<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
COMMISSION FILE NUMBER: 0-20444
PLD TELEKOM INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3950002
(State or other jurisdiction of incorporation of organization) (I.R.S. Employer Identification No.)
</TABLE>
680 FIFTH AVENUE, 24TH FLOOR, NEW YORK, NEW YORK 10019
(Address of principal executive offices and Zip Code)
(212) 262-6060
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, $.01 PAR VALUE - 32,008,050 SHARES (NOVEMBER 13, 1997)
<PAGE> 2
PLD TELEKOM INC.
INDEX
Page
Part I Financial Information
Item 1. Financial Statements
Consolidated Condensed Statements of Operations (Unaudited) for the
three and nine months ended
September 30, 1997 and 1996............................................3
Consolidated Condensed Balance Sheets as at September 30, 1997
(Unaudited) and December 31, 1996......................................4
Consolidated Condensed Statements of Cash Flows (Unaudited) for the
three and nine months
ended September 30, 1997 and 1996......................................5
Notes to Consolidated Condensed Financial Statements (Unaudited) for
the three and nine months ended September 30, 1997.....................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ...................................................... 8
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K...............................15
2
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLD TELEKOM INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Telecommunications $ 29,052 $ 16,874 $ 78,324 $ 40,260
Finance lease income 482 137 1,490 413
------------ ------------ ------------ ------------
29,534 17,011 79,814 40,673
Direct costs 10,608 5,581 28,294 12,788
------------ ------------ ------------ ------------
Gross profit 18,926 11,430 51,520 27,885
OPERATING EXPENSES:
General and administrative 9,804 6,323 25,902 16,026
Depreciation 3,138 1,378 7,868 3,789
Amortization of telecommunications licenses 1,755 1,234 5,814 3,650
and goodwill
Taxes other than income taxes 1,357 713 3,949 1,728
------------ ------------ ------------ ------------
16,054 9,648 43,533 25,193
------------ ------------ ------------ ------------
Operating income 2,872 1,782 7,987 2,692
Share of loss from equity investments (193) (541) (740) (1,423)
Interest and other income 625 1,263 3,777 3,193
Interest on bank indebtedness (204) (154) (558) (896)
Interest on long-term debt (4,253) (3,707) (12,288) (4,944)
Amortization of deferred financing costs (288) (507) (864) (612)
Foreign exchange loss (497) (12) (656) (432)
------------ ------------ ------------ ------------
Earnings/(loss) before income taxes and minority interest (1,938) (1,876) (3,342) (2,422)
Income taxes 2,048 1,764 5,488 3,118
------------ ------------ ------------ ------------
Loss before minority interest (3,986) (3,640) (8,830) (5,540)
Minority interest 1,391 1,118 4,614 1,649
------------ ------------ ------------ ------------
Net loss ($ 5,377) ($ 4,758) ($ 13,444) ($ 7,189)
============ ============ ============ ============
Net loss per common share ($ 0.17) ($ 0.15) ($ 0.42) ($ 0.23)
============ ============ ============ ============
Weighted average number of shares of common stock
outstanding 31,899,328 31,606,701 31,787,099 31,540,256
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
PLD TELEKOM INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
AS AT SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 28,071 $ 40,674
Trade receivables, net of allowances 14,065 10,528
Other receivables and prepaids 7,793 3,522
Inventory 2,075 1,840
Due from related parties 4,986 4,408
--------- ---------
56,990 60,972
Escrow funds 42,309 40,984
Property and equipment 122,692 93,039
Telecommunications licenses 66,964 72,310
Other investments 7,001 24,094
Other assets 18,701 14,958
--------- ---------
$ 314,657 $ 306,357
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank indebtedness 15,829
Notes payable 5,761 --
Accounts payable and accrued liabilities 25,010 25,792
Due to related parties 4,924 4,039
Deferred revenue 2,107 1,078
Current portion of long-term debt 1,449 --
--------- ---------
39,251 46,738
Long-term debt 125,697 107,954
Minority interest 23,461 13,711
SHAREHOLDERS' EQUITY:
Capital stock:
Preferred stock, par value $0.01 per share, authorized-
