<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
APRIL 3, 1998
- --------------------------------------------------------------------------------
(DATE OF REPORT)
PLD TELEKOM INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-20444 13-3950002
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (COMMISSION (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) FILE NUMBER) ID NO.)
680 FIFTH AVENUE, 24TH FLOOR
NEW YORK, NEW YORK 10019
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (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)
<PAGE> 2
This Form 8-K/A amends the Current Report on Form 8-K of PLD Telekom
Inc. (the "Registrant") filed with the Securities and Exchange Commission on
April 3, 1998 (the "Form 8-K").
The Registrant is filing this amendment solely for the purpose of
correcting certain typographical errors in Note 17 to the Registrant's
consolidated financial statements which were filed as Exhibit 99.1 to the Form
8-K. The Registrant's consolidated financial statements are being refiled,
including the amended Note 17, as Exhibit 99.1 to this Form 8-K/A.
ITEM 5. OTHER EVENTS.
Pursuant to a request dated as of the date of this Current Report,
the Registrant has requested relief from the Division of Corporation Finance of
the Securities and Exchange Commission (the "Commission") relating to certain of
its subsidiaries which are guarantors of the Registrant's outstanding 14% Senior
Discount Notes due 2004 and 9% Convertible Subordinated Notes due 2006.
Specifically, the Registrant has requested relief from the requirements of
providing separate financial information in the Registrant's financial
statements in filings made under the Securities Act of 1933, as amended, and
from the reporting and informational requirements of Section 13 and 15(d) of the
Securities Exchange Act of 1934, as amended, with respect to those subsidiaries.
In connection with this request for relief, and to comply with one of
the conditions which the Commission has stated in the past is a condition to
such relief, the Registrant's audited Consolidated Financial Statements (as
filed on March 31, 1997 as part of the Company's Annual Report on Form 10-K for
the year ended December 31, 1997) (the "Financial Statements") have been
supplemented to include, as Note 17, condensed consolidating financial
information for the Registrant, the guarantor subsidiaries and the non-guarantor
subsidiaries.
The Financial Statements, as supplemented only by the addition of
Note 17, are attached to this Current Report as Exhibit 99.1 and made a part
hereof.
No other changes to the Financial Statements, as filed as part of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1997, or
any other part of such Annual Report on Form 10-K have been made.
In addition, the Company is filing herewith the consolidated
financial statements of certain of its wholly owned subsidiaries which are
pledgees under the terms of the Company's outstanding 14% Senior Discount Notes
due 2004 and 9% Convertible Subordinated Notes due 2006, namely NWE Capital
(Cyprus) Limited, Technocom Limited and Wireless Technology Corporations
Limited. These financial statements are being filed as Exhibits to this Report
in order to facilitate the filing of certain registration statements of the
Company being filed as of the date hereof and the incorporation by reference of
those financial statements into future registration statements of the Company.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired: None
(b) Pro Forma Financial Information: None
(c) Exhibits:
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of KPMG.
99.1 Consolidated Financial Statements of PLD Telekom Inc.
99.2 Consolidated Financial Statements of NWE Capital (Cyprus)
Limited.*
99.3 Consolidated Financial Statements of Technocom Limited.*
99.4 Consolidated Financial Statements of Wireless Technology
Corporations Limited.*
- ---------------
* Previously filed as an Exhibit to the Company's Current Report on Form 8-K
filed with the Commission on April 3, 1998.
2
<PAGE> 3
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: April 8, 1998 By: /s/ Simon Edwards
---------------------------------
Simon Edwards
Chief Financial Officer and
Treasurer
3
<PAGE> 4
EXHIBIT INDEX
Exhibit
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of KPMG.
99.1 Consolidated Financial Statements of PLD Telekom Inc.
4
<PAGE> 1
Exhibit 23.1
The Board of Directors
PLD Telekom Inc.
We consent to the incorporation by reference in the registration statement (no.
333-35139) on Form S-8, in the Post-Effective Amendment No. 1 to Form S-4
Registration Statement on Form S-8 (333-18713), in the registration statement
(no. 333-5400) on Form S-3, in the registration statement (no. 333-5396) on
Form S-3, and in the registration statement (no. 333-5398) on Form S-4 of PLD
Telekom Inc. of our report dated March 23, 1998, relating to the consolidated
balance sheet of PLD Telekom Inc. and subsidiaries as of December 31, 1997 and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the year ended December 31, 1997, which report appears in the
Current Report on Form 8-K/A of PLD Telekom Inc. filed with the Securities and
Exchange Commission on April 8, 1998.
KPMG PEAT MARWICK LLP
New York, New York
April 8, 1998
<PAGE> 1
Exhibit 23.2
The Board of Directors
PLD Telekom Inc.
We consent to the incorporation by reference in the registration statement (no.
333-35139) on Form S-8, in the Post-Effective Amendment No. 1 to Form S-4
Registration Statement on Form S-8 (333-18713), in the registration statement
(no. 333-5400) on Form S-3, in the registration statement (no. 333-5396) on
Form S-3, and in the registration statement (no. 333-5398) on Form S-4 of PLD
Telekom Inc. of our report dated March 21, 1997, relating to the consolidated
balance sheet of PLD Telekom Inc. and subsidiaries as of December 31, 1996 and
1995 and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the years in the two-year period ended
December 31, 1996, which report appears in the Current Report on Form 8-K/A of
PLD Telekom Inc. filed with the Securities and Exchange Commission on April 8,
1998.
KPMG
Chartered Accountants
Calgary, Canada
April 8, 1998
<PAGE> 1
PLD TELEKOM INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated balance sheets as of December 31, 1997 and
1996...................................................... F-4
Consolidated statements of operations for the years ended
December 31, 1997, 1996 and 1995.......................... F-5
Consolidated statements of shareholders' equity for the
years ended December 31, 1997, 1996 and 1995.............. F-6
Consolidated statements of cash flows for the years ended
December 31, 1997, 1996 and 1995.......................... F-7
Notes to consolidated financial statements.................. F-8
</TABLE>
F-1
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
PLD Telekom Inc.:
We have audited the accompanying consolidated balance sheet of PLD Telekom
Inc. as of December 31, 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1997, and the results of its operations and the changes in
its financial position for the year then ended in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
New York, NY
March 23, 1998
F-2
<PAGE> 3
AUDITORS' REPORT
Shareholders and Board of Directors
PLD Telekom Inc.:
We have audited the accompanying consolidated balance sheet of PLD Telekom
Inc. as of December 31, 1996 and the consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1996 and the results of its operations and the changes in its
financial position for each of the years in the two-year period ended December
31, 1996 in accordance with United States generally accepted accounting
principles.
KPMG
Chartered Accountants
Toronto, Canada
March 21, 1997
F-3
<PAGE> 4
PLD TELEKOM INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 7)........................ $ 17,256 $ 40,674
Trade receivables, net of allowance of $3,226 and $1,986,
respectively........................................... 17,078 10,528
Other receivables and prepaids............................ 8,615 3,522
Inventory................................................. 2,802 1,840
Due from related parties (note 13(c))..................... 6,320 4,408
-------- --------
Total current assets.............................. 52,071 60,972
Escrow funds (note 9)....................................... 33,868 40,984
Property and equipment, net (note 4)........................ 134,998 93,039
Telecommunications licenses (note 3), net of amortization of
$26,294 and $18,640, respectively......................... 78,837 72,310
Due from related parties (note 13(c))....................... 3,011 --
Other investments (note 5).................................. 7,036 24,094
Other assets (note 6)....................................... 25,765 14,958
-------- --------
Total assets...................................... $335,586 $306,357
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank indebtedness (note 7)................................ -- 15,829
Short-term borrowings (note 8)............................ 20,320 --
Accounts payable.......................................... 13,597 17,781
Accrued liabilities....................................... 5,750 3,126
Due to related parties (note 13(d))....................... 5,336 4,039
Deferred revenues......................................... 3,128 1,078
Customer deposits......................................... 3,070 1,644
Other current liabilities................................. 2,256 3,241
-------- --------
Total current liabilities......................... 53,457 46,738
-------- --------
Long-term debt (note 9)..................................... 133,516 107,954
Minority interest........................................... 21,382 13,711
Commitments and contingencies (note 14)
Shareholders' equity (notes 9 and 10):
Preferred stock, par value $.01 per share in 1997 and no
par value in 1996. Authorized 100,000,000 shares in
1997 and unlimited number of shares in 1996; issued and
outstanding 446,884 shares............................. 4 31
Common stock, par value $.01 per share in 1997 and no par
value in 1996. Authorized 100,000,000 shares in 1997
and unlimited number of shares in 1996; issued and
outstanding 33,324,290 shares in 1997 and 31,696,034
shares in 1996......................................... 333 180,878
Additional paid-in capital................................ 204,007 13,592
Accumulated deficit....................................... (77,113) (56,547)
-------- --------
Total shareholders' equity........................ 127,231 137,954
-------- --------
Total liabilities and shareholders' equity........ $335,586 $306,357
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 5
PLD TELEKOM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Telecommunications (note 13(a))................... $ 112,468 $ 60,562 $ 27,686
Finance lease income.............................. 1,956 1,404 1,434
----------- ----------- -----------
114,424 61,966 29,120
Direct costs........................................ 39,186 21,709 10,382
----------- ----------- -----------
Gross profit.............................. 75,238 40,257 18,738
----------- ----------- -----------
Operating expenses:
General and administrative........................ 38,716 24,791 18,168
Depreciation...................................... 10,433 5,226 3,837
Amortization...................................... 7,867 4,883 4,659
Taxes other than income taxes..................... 6,204 2,490 1,220
----------- ----------- -----------
Total operating expenses.................. 63,220 37,390 27,884
----------- ----------- -----------
Operating income/(loss)................... 12,018 2,867 (9,146)
Other income/(expense):
Share of loss from equity investments, after
amortization of licenses of $2,477 and $1,528
in 1996 and 1995, respectively................. (537) (2,692) (1,555)
Interest and other income......................... 3,614 4,859 2,066
Interest expense.................................. (17,846) (9,973) (957)
Amortization of deferred financing costs.......... (1,152) (684) --
Foreign exchange loss............................. (274) (648) (443)
Gain/(loss) on disposal of investments and
property and equipment......................... 749 -- (915)
Provision for amounts due from a shareholder of
PeterStar (note 13(e))......................... -- -- (2,490)
----------- ----------- -----------
Loss before income taxes and minority
interest................................ (3,428) (6,271) (13,440)
Income taxes (note 11).............................. 7,739 3,669 1,490
----------- ----------- -----------
Loss before minority interest............. (11,167) (9,940) (14,930)
Minority interest................................... 9,399 2,521 551
----------- ----------- -----------
Net loss.................................. $ (20,566) $ (12,461) (15,481)
=========== =========== ===========
Net loss per common share:
Basic............................................. $ (0.64) $ (0.39) $ (0.49)
=========== =========== ===========
Diluted........................................... $ (0.64) $ (0.39) $ (0.49)
=========== =========== ===========
Weighted average common shares outstanding.......... 32,061,070 31,579,201 31,314,662
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 6
PLD TELEKOM INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------- ----------------------
