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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
TV FILME, INC.
(Exact name of Registrant as Specified in its Charter)
COMMISSION FILE NUMBER : 0-28670
DELAWARE 98-0160214
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
C/O ITSA-INTERCONTINENTAL TELECOMUNICACOES LTDA.
SCS, QUADRA 07-B1.A
ED. EXECUTIVE TOWER
SALA 601
70.300-911 BRASILIA-DF
BRAZIL
(Address, Including Zip Code, of Principal Executive Offices)
011-55-61-314-9908
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ x ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
CLASS OUTSTANDING
----- -----------
Common Stock, par value $.01 10,166,176 shares
per share. as of November 11, 1996.
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<PAGE>
TV FILME, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
- ------------------------------
ITEM 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1995
and September 30, 1996 (Unaudited)..................... 2
Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1995 (Unaudited)
and the Three and Nine Months Ended September 30,
1996 (Unaudited) ...................................... 3
Consolidated Statement of Changes in Stockholders'
Equity at September 30, 1996 (Unaudited) .............. 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1995 (Unaudited) and
the Nine Months Ended September 30, 1996 (Unaudited) .. 5
Notes to Consolidated Financial Statements
(Unaudited) ........................................... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 9
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings ..................................... 13
ITEM 2. Changes in Securities ................................. 13
ITEM 3. Default Upon Senior Securities ........................ 13
ITEM 4. Submission of Matters to a Vote of Security-Holders ... 13
ITEM 5. Other Information ..................................... 13
ITEM 6. Exhibits and Reports on Form 8-K ...................... 13
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER SEPTEMBER
31, 1995 30, 1996
-------- ---------
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
ASSETS
Current assets:
Cash and cash equivalents ................. $ 43 $ 19,618
Accounts receivable, net .................. 1,781 3,378
Supplies .................................. 1,632 2,983
Prepaids and other current assets ......... 497 824
-------- --------
Total current assets .................... 3,953 26,803
Property, plant and equipment, net .......... 18,870 32,423
Other assets ................................ 860 1,043
-------- --------
Total assets ............................ $ 23,683 $ 60,269
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................... $ 6,876 $ 8,752
Short-term debt ........................... -- 1,322
Payroll and other benefits payable ........ 1,283 2,056
Accrued liabilities and other taxes
payable ................................... 161 968
Payables to affiliates -- current ......... 1,863 200
-------- --------
Total current liabilities ............ 10,183 13,298
Payables to affiliates -- long term ......... 400 200
Deferred installation fees .................. 5,205 8,132
Stockholders' equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized, no
shares issued ........................... -- --
Common stock, $.01 par value,
50,000,000 shares authorized,
6,193,996 and 10,166,176 shares
issued and outstanding .................. 62 102
Additional paid-in capital .............. 10,070 41,553
Accumulated deficit ..................... (2,237) (3,016)
-------- --------
Total stockholders' equity ........... 7,895 38,639
-------- --------
Total liabilities and stockholders'
equity ............................... $ 23,683 $ 60,269
======== ========
See accompanying notes.
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
1995 1996 1995 1996
-------- -------- -------- --------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AND SHARE DATA)
<S> <C> <C> <C> <C>
Revenues ................................................... $ 3,222 $ 8,654 $ 6,735 $ 21,287
Operating costs and expenses:
System operating--Note 2 ................................ 732 2,676 1,789 6,092
Selling, general and administrative ..................... 2,415 4,421 5,815 11,615
Depreciation and amortization ........................... 598 1,572 1,196 3,996
-------- -------- -------- --------
Total operating costs and expenses ................... 3,745 8,669 8,800 21,703
-------- -------- -------- --------
Operating loss ....................................... (523) (15) (2,065) (416)
Other income (expense):
Interest income (expense), net--Note 2 .................. 8 115 338 (307)
Other expense--Note 2 ................................... -- (34) -- (23)
Exchange and translation losses ......................... (17) (143) (80) (101)
-------- -------- -------- --------
Net loss ................................................... $ (532) $ (77) $ (1,807) $ (847)
======== ======== ======== ========
Net loss per share ......................................... $ (0.07) $ (0.01) $ (0.22) $ (0.10)
======== ======== ======== ========
Weighted average number of common stock
and common stock equivalents
outstanding .............................................. 8,086 9,868 8,086 8,680
======== ======== ======== ========
</TABLE>
See accompanying notes.
