TURKCELL LETM HZMETLER ANONM RKET

AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 2001 AND JUNE 30, 2002 (Unaudited)
(In thousands, except share data)
December 31,
2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Trade receivables and accrued income, net (Note 5)
Due from related parties (Note 6)
Inventories
Prepaid expenses
Other current assets (Note 7)
Total current assets

DUE FROM RELATED PARTIES (Note 8)

PREPAID EXPENSES
INVESTMENTS (Note 9)
FIXED ASSETS, net (Note 10)
CONSTRUCTION IN PROGRESS (Note 11)
INTANGIBLES, net (Note 12)
OTHER LONG TERM ASSETS
$
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short term borrowings (Note 13)
Trade payables (Note 14)
Due to related parties (Note 15)
Taxes payable (Note 17)
Other current liabilities and accrued expenses (Note 16)
Total current liabilities
LONG TERM BORROWINGS (Note 18)
LONG TERM LEASE OBLIGATIONS (Note 19)
RETIREMENT PAY LIABILITY
MINORITY INTEREST
OTHER LONG TERM LIABILITIES
SHAREHOLDERS' EQUITY
Common stock
Par value one thousand TL; authorized, issued
and outstanding 500,000,000,000 shares in 2001
and 500,000,000,000 shares in 2002 (Note 20)
Additional paid in capital
Advances for common stock
Legal reserves
Accumulated other comprehensive loss (Note 3)
Retained earnings
Total shareholders' equity
COMMITMENTS AND CONTINGENCIES (Note 23)

June 30,
2002

243,114
256,143
164,448
12,154
20,843
46,965
743,667

167,795
268,462
182,077
10,792
27,212
45,056
701,394

10,085
3,300
58,329
1,655,110
119,636
916,920
28,996
3,536,043

49,245
4,663
34,438
1,558,072
81,494
880,531
22,245
3,332,082

383,167
302,039
3,626
130
303,425
992,387
1,218,903
27,103
4,737
896
6,792

455,758
97,716
807
427,855
982,136
1,023,500
22,882
5,705
571
6,143

636,116
178
119
5
(1,875)
650,682
1,285,225

636,116
178
119
5
(2,133)
656,860
1,291,145

3,536,043

3,332,082

The accompanying notes are an integral part of these consolidated financial statements.

TURKCELL LETM HZMETLER ANONM RKET

AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2002 (Unaudited)
(In thousands, except share data)

Three Months Ended

June 30,
2001
$
Revenues (Notes 4 and 21)
Direct cost of revenues
Gross profit
General and administrative expenses
Selling and marketing expenses (Note 4)
Operating income
Income from related parties, net (Note 22)
Interest income
Interest expense
Other income, net
Equity in net loss of unconsolidated investees (Note 9)
Minority interest
Translation loss
Income (loss) before taxes
Income tax benefit (Note 17)

2002
(Unaudited)
396,778
(271,268)

Basic and diluted earnings (loss) per common share (Note 20)

Weighted average number of common shares outstanding (Note 20)

2001

497,478
(343,354)

2002

(Unaudited)
891,090
(594,506)

934,669
(656,039)

125,510

154,124

296,584

278,630

(33,087)
(28,674)

(27,051)
(53,054)

(79,468)
(99,152)

(52,202)
(98,002)

63,749

74,019

117,964

128,426

612
16,961
(81,328)
(3,023)
(11,353)
501
(26,777)

30
24,011
(77,345)
2,733
(4,260)
6
(13,624)

1,112
55,343
(159,952)
(1,282)
(30,148)
416
(107,410)

79
56,763
(150,758)
5,443
(23,578)
119
(10,316)

(40,658)

5,570

(123,957)

Net income (loss)

Six Months Ended

June 30,

8,783

6,178
-

(40,658)

5,570

(115,174)

6,178

(0.00009)

0.00001

(0.00026)

0.00001

450,354,503,787

500,000,000,000

450,354,503,787

The accompanying notes are an integral part of these consolidated financial statements.

500,000,000,000

TURKCELL LETM HZMETLER ANONM RKET

AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2002 (Unaudited)
(In thousands)
June 30,
2001
Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization
Provision for retirement pay liability
Provision for inventories
Provision for doubtful receivables
Provision for income taxes
Accrued income
Accrued expense
Equity in net loss of unconsolidated investees
Minority interest
Gain on sale of affiliates
Deferred taxes
Changes in assets and liabilities:
Trade receivables
Due from related parties
Inventories
Prepaid expenses
Other current assets
Other long term assets
Due to related parties
Accrued income
Accrued expense, net
Trade payables
Other current liabilities
Other long term liabilities
Net cash provided by operating activities

(115,174)

June 30,
2002

6,178

190,805
(489)
(39,115)
35,115
(27,204)
30,148
781
(24,594)

205,312
968
(1,171)
2,591
(130)
5,997
117,658
23,632
(325)
-

86,753
(27,564)
(7,745)
(19,527)
(12,585)
290
655

(26,381)
(6,411)
1,295
39,053

(20,908)
(56,789)
2,533
(7,732)
2,175
442
(2,819)
(204,323)
7,331
(647)
79,973

Investing Activities:
Additions to fixed assets
Reductions in construction in progress
Additions to intangibles
Investments in investees
Net cash used for investing activities

(121,429)
32,692
(10,924)
(34,176)
(133,837)

(56,920)
38,142
(14,965)
(33,743)

Financing Activities:
Proceeds from issuance of and advances for common stock
Payment on long and short term debt
Net decrease in debt issuance expenses
Payment on lease obligations
Net cash used for financing activities

(22)
(216,700)
10,903
(3,897)
(209,716)

(122,812)
6,043
(4,780)
(121,549)

Net decrease in cash

Cash at the beginning of period
Cash at the end of period

(304,500)
363,365
58,865

(75,319)
243,114
167,795

113,618
-

79,593
-

61,845

Supplemental cash flow information:

Interest paid
Taxes paid
Non-cash investing activitiesAccrued capital expenditures

The accompanying notes are an integral part of these consolidated financial statements.

TURKCELL LETM HZMETLER ANONM RKET

AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2002 (Unaudited)
(In thousands, except share data)

Balances at December 31, 2001

Common stock
Shares
Amount
500,000,000,000
$
636,116

Additional
paid in capital
178

Advances for
common stock
119

Legal
reserves
5

Comprehensive income:
Net income
Other comprehensive loss:
Translation adjustment
Comprehensive income:
Balances at June 30, 2002

Comprehensive
income

6,178

Retained
earnings
650,682

Accumulated
other
Total
comprehensive shareholders'
loss
equity
(1,875)
1,285,225

6,178

6,178

(258)
5,920
500,000,000,000

636,116

178

119

656,860

The accompanying notes are an integral part of this consolidated financial statement.

(258)

(258)
-

(2,133)

1,291,145

Turkcell letiim Hizmetleri Anonim irketi and

Its Subsidiaries
Notes to Consolidated Financial Statements
As of December 31, 2001 and June 30, 2002 (Unaudited), and
for the Three and Six Month Periods Ended June 30, 2001 and
2002 (Unaudited)
(Amounts in thousands of US Dollars unless otherwise stated except share amounts)

1)

Business:
Turkcell letiim Hizmetleri Anonim irketi (Turkcell-Parent company) was incorporated on October 5,
1993. It is engaged in establishing and operating a Global System for Mobile Communications (GSM)
network in Turkey. Turkcell and Trk Telekomnikasyon A.. (Trk Telekom), a state owned organization
of Turkey, were parties to a revenue sharing agreement signed in 1993, which set forth the terms related to
the construction and operating phases of GSM network (the Revenue Sharing Agreement). In accordance
with this agreement, Trk Telekom contracted with subscribers, performed billing and collection and
assumed collection risks, while Turkcell made related GSM network investments. The Revenue Sharing
Agreement covered a period of 15 years commencing in 1993. Trk Telekom and Turkcell shared revenues
billed for subscription fees, monthly fixed fees and outgoing calls, at a ratio of 67.1% and 32.9%,
respectively. In addition, Turkcell received 10% of revenues billed for incoming calls. On April 27, 1998,
Turkcell signed a license agreement (the License Agreement or License) with the Ministry of
Transportation and Communications of Turkey (the Turkish Ministry). In accordance with the License
Agreement, Turkcell was granted a 25 year GSM license for a license fee of $500,000. The License
Agreement permits Turkcell to operate as a stand-alone GSM operator and free it from some of the
operating constraints, which were stated in the Revenue Sharing Agreement. Under the License, Turkcell
collects all of the revenue generated from the operations of its GSM network and pays the Undersecretariat
of Treasury (the Turkish Treasury) an ongoing license fee equal to 15% of its gross revenue. Turkcell also
continues to build and operate its GSM network and is authorized to, among other things, set its own tariffs
within certain limits, charge peak and off-peak rates, offer a variety of service and pricing packages, issue
invoices directly to subscribers, collect payments and deal directly with subscribers. In May 2001, the
Turkish Ministrys power relating to concession or license agreements or general permissions was
transferred to the Telecommunications Authority, pursuant to new changes in the Telecommunications
Law. On July 24, 2001, Turkcell renewed its License Agreement with the Telecommunications Authority.
The Supreme Court (Dantay) refused some of the terms of this agreement and parties revised some of the
terms. The Company signed the revised License Agreement on February 12, 2002. Pursuant to Dantays
examination, Telecommunications Authority signed the revised License Agreement on February 13, 2002,
which became valid thereafter. In the revised License Agreement, all major rights and obligations included
in the original License Agreement were preserved, with certain additional requirements including an
obligation to pay an administration fee to the Telecommunications Authority equaling to 0.35% of net
revenues.
As of December 31, 2001, Kbrs Mobile Telekomnikasyon Limited irketi (Kbrs Telekom), Global
Bilgi Pazarlama Danma ve ar Servisi Hizmetleri A.. (Global), Corbuss Kurumsal Telekom Servis
Hizmetleri A.. (Corbuss), Turktell Biliim Servisleri A.. (Turktell), Hayat Boyu Eitim A.. (Hayat),
Kbrsonline Limited irketi (Kbrsonline), Biliim ve Eitim Teknolojileri A.. (Biliim), Digikids
Interaktif ocuk Programlar Yapmcl ve Yayncl A.. (Digikids) and Mapco Internet ve letiim
Hizmetleri Pazarlama A.. (Mapco) (the subsidiaries) were consolidated subsidiaries, owned 100.00%,
99.85%, 99.44%, 99.96%, 74.97%, 60.00%, 99.96%, 59.98%, and 77.50% respectively, by Turkcell or the
subsidiaries.

