<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO THE SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT 1934
FROM THE TRANSITION PERIOD FROM TO
-------------- --------------
COMMISSION FILE NUMBER 333-20307
@ ENTERTAINMENT, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 06-1487156
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
PTK WARSZAWA S.A.
UL. PAWINSKIEGO 5A 02-106
WARSZAWA, POLSKA
(Address of Principal Executive Officers) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 48 22 608 98 22
Indicate by check mark (X) whether the registrant: (1) has filed all
reports required to be fled by section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of @Entertainment, Inc.'s common stock as of
September 30, 1997, was:
Common Stock 33,310,000
<PAGE>
@ ENTERTAINMENT, INC.
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
@ Entertainment
Consolidated Balance Sheets ......................... 3 - 4
Consolidated Statements of Operations.................. 5
Consolidated Statement of Changes in Stockholders'
Equity............................................... 6
Consolidated Statements of Cash Flows.................. 7
Notes to Consolidated Financial Statements........... 8 - 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ...... 13 - 22
Item 3. Quantitative and Qualitative Disclosures
About Market Risk...................................... 23
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.................23
Item 5. Other Information........................................ 24
Item 6. Exhibits and reports on Form 8-K......................... 25
Signature Page...... ..................................................... 26
2
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@ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................... 158,574 68,483
Investment securities ......................... -- 25,115
Accounts receivable, net of allowances
of $535 in 1997 and $545 in 1996 ............. 3,496 1,215
Other current assets .......................... 12,645 2,247
------- -------
Total current assets ......................... 174,715 97,060
Investment in cable television systems, at
cost:
Property, plant and equipment:
Cable television system assets ............... 124,319 98,291
Construction in progress ..................... 2,246 410
Vehicles ..................................... 1,737 1,199
Other ........................................ 4,002 2,667
------- -------
Total property, plant and equipment ....... 132,304 102,567
------- -------
Less accumulated depreciation .............. (30,864) (19,143)
------- -------
Net property, plant and equipment ......... 101,440 83,424
Inventories for construction ................. 9,328 7,913
Intangibles, net ............................. 21,696 12,133
------- -------
Net investment in cable television systems 132,464 103,470
Notes receivable from affiliates ............. 12,779 8,491
Other investments ............................ 769 2,157
Other intangibles, net ....................... 6,809 6,359
------- -------
Total assets ............................... 327,536 217,537
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
@ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS (continued)
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................................. 26,875 6,281
Accrued interest .............................................. 5,456 2,175
Deferred revenue .............................................. 1,037 1,102
Accrued income taxes .......................................... 3,542 4,472
Other current liabilities ..................................... 1,126 2,175
------- -------
Total current liabilities .................................... 38,036 16,205
Notes payable .................................................. 130,090 130,074
------- -------
Total liabilities ............................................ 168,126 146,279
------- -------
Minority interest .............................................. 3,654 5,255
Redeemable preferred stock (liquidation value $85,000)
(8,500 shares authorized, issued and outstanding at December
31, 1996) .................................................... 0 34,955
Stockholders' equity:
Common stock ($.01 par, 50,000,000 shares authorized,
33,310,000 shares issued and outstanding) ..................... 333 189
Paid-in-capital ................................................ 212,278 54,134
Cumulative translation adjustments ............................. (1,013) (162)
Accumulated deficit ............................................ (55,842) (23,113)
------- -------
Total stockholders' equity ................................... 155,756 31,048
------- -------
Total liabilities and stockholders' equity .................. 327,536 217,537
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
@ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
1997 1996 1997 1996
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Cable television revenue 10,390 6,090 26,801 18,115
Operating expenses:
Direct operating expenses 3,801 1,582 8,929 4,826
Selling general and administrative 17,459 3,238 35,552 6,103
Depreciation and amortization 4,423 2,729 10,946 6,279
Total operating expenses 25,683 7,549 55,427 17,208
Operating (loss) income (15,293) (1,459) (28,626) 907
Interest and investment income 1,760 65 3,879 288
Interest expense (2,293) (552) (9,880) (2,437)
Foreign currency translation loss (429) (291) (851) (351)
Loss before income taxes and
minority interest (16,255) (2,237) (35,478) (1,593)
Income tax benefit (expense) (246) 2 (358) (1,451)
Minority interest in subsidiary (income) loss (343) 1,116 2,256 1,136
Net loss (16,844) (1,119) (33,580) (1,908)
Preferred stock dividend -- -- -- (1,738)
Excess of carrying amount of preferred
stock over fair value of consideration
transferred -- -- -- 3,549
Accretion of redeemable preferred stock 2,028 (956) -- (1,913)
Net loss applicable to common
shareholders $ (14,816) $ (2,075) $ (33,580) $ (2,010)
Net loss per share $ (0.53) $ (0.11) $ (1.52) $ (0.12)
Weighted average number of common and
common equivalent shares outstanding 27,846,196 18,948,000 22,122,259 16,728,223
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
@ENTERTAINMENT, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Common Paid-In Translation Accumulated
Stock Capital Adjustment Deficit TOTAL
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1997 189 54,134 (162) (23,113) 31,048
Translation adjustment -- -- (851) 851 --
Net loss -- -- -- (33,580) (33,580)
Issuance of stock 144 194,386 -- 194,530
Preferred stock redemption -- (36,242) -- -- (36,242)
Balance September 30, 1997 $333 $212,278 $(1,013) $(55,842) $155,756
==== ======== ======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
@ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Cash flows form operating activities:
Net loss (33,580) (1,908)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Minority interest in subsidiary loss (2,256) (1,136)
Depreciation and amortization 10,946 6,279
Write off of deferred financing cost 1,868
Other 195 --
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable (2,143) (214)
Other current assets (10,277) (2,739)
Accounts payable and accrued expenses 1,702 (2,537)
Deferred compensation 18,483 -
Accrued interest 3,281 --
Amounts due to affiliates -- 1,699
Deferred revenue (102) (259)
Accrued income taxes (930) 5,416
Other current liabilities (1,147) (3,673)
Net cash (used in) provided by operating activities (15,828) 2,796
Cash flows from investing activities:
Construction of cable television systems (24,718) (21,298)
Purchase of intangible assets (267) --
Purchase of other capital assets (1,754) (797)
Proceeds from sale of investment securities 25,115 --
Other investments 1,388 (4,381)
Notes receivable from affiliate (4,288) --
Purchase of subsidiaries, net of cash acquired (10,834) (1,267)
Net cash used by investing activities (15,358) (27,743)
Cash flows from financing activities:
Net proceeds from issuance of stock 183,333 72,121
Purchase of preferred stock of subsidiary (60,000)
Proceeds from notes payable
Costs to obtain loans (1,306) --
Repayment of notes payable (750) (8,354)
Repayments to affiliates -- (37,512)
Net cash used in financing activities 121,277 26,255
Net increase in cash and cash equivalent 90,091 1,308
Cash and cash equivalents at beginning of period 68,483 2,343
Cash and cash equivalents at end of period 158,574 3,651
Supplemental cash flow information:
Interest paid during the period 6,653 7,953
Income taxes paid during the period 1,589 367
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
@ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
The information furnished by @ Entertainment, Inc.("@ Entertainment" or
the "Company") in the accompanying unaudited consolidated balance sheets,
statements of operations, statement of changes in stockholders' equity and
statements of cash flows reflect all adjustments (consisting only of items of
a normal recurring nature) which are, in the opinion of management, necessary
for a fair statement of the Company's consolidated results of operations and
cash flows for the interim periods and the Company's financial position as of
September 30, 1997. The accompanying unaudited consolidated financial statement
should be read in conjunction with the audited consolidated financial statement
as of and for the year ended December 31, 1996. The interim financial results
are not necessarily indicative of the results of the full year.
@Entertainment was formed in May 1997. On June 22, 1997 the common
stockholders of Poland Communications, Inc. ("PCI") exchanged each of their
shares of common stock of PCI for 1,000 shares of common stock of
@Entertainment in a transaction accounted for in a manner similar to a pooling
of interests. @Entertainment had no prior operations. All shares and per share
data have been revised to reflect the new capital structure.
1. THE REORGANIZATION
The Company completed an initial public offering of stock in the United
States and internationally (the "Offerings") which closed on August 5, 1997.
Prior to the Offerings, all of the holders of shares of PCI's common stock and
@Entertainment entered into a Contribution Agreement dated as of June 22, 1997
(the "Contribution Agreement"). Pursuant to the Contribution Agreement, each
holder of shares of PCI's common stock transferred all of the shares of PCI's
common stock owned by it to @Entertainment. In addition, ECO Holdings III
Limited Partnership ("ECO") transferred all of the outstanding shares of PCI's
voting Series B Preferred Stock (the "PCI Series B Preferred Stock") to
@Entertainment. All of these transfers were designed to qualify as a tax-free
exchange under section 351 of the Internal Revenue Code of 1986, as amended
(the "Share Exchange"). Each holder of PCI's common stock received 1,000 shares
of common stock of @Entertainment in exchange for each share of PCI's common
stock transferred by it (the "Capital Adjustment"). ECO also received an
equivalent number of shares of @Entertainment's Series B Preferred Stock
("@Entertainment Series B Preferred Stock") in exchange for its shares of PCI
Series B Preferred Stock. The @Entertainment Series B Preferred Stock has
identical rights and preferences to those of the PCI Series B Preferred Stock,
except that the ratio for conversion of such shares into common stock increased
from 1:1.9448 to 1:1,944.8 in order to reflect the Capital Adjustment. The
2,500 outstanding shares of @Entertainment Series B Preferred Stock were
automatically converted into 4,862,000 shares of common stock of @Entertainment
upon the closing of the Offerings (the "Automatic Conversion").
8
<PAGE>
On June 20, 1997, Polish Investments Holding L.P. ("PIHL") transferred
all of the outstanding shares of PCI's Series C Preferred Stock to an entity
owned by certain of the beneficial owners of PIHL and members of their families
(the "Chase Entity"). The Chase Entity, ECO and @Entertainment entered into a
Purchase Agreement dated as of June 22, 1997 (the "Purchase Agreement"). Among
other matters, the Purchase Agreement obligated @Entertainment to purchase all
of the outstanding shares of PCI's Series A Preferred Stock and Series C
Preferred Stock for cash from ECO and the Chase Entity, respectively, at the
closing of the Offerings (the "Cash Purchase"). The aggregate purchase price of
$60.0 million for PCI's Series A Preferred Stock and Series C Preferred Stock
equaled the aggregate redemption price of such shares as set forth in PCI's
certificate of incorporation. The Cash Purchase occurred shortly after the
closing of the Offerings and was funded with a portion of the net proceeds of
the Offerings.
In June 1997, certain employment agreements for the executive officers of
@Entertainment who were employed by PCI and their employee stock option
agreements were assigned to @Entertainment by PCI (the "Assignment"). As part
of the Assignment and the Capital Adjustment, the employment agreements and
employee stock option plans were amended to provide that each option to
purchase a share of PCI's common stock was exchanged for an option to purchase
1,000 shares of @Entertainment's common stock, with a proportionate reduction
in the per share exercise price.
The Share Exchange, the Capital Adjustment and the Assignment are
collectively referred to as the "Reorganization". As a result of the
Reorganization, @Entertainment owns all of the outstanding shares of voting
stock of PCI.
2. AT ENTERTAINMENT, LIMITED
In June 1997, @Entertainment formed At Entertainment, Limited ("@EL"), a
corporation organized under the laws of England and Wales, as a wholly-owned
subsidiary. @EL will be responsible for the Company's digital satellite
direct-to-home ("D-DTH") broadcasting business.