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK Additional
----------------------- Paid-in Accumulated
SHARES PAR VALUE Capital Deficit Total
------ --------- ---------- ------- -----
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARES)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 ..................... 6,193,996 $ 62 $ 10,070 $ (2,237) $ 7,895
Issuance of common stock and warrants ............ 1,097,180 11 7,140 -- 7,151
Initial public offering of common
stock, net of costs ............................ 2,875,000 29 24,343 -- 24,372
Equity adjustment from restructuring ............. -- -- -- 68 68
Net loss for the period .......................... -- -- -- (847) (847)
---------- ---------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30, 1996 .................... 10,166,176 $ 102 $ 41,553 $ (3,016) $ 38,639
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS
ENDED SEPTEMBER 30,
1995 1996
------ -----
(IN THOUSANDS OF U.S. DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ...................................... $ (1,807) $ (847)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization ............... 1,196 3,996
Non-cash compensation ....................... 312 --
Increase in deferred installation fees ...... 2,773 2,927
Changes in operating assets and liabilities:
Increase in accounts receivable ............. (799) (1,597)
Increase in supplies ........................ (962) (1,351)
Increase in prepaids and other current
assets .................................... (89) (327)
Decrease (increase) in other assets ......... 9 (183)
Increase in accounts payable ................ 3,666 1,876
Increase in payroll and other benefits
payable ................................... 920 773
Increase in accrued liabilities and
other taxes payable ....................... 213 807
-------- --------
Net cash provided by operating activities ..... 5,432 6,074
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions:
Property, plant and equipment ............ (10,866) (17,481)
-------- --------
Net cash used in investing activities ......... (10,866) (17,481)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term debt .............. -- 1,322
Proceeds from initial public offering,
net of costs ......................... -- 24,372
Issuance of common stock and warrants .... 3,300 7,151
Decrease in payables to affiliates ....... (200) (1,863)
Decrease in receivables from affiliates .. 764 --
-------- --------
Net cash provided by financing activities ..... 3,864 30,982
-------- --------
Net change in cash and cash equivalents ....... (1,570) 19,575
Cash and cash equivalents at beginning
of period ................................... 1,659 43
-------- --------
Cash and cash equivalents at end of period .... $ 89 $ 19,618
======== ========
See accompanying notes.
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. COMPANY BACKGROUND
In connection with an initial public offering of its Common
Stock which was consummated on August 2, 1996 (the "Offering"), TV Filme, Inc.
(the "Company") was formed in April 1996 to become the holding company of and
successor to ITSA-Intercontinental Telecomunicacoes S.A. and its subsidiaries
("ITSA"). The transfer of ITSA to the Company has been accounted for in a manner
similar to a pooling of interests. ITSA was formed in May 1994 as a holding
company for and successor to TV Filme Servicos de Telecomunicacoes S.A.
("TVFSA"). The transfer of TVFSA to ITSA has been accounted for in a manner
similar to a pooling of interests.
In connection with the Offering, the Company entered into a
Restructuring (the "Restructuring") pursuant to which, immediately prior to the
Offering, all of the preferred stock of ITSA was converted into common stock of
ITSA, based on the conversion rates at the date of issuance of the preferred
stock. Each share of common stock of ITSA was exchanged for 1,844 shares of
Common Stock of the Company. As all of the preferred stock of ITSA has been
converted and there were no preferred dividends paid or due as a result of the
conversion, all preferred and common stock issuances of the predecessor
companies have been reflected as issuances of Common Stock of the Company. Prior
to the consummation of the Offering and the Restructuring, TVFSA operated the
Company's wireless cable system in Brasilia, and held the licenses to operate
the Company's wireless cable systems in Brasilia, Goiania and Belem. ITSA owned
substantially all of TVFSA, TV Filme Goiania Servicos de Telecomunicacoes Ltda.
("TV Filme Goiania") and TV Filme Belem Servicos de Telecomunicacoes Ltda.
("TV Filme Belem").
