result of which may, in SOKiK opinion, impact the proceeding suspended by SOKiK.

On 22 February 2007, after TP S.A. had separated providing Neostrada from fixed line services, UKE imposed a fine of PLN 339 million on TP S.A. for non-performance of the regulatory obligation to submit its Neostrada price list for UKE's approval, and for failing to meet the requirements of the Polish telecommunication law that prices of services be based on the cost of their provision (subscription fee for local loop maintenance for Neostrada purpose in case of not using fixed line on the same local loop). TP S.A. maintains that UKE has no right to challenge the Neostrada price since it is not defined as a regulated service. On 7 March 2007, TP S.A. appealed against the decision. SOKiK has suspended the proceeding until the end of another proceeding before the European Court of Justice, initiated by the Polish Supreme Administrative Court, the result of which may, in SOKiK opinion, impact the proceeding suspended by SOKiK (a question whether, according to European law, it is possible to implement a general ban on the sale of linked services – as it is stated in art. 57 section 1 item 1 of Polish Telecommunication Act).

On 20 December 2007, UOKiK issued a decision concluding that TP S.A. had engaged in practices restricting competition when it downgraded IP traffic coming from domestic operators' networks to TP S.A.'s network via foreign operators' networks and imposed a fine of PLN 75 million on the Company. At the same time, UOKiK ordered TP S.A. to immediately cease this practice. TP S.A. disagrees with the decision of UOKiK. On 2 January 2008, TP S.A. appealed to SOKiK against the decision. The matter is currently being investigated by SOKiK.

Moreover, there is a number of other proceedings against the Group initiated by UKE and UOKiK. As at 31 December 2009 the Group recognised provisions for known and quantifiable risks related to these proceedings, which represent the Group's best estimate of the amounts, which are more likely than not to be paid. The actual amounts of penalties, if any, are dependent on a number of future events the outcome of which is uncertain, and, as a consequence, the amount of the provision may change at a future date. Information regarding the amount of the provisions has not been separately disclosed, as in the opinion of the Company's Management such disclosure could prejudice the outcome of the pending cases.

In September 2008, the European Commission conducted an inspection at the premises of TP S.A. and PTK-Centertel Sp. z o.o. The aim of the inspection was to gather evidence of a possible breach by TP S.A. of competition rules on the broadband Internet market. The Company has challenged, before the European Court of First Instance, the decision of the European Commission that was the basis for its inspection. On 17 April 2009, the European Commission notified TP S.A. of initiation of proceedings on the supposed refusal to provide services and non-price discrimination on the Polish wholesale market of broadband access to the Internet. On 27 April 2009, the European Commission published a memo confirming that the opening of the proceedings did not in itself imply that the European Commission had proof of infringements by Telekomunikacja Polska. Under European law, the Commission may impose a fine on an entity of up to 10% of its total turnover of the preceding business year if it proves infringement of rules on competition. Moreover, the Commission may impose any behavioural or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end. Such a decision can be appealed to the Court of First Instance. The Commission may also impose a fine of up to 1% of the total turnover of the preceding business year for providing incorrect or misleading information. The European Commission has no deadline to complete an antitrust investigation. At this stage of the proceedings, it is not feasible to foresee the consequences of such proceedings.

e. Dispute with DPTG

In 2001, a dispute arose over the interpretation of a contract for the sale and installation by the Danish company DPTG of a fiber optical transmission system (known as "North- South Link", or "NSL") for the State-owned PPTiT, the predecessor of TP SA. The contract, signed in 1991 and for which work was completed in 1994, provided for payment of part of the contract price by allocating to DPTG 14.8% of certain profit from the NSL for fifteen years from the system's installation, that is, from February 1994 to January 2009. In 1999, the parties came into disagreement regarding the calculation of this revenue. In 2001, DPTG initiated ad hoc arbitration proceedings before the Arbitration Tribunal (under UNCITRAL rules) sitting in Vienna.

