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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, 1999
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 Number)
Incorporation or Organization)
c/o ITSA-INTERCONTINENTAL TELECOMUNICACOES LTDA.
SCS, QUADRA 07-BL.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 $0.01 10,824,594 shares
per share. as of November 15, 1999
================================================================================
<PAGE>
TV FILME, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1998
and September 30, 1999 (Unaudited)........................ 2
Unaudited Consolidated Statements of Operations
for the Three and Nine Months Ended September 30,
1998 and the Three and Nine Months Ended
September 30,1999 ........................................ 3
Unaudited Consolidated Statement of Changes in
Stockholders' Equity for the Nine Months Ended
September 30, 1999 ....................................... 4
Unaudited Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1998 and
September 30, 1999........................................ 5
Notes to Unaudited Consolidated Financial Statements...... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 9
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk............................................... 16
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.......................................... 16
ITEM 2. Changes in Securities and Use of Proceeds.................. 16
ITEM 3. Defaults Upon Senior Securities............................ 17
ITEM 4. Submission of Matters to a Vote of Security Holders........ 17
ITEM 5. Other Information.......................................... 17
ITEM 6. Exhibits and Reports on Form 8-K........................... 17
SIGNATURES
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
--------------------- --------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 57,492 $ 44,406
Accounts receivable, net.............................. 4,736 2,164
Supplies.............................................. 4,930 2,742
Prepaid expenses and other current assets............. 2,560 4,569
--------------------- --------------------
Total current assets............................ 69,718 53,881
Property, plant and equipment, net......................... 50,974 25,272
Debt issuance costs, net................................... 4,731 --
Other assets............................................... 7,891 4,588
--------------------- --------------------
Total assets.................................... $ 133,314 $ 83,741
===================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable...................................... $ 3,315 $ 4,028
Payroll and other benefits payable.................... 2,892 1,822
Accrued interest payable.............................. 751 14,464
Accrued liabilities and taxes payable................. 4,533 6,947
Long-term debt in default - Note 6.................... -- 140,000
--------------------- --------------------
Total current liabilities........................ 11,491 167,261
Deferred installation fees................................. 3,590 1,111
Long-term debt - Note 6.................................... 140,000 --
Stockholders' equity:
Cumulative translation adjustment..................... (3,877) (4,920)
Preferred stock, $.01 par value, 1,000,000 shares
--
authorized, no shares issued..................... -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 10,824,594 and 10,824,594 shares
issued and outstanding.......................... 108 108
Additional paid-in capital............................ 45,657 45,657
Accumulated deficit................................... (63,655) (125,476)
--------------------- --------------------
Total stockholders' equity....................... (21,767) (84,631)
--------------------- --------------------
Total liabilities and stockholders' equity....... $ 133,314 $ 83,741
===================== ====================
</TABLE>
See accompanying notes.
2
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ----------------------------
1998 1999 1998 1999
--------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues............................................... $ 11,049 $ 6,095 $ 35,127 $ 19,483
Operating costs and expenses:
System operating - Note 2.......................... 5,178 2,850 15,214 9,154
Selling, general and administrative................ 6,279 5,458 22,257 13,759
Depreciation and amortization...................... 5,845 3,443 16,496 11,202
--------------- ------------- ------------ ------------
Total operating costs and expenses............. 17,302 11,751 53,967 34,115
--------------- ------------- ------------ ------------
Operating loss................................. (6,253) (65,656) (18,840) (14,632)
Other income (expense):
Interest and other expense - Note 7................ (4,793 (6,167) (14,242) (16,799)
Interest and other income.......................... 2,680 1,580 7,424 5,510
--------------- ------------- ------------ ------------
Interest and other income (expense), net........... (2,113) (4,587) (6,818) (11,289)
Currency exchange loss............................. (1,080) (6,492) (3,589) (35,900)
--------------- ------------- ------------ ------------
Total other income (expense)................... (3,193) (11,079) (10,407) (47,189)
--------------- ------------- ------------ ------------
Net loss............................................... $ (9,446) $ (16,735) $ (29,247) $ (61,821)
=============== ============= ============ ============
Net loss per share, basic and diluted.................. $ (0.87) $ (1.55) $ (2.70) $ (5.71)
=============== ============= ============ ============
Weighted average number of shares of
common stock and common stock
equivalents outstanding............................ 10,825 10,825 10,825 10,825
=============== ============= ============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL OTHER
------------ PAID-IN COMPREHENSIVE ACCUMULATED
SHARES PAR VALUE CAPITAL LOSS DEFICIT TOTAL
------------------------- ------------ ---------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARES)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 10,824,594 $108 $45,657 $(3,877) $(63,655) $(21,767)
Cumulative translation
adjustment................ -- -- -- (1,043) -- (1,043)
Net loss for the period........ -- -- -- -- (61,821) (61,821)
------------- ----------- ------------ ---------------- ------------- -------------
BALANCE AT SEPTEMBER 30, 1999.. 10,824,594 $108 $45,657 $(4,920) $(125,476) $(84,631)
============= =========== ============ ================ ============= =============
</TABLE>
See accompanying notes.