Pursuant to the Restructuring, (i) 51% of the voting stock of
TVFSA was transferred to an entity, all of which is owned by certain existing
shareholders of ITSA who are Brazilian nationals, with ITSA retaining 49% of the
voting stock and 83% of the economic interests in TVFSA; (ii) the operating
assets of the wireless cable system of Brasilia were transferred from TVFSA to
TV Filme Brasilia Servicos de Telecomunicacoes Ltda. ("TV Filme Brasilia"),
which is substantially owned by ITSA; and (iii) TVFSA entered into various
agreements with ITSA and its subsidiaries pursuant to which, among other things,
TVFSA has authorized ITSA to operate the existing wireless cable systems under
its current licenses. As a result of the Restructuring and the Offering, the
Company owns 100% of ITSA, which holds 49% of the voting stock and 83% of the
economic interests of TVFSA and 100% of TV Filme Brasilia, TV Filme Goiania and
TV Filme Belem.
Accordingly, the consolidated financial statements of the
Company include ITSA and its subsidiaries on a historical basis since May 1994
as though they have been part of the Company for all periods presented. All
significant intercompany transactions and balances have been eliminated in
consolidation.
The Company develops, owns and operates subscription
television systems in mid-sized markets in Brazil. The Company has established
wireless cable operating systems in the cities of Brasilia, Goiania and Belem.
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
B. METHOD OF PRESENTATION
The consolidated financial statements of the Company have been
prepared in accordance with generally accepted accounting principles in the
United States in U.S. dollars. Amounts in Brazilian currency have been
remeasured into U.S. dollars in accordance with the methodology set forth in
Statement of Financial Accounting Standards No. 52 as its applies to entities
operating in highly inflationary economies. Supplies, property, plant and
equipment, intangibles and deferred installation fees and the related income
statement accounts are remeasured at exchange rates in effect when the assets
were acquired or the liabilities were incurred. All other assets and liabilities
are remeasured at year end exchange rates, and all other income and expense
items are remeasured at average exchange rates prevailing during the year.
Remeasurement adjustments are included in exchange and translation losses.
In management's opinion, all adjustments (consisting only of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the first nine months are not necessarily
indicative of the results that may be expected for a full year.
C. NET LOSS PER SHARE
Net loss per share is calculated using the weighted average
number of shares of stock outstanding during the period together with the number
of shares issuable upon the exercise of options and warrants issued during the
twelve months prior to the filing of the Offering. The computation of fully
diluted pro forma net loss per share of common stock was antidilutive;
therefore, the amounts reported for primary and fully diluted loss per share are
the same.
2. RELATED PARTY TRANSACTIONS
Substantially all programming is supplied by a subsidiary of
Tevecap S.A. ("Tevecap"), a stockholder of the Company, pursuant to a
programming contract. Amounts paid to such affiliate for the three and nine
months ended September 30, 1995 and 1996 were $363,000 and $764,000 and
$1,922,000 and $4,468,000, respectively.
Receivables in 1995 from Tevecap and Abril S.A. ("Abril"), the
majority shareholder of Tevecap, bear interest at the Brazilian interbank rate
("CDI") then in effect plus 0.8%. The rate in effect during the periods ranged
from 3.24% to 4.41% per month during 1995. Interest income from such affiliates
was $339,000 for the nine months ended September 30, 1995.
Included in payables to affiliates at September 30, 1996 is a $400,000
payable to Abril which does not bear interest. Payments on this payable are
required at the rate of $200,000 per year. Other payables to Tevecap bear
interest at the CDI plus 0.8%, which ranged from 2.18% to 3.36% per month during
the first nine months of 1996; these payables were paid in full during the three
months ended September 30, 1996. Interest expense paid to Tevecap was $476,000
for the nine months ended September 30, 1996 compared to $23,000 for the nine
months ended September 30, 1995.
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
The Company purchases equipment and supplies from vendors
under irrevocable letters of credit. Abril and a subsidiary of Tevecap guarantee
such obligations from time to time. Total issued and outstanding letters of
credit at September 30, 1996 were $7,524,000. At September 30, 1996, issued and
outstanding letters of credit secured by affiliates were $4,732,000. Of this
amount, $1,322,000 is classified as short-term debt. The maturity date of such
letters of credit range from 30 days to 360 days.
