<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q/A
(AMENDMENT NO. 1)
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-20444
------------------------
PLD TELEKOM INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-3950002
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OF ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
680 FIFTH AVENUE, 24TH FLOOR, NEW YORK, NEW YORK 10019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(212) 262-6060
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK, $.01 PAR VALUE -- 33,324,290 SHARES (APRIL 29, 1998)
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<PAGE> 2
PLD TELEKOM INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
PLD Telekom Inc.
Consolidated Condensed Balance Sheets as of March 31,
1998 (Unaudited) and December 31, 1997.............. 2
Consolidated Condensed Statements of Operations
(Unaudited) for the three months ended March 31,
1998 and 1997....................................... 3
Consolidated Condensed Statements of Cash Flows
(Unaudited) for the three months ended March 31,
1998 and 1997....................................... 4
Notes to Consolidated Condensed Financial Statements
(Unaudited) for the three months ended March 31,
1998................................................ 5
NWE Capital (Cyprus) Ltd.
Consolidated Condensed Balance Sheets as of March 31,
1998 (Unaudited) and December 31, 1997.............. 16
Consolidated Condensed Statements of Operations
(Unaudited) for the three months ended March 31,
1998 and 1997....................................... 17
Consolidated Condensed Statements of Cash Flows
(Unaudited) for the three months ended March 31,
1998 and 1997....................................... 18
Notes to the Consolidated Condensed Financial
Statements (Unaudited) for the three months ended
March 31, 1998...................................... 19
Technocom Limited and Subsidiaries
Consolidated Condensed Balance Sheets as of March 31,
1998 (Unaudited) and March 31, 1997................. 22
Consolidated Condensed Statements of Operations
(Unaudited) for the three months ended March 31,
1998 and 1997....................................... 23
Consolidated Condensed Statements of Cash Flows
(Unaudited) for the three months ended March 31,
1998 and 1997....................................... 24
Notes to the Consolidated Condensed Financial
Statements (Unaudited) for the three months ended
March 31, 1998...................................... 25
Wireless Technology Corporations Limited
Consolidated Condensed Balance Sheets as of March 31,
1998 (Unaudited) and December 31, 1997.............. 28
Consolidated Condensed Statements of Operations
(Unaudited) for the three months ended March 31,
1998 and 1997....................................... 29
Consolidated Condensed Statements of Cash Flows
(Unaudited) for the three months ended March 31,
1998 and 1997....................................... 30
Notes to the Consolidated Condensed Financial
Statements (Unaudited) for the three months ended
March 31, 1998...................................... 31
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 32
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................. 37
</TABLE>
1
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLD TELEKOM INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1998 1997
---------- -------------
(THOUSANDS OF U.S. DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 17,145 $ 17,256
Trade receivables, net of allowances...................... 17,174 17,078
Other receivables and prepaids............................ 10,171 8,615
Inventory................................................. 2,978 2,802
Due from related parties.................................. 7,049 6,320
--------- --------
Total current assets.............................. 54,517 52,071
Escrow funds................................................ 34,317 33,868
Property and equipment, net................................. 139,156 134,998
Telecommunications licenses, net............................ 76,350 78,837
Due from related parties.................................... 3,011 3,011
Other investments........................................... 6,131 7,036
Other assets................................................ 24,689 25,765
--------- --------
Total assets...................................... $ 338,171 $335,586
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings..................................... 20,320 20,320
Accounts payable.......................................... 12,169 13,597
Accrued liabilities....................................... 5,725 5,750
Due to related parties.................................... 5,345 5,336
Deferred revenues......................................... 2,317 3,128
Customer deposits......................................... 3,321 3,070
Other current liabilities................................. 4,768 2,256
--------- --------
Total current liabilities......................... 53,965 53,457
Long-term debt.............................................. 136,437 133,516
Minority interest........................................... 25,047 21,382
Shareholders' equity:
Preferred stock, par value $0.01 per share,
authorized -- 100,000,000, issued and
outstanding -- 446,884................................. 4 4
Common stock, par value $0.01 per share,
authorized -- 100,000,000, issued and
outstanding -- 33,324,290.............................. 333 333
Additional paid-in capital................................ 204,007 204,007
Accumulated deficit....................................... (81,622) (77,113)
--------- --------
Total shareholders' equity........................ 122,722 127,231
--------- --------
Total liabilities and shareholders' equity........ $ 338,171 $335,586
========= ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 4
PLD TELEKOM INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
(THOUSANDS OF U.S. DOLLARS,
EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C>
Revenues:
Telecommunications........................................ $ 34,719 $ 23,380
Finance lease income...................................... 447 511
----------- -----------
35,166 23,891