4
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1999
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .............................................. $(29,247) $(61,821)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................... 16,804 10,885
Provision for losses on accounts receivable ..... 5,845 1,140
Amortization of debt issuance costs ............. 1,355 1,405
Decrease in deferred installation fees .......... (2,317) (234)
Currency exchange loss .......................... 3,589 31,687
Changes in operating assets and liabilities:
Increase in accounts receivable ................. (3,178) (1,253)
(Increase) decrease in supplies ................. (233) 370
Increase in prepaid expenses and other current .. (1,010) (3,098)
assets
Decrease in accrued interest receivable ......... 95 --
(Increase) decrease in other assets ............. (1,313) 956
Decrease in pledged securities .................. 8,322 --
(Decrease) increase in accounts payable ......... (5,363) 2,448
Increase (decrease) in payroll and other benefits
payable .................................... 1,383 (349)
Increase in accrued interest payable ............ 4,506 13,713
(Decrease) increase in accrued liabilities and
taxes payable ......................................... (42) 2,864
-------- --------
Net cash used for operating activities ................ (804) (1,287)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions:
Property, plant and equipment ................... (10,122) (2,845)
-------- --------
Net cash used in investing activities ................. (10,122) (2,845)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in payables to affiliates .................... (200) --
-------- --------
Net cash used for financing activities ................ (200) --
-------- --------
Effect of exchange rate changes on cash ............... (2,295) (8,954)
-------- --------
Net change in cash and cash equivalents ............... (13,421) (13,086)
-------- --------
Cash and cash equivalents at beginning of period ...... 80,975 57,492
-------- --------
Cash and cash equivalents at end of period ............ $ 67,554 $ 44,406
======== ========
</TABLE>
See accompanying notes.
5
<PAGE>
TV FILME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. COMPANY BACKGROUND
The Company develops, owns and operates pay television systems in
markets in Brazil. Through its subsidiaries, the Company has established
wireless cable operating systems in the cities of Brasilia, Goiania, Belem and
Campina Grande and has been awarded licenses to operate pay television systems
in six additional markets in Brazil. All significant intercompany transactions
and balances have been eliminated in consolidation.
As discussed in Note 6, on June 15, 1999, the Company failed to make the
required interest payment on its Senior Notes which caused an event of default
to occur. In connection therewith, the Company selected a financial advisor, BT
Alex. Brown, Inc., to assist it in evaluating strategic alternatives, including
a possible debt restructuring, and issues associated with the Company's debt
service requirements. On August 12, 1999, the Company reached an agreement in
principle with a committee representing holders of the Company's outstanding
12-7/8% Senior Notes due 2004. Under the terms of the agreement in principle,
the senior noteholders will receive a $25 million cash payment and their
existing notes will be converted into (i) new Senior Secured Notes in the
aggregate principal amount of $35 million, with a five year maturity and
interest of 12% per annum (interest payable-in-kind at the Company's option
through the first 24 months), and (ii) 80% of the new common equity of the
reorganized company. Current management will receive 15% of the new common
equity, and the existing common stockholders of the Company will receive 5% of
the common equity of the reorganized company in exchange for their current
stake. All outstanding stock options will be cancelled. This agreement in
principle is subject to execution of definitive documentation, and is to be
effected pursuant to a pre-arranged plan which will require court approval under
Chapter 11 of the U.S. Bankruptcy Code. In addition, the Central Bank of Brazil
must approve the proposed restructuring. In the process of reviewing the
proposed restructuring, the Central Bank may examine the original approvals
granted when the Secured Notes were issued and there is a risk that the Central
Bank may impose charges or additional taxes with respect to the original
transaction relating to the Secured Notes. There can be no assurance that
approval of the restructuring will be given or as to whether any charges or
taxes may be imposed. Moreover, charges or taxes imposed by the Central Bank may
result in the restructuring not being feasible and may have a material adverse
effect on the Company's financial condition and results of operations. While the
Company has reached an agreement in principle with the noteholder committee,
there can be no assurance that the proposed restructuring transaction will be
completed successfully.
B. METHOD OF PRESENTATION
The unaudited consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles in the
United States ("U.S. GAAP") for interim financial information.
The Company's reporting currency is the U.S dollar.
In the opinion of management, all adjustments considered necessary for
a fair presentation of the unaudited interim consolidated financial statements
have been included and are of a normal recurring nature. These statements,
however, do not include all information and footnotes necessary for a complete
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. These statements
should be read in conjunction with the Company's consolidated financial
statements for the year ended December 31, 1998 set forth in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
The results of operations for the interim periods presented herein are not
necessarily indicative of the results to be expected for the full year.
The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by U.S. GAAP for complete financial
statements.
As discussed above, the Company is in default on its Senior Notes and
has reached an agreement in principle to restructure its debt and equity. The
ultimate resolution of this matter could affect the recoverability and
classification of assets or the amounts and classification of liabilities. The
financial statements do not include any adjustments which may result from the
ultimate resolution of this matter.
Effective January 1, 1998, the Company determined that Brazil ceased to
be a highly inflationary economy under Statement of Financial Accounting
Standards No. 52. Accordingly, as of January 1, 1998, the Company began using
6
<PAGE>
the REAL as the functional currency of its Brazilian subsidiaries. As a result,
all assets and liabilities are translated into dollars at period end exchange
rates and all income and expense items are translated into U.S. dollars at the
average exchange rate prevailing during the period. In addition, the Company
recorded a loss associated with holding a net foreign currency monetary
liability position.
C. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company had an allowance for doubtful accounts of $387,000 at
December 31, 1998 and $603,000 at September 30, 1999. Charges to the allowance
during the three months ended September 30, 1999 were $224,000.
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 and nine months ended
September 30, 1998 and 1999 were approximately $2,700,000 and $1,800,000 and
$8,100,000 and $5,800,000, respectively.
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 did not bear interest. The $200,000 which remained
outstanding as of December 31, 1997 was repaid in February 1998.