9
<PAGE>
3. COMMITMENTS
In April 1997, PCI reached an agreement in principle with Ground
Zero Media Sp. z o.o. ("GZM"), a joint venture with Polygram International,
Atomic Entertainment LLP, and Planet 24 Production Limited, whereby PCI
will assume responsibility for selling all advertising to be aired on Atomic
TV for a period of one year commencing April 1997. Atomic TV is a
Polish-language music television channel owned by GZM, which began satellite
broadcasting to Poland on April 7, 1997. Under the terms of the agreement, PCI
has the right to receive all of the funds generated from advertising sales,
and in exchange, PCI will pay GZM $4.95 million over the one-year period in
equal monthly installments. PCI, through a wholly owned subsidiary, owns a
45% interest in GZM. As of September 30, 1997 the remaining outstanding
commitment was approximately $2.95 million.
In July 1997, @EL signed a binding Memorandum of Understanding ("MOU")
with Philips Business Electronics B.V ("Philips"), whereby @EL agreed in
principle to purchase from Philips 500,000 decoders and accompanying smart
cards and outdoor units (collectively, "Decoders") in connection with the
Company's D-DTH business. The purchase is subject to the negotiation of a
definitive Purchase and Sale Agreement ("P&S Agreement"), as well as a
definitive Commercial Cooperation Agreement ("CCA"). It is the intention of
the parties that the CCA will define their responsibilities with respect to
the marketing, distribution, sale, installation, repair and support of the
Decoders. The MOU provides for Philips to initiate preparations for its
expected performance of the P&S Agreement and CCA pending the negotiation and
anticipated finalization thereof and for @EL to make phased payments to Philips
of $9 million, of which $8 million has been paid to Philips and $1 million has
been paid to a third party in escrow pending agreement between the parties on
specifications for the Decoders. Philips has commenced development and design
of the Decoders to be used in the Company's D-DTH business.
In July, August and September 1997, @EL entered into contracts with a
number of content providers for its DTH and cable systems, with an aggregate
minimum commitment of approximately $37.1 million over the next five years.
In connection with the Company's DTH business, in September 1997, @EL
entered into a contract to acquire technical equipment necessary for the
installment of the digital uplink site in the United Kingdom, with a commitment
of approximately $5.6 million during the next twelve months.
10
<PAGE>
PCI is currently negotiating to acquire two cable television systems
in Poland (the "Acquisitions"). The aggregate consideration to be paid by PCI
in connection with the Acquisitions is expected to be approximately $18.1
million. The cable systems expected to be acquired serve approximately 60,000
subscribers and have approximately 100,000 homes passed. There can be no
assurance as to the timing of closing of any of the pending Acquisitions or
that the pending Acquisitions will actually be consummated. If both of the
Acquisitions are consummated, the Company estimates that it will spend
approximately $5.5 million within 12 months of the consummation of the
Acquisitions to upgrade the acquired networks to meet PCI's technical
standards. Such upgrading would enable PCI to increase the number of programs
offered, the quality of the transmissions and the operating cost effectiveness
of the acquired networks. However the Company believes that the networks to be
acquired in the Acquisitions currently meet Polish State Agency of Radio
Communications ("PAR") standards and, accordingly, that the timing and extent
of such upgrades would be subject to the Company's discretion. In the event that
the Acquisitions are consummated, they will be accounted for under the purchase
method in accordance with guidance established within APB Opinion No. 16.
On September 25, 1997, the Company signed a share purchase agreement with
the shareholders of TWOJ STYL Publishing House ("TWOJ STYL") by virtue of which
the Company will purchase 50% of TWOJ STYL for a consideration of approximately
$11.1 million. TWOJ STYL publishes a Polish-language lifestyle magazine. In
addition, the Company undertook to provide additional financing to TWOJ STYL,
either debt or equity, of up to $7.7 million to develop Polish-language
programming and ancillary services. The agreement will come into force upon
receipt of clearance from the Polish Antimonopoly Office. The Company expects
to close this acquisition by the end of 1997 but there can be no assurance as
to the timing of closing or that such acquisition will actually be consummated.
In the event that the acquisition is consummated, it will be accounted for
under the purchase method in accordance with guidance established within APB
Opinion No. 16.
4. STOCK OPTIONS
The Company adopted a stock option plan (the "1997 Plan") on
June 22, 1997. The 1997 Plan provides for the grant to employees of the Company
(including officers and employee directors) incentive stock options within the
meaning of Section 422 of the Code, and for the grant of qualified stock
options to employees and consultants of the Company (collectively the
"Options"). The 1997 Plan is to be administered by a Stock Option Committee
appointed by the Board of Directors (the "Stock Option Committee"), which
selects the options (from among those eligible), determines the number of
shares to be subject to each Option and determines the exercise price of each
Option. The maximum number of shares of Common Stock of @Entertainment that may
be subject to Options under the 1997 Plan is 2,436,000 shares, subject to
adjustment in accordance with the terms of the 1997 Plan. As of September 30,
1997, Options for 2,299,000 shares were outstanding, and 137,000 shares
remained available for future grants.
As part of the Assignment and the Capital Adjustment the stock options
granted to certain PCI executive officers in January, April and June of 1997
were amended to provide that each option to purchase a share of PCI's Common
Stock was exchanged for an option to purchase 1,000 shares of @Entertainment's
Common Stock, with a proportionate reduction in the per share exercise price.
The exercise prices for these options were substantially below the initial
public offering price of $21 per share. Most of these options vested in full
upon the completion of the Offerings. The Company has recognized approximately
$18.1 million of compensation expense during the nine months ended September
30, 1997 related to these options. The compensation expense relates to the
difference between the exercise price of the options and their fair market
value on the date of grant.