At the Board of Directors meetings of Turktell held on March 13, 2002 and April 19, 2002, it was resolved
that Turktell acquires total 396,825 shares of Inteltek Internet Teknoloji Yatrm ve Danmanlk Ticaret
A.. (Inteltek), owned by Superonline Uluslararas Elektronik Bilgilendirme ve Haberleme Hizmetleri
A.. (Superonline) with a par value of one million TL each without any consideration. In addition, at the
Board of Directors of Turktell held on March 13, 2002, it was resolved that Turktell acquires one share of
Inteltek owned by Filiz Bikmen with a par value of one million TL for 0.25 million TL. Turktell will pay
the share capital commitment of the acquired shares. After these acquisitions, the ownership interest of the
Company in Inteltek is 79.09%.
On April 25, 2002, Turktell transferred its shares in Siber Eitim to other shareholders of Siber Eitim
without any consideration, which resulted in a loss of $48 for the six month period ended June 30, 2002.
As of June 30, 2002, Kbrs Telekom, Global, Corbuss, Turktell, Hayat, Kbrsonline, Biliim, Digikids,
Mapco and Inteltek Internet Teknoloji Yatrm ve Danmanlk Ticaret A.. (Inteltek) are consolidated
subsidiaries, owned 100.00%, 99.85%, 99.43%, 99.96%, 74.97%, 60.00%, 99.96%, 59.98%, 77.39% and
79.09% respectively.
As of June 30, 2002, Fintur Holdings B.V. (Fintur) was equity investee. As of December 31, 2001, Fintur
and Siber Eitim ve letiim Teknolojileri A.. (Siber Eitim) were equity investees. (Note 9)

(2)

Financial Position and Basis of Preparation of Financial Statements:

Turkcell and its subsidiaries (the Company) maintain their books of account and prepare their statutory
financial statements in their local currencies and in accordance with local commercial practice and tax
regulations applicable in the countries where they are resident. The accompanying consolidated financial
statements are based on these statutory records, with adjustments and reclassifications for the purpose of
fair presentation in accordance with accounting principles generally accepted in the United States. The
financial statements as of December 31, 2001 and June 30, 2002, and for the three month and six month
periods ended June 30, 2001 and 2002 present the consolidated financial position and consolidated results
of operations of the Company. The unaudited consolidated financial statements of the Company as of June
30, 2002, and for the three month and six month periods ended June 30, 2001 and 2002, in the opinion of
the management of the Company, include all the adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the results of such unaudited interim periods.
Management of the Company has made a number of estimates and assumptions relating to the reporting of
assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with accounting principles generally accepted in the United States. Actual
amounts could differ from those estimates. Significant estimates and assumptions include the depreciable
lives of fixed assets and intangibles; amounts reflected as allowances for doubtful receivables and deferred
tax assets.
At June 30, 2002, current liabilities exceeded current assets by $280,742 (December 31, 2001: $248,720).
This matter may raise doubt about the Companys ability to continue as a going concern. The consolidated
financial statements referred to above have been prepared assuming that the Company will continue as a
going concern. Management believes that the Company will generate sufficient operating cash flows to
continue as a going concern. Accordingly, the consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty. In addition, on March 5, 2002, Yap ve
Kredi Bankas A.. (Yap Kredi), a shareholder and one of the largest Turkish banks, has committed to
provide a cash loan facility, with market rates, up to $200,000 to the Company over the next twelve
months. Also, on March 6, 2002, Vakflar Bankas TAO (Vakfbank) provided a letter of intent to extend
the principal repayments of existing borrowings amounting to $42,857 and $57,143 that are due in 2002
and 2003, respectively, for twelve months subsequent to their initial maturities. Further on March 7, 2002,
Trkiye Garanti Bankas A.. (Garanti) provided a letter of intent to extend the principal repayments of
existing borrowings amounting to $75,000 that are due in 2002 for twelve months subsequent to their
initial maturities. During the first half of 2002, The Company did not use the option of these extensions and
paid a total amount of $51,786 principal for these two loans. Management will consider to make such

extensions for the remaining principal repayments if necessary. Furthermore, on May 9, 2002, Turkcell
agreed with Akbank T.A.S. to extend two principal repayments of existing borrowings totaling $62,500,
which were due in 2002, for twelve months subsequent to their initial maturities.
In its statutory financial statements prepared in accordance with local commercial and tax regulations,
Turkcell has generated negative cash flows and losses from operating activities as of December 31, 2001
and June 30, 2002. Interest expense and exchange losses associated with financing the business have
contributed to the negative cash flows and operating losses as well as tax saving accounting treatments
applied by Turkcell in its statutory financial statements. In accordance with Turkish commercial
legislation, Turkcell is required to maintain certain minimum levels of shareholders equity in its statutory
financial statements. Turkcell has met those minimum requirements.
These unaudited interim financial statements should be read in conjunction with the Companys Annual
Report on Form 20-F.
As of June 30, 2002, the consolidated financial statements include the accounts of Turkcell and ten
(December 31, 2001: nine) majority owned subsidiaries. Its investment in Fintur (December 31, 2001:
Fintur and Siber Eitim) is included under the equity method of accounting (Note 9).
The major principles of consolidation are as follows:
All significant intercompany balances and transactions have been eliminated in consolidation.
Minority interest in net assets and net income of the consolidated subsidiaries are separately classified -in the consolidated balance sheets and consolidated statements of operations.

(3)

Comprehensive Income
The Company adopted SFAS No. 130, Reporting Comprehensive Income, which requires the
presentation of comprehensive income and its components in a full set of financial statements.
Comprehensive income generally encompasses all changes in shareholders' equity (except those arising
from transactions with owners) and includes net income (loss), net unrealized capital gains or losses on
available for sale securities and foreign currency translation adjustments. The Company's comprehensive
income (loss) differs from net income (loss) applicable to common shareholders only by the amount of the
foreign currency translation adjustment charged to shareholders' equity for the period. Comprehensive
income (loss) for the three month and six month periods ended June 30, 2001 and 2002 were ($40,709),
$5,463, ($115,544) and $5,920, respectively.

(4)

New Accounting Standards Issued

In July 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting used for all
business combinations initiated after June 30, 2001 as well as all purchase method business combinations
completed after June 30, 2001. SFAS No. 141 also specifies criteria that intangible assets acquired in a
purchase method business combination must meet to be recognized and reported apart from goodwill,
noting that any purchase price allocable to an assembled workforce may not be accounted for separately.
SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS
No. 142. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for LongLived Assets to be Disposed of. The Company adopted these statements on January 1, 2002. As of June
30, 2002, the Company does not have any goodwill or indefinite live intangible assets.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No.
143 is effective for fiscal years beginning after June 15, 2002. This statement addresses financial

accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction, development and/or the normal operation of a longlived asset, except for certain obligations of lessees. Management has not determined the impact, if any, of
the adoption of SFAS No. 143 on the Companys consolidated financial position or results of operations.
On October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of LongLived Assets, which addresses financial accounting and reporting for the impairment or disposal of longlived assets. SFAS No. 144 is effective for the fiscal years beginning after December 15, 2001. While
SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, it retains many of the fundamental provisions of that Statement.
SFAS No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30,
Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a
segment of a business. However, it retains the requirement in APB Opinion No. 30 to report separately
discontinued operations and extends that reporting to a component of an entity that either has been
disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. By
broadening the presentation of discontinued operations to include more disposal transactions, the FASB
has enhanced managements ability to provide information that helps financial statement users to assess the
effects of a disposal transaction on the ongoing operations of an entity. The Company adopted SFAS No.
144 on January 1, 2002 and has not had a material impact on its financial position, results of operations, or
cash flows.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 rescinds SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, an amendment of APB Opinion No. 30,
which required all gains and losses from extinguishment of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a result, the criteria set forth by
APB Opinion 30 will now be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4,
and is no longer necessary because SFAS No. 4 has been rescinded. SFAS No. 44 was issued to establish
accounting requirements for the effects of transition to the provisions of the Motor Carrier Act of 1980.
SFAS No. 145 also amends SFAS No. 13 to require that certain lease modifications that have economic
effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback
transactions. SFAS No. 145 also makes non-substantive technical corrections to existing pronouncements.
SFAS No. 145 is effective for fiscal years beginning after May 15, 2002 with earlier adoption encouraged.
Management has not determined the impact, if any, of the adoption of SFAS No. 145 on the Companys
consolidated financial position or results of operations.
In 2001, the Emerging Issues Task Force (EITF) within FASB discussed EITF 00-14 Accounting for
Certain Sales Incentives, EITF 00-22 Accounting for Points and Certain Other Time-Based or VolumeBased Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future and
EITF 00-25 Vendor Income Statement Characterization of Consideration Paid to a Reseller of the
Vendors Products, which in November 2001 led to the issuance of EITF 01-09 Accounting for
Consideration Given by a Vendor to a Customer or a Reseller of the Vendors Products. EITF 00-14, 0022 and 00-25 address the extent to which different types of payments or benefits to retailers or customers
shall be reported as either reductions in revenue or expenses. EITF 01-09 codifies and reconciles standards
in the area. The regulations are effective for annual or interim periods beginning after December 15, 2001.
The Company adopted EITF 01-09 on January 1, 2002. As a result of applying the provisions of EITF 0109, the Companys revenues, gross profit, and selling and marketing expenses each were reduced by an
equal amount of $18,883 and $54,838 for the three month and six month periods ended June 30, 2001,
respectively. The adoption of EITF 01-09 had no impact on operating income, net income (loss) or
earnings (loss) per share.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. This Statement addresses financial accounting and reporting for costs associated with exit or

disposal activities and nullifies EITF 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS
No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. An entity
would continue to apply the provisions of EITF 94-3 to an exit activity that it initiated under an exit plan
that met the criteria of EITF 94-3 before the entity initially applied SFAS No. 146. The Company has not
determined the impact, if any, of the adoption of SFAS No. 146 on the Companys consolidated financial
position or results of operations.

(5)

Trade Receivables and Accrued Income, net:

At December 31, 2001 and June 30, 2002, the breakdown of trade receivables and accrued income is as
follows:
December 31,
2001

Receivables from subscribers

Receivable from Trk Telekom
Accounts and checks receivable

Accrued service income

Allowance for doubtful receivables
$

June 30,
2002
(Unaudited)

193,558
50,810
37,901
282,269

198,260
78,701
26,216
303,177

84,876
(111,002)
256,143

78,878
(113,593)
268,462

The Company has a receivable from Trk Telekom at December 31, 2001 and June 30, 2002, which
represents amounts that are due from Trk Telekom under the Interconnection Agreement. The
Interconnection Agreement provides that Trk Telekom will pay Turkcell for Trk Telekom's fixed line
subscribers' calls to Turkcell's GSM subscribers.
The accrued service income represents revenues accrued for subscriber calls (air-time), which have not
been billed. Due to the volume of subscribers, there are different billing cycles; accordingly, an accrual is
made at each period end to accrue revenues for services rendered but not yet billed.
Additionally, based on the decision of the Court of Appeal related to Turk Telekom Interconnection
Dispute, management and legal counsel of the Company believes that no further provision for the 15%
fund payments will be required and thus the Company reversed the unpaid two installments related to
March-August period in 2000 amounting $11,822 as of June 30, 2002 by increasing the receivables from
Trk Telekom with the same amount. For the paid amounts in 2000, the Company recorded an accrued
income amounting $16,078 as of June 30, 2002. (Note 23)
Accounts and cheques receivable represent amounts due from dealers and roaming receivables.
Movements in the allowance for doubtful receivables are as follows:
December 31,
2001

Beginning balance
Provision for doubtful receivables
Write-off
Effect of change in exchange rate
Ending balance

146,069
59,640
(94,707)
111,002

June 30,
2002
(Unaudited)

111,002
18,628
(5,245)
(10,792)
113,593

(6)

Due from Related Parties:

As of December 31, 2001 and June 30, 2002, the balance comprised:
December 31,
2001

Fintur
A-Tel Pazarlama ve Servis Hizmetleri A.. (A-Tel)
KVK Mobil Telefon Sistemleri Ticaret A.. (KVK)
Digital Platform letiim Hizmetleri A.. (Digital Platform)
Asl Gazetecilik ve Matbaaclk A.. (Asl Gazetecilik)
Geocell Ltd. (Geocell)
Sonera Corporation Inc.
Milleni.com GmbH (Milleni.com)
Azertel Telekomnikasyon Yatrm D Ticaret A.. (Azertel)
GSM Kazakhstan LLP OAO Kazakhtelecom (GSM Kazakhstan)
Azercell Telecom B.M. (Azercell)
ukurova Investments N.V. (ukurova Investments)
Superonline
Akam Production Basn Yayn A.S. (Basn Yayn)
Moldcell S.A.
Mobicom Bilgi letiim Hizmetleri A. (Mobicom)
Grtel Telekomnikasyon Yatrm D Ticaret A.. (Grtel)
Other

June 30,
2002
(Unaudited)

63,158
35,011
13,436
21,379
8,677
2,555
3,262
1,659
1,755
4,167
2,940
1,735
2,150
417
434
1,264
449
164,448

68,448
36,296
23,552
18,474
10,257
4,370
3,083
2,853
2,605
2,424
2,395
1,735
1,633
1,212
550
429
90
1,671
182,077

Due from Fintur mainly consisted of advances initially given for future share capital increase of Fintur and
the invoices issued to Fintur regarding the expenses made on behalf of Fintur. Upon the completion of
Fintur restructuring described in Note 9, such receivables have been collected subsequent to June 30, 2002.
Due from A-Tel mainly resulted from simcard and prepaid card sales and advances given for hand-set
subsidies provided by A-Tel in certain campaigns started by this company. (Note 22)
Due from Digital Platform mainly resulted from receivables from call center revenues and advances given
for current and planned sponsorships. (Note 22)
Due from KVK mainly resulted from simcard and prepaid card sales to this company. (Note 22)
Due from Asl Gazetecilik mainly resulted from advances given for making space and airtime reservations
for advertisements on televisions, radio stations, newspapers and magazines mainly owned by ukurova
Group. (Note 22)
Due from Geocell mainly resulted from roaming receivables and sales of GSM equipment.
Due from Sonera Corporation Inc. and ukurova Investments resulted from the allocation of certain
expenses made on behalf of these shareholders during the public offering.
Due from GSM Kazakhstan mainly resulted from sales of GSM equipment and roaming receivables.
Due from Azercell resulted from roaming receivables and consultancy services given to this company.
Due from Milleni.com mainly resulted from interconnection receivables.
Due from Azertel mainly resulted from expenses paid by Turkcell on behalf of this company.

10

Due from Basn Yayn mainly resulted from services rendered related to making space and airtime
reservations for advertisements on television stations, radio stations, newspapers and magazines.
Due from Superonline mainly resulted from receivables from call center revenues. (Note 22)
Due from Grtel mainly resulted from the equipment sales made to Geocell.

(7)

Other Current Assets:

At December 31, 2001 and June 30, 2002, the balance comprised:
December 31,
2001

Advances to suppliers
Deferred financing costs
Blocked deposits
Prepaid taxes
Other

(8)

June 30,
2002
(Unaudited)

8,245
14,123
11,403
5,078
8,116

11,606
14,389
11,405
651
7,005

46,965

45,056

Due from Related Parties - Long Term

As of December 31, 2001 and June 30, 2002, the balance comprised:
December 31,
2001

ukurova Holding A.. (ukurova Holding)

Azertel
Yap ve Kredi Bankas A.. (Yap Kredi)

$
$

June 30,
2002
(Unaudited)

10,085

10,085

33,424
10,085
5,736
49,245

Due from ukurova Holding and Yap Kredi mainly resulted from advances given for Fintur restructuring,
which has been completed on August 21, 2002. (Note 9)
Due from Azertel mainly resulted from the payment made by Azertel on behalf of Azercell to the
Azerbaijan Ministry of Communication as profit guarantee for 1997, in accordance with Article 13 of the
GSM contract dated January 19, 1996. Under an amendment made in 1998 to the original contract, the
dividend guarantee was cancelled and advance payments on amounts already distributed as dividends for
1997 were repayable to Azercell. This balance is to be paid off by the cash generated from future dividends
of Azercell to Azertel.

(9)

Investments:
At December 31, 2001 and June 30, 2002, investments in associated companies were as follows:
December 31,
2001

Fintur
Siber Eitim

$
$

11

58,229
100
58,329

June 30,
2002
(Unaudited)

34,438
34,438

At December 31, 2001, the Companys ownership interest in Fintur and Siber Eitim were 25.00% and
49.98%, respectively. Investments in Fintur and Siber Eitim were accounted for under the equity method
of accounting.
On April 25, 2002, Turktell transferred its shares in Siber Eitim to other shareholders of Siber Eitim
without any consideration, which resulted in a loss of $48 for the six month period ended June 30, 2002.
At June 30, 2002, the Companys ownership interest in Fintur was 25.00%. Investment in Fintur was
accounted for under the equity method of accounting.
On February 28, 2002, the shareholders of Fintur signed a letter of intent for the restructuring of Finturs
two business divisions, the international GSM businesses and the technology businesses. As per the subject
transaction, Turkcell intends to acquire an additional 16.45% of Finturs international GSM business from
the ukurova Group, increasing its stake in the business to 41.45%. As part of the subject transaction,
Turkcell intends to sell its entire interest in Finturs technology businesses to the ukurova Group. On May
10, 2002, Turkcell and the other shareholders of Fintur signed a Share Purchase Agreement in connection
with the restructuring of Fintur's two business divisions, which includes the basic principles agreed in the
letter of intent. On August 21, 2002, the transaction has been completed. The consideration paid by
Turkcell to the ukurova Group resulting from this transaction amounted to $70,741. On March 7 and May
29, 2002, Turkcell paid $35,371 and $3,789 to the ukurova Group, respectively, and upon completion of
the transaction Turkcell paid the remaining $31,581 to the ukurova Group. Turkcell had receivables from
Fintur of $67,274 as of August 21, 2002 (December 31, 2001: $63,158; June 30, 2002: $68,448) and on
August 22, 2002, Turkcell collected such receivables upon the completion of the transaction. The receipt of
these receivables offset a major portion of the consideration paid by Turkcell to the ukurova Group.
Therefore, the Companys net cash outflows in connection with the restructuring amounted to $3,467.
Upon the signing of the letter of intent, Fintur classified the subsidiaries in the technology businesses as
held for sale and measured them at the lower of their carrying amount or fair value less the cost to sell,
which resulted in an impairment charge of approximately $26,940 based on its unaudited consolidated
financial statements for the three month period ended March 31, 2002. The $26,940 impairment charge has
been recognized in Fintur's unaudited consolidated financial statements for the three month period ended
March 31, 2002, which has an effect amounting to $6,735 in Turkcells consolidated results of operations
for the three month period ended March 31, 2002. Based on its unaudited consolidated financial statements
for the six month period ended June 30, 2002, Fintur recalculated the impairment charge as $11,585, which
has been recognized in its unaudited consolidated financial statements for the six month period ended June
30, 2002. The finalization of this deal would enable Turkcell to focus on its core mobile business since
these GSM operations are located in countries with low mobile penetration rates, which management
believes will provide opportunities for future growth.
Aggregate summarized information of Fintur and Siber Eitim as of December 31, 2001, and for the six
month period ended June 30, 2001, and of Fintur and Siber Eitim for the three month period ended March
31, 2002, and of Fintur as of and for the three month period ended June 30, 2002 are as follows:
December 31,
2001

Current assets
Noncurrent assets

Current liabilities
Noncurrent liabilities
Shareholders' equity
$

12

June 30,
2002
(Unaudited)

218,375
781,824
1,000,199

629,667
348,361
978,028

571,604
223,559
205,036
1,000,199

739,971
128,335
109,722
978,028

6 months ended
June 30, 2001
(Unaudited)

Revenues
Direct cost of revenues
Loss before taxes
Net loss

(10)

3 months ended
March 31, 2002
(Unaudited)

139,640
(177,494)
(117,263)
(121,188)

50,264
(24,900)
(71,479)
(77,161)

6 months ended
June 30, 2002
(Unaudited)

58,422
(28,299)
(15,643)
(17,028)

Fixed Assets, net:

As of December 31, 2001 and June 30, 2002, the analysis of fixed assets is as follows:
Useful
Lives

Operational fixed assets:

Base terminal stations
Mobile switching center/base station controller
Minilinks
Supplementary system
Call center equipment
GSM services equipment
Accumulated depreciation

926,855
822,680
192,167
34,208
7,277
75,920
2,059,107
(726,088)

Operational fixed assets, net

1,408,592

1,333,019

25 years
4-5 years
4-5 years
5 years

Accumulated depreciation
Non-operational fixed assets, net

June 30,
2002
(Unaudited)

890,323
808,683
191,247
34,492
7,210
77,308
2,009,263
(600,671)

Non-operational fixed assets:

Land
Buildings
Furniture, fixture and equipment
Motor vehicles
Leasehold improvements

8 years
8 years
8 years
8 years
5 years
8 years

December 31,
2001

531
169,147
133,300
6,047
52,856
361,881
(115,363)
246,518
$ 1,655,110

531
134,997
137,819
6,041
87,778
367,166
(142,113)
225,053
1,558,072

Total amount of interest capitalized on fixed assets during the six month periods ended June 30, 2001 and
2002 amounted to $690 and $7, respectively. Total amount of interest capitalized on fixed assets during the
three month periods ended June 30, 2001 and 2002 amounted to $571 and $7, respectively. Such
capitalized interest is depreciated over the useful lives of the related assets.
At December 31, 2001 and June 30, 2002, total fixed assets acquired under finance leases amounted to
$66,771 and $66,728, respectively. Depreciation of these assets amounted to $890, $844, $1,769 and
$1,690 for the three month and six month periods ended June 30, 2001 and 2002, respectively, and is
included with depreciation expense.

13

(11)

Construction in Progress:
At December 31, 2001 and June 30, 2002, construction in progress consisted of expenditures in GSM and
non-operational items and is as follows:
December 31,
2001

Turkcell-Phase 9
Non-operational items
Turkcell-Other projects
Kbrs Telekom-GSM network

116,409
2,268

959
119,636

(12)

June 30,
2002
(Unaudited)

76,609
2,199
2,122
564
81,494

Intangibles, net:
As of December 31, 2001 and June 30, 2002, intangibles consisted of the following:

December 31,
2001

Useful lives

Turkcell-License (Note 1)
Computer software
Transmission lines

25 years
8 years
10 years

500,000
641,473
13,762
1,155,235
(238,315)
916,920

Accumulated amortization
$

June 30,
2002
(Unaudited)

500,000
656,195
14,004
1,170,199
(289,668)
880,531

As of June 30, 2002, amortized intangible assets are as follows:

Gross carrying
amount

Turkcell-License
Computer software
Transmission lines

500,000
656,195
14,004
1,170,199

Accumulated
amortization

83,333
202,427
3,908
289,668

The Company adopted SFAS No. 142 Goodwill and Other Intangible Assets on January 1, 2002. The
adoption of SFAS No. 142 did not have a material impact on the Companys consolidated financial
position or results of operations. As of June 30, 2002, the Company does not have any goodwill or
indefinite live intangible assets.

