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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 June 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 of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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)
011-55-61-225-4766
(Registrant's Telephone Number, Including Area Code)
Indicate by an X 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. [ ] Yes [ X ] 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 September 1, 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 June 30, 1996 (Unaudited)................................2
Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 1995 (Unaudited) and the
Three and Six Months Ended June 30, 1996 (Unaudited).........3
Consolidated Statement of Changes in Stockholders'
Equity at June 30, 1996 (Unaudited)..........................4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1995 (Unaudited) and the Six Months Ended
June 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.........................10
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. Legal Proceedings...........................................14
ITEM 2. Changes in Securities.......................................14
ITEM 3. Default Upon Senior Securities..............................14
ITEM 4. Submission of Matters to a Vote of Security-Holders.........14
ITEM 5. Other Information...........................................14
ITEM 6. Exhibits and Reports on Form 8-K............................14
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
------------ --------
(Unaudited)
(In thousands of U.S. dollars)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 43 $ 57
Accounts receivable, net 1,781 3,144
Supplies 1,632 2,387
Other receivables 497 400
-------- --------
Total current assets 3,953 5,988
Property, plant and equipment, net 18,870 27,044
Other assets 860 1,042
-------- --------
Total assets $ 23,683 $ 34,074
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 6,876 $ 6,962
Payroll and other benefits payable 1,283 1,706
Accrued liabilities and other payables 161 1,149
Payables to affiliates -- current 1,863 2,358
-------- --------
Total current liabilities 10,183 12,175
Payables to affiliates -- long term 400 200
Deferred installation fees 5,205 7,355
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 7,291,176 shares
issued and outstanding 62 73
Additional paid-in capital 10,070 17,210
Deficit (2,237) (2,939)
-------- --------
Total stockholders' equity 7,895 14,344
-------- --------
Total liabilities and stockholders' equity $ 23,683 $ 34,074
======== ========
</TABLE>
See accompanying notes.
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
1995 1996 1995 1996
-------- -------- -------- --------
(In thousands of U.S. dollars,
except per share and share data)
<S> <C> <C> <C> <C>
Revenues $ 2,149 $ 6,781 $ 3,513 $12,633
------- ------- ------- -------
Operating costs and expenses:
System operating--Note 2 644 1,833 1,057 3,416
Selling, general and
administrative 1,811 3,884 3,400 7,194
Depreciation and amortization 362 1,326 598 2,424
------- ------- ------- -------
Total operating costs
and expenses 2,817 7,043 5,055 13,034
------- ------- ------- -------
Operating loss (668) (262) (1,542) (401)
Other income (expense):
Interest expense--Note 2 --- (48) --- (422)
Interest and other income--Note 2 83 1 330 11
Exchange and translation
gains (losses) (34) (2) (63) 42
------- ------- ------- -------
Net loss $ (619) $ (311) $(1,275) $ (770)
======= ======= ======= ========
Net loss per share $ (0.08) $ (0.04) $ (0.16) $ (0.10)
======= ======= ======= ========
Shares and share equivalents
(in thousands) 8,086 8,086 8,086 8,086
======= ======= ======= ========
</TABLE>
See accompanying notes.
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
For the six months ended June 30, 1996
<TABLE>
<CAPTION>
Commmon Stock Additional
------------------- Paid-In
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
Equity adjustment from
restructuring --- --- --- 68 68
Net loss for the period --- --- --- (770) (770)
--------- --- ------- ------- -------
Balance at June 30, 1996 7,291,176 $73 $17,210 $(2,939) $14,344
========= === ======= ======= =======
</TABLE>
See accompanying notes.
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1995 1996
-------- --------
(In thousands of U.S. dollars)
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,275) $ (770)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 598 2,424
Changes in assets and liabilities:
Increase in accounts receivable (676) (1,363)
Increase in supplies (982) (755)
(Increase) decrease in other receivables (72) 97
Decrease (increase) in other assets 39 (182)
Increase in accounts payable 2,314 86
Increase in payroll and other
benefits payable 649 423
Increase in accrued liabilities and
other payables 24 988
Increase in deferred installation fees 2,004 2,150
------- --------
Net cash provided by operating activities 2,623 3,098
------- --------
Cash flows from investing activities
Acquisitions:
Property, plant and equipment (6,803) (10,530)
------- --------
Net cash used in investing activities (6,803) (10,530)
------- --------
Cash flows from financing activities
Issuance of common stock and warrants --- 7,151
Increase in payables to affiliates 530 295
Decrease in receivables from affiliates 2,108 ---
------- --------
Net cash provided by financing activities 2,638 7,446
------- --------
Net (decrease) increase in cash and cash
equivalents (1,542) 14
Cash and cash equivalents at beginning of year 1,659 43
------- --------
Cash and cash equivalents at end of period $ 117 $ 57
======= ========
</TABLE>
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>
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 gains (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 six months are not necessarily
indicative of the results that may be expected for a full year.
c. Net income (loss) per share
Net income (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 Company has not used the treasury stock method in computing
the dilutive effect of the warrants.