Direct costs................................................ 10,796 8,521
----------- -----------
Gross profit........................................... 24,370 15,370
Operating expenses:
General and administrative................................ 9,700 7,248
Depreciation.............................................. 3,099 2,325
Amortization.............................................. 2,692 2,028
Taxes other than income taxes............................. 1,680 1,288
----------- -----------
17,171 12,889
----------- -----------
Operating income....................................... 7,199 2,481
Other income/(expense):
Share of loss from equity investments..................... (210) (278)
Interest and other income................................. 871 1,142
Interest expense.......................................... (5,190) (4,269)
Amortization of deferred financing costs.................. (401) (288)
Foreign exchange loss..................................... (116) (39)
Loss on disposal of investments and property and
equipment.............................................. -- (251)
----------- -----------
Earnings/(loss) before income taxes and minority
interest.............................................. 2,153 (1,502)
Income taxes.............................................. 2,997 1,074
----------- -----------
Loss before minority interest.......................... (844) (2,576)
Minority interest........................................... 3,665 1,766
----------- -----------
Net loss............................................... $ (4,509) $ (4,342)
=========== ===========
Net loss per common share:
Basic..................................................... $ (0.14) $ (0.14)
=========== ===========
Diluted................................................... $ (0.14) $ (0.14)
=========== ===========
Weighted average common shares outstanding.................. 33,324,290 31,731,034
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 5
PLD TELEKOM INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(4,509) $(4,342)
Adjustments to reconcile net loss to net cash provided
by/(used in) operating activities:
Depreciation and amortization.......................... 6,192 4,641
Share of loss of equity investments.................... 210 278
Accrued interest on senior discount notes.............. 3,964 3,375
Minority interest...................................... 3,665 1,766
Other.................................................. -- 253
Changes in operating assets and liabilities:
Decrease/(increase) in trade receivables, net of
allowances.......................................... (96) (2,061)
Decrease/(increase) in other receivables and
prepaids............................................ (1,556) 849
Decrease/(increase) in inventory..................... (176) 159
Change in due from or to related parties............. (720) (204)
Increase/(decrease) in accounts payable, accrued
liabilities, customer deposits and other current
liabilities......................................... (668) 1,725
Increase/(decrease) in deferred revenue.............. (811) 270
------- -------
5,495 6,709
Cash flows from investing activities:
Capital expenditures...................................... (5,894) (13,902)
Escrow funds.............................................. (449) (535)
Investments and other assets.............................. 1,164 (2,085)
------- -------
(5,179) (16,522)
Cash flows from financing activities:
Payments on long-term indebtedness........................ (427) --
Short-term debt borrowings................................ -- 5,171
Issuance of common stock.................................. -- 95
------- -------
(427) 5,266
------- -------
Decrease in cash and cash equivalents....................... (111) (4,547)
Cash and cash equivalents, beginning of period.............. 17,256 40,674
------- -------
Cash and cash equivalents, end of period.................... $17,145 $36,127
======= =======
Supplemental disclosures:
Non-cash investing and financing activities:
Supplier financing........................................ $ 1,363 --
======= =======
Interest paid............................................. $ 532 $ 251
======= =======
Income taxes paid......................................... $ 2,885 $ 1,106
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 6
PLD TELEKOM INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation. The accompanying consolidated condensed
financial statements are unaudited and have been prepared by PLD Telekom Inc.
(the "Company") pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). In the opinion of management, the consolidated
financial statements include all adjustments (consisting primarily of normal
recurring accruals) necessary to present fairly the consolidated financial
position of the Company as of March 31, 1998 and the consolidated results of
operations and cash flows of the Company for the three months ended March 31,
1998 and 1997.
Certain information and footnote disclosures generally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC rules
and regulations. Results for the interim period are not necessarily indicative
of the results for a full year.
These consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
(b) Net loss per share. The Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), on
December 31, 1997. SFAS 128 establishes standards for computing and presenting
earnings per share ("EPS") and supersedes APB Opinion No. 15. "Earnings Per
Share". SFAS 128 requires dual presentation of basic and diluted EPS for net
income on the face of the statement of operations and a separate reconciliation
of both EPS amounts. Basic EPS is computed by dividing income or loss by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock at
the beginning of the period presented. Basic loss per share for 1997 has been
restated to give effect to SFAS 128 and was not different from net loss per
share measured under APB No. 15. Potentially dilutive common stock equivalents
totalling 967,000 and 1,621,000 for the quarters ended March 31, 1997 and 1998,
respectively, have not been included in the computation of diluted net loss per
common share because they were antidilutive for the periods presented.