14

Aggregate amortization expense

Aggregate amortization expense for the three month and six month periods ended June 30, 2001 and 2002
were $22,895, $25,709, $44,849 and $51,358, respectively.
Estimated amortization expense

(13)

For the year ended December 31, 2002

$ 102,519

For the year ended December 31, 2003

101,568

For the year ended December 31, 2004

100,163

For the year ended December 31, 2005

98,254

For the year ended December 31, 2006

94,131

Short Term Borrowings:

At December 31, 2001 and June 30, 2002, short-term borrowings comprised the following:
December 31,
2001

Current portion of long term borrowings (Note 18)

Other short term bank loans and overdrafts

$
$

(14)

381,773
1,394
383,167

June 30,
2002
(Unaudited)

454,932
826
455,758

Trade Payables:
At June 30, 2002, the balance represents amount due to Ericsson Telekomnikasyon A.. (Ericsson
Turkey) and Ericsson Radio Systems AB (Ericsson Sweden) of $41,037 (December 31, 2001: $170,194)
and $32,867 (December 31, 2001: $88,737), respectively, resulting from fixed asset purchases, site
preparation and other services, and amounts due to other suppliers totalling $23,812 (December 31, 2001:
$43,108) arising in the ordinary course of business.
Turkcell is party to a series of supply agreements with Ericsson Turkey (collectively the Supply
Agreements) under which Ericsson Turkey has agreed to supply Turkcell with an installed and operating
GSM network, spare parts, training and documentation. The Supply Agreements also give Turkcell a nonexclusive restricted software License for GSM software. Under the Supply Agreements, Ericsson Sweden
guarantees all of Ericsson Turkey's obligations to Turkcell.
Turkcell also entered into a GSM service agreement with Ericsson Sweden under which Ericsson Sweden
supplies Turkcell with the following system services: trouble report handling service, hardware service,
consultation service and emergency service. This agreement expired on December 31, 1998 but contains
successive one-year automatic renewals unless terminated by either party in writing no later than nine
months prior to the expiration of the current term, but not beyond December 31, 2005. As of June 30, 2002,
the agreement was automatically extended through December 31, 2002.

15

(15)

Due to Related Parties:

As of December 31, 2001 and June 30, 2002, due to related parties comprised:
December 31,
2001

Hobim Bilgi lem Hizmetleri A.. (Hobim)

Trkiye Genel Sigorta A.. (Genel Sigorta)
Digital Platform
Superonline
Other

June 30,
2002
(Unaudited)

425
1,033
397
1,771
3,626

525
18
264
807

Due to Hobim resulted from the invoice printing services rendered by this company. (Note 22)
Due to Genel Sigorta resulted from health and life insurance premiums of the Companys personnel.

(16)

Other Current Liabilities and Accrued Expenses:

At December 31, 2001 and June 30, 2002, the balance comprised:
December 31,
2001

License fee accrual-The Turkish Treasury

Taxes and withholdings
Deferred income
Accrued interest on borrowings
Selling and marketing expense accruals
Transmission fee accruals
Interconnection accrual-Trk Telekom
Lease obligations-short term portion (Note 19)
Roaming expense accrual
Radio cost accrual
Accrued interest on lease obligations
Other expense accruals

98,318
70,675
40,930
45,176
8,040
3,266
11,425
8,660
2,240
5,877
1,534
7,284
303,425

June 30,
2002
(Unaudited)

186,120
70,538
48,875
44,076
22,224
17,916
12,881
8,101
3,107
2,087
1,992
9,938
427,855

In accordance with the License Agreement (Note 1), Turkcell pays the Turkish Treasury an ongoing
license fee equal to 15% of its gross revenue. The balance of $98,318 at December 31, 2001 represents the
license fee accrual amounting to $11,154 for the month of December 2001 and license fee accrual on
interconnection revenues amounting to $87,164 including interest of $22,560 for the months of March
2001 through December 2001. The balance of $186,120 at June 30, 2002 consists of license fee accrual
amounting to $35,513 for the months of May and June 2002 and license fee accrual on interconnection
revenues amounting to $150,607 including interest of $51,332 for the months of March 2001 through
June 2002.

16

Interconnection accrual at December 31, 2001 and June 30, 2002 represents amounts payable under the
Interconnection Agreement (Note 23). The Interconnection Agreement requires that Turkcell pays Trk
Telekom for Turkcells GSM subscribers calls to Trk Telekoms fixed-line subscribers.

(17)

Taxes on Income:
The income tax benefit is attributable to income/loss from continuing operations and consists of:
3 Months Ended
June 30,
2001
2002
(Unaudited)

Current tax charge

Deferred tax benefit
Income tax benefit

6 Months Ended
June 30,
2001
2002
(Unaudited)

8,783
8,783

$
$

Income tax benefit attributable to income from continuing operations was $8,783 and nil for the six month
periods ended June 30, 2001 and 2002, respectively. These amounts are differed from the amount
computed by applying the Turkish income tax rate of 33% to pretax income from continuing operations as
a result of the following:

3 Months Ended
June 30,
2002
2001
(Unaudited)

Computed expected tax

benefit (expense)
Non taxable translation gain
Investment tax credit
Change in valuation
allowance
Other
Income tax benefit (expense)

6 Months Ended
June 30,
(Unaudited)

$ 13,459
55,422
79,616

(1,845)
50,144
(21,454)

(157,461)
8,964

(28,280)
1,435

17

2002

2001

46,123
234,904
87,622

(2,039)
2,114
37,397

(411,936)
52,070
8,783

(27,460)
(10,012)
-

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
liabilities at December 31, 2001 and June 30, 2002 are presented below:
December 31,
2001

Deferred tax assets:

Accrued expenses
Accounts and other receivables (principally due
to allowance for doubtful accounts) and other
Net operating loss carryforwards
Tax credit carryforwards (Investment tax credit)
Gross deferred tax assets
Less: Valuation allowances
Net deferred tax assets
Deferred tax liabilities:
Fixed assets and intangibles, principally due to
financial leases, differences in depreciation and
amortization, and capitalization of interest and
foreign exchange loss for tax purposes
Total deferred tax liabilities
Net deferred tax liabilities (assets)

June 30,
2002
(Unaudited)

18,783

34,295

34,572
250,520
271,698
575,573
(539,739)
35,834

59,481
146,961
309,095
549,832
(542,367)
7,465

(35,834)
(35,834)
-

(7,465)
(7,465)
-

At June 30, 2002, net operating loss carry forwards are as follows (unaudited):
Expiration

Year

Amount

1999
2000
2001
2002

1,781
4,785
437,022
851

Date
2004
2005
2006
2007

Non taxable translation gain results from translation of Turkish Lira denominated non-monetary assets and
liabilities to the US Dollar, the functional and reporting currency, in accordance with the relevant
provisions of SFAS No. 52 as applied to entities in highly inflationary economies. Under SFAS No. 109,
such translation gains and losses between the tax and book basis of related assets and liabilities do not give
rise to temporary differences. Such amounts are primarily attributable to translation gain resulting from the
translation of Turkish Lira denominated fixed assets and intangibles into the US Dollar.
In 1993, 1997, 2000 and 2001, the Turkish Treasury approved investment incentive certificates for a
program of capital expenditures by Turkcell and its subsidiaries in GSM and call center operations. Such
incentives entitle the Company to a 100% exemption from customs duty on imported machinery and
equipment and an investment tax benefit of 100% on qualifying expenditures. The investment tax benefit
takes the form of deductions for corporation tax purposes, but such deductions are subject to withholding
tax at the rate of 19.8%. Investment incentive certificates provide for tax benefits on cumulative purchases
of up to approximately $3,205,540 in qualifying expenditures, as defined in the certificates. As of June 30,
2002, the Company had incurred cumulative qualifying expenditures of approximately $2,341,631
(December 31, 2001: $2,058,317), resulting in tax credit carry forwards under the certificates of
approximately $309,095 (December 31, 2001: $271,698), net of foreign exchange translation losses. Such
tax credits can be carried forward indefinitely. The certificates are denominated in Turkish Lira. However,

18

approximately $2,030,103 of qualifying expenditures through June 30, 2002, (December 31, 2001:
$1,994,427) under such certificates are indexed against future inflation.
The Company establishes valuation allowances in accordance with the provisions of SFAS No. 109. The
Company continually reviews the adequacy of the valuation allowance based on changing conditions in the
market place in which the Company operates and its projections of future taxable income, among other
factors. Management believes that currently, based on a number of factors, including a history of statutory
tax losses, its limited operating history, the continuing increase in competition, political and economic
uncertainty within Turkey and in certain neighboring countries, and other factors, the available objective
evidence creates significant uncertainty regarding the realizability of its net operating loss carryforwards
and tax credit carryforwards. Accordingly, a valuation allowance of approximately $542,367 is recorded as
of June 30, 2002 (December 31, 2001: $539,739) for such amounts. The valuation allowance at June 30,
2002 and December 31, 2001 has been allocated between current and non-current deferred tax assets on a
pro-rata basis in accordance with the provisions of SFAS No. 109. Management believes that it is more
likely than not that the net deferred tax asset of approximately $7,465 as of June 30, 2002 (December 31,
2001: $35,834) will be realized through reversal of taxable temporary differences. Changes in valuation
allowances mainly result from changes in managements projections on recoverability of certain deferred
tax assets.

(18)

Long Term Borrowings:

At December 31, 2001 and June 30, 2002, long-term borrowings comprised:
December 31,
2001

Loan under the 1999 Issuer Credit Agreement

1999 Bank Facility
Loan under the 1998 Issuer Credit Agreement
Akbank T.A.. (Akbank)
Garanti Malta
Vakfbank
NordbankenStockholm (Nordbanken)
Yap ve Kredi Bankas-Bahrain (Yap Kredi)
AB Svensk Exportcredit (AB Svensk)
London Forfaiting Company

Less: Current portion of long term borrowings (Note 13)

$

400,000
366,667
300,000
250,000
150,000
100,000
24,757
3,500
2,252
3,500
1,600,676
(381,773)
1,218,903

June 30,
2002
(Unaudited)

400,000
305,556
300,000
250,000
112,500
85,714
20,036
3,500
1,126
1,478,432
(454,932)
1,023,500

The Company has short and long term credit lines with local and foreign banks. At December 31, 2001,
unused credit lines do not exist. On March 5, 2002, Yapi Kredi has committed to provide a cash loan
facility up to $200,000 to the Company over the next twelve months.
As of December 31, 2001 and June 30, 2002, interest on the loan under the 1999 Issuer Credit Agreement
accrues at the rate of 12.75% per annum.
As of December 31, 2001 and June 30, 2002, the interest rate on the 1999 Bank Facility varies between
LIBOR plus 1.00% and LIBOR plus 3.50% per annum in respect of the tranches.
As of December 31, 2001 and June 30, 2002, interest on the loan under the 1998 Issuer Credit Agreement
accrues at the rate of 15% per annum.
The interest rate of the Garanti loan was 14% per annum as of December 31, 2001 and has been amended
as 12% per annum on January 3, 2002 and 9% per annum on April 1, 2002.

