<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000889949
<NAME> HUNGARIAN TELEPHONE AND CABLE CORP.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 21491000
<SECURITIES> 0
<RECEIVABLES> 10020000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33362000
<PP&E> 63410000
<DEPRECIATION> 2435000
<TOTAL-ASSETS> 119370000
<CURRENT-LIABILITIES> 99016000
<BONDS> 25430000
<COMMON> 3000
0
0
<OTHER-SE> (7374000)
<TOTAL-LIABILITY-AND-EQUITY> 119370000
<SALES> 9693000
<TOTAL-REVENUES> 9693000
<CGS> 0
<TOTAL-COSTS> 16744000
<OTHER-EXPENSES> 1590000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6881000
<INCOME-PRETAX> (13204000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13204000)
<DISCONTINUED> 0
<EXTRAORDINARY> (8186000)
<CHANGES> 0
<NET-INCOME> (21390000)
<EPS-PRIMARY> (5.15)
<EPS-DILUTED> (5.15)
</TABLE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Condensed Financial Statements
For the quarterly period ended June 30, 1996
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996 Commission file number 1-11484
------------- --------
HUNGARIAN TELEPHONE AND CABLE CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-652685
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 First Stamford Place, Stamford, CT 06902
(Address of principal executive
offices)
(203)348-9069
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 twelve 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 ninety days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the lastest possible date:
Common Stock, $.001 par value 4,166,626 Shares
- ------------------------------ ----------------
(Class) (Outstanding at August 19, 1996 )
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Table of Contents
Part I. Financial Information Page No.
Consolidated Condensed Balance Sheets 2
Consolidated Condensed Statements of Operations 3
Consolidated Condensed Statements of Stockholders' Equity 4
Consolidated Condensed Statements of Cash Flows 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
Part II. Other Information 16
Signature 18
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands, except share data)
Assets June 30, 1996 December 31, 1995
------ ------------- -----------------
(unaudited)
Current assets:
Cash and cash equivalents $ 19,327 $ 16,192
Restricted cash 2,164 1,757
Accounts receivable 4,582 1,399
VAT receivable, net 5,438 4,432
Prepayments and other 34 131
Other current assets 1,817 1,598
----------- -----------
Total current assets 33,362 25,509
----------- -----------
Property, plant, and equipment 63,410 55,353
Less accumulated depreciation 2,435 1,131
----------- -----------
Property, plant and equipment,
net 60,975 54,222
----------- -----------
Goodwill and intangibles, less accumulated
amortization 15,368 19,768
Other assets 1,963 6,570
Construction deposits 7,702 4,318
----------- -----------
Total assets $ 119,370 $ 110,387
============= ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt $ 9,235 $ 9,699
Short term loans 70,773 33,982
Accounts payable 5,557 8,835
Due to related parties 5,004 3,075
Accruals 2,060 5,564
Other current liabilities 6,387 2,253
----------- -----------
Total current liabilities 99,016 63,408
Long-term debt, excluding current installments 25,430 23,467
Advance subscriber payments, long term 0 2,136
----------- -----------
Total liabilities 124,446 89,011
----------- -----------
Commitments and contingencies
Minority interest 2,295 5,637
----------- -----------
Stockholders' equity:
Common stock, $.001 par value. Authorized
10,000,000 shares; issued 4,166,626 shares
in 1996 and 4,015,039 shares in 1995 3 4
Additional paid-in capital 46,834 45,358
Accumulated deficit (47,582) (26,192)
Foreign currency translation adjustment (5,750) (2,381)
Deferred compensation (876) (1,050)
------------ -----------
Total stockholders' equity (7,371) 15,739
------------ -----------
Total liabilities and stockholders equity $ 119,370 $ 110,387
=========== ===========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
For the Three and Six Month Periods Ended June 30, 1996 and 1995
( In thousands, except share and
per share data) ( Unaudited )
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ --------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
TELEPHONE SERVICES REVENUES, NET $ 4,534 $ 832 $ 9,693 $ 1,239
Operating expenses:
Operating and maintenance expenses 6,510 5,342 11,474 6,676
Depreciation and amortisation 924 309 1,917 765
Management fees 2,011 466 3,353 888
------- ------ ------- -------
Total Operating Expenses 9,445 6,117 16,744 8,329
------- ------ ------- -------
LOSS FROM OPERATIONS (4,911) (5,285) (7,051) (7,090)
Other income (expenses):
Foreign exchange losses (178) (1,468) (1,590) (1,146)
Interest expense (3,944) (664) (6,881) (909)
Interest income 700 268 892 404
Other, net 247 459
------- ------ -------
LOSS BEFORE MINORITY INTEREST (8,086) (7,149) (14,171) (8,741)
MINORITY INTEREST 649 994 967 1,368
------- ------ ------- -------
LOSS BEFORE EXTRAORDINARY ITEMS (7,437) (6,155) (13,204) (7,373)