The Arbitration Tribunal appointed a first expert in 2004 to evaluate the revenue "from the NSL" to be used as a basis for calculating the share attributable to DPTG. Between November 2005 and December 2007, this expert delivered three reports proposing widely differing estimates. In January 2008, a second expert named by the Tribunal to assess the appropriateness and the consistency of the first expert's models, concurred, in all material respects, with the conclusions of the latest report of the first expert. In February 2008, the President of the Austrian Federal Economic Chamber sustained the challenge filed by TP S.A. against the chairman of the Arbitration Tribunal for lack of impartiality and a new chairman was named.

In June 2008, the Arbitration Tribunal decided to split the case into two periods and to render firstly an award settling DPTG's rights for the period from February 1994 to June 2004. In January 2009, the Arbitration Tribunal held a hearing on the merits of the claim and then issued a first set of Directions to the experts of the parties and of the Tribunal for the quantification of DPTG's rights. After a second hearing held in April 2009, dedicated to the examination of the experts, the Tribunal issued a second set of Directions for quantification by the experts of the parties only. The experts responded in July and, on 28 August 2009, the parties filed post-hearing-briefs including legal opinions on the merits of the claim.

In the course of the proceedings, DPTG modified the amount of its claim. In October 2008, it calculated its claim at DKK 6,278 million (approximately EUR 840 million) excluding interest for the period up to the end of 2007. In its post-hearing-brief dated 28 August 2009, DPTG amended its claim in principal adjusting it to the period from February 1994 to June 2004 at DKK 2,781 million (approximately EUR 370 million) and calculated the interest claim on that principal for the period until 28 August 2009 at an amount ranging up to DKK 2,257 million (approximately EUR 300 million). Such amended claim replaced the previous one. The claim for the period from July 2004 to the end of the contract period (January 2009) will be presented to the Tribunal at a later date.

The Company strongly disputes both the contractual basis of the claim and the amounts claimed. It has presented to the Tribunal an alternative position based on its clear understanding, and intent, of the contract.

Whilst the Company had anticipated that the Tribunal would make a partial award for the first period before the end of 2009 this has not proved to be the case. On 12 February 2010, the Company received a procedural order from the Tribunal asking TP S.A. to submit the final quantification of its position for the first period ("final prayers for relief") by 11 March 2010.

Management has made what it considers to be an appropriate provision for this matter, as supported by outside Counsel and other professional advisors. Information regarding the amount of the provision has not been separately disclosed as, in the opinion of Management, such disclosure could prejudice the outcome of the pending case.

f. Other contingent liabilities

Apart from the above mentioned, operational activities of the Group are subject to regulations of legal-administrative nature and the Group is a party to a number of legal proceedings and commercial contracts related to its operational activities. The Group believes that adequate provisions have been recorded for known and quantifiable risks.

The MoU with UKE, as referred to in Note 31.1 c, also deals with a number of legal cases and claims between TP S.A., UKE and alternative operators. These are being gradually withdrawn, following implementation of certain elements of the MoU.

33. Related party transactions

33.1. Management Board and Supervisory Board compensation

Management Board compensation was as follows:

(in PLN thousands)	12 months ended 31 December 2009	12 months ended 31 December 2008
Short-term benefits excluding employer social security payments (1)	13,647	9,905
Post-employment and other benefits	1,860	1,756
Termination costs	2,550	1,470
Total	18,057	13,131

• (1)Gross salaries, compensation, bonuses and non-monetary benefits, profit-sharing, incentive bonuses

Remuneration and bonuses, compensation and termination indemnities, including compensation under a competition prohibition clause (cash, benefits in kind or any other benefits) paid in accordance with contractual commitments, by TP S.A. to Management Board and Supervisory Board members in the 12 months ended 31 December 2009 and 2008 are presented below.