Immediately prior to the consummation of the Offering, in
connection with the Restructuring, the Company issued 3,962,756, 1,456,760,
254,472, 254,472 and 1,069,520 shares of Common Stock to Warburg, Pincus
Investors, L.P. ("Warburg, Pincus"), Tevecap, Mr. Hermano Studart Lins de
Albuquerque, Mr. Carlos Andre Studart Lins de Albuquerque and Mrs. Maria Nise
Studart Lins de Albuquerque, respectively, with a value at the initial public
offering price of $10.00 per share of $39,627,560, $14,567,600, $2,544,720,
$2,544,720 and $10,695,200, respectively. Such shares were issued in exchange
for all of their shares of common stock of ITSA, which have the same value as
the shares of Common Stock received in the exchange.
Immediately prior to the consummation of the Offering, in
connection with the Restructuring, the Company issued warrants to purchase
567,952 shares of Common Stock to Warburg, Pincus, warrants to purchase 208,372
shares of Common Stock to Tevecap and warrants to purchase 18,440 shares of
Common Stock to two other shareholders of the Company in exchange for all of
their warrants to purchase shares of common stock of ITSA.
3. STOCK OPTION PLAN
In connection with the Offering, the Board of Directors of the Company
adopted and the stockholders of the Company approved the 1996 Stock Option Plan
(the "Plan"). The Plan provides for the grant of stock options to officers, key
employees, consultants and directors of the Company. The Plan is administered by
the Compensation Committee and the total number of shares of Common Stock for
which options may be granted pursuant to the Plan is 936,432, subject to certain
adjustments reflecting changes in the Company's capitalization. The Plan allows
the granting of incentive stock options, which may not have an exercise price
below the greater of par value or the market value on the date of grant, and
non-qualified stock options, which have no restrictions as to exercise price
other than the exercise price cannot be below par value. All options must be
exercised no later than 10 years from the date of grant. Options to purchase
407,000 shares of Common Stock were granted upon the consummation of the
Offering, 297,000 of which are exercisable at $10.00 per share, and 110,000 of
which are exercisable at $11.00 per share, and which generally vest 20% per year
for five years beginning on the first anniversary of consummation of the
Offering.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. THE FOLLOWING
DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS FORM 10-Q.
RESULTS OF OPERATIONS
Although the Company's financial statements are presented pursuant to
United States generally accepted accounting principles in U.S. dollars, the
Company's transactions are consummated in both reais and U.S. dollars. Inflation
and devaluation in Brazil have had, and may continue to have, substantial
effects on the Company's results of operations and financial condition. The
Company does not seek to hedge currency risks in the financial markets or
otherwise. See "--Inflation and Exchange Rates."
As a result of the development of the Company's business and system
launches during the periods presented, the period-to-period comparisons of the
Company's results of operations are not necessarily meaningful and should not be
relied upon as an indication of future performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1995 1996 1995 1996
-------- -------- --------- --------
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND OTHER DATA)
<S> <C> <C> <C> <C>
Revenues ................................................... $ 3,222 $ 8,654 $ 6,735 $ 21,287
-------- -------- -------- --------
Operating costs and expenses:
System operating .................................. 732 2,676 1,789 6,092
Selling, general and administrative ............... 2,415 4,421 5,815 11,615
Depreciation and amortization ..................... 598 1,572 1,196 3,996
-------- -------- -------- --------
Total operating costs and expenses ................ 3,745 8,669 8,800 21,703
-------- -------- -------- --------
Operating loss ........................... (523) (15) (2,065) (416)
Other income (expense):
Interest income (expense), net .................... 8 115 338 (307)
Other expense ..................................... -- (34) -- (23)
Exchange and translation losses ................... (17) (143) (80) (101)
-------- -------- -------- --------
Net loss ................................................... $ (532) $ (77) $ (1,807) $ (847)
======== ======== ======== ========
Net loss per share ......................................... $ (0.07) $ (0.01) $ (0.22) $ (0.10)
======== ======== ======== ========
Weighted average number of common
stock and common stock equivalents
outstanding .............................................. 8,086 9,868 8,086 8,680
======== ======== ======== ========
Other Data:
EBITDA(a) ......................................... $ 388 $ 1,557 $ (556) $ 3,580
======== ======== ======== ========
Number of subscribers at
end of period .................................. 27,024 70,591 27,024 70,591
======== ======== ======== ========
</TABLE>
- ---------------
(a) EBITDA is defined as operating income (loss) plus depreciation, amortization
and non-cash compensation. While EBITDA should not be construed as a substitute
for operating income (loss) or a better measure of liquidity than cash flow from
operating activities, which are determined in accordance with United States
GAAP, it is included herein to provide additional information regarding the
ability of the Company to meet its capital expenditures, working capital
requirements and any future debt service. EBITDA, however, is not necessarily a
measure of the Company's ability to fund its cash needs, because it does not
include capital expenditures, which the Company expects to continue to be
significant.