NUMBER NUMBER ADDITIONAL
OF OF PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------ ---------- --------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995.............. 446,884 $ 31 30,012,214 $ 173,034 -- (28,605) 144,460
Conversion of Series VIII preferred
shares................................ -- -- 1,110,000 4,886 -- -- 4,886
Issuance of shares for CPY Yellow Pages
Limited (note 3(f))................... -- -- 368,820 1,900 -- -- 1,900
Exercise of warrants and options........ -- -- 16,000 67 -- -- 67
Net loss for the year................... -- -- -- -- -- (15,481) (15,481)
------- ---- ---------- --------- ------- ------- -------
Balance at December 31, 1995............ 446,884 31 31,507,034 179,887 -- (44,086) 135,832
Exercise of options..................... -- -- 189,000 991 -- -- 991
Issuance of warrants (note 9)........... -- -- -- -- 13,592 -- 13,592
Net loss for the year................... -- -- -- -- -- (12,461) (12,461)
------- ---- ---------- --------- ------- ------- -------
Balance at December 31, 1996............ 446,884 31 31,696,034 180,878 13,592 (56,547) 137,954
Increase in par value from none to $.01
(note 10)............................. -- -- -- (180,561) 180,561 -- --
Change in par value of preferred stock
(note 10)............................. -- (27) -- -- 27 -- --
Common stock cancellations.............. -- -- (150) -- -- -- --
Exercise of options and warrants........ -- -- 312,166 3 1,736 -- 1,739
Issuance of shares (note 3(c)).......... -- -- 1,316,240 13 7,668 -- 7,681
Issuance of warrants (note 8(a))........ -- -- -- -- 423 -- 423
Net loss for the year................... -- -- -- -- -- (20,566) (20,566)
------- ---- ---------- --------- ------- ------- -------
Balance at December 31, 1997............ 446,884 $ 4 33,324,290 $ 333 204,007 (77,113) 127,231
======= ==== ========== ========= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 7
PLD TELEKOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(20,566) (12,461) (15,481)
Adjustments to reconcile net loss to net cash provided
by/(used in) operating activities:
Depreciation and amortization........................... 19,452 10,793 8,496
Accrued interest on senior discount notes............... 14,260 7,349 --
Minority interest....................................... 9,399 2,521 551
Gain on sale of SPMMTS.................................. (1,001) -- --
Deferred revenue........................................ 2,050 (898) 1,958
Share of loss of equity investments..................... 537 2,692 1,555
Other................................................... -- 300 1,543
Changes in operating assets and liabilities, net of
effects of acquisitions:
Increase in trade receivables......................... (6,550) (2,478) (1,681)
(Increase)/decrease in other receivables and
prepaids........................................... (5,093) 1,827 (1,909)
Increase in inventory................................. (962) (392) (608)
Change in amounts due from or to related parties...... 386 (4,743) (2,499)
Increase/(decrease) in accounts payable, accrued
liabilities, customer deposits, and other current
liabilities........................................ (1,119) 11,108 1,351
-------- ------- -------
Net cash provided by/(used in) operating
activities....................................... 10,793 15,618 (6,724)
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (38,990) (43,201) (31,538)
Proceeds from sale of SPMMTS.............................. 17,180 -- --
Escrow funds.............................................. 7,116 (40,984) --
Purchase of 30% investment in Technocom................... (25,608) -- --
Teleport-TP finance lease and advances.................... -- 3,916 (7,733)
Investments in Baltic Communications Limited, J.V.
Technopark Limited and Teleport-TP, net of cash
acquired................................................ -- (7,515) --
Other investments......................................... 181 (140) (3,000)
Other assets.............................................. (747) (267) (6,822)
-------- ------- -------
Net cash used in investing activities.............. (40,868) (88,191) (49,093)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt borrowings/(repayments)................... (10,929) (6,550) 22,379
Proceeds from issuance of 12% Revolving Credit Notes...... 15,420 -- --
Proceeds from issuance of 14% Senior Discount Notes....... -- 87,697 --
Proceeds from issuance of 9% Convertible Subordinated
Notes................................................... -- 26,500 --
Deferred financing costs.................................. -- (9,224) --
Proceeds from issuance of common stock.................... 1,739 991 67
Cash dividends paid to minority shareholders.............. (1,000) -- --
Loans from shareholders................................... -- (1,843) 405
Related company advances.................................. -- -- (815)
Due to equipment supplier................................. -- -- (4,384)
Recapitalization of PeterStar............................. 1,427 -- --
Other financing........................................... -- -- (2,869)
-------- ------- -------
Net cash provided by financing activities.......... 6,657 97,571 14,783
-------- ------- -------
(Decrease)/increase in cash and cash equivalents... (23,418) 24,998 (41,034)
Cash and cash equivalents at beginning of year.............. 40,674 15,676 56,710
-------- ------- -------
Cash and cash equivalents at end of year.................... $ 17,256 40,674 15,676
======== ======= =======
Supplementary disclosures:
Noncash investing and financing activities:
Supplier financing...................................... $ 11,302 -- --
======== ======= =======
Issuance of common stock for a portion of purchase price
of Technocom.......................................... $ 7,681 -- --
======== ======= =======
Interest paid............................................. $ 3,381 2,425 380
======== ======= =======
Income taxes paid......................................... $ 7,424 3,678 809
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 8
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) BUSINESS, OPERATIONS AND FUTURE ACTIVITIES
The Company was previously incorporated under the laws of Ontario, Canada
and on August 1, 1996 changed its name from Petersburg Long Distance Inc. to PLD
Telekom Inc. (PLD). Effective February 28, 1997, PLD was incorporated in the
United States as a Delaware corporation. Through its majority-owned and
controlled subsidiaries, the Company is a provider of local, long distance and
international telecommunications services in the former Soviet Union.
The Company's telecommunications businesses are at various stages of
development and are growing 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.
Ultimate recoverability of the Company's investments is dependent upon its
ability to achieve and maintain 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.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are summarized as follows:
(a) Basis of Presentation
The accompanying consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States
(U.S. GAAP).
The consolidated financial statements include the accounts of the Company
and its majority-owned and controlled subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. Investment in
affiliates in which the Company has significant influence, but does exercise
control, are accounted for under the equity method. Investments of the Company
over which significant influence is not exercised are carried under the cost
method.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. At December 31, 1997
and 1996, the Company's cash equivalents consist of term deposits of
approximately $7.2 million and $4.2 million, respectively.
(c) Investments
Management determines the appropriate classification of its investments at
the time of purchase and classifies them as trading, available-for-sale or
held-to-maturity in accordance with the provisions of Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in
Debt and Equity Securities." At December 31, 1997 and 1996, the Company's
investments which are held in escrow consist of U.S. Treasury Bonds with a
carrying value of $33.9 million and $41.0 million, respectively, have been
classified as available-for-sale. In accordance with SFAS 115, the Company
carries their available-for-sale investments at fair value, with unrealized
gains and losses reported as a separate line item in shareholders' equity. Due
to the short maturity period (1997 -- maturing on January 7, 1998 and 1996 --
maturing on January 5, 1997), the carrying value of these investments
approximates its fair market value at December 31, 1997 and 1996.
(d) Revenue Recognition
The Company records telecommunication revenues as earned, at the time
services are provided.
(e) Inventory
Inventory is stated at the lower of average cost or net realizable value
and is composed of telephony products held for resale to customers.
F-8
<PAGE> 9
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(f) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Telecommunications equipment............................. 10 years
Buildings................................................ 28.5 years
Leasehold improvements................................... 10 years
Office furniture and equipment (including computer 3 - 5
equipment)............................................. years
</TABLE>
Interest cost incurred during the period of construction of property and
equipment is capitalized. The interest cost capitalized in 1997 amounted to
$927,791.
(g) Intangible Assets
Telecommunications licenses are being amortized on a straight-line basis
over the terms of the licenses.
Goodwill represents the excess of the purchase price over the fair values
of the net assets acquired and is being amortized on a straight-line basis over
periods ranging from ten to twenty years.
Deferred financing costs represent costs incurred to issue debt. Deferred
financing costs are capitalized and amortized over the term of the related debt.
(h) Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, escrow funds, trade and other receivables, amounts due
from or to related parties, bank indebtedness and accounts payable approximate
fair value due to their short maturities. The fair value of long-term debt is
based on discounted cash flow analysis.
(i) Reporting Currency and Foreign Currency Translation
The statutory accounts of the Company's consolidated subsidiaries are
maintained in accordance with local accounting regulations and are stated in
local currencies.
Local statements are adjusted to U.S. GAAP and then translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52
(SFAS 52), "Foreign Currency Translation."
Under SFAS 52, the financial statements of foreign entities in highly
inflationary economies are measured in all cases using the U.S. dollar as the
functional currency. U.S. dollar transactions are shown at their historical
value. Monetary assets and liabilities denominated in local currencies are
translated into U.S. dollars at the prevailing period-end exchange rate. All
other assets and liabilities are translated at historical exchange rates.
Results of operations have been translated using the monthly average exchange
rates. Translation differences resulting from the use of these different rates
are included in the accompanying consolidated statements of operations.
(j) Income Taxes
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income or expense in the period it occurs.
(k) Net Loss Per Common Share
The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share," on December 31, 1997. SFAS No.
128 establishes standards for computing and presenting earnings per share
("EPS") and supersedes Accounting Principles Board ("APB") Opinion No. 15,
"Earnings per Share." SFAS No. 128 also requires dual presentation of basic and
diluted EPS for
F-9
<PAGE> 10
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
complex capital structures on the face of the consolidated statements 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, at the beginning of the period being reported on.
Per share amounts for 1996 and 1995 have been retroactively restated to give
effect to SFAS 128 and were not different from EPS measured under APB No. 15.
Net loss and weighted average shares outstanding used for computing diluted
loss per common share were the same as that used for computing basic loss per
common share for each of the years ended December 31, 1995, 1996 and 1997.
The Company had potentially dilutive common stock equivalents of 1,293,000,
135,000 and 150,000 for the years ended December 31, 1997, 1996 and 1995,
respectively, which were not included in the computation of diluted net loss per
common share because they were antidilutive for the periods presented.
(l) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the year. Actual results
could differ from those estimates.
(m) Equity Compensation
Prior to January 1, 1996, the Company accounted for its equity compensation
plan in accordance with the provisions of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. As such, compensation
expense was recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted SFAS 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if the
fair-value-based method, as defined in SFAS 123, had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure required by SFAS 123.
