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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 March 31, 1997
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 Identification No.)
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 May 9, 1997.
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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, 1996
and March 31, 1997 (Unaudited).......................... 2
Unaudited Consolidated Statements of Operations for
the Three Months Ended March 31, 1996 and the Three
Months Ended March 31, 1997............................. 3
Unaudited Consolidated Statement of Changes in
Stockholders' Equity at March 31, 1997.................. 4
Unaudited Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1996 and the Three
Months Ended March 31, 1997 ............................ 5
Notes to Unaudited Consolidated Financial Statements.... 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.
--------------------
<TABLE>
<CAPTION>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31,
1996 1997
------------ ----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $116,355 $106,173
Accounts receivable, net.......................................... 3,607 5,191
Supplies.......................................................... 2,721 3,423
Prepaid expenses and other current assets......................... 1,175 1,592
Pledged securities-current........................................ 16,159 16,370
-------- --------
Total current assets.......................................... 140,017 132,749
Property, plant and equipment, net................................... 38,333 46,383
Pledged securities................................................... 17,353 17,596
Debt issuance costs.................................................. 6,036 6,173
Other assets......................................................... 1,190 1,155
-------- --------
Total assets.................................................. $202,929 $204,056
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 11,106 $ 10,275
Short-term debt...................................................... 2,926 2,926
Payroll and other benefits payable................................... 1,538 1,773
Accrued interest payable............................................. 572 5,142
Accrued liabilities and taxes payable................................ 412 775
Payables to affiliates-current....................................... 200 200
-------- -------
Total current liabilities..................................... 16,754 21,091
Payables to affiliates-long term..................................... 200 --
Deferred installation fees........................................... 8,227 8,213
Senior Notes......................................................... 140,000 140,000
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, 10,166,176 and 10,166,176
shares issued and outstanding................................... 102 102
Additional paid-in capital...................................... 41,825 41,825
Deficit......................................................... (4,179) (7,175)
-------- --------
Total stockholders' equity.................................... 37,748 34,752
-------- --------
Total liabilities and stockholders' equity.................... $202,929 $204,056
======== ========
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------------------------
1996 1997
--------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenues....................................................... $5,852 $11,180
Operating costs and expenses:
System operating - Note 2................................... 1,583 3,698
Selling, general and administrative......................... 3,310 5,475
Depreciation and amortization............................... 1,098 2,304
-------- -------
Total operating costs and expenses...................... 5,991 11,477
-------- -------
Operating loss.......................................... (139) (297)
Other income (expense):
Interest expense - Note 2................................... (374) (4,908)
Interest income............................................. - 2,948
Other expense............................................... 10 (1)
Exchange and translation gains (losses)..................... 44 (738)
---------- ---------
Total other income (expense)............................ (320) (2,699)
---------- ---------
Net income (loss).............................................. $ (459) $ (2,996)
========= =========
Net income (loss) per share.................................... $ (0.06) $ (0.27)
========= =========
Weighted average number of shares of common stock
and common stock equivalents................................. 8,086 10,984
========= =========
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997
COMMON STOCK ADDITIONAL
------------------------- PAID-IN ACCUMULATED
SHARES PAR VALUE CAPITAL DEFICIT TOTAL
---------- --------- ---------- ----------- -------
(In thousands, except shares)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996............. 10,166,176 $ 102 $41,825 $(4,179) $37,748
Net loss for the period.................. - - - (2,996) (2,996)
---------- ----- ------- -------- -------
BALANCE AT MARCH 31, 1997................ 10,166,176 $ 102 $41,825 $(7,175) $34,752
========== ===== ======= ======== =======
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
-------------------------------------
1996 1997
------------- ------------
<S> <C> <C>
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................................. $ (459) $ (2,996)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization...................................... 1,098 2,304
Provision for losses on accounts receivable........................ 157 599
Interest income on pledged securities.............................. - (454)
Amortization of debt issuance costs................................ - 191
Increase (decrease) in deferred installation fees.................. 1,125 (14)
Changes in operating assets and liabilities:
Increase in accounts receivable................................ (917) (2,183)
Increase in supplies........................................... (792) (702)
Decrease (increase) in prepaid expenses and other current assets 79 (417)
(Increase) decrease in other assets............................ (298) 45
Decrease in accounts payable................................... (135) (831)
(Decrease) increase in payroll and other benefits payable...... (54) 235
Increase in accrued interest payable........................... - 4,570
(Decrease) increase in accrued liabilities and taxes payable... (93) 363
------- ---------
Net cash provided by operating activities................................. (289) 710
------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions:
Property, plant and equipment.......................................... (5,018) (10,364)
-------- ---------
Net cash used in investing activities..................................... (5,018) (10,364)
CASH FLOWS FROM FINANCING ACTIVITIES
Debt issuance costs ...................................................... - (328)
Issuance of common stock and warrants..................................... 7,151 -
Decrease in payables to affiliates........................................ (1,863) (200)
-------- ---------
Net cash provided by financing activities................................. 5,288 (528)
-------- ---------
Net change in cash and cash equivalents................................... (19) (10,182)
Cash and cash equivalents at beginning of period.......................... 43 116,355
-------- ---------
Cash and cash equivalents at end of the period............................ $ 24 $ 106,173
======== =========
</TABLE>
See accompanying notes.