(c) Comprehensive income. Statement of Financial Accounting Standards No.
130 (SFAS 130), "Reporting Comprehensive Income," was issued in June 1997. SFAS
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. This
Statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in an
annual financial statement that is displayed with the same prominence as other
financial statements. The Company adopted SFAS 130 as of January 1, 1998. For
the three months ended March 31, 1998 comprehensive loss was equal to
consolidated net loss reported on the consolidated statement of operations. As
SFAS 130 only requires additional disclosures in the Company's consolidated
financial statements, its adoption did not have any impact on the Company's
consolidated financial position or results of operations.
(d) New pronouncements. SFAS No. 131 (SFAS 131), "Disclosure about
Segments of an Enterprise and Related Information," was issued in June 1997.
SFAS 131 establishes standards for the way public companies report information
about operating segments in annual financial statements and requires that those
companies report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company will adopt SFAS 131 for its annual reporting in 1998.
5
<PAGE> 7
PLD TELEKOM INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(e) Reclassifications. Certain reclassifications have been made to the
prior year's financial statements to conform to the current year's presentation.
(2) FUTURE ACTIVITIES
The Company's telecommunications businesses are developing rapidly in an
emerging economy which, by its nature, has an uncertain economic, political and
regulatory environment. The general risks of operating businesses in the former
Soviet Union include the possibility for rapid change in government policies,
economic conditions, the tax regime and foreign currency regulations. In
addition, Teleport-TP's satellite-based long distance network is at an early
stage of its development and operation and is therefore subject not only to the
general risks and uncertainties of operating in Russia, but also those involved
in the launching of a new telecommunications service. In addition, this national
long-distance service is being developed in various regions of Russia and its
implementation and results of operations will therefore be affected by, among
other things, the often uncertain economic conditions and growth rates in such
regions.
Ultimate recoverability of the Company's investments in its operating
subsidiaries, PeterStar Company Limited ("PeterStar"), Baltic Communications
Limited ("BCL"), ALTEL, formerly known as BECET International ("ALTEL"), and
Teleport-TP, is dependent upon each of these subsidiaries achieving and
maintaining profitability, which is dependent to a certain extent on the
stabilization of the economies of the former Soviet Union, the ability to
maintain the necessary telecommunications licenses and the ability to obtain
adequate financing to meet capital commitments.
(3) RESTRICTED CASH
Technocom Limited 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 amount outstanding as of March 31, 1998 under these supplier financing
agreements secured by bank guarantees is approximately $3.2 million. In
addition, pursuant to the terms of the Company's $149.5 million private
placement completed on June 12, 1996, $34.3 million remained in escrow on March
31, 1998. These funds will be released in the future for telecommunications
equipment and investments in Russia and Kazakhstan.
(4) CONTINGENCIES
(a) 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. Management does not believe that such fines and penalties would be
material.
(b) 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, although the Company
believes such amounts will not be material.
(c) At March 31, 1998, Technocom and PeterStar have commitments of
approximately $500,000 and $12.4 million, respectively, related to the
acquisition of telecommunications equipment. The PeterStar supply contract
provides for financing of the entire amount over approximately five years.
(d) 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 Network 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.
6
<PAGE> 8
PLD TELEKOM INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(e) 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.
(5) SUBSEQUENT EVENTS
On April 19, 1998, the Company entered into separate agreements with News
America Incorporated ("News America"), a wholly owned subsidiary of News
Corporation Limited, and Cable and Wireless plc ("Cable & Wireless") regarding,
among other things, the acquisition by the Company of: (i) an additional 11%
interest in its subsidiary PeterStar from News America (after its acquisition of
such interest from Cable & Wireless); and (ii) a 50% interest in BELCEL, a
mobile telephone business in Belarus, together with certain intercompany
indebtedness from Cable & Wireless. In connection with these acquisitions, the
Company agreed to issue an aggregate of 4.3 million shares of its Common Stock
to News America and Cable & Wireless. In addition, Cable & Wireless and News
America entered into an agreement providing for the sale by Cable & Wireless to
News America of its complete stake in the Company (including the Common Stock
being issued by the Company to Cable & Wireless in exchange for the interest in
BELCEL) and a warrant to purchase 250,000 shares of Common Stock. The
transactions are conditioned on, among other things, clearance under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (which was
received on May 4, 1998) and approval of the acquisition of the additional
PeterStar interest by the shareholders of the Company. The Company currently
expects the transactions to close in August 1998.