100,000,000 shares, issued and outstanding - 446,884 shares 31 31
Common stock, par value $0.01 per share, authorized -
100,000,000 shares, issued and outstanding -32,008,050
(December 31, 1996 - 31,696,034) shares 320 180,878
Additional paid-in capital 182,296 --
Warrants 13,592 13,592
--------- ---------
196,239 194,501
Accumulated deficit (69,991) (56,547)
--------- ---------
126,248 137,954
--------- ---------
$ 314,657 $ 306,357
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements
4
<PAGE> 5
PLD TELEKOM INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN):
OPERATIONS :
Net loss $ (5,377) $ (4,758) $ (13,444) $ (7,189)
Non-cash items
Depreciation and amortization 5,181 2,939 14,546 7,871
Share of loss of equity investments 193 541 740 1,423
Accrued interest on senior discount notes 3,657 3,078 10,500 4,150
Gain on sale of investment in SPMMTS -- -- (1,436) --
Minority interest 1,391 1,118 4,614 1,649
Other -- -- 251 --
Deferred revenue 288 594 1,029 (124)
Changes in non-cash working capital (7,379) (5,785) (8,945) (1,409)
--------- --------- --------- ---------
Cash from operations (2,046) (2,273) 7,855 6,371
--------- --------- --------- ---------
INVESTING:
Property and equipment (5,762) (6,595) (37,772) (23,378)
Escrow funds (437) (545) (1,325) (46,665)
Proceeds on sale of investment in SPMMTS -- -- 17,615 --
Other assets and investments 182 2,756 (662) 2,531
Investment in Teleport -- (3,647) -- (2,000)
--------- --------- --------- ---------
(6,017) (8,031) (22,144) (69,512)
--------- --------- --------- ---------
FINANCING:
Issue of senior discount and
convertible notes -- -- -- 114,197
Change in revolving credit facility -- -- -- (14,500)
Increase in demand bank loans -- -- 5,171 1,138
Repayment of demand bank loans -- (592) (21,000) --
Recapitalization of PeterStar 5,335 -- 5,335 --
Issue of common shares 1,644 991 1,738 991
Deferred financing costs -- (2,062) -- (9,041)
Long-term supplier financing 345 -- 8,692 --
Notes payable 161 -- 5,761 --
Related company/shareholder advances (4,011) (2,045) (4,011) (1,843)
--------- --------- --------- ---------
3,474 (3,708) 1,686 90,942
--------- --------- --------- ---------
Increase / (decrease) in cash and cash equivalents (4,589) (14,012) (12,603) 27,801
Cash and cash equivalents, beginning of period 32,660 57,489 40,674 15,676
--------- --------- --------- ---------
Cash and cash equivalents, end of period $ 28,071 $ 43,477 $ 28,071 $ 43,477
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements
5
<PAGE> 6
PLD TELEKOM INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 1997
(1) BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements are unaudited
and have been prepared by PLD Telekom Inc. (the 'Company') pursuant to the rules
and regulations of the Securities and Exchange Commission (the 'SEC'). In the
opinion of management, the financial statements include all adjustments
(consisting primarily of normal recurring accruals) necessary to present fairly
the financial position of the Company as at September 30, 1997 and the results
of operations and cash flows of the Company for the three and nine months ended
September 30, 1997 and 1996.
Certain information and footnote disclosures generally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules and
regulations. Results for the interim period are not necessarily indicative of
the results for a full year.
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996.
(2) CONTINUANCE OF THE COMPANY IN DELAWARE
On February 27, 1997, the shareholders of the Company at a special meeting
of shareholders approved a resolution authorizing the Company to continue as a
Delaware corporation under the Delaware General Corporation Law and
simultaneously discontinue the Company's existence in Ontario under the Business
Corporations Act (Ontario). The continuance was effective as of February 28,
1997. Following the continuance, the Company's financial statements are now
prepared in accordance with accounting principles generally accepted in the
United States (U.S. GAAP). The comparative figures for the three month and nine
month periods ended September 30, 1996 were previously prepared in accordance
with accounting principles generally accepted in Canada (Canadian GAAP). As a
consequence of the continuance to Delaware, the comparative figures have been
restated in accordance with U.S. GAAP.