(n) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," on January 1, 1996. SFAS
121 requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
(o) Reclassifications
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
(3) BUSINESSES AND ACQUISITIONS
The Company's key interests at December 31, 1997 include a 60% equity
interest in PeterStar Company Limited ("PeterStar"); a 50% equity interest in
BECET International ("BECET"); and an approximate 80% equity interest in
Technocom Limited ("Technocom"), which holds an approximate 49% equity interest
in
F-10
<PAGE> 11
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Teleport-TP ("Teleport-TP"). The Company also owns 100% of Baltic Communications
Limited ("BCL") and 100% of CPY Yellow Pages Limited ("Yellow Pages").
(a) PeterStar
PeterStar is a joint stock company registered in 1992 under the laws of the
Russian Federation to provide international and domestic telecommunications
services for St. Petersburg. In November 1994, PeterStar was granted a new
license to provide these services for a further ten years. The license was
reissued in June 1996 and sets the maximum number of lines which PeterStar may
have at 106,000 and requires that 74,200 lines be introduced by June 1999. At
December 31, 1997, PeterStar had 114,774 lines in place.
In October 1992, the Company acquired a 50% interest in PeterStar for
consideration of $19.8 million. An additional 9% interest was acquired in March
1994 for consideration of $8.2 million and an additional 1% interest was
acquired in April 1996 for $1.8 million. All of the considerations have been
allocated to telecommunications licenses. The Company's interest in PeterStar is
owned by its wholly owned subsidiary, NWE Capital (Cyprus) Limited ("NWE
Cyprus"), a company incorporated in Cyprus.
(b) BECET
BECET provides cellular services pursuant to a 15-year license to operate a
cellular telephony system in Kazakhstan until February 2009. The Company's 50%
interest in BECET is owned by its wholly owned subsidiary, Wireless Technology
Corporations Limited ("WTC"), a company incorporated in the territory of the
British Virgin Islands, which in turn is owned by NWE Cyprus.
In connection with the acquisition of BECET, the Company was committed to
provide financing of up to $3.0 million to fund a number of special
telecommunications projects undertaken by the Ministry of Communications in
Kazakhstan. In 1995, the Company provided such financing in the form of a
convertible note (see note 5(b)).
(c) Technocom
The Company subscribed for preferred shares of Technocom, a company
incorporated in the Republic of Ireland, in the amount of $40.0 million, of
which $20.0 million was subscribed for on acquisition in 1994 and the remaining
$20.0 million was subscribed for in June 1996 from the proceeds of the financing
described in note 9. The preferred shares entitle the Company to the first $20.0
million of Technocom's dividend distributions. After receipt of such preference
dividends, all the preferred shares will be converted into a single ordinary
share of Technocom. The carrying value of the Company's investment in
Teleport-TP and minority interest were each increased by a total of $10.0
million in 1995/1996 to reflect the minority interest's ultimate share in the
preferred equity.
On November 26, 1997, PLD acquired an additional 59 ordinary shares of
Technocom increasing its ownership from 50.1% to 80.4%. The total consideration
for the acquisition was $32.5 million, plus acquisition costs of approximately
$840,000 and was allocated to telecommunications licenses, goodwill, and
purchase of minority interest in the amounts of $16.0 million, $11.1 million,
and $6.0 million, respectively. Approximately $24.8 million was paid in cash and
the remainder in shares of PLD common stock (1,316,240 shares of common stock
with a fair market value of $5.85 per share, which cannot be sold until the year
2000). The cash element of the transaction was funded with escrowed funds and
with the proceeds from the Company's 12% Revolving Credit Notes (see note 8).
In addition, the Company restructured certain "put and call" arrangements
with the other two shareholders of Technocom. Under these arrangements, as
originally structured, the remaining ordinary shares of Technocom held by these
shareholders (29 shares, or approximately 14.6% of the total ordinary shares
outstanding, and 10 shares, or approximately 5% of the total ordinary shares
outstanding) were to have been independently valued in 1999 and the Company had
the right to call, and the other two shareholders had the right to put, their
respective interests at the per share value established by the valuation.
F-11
<PAGE> 12
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
These arrangements were restructured as follows. In the case of the holder
of the 29 shares, while the date on which the put or call could be exercised did
not change, the valuation procedure was eliminated and the "put and call" price
for its interest was set at a fixed $17.5 million. In the case of the holder of
the 10 shares, 2 of its remaining 10 ordinary shares were made subject to a new
put and call arrangement which would come into effect in 1998, with the "put and
call" price to be $1 million or, at the holder's option, that number of shares
of common stock which results from dividing $1 million by the lower of $5.85 and
the average closing price of such shares over the preceding 10 trading days. The
remaining 8 ordinary shares continue to be subject to the existing put and call
arrangements in 1999, except that the valuation will be made by the Company and
the amount paid pursuant to the exercise of either the put or the call cannot
exceed $9.6 million or be less than $6.7 million.
On December 20, 1996, Technocom acquired 55.5% of the outstanding shares of
J.V. Technopark Limited ("Technopark") from the minority shareholders of
Technocom for $3.0 million. Technopark is incorporated in Russia and owns a 7.5%
equity interest in Teleport-TP and commercial property in Moscow. The
acquisition of Technopark has been accounted for using the purchase method.
(d) Teleport-TP
The Company currently controls 56% of the voting interests in Teleport-TP
through its ownership of Technocom (see note 3(c)), which has a 49.3% equity
interest in Teleport-TP. The Company originally acquired a 41.8% equity
investment in Teleport-TP through its acquisition of 50.8% of the outstanding
common stock of Technocom. In May 1996, Technocom acquired an additional 3.3%
indirect equity interest in Teleport-TP for cash consideration of $2.0 million,
substantially all of which was allocated to Teleport-TP's telecommunications
licenses. The additional interest was acquired through a company controlled by a
minority shareholder of Technocom.
Teleport-TP is a Russian joint stock company which holds four operating
licenses. The first license expires in November 2004 and authorizes Teleport-TP
to provide long distance and international telecommunications services to
private networks within Moscow and, to a limited extent, elsewhere in the
Russian Federation. Teleport-TP is required by the terms of the license to have
at least 10,500 subscribers (which is 70% of the maximum number of subscribers
permitted under the license) in place by October 1999. Under the terms of the
license agreement, there are no penalties should Teleport-TP not attain the
required number of lines.
The second license expires in October 2004 and permits the operation of
1,000 international leased circuits for the transmission of television and
telecommunications services. The third license, which expires in January 2002,
permits the provision of data services with interconnection to the public
network and requires capacity for 70,000 subscribers by December 2000. The
fourth license, which expires in May 2001, is an overlay license which permits
Teleport-TP to offer local, long distance and international voice and data
services which are interconnected to the public telephone network in 40 regions
across Russia.
F-12
<PAGE> 13
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
As a result of the acquisition of Technopark, the Company consolidated
Teleport-TP's balance sheet at December 31, 1996. The results of operations of
Teleport-TP have been included in the consolidated statements of operations from
January 1, 1997. The consolidation of Teleport-TP's balance sheet at December
31, 1996 is summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash................................................. $ 70
Other current assets................................. 4,386
Current liabilities.................................. (1,526)
Equipment under capital lease, net................... 7,415
Other property, plant and equipment, net............. 622
Other assets......................................... 655
Capital lease obligation to Technocom................ (4,153)
Due to Technocom..................................... (3,468)
Due to related parties............................... (3,405)
Minority interest.................................... (411)
Telecommunications licenses, net of accumulated
amortization of $4,005............................. 25,595
-------
Carrying value of investment in Teleport-TP
prior to consolidation................... $25,780
=======
</TABLE>
Condensed financial information of Teleport-TP for the years ended December
31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Telecommunications revenues.............................. $11,104 $ 7,070
Cost of sales............................................ 6,534 2,083
------- -------
Gross profit................................... 4,570 4,987
------- -------
Operating expenses:
General and administrative............................. 2,617 1,606
Other taxes............................................ 592 --
Depreciation of assets under capital lease............. 1,016 570
Other depreciation and amortization.................... 200 762
------- -------
4,425 2,938
------- -------
Operating income............................... 145 2,049
Interest on capital lease................................ (531) (1,434)
Other interest and financing charges, net................ 251 (343)
------- -------
Earnings/(loss) before income taxes............ (135) 272
Income taxes............................................. -- (335)
------- -------
Net loss....................................... $ (135) $ (63)
Technocom's interest therein............................. (75) (27)
Amortization of excess purchase price.................... (2,477) (1,528)
------- -------
Share of Teleport-TP loss...................... $(2,552) $(1,555)
======= =======
</TABLE>
Teleport-TP's revenues for the years ended December 31, 1996 and 1995,
include sales to its minority shareholder of $4.6 million and $5.0 million,
respectively, making Teleport-TP to some extent economically dependent on its
minority shareholder.
Teleport-TP's cost of sales for the year ended December 31, 1996 includes
costs of $2.9 million charged by a company controlled by one of the minority
shareholders of Technocom.
F-13
<PAGE> 14
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
General and administrative expenses for the year ended December 31, 1996
include costs of $576,000 related to marketing services provided by a company
controlled by one of the minority shareholders of Technocom.
(e) BCL
Effective April 1, 1996, the Company acquired all of the outstanding shares
of BCL from Cable & Wireless and its Russian partners for cash consideration of
$3.0 million, plus acquisition costs of $253,000. BCL is a Russian joint stock
company which provides international direct dial, international pay phone and
private line services to a corporate customer base in St. Petersburg. BCL's
results of operations are included in the consolidated financial statements from
the date of acquisition.
The acquisition has been accounted for using the purchase method.
(f) Yellow Pages
On April 26, 1995 the Company, through NWE Cyprus, acquired all the
outstanding shares of Yellow Pages, a company incorporated in the Republic of
Cyprus, for consideration of 368,820 common shares of the Company valued at $1.9
million, plus acquisition costs of $244,000. Yellow Pages publishes a Yellow
Pages directory and owns a database of Russian and foreign businesses in St.
Petersburg. Yellow Pages' results of operations are included in the consolidated
financial statements from the date of acquisition.
The acquisition has been accounted for by the purchase method and
substantially all of the consideration was allocated to goodwill.
(4) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Telecommunications equipment:
Installed............................................ $123,902 $ 80,291
Uninstalled.......................................... 10,396 3,677
Buildings.............................................. 5,434 3,194
Office furniture and equipment (including computer
equipment)........................................... 8,054 6,538
Leasehold improvements................................. 6,082 4,443
Advances to equipment suppliers........................ 4,252 7,999
-------- --------
Total property and equipment................. 158,120 106,142
Less: accumulated depreciation......................... (23,122) (13,103)
-------- --------
Property and equipment, net.................. $134,998 $ 93,039
======== ========
</TABLE>
Property and equipment includes telecommunications equipment with a cost of
$16.5 million which has been pledged under the terms of the long-term
installment agreements (see note 9).
