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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
March 18, 1998
Date of Report (Date of earliest event reported)
@ Entertainment, Inc.
- -------------------------------------------------------------------------------
(Exact name of Registrant as Specified in Charter)
Delaware 000-22877 06-1487156
- ------------------------- ------------- -------------------
(State or Other Juris. of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
One Commercial Plaza
Hartford, Connecticut 06103-3585
- ------------------------------
(Address of Principal
Executive Offices)
(860) 549-1674
-------------------------------
(Registrant's telephone number,
including area code)
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Item 5. Other Events.
On March 18, 1998, @ Entertainment, Inc. (the "Company") issued a
press release related to the Company's financial results for the year ended
December 31, 1997. A copy of the press release is attached as Exhibit 99 and
is incorporated herein by reference.
2
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial statements of businesses acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
<TABLE>
<CAPTION>
Number Description
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<S> <C>
99 Press Release of @ Entertainment, Inc.
dated March 18, 1998.
</TABLE>
3
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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 hereunto duly authorized.
@ Entertainment, Inc.
Date: March 19, 1998 By: /s/ Przemyslaw Szmyt
--------------------------------
By: Przemyslaw Szmyt
Its: Vice President, Secretary
and General Counsel
4
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EXHIBIT INDEX
NUMBER DESCRIPTION PAGE
99. Press Release of @ Entertainment, Inc. dated March 18, 1998.
5
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@Entertainment, Inc.
FOR IMMEDIATE RELEASE
Contact: Robert E. Fowler, III
011-44-162-268-4410
Cathleen Mayrose
Hill & Knowlton
(212) 885-0474
POLAND'S @ENTERTAINMENT ANNOUNCES YEAR-END 1997 RESULTS
HARTFORD, CT - March 18, 1998 -- @Entertainment, Inc. (NASDAQ: ATEN)
today announced that revenues for the twelve months ended December 31, 1997
increased 56% over last year, rising from $24.1 million to $38.4 million
primarily as a result of a 46% year-over-year increase in subscribers. The
Company reported a net loss of $54.8 million for the year, $31.4 million of
which was attributable to non-recurring non-cash compensation expense related
to options to purchase shares granted to key executives and operating
expenses related to the launch of its new DTH and programming businesses. The
Company reported a net loss of $3.68 per share for the year, as compared to a
net loss of $0.44 per share in 1996. Of the $3.68 per share loss for 1997,
$1.36 per share results from a fourth quarter adjustment to the reporting of
the net loss per share related to the purchase of preferred Poland
Communications, Inc. ("PCI") stock by the Company in connection with the
Company's initial public equity offering in July 1997.
@Entertainment, Inc. is the largest provider of pay television in
Poland. The Company produces, licenses and packages programming for its Wizja
TV service, Poland's first local language multi-channel programming package,
which will be introduced on April 18, 1998. Through its PCI subsidiary, the
Company owns and operates the largest network of cable television systems in
the Polish market with 800,192 total subscribers as of February 28, 1998. The
Company also intends to launch the Polish market's first digital
direct-to-home platform, featuring the Wizja TV programming service, with
commercial introduction scheduled for April 18, 1998.
At year-end, the Company's cable systems passed 1,402,776 homes and
served 763,922 subscribers, representing a year-over-year increase of 32% and
46%, respectively. During the year, the Company added 103,961 subscribers,
representing 44% of its total net increase in subscribers through organic
growth. The remaining increase of 134,934 subscribers was attributable to the
completion of 15 acquisitions of cable networks
<PAGE>
at an average price of $112 per subscriber. Average subscription revenue per
basic subscriber per month increased from $5.52 to $5.65. The year-over-year
increase was impacted by the acquisitions of cable networks with average
revenue per basic subscriber substantially lower than the Company's existing
operations.
"We are extremely pleased with the results for 1997 and by our
progress in the development of our programming business and our
direct-to-home platform. In particular, we have continued the strong unit
growth of our cable operations, both through organic growth and through
acquisitions," said Robert Fowler, Chief Executive Officer.