5
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. COMPANY BACKGROUND
In connection with an initial public offering of its Common
Stock (the "Initial Public 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 Initial Public Offering, the Company
entered into a restructuring (the "Restructuring") pursuant to which 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
Initial Public 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 Initial Public
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.
Applications have been made for the Company to operate systems in an additional
27 markets in Brazil. Although the economic situation in Brazil has improved
since July 1994, when the government introduced an economic stabilization plan
designed to reduce the rate of inflation, a return to high levels of inflation
and currency fluctuations could adversely affect the Company's operations.
6
<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 ("SFAS 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 three 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 common 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 Initial Public 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.
D. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company had an allowance for doubtful accounts of $666,000 at
December 31, 1996 and $917,000 at March 31, 1997. Charges to the allowance
during the three months ended March 31, 1997 were $348,000.
E. RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform to 1997
presentation.
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 during the three months
ended March 31, 1996 and 1997 were $1,200,000 and $2,600,000. The Company
purchases from Tevecap a program guide which it distributes to its subscribers
monthly. Amounts paid to Tevecap during the three months ended March 31, 1996
and 1997 were $75,000 and $53,000, respectively.
7
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
The Company purchased two licenses to operate wireless cable
systems from Abril S.A. ("Abril") for $400,000 each, payable in four equal
annual installments, which do not bear interest, including $200,000 outstanding
as of March 31, 1997. The remaining $200,000 is due in February 1998. Since
there are no outstanding borrowings to Tevecap, interest expense paid to Tevecap
was $0 for the three months ended March 31, 1997 compared to $374,000 for the
three months ended March 31, 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 March 31, 1997 were $6,500,000. At March 31, 1997, issued and
outstanding letters of credit secured by affiliates were $4,600,000. The
maturity date of such letters of credit range from 270 days to 360 days.
3. STOCK OPTION PLAN
In connection with the Initial Public 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 of the Board 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 Initial Public 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 Initial Public
Offering. Options to purchase an additional 10,000 shares of Common Stock were
granted in each of December 1996 and February 1997 at an exercise price of
$11.75.
4. LONG-TERM DEBT
On December 20, 1996, the Company issued $140 million principal amount
of 12-7/8% Senior Notes due December 15, 2004 (the "Senior Notes"). The proceeds
of the Senior Notes were loaned to ITSA and evidenced by an intercompany note.
Interest is payable semi-annually in arrears on June 15 and December 15 of each
year, commencing on June 15, 1997. Of the $140 million loaned to ITSA,
approximately $33.5 million was used to purchase U.S. government securities,
scheduled interest and principal payments on which is in an amount sufficient to
provide for payment in full when due of the first four scheduled interest
payments on the Senior Notes. Debt issuance costs are capitalized and amortized
over the period of the debt under the effective yield method.
The Senior Notes are redeemable on or after December 15, 2000 at the
option of the Company, in whole or in part from time to time, at specified
redemption prices declining annually to 100% of the
8
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
principal amount on or after December 15, 2003, plus accrued interest. The
Senior Notes contain certain covenants that, among other things, limit the
ability of the Company to incur additional indebtedness and pay dividends or
make certain other distributions. Upon a change of control, the Company is
required to make an offer to purchase the Senior Notes at a purchase price equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any. In accordance with the covenants of the Senior Notes and the
Company's current level of leverage, at March 31, 1997 it is unable to make any
dividend payments.
The Company believes that the recorded value of the Senior Notes approximates
the fair value at March 31, 1997.