Persons that were Members of the Management Board of the Company as at 31 December 2009

(in PLN thousands)	12 months ended 31 December 2009	12 months ended 31 December 2008
Maciej Witucki	2,687	2,945
Vincent Lobry	350 (1)	–
Piotr Muszyński	1,496	298 (1)
Roland Dubois	2,047	1,360 (1)
Total	6,580	4,603

• (1)From the date of appointment

Persons that were Members of the Management Board of the Company in 2009 or previous periods

(in PLN thousands)	12 months ended 31 December 2009	12 months ended 31 December 2008
Mariusz Gaca	617 (3)	–
Pierre Hamon	–	1,674 (2)
Jacek Kałłaur	4,157 (2)	1,910
Iwona Kossmann	–	1,685 (2)
Benoit Merel	–	1,332 (2)
Ireneusz Piecuch	3,308 (2)	357 (1)
Richard Shearer (4)	3,395 (2)	1,570 (1)
Total	11,477	8,528

• (1)From the date of appointment
• (2)Until the termination date
• (3)For the period of appointment
• (4)In addition to the amounts presented above, as at 31 December 2009 termination benefits payable in 2010 amounted to PLN 2.2 million.

In addition to the amounts presented above, during the 12 months ended 31 December 2009 and 2008, the estimated cost of share-based payments under TP S.A.'s and France Telecom S.A.'s incentive programmes allocated to the Company's Management Board amounted to PLN 0.7 million and PLN 1.3 million, respectively. In the 12 months ended 31 December 2009 and 2008, the amount of accrued costs for bonuses for the Company's Management Board amounted to PLN 1.5 million and PLN 1.3 million, respectively.

In the year ended 31 December 2009 the members of TP S.A.'s Management Board did not receive any remuneration and bonuses (cash, benefits in kind or any other benefits) from TP S.A.'s subsidiaries and associates.

Remuneration and bonuses (cash, benefits in kind or any other benefits) paid or payable by TP S.A.'s subsidiaries and associates to TP S.A.'s Management Board members in the year ended 31 December 2008 were as follows: Maciej Witucki PLN 2 thousand, Pierre Hamon PLN 17 thousand, as well as Jean-Marc Vignolles PLN 203 thousand and Alain Carlotti PLN 16 thousand who were members of the TP S.A.'s Management Board in previous periods.

In the years ended 31 December 2009 and 2008, the members of TP S.A.'s Management Board did not receive any compensation or termination indemnities, including compensation under a competition prohibition clause (cash, benefits in kind or any other benefits) from TP S.A.'s subsidiaries and associates.

Supervisory Board

(in PLN thousands)	12 months ended 31 December 2009	12 months ended 31 December 2008
Prof. Andrzej Koźmiński	318	304
Olivier Barberot (2)	–	–
Olivier Faure (2)	–	–
Antonio Anguita (2)	–	–
Vivek Badrinath (2)	–	–
Timothy Boatman	239	228
Jacques Champeaux (2) (3)	159	64
Ronald Freeman	239	228
Dr. Mirosław Gronicki	159	152
Marie-Christine Lambert (2)	–	–
Prof. Jerzy Rajski	159	152
Raoul Roverato (2)	–	–
Dr. Wiesław Rozłucki	159	152
Michel Monzani (1) (2)	–	–
Stephane Pallez (1) (2)	–	–
Georges Penalver (1) (2)	–	–
Total	1,432	1,280

• (1)Persons that were not members of the Supervisory Board of the Company as at 31 December 2009 but were members of the Supervisory Board of TP S.A. in 2009 or previous periods.
• (2)Persons appointed to the Supervisory Board of the Company employed by France Telecom do not receive remuneration for the function performed.
• (3)Following retirement from France Telecom in the third quarter of 2008, Mr. Jacques Champeaux started to receive remuneration for the function performed.

In the years ended 31 December 2009 and 2008, the members of TP S.A.'s Supervisory Board did not receive any remuneration, bonuses, compensation or termination indemnities, including compensation under a competition prohibition clause (cash, benefits in kind or any other benefits) from TP S.A.'s subsidiaries and associates.

In the years ended 31 December 2009 and 2008, TP S.A. did not grant any loans to members of the Management Board and the Supervisory Board.

As at 31 December 2009 and 2008, members of the Management Board and the Supervisory Board had no liabilities arising from loans granted by the Company.