3. COMPREHENSIVE LOSS
The calculation of comprehensive loss for the three months and nine
months ended September 30, 1998 and 1999 is as follows:
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ----------------------------
1998 1999 1998 1999
--------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net Loss............................................... $ (9,446) $ (16,735) $(29,247) $(61,821)
Foreign currency translation adjustments............... (1,712) 1,760 (2,678) (1,043)
=============== ============= ============ ============
Comprehensive loss..................................... $ (11,158) $ (14,975) $(31,925) $(62,864)
=============== ============= ============ ============
</TABLE>
Accumulated comprehensive loss, consisting entirely of foreign currency
translation adjustments, is $4,920 at September 30, 1999 and $3,877 at
December 30, 1998.
4. CASH EQUIVALENTS
The Company considers all investments with a maturity of three months
or less when purchased to be cash equivalents.
5. STOCK OPTION PLAN
In connection with the Company's initial public offering in August
1996, the Board of Directors of the Company adopted and the stockholders of the
Company approved the 1996 Stock Option Plan (such plan, as subsequently amended
in September 1997 and October 1998, is hereinafter referred to as 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 1,736,432,
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
7
<PAGE>
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 Company's initial public offering, 297,000 of which are
exercisable at $10.00 per share, and 110,000 of which were 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.
Additional options to purchase Common Stock were granted as follows:
NUMBER OF EXERCISE
DATE OPTIONS PRICE
--------- --------- --------
Dec. 1996 10,000 $11.750
Feb. 1997 10,000 $11.750
July 1997 15,000 $10.125
Oct. 1997 308,500 $6.000
Dec. 1997 150,000 $5.625
July 1998 10,000 $3.875
Of the total number of options which were exercisable as of September
30, 1999, 210,000 options have expired in accordance with their terms. Subject
to the successful completion of the Company's debt restructuring (as described
in Notes 1 and 6), all outstanding options will be cancelled.
6. LONG-TERM DEBT IN DEFAULT
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-Intercontinental Telecomunica(sigma)oes
S.A. and its subsidiaries ("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 was in an amount sufficient
to provide for payment in full when due of the first four scheduled interest
payments on the Senior Notes, the last of which occurred on December 15, 1998.
Until the third quarter of 1999, debt issuance costs were capitalized and
amortized over the period of the debt under the effective yield method (see
below).
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 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
September 30, 1999 it is unable to make any dividend payments.
Under the provisions of the Senior Note Indenture, the Company is
required to make semi-annual interest payments on June 15 and December 15 of
each year to the noteholders. On June 15, 1999, the Company failed to make the
required interest payment, and did not make the payment within the subsequent 30
day grace period allowable under the terms of the indenture, which caused an
event of default to occur. While the Company has reached an agreement in
principle with a committee representing holders of the Senior Notes to
restructure this obligation (as described in Note 1), the transaction has not
yet been effected. As a result of this event of default, the Company has
classified the Senior Notes as a current liability in the accompanying balance
sheet. The agreement in principle was reached in August 1999; accordingly, the
Company wrote off the deferred debt issuance costs of $3.3 million in the third
quarter of 1999.
The Company believes that the Senior Notes, as of September 30, 1999,
were trading at approximately 25% of the principal value.
8
<PAGE>
7. FOREIGN EXCHANGE CONTRACTS
At December 31, 1998 and September 30, 1999, the Company had $24.1
million and $28.0 million, respectively, of foreign exchange contracts. The
Company regularly enters into such contracts, typically with a duration of six
months or less. Of the contracts held at September 30, 1999, one contract for
$12.0 million expired in October 1999 and the other contract for $16.0 million
will expire in December 1999. In general, these contracts permit the Company to
receive in REAIS, at maturity, the dollar equivalent of the contract value
calculated using the exchange rate as of the maturity date. At maturity, the
Company is required to pay the contract value plus interest using the Brazilian
interbank lending rate during the life of the contract. Net contract gains, if
any, are subject to a 20% tax levied in Brazil. Realized gains and losses are
reported in "Interest and other expense." Unrealized gains as of September 30,
1999 totaled $580,000.
8. INCOME TAXES
The Company has not recognized any future income tax benefit for its net
operating loss carryforwards in excess of net deferred tax liabilities, as it is
more likely than not that it will not be able to realize a benefit for such
losses in the future. Under Brazilian law, net operating losses may be carried
forward for an unlimited period of time.
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 are currently having, substantial
effects on the Company's results of operations and financial condition. See "--
Inflation and Exchange Rates."