F-14
<PAGE> 15
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(5) OTHER INVESTMENTS
Other investments at December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Investment in St. Petersburg Intercity & International
Telephone, at cost...................................... $ -- $16,179
Investment in Monogram Finance Group Limited.............. 3,000 3,000
Equity investment in MTR-Sviaz............................ 3,128 4,588
Equity investment in Rosh Telecom......................... 542 327
Investment in Gorizont-RT, at cost........................ 224 --
Other investments, at cost................................ 142 --
------ -------
Total........................................... $7,036 $24,094
====== =======
</TABLE>
(a) Investment in St. Petersburg Intercity & International Telephone (SPMMTS)
The Company held a 10.4% equity interest (13.9% voting interest) in SPMMTS,
a privatized Russian company which operates the long distance and international
gateway in St. Petersburg.
In June 1997, the Company sold its investment in SPMMTS for proceeds of
$17.2 million. The gain of $1.0 million is included in gain on disposal of
investments and property and equipment on the consolidated statement of
operations.
(b) Investment in Monogram Finance Group Limited
During the year ended December 31, 1995, the Company advanced $3.0 million
to Monogram Finance Group Limited ("Monogram") in exchange for a convertible
promissory note due on February 20, 2000. The note is convertible into common
shares of Monogram at any time prior to February 20, 2000 at the then current
fair market price of the shares.
(c) Equity Investment in MTR-Sviaz
Technocom has a 49% equity interest in a Russian joint stock company,
MTR-Sviaz, which is a joint venture with Mosenergo, the Moscow city power
utility, to modernize and commercialize a portion of Mosenergo's internal
telecommunications network. MTR-Sviaz holds two operating licenses and commenced
operations in late 1996. The first license authorizes MTR-Sviaz to provide local
and long distance leased line services within the city and region of Moscow.
Under the second license, MTR-Sviaz is authorized to provide local telephone
services through interconnection (via the Mosenergo network) with the public
switched telephone network within the city and region of Moscow. During 1997 and
1996, Technocom leased telecommunications equipment and access rights with a net
book value of $4.7 million and $5.2 million, respectively, to MTR-Sviaz under
finance leases. For the years ended December 31, 1997 and 1996, the Company
recorded finance lease income of $2.0 million and $872,000, respectively,
related to these leases. At December 31, 1997 and 1996, the investment in
MTR-Sviaz is composed of a finance lease receivable of $4.5 million and $5.0
million, offset by the Company's share of losses of MTR-Sviaz of $1.4 million
and $427,000, respectively.
F-15
<PAGE> 16
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Future minimum lease payments receivable from MTR-Sviaz, by year and in the
aggregate, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998........................................................ $2,530
1999........................................................ 2,530
2000........................................................ 1,704
2001........................................................ 547
2002........................................................ 547
Thereafter.................................................. 1,958
------
Total minimum lease payments...................... 9,816
Amounts representing interest............................... 5,324
------
Present value of minimum lease payments........... $4,492
======
</TABLE>
(6) OTHER ASSETS
Other assets at December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Goodwill, net of accumulated amortization of $574 and
$359................................................... $12,709 1,796
Deferred financing costs, net of accumulated amortization
of $1,836 and $684..................................... 7,811 8,540
Deferred charges......................................... 861 700
Other.................................................... 4,384 3,922
------- -------
$25,765 $14,958
======= =======
</TABLE>
(7) CASH AND CASH EQUIVALENTS AND BANK INDEBTEDNESS
The Company's cash and cash equivalents at December 31, 1997 and 1996
consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents on deposit:
In Russia and Kazakhstan............................... $ 7,611 $ 5,210
Outside Russia and Kazakhstan.......................... 9,645 10,935
Term deposit (interest bearing), restricted to secure
bank loan of Technocom................................. -- 9,000
Term deposits (interest bearing), restricted to secure
overdraft balances and accounts payable of Technocom... -- 15,529
------- -------
$17,256 $40,674
======= =======
</TABLE>
As at December 31, 1997 and 1996, Technocom has overdraft balances of $-0-
and $6.8 million and demand bank loans of $-0- and $9.0 million (bearing
interest at 5.8125%). The demand bank loans were secured by term deposits in the
same amount held at the same bank.
Technocom has entered into bank guarantees in connection with certain of
its telecommunications equipment supplier financing agreements. The amount of
the guarantees reduces automatically in accordance with installments paid. The
amounts outstanding as of December 31, 1997 under these supplier financing
agreements secured by bank guarantees are approximately $3.6 million (see note
9).
F-16
<PAGE> 17
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(8) SHORT-TERM BORROWINGS
The Company's short-term borrowings at December 31, 1997 and 1996 consist
of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
12% Revolving Credit Notes............................... $15,420 --
Note payable............................................. 4,000 --
Bank loan facility....................................... 900 --
------- -------
$20,320 --
======= =======
</TABLE>
(a) 12% Revolving Credit Notes
In November 1997, the Company issued $12.4 million in Series A secured
revolving credit notes (the "Series A Notes"), and $3.1 million in Series B
revolving credit notes (the "Series B Notes"), to The Travelers Insurance
Company and The Travelers Indemnity Company (collectively, the "Travelers
Parties"). Both the Series A Notes and the Series B Notes are secured by the
Company's inventory and accounts receivable. In addition, the Series B Notes are
secured by 28 of the 59 Technocom ordinary shares acquired (see note 3(c)).
Both the Series A and B Notes bear interest at an annual rate of 12%,
payable monthly in cash. This interest rate increases to 15% if the Company has
not raised $20 million in additional equity by May 31, 1998. The Series A and
Series B Notes are required to be amortized starting in July 1998. The Series B
Notes, whose original principal amount is $3.1 million, are due in full on
September 30, 1998, and the Series A Notes, in the original principal amount of
$12.3 million, are due in full on December 31, 1998. In addition to issuing the
Series A and Series B Notes, the Company also issued to the Travelers Parties a
total of 423,000 warrants to purchase Common Stock at $8.625 at any time up to
December 31, 2008 (the "Travelers Warrants"). These warrants have been valued at
$423,000 and will be amortized over the term of the revolving credit notes.
The Company may become obligated to issue additional warrants to the
holders in the event that certain amortization payments are not made in
accordance with the agreement or if the Notes are not paid in full at maturity.
Additionally, in the event that the Notes are not paid in full at maturity, all
warrants issued and issuable carry an exercise price of $.01 per share.
(b) Note Payable
Note payable at December 31, 1997 consists of a promissory note issued to
Scientific Atlantic, Inc. ("Scientific Atlantic") on June 10, 1997. The
promissory note, in settlement of equipment and services, is due on June 10,
1998. This note was discounted to West Merchant Bank at a rate of approximately
7.84%. The Company's weighted average interest rate for the note payable is
approximately 8.45%.
(c) Bank Loan Facility
In December 1997, PeterStar entered into a $2.0 million, one-year loan
facility with BNP Dresdner Bank for the purchase of telecommunications
equipment. Interest is charged on borrowed amounts at three-month LIBOR plus
2.5% per annum.
The amount borrowed on the loan facility at December 31, 1997 was $900,000.
F-17
<PAGE> 18
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(9) LONG-TERM DEBT
The Company's long-term debt at December 31, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
14% Senior Discount Notes.............................. $ 95,714 $ 81,454
9% Convertible Subordinated Notes...................... 26,500 26,500
Supplier financing..................................... 11,302 --
-------- --------
Total............................................. $133,516 $107,954
======== ========
</TABLE>
(a) 14% Senior Discount Notes and 9% Convertible Subordinated Notes.
On June 12, 1996, the Company completed a $149.5 million private placement
consisting of (i) 123,000 Units consisting of $123.0 million 14% Senior Discount
Notes ("Senior Notes") due 2004 and ten-year Warrants to purchase a total of
4,182,000 shares of common stock at a price of $6.60 per share; and (ii) $26.5
million 9% Convertible Subordinated Notes ("Convertible Notes") due 2006,
convertible into common stock of the Company at a price of $6.90 per share.
The 123,000 Units were issued at a discount for gross proceeds of $87.7
million, of which $13.6 million was allocated to the Warrants and $74.1 million
was allocated to the Senior Notes for accounting purposes. The Senior Notes have
a zero coupon until December 1, 1998. After such date, the notes require
semi-annual cash interest payments on June 1 and December 1. The difference
between the carrying value and the principal amount of $123.0 million is being
charged to earnings on an effective yield basis which, together with cash
interest payments, results in an effective yield of 16.8%.
The Convertible Notes require semi-annual cash interest payments on June 1
and December 1.
The terms of the Senior Notes require the Company to raise additional
equity of at least $20.0 million by May 31, 1998. Failure to raise additional
equity will cause the interest rate on the Senior Notes to increase to 14.5%.
The Company is party to a Registration Rights Agreement pursuant to which
the Senior Notes were to have been exchanged for registered securities and the
Convertible Notes registered for the shelf by October 1996. Failure to cause the
registration to become effective results in additional interest payable at a
rate of $0.01 per week per $1,000 of accreted value of the Senior Notes and
principal amount of the Convertible Notes, increasing by $0.01 per week for each
90-day period that the securities are not registered. Additional interest ceases
to accrue when the required registration statements become effective.
All, or a portion, of the Senior Notes are redeemable at the option of the
Company after June 13, 2001 at 108% of the principal amount plus accrued and
unpaid interest, reducing to 104% for the year commencing June 1, 2002 and 100%
on or after June 1, 2003.
The Convertible Notes are redeemable at the option of the Company on or
after June 1, 2000 under certain conditions at a redemption price equal to the
principal amount plus accrued and unpaid interest.
The Senior Notes and the Convertible Notes were issued under the terms of
Indentures dated May 31, 1996. Pursuant to the Indentures, the Company has
pledged its investments in NWE Cyprus (which holds the Company's interests in
PeterStar, WTC, and Yellow Pages), WTC (which holds the Company's interest in
BECET), BCL, a wholly-owned special purpose leasing subsidiary incorporated in
Cyprus, and the Company's investment in preferred stock of Technocom. In
addition, each of these subsidiaries (except Technocom) have guaranteed the
Senior Notes and the Convertible Notes.
A portion of the net proceeds of $105.0 million (after agent's commission
and expenses) was used to meet the Company's $20.0 million commitment to
Technocom (see note 3(c)) and to repay a revolving credit facility in the amount
of $22.5 million. Under the terms of the Indentures, $46.0 million was deposited
into an escrow account which is invested in eligible cash equivalents, as
defined by the Indentures. The escrow funds
F-18
<PAGE> 19
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
are also pledged as security for the Company's obligations under the Indentures.