11
<PAGE>
5. SUBSEQUENT EVENTS
In connection with the Company's DTH business, in October 1997 @EL has
entered into further contracts to acquire technical equipment and services
necessary for the installment of the digital uplink site in the United Kingdom,
with a commitment of approximately $4.7 million during the next five-and-a-half
years.
Subsequent to September 30, 1997, the Company's subsidiarires have
purchased or committed to purchase additional cable television systems for an
aggregate purchase price of $3.1 million. Approximately $2.0 million of this
aggregate purchase price has been paid, in connection with acquisitions that
have been consummated. The remaining $1.1 million of this aggregate purchase
price relates to pending acquisitions for which there can be no assurance
as to the timing of closing or that such acquisitions will actually be
consummated. The consummated acquisitions and the pending acquisitions if they
are consummated will be accounted for under the purchase method in accordance
with guidance established within APB Opinion No. 16.
12
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements of @Entertainment, Inc. ("@Entertainment"
or "the Company"), including the notes thereto, included herein. The following
discussion contains certain forward-looking statements that involve risks and
uncertainties, including without limitation those related to the timing and
costs of setting up the Company's digital satellite direct-to-home ("D-DTH")
broadcast service and to the consummation of pending and future acquisitions.
The Company's actual future results could differ materially from those
discussed herein.
OVERVIEW
The Company is organized based upon its three principal lines of
business: operation of cable television systems in Poland, the creation,
production, development and acquisition of Polish-language programming, and the
planned provision of D-DTH broadcasting services. The Company expects to launch
its full D-DTH service in the first half of 1998.
Currently, substantially all of the Company's revenue is derived from
monthly subscription fees for cable television services and one-time
installation fees for connection to its cable television networks. The Company
charges subscribers fixed monthly fees for their choice of service tiers and
for other services, such as premium channels, tuner rentals and additional
outlets, all of which are included in monthly subscription fees. The Company
currently offers broadcast and intermediate tiers of cable television service
in selected areas, and also a basic tier of cable television service throughout
the Company's cable systems. At September 30, 1997 the Company's systems passed
approximately 1,350,000 homes and had approximately 718,000 cable television
subscribers of which approximately 78.9% received basic service.
The Company has experienced low churn rates during all years of its
operations. The Company's annual churn rates for 1994, 1995, 1996 and the first
nine months of 1997 were 9.1%, 9.2%, 7.8% and 6.4%, respectively. The Company's
annual churn rates have historically averaged less than 10%. The Company
believes that its churn rates are low because of the Company's customer care
program, the high technical quality of its networks and desirable program
offerings. In addition, the Company benefits from a shortage of housing in
Poland that results in low move-related churn. These churn rates also reflect a
pricing strategy that was designed to keep the Company's profit margin
relatively constant in U.S. Dollar terms in more mature systems and to increase
rates in more recently acquired or rebuilt systems. Since the beginning of
1997, the Company has adopted a new cable television pricing strategy designed
to maximize revenue per subscriber and achieve real profit margin increases in
U.S. Dollar terms. As a result, the Company expects that it may experience
increases in its churn rate above historical levels during the implementation
of its new pricing strategy across its cable networks.
The Company currently creates, produces, develops and acquires
programming for its two proprietary Polish-language channels, for distribution
across its cable networks.
13
<PAGE>
ACQUISITIONS
One of the Company's wholly-owned subsidiaries, Poland Communications,
Inc. ("PCI"), is currently negotiating to acquire two cable television systems
in Poland (the "Acquisitions"). The aggregate consideration to be paid by PCI
in connection with the Acquisitions is expected to be approximately $18.1
million. The cable systems expected to be acquired serve approximately 60,000
subscribers and have approximately 100,000 homes passed. The consummation of
the Acquisitions will result in the expansion of the Company's cable operations
within its existing regional clusters. PCI intends to use a portion of the net
proceeds of the sale of its 9-7/8% Senior Notes Due 2003 (the "Old Notes")
issued in October 1996 to consummate these Acquisitions, although there can be
no assurance as to the timing of closing of any of the pending Acquisitions or
that the pending Acquisitions will actually be consummated. If both of the
Acquisitions are consummated, the Company estimates that it will spend
approximately $5.5 million within 12 months of the consummation of the
Acquisitions to upgrade the acquired networks to meet PCI's technical
standards. Such upgrading would enable PCI to increase the number of programs
offered, the quality of the transmissions and the operating cost effectiveness
of the acquired networks. However the Company believes that the networks to be
acquired in the Acquisitions currently meet Polish State Agency of Radio
Communications ("PAR") standards and, accordingly, that the timing and extent
of such upgrades would be subject to the Company's discretion.
On September 25, 1997, the Company signed a share purchase agreement with
the shareholders of TWOJ STYL Publishing House ("TWOJ STYL") by virtue of which
the Company will purchase 50% of TWOJ STYL for a consideration of approximately
$11.1 million. TWOJ STYL publishes a Polish-language lifestyle magazine. In
addition, the Company undertook to provide additional financing to TWOJ STYL,
either debt or equity, of up to $7.7 million to develop Polish-language
programming and ancillary services. The agreement will come into force upon
receipt of clearance from the Polish Antimonopoly Office. The Company expects
to close this acquisition by the end of 1997 but there can be no assurance
as to the timing of closing or that such acquisition will actually be
consummated.
14
<PAGE>
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1996
CABLE TELEVISION REVENUE.
Revenue increased $4.3 million or 70.5% from $6.1 million in the three months
ended September 30, 1996 to $10.4 million in the three months ended September
30, 1997 and $8.7 million or 48.1% from $18.1 million in the first nine months
of 1996 to $26.8 million in the first nine months of 1997. These increases
were primarily attributable to a 70.0% increase in the number of basic
subscribers from approximately 333,000 as of September 30, 1996 to
approximately 566,000 as of September 30, 1997. Approximately 69% of this
increase in basic subscribers were the result of acquisitions and the remainder
was due to build-out of the Company's existing cable networks.
