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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 August 12, 1999
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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, 1998
and June 30, 1999 (Unaudited)................................ 2
Unaudited Consolidated Statements of Operations for the
Six Months Ended June 30, 1998 and the Six Months Ended
June 30, 1999................................................ 3
Unaudited Consolidated Statement of Changes in
Stockholders' Equity at June 30, 1999........................ 4
Unaudited Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1998 and June 30, 1999............. 5
Notes to Unaudited Consolidated Financial Statements......... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 8
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk.................................................. 15
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.............................. 16
ITEM 4. Submission of Matters to a Vote of Security Holders.......... 16
ITEM 5. Other Information............................................ 16
ITEM 6. Exhibits and Reports on Form 8-K............................. 16
SIGNATURES
1
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1998 1999
--------------------- --------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 57,492 $ 43,071
Accounts receivable, net.............................. 4,736 2,732
Supplies.............................................. 4,930 3,545
Prepaid expenses and other current assets............. 2,560 3,439
--------------------- --------------------
Total current assets............................ 69,718 52,787
Property, plant and equipment, net......................... 50,974 29,941
Debt issuance costs, net................................... 4,731 3,391
Other assets............................................... 7,891 5,166
--------------------- --------------------
Total assets.................................... $ 133,314 $ 91,285
===================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable...................................... $ 3,315 $ 3,556
Payroll and other benefits payable.................... 2,892 1,643
Accrued interest payable.............................. 751 9,958
Accrued liabilities and taxes payable................. 4,533 4,018
Long-term debt in default - Note 4.................... -- 140,000
--------------------- --------------------
Total current liabilities........................ 11,491 159,175
Deferred installation fees................................. 3,590 1,571
Long-term debt - Note 4.................................... 140,000 --
Stockholders' equity:
Cumulative translation adjustment..................... (3,877) (6,485)
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) (108,741)
--------------------- --------------------
Total stockholders' equity....................... (21,767) (69,461)
--------------------- --------------------
Total liabilities and stockholders' equity....... $ 133,314 $ 91,285
===================== ====================
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ----------------------------
1998 1999 1998 1999
--------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues............................................... $ 11,460 $ 6,812 $ 24,078 $ 13,388
Operating costs and expenses:
System operating - Note 2.......................... 4,942 3,075 10,037 6,304
Selling, general and administrative................ 8,471 4,694 15,978 8,300
Depreciation and amortization...................... 5,349 3,728 10,650 7,760
--------------- ------------- ------------ ------------
Total operating costs and expenses............. 18,762 11,497 36,665 22,364
--------------- ------------- ------------ ------------
Operating loss................................. (7,302) (4,685) (12,587) (8,976)
Other income (expense):
Interest and other expense - Note 5................ (4,727) (4,761) (9,449) (10,633)
Interest income.................................... 3,053 1,788 4,744 3,931
--------------- ------------- ------------ ------------
Interest income (expense), net..................... (1,674) (2,973) (4,705) (6,702)
Monetary loss...................................... (1,420) (2,414) (2,509) (29,408)
--------------- ------------- ------------ ------------
Total other income (expense)................... (3,094) (5,387) (7,214) (36,110)
--------------- ------------- ------------ ------------
Net loss............................................... $ (10,396) $ (10,072) $ (19,801) $ (45,086)
=============== ============= ============ ============
Net loss per share, basic and diluted.................. $ (0.96) $ (0.93) $ (1.83) $ (4.16)
=============== ============= ============ ============
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>
<TABLE>
<CAPTION>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
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................ -- -- -- (2,608) -- (2,608)
Net loss for the period........ -- -- -- -- (45,806) (45,086)
------------- ----------- ------------ ---------------- ------------- -------------
BALANCE AT JUNE 30, 1999....... 10,824,594 $108 $45,657 $(6,485) $(108,741) $(69,461)
============= =========== ============ ================ ============= =============
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
<CAPTION>
TV FILME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
---------------------------------------
1998 1999
-------------- -------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss......................................... $ (19,801) $ (45,086)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............. 10,836 7,760
Provision for losses on accounts receivable....... 4,662 631
Amortization of debt issuance costs........ 386 (1,535)
Decrease in deferred installation fees..... (1,471) (113)
Monetary loss.............................. 2,509 25,195
Changes in operating assets and liabilities:
Increase in accounts receivable............ (2,588) (920)
Increase in supplies....................... (9) (167)
Increase in prepaid expenses and other current
assets................................ (698) (1,809)
Decrease in accrued interest receivable.... 220 0
(Increase) decrease in other assets........ (810) 746
Decrease in pledged securities............. 8,322 0
(Decrease) increase in accounts payable.... (1,933) 1,722
Increase (decrease) in payroll and other benefits
payable............................... 817 (634)
Increase in accrued interest payable....... 0 9,207
Increase (decrease) in accrued liabilities and
taxes payable......................... 131 (131)
----------- ------------
Net cash provided by (used for) operating activities.... 573 (5,134)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions:
Property, plant and equipment.............. (7,578) (1,731)
------------ ------------
Net cash used in investing activities............ (7,578) (1,731)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in payables to affiliates............... (200) 0
------------ -----------
Net cash used for financing activities........... (200) 0
------------ -----------
Effect of exchange rate changes on cash.......... (1,094) (7,556)
------------ ------------
Net change in cash and cash equivalents.......... (8,299) (14,421)
------------ ------------
Cash and cash equivalents at beginning of period. 80,975 57,492
----------- -----------
Cash and cash equivalents at end of period....... $ 72,676 $ 43,071
=========== ===========
</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.
