HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Condensed Financial Statements
For the quarterly period ended March 31, 1998
<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 March 31, 1998 Commission file number 1-11484
--------------
HUNGARIAN TELEPHONE AND CABLE CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3652685
(State or other jurisdiction (I.R.S. Employer Identification No.)
of 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 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 ninety days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest possible date:
Common Stock, $.001 par value 5,277,395 Shares
(Class) (Outstanding at May 13, 1998)
<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' Deficit 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 15
Signature 16
- 1 -
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Item 1. Financial Statements
<TABLE>
Consolidated Condensed Balance Sheets
(In thousands, except share data)
Assets March 31, 1998 December 31, 1997
------ -------------- -----------------
<S> <C> <C>
(unaudited)
Current assets:
Cash $ 5,949 $ 4,031
Restricted cash 514 536
Accounts receivable, net 8,207 9,437
VAT receivable, net 489 2,641
Inventories 1,647 1,231
Prepayments and other current assets 1,419 2,146
------------ ------------
Total current assets 18,225 20,022
Net property, plant and equipment 138,728 138,885
Goodwill, less accumulated amortization 10,564 11,299
Other intangibles, less accumulated amortization 5,813 6,168
Other assets 9,177 10,111
------------ ------------
Total assets $ 182,507 $ 186,485
============ ============
Liabilities and Stockholders' Deficit
Current liabilities:
Current installments of long-term debt $ 12,537 $ 7,489
Accounts payable 4,984 7,996
Advance subscriber payments 264 351
Due to related parties 9,455 7,932
Accruals 4,503 4,364
Other current liabilities 677 689
------------ ------------
Total current liabilities 32,420 28,821
Long-term debt, excluding current installments 196,762 194,537
Deferred revenue 1,379 1,488
Due to related parties 3,280 3,476
------------ ------------
Total liabilities 233,841 228,322
------------ ------------
Stockholders' deficit:
Common stock, $.001 par value. Authorized
25,000,000 shares; issued 5,302,395 shares
in 1998 and 5,235,370 shares in 1997 5 5
Additional paid-in capital 71,089 70,772
Accumulated deficit (128,897) (117,197)
Accumulated other comprehensive income 6,796 4,964
Deferred compensation (327) (381)
------------ ------------
Total stockholders' deficit (51,334) (41,837)
------------ ------------
Total liabilities and stockholders' deficit $ 182,507 $ 186,485
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
- 2 -
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Condensed Statement of Operations
For the Three Month Periods Ended March 31, 1998 and 1997
(In thousands, except share and per share data)
(unaudited)
<TABLE>
1998 1997
---- ----
<S> <C> <C>
TELEPHONE SERVICES REVENUES, NET $ 9,372 $ 7,924
Operating expenses:
Operating and maintenance expenses 5,592 5,240
Depreciation and amortization 2,740 1,759
Management fees 1,504 1,407
---------- -----------
Total Operating Expenses 9,836 8,406
---------- -----------
LOSS FROM OPERATIONS (464) (482)
Other income (expenses):
Foreign exchange losses (267) (263)
Interest expense (11,109) (6,573)
Interest income 108 296
Other, net 32 74
---------- -----------
NET LOSS $ (11,700) $ (6,948)
========== ===========
NET LOSS PER COMMON SHARE - BASIC $ (2.22) $ (1.66)
======= ======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,272,865 4,185,317
========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
- 3 -
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Condensed Statements of Stockholders' Deficit
(In thousands, except share data)
(unaudited)
<TABLE>
Accumulated
Additional Other Total
Common Paid-in Accumulated Comprehensive Deferred Stockholders'
Shares Stock Capital Deficit Income Compensation Deficit
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997 5,235,370 $ 5 70,772 (117,197) 4,964 (381) $ (41,837)
Earned compensation 54 54
Exercise of options and warrants 56,400 224 224
Shares issued as compensation 10,625 93 93
Net loss (11,700) (11,700)
Foreign currency translation adjustment 1,832 1,832
Balances at March 31, 1998 5,302,395 $ 5 71,089 (128,897) 6,796 (327) $ (51,334)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
- 4 -
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
For the Three Month Periods Ended March 31, 1998 and 1997
(In thousands)
(unaudited)
<TABLE>
1998 1997
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 1,662 805
---------- -----------
Cash flows from investing activities:
Construction of telecommunication networks (8,667) (23,683)
Decrease in construction deposits 499 2,887
Proceeds from sale of assets 10 170
---------- -----------
Net cash used in investing activities (8,158) (20,626)
---------- -----------
Cash flows from financing activities:
Borrowings under long-term debt 10,328 23,596
Repayment of long-term debt (1,820) (9,959)
Proceeds from exercise of options 224 50
---------- -----------
Net cash provided by financing activities 8,732 13,687
---------- -----------
Effect of foreign exchange rate changes on cash (318) (976)
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,918 (7,110)
Cash and cash equivalents at beginning of period 4,031 15,876
---------- -----------
Cash and cash equivalents at end of period $ 5,949 8,766
========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
- 5 -
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
(1) Summary of Significant Accounting Policies
(a) 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 a fair presentation. Results for the
interim periods are not necessarily indicative of the results for
a full year.