(3) FUTURE ACTIVITIES
The Company's telecommunications businesses are developing rapidly in an
emerging economy which, by its nature, has an uncertain economic, political and
regulatory environment. The general risks of operating businesses in the former
Soviet Union include the possibility for rapid change in government policies,
economic conditions, the tax regime and foreign currency regulations. In
addition, Teleport -TP's satellite-based long distance network is at an early
stage of its development and operation and is therefore subject not only to the
general risks and uncertainties of operating in Russia, but also those involved
in the launching of a new telecommunications service. In addition, this national
long-distance service is being developed in various regions of Russia and its
implementation and results of operations will therefore be affected by, among
other things, the often uncertain economic conditions and growth rates in such
regions.
Ultimate recoverability of the Company's investments in its operating
subsidiaries, PeterStar Company Limited ('PeterStar'), Baltic Communications
Limited ('BCL'), BECET International ('BECET'), and Teleport-TP ('Teleport'), is
dependent upon each of these subsidiaries achieving and maintaining
profitability, which is dependent to a certain extent on the stabilization of
the economies of the former Soviet Union, the ability to maintain the necessary
telecommunications licenses and the ability to obtain adequate financing to meet
capital commitments.
(4) RESTRICTED CASH
Cash and cash equivalents includes cash on deposit of approximately $2.9
million which secures accounts payable of Technocom Limited ("Technocom"). In
addition, pursuant to the terms of the Company's $149.5 million
6
<PAGE> 7
private placement completed on June 12, 1996, $42.3 million remained in escrow
on September 30, 1997. These funds will be released in the future for
telecommunications equipment and investments in Russia and Kazakstan.
(5) CONTINGENCIES
(a) The Company has paid certain costs on behalf of, and made certain
loans to, PeterStar, which resulted in an intercompany balance of approximately
$22.8 million at December 31, 1996. The recapitalization of PeterStar in an
amount of $13.8 million was completed during the third quarter, with such funds
being used to repay an equal amount of these advances. Negotiations are also
continuing as to the mechanism of repayment of the remaining balance. A further
$850,000 is supported by short-term loan agreements.
(b) Under applicable Russian currency control regulations, the Company's
subsidiaries are required to have certain licenses from the Central Bank of
Russia to enable them to make payments of and accept receipts of hard currency.
While PeterStar and BCL have applied for all the necessary licenses, some have
been received and others are outstanding. Failure to receive the necessary
licenses could result in significant fines and penalties.
(c) Certain of the Company's Russian subsidiaries have accrued profits and
other taxes based on interpretations of the law which may ultimately be disputed
by the Russian taxation authorities. The exposure to additional profits and
other taxes, fines and penalties is not determinable.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This document contains certain forward-looking statements that are subject
to risks and uncertainties. Forward-looking statements include certain
information relating to political, social and economic conditions in the
countries of the former Soviet Union and the Commonwealth of Independent States,
the commencement of certain programs and the proposed offering of certain
services by the Company's operating subsidiaries, proposed changes in the
Company's corporate structure and centers of operations and interpretations and
actions of certain regulatory authorities, including in the United States,
Canada, Russia and Kazakstan, as well as information contained elsewhere in this
Report where statements are preceded by, followed by, or include the words
'believes,' 'expects,"'anticipates,' and similar expressions. For such
statements the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. Actual events or results may differ materially from those discussed
in forward-looking statements as a result of various factors, including without
limitation, those discussed elsewhere in this Report.
BASIS OF PRESENTATION
The Company's key interests at September 30, 1997 include a 60% equity
interest in PeterStar, which provides telecommunications services in St.
Petersburg, Russia; a 50% equity interest in BECET, which provides cellular
services in Kazakstan; and a 51% equity interest in Technocom which, through its
49% equity interest in Teleport, operates an international teleport in Moscow,
fiber optic networks in Moscow and its environs and a satellite-based long
distance network across Russia.
The consolidated financial information for the nine months ended September
30, 1997 differs from the nine months ended September 30, 1996 by reflecting:
(i) the Company's acquisition of 100% of the outstanding shares of BCL
in April 1996. Accordingly, only six months of BCL's results of
operations and cash flows are reflected in the nine month period
ended September 30, 1996; and
(ii) the acquisition by Technocom of a controlling voting interest in
Teleport effective December 31, 1996. Teleport is now accounted for
as a subsidiary rather than using the equity method.