(6) CONSOLIDATING CONDENSED FINANCIAL INFORMATION
NWE Capital (Cyprus) Limited ("NWE Cyprus"), Wireless Technology
Corporations Limited ("WTC"), BCL, PLD Asset Leasing Limited ("PLD Asset
Leasing") and PLD Capital Limited ("PLD Capital") (collectively, the "Subsidiary
Guarantors") have guaranteed the Company's Senior Notes and Convertible Notes
issued in June 1996. The following consolidating balance sheets as of March 31,
1998 and December 31, 1997 and consolidating statements of operations and cash
flows for the three months ended March 31, 1998 and 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.
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, all
of which are incorporated in jurisdictions outside the United States, can be
enforced easily, if at all. Persons seeking to enforce these 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 in 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,
7
<PAGE> 9
PLD TELEKOM INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
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 ability 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 judgement 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.
8
<PAGE> 10
PLD TELEKOM INC.
CONSOLIDATING BALANCE SHEET
(UNAUDITED)
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES PLD
PARENT (COMBINED) (COMBINED) ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. 1,735 406 15,004 -- 17,145
Trade Receivables, net of allowances... -- 1,482 15,692 -- 17,174
Other receivables and prepaids......... 1,221 160 8,790 -- 10,171
Inventory.............................. -- 260 2,718 -- 2,978
Due from related parties............... 600 1,313 5,136 -- 7,049
------- ------- ------- -------- -------
Total current assets........... 3,556 3,621 47,340 -- 54,517
Escrow funds............................. 34,317 -- -- -- 34,317
Intercompany investments and advances.... 217,212 149,477 2,766 (369,455) --
Property and equipment, net.............. 223 6,039 133,979 (1,085) 139,156
Telecommunications licenses, net......... -- -- -- 76,350 76,350
Due from related parties................. -- 3,011 -- -- 3,011
Other investments........................ 3,000 7,594 3,642 (8,105) 6,131
Other assets............................. 11,909 65 349 12,366 24,689
------- ------- ------- -------- -------
Total assets................... 270,217 169,807 188,076 (289,929) 338,171
======= ======= ======= ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.................. 19,420 -- 900 -- 20,320
Accounts payable....................... 3 2,584 9,582 -- 12,169
Accrued liabilities.................... 576 150 4,999 -- 5,725
Due to related parties................. -- 24 5,321 -- 5,345
Deferred revenue....................... -- 4 2,313 -- 2,317
Customer deposits...................... -- -- 3,321 -- 3,321
Other current liabilities.............. 1,318 118 3,332 -- 4,768
------- ------- ------- -------- -------
Total current liabilities...... 21,317 2,880 29,768 -- 53,965
Long-term debt........................... 126,178 -- 10,259 -- 136,437
Intercompany payables.................... -- 43,869 39,229 (83,098) --
Minority interest........................ -- -- -- 25,047 25,047
Commitments and contingencies............ -- -- -- -- --
Shareholders' equity:
Preferred stock........................ 4 -- 40,000 (40,000) 4
Common stock........................... 333 125,640 33,908 (159,548) 333
Additional paid-in capital............. 204,007 -- -- -- 204,007
Accumulated deficit.................... (81,622) (2,582) 34,912 (32,330) (81,622)
------- ------- ------- -------- -------
Total shareholders' equity..... 122,722 123,058 108,820 (231,878) 122,722
------- ------- ------- -------- -------
Total liabilities and
shareholders' equity......... 270,217 169,807 188,076 (289,929) 338,171
======= ======= ======= ======== =======
</TABLE>
9
<PAGE> 11
PLD TELEKOM INC.