In December 1997, the Company acquired a majority interest in
another cable operator Szczecinska Telewizja Kablowa ("SzTK") which serves
approximately 20,500 subscribers in the city of Szczecin in Northwest Poland.
Direct operating expenses increased $7.4 million, or 103.3%, from
$7.2 million in 1996 to $14.6 million in 1997. The increase in operating
expense was 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. Also contributing to this increase was the increased size of the
Company's cable television system, and costs associated with the lease of
three transponders on the Astra 1-F and 1-G satellites, which will provide
the capability to deliver the Company's Polish-language Programming Platform
to Polish customers through the Company's cable television network and its
D-DTH system. Direct operating expenses increased from 28.9% of revenues in
1996 to 38.3% in revenues in 1997.
Selling, general and administrative expenses increased $40.1 million
from $9.3 million in 1996 to $ 50.4 million in 1997. A significant portion of
this increase was related to non-recurring non-cash compensation of $18.1
million in 1997, related to options to purchase shares granted to key
executives. Additionally, the increases were attributable to sales and
marketing expenses incurred in newly acquired networks, costs associated with
the agreement relating to sale of advertising on Atomic TV and costs of
launching the distribution of the HBO premium pay movie channel in Poland on
its cable television networks. 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 37.3% in 1996 to approximately 132.2% in 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
<PAGE>
been 83.7% in 1997.
Depreciation and amortization expenses increased by $6.5 million, or
66.5% from $9.8 million in 1996 to $16.3 million in 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 increased
from 39.3% in 1996 to 42.8% in 1997.
Interest expense increased $9.2 million from $4.7 million in 1996 to
$13.9 million in 1997, primarily due to the October 1996 issuance of $130
million aggregate principal amount by the Company's wholly owned subsidiary
Poland Communications, Inc. (the "PCI Notes.")
Interest and investment income increased $4.5 million from $1.3
million in 1996 to $5.8 million in 1997, primarily due to the income derived
from the investment of a portion of the proceeds from the issuance of PCI
Notes in October 1996 and from the Company's initial public equity offering
in July 1997.
During 1997, the Company reported a foreign currency translation
loss of $1,027,000 compared with a loss of $761,000 reported in 1996. This is
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.
Minority interest in subsidiary income was $3.6 million for 1997,
resulting from income earned in two minority-owned subsidiaries, compared to
a loss of $1.9 million reported in 1996.
For 1996 and 1997, the Company reported net losses of $6.6 million
and $54.8 million, respectively. These losses were the result of the factors
discussed above.
EBITDA decreased by $17.1 million, from $8.4 million in 1996 to
($8.6) million in 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
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million non-cash compensation expense relating to the grant of stock options
in 1997 as a non-recurring item and it expects that future grants of stock
options will not give rise to compensation expense.
To date, the Company has concluded final or preliminary license
agreements with 11 channel providers which in combination with Wizja 1,
Atomic TV and the Wizja Pogoda weather service, which are wholly owned by the
Company, are expected to comprise the Wizja TV programming service at
commercial launch on April 18, 1998. These 11 channels are HBO; TNT; Hallmark
Entertainment; Fox Kids; Cartoon Network; BET on Jazz; Romantica; Travel TV;
Knowledge TV; QuesTV; and CNNI. Additional channels are expected to be added,
either at launch or during the course of 1998, including Company-owned Wizja
Sport.