(b) Net Loss Per Share
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"),
on December 31, 1997. SFAS 128 establishes standards for computing
and presenting earnings per share ("EPS") and supersedes APB
Opinion No. 15, "Earnings Per Share". SFAS 128 requires dual
presentation of basic and diluted EPS for net income on the face
of the statement of operations and a separate reconciliation of
both EPS amounts. Basic EPS is computed by dividing income or loss
by the weighted average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were
exercised or converted into common stock at the beginning of the
period presented. Basic loss per share for 1997 has been restated
to give effect to SFAS 128 and was not different from net loss per
share measured under APB No. 15. Potentially dilutive common stock
equivalents totalling 7,449,242 and 5,629,706 for the quarters
ended March 31, 1998 and 1997, respectively, have not been
included in the computation of diluted net loss per common share
because they were antidilutive for the periods presented.
(2) Cash and Restricted Cash
(a) Cash
At March 31, 1998, cash of $5,949,000 comprised the following:
$5,757,000 consisting of $383,000 denominated in U.S. dollars and
the equivalent of $5,374,000 denominated in Hungarian Forints on
deposit with banks in Hungary, and; $192,000 on deposit in the
United States.
- 6 -
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
(b) Restricted Cash
At March 31, 1998, approximately $468,000 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 within one year and therefore
the restricted cash is shown as a current asset.
At March 31, 1998, approximately $22,000 of cash denominated in
U.S. Dollars was deposited in escrow accounts under terms of
construction contracts. In addition, approximately $24,000 was
restricted pursuant to certain arrangements with other parties.
(3) Related Parties
Current and long-term amounts due to related parties totalling
$12,735,000 at March 31, 1998 is comprised of the following: $34,000 due
to Hungarian Teleconstruct Corp. ("Teleconstruct") for rent and other
services, plus interest, $8,675,000 due to a subsidiary of Citizens
Utilities Company (Citizens Utilities Company and its subsidiaries are
hereinafter referred to as "Citizens") for reimbursable management costs
and management fees accrued under the Management Services Agreement (see
Note 4 below); and $4,026,000 representing payments due to certain former
officers under separate termination, consulting and non-competition
agreements.
The Company paid approximately $302,000 during the first quarters of 1998
and 1997 to three former officers under these agreements.
(4) Issues with Citizens
The Company and Citizens presently have a disagreement regarding certain
issues with respect to the Management Services Agreement with Citizens.
As of March 31, 1998, the Company has accrued as a current liability, but
not paid, $8.7 million pursuant to the Management Services Agreement. The
Company currently intends to withhold any payments to Citizens until
- 7 -
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
such time as these issues are resolved. The Company and Citizens also
have a disagreement regarding certain issues with respect to 2.1 million
shares of Common Stock subject to Citizens' preemptive rights to date.
The Company is currently in discussions with Citizens in an attempt to
resolve these issues.
(5) Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS 130 requires that changes in the amounts of
items such as foreign currency translation adjustments are to be
displayed prominently in the financial statements. The Company's total
comprehensive loss is as follows:
<TABLE>
March 31, March 31,
1998 1997
<S> <C> <C>
Net loss (11,700) (6,948)
Foreign currency translation
adjustment 1,832 1,740
--------- --------
Total comprehensive loss (9,868) (5,208)
========= ========
</TABLE>
(6) Credit Facility
On October 15, 1996, the Company and its subsidiaries entered into a $170
million 10-year Multi-Currency Credit Facility with Postabank es
Takarekpenztar ("Postabank"), a Hungarian commercial bank (the "Postabank
Credit Facility"). Proceeds from the loan may be drawn entirely in
Hungarian Forints and up to 20% of the principal may be drawn in U.S.
Dollars through March 31, 1999.
Since October 1996, the Company has utilized the funding provided by the
Postabank Credit Facility to continue construction of its
telecommunications networks, provide working capital, and repay other
existing debt obligations. As of March 31, 1998 and 1997, the Company had
borrowed a total of $164 million and $139 million, respectively, under
the Postabank facility.