Revenue from monthly subscription fees represented 83.4% of cable television
revenues for the three months ended September 30, 1996 and 80.4% for the first
nine months of 1996. Monthly subscription revenue for the three months ended
September 30, 1997 constituted 86.3% of total revenue, while for the nine
months ended September 30, 1997 the percentage was 86.4%. Installation fee
revenue for the three months ended September 30, 1997 decreased by 25.0%
compared to the corresponding quarter in 1996 from $0.8 million to $0.6 and
decreased by 24.0% from $2.5 million in the first nine months of 1996 to $1.9
million in the first nine months of 1997. The Company expects that installation
fees related to new non-premium subscribers will continue to constitute a
declining part of the Company's revenue. During the three months ended
September 30, 1997, the Company generated approximately $293,000 of additional
premium subscription revenue and approximately $76,000 of additional premium
channel installation revenue as a result of providing the HBO pay movie channel.
DIRECT OPERATING EXPENSES. Direct operating expenses increased $2.2 million,
or 137.5%, from $1.6 million during the three months ended September 30, 1996
compared to $3.8 million in the three months ended September 30, 1997 and
increased $4.1 million, or 85.4%, from $4.8 million in the first nine months of
1996 to $8.9 million in the first nine months of 1997, principally as a result
of higher levels of technical personnel and increased maintenance expenses
associated with recently acquired networks which have not yet been integrated
within the Company's systems and standards as well as the increased size of the
Company's cable television system, and costs associated with the lease of three
transponders on the Astra II-E and II-F satellites which will provide the
capability to deliver the Company's Polish language programming platform to
Polish customers through the Company's cable television systems and its planned
D-DTH broadcast system. Direct operating expenses increased from 26.2% of
revenues in the three months ended September 30, 1996 to 36.5% in the three
months ended September 30, 1997 and increased from 26.5% of revenues for the
first nine months of 1996 to 33.2% of revenues for the first nine months of
1997.
SELLING, GENERAL AND ADMINISTRATIVE.
Selling, general and administrative expenses increased $14.3 million from $ 3.2
million in the three months ended September 30, 1996 to $17.5 million in the
three months ended September 30, 1997 and increased $29.5 million from $6.1
million in the first nine months of 1996 to $35.6 million in the first nine
months of 1997. The majority of this increase is due to compensation expense of
$7.9 million in the three months ended September 30, 1997 and $18.1 million
in the nine months ended September 30, 1997 related to options to purchase
shares granted to key executives. Additionally, the increases are attributable
to an increase in sales and marketing expenses incurred in newly acquired
networks, costs associated with the agreement relating to sale of
15
<PAGE>
advertising on Atomic TV, described in Note 3 to the Company's consolidated
financial statements and costs of launching the distribution of the HBO premium
pay movie channel in Poland. Compensation expense also increased as the Company
has established a management team of senior executives who have significant
experience in the cable television, programming and satellite broadcasting
businesses.
As a percentage of revenue, selling, general and administrative expenses
increased from 52.5% for the three months ended September 30, 1996 to
approximately 168.3% for the three months ended September 30, 1997 and from
33.7% for the first nine months of 1996 to approximately 132.8% for the first
nine months of 1997. However, without considering the non-cash compensation
expense related to the stock options described above, selling, general and
administrative expenses as a percentage of revenues would have been 65.3% in
the first nine months of 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses rose $1.7
million, or 63.0%, from $2.7 million to $4.4 million in the three months ended
September 30, 1996 and 1997, respectively, and $4.6 million, or 73.0%, from
$6.3 million in the first nine months of 1996 to $10.9 million in the first
nine months of 1997, principally as a result of depreciation of additional
cable television assets acquired in connection with the build-out of the
Company's networks and acquisitions. Depreciation and amortization expenses as
a percentage of revenues decreased from 44.8% in the three months ended
September 30, 1996 to 42.3% in corresponding period in 1997 and increased from
34.8% in the first nine months of 1996 to 40.7% in the first nine months of
1997.
INTEREST EXPENSE. Interest expense increased $1.7 million from $0.6 million in
the three months ended September 30, 1996 to $2.3 million in the three months
ended September 30, 1997 and $7.5 million from $2.4 million in the first nine
months of 1996 to $9.9 million in the first nine months in 1997 primarily due
to the issuance of $130 million aggregate principal amount of Old Notes in
October 1996.
INTEREST AND INVESTMENT INCOME. Interest and investment income increased $3.6
million from $0.3 million in the first nine months of 1996 to $3.9 million in
the first nine months of 1997, primarily due to the interest and investment
income derived from the investment of a portion of the proceeds from the
issuance of Old Notes in October 1996 and the Offerings.
FOREIGN CURRENCY TRANSLATION LOSS. Foreign currency translation loss increased
$138,000, from $291,000 in the three months ended September 30, 1996 to a
$429,000 in the three months ended September 30, 1997. For the first
nine months of 1997 foreign currency translation loss amounted to $851,000
as compared to $351,000 for the first nine months of 1996, primarily due
to increased assets subject to translation during the 1997 period resulting
from the growth of the Company and less favorable exchange rate fluctuations.
16
<PAGE>
MINORITY INTEREST IN SUBSIDIARY (INCOME) LOSS. Minority interest in subsidiary
income was $0.3 million for the three months ended September 30, 1997 and
the minority interest in subsidiary loss was $2.3 million for the first nine
months of 1997, resulting from loss incurred in two minority-owned
subsidiaries, compared to minority interest in subsidiary loss of $1.1 million
for the three months ended September 30, 1996 and $1.1 million for the first
nine months of 1996.
NET LOSS. During the three months ended September 30, 1996, the Company
incurred net loss of $1.1 million compared to a net loss of $16.8 million
incurred during the three months ended September 30, 1997. For the first nine
months of 1996 and 1997, the Company had net losses of $1.9 million and
$33.6 million, respectively. These losses and income were the result of the
factors discussed above.