The Company has also concluded license agreements with rights
holders providing for: exclusive rights to fixtures for Poland's top two
hockey teams; an exclusive 4-year output deal for the territory of Poland to
European soccer matches (UEFA Cup, Cup Winner Cup and qualification rounds to
the Champions League) played by any of the approximately 60 clubs owned by
Global Sportsnet; exclusive broadcast rights to the Polish National teams
away fixtures owned by UFA, one of Europe's largest television rights
distributors; exclusive rights to European soccer played by certain Polish
clubs owned by UFA; live exclusive rights to Dutch League and Domestic Cup
Soccer; world wide television rights to certain games of Lech Poznan European
soccer; exclusive rights to Portuguese league football; live exclusive rights
to European Grand Prix Speedway events featuring top riders; exclusive rights
to 9 of the 10 Polish first division speedway clubs; exclusive rights to 1998
Champions Series Ice Skating; exclusive rights to 1998 Wimbledon; an
exclusive deal with Matchroom guaranteeing a minimum of 36 boxing events; and
an exclusive deal with Sports Network guaranteeing a minimum of 20 fight
cards produced by BskyB, including rights to Naseem Hameed.
The Company completed its Commercial Cooperation Agreement with
Philips Business Electronics on March 9, 1998, which provides for the
distribution, development, production and sale of consumer reception
equipment related to the DTH service in Poland. The Company's satellite
uplink, compression systems and conditional access systems are now fully
operational with test transmissions running as of February 26, 1998. The
Company's Maidstone (United Kingdom) transmission center will go live for
test purposes with the first channel to be distributed from the Company's own
facilities on March 31, 1998. On March 9, 1998, the Company completed alpha
testing of its consumer integrated receiver/decoders off live feeds from its
Maidstone transmission facility with all test results satisfactory. Beta
testing and industrial release remains on schedule for March 27, 1998.
The Company's subscriber management center ("SMS Center") in
Katowice, Poland is a newly created, full service facility with Customer
Service, Subscriber Management Control and Billing to support the Company's
<PAGE>
launch of WizjaTV into Poland. A Call Center has been built to accommodate
130 operators at any time. The Center became fully operational on March 11,
1998 and is currently serving the Company's local Katowice cable customers.
In addition to the current local Customer Service Staff, 75 new Customer
Service Operators have been hired and 1/3 of these are already fully trained.
Additional operators are being hired and all will be fully trained for their
duties on April 11, 1998. It is anticipated that the call center will provide
service and support throughout Poland to both DTH and cable customers.
The Company has received its first firm order for 2,000 units from
a Philips distributor representing 30 retail outlets in Poland. The Company
has also received preliminary indications of demand from a portion of the
Philips Polska dealer network. Based on indications of demand from 63 retail
points of sale representing 6% of the total Philips Polska distribution
network, the Philips dealer network projects aggregate monthly unit demand
for these 63 retailers at 9,000 to 15,000 units per month. "These projections
provide an indication of what we believe will be a very strong demand for the
Wizja TV DTH service, particularly given that we will not initiate our media
campaign until April 4, 1998," said Robert Fowler, CEO.
The aforementioned remarks contain forward-looking statements that
involve risks and uncertainties including without limitations those related
to the timing, costs and revenue of establishing and marketing the Company's
digital satellite direct-to-home broadcasting platform and those relating to
pending and future acquisitions. Specifically, the above projections relating
to indications of demand are based on non-binding preliminary indications of
demand by retail distributors of the Company's DTH service and there can be
no assurance as to the actual number of units to be demanded by Philips'
retailers or to be purchased by consumers. The Company's actual results could
differ materially from those discussed above.