<PAGE>
REVENUES. The Company's revenues primarily consist of monthly fees paid by
subscribers for the programming package, as well as installation fees recognized
for the period. Revenues increased from approximately $3.2 million for the three
months ended September 30, 1995 to approximately $8.7 million for the three
months ended September 30, 1996 and increased from approximately $6.7 million
for the nine months ended September 30, 1995 to approximately $21.0 million for
the nine months ended September 30, 1996, primarily due to an aggregate increase
of 41,797 and 36,260, respectively, in the average number of subscribers in the
Company's operating systems. Average monthly revenue per subscriber was $39.12
and $39.76, respectively, for the three and nine months ended September 30, 1996
compared to $40.41 and $39.70, respectively, for the three and nine months ended
September 30, 1995.
SYSTEM OPERATING EXPENSES. System operating expenses include
programming costs, a portion of costs of compensation and benefits for the
Company's employees, vehicle rental costs, transmitter site rentals, repair and
maintenance expenditures and service call costs. System operating expenses
increased from approximately $0.7 million for the three months ended September
30, 1995 to approximately $2.7 million for the three months ended September 30,
1996 and increased from approximately $1.8 million for the nine months ended
September 30, 1995 to approximately $6.1 million for the nine months ended
September 30, 1996, primarily due to an increase in programming expenses of
approximately $1.7 million and approximately $3.9 million, respectively, and an
increase in compensation and benefits of approximately $0.1 million and
approximately $0.3 million, respectively, primarily to employees in the customer
service and engineering departments. During the three and nine months ended
September 30, 1996, programming expenses were affected by the increase in the
number of subscribers over the periods, since programming expenses are charged
on a per subscriber basis.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased from approximately $2.4 million for
the three months ended September 30, 1995 to approximately $4.4 million for the
three months ended September 30, 1996, but as a percentage of revenues decreased
to approximately 51.1% from 75.0%. SG&A increased from approximately $5.8
million for the nine months ended September 30, 1995 to approximately $11.6
million for the nine months ended September 30, 1996, but as a percentage of
revenues decreased to approximately 54.6% from 86.3%. Compensation and benefits
increased by approximately $0.7 million from the three months ended September
30, 1995 to the three months ended September 30, 1996 and increased by
approximately $2.5 million from the nine months ended September 30, 1995 to the
nine months ended September 30, 1996, primarily due to additions to management,
additional employees in the sales department and more commissions paid to sales
employees. The Company added employees primarily in the sales department, to
service the Company's expanded subscriber base and growth, including the
expansion into the Goiania and Belem markets. Advertising expenses increased by
approximately $0.3 million from the three months ended September 30, 1995 to the
three months ended September 30, 1996 and increased by approximately $0.7
million from the nine months ended September 30, 1995 to the nine months ended
September 30, 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
consist primarily of depreciation of decoder boxes, headend facilities and
capitalized installation costs. Since inception, the Company's direct costs of
obtaining subscribers generally have exceeded installation revenue. These costs
are capitalized and depreciated over a five year period. Depreciation and
amortization expense increased from approximately $0.6 million for the three
months ended September 30, 1995 to approximately $1.6 million
<PAGE>
for the three months ended September 30, 1996 and increased from approximately
$1.2 million for the nine months ended September 30, 1995 to approximately $4.0
million for the nine months ended September 30, 1996, primarily due to increases
in the number of installed subscribers in each of the Company's three operating
systems.