EBIDTA. EBIDTA decreased by $6.8 million, from $7.2 million for the first nine
months of 1996 to $0.4 million for the first nine months of 1997. EBITDA
consists of net income (loss) as measured by U.S. GAAP adjusted for interest
and investment income, depreciation and amortization, interest expense, foreign
currency translation gains and losses, income taxes, extraordinary items,
non-recurring items, gains and losses from the sale of assets other than in the
normal course of business and minority interest in subsidiary income and loss.
The Company believes that EBITDA and related measures of cash flow from
operating activities serve as important financial indicators in measuring and
comparing the operating performance of cable television companies. EBITDA is
not intended to represent cash flow from operations under U.S. GAAP and should
not be considered as an alternative to net income (loss) as an indicator of the
company's operating performance or cash flows from operations as a measure of
liquidity. The Company treats the $18.1 million non-cash compensation expense
relating to the grant of stock options in the first nine months of 1997 as a
non-recurring item and it expects that future grants of stock options will not
give rise to compensation expense.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has met its cash requirements in recent years primarily with
(i) capital contributions and loans from equity investors, (ii) borrowings
under available credit facilities and (iii) cash flow from operations. In
addition, in October 1996 PCI sold $130 million aggregate principal amount of
Old Notes and in August 1997 the Company raised approximately $200 million
through an initial public offering of common stock. The Company had negative
cash flow from operating activities for the first nine months of 1997 of $15.8
million due to the Company's net loss.
PCI has entered into an agreement with Amerbank, which provides for a
credit facility of approximately $6.5 million. Funds are available under the
credit agreement through December 31, 1998 and interest, based on LIBOR plus
3%, is due quarterly. All advances under the loan must be repaid by August 20,
1999. As of the date hereof, there is no amount outstanding under this
facility. PCI will be able to utilize this facility for future borrowings.
On October 31, 1996, $130 million aggregate principal amount of Old Notes
were sold by PCI to the initial purchaser pursuant to a purchase agreement. The
initial purchaser subsequently completed a private placement of the Old Notes.
In June 1997, substantially all of the outstanding Old Notes were exchanged for
an equal aggregate principal amount of publicly-registered notes. Both the Old
Notes and the publicly-registered notes (collectively, the "Notes") were issued
pursuant to the Indenture dated as of October 31, 1996 between PCI and State
Street Bank & Trust Company, trustee (the "Indenture").
Pursuant to the Indenture, PCI is subject to certain covenants, including
without limitation, covenants with respect to the following matters: (i)
limitation on additional indebtedness; (ii) limitation on restricted payments;
(iii) limitation on issuance and sales of capital stock and subsidiaries; (iv)
limitation on transactions with affiliates; (v) limitation on liens; (vi)
limitation on guarantees of indebtedness by subsidiaries; (vii) purchase of
Notes upon a change of control; (viii) limitation on sales of assets; (ix)
limitation on dividends and other payment restrictions affecting subsidiaries;
(x) limitation on investments in unrestricted subsidiaries; (xi) limitations on
lines of business; and (xii) provision of financial statements and reports.
Pursuant to the AmerBank credit facility, PCI is subject to certain
informational and notice requirements but is not subject to restrictive
covenants. PCI is in compliance with all covenants in the Indenture and the
AmerBank credit facility.
As a result of the offering of the Old Notes, the Company incurred
substantial debt. At September 30, 1997, the Company had, on a consolidated
basis, approximately $130.1 million in principal amount of indebtedness
outstanding, net of discount.
Cash used for the build-out of the Company's cable television networks
was $24.7 million in the first nine months of 1997.
18
<PAGE>
The Company expects that the rebuild program for Katowice regional
cluster will be completed in 1997 at an additional cost of approximately $1.0
million. Other than the Katowice upgrade, the Company is not obligated to make
any system upgrades in 1997 or in 1998. However, the Company intends to
continue to acquire additional cable systems, upgrade its cable networks and
increase its programming capacity.
@EL has entered into contracts with a number of content providers for
its DTH and Cable Systems, with an aggregate minimum commitment of approximately
$37.1 million over the next 5 years. In connection with the Company's DTH
business, @EL has entered into contracts to acquire technical equipment and
services necessary for the installation of the digital uplink site in the United
Kingdom, with an aggregate commitment of approximately $10.3 million over the
next five-and-a-half years.
PCI is currently negotiating to acquire two cable television systems in
Poland (the "Acquisitions"). The aggregate consideration to be paid by the
Company in connection with the Acquisitions is expected to be approximately
$18.1 million. The cable system expected to be acquired serve approximately
60,000 subscribers and have approximately 100,000 homes passed. There can be
no assurance as to the timing of closing of any of the pending Acquisitions or
that the pending Acquisitions will actually be consummated. If both of the
Acquisitions are consummated, the Company estimates that it will spend
approximately $5.5 million within 12 months of the consummation of the
Acquisitions to upgrade the acquired networks to meet the Company's technical
standards. Such upgrading would enable PCI to increase the number of programs
offered, the quality of transmissions and the operating costs effectiveness of
the acquired networks. However, the Company believes that the networks to be
acquired in the Acquisitions currently meet PAR standards and, accordingly,
that the timing and extent of such upgrades would be subject to the Company's
discretion.
On September 25, 1997 the Company signed a share purchase agreement with
the shareholders of TWOJ STYL Publishing House ("TWOJ STYL") by virtue of which
the Company will purchase 50% of TWOJ STYL for a consideration of approximately
$11.1 million. TWOJ STYL publishes a Polish-language lifestyle magazine. In
addition, the Company undertook to provide additional financing to TWOJ STYL,
either debt or equity, of up to $7.7 million to develop Polish-language
programming and ancillary services. The agreement will come into force upon
receipt of clearance from the Polish Antimonopoly Office. The Company
expects to close this acquisition by the end of 1997 but there can be no
assurance as to the timing of closing or that such acquisition will actually be
consummated.