<PAGE>
@Entertainment, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
--------- ----------
(in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................... $ 105,691 $ 68,483
Investment securities ........................................ -- 25,115
Accounts receivable, net of allowance for doubtful accounts
of $766,000 in 1997 and $545,000 in 1996 ............. 4,544 1,215
Due from affiliate ........................................... -- --
Other current assets ......................................... 4,998 2,247
------- -------
Total current assets ................................. 115,233 97,060
Property, plant and equipment:
D-DTH television system assets ............................... -- --
Cable television system assets ............................... 134,469 99,700
Construction in progress ..................................... 6,276 410
Vehicles ..................................................... 2,047 1,199
Other ........................................................ 7,940 2,667
------- -------
150,732 103,976
Less accumulated depreciation ................................ (33,153) (19,143)
------- -------
Net property, plant and equipment .................... 117,579 84,833
Inventories for construction ......................................... 8,153 7,913
Intangibles, net ..................................................... 33,454 18,440
------- -------
Notes receivable from affiliates ..................................... 691 291
Other assets ......................................................... 32,000 8,948
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Total assets ......................................... $ 307,110 $ 217,485
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</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1996
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(in thousands)
<S> <C> <C>
Current liabilities:
Accounts payable ............................................. $ 14,536 $ 6,281
Accrued interest ............................................. 2,175 2,175
Notes payable ................................................ -- --
Deferred revenue ............................................. 1,257 1,102
Accrued income taxes ......................................... 1,765 4,472
Other current liabilities .................................... 185 2,175
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Total current liabilities ............................ 19,918 16,205
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Notes payable to affiliates .......................................... -- --
Notes payable ........................................................ 130,124 130,022
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Total liabilities .................................... 150,042 146,227
Minority interest .................................................... 4,713 5,255
Redeemable preferred stock (liquidation value $85,000,000;
8,500 shares authorized, issued and outstanding) ..................... -- 34,955
Stockholders' equity:
Preferred stock, $.01 par value; 20,000,000 shares authorized;
no shares issued and outstanding ..................... -- --
Common stock:
Common stock, $.01 par value; 50,000,000 shares authorized,
33,310,000 shares issued and outstanding ............. 333 189
Paid-in capital ...................................... 230,339 54,134
Cumulative translation adjustment .................... (218) --
Accumulated deficit .................................. (78,099) (23,275)
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Total stockholders' equity ................... 152,355 31,048
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Commitments and contingencies ........................ -- --
Total liabilities and stockholders' equity ... $ 307,110 $ 217,485
------- -------
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</TABLE>
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@Entertainment, Inc.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Cable television revenue .............................................. $ 38,138 $ 24,923 $ 18,557
Operating expenses:
Direct operating expenses ..................................... 14,621 7,193 5,129
Selling, general and administrative expenses .................. 50,413 9,289 4,684
Depreciation and amortization ................................. 16,294 9,788 5,199
-------- -------- --------
Total operating expenses .............................................. 81,328 26,270 15,012
-------- -------- --------
Operating (loss)/income ....................................... (43,190) (1,347) 3,545
Interest and investment income ........................................ 5,754 1,274 174
Interest expense ...................................................... (13,902) (4,687) (4,373)
Loss of unconsolidated subsidiary ..................................... 152 -- --
Foreign currency translation loss ..................................... (1,027) (761) (17)
-------- -------- --------
Loss before income taxes,
minority interest and extraordinary item ................. (52,213) (5,521) (671)
Income tax benefit/(expense) .......................................... 975 (1,273) (600)
Minority interest in subsidiary (income)/loss ......................... (3,586) 1,890 (18)
-------- -------- --------
Loss before extraordinary loss on early
extinguishment of debt ................................... (54,824) (4,904) (1,289)
Extraordinary loss on early extinguishment of debt .................... -- (1,713) --
Net loss ...................................................... (54,824) (6,617) (1,289)
Accretion of redeemable preferred stock ............................... (2,436) (2,870) --
Preferred stock dividends ............................................. -- (1,738) --
Accretion of redeemable preferred stock ............................... --
(Excess)/deficit of consideration paid for preferred stock
(over)/under carrying amount .................................. (33,806) 3,549 --
-------- -------- --------
Net loss applicable to holders of common stock ........................ $(91,066) $ (7,676) $ (1,289)
-------- -------- --------
-------- -------- --------
Pro forma basic and diluted loss per share of common stock
before extraordinary item ..................................... $ (3.68) $ (0.34) $ (0.10)
Pro forma basic and diluted extraordinary loss per share .............. -- (0.10) --
-------- -------- --------
Pro forma basic and diluted net loss per common share ................. $ (3.68) $ (0.44) $ (0.10)
-------- -------- --------
</TABLE>