- 8 -
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Introduction
Hungarian Telephone and Cable Corp. ("HTCC" and, together with its
consolidated subsidiaries, the "Company") is engaged primarily in the
provision of telecommunications services through its majority-owned
operating subsidiaries, Kelet-Nograd Com Rt. ("KNC"), Raba Com Rt.
("Raba-Com"), Papa es Tersege Telefon Koncesszios Rt. ("Papatel") and
Hungarotel Tavkozlesi Rt. ("Hungarotel"). The Company earns substantially all
of its telecommunications revenue from measured service fees, monthly line
rental fees, connection fees, public pay telephone services and ancillary
services (including charges for additional services purchased at the customer's
discretion).
During 1996 and 1997, the Company embarked on a significant network
development program designed to meet its substantial demand backlog, increase
the number of basic telephone access lines in service and modernize existing
facilities. The development and installation of the network in each of the
Company's operating areas required significant capital expenditures. Additional
capital expenditures to further expand the Company's networks, together with
associated operating expenses, will continue to result in the use of outstanding
credit facilities until a customer base large enough to provide sufficient
revenues and operating cash flow is established.
As a result of the development program to date, the Company achieved
EBITDA* of $2.3 million during the quarter ended March 31, 1998, up from EBITDA
of $1.3 million for the quarter ended March 31, 1997. The ability of the Company
to generate sufficient revenues to satisfy cash requirements and become
profitable will depend upon a number of factors, including the Company's ability
to attract additional customers, revenues per customer and construction costs.
These factors are expected to be primarily influenced by the success of the
Company's operating and marketing strategies as well as market acceptance of
telecommunications services in the Company's operating areas. In addition, the
Company's profitability may be affected by changes in the Company's regulatory
environment and other factors that are beyond the Company's control.
- --------
* EBITDA is defined as net revenue less operating and maintenance expenses and
management fees. The Company has included information concerning EBITDA because
it understands that it is used by certain investors as one measure of the
Company's ability to service or incur indebtedness. EBITDA is not a measure of
financial performance under generally accepted accounting principles and is not
necessarily comparable to similarly titled measures used by other companies.
EBITDA should not be construed as an alternative to operating income (as
determined in accordance with generally accepted accounting principles) or to
cash flows from operating activities (as determined in accordance with generally
accepted accounting principles) as a measure of liquidity.
- 9 -
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
The success of the Company's strategy is dependent upon its ability to
increase revenues through the addition of new subscribers. Since commencing the
provision of telecommunications services in the first quarter of 1995, the
Company's network construction and expansion program has added approximately
117,000 access lines through March 31, 1998 to the approximately 60,000 access
lines acquired directly from Magyar Tavkozlesi Rt. ("MATAV"), the former
State-controlled monopoly telephone company. During this same period, churn has
been negligible, primarily due to the Company's exclusivity rights and the
demand for services evidenced by the wait-listed subscriber base.
Comparison of Three Months Ended March 31, 1998 and Three Months Ended March 31,
1997
<TABLE>
Net Revenues
Quarter ended
(dollars in millions) 1998 1997 % change
<S> <C> <C> <C>
Measured service revenues 7.8 6.0 30
Subscription revenues 2.7 1.5 80
Net interconnect charges (2.4) (2.5) (4)
Net measured service and subscription revenues 8.1 5.0 62
Connection fees 0.6 2.5 (76)
Other operating revenues, net 0.7 0.4 75
Telephone Service Revenues, Net 9.4 7.9 18
</TABLE>
The Company recorded a 18% increase in telephone service revenues to
$9.4 million for the three months ended March 31, 1998 from $7.9 million for the
three months ended March 31, 1997.
Net measured service and subscription revenues increased 62% to $8.1
million for the three months ended March 31, 1998 from $5.0 million for the
three months ended March 31, 1997. Measured service revenues increased 30% to
$7.8 million during the three months ended March 31, 1998 from $6.0 million
during the three months ended March 31, 1997. Subscription revenues increased
80% to $2.7 million during the three months ended March 31, 1998 from $1.5
million during the three months ended March 31, 1997. These increases in
measured service and subscription revenues are the result of a 70% increase in
average access lines in service from approximately 175,800 lines for the three
months ended March 31, 1998 from approximately 103,400 lines during the three
months ended March 31, 1997.
These revenues have been offset by net interconnect charges which
totalled $2.4 million during the three months ended March 31, 1998 compared to
$2.5 million during the three months ended March 31, 1997. As a percentage of
call and subscription revenues, net interconnect charges have declined from 33%
for the three months ended March 31, 1997 to 23% for the three months ended
March 31, 1998, due to a higher proportion of local traffic as additional access
lines are placed in service plus a negotiated reduction in interconnect fees
effective January 1, 1998.