Effective February 28, 1997, the Company was continued as a Delaware
corporation and as a result its financial statements are now prepared in
accordance with U.S. GAAP. The interim financial statements for the three months
and nine months ended September 30, 1996 were prepared in accordance with
Canadian GAAP. As a consequence of the continuance to Delaware, the financial
statements for these comparative periods have been restated in accordance with
U.S. GAAP. The most substantial difference between Canadian and U.S. GAAP in the
case of the Company is that U.S. GAAP does not permit the capitalization of
pre-operating costs of PeterStar and BECET.
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
Per Share", which superseded APB Opinion No. 15, "Earnings Per Share", was
issued in February 1997. SFAS 128 requires dual presentation of basic and
diluted earnings per share (EPS) for complex capital structure on the face of
the statement of operations. 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 from the exercise or conversion of
securities into common stock, such as stock options. SFAS 128 is required to be
adopted for year-end 1997; earlier application is not permitted. The Company
does not expect the basic or diluted EPS measured under SFAS 128 to be
materially different than if measured under APB No. 15.
Statement of Financial Accounting Standards No. 130 (SFAS 130),
"Reporting Comprehensive Income," and Statement of Financial Accounting
Standards No. 131 (SFAS 131) "Disclosure about Segments of an Enterprise and
Related Information," were issued in June 1997. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. This Statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company
has not determined the impact of SFAS 130 on its financial statements. SFAS 131
establishes standards for the way public companies report information about
operating segments in annual financial statements and requires that those
companies report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company is required to adopt both new standards in the first
quarter of 1998.
EBITDA is used as a measure of operating performance and is defined as
earnings (or loss) from continuing operations before income taxes and minority
interest plus net interest (interest expense less interest income) plus
depreciation and amortization. It is presented as supplemental disclosure
because it assists in understanding the Company's operating results. EBITDA,
however, should not be considered in isolation or as a substitute for net
income, cash flow provided by operating activities or other income or cash flow
data prepared in accordance with generally accepted accounting principles or as
a measure of a company's profitability or liquidity.
8
<PAGE> 9
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 VERSUS THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1996
PLD TELEKOM INC. -- CONSOLIDATED
Overview. The Company reported a net loss of $5.4 million, or $0.17 per
share, and operating income of $2.9 million, on total revenues (consisting of
operating revenues plus interest and other income) of $30.2 million for the
three months ended September 30, 1997, compared with a net loss of $4.8 million,
or $0.15 per share, and operating income of $1.8 million, on total revenues of
$18.3 million during the same period in 1996. Consolidated EBITDA increased 69%
to $7.1 million for the three months ended September 30, 1997 from $4.2 million
for the same period in 1996.
For the nine months ended September 30, 1997, the Company reported a net
loss of $13.4 million, or $0.42 per share, and operating income of $8.0 million,
on total revenues of $83.6 million, compared with a net loss of $7.2 million, or
$0.23 per share, and operating income of $2.7 million, on total revenues of
$43.9 million during the same period in 1996. Consolidated EBITDA increased 112%
to $20.3 million for the nine months ended September 30, 1997 from $9.6 million
for the same period in 1996.
The increase in net loss for the three and nine months ended September 30,
1997 is due primarily to the increase in the interest charge on long-term debt
for the quarter of $4.3 million and for the nine months of $12.3 million. In the
three and nine months ended September 30, 1996, the interest charge on long-term
debt totaled $3.7 million and $4.9 million respectively.
Revenues. Consolidated operating revenues increased by 74% to $29.5
million for the three months ended September 30, 1997 from $17.0 million for the
same period in 1996. For the nine months ended September 30, 1997, consolidated
operating revenues increased by 96% to $79.8 million from $40.7 million for the
same period in 1996. The increase in operating revenues for both periods is
attributable primarily to strong revenue growth in PeterStar and BECET, and the
consolidation of revenues from BCL as of April 1, 1996 and from Teleport as of
January 1, 1997.
Direct costs. Direct costs increased 90% to $10.6 million for the three
months ended September 30, 1997 from $5.6 million for the same period in 1996.
Direct costs as a percentage of operating revenues for the three months ended
September 30, 1997 were 35.9% compared with 32.8% for the same period in 1996.
For the nine months ended September 30, 1997, direct costs increased 121%
to $28.3 million from $12.8 million for the same period in 1996. Direct costs as
a percentage of operating revenues for the nine months ended September 30, 1997
were 35.4% compared with 31.4% for the same period in 1996.