19

The interest rate of the Vakfbank loan was 14% per annum as of December 31, 2001 and has been
amended as 12% per annum on February 1, 2002. On June 3, 2002, Turkcell agreed with Vakifbank to
amend the interest rate further. Accordingly, the interest rate has been amended as 10% per annum
effective May 1, 2002 and 9% per annum effective June 1, 2002.
The interest rate of Akbank loan is LIBOR plus 5.25% per annum as of December 31, 2001 and June 30,
2002. On May 9, 2002, Turkcell agreed with Akbank T.A.S. to extend two principal repayments of existing
borrowings totaling $62.5 million, which were due in 2002, for twelve months subsequent to their initial
maturities.
As of December 31, 2001 and June 30, 2002, the Company is in compliance with the financial covenants
and ratios with respect to its borrowings.
Generally, long-term borrowings are collateralized by bank letters of guarantee and sureties of the
Companys shareholders.

(19)

Long Term Lease Obligations:

Future minimum finance lease payments as of June 30, 2002 are:
Years
2002
2003
2004
2005 and thereafter
Total minimum lease payments
Less: Amount representing interest
Less: Current installments of obligations under finance leases (Note 16)

(20)

6,488
12,949
12,318
9,617
41,372
(10,389)
(8,101)
22,882

Common Stock:
At December 31, 2001 and June 30, 2002, common stock represented 500,000,000,000 authorized, issued
and fully paid shares with a par value of one thousand Turkish Lira each.
The following table sets forth the computation of basic and diluted earnings per share:

Three Months Ended

June 30,
2001
2002

Numerator:
Net Income/(loss)
Denominator:
Basic and diluted weighted average shares
Basic and diluted net income (loss) per share

Six Months Ended

June 30,
2001
2002

(40,658)

5,570

(115,174)

6,178

450,354,503,787

500,000,000,000

450,354,503,787

500,000,000,000

(0.00009)

0.00001

(0,00026)

0.00001

On June 18, 2002, the Banking Regulation and Supervision Agency of Turkey (the BRSA) decided to
transfer the management and supervision of Pamukbank T.A.S. (Pamukbank), one of the Companys
shareholders, to the Savings Deposit Insurance Fund of Turkey (the SDIF) who took over all shareholding
rights of all Pamukbank shareholders, excluding their dividend entitlements. The BRSA cited that
Pamukbank failed to take measures required under the Turkish Banks Act; that its total liabilities exceed its
total assets; that its financial weakness threatened depositors rights as well as safety and soundness of the

20

Turkish financial system and transferred the management and supervision to the SDIF in accordance with
third and fourth paragraphs of Article 14 of the Turkish Banks Act. Further, in accordance with fifth
paragraph of Article 14 of the Turkish Banks Act, the SDIF, has acquired ownership of Pamukbank by
paying the amount equivalent to Pamukbanks losses. As of June 30, 2002, to the best of the managements
knowledge, Pamukbank held 0.51% ownership interest directly and 7.87% ownership interest indirectly in
Turkcell. On August 9, 2002, Pamukbank advised the Company that the BRSA decided to transfer the
shares of Turkcell held directly by Pamukbank to the SDIF. Accordingly, on August 21, 2002, the Board of
Directors of Turkcell resolved to register such shares in the Share Register of Turkcell under the name of
the SDIF.

(21)

Revenues:
For the three month and six month periods ended June 30, 2001 and 2002, revenues consisted of the
following:

3 Months Ended

6 Months Ended

June 30,

June 30,

2001

2002

(Unaudited)

Communication fees
Monthly fixed fees
Simcard sales
Call center revenues (Note 22)
Other

372,447
20,980
1,738
1,498
115
396,778

2002
(Unaudited)

482,997
10,889
1,503
1,976
113
497,478

21

2001

823,859
59,881
3,140
3,938
272
891,090

900,254
22,289
7,328
4,489
309
934,669

(22)

Related Party Transactions:

For the three month and six month periods ended June 30, 2001 and 2002, significant transactions with the
related parties were as follows:

Sales to A-Tel
Simcard and prepaid card sales
$
Charges from A-Tel
Dealer activation fees and simcard subsidies
Sales to Digital Platform
Call center revenues
Charges from Digital Platfrom
Reimbursement of the costs of its free subscriptions to
Turkcell subscribers
Charges from Asl Gazetecilik
Advertisement services
Sales to KVK
Simcard sales
Charges from Hobim
Invoicing service
Charges from Superonline
Contribution to advertising expenses and internet services
rendered
Sales to Superonline
Call center revenues
Charges from Genel Yaam Sigorta
Life insurance premiums
Sales To Geocell
GSM Equipment
Sales To Millenicom
Telecommunication services
Charges to Digital Platform
Telecommunication services and rent charges
Charges from Millenicom
Telecommunication services
Charges from Genel Sigorta
Insurance

22

3 Months Ended
June 30,
2002
2001

6 Months Ended
June 30,
2002
2001

(Unaudited)

(Unaudited)

20,822

35,880

81,204

56,198

163

506

1,152

1,328

2,292

3,271

756

2,228

820

4,038

6,394

5,406

6,448

8,085

7,433

38,491

12,723

55,791

756

1,453

1,704

2,688

92

157

350

407

600

415

1,181

836

4,766

3,346

5,014

358

17

1,819

1,516

3,011

274

123

1,076

510

1,617

2,845

83

18

1,004

1,059

Turkcell has agreements or protocols with several of its shareholders, unconsolidated subsidiaries and
affiliates of the shareholders. The Companys management believes that all such agreements or protocols
are on terms that are at least as advantageous to the Company as would be available in transactions with
third parties.
The significant agreements are as follows:
Agreements with A-Tel
A-Tel is one of the principal importers of handsets and is involved in marketing, selling and distributing a
part of Turkcells prepaid system. A-Tel is a 50-50 joint venture of KVK and Sabah media group. A-Tel
acts as the only dealer of Turkcell for Muhabbet Kart (a prepaid card), and receives dealer activation fees
and simcard subsidies for the sale of Muhabbet Kart. In addition to sales of simcards and scratch cards
Turkcell has entered into several agreements with A-Tel for sales campaigns and for subscriber activations.
Sales campaigns are also incorporated with Sabah, the media company.
Agreements with KVK
KVK, one of Turkcells principal SIM card distributors, is a Turkish company controlled by three
individuals who are affiliated with Turkcells shareholders. In addition to sales of simcards and scratch
cards Turkcell has entered into several agreements with KVK, in the form of advertisement support
protocols, each lasting for different periods pursuant to which KVK must place advertisements for
Turkcells services in newspapers. The objective of these agreements was to promote and increase handset
sales with Turkcells prepaid and postpaid brand SIM cards, thereby supporting the protection of
Turkcells market share in the prevailing market conditions. The prices of the contracts were determined
according to the cost of advertising for KVK and total amount of advertisement benefit received, reflected
in Turkcells market share in new subscriber acquisitions. Distributors' campaign projects and market
share also contributed to the budget allocation.
Agreements with Digital Platform
Digital Platform, a direct-to-home digital broadcasting company under Digiturk brand name, is a
subsidiary of Fintur, one of Turkcells affiliated companies. Digital Platform holds the broadcasting rights
for Turkish Super Football League until May 2004. Turkcell has entered into several agreements with
Digital Platform, in order to exploit the unique position of Digital Platform in Turkey, including a slow
motion advertising agreement, relating to Turkcell ads shown on digital television screens during football
games and related events, amounting to $5,000 for a period of one year and extendable if any of the parties
do not oppose it. In addition, Turkcell has agreed with Digital Platform to sponsor some of the films
broadcast on its pay-per-view channels. Turkcell also has a rent agreement for the space occupied by
Digital Platform in one of Turkcells buildings, an agreement related to the provision of Group SMS
services that Turkcell offers to Digital Platform, and an agreement for call center services provided by
Turkcells subsidiary Global.
Agreements with Asl Gazetecilik
Asl Gazetecilik, a media planning and marketing company, is a Turkish company owned by one of
Turkcells principal shareholders, Cukurova Group. Turkcell receives services related to making space and
airtime reservations for advertisements on television stations, radio stations, newspapers and magazines.
Agreements with Genel Yaam Sigorta
Genel Yaam Sigorta, a life insurance company, is a Turkish company owned by one of Turkcells
principal shareholders, Cukurova Group. Turkcell has signed agreements for the life insurance policies
related to its personnel and the personnel of some of its dealers.

23

Agreements with Hobim

Hobim, one of the leading data processing and application service provider companies in Turkey, is owned
by the Cukurova Group. Turkcell has entered into invoice printing and archiving agreements with Hobim
under which Hobim provides Turkcell with monthly invoice printing services, manages archiving of
invoices and subscription of documents for an indefinite period of time.
Agreements with Superonline
Turkcell and Superonline have entered into an agreement to provide mutual services to each other.
According to the agreement, Superonline provides dealer automation services, web hosting services,
internet access services, high speed circuit switched data services, wireless application protocol services
and unified messaging services. Against the services provided by Superonline, Turkcell provides space to
Superonline on base station sites to install servers and equipments to increase the performance of the
system infrastructure of Superonline.
Financial lease agreements with Yap Kredi Finansal Kiralama A..
Turkcell has entered into a finance lease agreement with Yap Kredi Finansal Kiralama A. (Yap Kredi
Leasing), an affiliate of Yap Kredi, a shareholder of the Company, for the new headquarters building it
began to occupy in early 1998. The purchase price of the building was $14,162. Turkcell has purchased the
building at May 17, 2002 for its nominal purchase price.
In addition, Turkcell has entered into a finance lease agreement with Yap Kredi Leasing for a building in
Ankara for regional offices. The purchase price of the building was $16,400 and Turkcells outstanding
lease obligation at June 30, 2002 was $10,888 (December 31, 2001: $11,902). Turkcell may purchase the
building at the end of the lease period for a nominal purchase price.
Financial lease agreements with Pamuklease Pamuk Finansal Kiralama A..
Turkcell has entered into five finance lease agreements with Pamuklease Pamuk Finansal Kiralama A..
(formerly Interlease Inter Finansal Kiralama A..), a Cukurova Group Company, for Turkcells
departments and regional offices in Istanbul, Ankara and zmir. The purchase price of the buildings was
$32,673 and Turkcells outstanding lease obligation at June 30, 2002 was 20,081 (December 31, 2001:
$22,609). Turkcell may purchase the building at the end of the lease period for a nominal purchase price.
Personal loans to directors and executive officers
As of December 31, 2001 and June 30, 2002, 10 of the Companys directors and executive officers have
outstanding personal loans from the Company amounting $179 and $106, respectively.