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 six
months ended June 30, 1995 and 1996 were $280,397 and $401,472 and
$1,390,000 and $2,546,028, 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 $271,924 for the six months ended June 30, 1995.
Included in payables to affiliates at June 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 3.16% per
month during the first six months of 1996. Interest expense paid to
Tevecap was $421,709 for the six months ended June 30, 1996.
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 June 30, 1996 were $5,637,335. At June 30, 1996, issued and
<PAGE>
outstanding letters of credit secured by affiliates were $5,540,863. The
maturity date of such letters of credit range from 30 days to 360 days.
3. Subsequent Events
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.
On August 2 and 19, 1996, the Company sold 2,500,000 and 375,000
shares of its Common Stock, respectively, at $10.00 per share in the
Offering. The net proceeds of the sales were approximately $25.2 million.
A portion of the net proceeds were used to retire short term borrowings of
approximately $3.5 million from Abril. The following table presents the
effects on the Company's balance sheet of the Offering as of June 30, 1996
on a pro forma basis assuming the Offering had occurred at that date.
<TABLE>
<CAPTION>
June 30, 1996
--------------------
Actual Pro Forma
------- ---------
(in thousands)
<S> <C> <C>
Cash and cash equivalents $ 57 $25,295
======= =======
Payables to affiliate - long-term $ 200 $ 200
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 and 7,291,176 shares issued and
outstanding; 10,166,176 shares issued and
outstanding, as adjusted 73 102
Additional paid-in capital 17,210 42,419
Accumulated deficit (2,939) (2,939)
------- -------
Total stockholders' equity 14,344 39,582
------- -------
Total capitalization $14,544 $39,782
======= =======
</TABLE>
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
<PAGE>
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. 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
shall 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 Six Months
Ended June 30, Ended June 30,
------------------ ------------------
1995 1996 1995 1996
-------- -------- -------- --------
(In thousands of U.S. dollars,
except share and other data)
<S> <C> <C> <C> <C>
Revenues $ 2,149 $ 6,781 $ 3,513 $12,633
------- ------- ------- -------
Operating costs and expenses:
System operating 644 1,833 1,057 3,416
Selling, general and administrative 1,811 3,884 3,400 7,194
Depreciation and amortization 362 1,326 598 2,424
------- ------- ------- -------
Total operating costs and expenses 2,817 7,043 5,055 13,034
------- ------- ------- -------
Operating loss (668) (262) (1,542) (401)
Other income (expense):
Interest expense --- (48) --- (422)
Interest and other income 83 1 330 11
Exchange and translation losses (34) (2) (63) 42
------- ------- ------- -------
Net loss $ (619) $ (311) $(1,275) $ (770)
======= ======= ======= =======
Net loss per share $ (0.08) $ (0.04) $ (0.16) $ (0.10)
======= ======= ======= =======
Shares and share equivalents
(in thousands) 8,086 8,086 8,086 8,086
======= ======= ======= =======
Other Data:
EBITDA(a) $ (306) $ 1,064 $ (944) $ 2,023
======= ======= ======= =======
Number of subscribers at end of period 19,009 59,036 19,009 59,036
======= ======= ======= =======
Number of operating systems at end
of period 3 3 3 3
======= ======= ======= =======
</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 $2.1
million for the three months ended June 30, 1995 to approximately $6.8
million for the three months ended June 30, 1996 and increased from
approximately $3.5 million for the six months ended June 30, 1995 to
approximately $12.6 million for the six months ended June 30, 1996,
primarily due to an aggregate increase of 32,048 and 34,490, respectively,
in the average number of subscribers in the Brasilia, Goiania and Belem
operating systems. Average monthly revenue per subscriber was $39.71 and
$40.08, respectively, for the three and six months ended June 30, 1996.