The increase in direct costs as a percentage of operating revenues is
attributable primarily to the consolidation of Teleport during the period, which
had higher direct costs of $8.9 million on sales of $12.7 million (70%) because
it is still in its start-up phase. Removing the impact of the inclusion of
Teleport's revenues and direct costs, direct costs in the remaining businesses
have been reducing gradually to 28.9% of operating revenues.
General and administrative costs. General and administrative costs include
the day-to-day expenses in all subsidiary operations as well as corporate
expenses. General and administrative costs increased by 55% to $9.8 million in
the three months ended September 30, 1997 from $6.3 million in the same period
in 1996. For the nine months ended September 30, 1997, general and
administrative costs increased by 62% to $25.9 million from $16.0 million in the
same period in 1996.
These increases in general and administrative costs reflect the continued
growth in the scale and extent of the operating businesses and Technocom's
acquisition of a controlling stake in Teleport.
9
<PAGE> 10
Depreciation. Depreciation increased 128% to $3.1 million during the three
months ended September 30, 1997 from $1.4 million during the same period in
1996. For the nine months ended September 30, 1997, depreciation increased 108%
to $7.9 million from $3.8 million during the same period of 1996. The increases
in depreciation reflect an increase in the asset base of approximately 89%
between September 30, 1996 and September 30, 1997, due primarily to further
capital expenditure as the build-out of the PeterStar, BECET and Teleport
networks has continued.
Amortization. The Company continues to amortize the difference between the
purchase price and the fair value of the net assets acquired for its interests
in PeterStar, BECET, and - as of January 1, 1997 - Teleport on a straight line
basis. The charge for the three months ended September 30, 1997 was $1.8 million
compared to $1.2 million for the same period in 1996. For the nine months ended
September 30, 1997, the amortization charge was $5.8 million compared to $3.7
million for the same period in 1996.
Interest and other income. On June 12, 1996, the Company completed a
$149.5 million private placement (the 'June 1996 Placement') consisting of (i)
123,000 units consisting of $123 million aggregate principal amount at stated
maturity of 14% Senior Discount Notes due 2004 (the 'Senior Notes'), together
with Warrants to purchase a total of 4,182,000 Common Shares; and (ii) $26.5
million aggregate principal amount of 9% Convertible Notes (the 'Convertible
Notes'). Under the terms of the June 1996 Placement, $46 million was deposited
into an escrow account for subsequent disbursement into telecommunications
equipment or telecommunications companies in Russia and Kazakstan. All funds yet
to be disbursed continue to be invested in short-term reverse repurchase
agreements secured by U.S. treasury bonds. These investments, together with
interest earned on other cash deposits and miscellaneous other income, produced
total interest and other income for the three months ended September 30, 1997 of
$0.6 million and for the nine months ended September 30, 1997 of $3.8 million.
Other income for the nine months ended September 30, 1997 included a $1.4
million gain on the Company's sale of its investment in SPMMTS (St. Petersburg
Intercity and International Telephone, the international and long distance
gateway to St. Petersburg) in June 1997, for aggregate proceeds of $17.6
million. Interest and other income in the three and nine months ended September
30, 1996 of $1.3 million and $3.2 million, respectively, was comprised mainly of
interest income.
Interest on long-term debt. The debt instruments issued in the June 1996
Placement represent entirely new indebtedness of the Company and resulted in an
interest charge on long-term debt of $4.3 million for the three months ended
September 30, 1997, consisting of non-cash interest accruals on the Senior Notes
of $3.7 million and interest on the Convertible Notes of $0.6 million. For the
nine months ended September 30, 1997, these debt instruments resulted in an
interest charge on long-term debt of $12.3 million, consisting of non-cash
interest accruals on the Senior Notes of $10.5 million and interest on the
Convertible Notes of $1.8 million. The interest charge for the three months and
nine months ended September 30, 1996 was $3.7 million and $4.9 million
respectively, consisting primarily of non-cash interest accruals on the Senior
Notes.
Income taxes. The income tax charge for the three months ended September
30, 1997 was $2.0 million compared with $1.8 million during the same period in
1996. For the nine months ended September 30, 1997, the income tax charge was
$5.5 million compared with $3.1 million during the same period in 1996. The
provision for income taxes relates substantially to current income taxes in the
Company's Russian and Kazak businesses and reflects the substantially improved
profitability of these subsidiaries.