As a result of the changes in exchange rates 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 September 30
1998 % OF REVENUE 1999 % OF REVENUE
------------------------------------------------------------
(In thousands, except subscriber, per share and share data)
<S> <C> <C> <C> <C>
Revenue........................................... $ 11,049 100% $ 6,095 100%
Operating costs and expenses:
System operating............................... 5,178 47% 2,850 47%
Selling, general and administrative............ 6,279 57% 5,458 90%
Depreciation and amortization.................. 5,845 53% 3,443 56%
--------- --------- --------- ------
Total operating costs and expenses........ 17,302 157% 11,751 193%
--------- --------- --------- ------
Operating loss............................ (6,253) (57%) (5,656) (93%)
Other income (expense):
Interest and other expense..................... (4,793) (43%) (6,167) (101%)
Interest and other income...................... 2,680 24% 1,580 26%
--------- --------- --------- ------
Interest and other income (expense), net....... (2,113) (19%) (4,587) (75%)
Currency exchange loss......................... (1,080) (10%) (6,492) (107%)
---------- --------- ---------- -------
Total other income (expense)............. (3,193) (29%) (11,079) (182%)
---------- --------- ---------- -------
Net loss.......................................... $ (9,446) (85%) $ (16,735) (275%)
========== ========= ========== =======
9
<PAGE>
Net loss per share................................ $ (0.87) $ (1.55)
========== ==========
Weighted average number of shares of
Common stock and common stock
Equivalents.................................... 10,825 10,825
========= ==========
Other Data:
EBITDA (a)..................................... $ (408) $ (2,213)
=========- ==========
Number of subscribers at end of period ........ 93,273 73,162
========= ==========
Number of operating systems at end of period... 3 4
========= ==========
Exchange rate (R $: US $) at end of period..... 1.1856 : 1 1.9223 : 1
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30
1998 % OF REVENUE 1999 % OF REVENUE
----------------------------------------------------------
(In thousands, except subscriber, per share and share data)
<S> <C> <C> <C> <C>
Revenue........................................... $ 35,127 100% $ 19,483 100%
Operating costs and expenses:
System operating............................... 15,214 43% 9,154 47%
Selling, general and administrative............ 22,257 63% 13,759 71%
Depreciation and amortization.................. 16,496 47% 11,202 57%
---------- --------- --------- ------
Total operating costs and expenses........ 53,967 154% 34,115 175%
---------- --------- --------- ------
Operating loss........................... (18,840) (54%) (14,632) (75%)
Other income (expense):
Interest and other expense...................... (14,242) (41%) (16,799) (86%)
Interest and other income....................... 7,424 21% 5,510 28%
--------- --------- --------- ------
Interest and other income (expense), net........ (6,818) (19%) (11,289) (58%)
Currency exchange loss.......................... (3,589) (10%) (35,900) (184%)
---------- --------- ---------- -------
Total other income (expense), net........... (10,407) (30%) (47,189) (242%)
---------- --------- ---------- -------
Net loss.......................................... $ (29,247) (83%) $ (61,821) (317%)
========== ========= ========== =======
Net loss per share................................ $ (2.70) $ (5.71)
========== ==========
Weighted average number of shares of
Common stock and common stock
Equivalents.................................... 10,825 10,825
========= =========
Other Data:
EBITDA (a)..................................... $ (2,344) $ (3,430)
========== =========
Number of subscribers at end of period ........ 93,273 73,162
========= =========
Number of operating systems at end of period... 3 4
========= =========
Exchange rate (R $: US $) at end of period..... 1.1856 : 1 1.9223 : 1
========== ==========
</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 U.S. GAAP, it is included
herein to provide additional information regarding the ability of the Company to
meet its capital expenditures, working capital requirements and debt service.
EBITDA, however, is not necessarily a measure of the Company's ability to fund
its cash needs.
NET LOSS. For the three months ended September 30, 1999 compared to the
three months ended September 30, 1998, net loss increased to $(16.7) million
versus $(9.4) million, or 77%, primarily due to the write-off of capitalized
bond issuance costs, reduced interest income and an increase in recorded
currency exchange loss, partially offset by a decrease in operating loss. Net
loss for the nine months ended September 30, 1999 increased to $(61.8) million
from $(29.2) million, or 111%, primarily due to the write-off of capitalized
bond issuance costs, reduced interest income and an increase in recorded
currency exchange loss, partially offset by a decrease in operating loss.
REVENUES. For the three months ended September 30, 1999 compared to the
three months ended September 30, 1998, revenues decreased by 45%, primarily due
to an average devaluation of the REAL of 62% between the periods. Revenues for
the nine months ended September 30, 1999 decreased by 45% compared to the nine
10
<PAGE>
months ended September 30, 1998, due primarily to an average devaluation of the
REAL of 57% between the periods. In both cases, the revenue decrease was
partially offset by revenues from the Company's proprietary premium channel and
high-speed Internet service.
SYSTEM OPERATING EXPENSES. For the three months ended September 30,
1999 compared to the three months ended September 30, 1998, system operating
expenses decreased by 45%, primarily due to an average devaluation of the REAL
of 62% between the periods. System operating expenses for the nine months ended
September 30, 1999 decreased by 40%, compared to the nine months ended September
30, 1998, primarily due to an average devaluation of the REAL of 57% between the
periods. In both cases, the decrease in system operating expenses was partially
offset by increases in costs associated with a layoff of approximately 25% of
the Company's work force and programming costs, most of which are denominated in
U.S. dollars.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES. For the three
months ended September 30, 1999 compared to the three months ended September 30,
1998, SG&A expenses decreased by 13%, primarily due to an average devaluation of
the REAL of 62% between the periods. SG&A expenses for the nine month period
ended September 30, 1999 decreased by 38% compared to the nine months ended
September 30, 1998, primarily due to an average devaluation of the REAL of 57%
between the periods. In both cases, the decrease in SG&A expenses was partially
offset by increases in: costs associated with a layoff of approximately 25% of
the Company's workforce; debt restructuring costs ($670,000 in the third quarter
of 1999 and $1.5 million during 1999); an increase in bank charges due to a new
financial transactions tax implemented in Brazil in July 1999; and, additional
rents paid for office and transmission space in cities where the Company has
been awarded new licenses.
DEPRECIATION AND AMORTIZATION. For the three months ended September 30,
1999 compared to the three months ended September 30, 1998, depreciation and
amortization decreased by 41%, primarily due to an average devaluation of the
REAL of 62% between the periods. Depreciation and amortization for the nine
month period ended September 30, 1999 decreased by 32% compared to the nine
months ended September 30, 1998, primarily due to an average devaluation of the
REAL of 57% between the periods. In both cases, the decrease in depreciation and
amortization was partially offset by increases in depreciation due to additional
capitalized installation costs during the respective periods.