EXTRAORDINARY ITEM (8,186) (8,186)
-------- ------- ---------
NET LOSS $ (15,623) $ (6,155) $ (21,390) $ (7,373)
======== ======= ========= ========
LOSS PER SHARE OF COMMON STOCK
BEFORE EXTRAORDINARY ITEM $ 1.76 $ 2.17 $ 3.18 $ 2.65
EXTRAORDINARY ITEM $ 1.94 $ 1.97
-------- ------- ------- --------
NET LOSS $ (3.70) $ (2.17) $ (5.15) $ (2.65)
========== ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 4,215,106 2,830,471 4,148,039 2,777,744
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
Foreign
Additional Currency Total
Common Paid-in Accumulated Translation Deferred Stockholders
Shares Stock Capital Deficit Adjustment Compensation Equity
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 4,015,039 $ 4 45,358 (26,192) (2,381) (1,050) $ 15,739
Common stock issuance 250,000 3,219 3,219
Exercise of warrants 3,016 31 31
Cancellation of shares (101,429) (1) (1,774) (1,775)
Net loss (21,390) (21,390)
Foreign currency translation adjustment (3,369) (3,369)
Earned compensation 174 174
--------- - ------ -------- ------- ---- -------
Balances at June 30, 1996 4,166,626 $ 3 46,834 (47,582) (5,750) (876) $ (7,371)
========= = ====== ======== ======= ===== =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
For the Six Month Period Ended June 30, 1996 and 1995
(In thousands)
( Unaudited )
1996 1995
---- ----
Net cash used in operating activities $ (11,928) $ 2,961
---------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (13,679) (12,721)
Cash received from sale of subsidiaries
stock 1,464
Acquisition of interests in subsidiaries (330) 293
Adjustment of minority interest (1,382)
Adjustment of Company's share of the excess of
proceeds over book value of subsidiaries'
shares purchased by Telecom Danmark (737)
(Increase) decrease in intangible assets (731) 404
Loan receivable (11)
--------- ----------
Net cash used in investing activities (14,740) (12,690)
---------- ----------
Cash flows from financing activities:
Borrowings under long-term debt 1,499 8,531
Proceeds from short term loans 78,773 354
Proceeds from issuance of common stock 1,220
Repayment of short term loans (50,752)
Increase in amount payable to related party 511
--------- ---------
Net cash provided by financing
activities 29,520 10,616
--------- ---------
Effect of foreign exchange rate changes on cash 283 128
--------- ---------
Net increase (decrease) in cash and cash
equivalents 3,135 1,015
Cash and cash equivalents at beginning of period 16,192 6,966
--------- ---------
Cash and cash equivalents at end of period $ 19,327 $ 7,981
========= =========
See accompanying notes to consolidated condensed financial statements.
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
(1) Basis of Presentation
The accompanying condensed consolidated financial statements have
been prepared without audit and, in the opinion of management
include all adjustments, consisting mainly of normal recurring
accruals necessary for fair presentation. Results for the interim
periods are not necessarily indicative of the results for a full
year.
(2) Cash and Cash Equivalents and Restricted Cash
(a) Cash and Cash Equivalents:
At June 30, 1996 cash of $3,038,000 denominated in U.S.
dollars was on deposit with a major money center bank and in
a U.S. Treasury money market fund, in the United States. In
addition, at June 30, 1996 $16,289,000 ($9,002,000
denominated in U.S. dollars, the equivalent of $556,000
denominated in German Deutsche Marks and the equivalent of
$6,731,000 denominated in Hungarian Forints) was on deposit
with Hungarian government-owned banks and a foreign bank in
Hungary.
(b) Restricted Cash:
At June 30, 1996, approximately $2,164,000 of cash
denominated in Hungarian Forints was restricted under
concession contract fulfillment guarantees with restrictions
to be removed principally upon the successful attainment of
certain operational requirements as prescribed in the
concession agreements. The Company expects to satisfy the
operational requirements in 1996 and therefore the restricted
cash is shown as a current asset.
(3) Related Parties
Due to related parties of $5,004,000 at June 30, 1996 is comprised
of the following: $33,000 due to Hungarian Teleconstruct Corp.
("Teleconstruct") for rent and other services, plus interest;
$1,556,000 due to TeleDanmark A/S ("TDI") for management fees
accrued under the management agreement; and $3,415,000 due to
Citizens Utilities Company ("Citizens") for reimbursable
management costs and management fees accrued under the management
services agreement .
Included in other assets at June 30, 1996 is a deposit of $250,000
paid to Teleconstruct for the purchase of a residential apartment
for which title passed to the company subsequent to the period
end, and $250,000 due from a former director of the Company for
funds advanced on a personal mortgage.
The Company purchased from Teleconstruct the premises used as
offices by the Company and its subsidiary HTCC Consulting Rt. in
Budapest, Hungary for a price of $393,000.