Escrow funds may be disbursed for purposes of making qualifying investments of
up to $9.0 million in telecommunications companies operating in Russia or
Kazakhstan, or for purposes of investing in telecommunications equipment through
the Company's special purpose leasing subsidiary, which then leases that
equipment to the Company's operating subsidiaries. Investments in leases are
also pledged as security under the Indentures and all payments received under
the terms of the leases are required to be deposited into a separate escrow
account, to be used to purchase additional telecommunications equipment for
lease. On or after November 30, 1998, the Company must also maintain sufficient
funds in the escrow accounts to meet the next interest payment due on both the
Senior Notes and Convertible Notes.
In 1997, the Company made the determination to solicit the holders of the
Senior Notes and the Convertible Notes with a view to making certain amendments
to the Indentures governing such Notes, intended to give the Company more
flexibility in conducting its business and also to clarify certain provisions of
those Indentures, in both cases based upon the Company's experience in operating
under the terms of the Indentures since they were first executed in June 1996.
Under each of the Indentures, the consents of holders of not less than a
majority in principal amount at stated maturity of each of the Senior Notes and
the Convertible Notes are required to authorize their amendment.
On March 4, 1998, the Company mailed to the holders of record on March 3,
1998 of the Senior Notes and the Convertible Notes a consent solicitation
statement (the "Consent Solicitation"). Pursuant to the Consent Solicitation,
the Company offered to each holder of the Senior Notes who consented to the
amendment of the Senior Note Indenture, a five-year warrant to purchase 1.8
shares of Common Stock at a price of $6.90 per share for each $1,000 in unpaid
principal amount at stated maturity of the Senior Notes held by such holder, and
to each holder of the Convertible Notes who consented to the amendment of the
Convertible Note Indenture a five-year warrant to purchase 2 shares of Common
Stock at a price of $6.90 per share for each $1,000 in unpaid principal amount
of the Convertible Notes held by such holder.
As of close of business on March 18, 1998, when the solicitation period
ended, parties holding 100% in principal amount at stated maturity of the Senior
Notes and 85.7% in principal amount at stated maturity of the Convertible Notes
had consented to the amendments. Pursuant to such consents, The Bank of New
York, as trustee under the Indentures, the Company and certain other parties
executed a supplemental indenture bringing the amendments to the Indentures and
certain related documents into effect.
At December 31, 1997 and 1996, the fair value of the Convertible Notes and
Senior Notes approximates their carrying value.
(b) Supplier Financing
Amounts payable under the terms of the long-term installment purchase
agreements are as follows (see notes 4 and 7):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------------
(IN THOUSANDS)
<S> <C>
1999........................... $ 4,616
2000........................... 3,864
2001........................... 2,795
2002........................... 2,361
Thereafter..................... --
-------
$13,636
Less: amounts representing
interest..................... 2,334
-------
$11,302
=======
</TABLE>
The above amounts have been calculated using interest rates of 8.0% to
8.5%.
F-19
<PAGE> 20
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(10) SHAREHOLDERS' EQUITY
(a) Common Stock
On February 28, 1997, as a result of the Company's continuance as a
Delaware corporation, the authorized capital stock was changed from an unlimited
number of common shares without nominal or par value to 100,000,000 common
shares with a par value of $.01 per share. As a result of the change in the par
value, the Common Stock was decreased by $180.6 million and additional paid-in
capital was increased by the same amount.
(b) Preferred Stock
The Company had the following preferred shares issued and outstanding at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
NUMBER OF
SHARES 1997 1996
--------- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Series II......................................... 405,217 $ 4 $--
Series III........................................ 41,667 -- 31
--- ---
$ 4 $31
=== ===
</TABLE>
In addition, the capital stock was also changed from an unlimited number of
preferred shares issuable in series to 100,000,000 preferred shares with par
value of $.01 per share issuable in series. As a result of the change in par
value, the preferred stock has been reflected at its par value in the 1997
consolidated financial statements.
The Series II and III preferred shares, issued at a price of Cdn.$1 (US
$0.74) per share, are redeemable at the option of the Company at Cdn.$1 per
share. The shares do not pay dividends and holders thereof do not have voting
rights.
(c) Shares Reserved
In addition to stock options outstanding (see note 12), the Company has
reserved 4,182,000 common shares for issuance on exercise of outstanding
Warrants and 3,840,580 common shares on conversion of outstanding Convertible
Notes (see note 9). In addition, at December 31, 1997, the Company has 500,000
Warrants outstanding to purchase common shares of the Company at a
weighted-average exercise price of $8.11, of which 250,000 Warrants at an
exercise price of Cdn.$11.31 were granted to Cable & Wireless in 1994 and
100,000 Warrants at an exercise price of US$4.70 were granted in 1996 to the
agent in relation to the debt financing described in note 9. Warrants expire
five years after the date of grant.
In connection with the issuance of the Series A and Series B Notes (see
note 8(a)), the Company issued to the Travelers Parties a total of 423,000
warrants to purchase Common Stock at $8.625 at any time up to December 31, 2008
and may become obligated to issue additional warrants to the Travelers Parties
in the event that certain amortization payments are not made, or if the Series A
or Series B Notes are not paid in full at their maturity.
At the end of March of 1998, in connection with the Consent Solicitation
(see note 9(a)), the Company will issue a total of 123,000 five-year warrants to
purchase 1.8 shares of Common Stock at $6.90 per share to the holders of the
Senior Notes, and a total of 22,700 five-year warrants to purchase 2 shares of
Common Stock at a price of $6.90 per share to the holders of the Convertible
Notes.
F-20
<PAGE> 21
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(11) INCOME TAXES
The geographic components of loss before income taxes and minority interest
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
United States.............................. $(35,163) $ -- $ --
Canada..................................... -- (20,829) (16,747)
Russia and Kazakhstan...................... 31,735 14,558 3,307
-------- -------- --------
$ (3,428) $ (6,271) $(13,440)
======== ======== ========
</TABLE>
The provision for income taxes, which relates substantially to current
income taxes in the Company's Russian and Kazak businesses, differs from the
United States (34% -- February 28, 1997 onwards) and Canadian (44% -- January 1,
1995 to February 27, 1997) Federal and state/provincial statutory tax rates as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for income taxes at statutory
rates....................................... $(1,166) $(2,760) $(5,913)
Add/(deduct) the tax effect of:
Non-deductible amortization of licenses and
goodwill................................. 2,561 3,238 2,720
Other non-deductible expenses............... 2,273 1,753 1,010
Concessions on capital expenditures......... (3,854) (1,000) --
Differences in Russian and Kazak statutory
tax rates................................ (210) (1,696) (350)
Change in valuation allowance related to
deferred tax assets...................... 8,135 4,134 4,023
------- ------- -------
Provision for income tax............ $ 7,739 $ 3,669 $ 1,490
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Share issue costs.................................... $ -- $ 2,150
Operating loss carryforwards......................... 8,929 16,200
Capital loss carryforwards........................... -- 8,400
Expenses not yet deducted for Russian and
Kazak tax purposes................................ 18,646 3,760
-------- --------
27,575 30,510
Less: valuation allowance.............................. (8,246) (29,350)
-------- --------
Net deferred tax assets...................... 19,329 1,160
Deferred tax liabilities:
Debt issue costs............................. (1,160) (1,160)
Expenses not currently deducted for book
purposes................................... (705) --
Tax on revenues not yet realized for Russian
tax purposes............................... (17,464) --
-------- --------
Deferred tax liabilities............................... (19,329) (1,160)
-------- --------
$ -- $ --
======== ========
</TABLE>
At December 31, 1997, the Company had operating loss carryforwards for
United States (U.S.) federal income tax purposes of approximately $26.3 million.
In assessing the realizability of the deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will
F-21
<PAGE> 22
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
not be realized. The ultimate realization of the deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning in making these assessments.
At December 31, 1996, the Company had operating loss carryforwards for
Canadian income tax purposes of approximately $36.0 million and allowable
capital loss carryforwards of approximately $19.0 million. Upon the Company's
emigration to the United States in February 1997, the Company was deemed to
dispose of all its assets at fair value. As a result, a substantial portion of
the operating and capital loss carryforwards were utilized. Remaining losses do
not carry over for U.S. tax purposes.
(12) EQUITY COMPENSATION PLAN
The Company has an Equity Compensation Plan (the "Plan"), which was
approved by the shareholders at the Annual Meeting in June of 1997. The Plan
amends and supersedes in its entirety the PLD Telekom Inc. Stock Option Plan
(the "Prior Plan"). No further grants will be made under the Prior Plan
following the adoption of the Plan and grantees under the Prior Plan have the
option of continuing to have existing grants covered by the terms of the Prior
Plan, or having these grants instead covered by the terms of the Plan.
Pursuant to the Plan, the Company's Board of Directors may grant stock
options, stock appreciation rights, restricted stock and performance units to
directors, officers and key employees of, and certain consultants and advisors
to, the Company and its subsidiaries. The Plan is administered by a committee of
the Board of Directors of the Company consisting solely of "outside directors"
and to date awards under the Plan have been limited to stock options.
The exercise price of each option is generally equal to the fair market
value of the shares of PLD's common stock on the date of grant. The maximum term
for which options are exercisable is ten years. Options shall become exercisable
in accordance with such terms and conditions, consistent with the Plan, as may
be determined by the committee. However, stock options granted to Non-Employee
Directors are immediately exercisable.
The per share weighted-average fair value of stock options granted during
1997, 1996 and 1995 was $2.51, $2.11 and $2.31, respectively, on the date of
grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: 1997 -- risk-free interest rate of 6.5%, expected
life of six years and expected volatility of 40%; 1996 -- risk-free interest
rate of 6.5%, expected life of five years and expected volatility of 30%;
1995 -- risk-free interest rate of 6.3%, expected life of five years and
expected volatility of 30%.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the date of grant for its stock options under SFAS 123, the
Company's loss would have been increased to $22.9 million ($0.71 per share),
$13.6 million ($0.43 per share) and $16.0 million ($0.51 per share) for the
years ended December 31, 1997, 1996 and 1995, respectively. The pro forma loss
for the year reflects only options granted in 1997, 1996 and 1995. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
123 is not reflected in the pro forma loss for the year because compensation
cost is reflected over the options' vesting period and compensation cost for
options granted prior to January 1, 1995 is not considered.
F-22
<PAGE> 23
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
Changes in stock options outstanding are as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICES
---------------- ----------------
<S> <C> <C>
Outstanding at December 31, 1994............. 774,500 $7.83
Granted...................................... 610,000 $5.96
Exercised.................................... (16,000) $4.07
Canceled..................................... (387,000) $8.57
--------- -----
Outstanding at December 31, 1995............. 981,500 $6.61
Granted...................................... 1,010,000 $7.38
Exercised.................................... (189,000) $5.25
Canceled..................................... (120,000) $5.93
--------- -----
Outstanding at December 31, 1996............. 1,682,500 $7.25
Granted...................................... 1,405,000 $5.27
Exercised.................................... (302,166) $5.68
Canceled..................................... (15,000) $5.25
--------- -----
Outstanding at December 31, 1997............. 2,770,334 $6.41
========= =====
</TABLE>
At December 31, 1996 and 1995, the number of options exercisable was
382,500 and 371,500 and the weighted-average exercise price of those options was
$7.92 and $7.55, respectively.