(23)

Commitments and Contingencies:

Legal Proceedings
The Company is involved in various claims and legal actions arising in the ordinary course of business
described below.
Dispute on Treasury Share:
On an ongoing basis, Turkcell must pay 15% of its monthly gross revenue, which is defined in its license
agreement as subscription fees, fixed-monthly fees and communication fees including taxes, charges and
duties to the Turkish Treasury. The Turkish Ministry and the Turkish Treasury informed Turkcell that, in
their view, its 15% ongoing license fee should be calculated before deduction of VAT, its required
contribution to the education fund and the frequency usage and transmission fees. Turkcell has consistently
calculated its 15% ongoing license fee after deducting for these items, which Turkcell believes is consistent
with the terms of its license. VAT in Turkey is currently 18% and the education fund and frequency usage
and transmission fees, which are calculated as fixed fees, have amounted to approximately $164,620
between acquisition of its license and June 30, 2002. The Turkish Ministry and the Turkish Treasury have

24

taken the position that such collections are required to be included in calculating the amount of its ongoing
license fee. On November 8, 1999, the Turkish Ministry notified Turkcell and Telsim, the other GSM
operator at that time, which Turkcell believes was computing its license fee obligation in the same manner
as Turkcell were, that the Danistay ruled that the interpretation of the Turkish Ministry was correct and that
from November 1999 forward its 15% ongoing license fee should be calculated according to the Turkish
Treasury's method. On November 18, 1999, the Turkish Treasury informed Turkcell that all payments
under its license should be calculated retroactively using such methodology and paid to the Turkish
Treasury applying the statutory interest rate on the unpaid balance from April 27, 1998, the date its license
was granted.
Under the Turkish Treasury's calculation, the cumulative amount of VAT, education fund, frequency usage
and transmission fees from April 27, 1998, until December 31, 1999, was $264,126. The Turkish Treasury
requested that Turkcell pays 15% of this amount, which was $7,482 for the year ended December 31, 1998
and $32,137 for the year ended December 31, 1999. The statutory interest rate as applied on this unpaid
balance results in an additional payment of $12,536 for the year ended December 31, 1998 and $15,424
for the year ended December 31, 1999. Turkcell disagrees with the Turkish Treasury's position, and
initiated an administrative suit at the Danistay against the Turkish Ministry and the Turkish Treasury. On
December 29, 1999, Turkcell obtained an injunction to prevent the Turkish Treasury from collecting the
license fee in respect of the disputed amounts. On February 16, 2000, the Danistay lifted the injunction in
respect of the license fee payable on account of collections of VAT but upheld the injunction with respect
to the state education fund and the frequency usage and transmission fees. Subsequent to the Danistay's
decision on February 16, 2000, the Turkish Ministry and the Turkish Treasury filed a challenge to the
Danistay's decision to uphold the injunction with respect to the state education fund, frequency usage and
transmission fees, and Turkcell filed a challenge to the Danistay's decision with respect to VAT. Both
challenges were rejected by the Danistay on April 21, 2000. On October 15, 2001, a substantive decision in
line with the injunctive relief was rendered by the Danistay. The Danistay ruled that VAT should be
included in the calculation of gross revenue whereas the state education fund, the frequency usage fees and
transmission fees should not. Turkcell expects that both parties will appeal the parts of the decision adverse
to their interests. On March 24, 2000, Turkcell paid to the Turkish Treasury a sum of $57,163 for license
fees on account of VAT and the accrued late payment interest collected since April 1998, which sum
excludes license fees on account of the education fund and the frequency usage and transmission fees.
Turkcell has paid the above amount, with a reservation, to the Turkish Treasury, and will continue to pay
license fees in respect of VAT collections, subject to a final judgment to be rendered by the Danistay. On
March 27, 2000, Turkcell filed a challenge against the Danistay's decision to lift the injunction with respect
to VAT, which was rejected on April 21, 2000. Unpaid amounts with respect to the state education fund,
frequency usage and transmission fees, including interest, amounted to $47,591 and $57,569 as of
December 31, 2001 and June 30, 2002, respectively. Turkcell and its legal counsel believe that Turkcell
will prevail with respect to payment of the education fund, frequency usage and transmission fees.
Accordingly, Turkcell has not made any provisions in the Companys consolidated financial statements for
license fee payments with respect to collections on account of the education fund, frequency usage and
transmission fees. There can be no assurance, however, that there will not be an unfavorable ruling in this
matter or that such an outcome would not have a material adverse effect on the Companys consolidated
financial position, results of operations, or liquidity.
Dispute on VAT on License Fee:
On May 4, 2000, Turkcell received a notice from the Istanbul Bogazici Tax Office of the Ministry of
Finance, or the Tax Office, asserting deficiencies in VAT declarations for the month of April 1998. The
Tax Office claims that Turkcell should have paid VAT on the $500,000 upfront license fee paid to the
Turkish Treasury. The notice stated that, based on calculations made by the Tax Office on February 29,
2000, Turkcell should have paid VAT of TL 18.6 trillion (equivalent to $11,874 at June 30, 2002) on the
upfront license fee in April 1998. The Tax Office has also imposed late interest charges equal to TL 48.1
trillion (equivalent to $30,634 at June 30, 2002) and a penalty fee of TL 37.3 trillion (equivalent to $23,747
at June 30, 2002). The Tax Office's position is premised on the view that the license was not transferred or

25

sold to Turkcell but leased for a period of 25 years. Accordingly, the Tax Office claimed that under
Turkish law, VAT should be paid on the upfront license fee and that Turkcell should pay the VAT because
the lessor, the Turkish Ministry, is not a registered tax payer.
If the Tax Office prevailed in this case, Turkcell would have a payable to the Tax Office for the amount of
VAT, which would be offset by a VAT recoverable in the same amount and would not result in cash
outflow from Turkcell for the VAT payment. However, the interest charge on the unpaid VAT of
TL 59.1 trillion (equivalent to $37,664 at June 30, 2002) and the penalty fee of TL 37.3 trillion (equivalent
to $23,747 at June 30, 2002) would have to be paid. Turkcell has filed a petition in the Tax Court to
challenge all deficiencies as ruled by the Tax Office. The Tax Court has rejected its claim and Turkcell has
appealed the case to the Danistay.
While the case was pending at the Danistay, the Tax Office requested on March 16, 2001 that Turkcell
pays VAT on the upfront license fee as well as the late payment interest on the unpaid VAT and the
penalty fee. While continuing its court challenge, Turkcell has established a payment schedule for such
amounts. In accordance with the payment schedule, Turkcell was required to pay VAT on the upfront
license fee amounting to TL 18.6 trillion (equivalent to $11,874 at June 30, 2002), the outstanding interest
charge amounting to TL 60.7 trillion (equivalent to $38,709 at June 30, 2002) and the penalty fee
amounting to TL 9.3 trillion (equivalent to $5,936 at June 30, 2002).
On March 16, 2001, Turkcell paid TL 21.4 trillion (equivalent to $21,280 at March 16, 2001 and
$13,654 at June 30, 2002), of which TL 18.6 trillion (equivalent to $18,501 at March 16, 2001) was for
VAT on the upfront license fee and TL 2.8 trillion (equivalent to $2,779 at March 16, 2001) was for the
outstanding interest charges. The remaining TL 67.3 trillion (equivalent to $66,787 at March 16, 2001 and
$42,862 at June 30, 2002) was to be payable in 15 monthly installments starting March 30, 2001. The first
installment was for TL 5.4 trillion (equivalent to $5,313 at March 16, 2001 and $3,410 at June 30, 2002)
and the remaining installments were to be in equal amounts of TL 4.4 trillion (equivalent to $4,391 at
March 16, 2001 and $2,819 at June 30, 2002). On March 21, 2001, Turkcell also provided a bank letter of
guarantee from Yapi ve Kredi Bankasi to the Tax Office amounting to TL 68.0 trillion (equivalent to
$70,005 at March 21, 2001 and $43,336 at June 30, 2002). On April 12, 2001, the Istanbul Fifth Tax Court
reduced the outstanding interest charge from TL 60.7 trillion to TL 11.1 trillion (equivalent to $8,698 at
April 12, 2001 and $7,088 at June 30, 2002). The Tax Office has appealed this decision. Pursuant to the
Istanbul Fifth Tax Court's ruling, on May 31, 2001, Turkcell replaced its previous bank letter with a new
bank letter of guarantee amounting to TL 15.0 trillion (equivalent to $12,970 at May 31, 2001 and
$9,559 at June 30, 2002) reflecting the reduction in the outstanding interest charge. Accordingly, its
payment schedule was amended. Payments already made have been set-off against future payments.
On July 9, 2001, the Danstay remitted the issue regarding the legality of the penalty fee to the Tax Court,
which had previously reduced the penalty fee to TL 9.3 trillion (equivalent to $5,936 as of June 30, 2002).
Out of a total interest charge of TL 13.2 trillion (equivalent to $8,406 as of June 30, 2002), which includes
additional accrued interest of TL 2.1 trillion (equivalent to $1,318 as of June 30, 2002), Turkcell has paid
TL 4.5 trillion (equivalent to $2,835 as of June 30, 2002) pursuant to the payment plan and an accrual was
made for the unpaid portion of TL 8.7 trillion (equivalent to $5,571 as of June 30, 2002) in the
consolidated financial statements as of and for the six months period ended June 30, 2002. Turkcell neither
recorded nor agreed to a payment schedule for the penalty fee because Turkcell and its legal counsel have
not reasonably estimated the possible outcome of this uncertainty. There can be no assurance, however,
that there will not be an unfavorable ruling in this matter or that such an outcome would not have a
material adverse effect on the Companys consolidated financial position, results of operations, or liquidity.
If the cases are resolved in favor of the Tax Office, Turkcell will be liable to the Tax Office for the
additional interest charges of TL 46.0 trillion (equivalent to $29,245 as of June 30, 2002) and the penalty
fee up to TL 37.3 trillion (equivalent to $23,747 as of June 30, 2002).
In addition to the foregoing, Turkcell has not paid VAT on the ongoing license fees paid to the Turkish
Treasury since this was also not stated in the License Agreement at the time the License was acquired.
However, on December 28, 2001, the board of accounting experts of the Ministry of Finance issued an