- 10 -
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Connection fees for the three month period ended March 31, 1998
totalled $0.6 million as compared to $2.5 million for the three months ended
March 31, 1997. This decrease reflects the reduction in the number of new access
lines connected from 18,800 lines during the three months ended March 31, 1997
to 2,500 lines during the three months ended March 31, 1998. Connection fees
were expected to decline substantially during the quarter as the majority of
wait-listed customers have been provided with access lines.
Other operating revenues increased 75% to $0.7 million during the three
months ended March 31, 1998 compared to $0.4 million during the three months
ended March 31, 1997 due to revenues generated from Lucent PBX sales and related
maintenance services.
Operating and Maintenance Expenses
Operating and maintenance expenses increased 7% to $5.6 million for the
three months ended March 31, 1998 as compared to $5.2 million for the three
months ended March 31, 1997. On a per line basis, operating and maintenance
expenses decreased to approximately $32 per average access line for the three
months ended March 31, 1998 from $50 for the three months ended March 31, 1997
as the Company achieved productivity improvements, including the decreased use
of labor intensive manual switchboards and the increased use of modern switching
technology.
Depreciation and Amortization
Depreciation and amortization charges increased $0.9 million to $2.7
million for the three months ended March 31, 1998 from $1.8 million for the
three months ended March 31, 1997. This increase was due to the increase in
plant and lines in operation.
Management Fees
Management fees pursuant to management service agreements increased
$0.1 million to $1.5 million for the three months ended March 31, 1998 from $1.4
million for the three months ended March 31, 1997.
Loss from Operations
Loss from operations remained constant at $0.5 million for the three
months ended March 31, 1998 and March 31, 1997. Higher revenues during the three
months ended March 31, 1998 as compared to the three months ended March 31, 1997
were offset primarily by depreciation charges along with a slight increase in
operating and maintenance expenses during the quarter.
- 11 -
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Foreign Exchange Losses
Foreign exchange losses remained constant at $0.3 million for the three
months ended March 31, 1998 and March 31, 1997. Such foreign exchange losses
resulted from the devaluation of the Hungarian Forint against the U.S. Dollar
and the German Mark.
Interest Expense
Interest expense increased to $11.1 million for the three months ended
March 31, 1998 from $6.6 million for the three months ended March 31, 1997. This
increase was attributable to higher average debt levels during the three months
ended March 31, 1998 as compared to the three months ended March 31, 1997 as the
Company incurred indebtedness in order to continue the construction of its
telecommunications networks and repay other loan obligations.
Interest Income
Interest income decreased to $0.1 million for the three months ended
March 31, 1998 from $0.3 million for the three months ended March 31, 1997 due
to lower average cash balances outstanding during the three months ended March
31, 1998.
Net Loss
As a result of the factors discussed above, the Company recorded a net
loss of $11.7 million during the three months ended March 31, 1998 as compared
to a net loss of $6.9 million during the three months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its capital requirements primarily
through a combination of debt, equity and vendor financing. The ongoing
development 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.
Cash flow provided from operating activities totalled $1.7 million
during the three months ended March 31, 1998 compared to cash provided by
operating activities of $0.8 million during the three months ended March 31,
1997. For the three months ended March 31, 1998, the Company used $8.2 million
for investing activities, which was primarily used to fund the construction of
the Company's telecommunications networks, compared to $20.6 million used for
investing activities in the three months ended March 31, 1997. Financing
activities provided net cash of $8.7 million and $13.7 million for the three
months ended March 31, 1998 and 1997, respectively.
- 12 -
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
To date, the Company's activities have involved the acquisition of the
concessions and telecommunications networks from MATAV and the subsequent
design, development and construction of the modern telecommunications
infrastructure that the Company now has in service. The Company has suffered
from recurring losses from operations and has a working capital deficiency and a
net capital deficiency. The Company is dependent on its ability to generate cash
from operations, raise capital in the form of debt or equity, or refinance or
otherwise resolve its existing obligations, including those related to the
Management Services Agreement with Citizens. The ability of the Company to
generate sufficient revenues to satisfy cash requirements and become profitable
will depend upon a number of factors, including the Company's ability to attract
additional customers and revenues per customer. These factors are expected to be
primarily influenced by the success of the Company's operating and marketing
strategies as well as market acceptance of the Company's services.
The Company and Citizens presently have a disagreement regarding
certain issues with respect to the Management Services Agreement with Citizens.