INTEREST AND OTHER EXPENSE. For the three months ended September 30,
1999 compared to the three months ended September 30, 1998, interest expense
increased by 29% primarily due to the write-off of capitalized debt issuance
costs, offset in part by hedge contract gains. Interest expense for the nine
month period ended September 30, 1999 increased by 18% compared to the nine
months ended September 30, 1998, primarily due to the write-off of capitalized
debt issuance costs, offset in part by hedge contract gains.
INTEREST AND OTHER INCOME. For the three months ended September 30,
1999 compared to the three months ended September 30, 1998, interest income
decreased by 41%, primarily due to a decrease in the average cash balance
between the two periods. Interest income for the nine month period ended
September 30, 1999 decreased by 26% compared to the nine months ended September
30, 1998, primarily due to a decrease in the average cash balance between the
two periods. In both cases, the decrease was partially offset by the Company
holding a higher proportion of its cash balance in Brazil, which enabled it to
obtain significantly higher rates of return.
CURRENCY EXCHANGE LOSS. Due to its net dollar-denominated liability
position, the Company generates currency exchange losses in any reporting period
in which the value of the REAL depreciates in relation to the value of the U.S.
dollar.
EVENT OF DEFAULT ON SENIOR NOTES
Under the provisions of the Senior Note indenture, the Company was
required to make a semi-annual interest payment on June 15, 1999; however, the
Company failed to make this payment which caused an event of default upon the
expiration of the 30 day grace period permitted under the indenture. While the
Company has reached an agreement in principle with a committee representing
holders of the Senior Notes to restructure this obligation (see Notes 1 and 6),
the transaction has not yet been effected and there can be no assurance that the
transaction will be completed successfully. The Company does not expect to make
the past due interest payment, or any future interest payments, on the currently
outstanding Senior Notes.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The pay television business is capital intensive. 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 an 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 with net proceeds to the Company
of approximately $134.0 million. In the past, working capital requirements have
been primarily met by (i) venture capital financings, (ii) capital markets
financings, (iii) vendor financing which generally requires payment within 420
days of shipment, some of which had been supported by irrevocable letters of
credit guaranteed by Abril and certain of its affiliates and (iv) borrowings
from Abril and certain affiliates. As of June 30, 1999, the Company had no
outstanding borrowings from Abril and its affiliates and the Company does not
expect to borrow from Abril or its affiliates in the future.
As of September 30, 1999, the Company had no amounts outstanding under
letters of credit. As of January 1, 1999, the Company had import lines of credit
in the aggregate amount of $30.5 million with four commercial banks. In January
1999, in conjunction with the devaluation of the REAL, all import lines of
credit were cancelled by the banks. Further import purchases by the Company will
have to be individually negotiated with the banks. While the Company believes
that lines of credit, additional vendor financing and other credit facilities
are available, the terms and conditions of such financing vehicles are uncertain
and may not be available on terms acceptable to the Company. As a result of
reclassifying its Senior Notes as a current liability (see "Event of Default on
Senior Notes"), the Company had negative working capital at September 30, 1999
of $113.4 million. Net cash used in operating activities for the nine months
ended September 30, 1999 was $1.3 million.
On February 4, 1999, the Company received notice from the Nasdaq Stock
Market, Inc. that its common stock was delisted, effective on the close of
trading that day. The delisting was a consequence of the Company's failure to
meet certain standards for continued listing on Nasdaq, including the net
tangible assets and minimum bid price requirements. The Company's common stock
was immediately quoted on the OTC Bulletin Board. The effects of the Nasdaq
delisting include, without limitation, the limited release of market prices of
the common stock, limited news coverage of the Company, and restriction of
investors' interest in the Company, and may have a material adverse effect on
the trading market and prices for the common stock, thereby affecting the
Company's ability to issue additional securities or secure additional financing.
In addition, because the common stock is deemed penny stock under the Securities
Enforcement Penny Stock Reform Act of 1990, additional disclosure is required in
connection with trading in the common stock, including delivery of a disclosure
schedule explaining the nature and risk of the penny stock market. Such
requirements could severely limit the liquidity of the common stock.
In order to assist the Company in evaluating strategic alternatives,
including a possible debt restructuring, and issues associated with the
Company's debt service requirements, the Company has selected BT Alex. Brown,
Inc. as its financial advisor. On August 12, 1999, the Company reached an
agreement in principle with a committee representing holders of the Company's
outstanding 12-7/8% Senior Notes due 2004. Under the terms of the agreement in
principle, the senior noteholders will receive a $25 million cash payment and
their existing notes will be converted into (i) new Senior Secured Notes in the
aggregate principal amount of $35 million, with a five year maturity and
interest of 12% per annum (interest payable-in-kind at the Company's option
through the first 24 months), and (ii) 80% of the new common equity of the
reorganized company. Current management will receive 15% of the new common
equity, and the existing common stockholders of the Company will receive 5% of
the common equity of the reorganized company in exchange for their current
stake. All outstanding stock options will be cancelled. This agreement in
principle is subject to execution of definitive documentation, and is to be
effected pursuant to a pre-arranged plan which will require court approval under
Chapter 11 of the U.S. Bankruptcy Code. In addition, the Central Bank of Brazil
must approve the proposed restructuring. In the process of reviewing the
proposed restructuring, the Central Bank may examine the original approvals
granted when the Secured Notes were issued and there is a risk that the Central
Bank may impose charges or additional taxes with respect to the original
transaction relating to the Secured Notes. There can be no assurance that
approval of the restructuring will be given or as to whether any charges or
taxes may be imposed. Moreover, charges or taxes imposed by the Central Bank may
result in the restructuring not being feasible and may have a material adverse
effect on the Company's financial condition and results of operations. While the
Company has reached an agreement in principle with the noteholder committee,
there can be no assurance that the proposed restructuring transaction will be
completed successfully.