PETERSTAR
PeterStar reported net income of $4.0 million and an operating profit of
$4.8 million on operating revenues of $14.0 million for the three months ended
September 30, 1997, compared to net income of $1.5 million and an operating
profit of $2.9 million on operating revenues of $8.0 million for the same period
in 1996. EBITDA increased 76% to $5.8 million for the three months ended
September 30, 1997 from $3.3 million for the same period in 1996.
For the nine months ended September 30, 1997, PeterStar reported net
income of $10.6 million and an operating profit of $14.1 million on operating
revenues of $36.5 million, compared to net income of $4.6 million and
10
<PAGE> 11
an operating profit of $7.0 million on operating revenues of $21.2 million for
the same period in 1996. EBITDA increased 94% to $16.7 million for the nine
months ended September 30, 1997 from $8.6 million for the same period in 1996.
The 73% and 72% increase in operating revenues for the three and nine
months ended September 30, 1997, respectively, reflect a 102% increase in line
penetration from approximately 43,500 at September 30, 1996 to approximately
88,000 at September 30, 1997. While PeterStar anticipates continuing to increase
line penetration in the future, the impact of this on operating revenues is also
expected to be offset by decreases in average revenue per line.
PeterStar's average revenue per line has decreased as its customer base is
shifting from the high margin niche market of international joint ventures to a
lower margin predominantly Russian business market. In addition, as development
of the Vassilyevski Island project progresses, the added residential customers
on the PeterStar network will contribute lower revenue per line than the
business customers.
General and administrative costs in PeterStar rose to $6.8 million for the
nine months ended September 30, 1997, from $5.0 million for the same period in
1996, an increase of 36%, reflecting the increase in operating revenues of the
PeterStar business over that period.
TECHNOCOM
Technocom, which includes the results of Teleport, reported a net loss of
$1.5 million and an operating loss of $1.1 million on operating revenues of $4.9
million for the three months ended September 30, 1997, compared to a net loss of
$0.1 million and an operating loss of $0.5 million on operating revenues of $1.4
million for the same period in 1996.
For the nine months ended September 30, 1997, Technocom reported a net
loss of $2.8 million and an operating loss of $2.2 million on operating revenues
of $16.0 million, compared to a net loss of $0.1 million and an operating loss
of $0.9 million on operating revenues of $1.9 million for the same period in
1996.
The increase in operating revenues from 1996 was derived primarily from
the consolidation of Teleport in the financial statements of Technocom.
TELEPORT
Teleport had a net loss of $0.9 million and an operating loss of $0.4
million on operating revenues of $3.9 million for the three months ended
September 30, 1997. For the nine months ended September 30, 1997, Teleport had a
net loss of $1.6 million and an operating loss of $0.6 million on operating
revenues of $12.7 million. Teleport financial results were not consolidated
during the same period in 1996.
While showing significant growth over its performance in 1996, Teleport's
operating revenues have been depressed for the three and nine months ended
September 30, 1997 due primarily to the continued delayed roll-out of its
satellite-based long distance network resulting principally from the logistics
involved in the physical implementation of the network and the regulatory and
other requirements imposed by local authorities. These problems, particularly
the regulatory issues which were unanticipated when the roll out program was
commenced, have continued for a longer period of time in 1997 than was expected,
and have caused Teleport to reduce its target for 1997 installations by the end
of 1997 from 45 to 35. The Company currently expects to experience fewer
logistical and regulatory delays in 1998, but no assurances can be made that
additional such delays will not be encountered. In addition, Teleport's future
results may be affected by the poor economic conditions in some of the regions
where the network is being rolled-out.
11
<PAGE> 12
BECET
BECET had net income of $1.7 million and an operating profit of $2.3
million on operating revenues of $7.9 million for the three months ended
September 30, 1997, compared to net income of $1.8 million and an operating
profit of $2.4 million on operating revenues of $5.2 million for the same period
in 1996. EBITDA increased to $3.7 million for the three months ended September
30, 1997 from $2.8 million for the same period in 1996.
For the nine months ended September 30, 1997, BECET had net income of $4.7
million and an operating profit of $6.5 million on operating revenues of $20.6
million, compared to net income of $2.9 million and an operating profit of $3.8
million on operating revenues of $13.4 million for the same period in 1996.