OPERATING LOSS. For the three and nine month periods ended September 30,
1996, the Company generated an operating loss of approximately $0.02 million and
approximately $0.4 million, respectively, primarily due to expenses in
connection with the development of the Company's business, as explained above.
The Company may continue to generate operating losses as it expands its existing
systems and develops additional systems.
OTHER INCOME (EXPENSE), NET. Interest income (expense), net increased by
approximately $0.01 million for the three months ended September 30, 1996 from
the three months ended September 30, 1995 as a result of higher interest expense
associated with short-term borrowings from Abril and certain of its affiliates,
offset by interest income derived from the investment of the net proceeds of the
Offering. Interest income (expense), net increased by approximately $(0.5)
million from the nine month period ended September 30, 1995 to the nine month
period ended September 30, 1996 as a result of short-term borrowings from Abril
and certain of its affiliates and lower-interest income derived from
investments.
Exchange and translation losses have arisen primarily as a result of
short-term investments and borrowings denominated in reais, and to a lesser
extent from the translation of financial statements from reais to U.S. dollars
in accordance with Statement of Financial Accounting Standards No. 52, with the
U.S. dollar as the functional currency. These amounts can fluctuate
significantly as a result of changes in the exchange rate of the real relative
to the U.S. dollar.
INCOME TAXES. The Company did not have taxable income during the
nine-month period ended September 30, 1996 and expects to generate losses for
the foreseeable future. Effective January 1, 1996, Brazilian effective tax rates
declined from approximately 48% to approximately 30.5%.
NET LOSS. As explained above, net loss in the periods presented is
primarily attributable to the expenses incurred in connection with the
development of the Company's business.
LIQUIDITY AND CAPITAL RESOURCES
The subscription television business is a capital intensive business. The
Company made capital expenditures of approximately $17.5 million in the nine
months ended September 30, 1996. Such capital expenditures were financed
principally through vendor financings, loans from affiliates and equity
offerings. In the past, working capital requirements have been primarily met by
(i) vendor financing which generally require payment within 360 days of
shipment, some of which has been supported by irrevocable letters of credit
guaranteed by Abril (the majority shareholder of Tevecap, a shareholder of the
Company) and certain of its affiliates and (ii) borrowings from Abril and
certain of its affiliates. As of September 30, 1996, the Company had repaid
working capital borrowings from Abril and certain of its affiliates in their
entirety with a portion of the net proceeds from the Offering. As a result of
the Offering, the Company does not expect to continue borrowing from Abril or
its affiliates. As of September 30, 1996, the Company has a payable to Abril of
$400,000 in connection with the Company's purchase of the Belem and Goiania
licenses from Abril. Such amount is due in two installments in February 1997 and
1998.
<PAGE>
As of September 30, 1996, approximately $7.5 million was outstanding under
letters of credit with maturities ranging from 30 days to 360 days, of which
approximately $4.7 million was guaranteed by affiliates. As of September 30,
1996, the Company had a $5.0 million line of credit with a commercial bank, of
which approximately $2.0 million was available on such date. The Company
currently believes that lines of credit, additional vendor financing and other
credit facilities are available on acceptable terms. As a result of the
Offering, the Company had positive working capital at September 30, 1996 in the
amount of $13.6 million. Net cash provided by operating activities for the nine
months ended September 30, 1996 was approximately $6.0 million.
For the last quarter of 1996, the Company anticipates that its aggregate
capital expenditures in its existing operating markets will be approximately $9
million, comprised primarily of subscriber installation equipment. The Company
believes that the proceeds of the Offering, together with internally generated
funds and vendor financing, will be sufficient to fund its cash requirements and
anticipated capital expenditures in its existing operating markets for at least
the next 12 months. In the longer term, the Company's liquidity needs are
subject to a variety of factors, including launching or acquiring new systems,
increasing existing channel offerings, implementing alternative technologies and
offering additional communications services. Accordingly, there can be no
assurance that the Company will be able to meet its liquidity needs in the
longer term.