The Company made capital expenditures of approximately $2.8 million
during the nine months ended September 30, 1999. Such capital expenditures were
financed with the proceeds from the Senior Notes offering and from cash
generated from the Company's operations.
12
<PAGE>
In September 1997, the Brazilian Ministry of Communications announced
the bidding process by which additional pay-TV licenses would be awarded
throughout the country. This award process commenced in October 1997. Due to
legal challenges made to the bidding process by several bidders, the bidding
process had been postponed for all markets. However, on May 13, 1998, the
Superior Justice Tribunal issued a favorable ruling allowing the bidding process
with respect to a number of the smaller markets to go forward. In July 1998, the
license process for the smaller markets was reinstated and in the fourth quarter
of 1998, the Company was awarded licenses to operate pay-TV systems in the
following seven cities: Bauru, Campina Grande, Caruaru, Franca, Porto Velho,
Uberaba and Presidente Prudente. The Company paid an aggregate of $5.0 million
for these seven licenses, and launched its operation in Campina Grande during
the second quarter of 1999. Following a favorable ruling by the Superior Justice
Tribunal in the fourth quarter of 1998, with respect to the remaining markets,
on March 10, 1999 ANATEL initiated the bid process for these markets. The
Company decided not to participate in this process at that time. However, in
October 1999, the Company participated in a bidding process for the cities of
Belo Horizonte, Campinas, Sao Jose dos Campos and Vitoria. Based on the results
of the opening of the price and technical sections of the proposals, the Company
believes it will win the license for Belo Horizonte, the third largest city in
Brazil, as no other bidders participated for this market. The Company bid $1.7
million for this market, which, if awarded, is expected to be paid in December
1999. Competitors in the other three markets have apparently outbid the Company;
however, in the event any of these competitors are disqualified from the process
in its final stage, the Company may be awarded licenses for these markets as
well.
The Company from time to time may selectively pursue joint ventures or
acquisitions in the pay television industry, although it currently has no
understanding, commitment or agreement with respect to any such joint venture or
acquisitions. The Company currently believes that its cash and internally
generated funds will be sufficient to fund its obligations pursuant to the
agreement in principle with the committee of noteholders and the cash
requirements for its four existing systems and six new markets for at least the
next twelve months. As of September 30, 1999, of the Company's approximately
$44.4 million in cash and cash equivalents, approximately $14.4 million (32%)
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 its
ability to obtain new financing and/or successfully complete a debt
restructuring, the number and size of new system launches or acquisitions, the
implementation of alternative transmission technologies and the offering of
additional telecommunications services. Accordingly, there can be no assurance
that the Company will be able to meet its future funding needs.
As described in Notes 1 and 4 to the financial statements, the Company
is in default on its Senior Notes and has reached an agreement in principle
regarding settlement of this obligation and a redistribution of the Company's
ownership interests. This plan will require court approval under Chapter 11 of
the U.S. Bankruptcy Code. The effect of this proposed settlement, if finalized,
on the Company's future liquidity cannot be determined at this time.
INFLATION AND EXCHANGE RATES
Inflation and exchange rate variations have had, and are expected to
continue to have for the foreseeable future, 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
of its expenses and may set its prices without governmental regulation. However,
under a Brazilian law designed to reduce inflation, the prices which the Company
may charge to a particular subscriber may not be increased until the next
anniversary of the subscriber's initial subscription date and may only be
increased by a percentage no greater than the percentage of the increase in the
general inflation rate which occurred during the subscriber's contract year.
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, inflation in Brazil has been accompanied by devaluation of
the Brazilian currency relative to the U.S. dollar. The Company collects
substantially all of its revenues in REAIS, but pays certain of its expenses,
including a significant portion of its equipment costs, substantially all
interest expense and most 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
is able to raise prices, the value of the Company's revenues (as expressed in
U.S. dollars) is adversely affected. This effect on the Company's revenues also
negatively impacts the Company's ability to fund U.S. dollar-based expenditures.
13
<PAGE>
As of January 1, 1998, the Company's financial statements reflect
foreign exchange gains and losses associated with monetary assets and
liabilities denominated in currencies other than the REAL. As a result, the
devaluation of the REAL against the U.S. dollar has caused, and is expected to
cause, for the foreseeable future, the Company to record a loss associated with
its U.S. dollar monetary liabilities and a gain associated with its U.S. dollar
monetary assets. Given that the Company has a net U.S. dollar monetary liability
position, the net effect of the devaluation of the REAL against the U.S. dollar
is to generate losses in the Company's financial statements. In order to protect
against a possible further devaluation of the REAL, the Company may from time to
time enter into certain foreign exchange contracts. See "Item 3. Quantitative
and Qualitative Disclosures about Market Risk."
RECENT ECONOMIC EVENTS
The economic and financial turmoil in Southeast Asia and the former
Soviet Republics during 1997 and 1998 has had an impact on many emerging
markets, including Brazil. As a result of these events, the Brazilian government
originally took significant measures to protect the REAL, as well as the gains
achieved over the last several years by the REAL Plan. Among other actions, in
October 1997, Brazil's Central Bank significantly raised short-term interest
rates, and, in November 1997, the Brazilian government announced a series of
austerity measures, generally including budget cuts, restrictions on public
indebtedness, tax increases, export incentives and restrictions on imports.
These measures were designed to improve the country's fiscal and current account
deficits and relieve pressure on the REAL. While short-term interest rates
declined somewhat during the second quarter of 1998, they returned to levels
approaching 37% per annum by the end of the year and remain above 20% per annum.