The Company has 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. While the Company has reached an agreement in principle with the
noteholder committee, there can be no assurance that the transaction will be
completed successfully.
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. 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 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 $317,000 at June 30, 1999. Charges to the allowance during
the three months ended June 30, 1999 were $332,000.
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 six months ended
June 30, 1998 and 1999 were approximately $2,706,000 and $1,933,000 and
$5,455,000 and $3,999,000, 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.
6
<PAGE>
3. 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
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:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
DATE OPTIONS PRICE
--------- --------- ---------
<S> <C> <C>
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
</TABLE>
Of the total number of options which were exercisable as of June 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 4), all outstanding options will be cancelled.
4. 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-Intercontintental Telecomunicacoes 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. 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 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
June 30, 1999 it is unable to make any dividend payments.
7
<PAGE>
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 will write 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 June 30, 1999, were
trading at approximately 25% of the principal value.
5. FOREIGN EXCHANGE CONTRACTS
At December 31, 1998 and June 30, 1999, the Company had $24.1 million
and $21.5 million, respectively, of foreign exchange contracts. The contracts
held as of December 31, 1998 expired January 11, 1999 and the contracts held as
of June 30, 1999 expired in July 1999. In July 1999, the Company entered into an
additional $28.0 million of foreign exchange contracts which are due to expire
in September and October 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 June 30, 1999
totaled $3.1 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
-------------------------------------------------
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 June 30
---------------------------------------------------------------
1998 % of Revenue 1999 % of Revenue
-------- ------------ --------- --------------
(In thousands, except subscriber, per share and share data)
<S> <C> <C> <C> <C>
Revenue........................................... $ 11,460 100% $ 6,812 100%
Operating costs and expenses:
System operating............................... 4,942 43% 3,075 45%
Selling, general and administrative............ 8,471 74% 4,694 69%
Depreciation and amortization.................. 5,349 47% 3,728 55%
--------- -------- --------- ------
Total operating costs and expenses........ 18,762 164% 11,497 169%
--------- -------- --------- ------
Operating loss............................ (7,302) (64%) (4,685) (69%)
Other income (expense):
Interest and other expense..................... (4,727) (41%) (4,761) (70%)
Interest income............................... 3,053 27% 1,788 26%
--------- -------- -------- ------
Interest income (expense), net (1,674) (15%) (2,973) (44%)
Monetary loss.................................. (1,420) (12%) (2,414) (35%)
--------- -------- --------- ------
Total other income (expense)............. (3,094) (27%) (5,387) (79%)
--------- -------- --------- ------
Net loss.......................................... $(10,396) (91%) (10,072) (148%)
========= ======== ========= ======
Net loss per share................................ $ (0.96) $ (0.93)
========= =========
Weighted average number of shares of
Common stock and common stock
Equivalents.................................... 10,825 10,825
========= =========
Other Data:
EBITDA (a)..................................... $ (1,953) $ (957)
========== =========
Number of subscribers at end of period ........ 111,090 74,271
========== =========
Number of operating systems at end of period... 3 4
========== =========
Exchange rate (R $: US $) at end of period..... 1.1569 : 1 1.7695 : 1
=========== ==========
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30
---------------------------------------------------------------
1998 % of Revenue 1999 % of Revenue
------- ------------- -------- ---------------
(In thousands, except subscriber, per share and share data)
<S> <C> <C> <C> <C>