The following table summarizes information about the stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AT CONTRACTUAL EXERCISE AT EXERCISE
PRICES 12/31/97 LIFE PRICE 12/31/97 PRICE
-------- ----------- ----------- --------- ----------- ---------
<C> <C> <S> <C> <C> <C>
$ 5.06 - 6.00 1,453,334 8.4 years $ 5.30 688,332 $ 5.45
6.10 - 6.69 526,500 3.3 6.28 308,499 6.27
7.77 - 8.02 643,000 3.3 7.99 251,000 7.99
10.12 - 11.38 147,500 1.0 10.92 147,500 10.92
--------- ---------
2,770,334 1,395,331
========= =========
</TABLE>
(13) RELATED PARTY TRANSACTIONS
(a) PeterStar has entered into a barter agreement with an indirect minority
shareholder under which the two parties have exchanged services valued at $3.4
million and $3.0 million during 1997 and 1996, respectively. The amounts are
recorded in the consolidated statements of operations as telecommunications
revenues and direct costs.
(b) Direct costs for the years ended December 31, 1997, 1996 and 1995
include $4.2 million, $3.3 million and $1.8 million, respectively, paid to the
other shareholder of BECET in relation to the carriage of traffic over the
public telephone network.
(c) Amounts due from related parties at December 31, 1997 include $2.5
million principal and interest due from MTR-Sviaz in relation to a finance lease
(see note 5(c)), $1.6 million and $3.0 million due from a minority shareholder
of PeterStar under short-term and long-term loans, respectively, and $2.2
million due from a company controlled by a minority shareholder of Technocom for
telecommunications services.
Amounts due from related parties at December 31, 1996 include $1.1 million
principal and interest due from MTR-Sviaz in relation to a finance lease (see
note 5(c)), $600,000 due from a minority shareholder of PeterStar under a
short-term loan and $2.5 million due from a company controlled by a minority
shareholder of Technocom for telecommunications services.
F-23
<PAGE> 24
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(d) Amounts due to related parties at December 31, 1997 include a loan due
to the minority shareholder of Teleport-TP in the amount of $477,000, trade
payables of Teleport-TP in the amount of $3.2 million due to a company
controlled by one of the minority shareholders of Technocom, carrier charges of
$817,000 due to the other shareholder of BECET, a loan due to a company
controlled by a minority shareholder of Technocom in the amount of $336,000, due
to MTR-Sviaz for telephone services and connection charges in the amount of
$292,000, and an amount due to a company controlled by one of the minority
shareholders of Technocom for equipment received from them in the amount of
$204,000.
Amounts due to related parties at December 31, 1996 include a loan due to
the minority shareholder of Teleport-TP in the amount of $477,000, trade
payables of Teleport-TP in the amount of $2.9 million due to a company
controlled by one of the minority shareholders of Technocom, carrier charges of
$234,000 due to the other shareholder of BECET and a loan due to a company
controlled by a minority shareholder of Technocom in the amount of $336,000.
(e) The Company has guaranteed telephone billing system lease payments of a
shareholder of PeterStar totaling $2.5 million. Lease payments of $124,000 are
due quarterly until July 1998. At December 31, 1995, full provision was made for
all amounts paid to date under the guarantee and for all future amounts. The
balances of $373,000 and $871,000 remaining under the lease as of December 31,
1997 and 1996 are included in other current liabilities.
(f) General and administrative expenses for the years ended December 31,
1997 and 1996 include consulting fees of $1.7 million and $300,000,
respectively, charged by a minority shareholder of PeterStar.
(g) See also notes 3(c), (d), (e) and 5(c).
(14) COMMITMENTS AND CONTINGENCIES
(a) Intercompany
The Company paid certain costs on behalf of, and made certain loans to,
PeterStar, resulting in an intercompany balance of approximately $27.0 million
at December 31, 1996. During 1997, an agreement was reached with the minority
shareholders to recapitalize PeterStar. The recapitalization of PeterStar in an
amount of $13.8 million was completed during September 1997, with such funds
being used to repay an equal amount of these advances. Negotiations with the
minority shareholders of PeterStar as to the repayment of the remaining
intercompany balance due to the Company were concluded in March 1998 and
resulted in a further reduction of approximately $5.3 million in PeterStar's
liability. The effect of this settlement was to increase minority interest
expense by approximately $2.1 million in 1997.
(b) Currency Licenses
Under applicable Russian currency control regulations, the Company's
Russian 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 or have applied for all the necessary
licenses, failure to receive the remaining licenses could result in fines and
penalties, which the Company does not believe will be material.
(c) Russian Taxation
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. However, the Company does
not believe this would have a material adverse effect on the financial position
or results of operations of the Company.
F-24
<PAGE> 25
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(d) Purchase Commitments
At December 31, 1997, Technocom and PeterStar have commitments of
approximately $943,000 and $11.4 million, respectively, related to the
acquisition of telecommunications equipment. The PeterStar supply contract
provides for financing of the entire amount over approximately five years.
(e) Line Rental
While it has not had to do so historically, PeterStar anticipates that it
will have to begin paying local line rental charges to the Petersburg Telephone
System in 1998. The exact fee, and the date from which charges will be levied,
have yet to be determined, but the Company does not believe that such payments
will have a material adverse effect on the Company's financial position or
results of operations.
(f) Transponder Capacity
Teleport-TP currently utilizes capacity on three Intelsat satellites for
the provision of its international and domestic long distance services, pursuant
to a fifteen year contract signed with Intelsat in January 1993. The agreement
requires quarterly payments of $616,500 for the remainder of its term.
(15) CANADIAN ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance
with U.S. GAAP which, in the case of the Company, conform with Canadian GAAP,
except as follows:
(a) Net loss for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net loss for the year, as reported......... $(20,566) $(12,461) $(15,481)
Noncash interest on Convertible Notes...... (508) (252) --
-------- -------- --------
Net loss for the year under Canadian
GAAP..................................... $(21,074) $(12,713) $(15,481)
======== ======== ========
</TABLE>
Under Canadian GAAP, the Convertible Notes are a compound financial
instrument and the debt and equity elements of the instrument are separately
accounted for. For Canadian GAAP purposes, $13.9 million of the Convertible
Notes were classified as equity and $12.6 million were classified as debt on
issuance. Additional interest expense is charged to the consolidated statements
of operations to accrete the debt portion to the principal amount of $26.5
million at maturity which, together with cash interest payments, results in an
effective yield of 22.3%. Accordingly, long-term debt at December 31, 1997 and
1996 would amount to $120.3 million and $94.3 million, respectively, and
shareholders' equity would amount to $140.4 million and $151.6 million,
respectively, under Canadian GAAP.
Effective December 31, 1996, the Company changed its Canadian GAAP policy
with respect to pre-operating costs. Such costs may not be capitalized under
U.S. GAAP and, therefore, all such costs have been retroactively expensed for
Canadian GAAP purposes. The change in accounting policy decreased the Canadian
GAAP loss in 1995 by $636,000. The deficit at December 31, 1995 was increased by
$2.2 million.
F-25
<PAGE> 26
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(b) The following non-cash investing and financing activities would be
included in the consolidated statements of cash flows under Canadian GAAP.
<TABLE>
<CAPTION>
1997 1996 1995
-------- ---- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Investing:
Investment in Yellow Pages.................... $ -- -- (1,900)
Investment in BECET........................... -- -- --
Capital expenditures.......................... (11,302) -- --
Investments in Technocom...................... (7,681) -- --
Financing:
Issue of common shares........................ 7,681 -- 6,786
Conversion of preferred shares................ -- -- (4,886)
Supplier financing............................ 11,302 -- --
Recapitalization of PeterStar................. 4,012 -- --
Due from related party........................ (4,012) -- --
</TABLE>
(16) CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of selected quarterly financial data for the
years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 QUARTERS ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Operating revenues............................ $23,891 $26,389 $29,534 $34,610
Operating income.............................. 2,481 2,634 2,872 4,031
Interest and other income..................... 1,394 1,260 625 335
Interest expense.............................. (4,269) (4,120) (4,457) (5,000)
Income taxes.................................. 1,074 2,366 2,048 2,251
Minority interest............................. 1,766 1,457 1,391 4,785
Net loss for the period....................... (4,342) (3,725) (5,377) (7,122)
======= ======= ======= =======
Net loss per common share..................... $ (0.14) $ (0.12) $ (0.17) $ (0.22)
======= ======= ======= =======
</TABLE>
Minority interest for the fourth quarter of 1997 includes $2.1 million in
connection with the settlement reached with the minority shareholders of
PeterStar (see note 14(a)).
<TABLE>
<CAPTION>
1996 QUARTERS ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Operating revenues............................ $10,184 $13,478 $17,011 $21,293
Operating income (loss)....................... (987) 1,897 1,782 175
Interest and other income..................... 855 1,075 1,263 1,666
Interest expense.............................. (296) (1,683) (3,861) (4,133)
Income taxes.................................. 828 526 1,764 551
Minority interest............................. 97 434 1,118 872
Net loss for the period....................... (1,623) (808) (4,758) (5,272)
======= ======= ======= =======
Net loss per common share..................... $ (0.05) $ (0.03) $ (0.15) $ (0.16)
======= ======= ======= =======
</TABLE>
Operating revenues and direct costs in the fourth quarter of 1996 include
$3.0 million in connection with a barter agreement with an indirect minority
shareholder of PeterStar (see note 13(a)).
(17) CONSOLIDATING FINANCIAL INFORMATION
NWE Cyprus, WTC, BCL, PLD Asset Leasing Limited ("PLD Asset Leasing")
and PLD Capital Limited ("PLD Capital") (collectively, the "Subsidiary
Guarantors") have guaranteed the Senior Notes and the Convertible Notes
described in note 9. The following consolidating balance sheets as of December
31, 1997 and 1996 and consolidating statements of operations and cash flows for
each of the years in the three-year period ended December 31, 1997, depict the
financial position and results of operations and cash flows for the Company,
presented using the equity method of accounting for its subsidiaries, the
combined Subsidiary Guarantors, presented using the equity method of
accounting, and the combined non-guarantor subsidiaries together with
consolidating eliminations to arrive at the consolidated balance sheets,
statements of operations and cash flows of the Company and its subsidiaries.
Each of the Subsidiary Guarantors are wholly owned and their guarantees are
full, unconditional and joint and several. Ownership of all other significant
subsidiaries and their holdings are more fully described in note 3.