26

opinion stating that GSM licensees in Turkey should pay VAT on the ongoing license fee paid to the
Turkish Treasury. In addition, the opinion stated that since GSM operators have not paid such amounts,
penalties and interest should be paid as well as back payments of VAT. Pursuant to this opinion, the Tax
Office delivered to Turkcell a notice on January 31, 2002, asserting deficiencies in VAT declarations
requesting payments of approximately TL 91.4 trillion (equivalent to $58,232 at June 30, 2002) for VAT,
which will be offset by a VAT recoverable and will not result in a cash outflow from Turkcell and a total
of approximately TL 145.3 trillion (equivalent to $92,581 at June 30, 2002) for penalty fees. Turkcell
began discussions with the Tax Office to discuss their deficiency notice. If Turkcell is unable to settle this
matter with the Tax Office, legal claims may be brought by Turkcell or the Tax Office. Turkcell and its
legal counsel believe that if such claims are asserted, Turkcell will prevail. However, Turkcell has made a
provision of TL 1.9 trillion (equivalent to $1,225 at June 30, 2002) in its consolidated financial statements
for interest payment considering that the case is identical with the dispute regarding VAT on Turkcells
upfront License fee. Turkcell has pledged assets worth TL 749.5 trillion (equivalent to $477,649 at June
30, 2002) to the Tax Office. There can be no assurance, however, that legal proceedings will not be
instituted or that if such proceedings were instituted that there would not be an unfavorable ruling in this
matter. An adverse outcome in any such proceeding or the payment of VAT on the ongoing license fees
paid to the Turkish Treasury would have a material adverse effect on the Companys consolidated financial
position, results of operations, or liquidity.
Dispute on Trk Telekom Interconnection Fee:
Turk Telekom notified Turkcell on February 14, 2000, that it was modifying the method by which it
calculates the interconnection fee that it pays to Turkcell. Turk Telekom believes that it should be
permitted to deduct from the revenues used to determine the interconnection fee the 15% "fund" payment
that it pays to the Turkish Treasury and a 2.5% payment that it pays to the Turkish Radio and Television
Institution, which is a payment that Turk Telekom was required to make during 2000 only. Based on this
position, Turk Telekom withheld TL 6.6 trillion (equivalent to $4,207 at June 30, 2002) from the amount it
paid to Turkcell for interconnection for the first two months of 2000. On April 25, 2000, Turkcell obtained
an injunction from the commercial court preventing Turk Telekom from calculating the interconnection fee
in this manner from March 1, 2000 onwards.
On May 4, 2000, Turkcell commenced a first lawsuit against Turk Telekom to recover the TL 6.6 trillion it
retained with respect to the first two months of 2000. On October 5, 2000, the court ruled against Turkcell
in this lawsuit and lifted the injunction Turkcell obtained on April 25, 2000. Turk Telekom subsequently
notified Turkcell on October 16, 2000 that it was requesting payment for TL 37.5 trillion (equivalent to
$23,897 at June 30, 2002) representing the amount Turk Telekom would have deducted from its revenues
for the period between March 2000 and September 2000. On October 31, 2000, Turkcell paid Turk
Telekom a first installment of TL 16.0 trillion (equivalent to $10,260 at June 30, 2002) with a reservation.
Turkcell filed an appeal against the October 5, 2000 decision before the appeals court. On November 3,
2000, Turkcell obtained an injunction to prevent Turk Telekom from continuing to calculate its
interconnection fee in this manner. Out of the total additional interconnection fee of $91,151 sought by
Turk Telekom, which includes a statutory interest charge of $3,828, $35,332 was paid to Turk Telekom
and liability was recorded for the unpaid portion of $55,819 in the consolidated financial statements as of
and for the year ended December 31, 2000. On May 11, 2001, the appeals court ruled that Turk Telekom
should be permitted to deduct from its revenues the 2.5% payment that it paid to the Turkish Radio and
Television Institution for the year 2000 but remanded the decision regarding the 15% fund to the lower
court. At the end of first half of 2001, Turkcell has reversed $81,317, which was previously accrued but not
paid and included in direct cost revenues both in year 2000 and in the first half of 2001. Additionally, as a
result of the progress in the legal proceeding with Turk Telekom for 15% fund previously paid to Turk
Telekom, $23,287 was recorded as income in direct cost of revenues related with the paid portion of
$35,332 as of and for the year ended December 31, 2000. As a result, Turkcell has recorded $49,595 as
income in the direct cost of revenues in the accompanying financial statements for the year ended
December 31, 2001. On January 24, 2002, the lower court rendered a decision in line with the appeals
court's decision and ruled that Turk Telekom is permitted to deduct the 2.5% payment from its revenue for
the year 2000 but that it is not permitted to do so for the 15% fund payment. As a result, on March 13,

27

2002, Turkcell received approximately TL 14.0 trillion (equivalent to $10,092 at payment date) from Turk
Telekom, which was related to the TL 6.6 trillion (equivalent to $4,207 at June 30, 2002) withheld by Turk
Telekom, plus interest.
On November 10, 2000, Turkcell filed a second lawsuit to recover the TL 16.0 trillion (equivalent to
$10,260 at June 30, 2002) paid to Turk Telekom as its first installment. In this second lawsuit the court
decided to await the appeals court decision to be rendered in the first lawsuit and to be bound by such
decision. While the appeals court decided in favour of Turkcell in first lawsuit, the court decided in favour
of Turk Telekom. The Company will appeal the courts decision and management and legal counsel of the
Company expects a similar decision with the first lawsuit and to recover the TL16.0 trillion paid to Turk
Telekom with interest.
Dispute on Trk Telekom Interconnection Fee:
The Turkish Electrical Engineers' Society commenced a lawsuit against Turk Telekom in 2000 in the Ninth
Administrative Court. In the lawsuit, the Turkish Electrical Engineers' Society claimed that its
interconnection agreement with Turk Telekom violates public policy and the provisions of the Turkish
Constitution relating to the protection of consumers and the prevention of monopolies and cartels. In
October 2000, the court annulled Annex 1-A.1 of its interconnection agreement with Turk Telekom, which
deals with call tariffs. Although Turkcell was not a party to the lawsuit, its interest has been affected by
the decision. Under Annex 1-A.1, Turk Telekom retains a net amount of 6 cents per minute, after
deducting VAT, communications tax and other taxes from the basic one-minute unit charges of Turk
Telekom, and pays the remaining amount to Turkcell for traffic switched from the Turk Telekom network
to its network. Turkcell pays Turk Telekom a net amount of 1.4 cents per minute for local traffic and a net
amount of 2.5 cents per minute for metropolitan and long-distance traffic switched from Turkcell to Turk
Telekom.
On November 20, 2000, Turkcell was informed of the court's decision and received notification from Turk
Telekom that all interconnection fees since the acquisition of its license paid by Turkcell to Turk Telekom
and by Turk Telekom to Turkcell must be the same to comply with the court's decision and should be
retroactively calculated from the date of its license and include the statutory interest rate on the unpaid
balance. Turk Telekom made one claim pertaining to the period extending from the date of its license up to
October 2000, and a second to January 2001. Turkcell initiated two separate lawsuits for each period
before the commercial court to cancel Turk Telekom's request until Turkcell agrees with Turk Telekom to
replace the cancelled provisions of its interconnection agreement. The case is still pending and the
injunction granted in the first case was subsequently lifted but in November 2001, Turkcell obtained an
injunction in the second lawsuit which helps cover both periods and which is currently in effect preventing
Turk Telekom from collecting this amount. In the first case, the court decided to postpone its decision until
the court in the second case renders a final decision. An expert opinion was rendered in its favor on August
21, 2001 in the second lawsuit, Turk Telekom appealed the decision in the second lawsuit. Turkcell is
preparing to file its response to their appeal as soon as Turkcell is served with Turk Telekoms filing.
In addition to the foregoing, Turk Telekom initiated a lawsuit to have the principle of equivalent
computation decided and made a payment request of TL 1,083.2 trillion (equivalent to $690,312 at June
30, 2002). The court decided the case should be consolidated with the first lawsuit. Turkcell and its legal
counsel believe that Turkcell will prevail in this matter. There can be no assurance, however, that there
will not be an unfavorable ruling in this matter or that such an outcome would not have a material adverse
effect on the Companys consolidated financial position, results of operations, or liquidity.
Dispute on Additional Treasury Share on Value Added Services and Other Charges:
On November 2, 2000, Turkcell received a notice from the Turkish Ministry stating that certain
value-added services, transaction fees, roaming revenue and interest charges for late collections should be
included in the determination of the ongoing license fees paid to the Turkish Treasury. The Turkish
Treasury informed Turkcell that the license fees for all such services would be retroactively recalculated
from the date of its license agreement and paid to the Turkish Treasury after applying the statutory interest
rate. On December 22, 2000, Turkcell initiated a suit against the Turkish Ministry and the Turkish

28

Treasury before the Administrative Court to enjoin the Turkish Ministry and the Turkish Treasury from
charging Turkcell these fees. The Administrative Court dismissed the case based on lack of jurisdiction
and transferred the case to the Danistay, which has jurisdiction over the case. On July 25, 2001, the
Danistay notified Turkcell that it has rejected Turkcells request to obtain an injunction to prevent the
Turkish Treasury to collect such fees. On July 25, 2001, Turkcell appealed this decision. On October 15,
2001, Turkcell was notified that the Dantays decision, which was dated September 14, 2001, to reject its
request to obtain an injunction to prevent the Turkish Treasury to collect such fees was reaffirmed.
Turkcell and its legal counsel have not reasonably estimated the possible outcome of this uncertainty.
Accordingly, Turkcell has not recorded any accrual for additional ongoing license fees for such services
and revenues and interest. If the case is resolved in favour of the Turkish Treasury, Turkcell will be liable
to the Turkish Treasury for up to TL 237.2 trillion (equivalent to $151,189 as of June 30, 2002) including
interest of TL 126.0 trillion (equivalent to $80,291 as of June 30, 2002) as of June 30, 2002. There can be
no assurance, however, that there will not be an unfavorable ruling in this matter or that such an outcome
would not have a material adverse effect on the Companys consolidated financial position, results of
operations, or liquidity.
Class action lawsuit against Turkcell:
On November 22, 2000, a purported class action lawsuit was initiated in the United States District Court
for the Southern District of New York against Turkcell and other defendants. The complaint alleges that
the prospectus issued in connection with its initial public offering in July 2000 contains false and
misleading statements regarding its "churn rate" and omits material financial information.
The plaintiff brought the lawsuit as a class action on behalf of individuals and entities that purchased its
American Depository Shares, or ADSs, at or traceable to the initial public offering. The plaintiff seeks to
recover damages pursuant to sections 11 and 15 of the Securities Act of 1933 for the difference between
the price each purchaser paid for ADSs and either the price of the ADSs at the time the complaint was filed
or the price at which such ADSs were sold if sold prior to November 22, 2000. Since November 2000,
approximately ten substantially identical purported class action lawsuits have been filed on behalf of the
same class. On March 5, 2001, the court consolidated the lawsuits, appointed two lead plaintiffs and
appointed lead counsel. On March 29, 2001, plaintiffs in securities lawsuits against Turkcell filed a
consolidated and amended class action complaint, which alleges that the prospectus issued in connection
with its initial public offering in July 2000 contained false and misleading statements regarding its churn
rate and omitted material financial information. On June 11, 2001, Turkcell filed a motion to dismiss
plaintiffs' claims. On November 1, 2001, its motion to dismiss was granted on the claim alleging omission
of material financial information but denied for the claim regarding churn. Turkcell has now entered the
discovery process. On March 20, 2002, the plaintiffs filed a motion asking the court to certify the case as a
class action. On May 10, 2002, Turkcell filed a memorandum of law opposing Plaintiffs Motion for Class
Certification. The court has not yet ruled on this motion. Turkcell intends to defend itself vigorously once
the case is examined on a substantive basis. At this point in the litigation it is premature to estimate its
potential liability, if any, from the class action lawsuit.
Dispute on tariff increase of transmission lines leases:
Currently, Turkcell leases all of its transmission lines from Turk Telekom. Turkcell is required to do so to
the extent that Turk Telekom can satisfy its requirements. Turk Telekom's monopoly on providing
transmission lines is scheduled to expire no later than the end of 2003.
Effective from July 1, 2000, Turk Telekom annulled the discount of 60% that it provided to Turkcell based
on its regular ratio, which had been provided for several years, and, at the same time, Turk Telekom started
to provide a discount of 25% being subject to certain conditions. Turkcell filed a lawsuit against Turk
Telekom for the application of the agreed 60% discount. However, on July 30, 2001, the Company had
been notified that the appeals court upheld the decision made by the commercial court allowing Turk
Telekom to terminate the 60% discount. Accordingly, the Company paid and continues to pay transmission
fees to Turk Telekom based on the 25% discount. Although Turk Telekom did not charge any interest on
late payments at the time of such payments, the Company recorded an accrual amounting to TL 3.0 trillion