Since the commencement of its operations in 1990, the Company has
required external funds to finance the build-out of its existing networks and
to finance acquisitions of new cable television networks. Prior to the
Reorganization described in Item 5, the Company relied on the equity
investments and loans, from stockholders and their affiliates and borrowings
under available credit facilities to provide the funding for these activities.
The Company does not expect that its stockholders and their affiliates will
continue to make capital contributions and loans to the Company.
The Company believes that, in addition to the remaining net proceeds from
the initial public offering, remaining funds from the offering of the Old Notes
and cash from operations, it will need additional funding of approximately $100
million to fulfill its current business
19
<PAGE>
development plans through the end of 1998. There can be no assurance that the
Company will be able to borrow funds under any credit facilities or that
suitable debt or equity financing will be available to the Company or, if
available, that the terms thereof will be attractive to the Company. While the
pace and amount of the Company's expenditures for the above purposes are
largely discretionary, if for any reason additional financing is not available
to the Company when required, or is only available on less than favorable
terms, it may be required to reduce the scope of its presently anticipated
expansion of its operations, reduce capital expenditures (including
expenditures related to acquisitions), slow the development of its D-DTH
business and/or refinance all or a portion of its existing indebtedness
(including the Notes), and as a result the business, results of operations and
prospects of the Company could be adversely affected. To the extent that the
Company is unable to raise additional financing, it intends to concentrate its
available funds on, in order of priority, the development of its D-DTH business
and its programming platform, the build-out of its cable networks and the
acquisition of additional cable systems.
20
<PAGE>
INFLATION AND CURRENCY EXCHANGE FLUCTUATIONS
Since 1989, Poland has experienced high levels of inflation and
significant fluctuation in the exchange rate for the zloty. The Polish
government has adopted policies that slowed the annual rate of inflation from
approximately 250% in 1990 to approximately 20% in 1996. In the first nine
months of 1997, Poland had inflation of 9.55%. A substantial portion of the
Company's operating expenses and capital expenditures are, and are expected
to be, denominated in zloty and tend to increase with inflation. The exchange
rate for the zloty has stabilized and the rate of devaluation of the zloty has
decreased since 1991. However, the zloty exchange rate and rate of devaluation
have increased in the first nine months of 1997. The zloty per U.S Dollar
exchange rate quoted at noon by the National Bank of Poland was 2.8755, 3.0760
and 3.4170 for December 31, 1996, March 31, 1997 and September 30, 1997,
respectively. Inflation and currency exchange fluctuations have had, and may
continue to have, an effect on the financial condition and results of
operations of the Company.
Substantially all of the Company's debt obligations and certain of the
Company's operating expenses and capital expenditure are, and are expected to
continue to be, denominated in or indexed to U.S. Dollars. By contrast,
substantially all of the Company's revenues are denominated in zloty. Any
devaluation of the zloty against the U.S. Dollar that the Company is unable to
offset through price adjustments will require the Company to use a larger
portion of its revenues to service its U.S. Dollar-denominated obligations.
While the Company may consider entering into transactions to hedge the risk of
exchange rate fluctuations, it is unlikely that the Company will be able to
obtain hedging arrangements on commercially satisfactory terms. Accordingly,
shifts in currency exchange rates may have an adverse effect on the ability of
the Company to service its U.S. Dollar-denominated obligations and, thus, on
the Company's financial condition and results of operations.
21
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED
FINANCIAL ACCOUNTING STANDARD No. 128 This statement provides new accounting
and reporting standards for earnings per share. It will replace the currently
used primary and fully diluted earnings per share with basic and diluted
earnings per share. Basic earnings per share excludes dilution and is computed
by dividing income available to common shareholders by weighted average number
of common shares outstanding for the period. Diluted earnings per share
represents the potential dilution that could occur if all stock options and
other stock-based awards, as well as convertible securities, were exercised and
converted into common stock if their effect is dilutive. This statement,
effective for year-end 1997 financial statements, requires that prior period
earnings per share data be restated. The Company does not expect adoption of
this statement to have a material impact on earnings per common share amounts.
FINANCIAL ACCOUNTING STANDARD No. 130 Reporting Comprehensive Income, was
issued in June 1997 and establishes standards for the reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income encompasses all changes in
shareholders' equity (except those arising from transactions with owners) and
includes net income, net unrealized capital gains or losses on available for
sale securities and foreign currency translation adjustments. As this new
standard only requires additional information in financial statements, it will
not affect the Company's financial position or results of operations. FAS No.
130 is effective for fiscal years beginning after December 15, 1997, with
earlier application permitted. The Company is currently evaluating the
presentation alternatives permitted by the statement.
FINANCIAL ACCOUNTING STANDARD No. 131 Disclosures about Segment of an
Enterprise and Related information, was issued in June 1997 and establishes
standards for the reporting of information relating to operating segments in
annual financial statements, as well as disclosure of selected information in
interim financial reports. This statement supersedes FAS No. 14, Financial
Reporting for Segments of a Business Enterprise, which requires reporting
segment information by industry and geographic area (industry approach). Under
FAS No. 131, operating segments are defined as components of a company for
which separate financial information is available and used by management to
allocate resources and assess performance (management approach). This statement
is effective for year-end 1998 financial statements. Interim financial
information will be required beginning in 1999 (with comparative 1998
information). The Company does not anticipate that this standard will
significantly impact the composition of its current operating segments, which
are consistent with the management approach.
22
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
Not Applicable.