The Company also paid legal fees to a former officer of
approximately $71,000, during the six months ended June 30, 1996,
and a further $75,000 on July 1, 1996.
Included in long term debt at June 30, 1996 is approximately $6.0
million borrowed from TDI by subsidiaries under a subordinated
loan agreement.
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
(4) Credit Facility
On March 29, 1996, the Company entered into a $75.0 million
Secured Term Loan Credit Facility ("Credit Facility") and,
together with HTCC Consulting, a related Pledge and Security
Agreement with Citicorp North America, Inc. Advances under the
Credit Facility may be requested through December 31, 1996. The
Credit Facility will bear interest rates of 4.5% and 3.5% above
LIBOR or Citicorp's announced base rate, respectively at the
Company's option, up to June 30, 1996. The spreadsover LIBOR and
Citicorp's announced base rate will increase by 1% per quarter
until maturity on December 31, 1996. As of June 30, 1996, the
Company used $70,773,000 from the Credit Facility to repay all the
funds advanced or guaranteed by Citizens and Chemical Bank
pursuant to the Citizens Loan Agreement, and to meet contractual
commitments to contractors pursuant to construction contracts. In
April, 1996, the Company recorded an extraordinary loss for a
non-cash charge of approximately $8.2 million representing the
write off of the remaining unamortized deferred financing costs
pertaining to the Citizens Loan Agreement.
The Company has engaged two investment banks to serve as
underwriters for the placement of approximately $125 million of
debt securities of the Company, such underwriting is anticipated
to close in the second half of 1996.
(5) Construction Commitments
In September of 1994 Kelet-Nograd Com entered into local telephone
contracts with unrelated corporations to provide their respective
services. Re-negotiations of the largest contract have resulted in
a cancellation of a significant portion of the contract scope of
work under the original contract and a negotiation of a new
contract to perform the portion cancelled under the original
contract. This change has resulted in a cost saving to
Kelet-Nograd Com. The new contract is anticipated to be signed by
mid-September 1996. The contracts, including the renegotiations,
totalled approximately $33.5 million. Approximately $4.5 million,
was paid in advance under the original contract. The balance sheet
as of June 30, 1996 included $2.8 million of remaining advance
payments to be applied against future contract invoices.
On May 10, 1996, Papa es Tersege Telefon Koncesszios Rt
("Papatel") entered into a contract with an unrelated corporation
which provides for the construction of a local telephone exchange
in its service area on a turnkey basis, at a fixed price of
approximately $13.2 million. Included in the contract price is $
2.0 million in settlement of the contractors claims for work
performed prior to the acquisition of Papatel. Of this $2.0
million, $1.3 million was recorded at the acquisition date and the
remaining $0.7 million has been reflected as an increase in
goodwill. The contract requires full completion of construction in
1996.
In addition, on June 3, 1996, Papatel entered into a contract with
an unrelated corporation to provide a local telephone network with
capacity of 2,500 lines in the Papa primary region at a fixed
price of $2.9 million. The contract requires 100% completion by
the end of 1996.
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
On May 23, 1996, Hungarotel Tavkozlesi Rt ("Hungarotel") entered
into a contract with an unrelated corporation to provide for
construction of a telephone network with capacity of 11,000 lines
in its Oroshaza service area at a fixed price of $14.2 million.
The contract requires 60% completion by December 31, 1996 and 100%
completion by the end of February 1997.
In addition, on June 28, 1996, Hungarotel entered into a contract
with an unrelated corporation to provide for the construction of a
telephone network with a capacity of 40,000 lines in its
Bekescsaba service area at a fixed price of $45.0 million. The
contract requires installation of 14,000 lines by December 31,
1996, and the remaining 26,000 additional lines by December 31,
1997. Financing will be provided by the contractor for the entire
contract amount. The financing agreement requires repayment in 19
quarterly installments commencing on March 31, 1998 with the final
payment due December 31, 2002. Interest will be charged at a
variable rate computed as the weighted average of the 6 and 12
month Hungarian National Treasury Bill interest rate for each
quarter plus 2.5%. Interest payments may be deferred until
December 31, 1997.
The Company has paid $7.7 million at June 30, 1996 as advanced
payments on construction contracts. The construction contracts are
denominated in U.S. dollars or Deutsche Marks and are invoiced and
payable in equivalent HUF amounts.
(6) Subsequent Event
On July 26, 1996, the Company entered into Termination and Release
Agreements, Consulting Agreements and Non-competition Agreements
with its former Chief Executive and Chairman of the Board of
Directors, former Vice Chairman of the Board of Directors, and
former Chief Financial Officer, Treasurer, Secretary and Director.
Pursuant to these agreements, the Company has agreed to make
payments for severance, consulting fees and non-compete agreements
amounting to $7.25 million, in equal monthly instalments over a 72
month period commencing August 31, 1996. These commitments are
secured on letters of credit, guaranteed by the Company.
The Company will record a charge in the three month period ending
September 30, 1996 related to these agreements.