29

(equivalent to $2,099 and $1,926 as of December 31, 2001 and June 30, 2002, respectively) for possible
interest charges as of December 31, 2002. On May 9, 2002, Turk Telekom requested an interest amounting
to TL 30.1 trillion (equivalent to $19,162 at June 30, 2002) on these late payments. The Company did not
agree with the Turk Telekoms interest calculation and, accordingly, Turkcell obtained an injunction from
the commercial court to prevent Turk Telekom from collecting any amounts relating to this interest charge.
Also, the Company initiated a lawsuit against Turk Telekom on the legality of such interest. As of June 30,
2002, the Company made a provision of TL 13.3 trillion (equivalent to $8,474 as of June 30, 2002) because
its management and legal counsel believe that this is the maximum potential liability in accordance with
the relevant provisions of the Interconnection Agreement.
On March 2, 2001, Turk Telekom unilaterally, and without the approval of the Turkish Ministry, increased
the fees it charges Turkcell for access to its transmission lines by 100%, effective April 1, 2001, and
refused to lease Turkcell any further transmission lines. On May 25, 2001, Turkcell obtained an injunction
from the commercial court to compel Turk Telekom to lease additional transmission lines to Turkcell and
to prevent Turk Telekom from collecting any amounts relating to their increase in the transmission line fee.
On June 4, 2001, Turkcell initiated a lawsuit against Turk Telekom to rule on the legality of Turk
Telekom's increase in the transmission line fees and their refusal to lease additional transmission lines to
Turkcell. In this lawsuit, Turk Telekom objected to the May 25, 2001 injunction but the injunction was
upheld. In November 2001, Turk Telekom set new fees in accordance with Telecommunications
Authoritys rules for access to Turk Telekom's transmission lines. From that date Turkcell has paid the
fees set by the Telecommunications Authority. Therefore, Turk Telekom's claim for increased
transmission fees relates to fees they claim they should have received between the end of March and the
end of October 2001. On February 28, 2002, the commercial court granted its request for an expert
opinion. Turkcell and its legal counsel believe that Turkcell will prevail in this matter. If the case is
resolved in favour of Turk Telekom, Turkcell will be liable to Turk Telekom for up to TL 68.9 trillion
(equivalent to $43,923 as of June 30, 2002) including interest of TL 31.6 trillion (equivalent to $20,123 as
of June 30, 2002) as of June 30, 2002. There can be no assurance, however, that there will not be an
unfavorable ruling in this matter or that such an outcome would not have a material adverse effect on the
Companys consolidated financial position, results of operations, or liquidity.
Dispute on National Roaming Agreement:
The introduction of national roaming in Turkey could have a negative impact on the Companys
consolidated financial position, results of operations or liquidity. Roaming allows subscribers to other
operators' services to use its networks when they are outside the reach of their own operators' network
service areas. National roaming is an issue in Turkey because several Turkish mobile operators have
networks with limited geographic reach.
During the third quarter of 2001, Turkcell was approached by Tim to negotiate a national roaming
agreement. These negotiations did not result in a mutual agreement. Therefore, the discussions continued
under the supervision of the Telecommunications Authority. The Telecommunications Authority proposed
a solution on October 18, 2001 and asked the parties to reach a decision by November 15, 2001. The
proposal included an upfront fee as well as a per minute fee and a guaranteed volume of airtime usage for
the term of the agreement. As Turkcell believes that the Telecommunications Authority is not authorized to
intervene in this issue and its proposal is technically impossible to apply and commercially unacceptable,
Turkcell obtained an injunction on November 12, 2001 from the Ankara Fourth Court of First Instance
regarding the conflict. According to the Court's decision, the execution of a national roaming agreement
between Tim and Turkcell has been prevented. The Telecommunications Authority and Tim have
appealed the granting of the injunction. In addition, on November 26, 2001, Turkcell initiated an
arbitration suit in the International Court of Arbitration of the International Chamber of Commerce (ICC)
against the Turkish Ministry and the Telecommunications Authority. Furthermore, Turkcell has initiated an
action before the Ankara Ninth Administrative Court on November 13, 2001 to annul the above-mentioned
proposed solution of the Telecommunications Authority. On December 6, 2001, the Ankara Fourth Court
upheld the injunction it rendered in Turkcells favor on November 12, 2001.

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On March 8, 2002, the Telecommunications Authority published a new regulation regarding procedures
and policies related to a national roaming agreement. The Telecommunications Authority has invited all
parties affected by the new regulation, including Turkcell, to discuss the new regulations with the
Telecommunications Authority. Two of the most important provisions of the new regulation are
Provisional Article 1 and Article 17. Provisional Article 1, which deals with negotiations, agreements and
documents relating to the issuance of this regulation, states that all ongoing negotiations shall continue in
compliance with the new regulation and that all agreements and documents completed before issuance of
the new regulation shall remain valid and binding. Article 17, which sets out penalties to be imposed on
any party violating the provisions of the new regulation, imposes the following penalties and sanctions:
- a penalty of 0.01% of an operator's turnover in the previous year for failure to provide the
documents or information requested by the Telecommunications Authority, or the provision of
defective or misleading information;
- a penalty of no less than 1% and no more than 3% of an operator's turnover in the previous year
for failure to implement the national roaming requirements set by the Telecommunications
Authority within the required time period; and
- a penalty of no less than 1% and no more than 3% of an operator's turnover in the previous year
for the interruption of service without a valid reason following commencement of national roaming
service.
If Turkcell is forced to enter a national roaming agreement with Tim on terms and conditions that do not
provide an adequate return on its investment in its GSM network, its financial position, results of
operations and cash flows could be materially adversely affected.
In a letter dated March 14, 2002, the Telecommunications Authority subjected Tim's request for national
roaming to the condition that it be reasonable, economically viable, and technically possible. Nevertheless
the Telecommunications Authority declared that Turkcell is under an obligation to enter a national roaming
agreement with Tim within a 30 day period. However, Turkcell still benefits from the injunctive relief
obtained on November 12, 2001.
On April 8, 2002, Turkcell obtained a cautionary injunction from the Court against the application of the
new regulation published by the Telecommunications Authority requiring it to agree on national roaming
within 30 days and providing for penalties in case Turkcell did not agree. Turkcell initiated proceedings
against application of the new regulation before the ICC on April 11, 2002, requesting certification of the
fact that it is not required to enter into an agreement within 30 days and that it is under no obligation to pay
any penalties whatsoever if it does not agree within 30 days. Turkcell believes that Telsim has obtained a
similar injunction but has not yet enforced it. The parties to the ICC proceedings dated April 11, 2002,
have not yet appointed their arbitrators.
If Turkcell is forced to enter a national roaming agreement with Tim on terms and conditions that do not
provide an adequate return on its investment in its GSM network, its financial position, results of
operations and cash flows could be materially adversely affected.
Investigation of the Turkish Competition Board
The Turkish Competition Board (the Competition Board) commenced an investigation of business dealings
between Turkcell and KVK, the primary distributor of Ericsson GSM handsets in Turkey, in October 1999.
The decision of the Competition Board concerning this investigation was verbally rendered to Turkcell on
August 1, 2001. The Competition Board decided Turkcell was disrupting the competitive environment
through an abuse of dominant position in the Turkish mobile market and infringements of certain
provisions of the Law on the Protection of Competition. As a result, Turkcell was fined approximately TL
7.0 trillion (equivalent to $5,270 at August 1, 2001 and $4,444 at June 30, 2002) and were enjoined to
cease these infringements. Turkcell believes that it has not infringed the law and plans to initiate an action
requesting the cancellation of the Competition Board's written decision before the Danistay once it receives
the Competition Board's decision enclosing the reasoning of the decision.

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Dispute Regarding Interconnection Revenues

In December 2000, Turkcell informed the Turkish Treasury that it would no longer include its
interconnection revenues in the determination of ongoing license fees paid to the Turkish Treasury as 15%
of gross revenues. Effective from March 1, 2001, Turkcells ongoing license payments made to the Turkish
Treasury have been calculated by excluding its interconnection revenues from the gross revenues. Upon
request of the Turkish Ministry, the Dantay issued a non-binding opinion concluding that the
interconnection revenues should be included in the determination of ongoing license fees and that Turkcell
should pay the relevant unpaid ongoing license fees, including interest, for the period from March 1, 2001
onwards.
Turkcell received letters from the Turkish Treasury on July 18, 2001, and September 6, 2001, in which the
Turkish Treasury notified Turkcell that it is required to include the interconnection revenue in the gross
revenue from which the ongoing license fees are to be computed. Turkcell obtained an injunction from the
judicial court of first instance on November 2, 2001, allowing it to compute the gross revenue on which the
ongoing license fees are to be computed without including the interconnection revenues. The Turkish
Treasury, the Turkish Ministry and the Telecommunications Authority contested the injunction but their
claim was rejected. Turkcell has accrued for the unpaid amounts and included them in the determination of
net income. Since the parties failed to reach an agreement, on October 29, 2001, Turkcell initiated an
arbitration suit in the ICC against the Turkish Ministry, the Telecommunications Authority and the Turkish
Treasury. As of the date of this report, the arbitral tribunal has not begun proceedings because the final
arbitration has not been chosen.
Dispute on Collection of Frequency Usage Fees
On May 21, 1998, Turkcell entered into a protocol with the Wireless Communications General Directorate
(the Directorate) regarding the application of the governing provisions of the Wireless Law No. 2813 to the
administration of its GSM mobile phone network. Under this protocol, Turkcell is to collect frequency
usage fees, which are calculated by the Directorate, from the taxpayers using mobile phones on behalf of
the Directorate, and to pay the levied tax to the Directorate. In 2001, the Directorates power, including all
of its rights and obligations, was transferred to the Telecommunications Authority, pursuant to the
amendments in the Telecommunications Law. On March 22, 2002, as a consequence of the impossibility
in fact and at law of collecting such tax from its prepaid subscribers, Turkcell applied to the Ankara 17th
Judicial Court and obtained an injunction in respect of the collection of the frequency usage fees.
Immediately after this decision, on March 27, 2002, Turkcell filed a lawsuit against the
Telecommunications Authority requesting cancellation of the protocols obligating it to collect the
frequency usage fees from the subscribers and to pay it to the Telecommunications Authority. On July 10,
2002, the court decided in favour of Turkcell. Telecommunications Authority has the right to appeal the
decision. Turkcell and its legal counsel believe that Turkcell will prevail in this matter. Accordingly,
Turkcell has not made any provisions in its consolidated financial statements.
Dispute on the Determination of Items of Gross Revenue
On June 6, 2002, Turkcell initiated an arbitral proceeding before the ICC against the Turkish Treasury and
the Telecommunications Authority to resolve the dispute in respect to the determination of the items to be
taken into account in the calculation of gross revenue, which is the base for the calculation of the
amounts to be paid to the Turkish Treasury in accordance with Article 8 of the License Agreement.

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