In addition to expanding its subscriber base in its existing systems,
the Company is seeking to launch additional systems, and applications have been
made for the Company to operate wireless cable systems in an additional 19
markets. Based on current market and operating conditions, the Company estimates
that the cost of launching any additional operating system after the granting of
a new license could be up to approximately $12 million, including construction
of a headend facility, subscriber-related capital costs and funding initial
development costs and operating losses, depending on factors particular to each
such market. The Company also from time to time may selectively pursue the
acquisition of existing subscription television systems, although it currently
has no understanding, commitment or agreement with respect to any such
acquisitions. In addition, the Company has requested from the Ministry of
Communications the right to transmit 15 additional channels in each of its
markets as permitted under recently promulgated wireless cable regulations.
Finally, the Company may implement alternative transmission technologies in the
future. If such new systems are launched, acquisitions are consummated, existing
channel offerings are increased or alternative technologies are implemented,
substantial additional funds may be required. The Company intends to fund such
future cash requirements through the issuance of debt and/or additional equity
capital, joint ventures or other arrangements. There can be no assurance that
the Company will be able to obtain such debt or equity capital on satisfactory
terms, or at all, to meet its future financing needs.
INFLATION AND EXCHANGE RATES
Inflation and exchange rate variations have had, and may continue to
have, substantial effects on the Company's results of operations and financial
condition. In periods of inflation, many of the Company's expenses will tend to
increase. Generally, in periods of inflation, a company is able to raise its
prices to offset the rise in its expenses and may set its prices without
government regulation. However, under Brazilian law designed to reduce
inflation, the rates which the Company may charge to a particular subscriber may
not be increased until the next anniversary of the subscriber's initial
subscription date. Thus, the Company is less able to offset expense increases
with revenue increases. Accordingly, inflation may have a material adverse
effect on the Company's results of operations and financial condition.
Generally, the effects of inflation in Brazil have been offset in part by
devaluation of the Brazilian currency relative to the U.S. dollar. Devaluation
of the real may also have an adverse effect on the
<PAGE>
Company. The Company collects substantially all of its revenues in reais, but
pays certain of its expenses, including a significant portion of its equipment
costs and a portion of its programming costs, in U.S. dollars. To the extent the
real depreciates at a rate greater than the rate at which the Company raises
prices, the value of the Company's revenues (as expressed in U.S. dollars) may
be adversely affected. This effect on the Company's revenues may negatively
impact the Company's ability to fund U.S. dollar-based expenditures. The Company
does not currently seek to hedge exchange rate risks in the financial markets or
otherwise, as it believes that the costs of such hedging outweigh the related
risks. Accordingly, devaluation of the real may have a material adverse effect
on the Company's results of operations and financial condition.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 2. CHANGES IN SECURITIES.
None
Item 3. DEFAULT UPON SENIOR SECURITIES.
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None
Item 5. OTHER INFORMATION.
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports of Form 8-K were filed by the Company during the quarter
ended September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: November 14, 1996
TV FILME, INC.
--------------------------------------------
(Registrant)
/S/ HERMANO STUDART LINS DE ALBUQUERQUE
--------------------------------------------
Hermano Studart Lins de Albuquerque
Chief Executive Officer (Principal Executive
Officer)
/S/ ALVARO J. AQUIRRE
--------------------------------------------
Alvaro J. Aquirre
Chief Financial Officer (Principal Financial
and Accounting Officer)
<PAGE>
EXHIBIT INDEX
SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGES
- --- ----------- --------------
27. Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET OF TV FILME, INC. AT SEPTEMBER 30, 1996,
AND THE UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 19,618
<SECURITIES> 0
<RECEIVABLES> 4,503
<ALLOWANCES> 1,125
<INVENTORY> 2,983
<CURRENT-ASSETS> 26,803
<PP&E> 38,622
<DEPRECIATION> 6,199
<TOTAL-ASSETS> 60,269
<CURRENT-LIABILITIES> 13,298
<BONDS> 200
0
0
<COMMON> 102
<OTHER-SE> 38,537
<TOTAL-LIABILITY-AND-EQUITY> 60,269
<SALES> 21,287
<TOTAL-REVENUES> 21,287
<CGS> 6,092
<TOTAL-COSTS> 10,794
<OTHER-EXPENSES> 3,996
<LOSS-PROVISION> 821
<INTEREST-EXPENSE> (307)
<INCOME-PRETAX> (847)
<INCOME-TAX> 0
<INCOME-CONTINUING> (847)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (847)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