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS:
The Company completed an initial public offering of common stock in the
United States and internationally (the "Offerings"). The registration statement
for the Offerings (file no. 333-2986) became effective on July 30, 1997. The
Offerings began on July 30, 1997, and closed on August 5, 1997. Of the
10,925,000 shares of common stock registered (at a proposed maximum aggregate
offering price of $240,350,000), 9,500,000 were sold (at an aggregate sales
price of $199,500,000), and the over-allotment option granted to the
underwriters to purchase an additional 1,425,000 shares of common stock expired
unexercised. The managing underwriter for the Offerings was Goldman Sachs & Co.
for the shares sold in the United States and Goldman Sachs International for
the shares sold outside the United States. The co-lead underwriter was Merrill
Lynch, Pierce, Fenner & Smith Incorporated for the shares sold in the United
States and Merrill Lynch International for the shares sold outside the United
States.
During the period from July 30, 1997 through October 29, 1997,
@Entertainment paid a total of $15,248,413 in expenses in connection with the
Offerings, including $13,566,000 for underwriters' commissions and discounts,
$500,000 for underwriter's expenses, and $1,182,413 for other expenses. None of
these expenses were paid, directly or indirectly, to directors, officers,
10% shareholders or affiliates of the Company or their associates.
The net proceeds received by the Company from the Offerings, after
deducting the expenses referred to above, were $184,251,587. During the period
from July 30,1997 through October 29, 1997, @Entertainment utilised $75,838,544
of the proceeds from the Offerings. Of this amount, $60,000,000 was used to
purchase shares of series A Preferred Stock of PCI and Series C Preferred Stock
of PCI from shareholders of @Entertainment and their affiliates; $962,775 was
used to pay management bonuses to officers of @Entertainment; $8,000,000 was
paid to Philips Business Electronics B.V. ("Philips"); and an additional
$1,000,000 was paid to the third party in escrow for the benefit of Philips,
pursuant to the Memorandum of Understanding described in Note 3 to the
Company's consolidated financial statements, whereby the Company agreed in
principle to purchase from Philips 500,000 decoders and accompanying smart
cards and outdoor units in connection with the Company's DTH business; and
$5,875,769 was used for working capital.
23
<PAGE>
ITEM 5. OTHER INFORMATION:
The Company completed the Offerings in the United States and
internationally on August 5, 1997. Prior to the Offerings, all of the holders of
shares of PCI's common stock and the Company entered into a Contribution
Agreement dated as of June 22, 1997 (the "Contribution Agreement"). Pursuant to
the Contribution Agreement, each holder of shares of PCI's common stock
transferred all shares of PCI's common stock owned by it to the Company. In
addition, ECO Holdings III Limited Partnership ("ECO") transferred all of the
outstanding shares of PCI's voting Series B Preferred Stock (the "PCI Series B
Preferred Stock") to @Entertainment. All of these transfers were designed to
qualify as a tax-free exchange under section 351 of the Internal Revenue Code
of 1986, as amended (the "Share Exchange"). Each holder of PCI's common stock
received 1,000 shares of common stock of @Entertainment in exchange for each
share of PCI's common stock transferred by it (the "Capital Adjustment"). ECO
also received an equivalent number of shares of @Entertainment's Series B
Preferred Stock ("@Entertainment Series B Preferred Stock") in exchange for its
series of PCI Series B Preferred Stock. The @Entertainment Series B Preferred
Stock has identical rights and preferences to those of the PCI Series B
Preferred Stock, except that the ratio for conversion of such shares into
common stock increased from 1:1.9448 to 1:1,944.8 in order to reflect the
Capital Adjustment. The 2,500 outstanding shares of @Entertainment Series B
Preferred Stock were automatically converted into 4,862,000 shares of Common
Stock of @Entertainment upon the closing of the Offerings (the "Automatic
Conversion").
On June 20, 1997, Polish Investments Holding L.P. ("PIHL"), transferred
all of the outstanding shares of PCI's Series C Preferred Stock to an entity
owned by certain of the beneficial owners of PIHL and members of their families
(the "Chase Entity"). The Chase Entity, ECO and the Company entered into a
Purchase Agreement dated as of June 22, 1997 (the "Purchase Agreement"). Among
other matters, the Purchase Agreement obligated the Company to purchase all of
the outstanding shares of PCI's Series A Preferred Stock and Series C Preferred
Stock for cash from ECO and the Chase Entity, respectively, at the closing of
the Offerings (the "Cash Purchase"). The aggregate purchase price of $60.0
million for PCI's Series A Preferred Stock and Series C Preferred Stock equaled
the aggregate redemption price of such shares as set forth in PCI's certificate
of incorporation. The Cash Purchase occurred shortly after the closing of the
Offerings and was funded with a portion of the net proceeds of the Offerings.
In June 1997, certain employment agreements for the executive officers of
@Entertainment who were employed by PCI and their employee stock option
agreements were assigned to @Entertainment by PCI (the "Assignment"). As part
of the Assignment and the Capital Adjustment, the employment agreements and
employee stock option agreements were amended to provide that each option to
purchase a share of PCI's common stock was exchanged for an option to purchase
1,000 shares of @Entertainment's Common Stock, with a proportionate reduction
in the per share exercise price.
The Share Exchange, Capital Adjustment and the Assignment are collectively
referred to as the "Reorganization". As a result of the Reorganization,
@Entertainment owns all of the outstanding shares of voting stock of PCI.
24
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - FINANCIAL DATA SCHEDULE
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on August 19, 1997 reporting on
PCI's earnings.
The Company did not file any other reports on Form 8-K during the third
quarter of 1997.
25
<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.
@ ENTERTAINMENT, Inc.
By: /s/ Robert E. Fowler, III
-------------------------------
Robert E. Fowler, III
Chief Executive Officer
By: /s/ John S.Frelas
-------------------------------
John S.Frelas
Vice President, Chief Financial
Officer and Treasurer
DATE: NOVEMBER 14, 1997
26
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
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<INVENTORY> 9,328
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0
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