Even with rates at this level, the government continued to experience a
reduction in foreign currency reserves which were being used to purchase REAIS
as a means to protect the relative value of the REAL versus the U.S. dollar. Due
to the continued reduction in foreign currency reserves, and other reasons, the
Brazilian government sought support from the International Monetary Fund (the
"IMF"). On November 13, 1998, the IMF announced an aid package of more than $41
billion. To secure funds from the IMF, in October 1998 the Brazilian government
announced additional austerity measures including pension plan reform and
significant spending cuts, which have been approved by the Brazilian Congress.
As part of these additional austerity measures, effective in June 1999, the
government increased the financial transactions tax (CPMF) from 0.2% to 0.38%.
This tax is levied on the value of all financial transactions, including bank
withdrawals, checks, and stock and fund purchases. Also, effective in January
1999, the Brazilian government increased the public pension system contribution
by corporations, from 2% of revenue to 3% of revenue and for the first time,
subjected financial income, including accrued intercompany interest income, to
this tax. Despite these additional austerity measures, in January 1999 the
Brazilian government devalued the REAL and subsequently eliminated the
established trading band, thereby allowing the REAL to float freely against the
U.S. dollar. These measures have had, and will have for the foreseeable future,
an impact on the Company's financial results.
Soon after the 1997 austerity measures were initiated, the Company
began to experience a significant increase in customer delinquency rates which,
among other things, resulted in the Company significantly increasing its
provisions for doubtful accounts and increasing service disconnections. This
trend continued throughout 1998, and the Company anticipates that this trend
will continue for the foreseeable future. The Company has undertaken several
steps to address the impact of the deterioration in its operating environment,
such as performing credit checks on potential new subscribers, changing the way
it compensates its sales force to emphasize high quality sales and implementing
cost reduction measures, including a headcount reduction. In addition, as
previously discussed the Company has become more aggressive in canceling
delinquent subscriber accounts. There can be no assurance that the steps taken
by the Company or measures taken by the Brazilian government will be successful,
or that the increase in delinquent payments and service disconnections will
abate.
YEAR 2000 COMPLIANCE
GENERAL DESCRIPTION OF THE YEAR 2000 ISSUE AND THE NATURE AND EFFECTS
OF THE YEAR 2000 ON INFORMATION TECHNOLOGY ("IT") AND NON-IT SYSTEMS. The Year
2000 issue is the result of computer programs being written using two digits
rather than four to define the applicable year. Any of the Company's computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
14
<PAGE>
Based on its assessments, the Company determined that it was necessary
to modify or replace certain hardware and software so that those systems will
properly utilize dates beyond December 31, 1999. The Company presently believes
it has made the necessary modifications or replacements of certain existing
hardware and software to mitigate the Year 2000 issue. However, if such
modifications and replacements are not sufficient to mitigate the Year 2000
issue, it could have a material adverse impact on the operations of the Company.
The Company's plan to resolve its Year 2000 issues involved the
following four phases: assessment, remediation, testing and implementation. To
date, the Company has fully completed its assessment of all systems that could
be significantly affected by the Year 2000 issue. The completed assessment
indicated that most of the Company's significant IT systems could be affected,
particularly the Subscriber Management System ("SMS"), the accounting system and
video transmission system. However, based upon a review of the SMS and the video
transmission system, the Company believes that its core product, television
programming, will not require remediation to be Year 2000 compliant.
Accordingly, the Company does not believe that the Year 2000 issue presents a
material exposure as it relates to the Company's products. In addition, the
Company has gathered information about the Year 2000 compliance status of its
significant suppliers and continues to monitor their compliance.
STATUS OF PROGRESS IN BECOMING YEAR 2000 COMPLIANT, INCLUDING TIMETABLE
FOR COMPLETION OF EACH REMAINING PHASE. For its IT exposures, to date the
Company is 100% complete on the remediation phase and has completed all
necessary reprogramming for the SMS, accounting and video transmission systems.
These systems have passed the testing phase and no further action is expected.
Other systems, such as the Company's internal network and electronic mail
system, required no remediation and have passed the testing phase successfully.
NATURE AND LEVEL OF IMPORTANCE OF THIRD PARTIES AND THEIR EXPOSURE TO
THE YEAR 2000 ISSUE. The Company's billing system interfaces directly with
significant third party vendors (primarily banks) who provide electronic billing
services using credit cards and direct debits to customers' bank accounts. The
Company continues to work with third party vendors to ensure that the Company's
systems that interface directly with third parties are Year 2000 compliant by
December 31, 1999. Each bank has a unique interface for both credit cards and
direct debit transactions. While the Company has ascertained that the data
transmitted to each bank is not date sensitive and therefore does not require
remediation, as each bank controls and dictates its own unique interface,
further remediation is dependent upon the individual bank. The Company has no
means of ensuring that these interfaces will be Year 2000 compliant and has
prepared a contingency plan in the event the interfaces are not timely
compliant.
The Company has queried its significant suppliers that do not share
information systems with the Company (external agents). To date, the Company is
not aware of any external agent with a Year 2000 issue that would materially
impact the Company's operations. However, the Company has no means of ensuring
that external agents will be Year 2000 compliant. The inability of external
agents to complete their Year 2000 remediation process in a timely fashion could
materially impact the Company. The effect of non-compliance by external agents
is not determinable.
COSTS. The Company primarily used internal resources to reprogram, or
replace, test and implement the software and operating equipment for Year 2000
modifications. The total cost of the Year 2000 project was approximately
$100,000. The Company used only internal, existing labor on the various phases
of the Year 2000 project.