Revenue........................................... $ 24,078 100% $ 13,388 100%
Operating costs and expenses:
System operating............................... 10,037 42% 6,304 47%
Selling, general and administrative............ 15,978 66% 8,300 62%
Depreciation and amortization.................. 10,650 44% 7,760 58%
---------- --------- --------- ------
Total operating costs and expenses........ 36,665 152% 22,364 167%
---------- --------- --------- ------
Operating loss........................... (12,587) (52%) (8,976) (68%)
Other income (expense):
Interest and other expense...................... (9,449) (39%) (10,633) (79%)
Interest and other income....................... 4,744 20% 3,931 29%
--------- --------- --------- ------
Interest income (expense), net.................. (4,705) (20%) (6,702) (50%)
Monetary loss................................... (2,509) (10%) (29,408) (220%)
---------- --------- ---------- -------
Total other income (expense), net........... (7,214) (30%) (36,110) (270%)
---------- --------- ---------- -------
Net loss.......................................... $ (19,801) (82%) (45,086) (337%)
========== ========= ========== =======
Net loss per share................................ $ (1.83) $ (4.16)
========== ==========
Weighted average number of shares of
Common stock and common stock
Equivalents.................................... 10,825 10,825
========= =========
Other Data:
EBITDA (a)..................................... $ (1,957) $ (1,216)
========== =========
Number of subscribers at end of period ........ 111,090 74,271
========= =========
Number of operating systems at end of period... 3 4
========= =========
Exchange rate (R $: US $) at end of period..... 1.1569 : 1 1.7695 : 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 June 30, 1999 compared to the
three months ended June 30, 1998, net loss decreased to $(10.1) million versus
$(10.4) million, or 3%, primarily due to a 36% decrease in operating loss,
offset by reductions in interest income and an increase in recorded monetary
loss. Net loss for the six months ended June 30, 1999 increased from $(19.8)
9
<PAGE>
million to $(45.1) million, or 128%, primarily due to an increase in recorded
monetary loss caused by the significant devaluation of the REAL in January 1999.
REVENUES. For the three months ended June 30, 1999 compared to the
three months ended June 30, 1998, revenues decreased by 41%, primarily due to a
49% average devaluation of the REAL against the U.S. dollar. Revenues for the
six months ended June 30, 1999 decreased by 44% compared to the six months ended
June 30, 1998, due primarily to a 53% devaluation of the REAL against the U.S.
dollar. 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 June 30, 1999
compared to the three months ended June 30, 1998, system operating expenses
decreased by 38%, primarily due to a 49% average devaluation of the REAL against
the U.S. dollar. System operating expenses for the six months ended June 30,
1999 decreased by 37%, compared to the six months ended June 30, 1998, primarily
due to a 53% average devaluation of the REAL against the U.S. dollar. 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 June 30, 1999 compared to the three months ended June 30, 1998,
SG&A expenses decreased by 45% primarily due to a 49% average devaluation of the
REAL against the U.S. dollar. SG&A expenses for the six month period ended June
30, 1999 decreased by 48% compared to the six months ended June 30, 1998,
primarily due to a 53% average devaluation of the REAL against the U.S. dollar.
In both cases, expense reductions in marketing, bank fees and bad debt were
offset by approximately $820,000 in costs associated with the Company's attempt
to complete a debt restructuring.
DEPRECIATION AND AMORTIZATION. For the three months ended June 30, 1999
compared to the three months ended June 30, 1998, depreciation and amortization
decreased by 30%, primarily due to a 49% average devaluation of the REAL against
the U.S. dollar. Depreciation and amortization for the six month period ended
June 30, 1999 decreased by 27% compared to the six months ended June 30, 1998,
primarily due to a 53% average devaluation of the REAL against the U.S. dollar.
INTEREST AND OTHER EXPENSE. For the three months ended June 30, 1999
compared to the three months ended June 30, 1998, interest expense increased by
1%. Interest expense increased for the six month period ended June 30, 1999
increased by 13% compared to the six months ended June 30, 1998, primarily due
to realized losses on hedge contracts which expired in January 1999.