As of March 31, 1998, the Company has accrued as a current liability, but not
paid, $8.7 million pursuant to the Management Services Agreement. The Company
currently intends to withhold any payments to Citizens until such time as these
issues are resolved. The Company and Citizens also have a disagreement regarding
certain issues with respect to 2.1 million shares of Common Stock subject to
Citizens' preemptive rights to date. The Company is currently in discussions
with Citizens in an attempt to resolve these issues.
The Company believes it will be able to meet its obligations as they
become due during 1998, provided it is not required to settle the accrued
liability to Citizens in cash, however, there can be no assurance that this will
be the case. Additionally, funding for the Company's future capital requirements
to repay existing debt obligations after 1998 may require the sale of equity
and/or debt of the Company 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. The Company is, however,
reviewing its options with respect to refinancing its existing credit and/or
vendor facilities. The Company is also reviewing various other financing
alternatives with its financial advisors.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. The Consolidated Condensed Financial Statements do
not include any adjustments that might result from the outcome of this
uncertainty.
The Company has granted various warrants and options to purchase the
Company's Common Stock, including those previously granted to Citizens, and has
provided certain preemptive rights to Citizens. For the term of these warrants
and options, the holders will have the opportunity to exercise and dilute the
interests of other security holders or, in the case of Citizens, acquire a
controlling interest in the Company. As long as these warrants and options
remain unexercised, and dependent upon the outcome of the Company's
disagreements with Citizens, the Company's ability to obtain additional equity
capital may be adversely affected.
- 13 -
<PAGE>
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
INFLATION AND FOREIGN CURRENCY
For the year ended December 31, 1997, inflation in Hungary was
approximately 18.6% on an annualized basis. It is the stated policy goal of the
Hungarian government to keep inflation from exceeding approximately 15% in 1998.
The Company's Hungarian operations generate revenues in Hungarian
Forints and incur operating and other expenses, including capital expenditures,
predominately in Hungarian Forints but as well in U.S. Dollars. The Company's
resulting foreign currency exposure is difficult to hedge 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 accounts are converted into Hungarian Forints, the Company is subject
to foreign exchange gains and losses which are reflected as a component of net
income or loss. When the Company and its subsidiaries' Forint-denominated
accounts are translated into U.S. Dollars for financial reporting purposes, the
Company is subject to translation adjustments, the effect of which is reflected
as a component of stockholders' deficit.
While the Company has the ability to increase the prices it charges for
its services commensurate with increases in the Hungarian Consumer Price Index
("CPI") pursuant to its licenses 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 CPI may
be less than the rate at which the Hungarian Forint devalues. As a result, the
Company may be unable to generate cash flows to the degree necessary to meet its
obligation in currencies other than the Hungarian Forint.
- 14 -
<PAGE>
Part II. Other Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Item 1. Legal Proceedings
On April 3, 1998, a former employee of the Company filed a lawsuit against the
Company in the Supreme Court of the State of New York in the County of New York
alleging that the Company wrongfully terminated the plaintiff's employment with
the Company in violation of the plaintiff's terminated employment agreement. The
plaintiff is seeking damages in excess of $1,000,000. The Company believes that
the plaintiff's claims are without merit and intends to vigorously defend this
action.
Item 2. Change in Securities
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
- 15 -
<PAGE>
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Signature
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hungarian Telephone and Cable Corp.
(Registrant)
May 13, 1998 By: /s/Francis J. Busacca, Jr.
---------------------------
Francis J. Busacca, Jr.
Chief Financial Officer, Interim President
and Chief Executive Officer; Duly
Authorized Officer
- 16 -
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Hungarian
Telephone and Cable Corp.'s Consolidated Financial Statements for the quarterly
period ended March 31, 1998.
</LEGEND>
<CIK> 0000889949
<NAME> HUNGARIAN TELEPHONE AND CABLE CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,463
<SECURITIES> 0
<RECEIVABLES> 8,890
<ALLOWANCES> (683)
<INVENTORY> 0
<CURRENT-ASSETS> 18,225
<PP&E> 150,094
<DEPRECIATION> (11,366)
<TOTAL-ASSETS> 182,507
<CURRENT-LIABILITIES> 32,420
<BONDS> 196,762
0
0
<COMMON> 5
<OTHER-SE> (51,339)
<TOTAL-LIABILITY-AND-EQUITY> 182,507
<SALES> 9,372
<TOTAL-REVENUES> 9,372
<CGS> 0
<TOTAL-COSTS> 9,836
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,109
<INCOME-PRETAX> (11,700)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,700)
<EPS-PRIMARY> (2.22)
<EPS-DILUTED> 0
</TABLE>