(7) Acquisition Adjustment
On May 21, 1996, the Company and Central Euro TeleKom ( CET )
entered into a Settlement Agreement whereby the number of shares
to be issued to CET in connection with the acquisitions of
Hungarotel and Papatel was reduced based upon certain post-closing
purchase price adjustments. Pursuant to the Settlement Agreement,
the number of shares was reduced by 101,429. The reduction in
purchase price was reflected as a reduction to goodwill and the
reduction in the number of shares was reflected as a reduction to
common stock and additional paid-in-capital.
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS:
Three Months Ended June 30, 1996 Compared With Three Months Ended June 30, 1995
Net Revenues
The Company recorded net revenues of $4.5 million for the three months
ended June 30, 1996 as compared to $0.8 million for the three months ended June
30, 1996, an increase of approximately $3.7 million.
Measured service revenues increased $3.9 million from $1.0 million for
the three months ended June 30, 1995 to $4.9 million for the three months ended
June 30, 1996, which was partially offset by an increase in net interconnect
charges of $1.6 million from approximately $0.4 million for the three months
ended June 30, 1995 to $2.1 million for the three months ended June 30, 1996.
This increase in measured service revenues was the result of a 365% increase in
average access lines in service to 72,489 as compared to 15,582 access lines in
the comparable three-month period. The principal reason for this significant
increase in lines was the addition of 44,414 lines in the Hungarotel and Papatel
areas which were acquired from Matav on December 31, 1995. Measured service
revenues also increased due to increased average rates and call volume for the
three months ended June 30, 1996 as compared to the three months ended June 30,
1995.
The Company recognized $1.5 million of revenues from connection and
monthly subscription fees during the three months ended June 30, 1996 as
compared to $0.2 million for the three months ended June 30, 1995. The principal
reasons for this increase relate to the addition of subscription fees from
Hungarotel and Papatel, which were not owned by the Company in the prior period,
and the Company's ongoing network construction program in all of the operating
areas which resulted in the connection of 2,641 subscribers in the three months
ended June 30, 1996 as compared to the connection of 70 subscribers in the three
months ended June 30 ,1995. Subscription fees also increased due to a 34.1%
increase in monthly Hungarian Forint subscription rates offset by the
devaluation of the Hungarian Forint versus the U.S. Dollar.
Other revenues increased to $199 thousand in the three months ended
June 30, 1996 as compared to $35 thousand in the comparable 1995 period. This
increase reflects additional revenues from the provision of direct lines,
telephone leasing and telephone sales.
Operating and Maintenance Expenses
Operating and maintenance expenses for the three months ended June 30,
1996 increased $1.2 million, or 21.9%, to $6.5 million as compared to $5.3
million for the comparable 1995 period. The $5.3 million of operating expenses
incurred in the period ended June 30, 1995 included $3.3 million of deferred
stock compensation and $0.6 million of asset write-downs. Included in operating
and maintenance expenses for the three months ended June 30, 1996 was deferred
stock compensation of $0.1 million. All of these were non-cash charges.
Operating and maintenance expenses adjusted to remove the effect of the deferred
stock compensation and asset write-downs were $1.4 million and $6.4 million for
the three months ended June 30, 1995 and 1996, respectively. The reasons for the
increase in adjusted operating expenses include $ 2.1 million attributable to
the inclusion of Hungarotel and Papatel, $0.2 million attributable to additional
maintenance expenses in KNC and Raba-Com which had 9,936 more access lines in
operation during the 1996 period, and $2.7 million attributable to additional
expenses incurred by the Company to meet its increased managerial requirements.
On a per line basis, however, adjusted maintenance expenses decreased from $90
per average access line for the three months ended June 30, 1995 to $88 for the
three months ended June 30, 1996 as the Company achieved productivity
improvements, including the decreased use of labor intensive manual switchboards
and the increased use of modern switching technology.
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION (Continued)
Depreciation and Amortization
Depreciation and amortization charges increased $0.6 million to $0.9
million for the three months ended June 30, 1996 as compared to $0.3 million for
the comparable 1995 period. This increase was due to the increase in the value
of plant and lines in operation, including the additional 47,895 average lines
in Papatel and Hungarotel, during the three months ended June 30, 1996 as
compared to the previous period. As the Company proceeds with its capital
expenditure programs in each of the operating areas, it believes that
depreciation and amortization expenses will increase as more assets are placed
into operation.
Management Fees
Management fees payable to Citizens and Tele Danmark, pursuant to their
respective management agreements, increased $1.5 million to $2.0 million for the
three months ended June 30, 1996 from $0.5 million for the comparable 1995
period. Citizens' monthly management fees commenced July 1, 1995 and, for the
three months ended June 30, 1996, amounted to $1.6 million, of which $0.8
million was for reimbursable costs.