EBITDA increased to $9.3 million for the nine months ended September 30, 1997
from $5.2 million for the same period in 1996.
The increase in operating revenues (51% for the three months and 54%
for the nine months ended September 30, 1997) is attributable to an increase in
the number of BECET's subscribers from approximately 6,000 at September 30, 1996
to 9,739 at September 30, 1997, an increase of 62%. As with PeterStar, the
average revenue per line has decreased as BECET's customer base increasingly
consists of Kazak businesses and individuals who make fewer international calls
than foreign joint ventures. BECET's results for 1997 to date have also been
adversely affected by weak economic growth in the cities and regions of
Kazakstan outside of Almaty, a trend which may continue for the balance of 1997
and into 1998. General and administrative expenses increased in the nine months
ended September 30, 1997 to $6.2 million compared to $4.1 million in the same
period in 1996, an increase of 51.1%.
During April 1997, it was reported that the Daewoo Corporation ('Daewoo')
of South Korea had acquired a 40% stake in Kazaktelekom, the state owned entity
which operates the national public telephone network in Kazakstan. The Company
and Kazaktelekom each own 50% of BECET. The Company is not yet in a position to
assess the impact of this sale on its business, but a significant change in the
government's attitude toward BECET or the management direction of Kazaktelekom
could have a material adverse effect on the Company.
BCL
BCL reported negligible net income, operating profit of $0.3 million and
EBITDA of $0.4 million on operating revenues of $2.0 million for the three
months ended September 30, 1997 compared to net income of $0.4 million,
operating profit of $0.3 million and EBITDA of $0.7 million on operating
revenues of $1.8 million for the three months ended September 30, 1996. For the
nine months ended September 30, 1997, BCL reported net income of $0.6 million,
an operating profit of $1.0 million and EBITDA of $1.4 million on operating
revenues of $5.7 million. As BCL was acquired on April 1, 1996, comparative
figures for the nine months ended September 30, 1996 are not available.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1997, a total of $7.9 million in
cash was generated from operations, $17.6 million was realized from the sale of
the Company's 10.4% equity interest in SPMMTS and $37.7 million was invested in
equipment in the Company's businesses. Cash decreased a total of $12.6 million
over the period to $28.1 million from $40.7 million at December 31, 1996.
Major capital expenditures incurred during the nine months ended September
30, 1997 included the following:
COMPANY CAPITAL EXPENDITURE DESCRIPTION
PeterStar $17.4 million New switching equipment and
transmission capacity
BECET $2.6 million Investment in cellular
telecommunications network and
related support infrastructure
Technocom $17.8 million Expenditures on Teleport long
distance network
Capital expenditures are financed through a combination of cash balances
existing at the beginning of 1997, each subsidiary's own internally generated
cash flow, bank or supplier financing, equipment leasing arrangements between
the Company and the subsidiary, intercompany debt arrangements, and the escrow
funds from the June 1996 Placement. More specifically, the Vassilyevski Island
development in PeterStar is largely being financed through a 5-year supplier
financing with Lucent Technologies, while $5.6 million of the Teleport network
has been financed through the issue of promissory notes carrying interest at
"all-in" rates of 8.4% and 11.2%. The remaining proceeds of the sale of the
Company's stake in SPMMTS will also be used, in the future, for the financing of
capital expenditures.
Effective February 28, 1997, the Company continued from Ontario into
Delaware and, in connection therewith, has moved its executive offices to the
United States. The benefits of the continuance are anticipated to include
improved access to the U.S. capital markets, reduced costs of financing and
streamlining of management and operations. The costs of the continuance,
including the costs of changing the jurisdiction of incorporation of the Company
and those involved in setting up executive offices in the United States, have
amounted to approximately $500,000. In addition, upon the change of
jurisdiction, the Company became potentially subject to two distinct tax charges
as a consequence of ceasing to be an Ontario corporation: (i) it will be deemed
to have disposed of all of its assets at their fair market value as of the date
of continuance and the Canadian federal tax authorities will assess tax on any
income and net taxable capital gains arising thereby; and (ii) it will be
subject to an additional tax on the amount by which the fair market value of the
Company's assets, net of liabilities, exceeds the paid-up capital of the
Company's issued and outstanding shares at a rate (based on certain factual
assumptions) of 5%. Based on management's analysis and advice received to date,
the Company believes that no tax will be due. However, there can be no assurance
that the Canadian federal tax authorities will conclude that no Canadian federal
taxes are due as a result of the continuance or that the amount of Canadian
federal taxes claimed or found to be due will not be significant.