9
<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. 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
MARCH 31,
-------------------------------------------------------------------------
% OF % OF
1996 REVENUE 1997 REVENUE
---- ------- ---- -------
(In thousands, except share and other data)
<S> <C> <C> <C> <C>
Revenues........................................... $ 5,852 100% $ 11,180 100%
Operating costs and expenses:
System operating.............................. 1,583 27% 3,698 33%
Selling, general and administrative........... 3,310 57% 5,475 49%
Depreciation and amortization................. 1,098 19% 2,304 21%
---------------------------------- ----------------------------------
Total operating costs and expenses........ 5,991 102% 11,477 103%
---------------------------------- ----------------------------------
Operating loss......................... (139) (2%) (297) (3%)
Interest expense.............................. (374) (6%) (4,908) (44%)
Interest income............................... - 0% 2,948 26%
Other expense................................. 10 0% (1) 0%
Exchange and translation gains (losses)....... 44 1% (738) 7%
---------------------------------- ----------------------------------
Total other income (expense).................. (320) (5%) (2,699) (24%)
---------------------------------- ----------------------------------
Net loss........................................... $ (459) (8%) $(2,996) (27%)
================================== ===================================
Net loss per share................................. $ (0.06) $ (0.27)
=================== ===================
Weighted average number of common stock
and common stock equivalents outstanding.......... 8,086 10,984
=================== ===================
Other Data:
EBITDA (a).................................... $ 959 $ 2,007
=================== ===================
Number of subscribers at end of period........ 47,066 92,097
=================== ===================
</TABLE>
- -------------------
(a) EBITDA is defined as operating loss plus depreciation, amortization and
non-cash charges. While EBITDA should not be construed as a substitute for
operating 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
10
<PAGE>
requirements and debt service. EBITDA, however, is not necessarily a measure of
the Company's ability to fund its cash needs.
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, net of sales taxes. Revenues increased from
approximately $5.9 million for the three months ended March 31, 1996 to
approximately $11.2 million for the three months ended March 31, 1997, primarily
due to an increase of approximately 43,000 in the average number of subscribers
in the Company's operating systems, offset, in part, by approximately $325,000
decrease in revenues due to a 5% sales tax increase in Brasilia at the beginning
of 1997. Average monthly revenue per subscriber was $39.42 for the three months
ended March 31, 1997 compared to $40.45 for the three months ended March 31,
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 customer service costs. System operating expenses
increased from approximately $1.6 million for the three months ended March 31,
1996 to approximately $3.7 million for the three months ended March 31, 1997,
primarily due to an increase in programming expenses of approximately $1.3
million and an increase in compensation and benefits of approximately $0.8
million. Programming and subscriber magazine expenses are charged on a per
subscriber basis and, therefore, will normally increase as subscribers increase.
During the three months ended March 31, 1997, subscriber magazine expenses were
approximately $50,000 due to a one-time credit from the publisher. Had this
credit not been given, subscriber magazine expenses would have been
approximately $400,000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") increased from approximately $3.3 million for
the three months ended March 31, 1996 to approximately $5.5 million for the
three months ended March 31, 1997, but as a percentage of revenues decreased
from approximately 56.6% to approximately 49.0%. In general, SG&A increased in
line with the increase in subscribers, including increases in compensation and
benefits, commissions, advertising, promotion and the provision for losses on
accounts receivable. All of these increases were directly associated with higher
revenues and higher subscriber levels during the three months ended in March 31,
1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
consist primarily of depreciation of decoder boxes, headend facilities and
capitalized installation costs. These costs are capitalized and depreciated over
a five year period. Depreciation and amortization expense increased from
approximately $1.1 million for the three months ended March 31, 1996 to
approximately $2.3 million for the three months ended March 31, 1997, primarily
due to increases in the number of installed subscribers in each of the Company's
three operating systems.
OPERATING LOSS. For the three month period ended March 31, 1997, the
Company generated an operating loss of approximately $0.3 million, 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.
INTEREST EXPENSE. Interest expense increased by $4.5 million from the
three month period ended March 31, 1996 to the three month period ended March
31, 1997, primarily as a result of accrued interest associated with the Senior
Notes.
11
<PAGE>
INTEREST INCOME. Interest income increased by $2.9 million from the
three month period ended March 31, 1996 to the three month period ended March
31, 1997, primarily as a result of investing a portion of the proceeds from the
Initial Public Offering and the Senior Notes.
EXCHANGE AND TRANSLATION GAINS (LOSSES). Exchange and translation gains
(losses) have arisen primarily as a result of converting short-term investments
and borrowings denominated in REAIS to U.S. dollars in accordance with SFAS No.
52. These amounts can fluctuate significantly as a result of changes in the
exchange rate of the REAL relative to the U.S. dollar. Exchange and translation
gains (losses) increased by $0.8 million from the three months ended March 31,
1996 to the three months ended March 31, 1997 as a result of additional
short-term investments in Brazil.
INCOME TAXES. The Company did not have taxable income during the three
month period ended March 31, 1997 and expects to generate losses for the
foreseeable future. Effective January 1, 1997, Brazilian effective tax rates
increased to approximately 33.0% from 30.5%.