In the years ended 31 December 2009 and 2008, TP S.A. did not enter into any transactions with companies in which the members of its authorities had significant shareholdings.

In the years ended 31 December 2009 and 2008, the Company did not enter into any significant transactions with members of the Management Board and the Supervisory Board and their spouses, relatives up to second degree, individuals who are guardians or wards of the above persons or other persons with whom they have personal connections or with the entities in which these persons are members of the Management or Supervisory Board, and did not grant them any loans, advances, guarantees or other agreements resulting in significant benefits for TP S.A, its subsidiaries and associates.

33.2. Related party transactions

As at 31 December 2009, France Telecom owned 49.79% of shares of the Company. France Telecom has the power to appoint the majority of TP S.A.'s Supervisory Board members. The Supervisory Board appoints and dismisses members of the Management Board.

The Group's income earned from related parties comprise mainly interconnect, leased lines, data transmission and research and development services. The purchases from the France Telecom Group mainly comprise costs of interconnect and leased lines, network services, IT services, consulting services and brand fees.

During the 12 months ended 31 December 2008, the Group's financial costs in transactions with related parties comprised interest on a loan received by TP S.A. from France Telecom. The loan was repaid in full on 14 March 2008.

(in PLN millions)	12 months ended 31 December 2009	12 months ended 31 December 2008
Sales of goods and services to:	195	176
– France Telecom (parent)	129	101
– France Telecom (group)	66	75
Purchases of goods (including inventories, tangible and intangible assets) and services from:	331	276
– France Telecom (parent)	123	108
– France Telecom (group)	208	168
Financial expense:	–	11
– France Telecom (parent)	–	11
– France Telecom (group)	–	–
Dividends paid:	997	997
– France Telecom (parent)	997	997
– France Telecom (group)	–	–

In April 2005, PTK-Centertel and Orange Brand Services Limited (UK) (hereinafter referred to as "Orange") concluded a licence agreement, on the basis of which PTK-Centertel acquired rights to operate under the Orange brand. The brand licence agreement provides that Orange receives a fee of 1.6% of operating revenue for full use of the Orange brand as well as access to the Orange roaming and interconnection arrangements, technology, advanced mobile handsets and consultancy services. The agreement has been concluded for 10 years with the possibility of renewal.

On 24 July 2008, TP S.A., France Telecom S.A. and Orange concluded a licence agreement, on which basis TP S.A. will acquire rights to use the Orange brand (trade marks) in relation to the provisioning of TV, ISP and B2B goods and services. The license fee for the use of the Orange trade mark by TP S.A. will amount to 1.6% of the Company's operating revenue earned under the Orange brand. The agreement has been concluded for 10 years with the possibility of renewal.

In relation to the above mentioned transactions, purchases of goods and services from France Telecom Group include brand fees of PLN 117 million for the 12 months ended 31 December 2009 (PLN 134 million for the 12 months ended 31 December 2008).

(in PLN millions)	At 31 December 2009	At 31 December 2008
Receivables from:	87	85
– France Telecom (parent)	59	65
– France Telecom (group)	28	20
Payables to:	230	224
– France Telecom (parent)	124	103
– France Telecom (group)	106	121

34. Subsequent events

On 25 January 2010, TP S.A. concluded a revolving loan agreement with an international syndicate of banks for a total amount of EUR 400 million. The purpose of the new back-up line is to refinance the EUR 550 million revolving back-up facility that supports the Group's liquidity. The agreement was signed for a period of three years and expires on 18 April 2013. The loan interest is based on the EURIBOR rate for the relevant interest periods plus a bank margin. Under a financial covenant included in the agreement, the Group should meet the following financial ratio: Net Debt / EBITDA to be not higher than 3.5:1 confirmed on a semi-annual basis, which level is perceived as reasonable compared with the current level of the ratio at 0.7:1 as at 31 December 2009. Taking into account the new back-up facility, the liquidity coverage as at 31 December 2009 would have amounted to 3,246% and 2,164% of the 12 months and 18 months debt repayments, respectively (see Note 23.5).

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