RISKS. Management of the Company believes it has an effective program
in place and has resolved the Year 2000 issue to the extent possible. However,
as stated above, the Company may not be able to collect payments from customers
using direct debit or credit cards. In addition, in the unlikely event that
television program distributors are not Year 2000 compliant, the Company could
be unable to receive and retransmit television programming to its customers.
Further, disruptions in the economy generally resulting from Year 2000 issues
could also materially adversely affect the Company. The amount of any potential
liability and/or lost revenue cannot be reasonably estimated at this time.
CONTINGENCY PLANS. The Company has contingency plans for all critical
applications. These contingency plans involve, among other actions, billing all
customers by invoice, manual workarounds and adjusting staffing as needed.
15
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's primary market risk exposure is foreign currency exchange
rate risk between the U.S. dollar and the Brazilian REAL due to the Company
having all of its operations based in Brazil, and most of its revenues and some
of its expenses denominated in REAIS while substantially all of its debt and
many of its expenses and capital equipment needs are denominated in dollars. In
addition, for operating purposes, the Company holds a significant portion of its
available cash in REAIS.
The Company manages its risk exposure on its available cash held in
REAIS by purchasing, from time to time, foreign currency exchange contracts
which have the effect of "locking-in" a dollar based exchange rate for the
Company's cash held in Brazil. The Company believes that the cost of managing
risk exposure to its dollar-denominated debt and expenses is too high to warrant
an attempt at mitigating this risk.
In an effort to protect against a possible devaluation of the REAL, the
Company entered into the following foreign currency hedge contracts, which were
outstanding as of September 30, 1999 (these contracts were entered into for
purposes other than trading purposes):
<TABLE>
<CAPTION>
CONTRACT VALUE EXCHANGE RATE PREMIUM % % CDI CONTRACT DATE EXPIRATION DATE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
US$12,000,000 R$1.819/US$1 +1.0% 100% Jul. 13, 1999 Oct. 13, 1999
US$16,000,000 R$1.862/US$1 +0.5% 100% Sept. 13, 1999 Dec. 13, 1999
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Upon expiration of the contract first listed above, the Company entered into the
following new foreign currency hedge contract (this contract was also entered
into for purposes other than trading purposes):
<TABLE>
<CAPTION>
CONTRACT VALUE EXCHANGE RATE PREMIUM % % CDI CONTRACT DATE EXPIRATION DATE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
US$12,000,000 R$1.955/US$1 +5.0% 100% Oct. 13, 1999 Dec. 13, 1999
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The above contracts require the Company to pay, on the expiration date, an
amount equal to the calculated interest (CDI--see below) on the contract value.
On the expiration date, the Company is to receive or pay an amount, in REAIS,
calculated as follows: the "Contract Value R$" divided by the "Exchange Rate"
times (the R$/US$ exchange rate in effect on the expiration date plus the
"Premium %") less the "Contract Value R$." If the Company receives a net gain
from such a transaction, it is required to pay 20% of the net gain in Brazilian
federal income tax.
"CDI" is the CERTIFICADO DE DEPOSITO INTERBANCARIO, or the interbank lending
rate within Brazil.
The Company has not entered into contracts for market risk sensitive instruments
for trading purposes.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
16
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
No defaults upon senior securities occurred during the quarter ended
September 30, 1999. An event of default which occurred in June 1999 has been
previously reported in Item 3 of Part II of the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1999.
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
A report on Form 8-K was filed by the Company pursuant to Item 5 on
July 29, 1999, announcing that the Company was in negotiations with a committee
representing holders of the Company's outstanding 12-7/8% senior notes due 2004
regarding a possible restructuring of its indebtedness.
A report on Form 8-K was filed by the Company pursuant to Item 5 on
August 20, 1999, announcing that the Company had reached an agreement in
principle with the committee representing holders of the Company's outstanding
12-7/8% senior notes due 2004 regarding the restructuring of its indebtedness.
17
<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 17, 1999
TV FILME, INC.
----------------------------------------------
(Registrant)
/S/ HERMANO STUDART LINS DE ALBUQUERQUE
----------------------------------------------
Hermano Studart Lins de Albuquerque
Chief Executive Officer (Principal
Executive Officer)
/S/ CARLOS ANDRE STUDART LINS DE ALBUQUERQUE
----------------------------------------------
Carlos Andre Studart Lins de Albuquerque
Acting Chief Financial Officer (Principal
Financial and Accounting Officer)
18
<PAGE>
EXHIBIT INDEX
NO. DESCRIPTION
27 Financial Data Schedule
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet of TV Filme, Inc. at September 30, 1999 and
the condensed consolidated statement of operations for the nine months ended
September 30, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 44,406
<SECURITIES> 0
<RECEIVABLES> 2,767
<ALLOWANCES> 603
<INVENTORY> 2,742
<CURRENT-ASSETS> 53,881
<PP&E> 58,976
<DEPRECIATION> 33,704
<TOTAL-ASSETS> 83,741
<CURRENT-LIABILITIES> 167,261
<BONDS> 0
0
0
<COMMON> 108
<OTHER-SE> (84,523)
<TOTAL-LIABILITY-AND-EQUITY> 83,741
<SALES> 19,483
<TOTAL-REVENUES> 19,483
<CGS> 9,154
<TOTAL-COSTS> 12,619
<OTHER-EXPENSES> 11,202
<LOSS-PROVISION> 1,139
<INTEREST-EXPENSE> (16,799)
<INCOME-PRETAX> (61,821)
<INCOME-TAX> 0
<INCOME-CONTINUING> (61,821)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (61,821)
<EPS-BASIC> (5.71)
<EPS-DILUTED> (5.71)
</TABLE>