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 $0.6 million for the three months
ended June 30, 1995 to approximately $1.8 million for the three months
ended June 30, 1996 and increased from approximately $1.1 million for the
six months ended June 30, 1995 to approximately $3.4 million for the six
months ended June 30, 1996, primarily due to an increase in programming
expenses of approximately $1.1 million and approximately $2.1 million,
respectively, and an increase in compensation and benefits of approximately
$0.1 million and approximately $0.2 million, respectively, primarily to
employees in the customer service and engineering departments. During the
three and six months ended June 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 $1.8 million
for the three months ended June 30, 1995 to approximately $3.9 million for
the three months ended June 30, 1996, but as a percentage of revenues
decreased to approximately 57.3%. SG&A increased from approximately $3.4
million for the six months ended June 30, 1995 to approximately $7.2
million for the six months ended June 30, 1996, but as a percentage of
revenues decreased to approximately 57.0%. The Company believes that as
revenues rise, SG&A, as a percentage of revenues, should generally decrease
in the future. Compensation and benefits increased by approximately $0.8
million from the three months ended June 30, 1995 to the three months ended
June 30, 1996 and increased by approximately $1.8 million from the six
months ended June 30, 1995 to the six months ended June 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
$0.2 million from the three months ended June 30, 1995 to the three months
ended June 30, 1996 and increased by approximately $0.4 million from the
six months ended June 30, 1995 to the six months ended June 30, 1996.
Depreciation and Amortization. Depreciation and amortization
expenses consist primarily of depreciation of decoder boxes, headend
facilities and 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
$0.4 million for the three months ended June 30, 1995 to approximately $1.3
million for the three months ended June 30, 1996 and increased from
approximately $0.6 million for the six months ended June 30, 1995 to
approximately $2.4 million for the six months ended June 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 six month periods ended June
30, 1996, the Company generated an operating loss of approximately $0.3
million and approximately $0.4 million, respectively, primarily
<PAGE>
due to increases in 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). Interest expense increased from the three
and six month periods ended June 30, 1995 to the three and six month
periods ended June 30, 1996 as a result of short-term borrowings from Abril
and certain of its affiliates in the first quarter of 1996 at an interest
rate of the Brazilian interbank rate plus 0.8%, which ranged from 2.18% to
3.16% per month during the first six months of 1996.
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. Such loss was insignificant during the
first three and six months ended June 30, 1996.
Income Taxes. The Company did not have taxable income during the
six-month period ended June 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 $10.5
million in the six months ended June 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 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 June 30, 1996,
the Company had approximately $2.2 million of outstanding borrowings from
Abril and certain of its affiliates. Such amount was repaid in its
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 June 30, 1996, approximately $5.6 million was outstanding
under letters of credit with maturities ranging from 30 days to 360 days,
of which approximately $5.5 million was guaranteed by affiliates. As of
June 30, 1996, the Company had a $5.0 million line of credit with a
commercial bank, of which approximately $4.1 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. The Company had negative working capital at June 30, 1996 in the
amount of $6.2 million. Net cash provided by operating activities for the
six months ended June 30, 1996 was approximately $3.1 million.
For the second half of 1996, the Company anticipates that its
aggregate capital expenditures in its existing operating markets will be
approximately $11 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 would range from
approximately $5.0 million to $8.0 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, applications have been made
to expand the licenses in Brasilia, Goiania and Belem by adding 15
additional channels in each market. Finally, the Company may implement
alternative 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 additional debt and/or 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 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.
<PAGE>
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) Exhibit
-------
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 June 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: September 12, 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
-------------
<TABLE>
<CAPTION>
<S> <C> <C>
Sequentially
No. Description Numbered Pages
- --- ----------- --------------
27. Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF TV FILME, INC. AT JUNE 30, 1996, AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 57
<SECURITIES> 0
<RECEIVABLES> 3,958
<ALLOWANCES> 815
<INVENTORY> 2,387
<CURRENT-ASSETS> 5,988
<PP&E> 31,737
<DEPRECIATION> 4,692
<TOTAL-ASSETS> 34,074
<CURRENT-LIABILITIES> 12,175
<BONDS> 200
0
0
<COMMON> 73
<OTHER-SE> 14,271
<TOTAL-LIABILITY-AND-EQUITY> 34,074
<SALES> 12,633
<TOTAL-REVENUES> 12,633
<CGS> 3,416
<TOTAL-COSTS> 6,670
<OTHER-EXPENSES> 2,424
<LOSS-PROVISION> 524
<INTEREST-EXPENSE> 422
<INCOME-PRETAX> (770)
<INCOME-TAX> 0
<INCOME-CONTINUING> (770)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (770)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