Loss from Operations
Loss from operations decreased by $0.4 million to $4.9 million for the
three months ended June 30, 1996 from $5.3 million for the three months ended
June 30, 1995. This decrease was principally due to the $0.7 million of income
from operations contributed by Hungarotel which was acquired December 31, 1995.
Foreign Exchange Losses
Foreign exchange losses decreased $1.3 million from $1.5 million for
the three months ended June 30, 1995 to $0.2 million for the three months ended
June 30, 1996. Such foreign exchange losses resulted from the devaluation of the
Hungarian Forint against the U.S. Dollar and the German Mark. The Company has
incurred debt and other obligations which are denominated in U.S. Dollars and
German Marks in order to commence the construction of its telecommunication
networks. During the three months ended June 30, 1996, the Hungarian Forint
devalued against a basket of major currencies by 4.3% as compared to 5.1% in the
three months ended June 30, 1995. The decrease in foreign exchange loss was
primarily attributable to the reduced devaluation of the Hungarian Forint in the
1996 period and an adjustment in the June 30, 1995 quarter of $1.1 million to
record the exchange loss on a contract entered into in the period at historic
exchange rates. It is the policy of the National Bank of Hungary to continue to
devalue the Hungarian Forint in order to ensure its relative competitiveness.
For the remainder of 1996, the National Bank of Hungary has announced that it
will manage the devaluation of the Hungarian Forint against a basket of major
currencies at a 1.2% rate per month. Since a substantial portion of the
Company's liabilities are denominated in currencies other than the Hungarian
Forint, the Company expects to continue to incur additional foreign currency
losses in the future.
Net Interest Expense
Net interest expense increased $3.2 million to $3.9 million for the
three months ended June 30, 1996 as compared to $0.7 million for the three
months ended June 30, 1995. The principal reason for this increase was
attributable to higher average debt levels in the three months ended June 30,
1996 as compared to the comparable 1995 period as the Company incurred
indebtedness in order to commence the construction of its telecommunications
networks. An increase in interest income of $0.4 million from $0.3 million for
the three month period ended June 30, 1995 to $0.7 million for the three month
period ended June 30, 1996 was due to higher average cash balances. The average
rate of interest accrued by the Company on its indebtedness decreased from 23.1%
for the three months ended June 30, 1995 to 14.8% for the three months ended
June 30, 1996 as the proportion of U.S dollar denominated debt increased in the
1996 period.
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION (Continued)
Other
Other income increased from nil for the three months ended June 30,
1995 to $0.2 million for the three months ended June 30, 1996 principally due to
income from ancillary activities and the sale of non-operating assets.
Loss Before Extraordinary Item
As a result of the factors discussed above, loss before extraordinary
items increased $1.2 million to $7.4 million for the three months ended June 30,
1996 from $6.2 million for the three months ended June 30, 1995.
Extraordinary Item
For the three months ended June 30, 1996, the Company recorded an
extraordinary item for a non-cash charge of $8.2 million related to the
write-off of the remaining unamortized deferred financing costs pertaining to
the Citizens Loan Agreement, on repayment of the relevant loan.
Net Loss
As a result of the factors discussed above, for the three months ended
June 30, 1996, the Company recorded a net loss of $15.6 million as compared to a
net loss of $6.2 million for the period ended June 30, 1995.
Six Months Ended June 30, 1996 Compared With Six Months Ended June 30, 1995
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION (Continued)
Net revenues for the six months ended June 30, 1996 were approximately
$9.7 million as compared to approximately $1.2 million for the six months ended
June 30, 1995, an increase of $8.5 million, or 708%.
Measured service revenues increased $8.5 million from $1.5 million for
the six months ended June 30, 1995 to $10.0 million for the six months ended
June 30, 1996, which was partially offset by an increase in net interconnect
charges of $3.6 million from approximately $0.6 million for the six months ended
June 30, 1995 to $4.2 million for the six months ended June 30, 1996. This
increase in measured service revenues reflects a 524% increase in average access
lines in service to 69,936 as compared to11,206 access lines in the comparable
six-month period. The principal reason for this significant increase in lines
was that the Company commenced operations in Raba-Com on January 1, 1995, in KNC
on March 1, 1995 and in Hungarotel and Papatel on December 31, 1995. Results for
the six month period ended June 30, 1995 only include six months of operations
for Raba-Com and four months of operations for KNC as compared to the six months
ended June 30, 1996, which include the results of operations for all four of the
Company's operating subsidiaries for the entire period. Measured service
revenues also increased due to increased average rates and call volume for the
six months ended June 30, 1996 as compared to the six months ended June 30,
1995. As a result, net measured service revenues per average access line
increased $12 from $71 per average access line for the six months ended June 30,
1995 to $83 for the six months ended June 30, 1996.