NWE Cyprus and WTC are holding companies and have no operations
independent of their subsidiaries. PLD Asset Leasing and PLD Capital are special
purpose holding companies incorporated in Cyprus which lease equipment to
non-guarantor subsidiaries. Separate financial statements for the Subsidiary
Guarantors are not presented because they are not material to investors.
There can be no assurance that guarantees by the Subsidiary Guarantors
can be enforced easily, if at all. Each of such companies are incorporated in
jurisdictions which are outside the United States. Persons seeking to enforce
those guarantees may therefore need to do so outside the United States. The need
to bring enforcement actions in such other jurisdictions, and to comply with the
laws of those jurisdictions in relation thereto, may significantly complicate,
delay or limit enforcement of such guarantees.
In addition, the ability to enforce an "upstream" guarantee (or
guarantee by a subsidiary of a parent's obligations) is subject to some
uncertainty not only in the United States but also other applicable
jurisdictions such as Cyprus and Russia, and may well be subject to similar
uncertainty in other jurisdictions where such guarantee may be sought to be
enforced against any Subsidiary Guarantor. Efforts have been made to minimize
the effect of any possible invalidity of the guarantees by limiting the extent
to which they may be enforced against a Subsidiary Guarantor to such amounts
which will not render the guarantees void, voidable or unenforceable, and, in
the case of PLD Asset Leasing and PLD Capital Limited, by limiting the
activities of each such subsidiary to its leasing, selling or investing
operations and in the case of PLD Asset Leasing, PLD Capital and NWE Cyprus by
limiting the activities of each such subsidiary to incur indebtedness. However,
there can be no assurance that such efforts have been successful.
Payments under the guarantee given by BCL may require a license from
the Russian Central Bank and may also (to the extent such payments are
considered to be interest) be subject to Russian withholding tax. While under
current law payments under the guarantees by PLD Asset Leasing, PLD Capital, WTC
and NWE Cyprus currently in existence may be made without the need for licenses
or withholding of tax, there can be no assurance that PLD Asset Leasing, PLD
Capital, WTC or NWE Cyprus will not encounter such problems hereafter.
Finally, the ability of a foreign claimant to enforce a judgment or
arbitral award obtained in respect of a guarantee outside those jurisdictions in
which the Subsidiary Guarantors are incorporated may be limited. For example,
some jurisdictions (i.e., Russia) generally only recognize foreign judgments or
arbitral awards pursuant to bilateral or multilateral treaty arrangements. In
addition, the local courts may have limited experience in the enforcement of
foreign judgments. The possible need to re-litigate in the jurisdiction in which
a Subsidiary Guarantor is located a judgment or arbitral award obtained
elsewhere in respect of its guarantee may significantly delay the enforcement of
such judgment or award.
There are no restrictions in the charter or other foundation documents
of the Subsidiary Guarantors which restrict their ability to pay dividends, and
each of such companies is a wholly owned, direct or indirect, subsidiary of the
Company. However, each such company's ability to pay dividends may be affected,
from time to time, by (i) their own ability to generate sufficient cash from
their operations; (ii) the level of taxation, particularly corporate profits and
withholding taxes, in the jurisdictions in which they operate and (iii) exchange
controls and currency repatriation restrictions in effect in the jurisdictions
in which they operate.
F-26
<PAGE> 27
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
CONSOLIDATING SCHEDULES
Consolidating Balance Sheet
As of December 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Non-
Subsidiary Guarantor
Guarantors Subsidiaries
Parent (Combined) (Combined)
------ ---------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 7,271 331 33,072
Trade receivables, net of allowance -- 880 9,648
Other receivables and prepaids 126 155 3,241
Inventory -- 70 1,770
Due from related parties 600 -- 3,808
-------------------------------------------------
Total current assets 7,997 1,436 51,539
Escrow funds 40,984 -- --
Intercompany investments and advances 170,813 116,606 82
Property and equipment, net 334 6,494 87,976
Telecommunications licenses, net of amortization 4,964
Other investments 19,179 3,910 4,915
Other assets 8,561 1,814 895
-------------------------------------------------
Total Assets 247,868 130,260 150,371
-------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness -- -- 15,829
Short-term borrowings -- --
Accounts payable 322 1,929 15,530
Accrued liabilities 523 7 2,596
Due to related parties -- -- 4,039
Deferred revenue -- -- 1,078
Customer deposits -- -- 1,644
Intercompany and other current liabilities 1,115 12,658 2,183
-------------------------------------------------
Total current liabilities 1,960 14,594 42,899
Long-term debt 107,954 -- --
Other liabilities -- -- --
Intercompany payables -- 10,745 39,953
Minority interest -- -- 638
Commitments and contingencies
Shareholders' Equity
Preferred stock 31 -- 40,000
Common stock 180,878 125,640 20,392
Additional paid-in capital 13,592 -- --
Accumulated deficit (56,547) (20,719) 6,489
-------------------------------------------------
Total shareholders' equity 137,954 104,921 66,881
-------------------------------------------------
Total liabilities and shareholders' equity 247,868 130,260 150,371
=================================================
<CAPTION>
Eliminations Consolidated
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents -- 40,674
Trade receivables, net of allowance -- 10,528
Other receivables and prepaids -- 3,522
Inventory -- 1,840
Due from related parties -- 4,408
-------------------------------
Total current assets -- 60,972
Escrow funds -- 40,984
Intercompany investments and advances (287,501) --
Property and equipment, net (1,765) 93,039
Telecommunications licenses, net of amortization 67,346 72,310
Other investments (3,910) 24,094
Other assets 3,688 14,958
-------------------------------
Total Assets (222,142) 306,357
-------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness -- 15,829
Short-term borrowings -- --
Accounts payable -- 17,781
Accrued liabilities -- 3,126
Due to related parties -- 4,039
Deferred revenue -- 1,078
Customer deposits -- 1,644
Other current liabilities (12,715) 3,241
-------------------------------
Total current liabilities (12,715) 46,738
Long-term debt -- 107,954
Other liabilities -- --
Intercompany payables (50,698) --
Minority interest 13,073 13,711
Commitments and contingencies
Shareholders' Equity
Preferred stock (40,000) 31
Common stock (146,032) 180,878
Additional paid-in capital 13,592
Accumulated deficit 14,230 (56,547)
-------------------------------
Total shareholders' equity (171,802) 137,954
-------------------------------
Total liabilities and shareholders' equity (222,142) 306,357
===============================
</TABLE>
<PAGE> 28
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
CONSOLIDATING SCHEDULES
Consolidating Balance Sheet
As of December 31, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Non-
Subsidiary Guarantor
Guarantors Subsidiaries
Parent (Combined) (Combined)
------ ---------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 5,513 241 11,502
Trade receivables, net of allowance -- 1,239 15,839
Other receivables and prepaids 1,220 168 7,227
Inventory -- 214 2,588
Due from related parties 1,600 -- 4,720
-------------------------------------------------
Total current assets 8,333 1,862 41,876
-------------------------------------------------
Escrow funds 33,868 -- --
Intercompany investments and advances 210,844 148,295 2,615
Property and equipment, net 191 6,181 129,780
Telecommunications licenses, net of amortization -- -- 622
Due from related parties 3,011 -- --
Other investments 3,000 7,384 4,036
Other assets 11,971 2,846 803
-------------------------------------------------
Total Assets 271,218 166,568 179,732
-------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness -- -- --
Short-term borrowings 19,420 -- 900
Accounts payable 1,224 1,861 10,512
Accrued liabilities 371 34 5,495
Due to related parties -- -- 6,394
Deferred revenue -- -- 3,128
Customer deposits -- -- 3,070
Other current liabilities 758 283 1,258
-------------------------------------------------
Total current liabilities 21,773 2,178 30,757
-------------------------------------------------
Long-term debt 122,214 -- 11,302
Other liabilities -- -- --
Intercompany payables -- 45,949 36,250
Minority interest -- -- --
Commitments and contingencies
Shareholders' Equity
Preferred stock, 4 -- 40,000
Common stock, 333 125,640 33,908
Additional paid-in capital 204,007 -- --
Accumulated deficit (77,113) (7,199) 27,515
-------------------------------------------------
Total shareholders' equity 127,231 118,441 101,423
-------------------------------------------------
Total liabilities and shareholders' equity 271,218 166,568 179,732
=================================================
<CAPTION>
Eliminations Consolidated
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents -- 17,256
Trade receivables, net of allowance -- 17,078
Other receivables and prepaids -- 8,615
Inventory -- 2,802
Due from related parties -- 6,320
-------------------------------
Total current assets -- 52,071
-------------------------------
Escrow funds -- 33,868
Intercompany investments and advances (361,754) --
Property and equipment, net (1,154) 134,998
Telecommunications licenses, net of amortization 78,215 78,837
Due from related parties -- 3,011
Other investments (7,384) 7,036
Other assets 10,145 25,765
-------------------------------
Total Assets (281,932) 335,586
-------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank indebtedness --
Short-term borrowings -- 20,320
Accounts payable -- 13,597
Accrued liabilities (150) 5,750
Due to related parties (1,058) 5,336
Deferred revenue -- 3,128
Customer deposits -- 3,070
Other current liabilities (43) 2,256
-------------------------------
Total current liabilities (1,251) 53,457
-------------------------------
Long-term debt -- 133,516
Other liabilities -- --
Intercompany payables (82,199) --
Minority interest 21,382 21,382
Commitments and contingencies
Shareholders' Equity
Preferred stock, (40,000) 4
Common stock, (159,548) 333
Additional paid-in capital -- 204,007
Accumulated deficit (20,316) (77,113)
-------------------------------
Total shareholders' equity (219,864) 127,231
-------------------------------
Total liabilities and shareholders' equity (281,932) 335,586
===============================
</TABLE>
<PAGE> 29
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Consolidating Statement of Operations
Year Ended December 31, 1997
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Non-
Subsidiary Guarantor
Guarantors Subsidiaries
Parent (combined) (combined)
------ ---------- ----------
<S> <C> <C> <C>
Revenue:
Telecommunications $ - 7,648 104,820
Finance lease income - 783 1,956