The Company's consolidated balance sheet at September 30, 1997 reflects
total assets of $314.7 million, as compared to $306.4 million at December 31,
1996. Total assets at September 30, 1997 were comprised of $57.0 million in
current assets (including $28.1 million of cash and cash equivalents), $122.7
million in property and equipment, $67.0 million in telecommunications licenses
related to PeterStar, BECET and Teleport, other assets and investments of $25.7
million and escrow funds of $42.3 million. Cash and cash equivalents include the
proceeds of the sale of the Company's investment in SPMMTS. The escrow funds
were acquired as part of the net proceeds of the June 1996 Placement and are to
be disbursed principally for telecommunications equipment to be used in
PeterStar and Technocom's operating subsidiaries and for the making of
investments in existing or new operations. Total short and long-term
indebtedness of $132.9 million as a percentage of total assets, was 42.2% at
September 30, 1997. The corresponding figures at December 31, 1996 were $123.8
million and 40.4%.
13
<PAGE> 14
Shareholders' equity of $126.2 million at September 30, 1997 consisted of
$182.6 million in common stock and additional paid in capital and $13.6 million
ascribed to the Warrants issued in the June 1996 Placement, offset by the
Company's deficit of $70.0 million. The Company's ratio of total indebtedness to
equity at September 30, 1997 was 105.3% compared with 89.7% at December 31,
1996.
At September 30, 1997, the Company had a working capital surplus of $17.7
million reflecting a small portion of the net proceeds of the June 1996
Placement which were not placed in escrow and the proceeds from the sale of the
Company's investment in SPMMTS. This compares to a working capital surplus of
$14.2 million at December 31, 1996. The working capital and escrow funds, which
totaled $60.0 million at September 30, 1997, are to be used to implement the
business plans of the operating subsidiaries into 1998, although the Company's
ability to access these funds freely is restricted since the funds in escrow can
only be accessed after compliance with a number of conditions, including
ensuring that the funds are only used for certain designated purposes and that
certain safeguards are in place.
To the extent that: (i) actual cash flows from operations are below the
Company's estimates as a result of lower than expected revenues per line or
higher operating costs; or (ii) development costs of the build-out of the
PeterStar, BECET and Teleport networks exceed current estimates, the Company may
be required to seek additional debt or equity financing. There can be no
assurance that such financing will be available, or that it can be obtained on
equal or more favorable terms than current financing arrangements.
14
<PAGE> 15
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLD TELEKOM INC.
Date: November 13, 1997 By: /s/ Simon Edwards
------------------------------------------
Simon Edwards
Senior Vice President, Chief Financial
Officer and Treasurer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from PLD Telekom
Inc.'s Form 10-Q for the quarterly period ended September 30, 1997 and is
qualified in its entirety by reference to such Form 10-Q and the Consolidated
Condensed Financial Statements (unaudited) for PLD Telekom Inc. at and for the
nine month period ended September 30, 1997 contained therein.
</LEGEND>
<CIK> 0000890568
<NAME> PLD TELEKOM, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 28,071
<SECURITIES> 0
<RECEIVABLES> 26,844
<ALLOWANCES> 0
<INVENTORY> 2,075
<CURRENT-ASSETS> 56,990
<PP&E> 143,424
<DEPRECIATION> 20,732
<TOTAL-ASSETS> 314,657
<CURRENT-LIABILITIES> 39,251
<BONDS> 125,697
0
31
<COMMON> 182,616
<OTHER-SE> (56,399)
<TOTAL-LIABILITY-AND-EQUITY> 314,657
<SALES> 0
<TOTAL-REVENUES> 79,814
<CGS> 0
<TOTAL-COSTS> 28,294
<OTHER-EXPENSES> 43,533
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,846
<INCOME-PRETAX> (3,342)
<INCOME-TAX> 5,488
<INCOME-CONTINUING> (13,444)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,444)
<EPS-PRIMARY> ($.42)
<EPS-DILUTED> ($.42)
</TABLE>