The Company recognized $3.2 million of revenues from connection and
monthly subscription fees during the six months ended June 30, 1996 as compared
to $0.3 million for the six months ended June 30, 1995, an increase of $2.9
million. The principal reason for this increase relates to the Company's ongoing
network construction program in all of the Operating Areas which resulted in the
connection of 9,653 subscribers in the six months ended June 30, 1996 as
compared to the connection of 70 subscribers in the six months ended June 30
,1995. Subscription fees also increased due to the greater average number of
access lines in operation during the six months ended June 30, 1996 and a 34.1%
increase in monthly Hungarian Forint subscription rates offset by the
devaluation of the Hungarian Forint versus the U.S. Dollar.
Other revenues increased to $0.7 million for the six months ended June
30, 1996 as compared to $0.1 million for the comparable 1995 period. This
increase reflects additional revenues from the provision of direct lines,
telephone leasing and telephone sales.
Operating and Maintenance Expenses
Operating and maintenance expenses for the six months ended June 30,
1996 increased $4.8 million, or 72%, to $11.5 million as compared to $6.7
million for the comparable 1995 period. The $6.7 million of operating and
maintenance expenses incurred in the period ended June 30, 1995 includes $3.6
million of deferred stock compensation and $0.6 million of asset write-downs.
Included in operating and maintenance expenses for the six months ended June 30,
1996 was deferred stock compensation of $0.2 million and asset write-downs of
$0.6 million All of these items were non-cash charges. Operating and maintenance
expenses adjusted to remove the effect of the deferred stock compensation and
asset write-downs increased $8.2 million to $10.7 million as compared to $2.5
million for the comparable 1995 period. The reasons for this increase relate
primarily to the inclusion of results for all four operating subsidiaries as
discussed above, which resulted in an increase in the number of average access
line in operation of 58,730. On a per line basis, however, adjusted operating
and maintenance expenses decreased from $223 per average access line for the six
months ended June 30, 1995 to $153 for the six months ended June 30, 1996 as
high labor cost manual switchboards were eliminated and the use of modern
digital switching technology was increased.
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION (Continued)
Depreciation and Amortization
Depreciation and amortization charges increased $1.1 million to $1.9
million in the six months ended June 30, 1996 as compared to $0.8 million for
the comparable 1995 period. This increase stems from the fact that the Company
had significantly more fixed assets in operation as there were 58,730 more lines
in operation, including 46,911 additional average lines in Papatel and
Hungarotel, during the six months ended June 30, 1996 as compared to the
previous period. As the Company proceeds with its capital expenditure programs
in each of the Operating Areas, it believes that depreciation and amortization
expenses will increase as more assets are placed into operation.
Management Fees
Management fees payable to Citizens and Tele Danmark, pursuant to their
respective management agreements, increased $2.5 million to $3.4 million for the
six months ended June 30, 1996 from $0.9 million for the comparable 1995 period,
principally because fees to Citizens commenced July 1, 1995.
Loss from Operations
Loss from operations remained unchanged at $7.1 million for both the
six months ended June 30, 1995 and 1996. The operating loss in the 1996 period
was principally due to additional expenses incurred by the Company to expand
management, project oversight, engineering design and systems which will be
needed to achieve rapid line growth and revenue increases, and provide for the
introduction and control of new services.
Foreign Exchange Losses
Foreign exchange losses increased $0.5 million from $1.1 million for
the six months ended June 30, 1995 to $1.6 million for the six months ended June
30, 1996. Such foreign exchange losses resulted from the devaluation of the
Hungarian Forint against the U.S. Dollar and the German Mark. The Company has
incurred debt and other obligations which are denominated in U.S. Dollars and
German Marks in order to commence the construction of its telecommunication
networks. During the six months ended June 30, 1996, the Hungarian Forint
devalued against a basket of major currencies by 4.3%. It is the policy of the
National Bank of Hungary to continue to devalue the Hungarian Forint in order to
ensure its relative competitiveness. For the remainder of 1996, the National
Bank of Hungary has announced that it will manage the devaluation of the
Hungarian Forint at a 1.2% rate per month. Since a substantial portion of the
Company's liabilities are denominated in currencies other than the Hungarian
Forint, the Company expects to continue to incur additional foreign currency
losses in the future.
Net Interest Expense
Net interest expense increased $6.0 million to $6.9 million for the six
months ended June 30, 1996 as compared to $0.9 million for the six months ended
June 30, 1995. The principal reason for this increase was attributable to higher
average debt levels in the six months ended June 30, 1996 as compared to the
comparable 1995 period as the Company incurred indebtedness in order to commence
the construction of its telecommunications networks. Interest income increased
from $0.4 million for the six month period ended June 30, 1995 to $0.9 million
for the six month period ended June 30, 1995 due to higher average cash
balances. The average rate of interest accrued by the Company on its
indebtedness decreased to 16.0% for the six months ended June 30, 1996 as
compared to 21.6% for the six months ended June 30, 1995, as the proportion of
US dollar denominated debt increased.
Other
Other income increased from nil for the six months ended June 30, 1995
to $0.5 million for the six months ended June 30, 1996 principally due to income
from ancillary activities and the sale of non-operating assets.