INTEREST INCOME. For the three months ended June 30, 1999 compared to
the three months ended June 30, 1998, interest income decreased by 41%,
primarily due to a decrease in the average cash balance between the two periods
of 50%. Interest income for the six month period ended June 30, 1999 decreased
by 17% compared to the six months ended June 30, 1998, primarily due to a
decrease in the average cash balance between the two periods of 35%. 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.
MONETARY LOSS. Due to its net dollar-denominated liability position,
the Company generates monetary 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, 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.
10
<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 June 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 June 30, 1999 of
$106.4 million. Net cash used in operating activities for the six months ended
June 30, 1999 was $5.1 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. While the Company has reached an
agreement in principle with the noteholder committee, there can be no assurance
that the transaction will be completed successfully.
The Company made capital expenditures of approximately $1.7 million
during the six months ended June 30, 1999. Such capital expenditures were
financed with the proceeds from the Senior Notes offering and from cash
generated from the Company's operations.
11
<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.
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 June 30, 1999, of the Company's approximately $43.1
million in cash and cash equivalents, approximately $15.5 million (36%) 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.
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
12
<PAGE>
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 have only recently begun to
decline. 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,
both a direct and indirect impact on the Company's financial results.
Indirectly, the austerity measures, in conjunction with high short-term interest
rates and devaluation, have resulted in tightening of consumer credit and
increased rates of unemployment, causing the Company to have increased
difficulty in generating additional sales and in reducing rates of customer
delinquency. Directly, these measures have increased the Company's net loss by
$165,000 in the second quarter of 1999. 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.
13
<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.
14
<PAGE>
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.
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 June 30, 1999 (these contracts were entered into for purposes
other than trading purposes):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
CONTRACT VALUE R$ EXCHANGE RATE PREMIUM % % CDI CONTRACT DATE EXPIRATION DATE
<S> <C> <C> <C> <C> <C>
R$20,000,000 R$1.3193/US$1 +0.5% 93% Jan. 14, 1999 Jul. 13, 1999
R$17,000,000 R$1.50/US$1 +2.0% 100% Jan. 15, 1999 Jul. 14, 1999
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Upon expiration of the above contracts, the Company entered into the following
new foreign currency hedge contracts (these contracts were also entered into for
purposes other than trading purposes):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
CONTRACT VALUE R$ EXCHANGE RATE PREMIUM % % CDI CONTRACT DATE EXPIRATION DATE
<S> <C> <C> <C> <C> <C>
R$29,104,000 R$1.8190/US$1 +2.0% 100% Jul. 13, 1999 Sept. 13, 1999
R$21,828,000 R$1.8190/US$1 +1.0% 100% Jul. 13, 1999 Oct. 13, 1999
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The above contracts require the Company to pay, on the expiration date, an
amount equal to the calculated interest (CDI--see below) on the contract value.
On the expiration date, the Company is to receive or pay an amount, in REAIS,
calculated as follows: the "Contract Value R$" 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.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company currently has outstanding $140 million of 12-7/8% Senior
Notes due 2004. 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. Total arrearage as of the date of this report was
$9,012,500, which represents the amount of the unpaid interest due on June 15,
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
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1999.
16
<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: August 13, 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)
17
<PAGE>
EXHIBIT INDEX
NO. DESCRIPTION
27 Financial Data Schedule
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet of TV Filme, Inc. at June 30, 1999 and the
condensed consolidated statement of operations for the six months ended June 30,
1999 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 43,071
<SECURITIES> 0
<RECEIVABLES> 3,049
<ALLOWANCES> 317
<INVENTORY> 3,545
<CURRENT-ASSETS> 52,787
<PP&E> 63,347
<DEPRECIATION> 33,406
<TOTAL-ASSETS> 91,285
<CURRENT-LIABILITIES> 19,175
<BONDS> 140,000
0
0
<COMMON> 108
<OTHER-SE> (69,569)
<TOTAL-LIABILITY-AND-EQUITY> 91,285
<SALES> 13,388
<TOTAL-REVENUES> 13,388
<CGS> 6,304
<TOTAL-COSTS> 7,670
<OTHER-EXPENSES> 7,760
<LOSS-PROVISION> 630
<INTEREST-EXPENSE> (10,633)
<INCOME-PRETAX> (45,086)
<INCOME-TAX> 0
<INCOME-CONTINUING> (45,086)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,086)
<EPS-BASIC> (4.16)
<EPS-DILUTED> (4.16)
</TABLE>