Management fees 3,155 - 3,507
--------- ------ -------
3,155 8,431 110,283
Direct costs - 2,623 36,563
--------- ------ -------
Gross Profit 3,155 5,808 73,720
Operating expenses:
General and administrative 7,401 5,679 29,186
Depreciation (246) 812 9,867
Amortization 2,973 4,914 334
Management Fees 8,845 (3,155) (5,690)
Taxes other than income taxes 618 602 4,984
--------- ------ -------
Total operating expenses 19,591 8,852 38,681
Operating income (loss) (16,436) (3,044) 35,039
Other income (expense):
Share of income (loss) from equity investments,
after amortization of licenses 9,283 18,222 (537)
Interest and other income 2,639 48 939
Interest Expense (16,142) (5) (1,704)
Amortization of deferred financing costs (1,152) - -
Other 1,242 (276) (491)
Provision for amounts due from a shareholder of
PeterStar - - -
--------- ------ -------
Loss before income taxes and minority interest (20,566) 14,945 33,246
Income taxes - 426 7,356
--------- ------ -------
Loss before minority interest (20,566) 14,519 25,890
Minority Interest - - (639)
--------- ------ -------
Net loss $ (20,566) 14,519 26,529
========= ====== =======
</TABLE>
<TABLE>
<CAPTION>
Eliminations Consolidated
------------ ------------
<S> <C> <C>
Revenue:
Telecommunications - 112,468
Finance lease income (783) 1,956
Management fees (6,662) -
------- -------
(7,445) 114,424
Direct costs - 39,186
------- -------
Gross Profit (7,445) 75,238
Operating expenses:
General and administrative (3,550) 38,716
Depreciation - 10,433
Amortization (354) 7,867
Management Fees - -
Taxes other than income taxes - 6,204
------- -------
Total operating expenses (3,904) 63,220
Operating income (loss) (3,541) 12,018
Other income (expense):
Share of income (loss) from equity investments,
after amortization of licenses (27,505) (537)
Interest and other income (12) 3,614
Interest Expense 5 (17,846)
Amortization of deferred financing costs - (1,152)
Other - 475
Provision for amounts due from a shareholder of
PeterStar - -
------- -------
Loss before income taxes and minority interest (31,053) (3,428)
Income taxes (43) 7,739
------- -------
Loss before minority interest (31,010) (11,167)
Minority Interest 10,038 9,399
------- -------
Net loss (41,048) (20,566)
======= =======
</TABLE>
<PAGE> 30
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Consolidating Statement of Operations
Year Ended December 31, 1996
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Non-
Subsidiary Guarantor
Guarantors Subsidiaries
Parent (combined) (combined) Eliminations Consolidated
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Telecommunications $ -- 5,101 55,461 -- 60,562
Finance lease income -- -- 1,404 -- 1,404
Management fees 2,085 -- 4,230 (6,315) --
-------- ------- ------- ------- -------
2,085 5,101 61,095 (6,315) 61,966
Direct costs -- 2,103 19,606 -- 21,709
-------- ------- ------- ------- -------
Gross Profit 2,085 2,998 41,489 (6,315) 40,257
Operating expenses:
General and administrative 3,575 1,588 18,756 872 24,791
Depreciation -- 502 4,925 (201) 5,226
Amortization -- 4,832 59 (8) 4,883
Management Fees 4,230 -- 2,085 (6,315) --
Taxes other than income taxes 11 323 2,156 -- 2,490
-------- ------- ------- ------- -------
Total operating expenses 7,816 7,245 27,981 (5,652) 37,390
Operating income (loss) (5,731) (4,247) 13,508 (663) 2,867
Other income (expense):
Share of income (loss) from equity investments,
after amortization of licenses 861 8,443 (215) (11,781) (2,692)
Interest and other income 2810 173 1910 (34) 4,859
Interest Expense (9,463) -- (510) -- (9,973)
Amortization of deferred financing costs (684) -- -- -- (684)
Other (254) 45 (429) (10) (648)
-------- ------- ------- ------- -------
Loss before income taxes and minority interest (12,461) 4,414 14,264 (12,488) (6,271)
Income taxes -- 194 3,475 -- 3,669
-------- ------- ------- ------- -------
Loss before minority interest (12,461) 4,220 10,789 (12,488) (9,940)
Minority Interest -- -- 19 2,502 2,521
-------- ------- ------- ------- -------
Net loss $(12,461) 4,220 10,770 (14,990) (12,461)
======== ======= ======= ======= =======
</TABLE>
<PAGE> 31
PLD TELEKOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Consolidating Statement of Operations
Year Ended December 31, 1995
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Non-
Subsidiary Guarantor
Guarantors Subsidiaries
Parent (combined) (combined) Eliminations Consolidated
------ ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Telecommunications $ -- -- 27,686 -- 27,686
Finance lease income -- -- 1,434 -- 1,434
Management fees 1,200 -- 1,233 (2,433) --
-------- ------- ------- ------- -------
1,200 -- 30,353 (2,433) 29,120
Direct costs -- -- 10,382 -- 10,382
-------- ------- ------- ------- -------
Gross Profit 1,200 -- 19,971 (2,433) 18,738
Operating expenses:
General and administrative 5,300 67 14,865 (2,064) 18,168
Depreciation -- -- 3,837 -- 3,837
Amortization -- 4,606 53 4,659
Management Fees 3,003 -- (1,370) (1,633) --
Taxes other than income taxes -- -- 1,120 100 1,220
-------- ------- ------- ------- -------
Total operating expenses 8,303 4,673 18,505 (3,597) 27,884
Operating income (loss) (7,103) (4,673) 1,466 1,164 (9,146)
Other income (expense):
Share of income (loss) from equity investments,
after amortization of licenses (4,563) (1,691) (27) 4,726 (1,555)
Interest and other income 435 -- 1,631 -- 2,066
Interest Expense (526) -- (431) -- (957)
Amortization of deferred financing costs -- -- -- -- --
Other (1,197) -- (393) 232 (1,358)
Provision for amounts due from a shareholder of
PeterStar (2,490) -- -- -- (2,490)
-------- ------- ------- ------- -------
Loss before income taxes and minority interest (15,444) (6,364) 2,246 6,122 (13,440)
Income taxes 37 -- 1,453 -- 1,490
-------- ------- ------- ------- -------
Loss before minority interest (15,481) (6,364) 793 6,122 (14,930)
Minority Interest -- -- 58 493 551
-------- ------- ------- ------- -------
Net loss $(15,481) (6,364) 735 5,629 (15,481)
======== ======= ======= ======= =======
</TABLE>
<PAGE> 32
PLD TELEKOM INC.
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
Non-
Consolidating Statement of Cash Flows Subsidiary Guarantor
for the year ended December 31, 1997 Guarantors Subsidiaries
(in thousands) Parent (Combined) (Combined) Eliminations Consolidated
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities (11,731) (11,468) 40,519 (6,527) 10,793
Cash flows from investing activities
Escrow funds 7,116 -- -- -- 7,116
Capital Expenditures -- (750) (40,896) 2,656 (38,990)
Proceeds on disposal of SPMMTS 17,180 -- -- -- 17,180
Investments in subsidiaries (33,211) (7,111) -- 14,714 (25,608)
Other 302 -- (246) (622) (566)
------------------------------------------------------------------------------
Net cash used in investing activities (8,613) (7,861) (41,142) 16,748 (40,868)
------------------------------------------------------------------------------
Financing
Short term debt borrowings/(repayments) (14,929) 4,000 (10,929)
Proceeds from notes 15,420 -- -- -- 15,420
Issuance of stock 1,739 -- -- -- 1,739
Recapitalization of Peterstar 1,427 -- -- -- 1,427
Related party advances and other -- 19,239 (6,018) (14,221) (1,000)
------------------------------------------------------------------------------
Net cash provided by financing activities 18,586 19,239 (20,947) (10,221) 6,657
------------------------------------------------------------------------------
(Decrease)/Increase in cash and cash
equivalents (1,758) (90) (21,570) (23,418)
Cash and cash equivalents at beginning of year 7,271 331 33,072 40,674
------------------------------------------------------------------------------
Cash and cash equivalents at end of year 5,513 241 11,502 -- 17,256
==============================================================================
</TABLE>
<PAGE> 33
PLD TELEKOM INC.
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
Non-
Consolidating Statement of Cash Flows Subsidiary Guarantor
for the year ended December 31, 1996 Guarantors Subsidiaries
(in thousands) Parent (Combined) (Combined) Eliminations Consolidated
---------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net cash provided by/(used in) operating
activities................................. (9,906) 13,322 29,802 (17,600) 15,618
Cash flows from investing activities
Escrow funds............................... (40,984) -- -- -- (40,984)
Capital Expenditures....................... (1,214) (1,835) (40,152) -- (43,201)
Investments in subsidiaries................ (25,536) (11,901) (4,999) 34,921 (7,515)
Other...................................... (4,457) -- 455 7,511 3,509
---------- ---------- ---------- ------------ -------------
Net cash used in investing activities... (72,191) (13,736) (44,696) 42,432 (88,191)
---------- ---------- ---------- ------------ -------------
Financing
Short term debt borrowings/(repayments) ... (14,500) -- 7,950 -- (6,550)
Debt issuance, net of offering costs....... 104,973 -- -- -- 104,973
Issuance of stock ......................... 991 -- 20,000 (20,000) 991
Loans from shareholders.................... (1,604) -- -- (239) (1,843)
Related party advances and other .......... -- 745 3,848 (4,593) --
---------- ---------- ---------- ------------ -------------
Net cash provided by financing
activities............................ 89,860 745 31,798 (24,832) 97,571
---------- ---------- ---------- ------------ -------------
Increase in cash and cash
equivalents........................... 7,763 331 16,904 24,998
Cash and cash equivalents at beginning
of year.................................... (492) -- 16,168 15,676
---------- ---------- ---------- ------------ -------------
Cash and cash equivalents at end of year.... 7,271 331 33,072 -- 40,674
========== ========== ========== ============ ==============
</TABLE>
<PAGE> 34
PLD TELEKOM INC.
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
Non-
Subsidiary Guarantor
Consolidating Statement of Cash Flows for the year Guarantors Subsidiaries
ended December 31, 1995 Parent (Combined) (Combined) Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Net cash provided by/(used in) operating activities (33,422) (90) (10,671) 37,459 (6,724)
Cash flows from investing activities
Capital Expenditures (13,496) -- (18,042) -- (31,538)
Teleport finance leases -- -- -- (7,733) (7,733)
Proceeds on disposal of assets/investments -- -- 2,403 (2,403) --
Investments in subsidiaries -- (13,881) (2,403) 16,284 --
Other (8,905) -- (17) (900) (9,822)
------- ------- ------- ------- -------
Net cash used in investing activities (22,401) (13,881) (18,059) 5,248 (49,093)
------- ------- ------- ------- -------
Financing
Short term debt borrowings/(repayments) 14,170 -- 7,880 329 22,379
Issuance of stock 67 -- -- -- 67
Loans from shareholders 502 -- -- (97) 405
Related party advances and other 4,819 13,971 16,081 (42,939) (8,068)
------- ------- ------- ------- -------
Net cash provided by financing activities 19,558 13,971 23,961 (42,707) 14,783
------- ------- ------- ------- -------
Decrease in cash and cash equivalents (36,265) -- (4,769) (41,034)
Cash and cash equivalents at beginning of year 35,773 -- 20,937 56,710
------- ------- ------- ------- -------
Cash and cash equivalents at end of year (492) -- 16,168 -- 15,676
======= ======= ======= ======= =======
</TABLE>