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION (Continued)
Loss Before Extraordinary Item
As a result of the factors discussed above, loss before extraordinary
item increased $5.8 million to $13.2 million for the six months ended June 30,
1996 from $7.4 million for the six months ended June 30, 1995.
Extraordinary Item
For the six months ended June 30, 1996, the Company recorded an
extraordinary item for a non-cash charge of $8.2 million related to the
write-off of the remaining unamortized deferred financing costs pertaining to
the Citizens Loan Agreement, on repayment of the relevant loan.
Net Loss
As a result of the factors discussed above, for the six months ended
June 30, 1996, the Company recorded a net loss of $21.4 million as compared to a
net loss of $15.6 million for the period ended June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company was considered a development stage company through March
31, 1995. It has historically funded its capital requirements primarily through
a combination of debt, equity and vendor financing. The ongoing development and
installation of the network in each of the Company's operating areas requires
significant capital expenditures. These expenditures, together with associated
operating expenses, will continue to result in substantial cash requirements at
least until a customer base large enough to provide sufficient revenues and
operating cash flow is established.
On March 20, 1996, the Company entered into a $75.0 million credit
facility (the "Credit Facility") and, together with HTCC Consulting, a related
pledge and security agreement with Citicorp North America, Inc. Advances under
the Credit Facility may be requested through December 31, 1996 and will bear
interest rates of 4.5% and 3.5% above LIBOR or Citicorp's announced base rate,
respectively, up to June 30, 1996. Such rates will increase by 1% per quarter
until maturity on December 31, 1996. On April 3, 1996, the Company used $50.8
million from the Credit Facility to repay all the funds advanced or guaranteed
by Citizens Utilities, Inc.("Citizens") and Chemical Bank. As of such date, all
loan agreements with Citizens and Chemical Bank were terminated. Accordingly, in
April 1996, the Company incurred a non-cash charge of approximately $8.2 million
representing the remaining unamortized deferred financing costs pertaining to
the loan agreements with Citizens. On June 28, 1996, the Company's Hungarotel
subsidiary entered into a $45.0 million construction contract for the
construction of a telephone network with a capacity of 40,000 lines in its
Bekescsaba service area. Financing will be provided by the contractor for the
entire contract amount. The financing agreement requires repayment in 19
quarterly installments commencing on March 31, 1998 with the final payment due
December 31, 2002. Interest will be charged at a variable rate computed as the
weighted average of the six and 12 month Hungarian National Treasury Bill
interest rate for each quarter plus 2.5%. Interest payments may be deferred
until December 31, 1997.
In 1995, the Company applied for network construction subsidies from
the Hungarian government. In December 1995, certain of the Company's
applications were approved, subject to certain conditions, resulting in the
Company being awarded subsidies aggregating $0.9 million. The Company expects to
receive such subsidies in installments in the fourth quarter of 1996 and the
first quarter of 1997. One-half of such funds will be received in the form of a
grant and one-half in the form of a non-interest bearing loan repayable over a
three year period.
Net cash used by operating activities as shown on the Statement of Cash
Flows increased to $11.9 million for the six months ended June 30, 1996 as
compared to $3.0 million for the six months ended June 30, 1995. For the six
months ended June 30, 1996, the Company used $14.7 million in investing
activities as compared to $12.7 million for the six months ended June 30, 1995.
Of the $14.7 used through June 30, 1996, $13.7 million was used to fund the
construction of the Company's telecommunications networks. Financing activities
provided net cash of $10.6 million and $29.5 million for the six months ended
June 30, 1995 and 1996, respectively.
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Part I. FINANCIAL INFORMATION (Continued)
The Company anticipates that the capital expenditures necessary to
complete the modernization and construction of its networks will require
approximately $45.9 million from July 1, 1996 through the end of 1996 and $43.8
million through the end of 1997. Funding for the Company's future capital
requirements may include the sale of equity or debt of HTCC or one or more of
the operating companies. There can be no assurance that such financing will be
available to the Company when needed, on commercially reasonable terms, or at
all.
In order to meet its financial obligations incurred in connection with
the acquisition and construction of the telecommunications networks of its
operating companies and to meet ongoing operational requirements (including
working capital needs), it is necessary for the Company to increase its
operating cash flows. The Company believes that there will be sufficient
customers in its operating areas willing and able to pay for telecommunications
services. The Company's ability to generate revenues sufficient to meet its
operating and other expenses will be dependent primarily on the Company's
ability to meet the telecommunications needs of its existing and potential
subscribers. In the meantime, shortfalls in construction funding and working
capital needs may require additional financing arrangements, which could include
the sale of equity or debt securities of HTCC. There can be no assurance that
the Company's operations will achieve sufficient cash flows necessary to service
any long-term financing that it may be able to obtain, or that the Company will
be able to obtain new financing arrangements on commercially reasonable terms
adequate to meet its operational needs and payment obligations.