NET LOSS. As explained above, net loss in the period presented is
primarily attributable to the expenses incurred in connection with the
development of the Company's business.
LIQUIDITY AND CAPITAL RESOURCES
The pay television business is a capital intensive business. The
Company made capital expenditures of approximately $10.4 million in the three
months ended March 31, 1997. Such capital expenditures were financed principally
through offerings of equity and debt. From 1993 through the first part of 1996,
the Company raised an aggregate of approximately $16.8 million through a series
of private equity placements to Tevecap and Warburg, Pincus Investors, L.P. In
August 1996, TV Filme completed the Initial Public Offering with net proceeds to
the Company of $24.4 million and in December 1996 TV Filme completed the sale of
the Senior Notes. In the past, working capital requirements have been primarily
met by (i) vendor financing which generally requires payment within 360 days of
shipment, some of which has been supported by irrevocable letters of credit
guaranteed by Abril 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 Initial Public Offering. As
a result of the Initial Public Offering and the Senior Notes offering, the
Company does not expect to continue borrowing from Abril or its affiliates. As
of March 31, 1997, the Company has a payable to Abril of $200,000 in connection
with the Company's purchase of the Belem and Goiania licenses from Abril. Such
amount is due in February 1998.
As of March 31, 1997, approximately $6.5 million was outstanding under
letters of credit with maturities ranging from 270 days to 360 days, of which
approximately $4.6 million was guaranteed by affiliates of TV Filme. As of March
31, 1997, the Company had importation lines of credit in the aggregate amount of
$7.0 million with two commercial banks, 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. As a result of the Initial Public Offering and the Senior
Notes offering, the Company had positive working capital at March 31, 1997 in
the amount of $111.1 million. Net cash provided by operating activities for the
three months ended March 31, 1997 was approximately $0.7 million.
For the remaining nine months of 1997, the Company anticipates that its
aggregate capital expenditures in its existing operating markets will be
approximately $18.0 million, comprised primarily of subscriber installation
equipment. In addition to expanding its subscriber base in its existing systems,
12
<PAGE>
the Company is seeking to launch additional systems, and applications have been
made for the Company to operate wireless cable systems in 27 additional markets
in Brazil; however, there can be no assurance as to the grant of any such
concessions and licenses and the timing of any such grants generally. Based on
current market and operating conditions, the Company estimates that the average
cost of launching and deploying any additional wireless cable operating system
after the granting of a new license in the Company's application markets could
be up to approximately $12.0 million, including construction of a headend
facility, subscriber-related capital costs and funding initial development costs
and marketing 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 pay television systems, although it currently has no
understanding, commitment or agreement with respect to any such acquisitions.
The Company believes that its current cash and internally generated funds will
be sufficient to fund its cash requirements for at the least the next twelve
months and has invested its available cash predominantly in U.S. dollar
denominated short-term marketable securities. As of March 31, 1997, of the
Company's $140.0 million in cash, cash equivalents and pledged securities,
$116.2 million was invested in U.S. dollar denominated securities. In the longer
term, the Company's funding needs are subject to a variety of factors, including
the number and size of new system launches or acquisitions, the implementation
of alternative transmission technologies and the offering of additional
communications services. Accordingly, there can be no assurance that the Company
will be able to meet its funding needs in the longer term.
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 substantial portion of its equipment costs and
substantially all 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.
Accordingly, devaluation of the REAL may have a material adverse effect on the
Company's results of operations and financial condition.
13
<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) 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 March 31, 1997.
14
<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: May 14, 1997
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)
15
<PAGE>
EXHIBIT INDEX
-------------
SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGES
- --- ----------- --------------
27. Financial Data Schedule
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLDIATED BALANCE SHEET OF TV FILME, INC. AT MARCH 31, 1997, AND
THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 106,173
<SECURITIES> 0
<RECEIVABLES> 6,147
<ALLOWANCES> 956
<INVENTORY> 3,423
<CURRENT-ASSETS> 132,749
<PP&E> 56,730
<DEPRECIATION> 10,347
<TOTAL-ASSETS> 204,056
<CURRENT-LIABILITIES> 21,091
<BONDS> 140,000
0
0
<COMMON> 102
<OTHER-SE> 34,650
<TOTAL-LIABILITY-AND-EQUITY> 204,056
<SALES> 11,180
<TOTAL-REVENUES> 11,180
<CGS> 3,698
<TOTAL-COSTS> 4,876
<OTHER-EXPENSES> 2,304
<LOSS-PROVISION> 599
<INTEREST-EXPENSE> (4,908)
<INCOME-PRETAX> (2,996)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,996)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,996)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