The Company has engaged two investment banks \
to serve as underwriters for the placement of approximately $125 million of debt
securities of the Company, such underwriting is anticipated to close in the
second half of 1996
INFLATION AND FOREIGN CURRENCY
For the six months ended June 30, 1996, inflation in Hungary was
approximately 23.6% on an annualized basis. It is the stated policy goal of the
Hungarian government to keep inflation from exceeding approximately 20% for the
entire year.
The Company's Hungarian operations generate revenues in Hungarian
Forints and incur operating and other expenses, including capital expenditures,
in Hungarian Forints, U.S. Dollars and German Deutsche Marks. The Company's
resulting foreign currency exposure cannot be practically hedged due to the
significant costs involved and the lack of a market for such hedging. In
addition, certain of the Company's balance sheet accounts are expressed in
foreign currencies other than the Hungarian Forint, the Company's functional
currency. Accordingly, when such amounts are expressed in U.S. Dollars for
reporting purposes, the Company is subject to translation adjustments, the
effect of which are reflected in a component of stockholders equity.
While the Company has the ability to increase the prices it charges for
its services commensurate with increases in the Hungarian Producer Price Index
("PPI") pursuant to its license from the Hungarian government, it may choose not
to implement the full amount of the increase permitted due to competitive and
other concerns. In addition, the rate of increase in the Hungarian PPI may be
less than the rate at which the Hungarian Forint devalues. As a result, the
Company may be unable to increase its prices to the degree necessary to meet its
obligation in currencies other than the Hungarian Forint.
<PAGE>
PART II -- OTHER INFORMATION
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security-Holders
a. Annual Meeting of Shareholders on May 9, 1996.
b(i) Election of Directors
FOR WITHHELD
Robert Genova 3,681,759 58,730
Frank R. Cohen 3,681,259 59,230
John B. Ryan 3,681,219 59,270
Max Metzlaff 3,680,719 59,770
Donald K. Roberton 3,680,959 59,530
James H. Season 3,680,719 59,770
(ii) Proposal to amend the Registrant's Certificate of
Incorporation to increase the number of authorized
shares of common stock thereunder from 10,000,000
to 25,000,000
For: 3,562,372
Against: 163,547
Abstention: 14,570
(iii) Proposal to amend the Registrant's Certificate of
Incorporation to authorize the issuance of up to
5,000,000 shares of preferred stock.
For: 2,292,373
Against: 220,220
Abstention: 17,900
Broker Non-Votes: 1,209,996
(iv) Proposal to amend the Registrant's 1992 Incentive
Stock Option Plan, as amended, to increase the number
of shares of the Registrant's common stock available
thereunder from 250,000 to 750,000.
For: 1,388,795
Against: 309,735
Abstention: 831,963
Broker Non-Votes: 1,209,996
(v) Ratification of the appointment of KPMG Peat Marwick
LLP as auditors of the Registrant for the fiscal year
ending December 31, 1996.
For: 3,723,649
Against: 5,430
Abstention: 11,410
<PAGE>
PART II -- OTHER INFORMATION
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 10.74 -- English translation of Contruction
Contract between Papa es Tersege Telefon Koncesszios
Rt. and Fazis Telecommunication System Design and
Contruction Corporation dated May 10, 1996.
Exhibit 10.75 -- English translation of
Construction Contract between Hungarotel
Tavkezlesi Rt. and Ericsson Kft. dated May 17, 1996.
Exhibit 10.76 -- English translation of Construction
Contract between Papa es Tersege
Telefon Koncesszios Rt. and Ericsson Kft. dated May
31, 1996.
Exhibit 10.77 -- English translation of
Construction Contract between Hungarotel
Tavkezlesi Rt. and Fazis Telecommunication System
Design and Contruction Corporation dated June 28,
1996.
Exhibit 10.78 -- English translation of Amended and
Restated Concession contract between Papa es Tersege
Telefon Koncesszios Rt. and the Hungarian Ministry
for Transportation, Telecommunications and Water
Management dated as June 3, 1996.
Exhibit 10.79 -- English translation of
Amended and Restated Concession Contract
between Hungarotel Tavkozlesi Rt. and the
Hungarian Ministry for transportation,
Telecommunications and Water Management dated as of
June 3, 1996. (Oroshaza)
Exhibit 10.80 -- English translation of
Amended and Restated Concession Contract between
Hungarotel Tavkozlesi Rt. and the Hungarian
Ministry for Transportation, Telecommunications and
Water Management dated as of June 3, 1996.
(Bekescsaba)
b. Reports on Form 8-K
None.
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned thereunto duly authorized, in the
City of New York, on the 19th day of August 1996.
HUNGARIAN TELEPHONE AND CABLE CORP.
-----------------------------------
(Registrant)
By :/s/James G. Morrison
-------------------------------
James G. Morrison
President and Chief Executive Office
By:/s/Andrew Nicholson
--------------------------------
Andrew Nicholson
Controller