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES
PARENT (COMBINED) (COMBINED) ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... 5,513 241 11,502 -- 17,256
Trade Receivables, net of
allowances.................. -- 1,239 15,839 -- 17,078
Other receivables and
prepaids.................... 1,220 168 7,227 -- 8,615
Inventory...................... -- 214 2,588 -- 2,802
Due from related parties....... 1,600 -- 4,720 -- 6,320
------- ------- ------- -------- -------
Total current assets... 8,333 1,862 41,876 -- 52,071
Escrow funds..................... 33,868 -- -- -- 33,868
Intercompany investments and
advances....................... 210,844 148,295 2,615 (361,754) --
Property and equipment, net...... 191 6,181 129,780 (1,154) 134,998
Telecommunications licenses, net
of amortization................ -- -- 622 78,215 78,837
Due from related parties......... 3,011 -- -- -- 3,011
Other investments................ 3,000 7,384 4,036 (7,384) 7,036
Other assets..................... 11,971 2,846 803 10,145 25,765
------- ------- ------- -------- -------
Total assets........... 271,218 166,568 179,732 (281,932) 335,586
======= ======= ======= ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.......... 19,420 -- 900 -- 20,320
Accounts payable............... 1,224 1,861 10,512 -- 13,597
Accrued liabilities............ 371 34 5,495 (150) 5,750
Due to related parties......... -- -- 6,394 (1,058) 5,336
Deferred revenue............... -- -- 3,128 -- 3,128
Customer deposits.............. -- -- 3,070 -- 3,070
Other current liabilities...... 758 283 1,258 (43) 2,256
------- ------- ------- -------- -------
Total current
liabilities.......... 21,773 2,178 30,757 (1,251) 53,457
Long-term debt................... 122,214 -- 11,302 -- 133,516
Intercompany payables............ -- 45,949 36,250 (82,199) --
Minority interest................ -- -- -- 21,382 21,382
Commitments and contingencies
Shareholders' equity:
Preferred stock................ 4 -- 40,000 (40,000) 4
Common stock................... 333 125,640 33,908 (159,548) 333
Additional paid-in capital..... 204,007 -- -- -- 204,007
Accumulated deficit............ (77,113) (7,199) 27,515 (20,316) (77,113)
------- ------- ------- -------- -------
Total shareholders'
equity............... 127,231 118,441 101,423 (219,864) 127,231
------- ------- ------- -------- -------
Total liabilities and
shareholders'
equity............... 271,218 166,568 179,732 (281,932) 335,586
======= ======= ======= ======== =======
</TABLE>
10
<PAGE> 12
PLD TELEKOM INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES
PARENT (COMBINED) (COMBINED) ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Telecommunications............. $ -- 2,242 32,477 -- 34,719
Finance lease income........... -- 210 447 (210) 447
Management fees................ 1,025 -- -- (1,025) --
------- ------ ------ ------- ------
Total revenues......... 1,025 2,452 32,924 (1,235) 35,166
Direct costs..................... 1,144 9,652 -- 10,796
------- ------ ------ ------- ------
Gross profit........... 1,025 1,308 23,272 (1,235) 24,370
Operating expenses:
General and administrative..... 1,553 722 7,526 (101) 9,700
Depreciation................... (53) 208 2,944 -- 3,099
Amortization................... 1,248 1,221 79 144 2,692
Management fees................ -- -- 1,025 (1,025) --
Taxes other than income
taxes....................... 130 178 1,372 -- 1,680
------- ------ ------ ------- ------
Total operating
expenses............. 2,878 2,329 12,946 (982) 17,171
------- ------ ------ ------- ------
Operating
income/(loss)........ (1,853) (1,021) 10,326 (253) 7,199
Other income/(expense):
Share of income/(loss) from
equity investments.......... 2,575 5,694 (210) (8,269) (210)
Interest and other income...... 515 136 220 -- 871
Interest expense............... (5,028) -- (372) 210 (5,190)
Amortization of deferred
financing costs............. (401) -- -- -- (401)
Foreign exchange loss.......... -- (73) (43) -- (116)
Loss on disposals.............. (317) -- 400 (83) --
------- ------ ------ ------- ------
Earnings/(loss) before
income taxes and
minority interest.... (4,509) 4,736 10,321 (8,395) 2,153
Income taxes..................... -- 72 2,925 -- 2,997
------- ------ ------ ------- ------
Loss before minority
interest............. (4,509) 4,664 7,396 (8,395) (844)
Minority interest................ -- -- -- 3,665 3,665
------- ------ ------ ------- ------
Net loss............... $(4,509) 4,664 7,396 (12,060) (4,509)
======= ====== ====== ======= ======
</TABLE>
11
<PAGE> 13
PLD TELEKOM INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES
PARENT (COMBINED) (COMBINED) ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Telecommunications............. $ -- 1,779 21,601 -- 23,380
Finance lease income........... -- 188 511 (188) 511
Management fees................ -- 562 -- (562) --
------- ----- ------ ------ ------
Total revenues......... -- 2,529 22,112 (750) 23,891
Direct costs..................... -- 291 8,230 -- 8,521
------- ----- ------ ------ ------
Gross profit........... -- 2,238 13,882 (750) 15,370
Operating expenses:
General and administrative..... 610 1,160 5,769 (291) 7,248
Depreciation................... (69) 192 2,202 -- 2,325
Amortization................... 796 1,220 12 -- 2,028
Management fees................ 5 -- 557 (562) --
Taxes other than income
taxes....................... 85 97 1,106 -- 1,288
Total operating
expenses............. -- -- -- -- --
------- ----- ------ ------ ------
1,427 2,669 9,646 (853) 12,889
------- ----- ------ ------ ------
Operating
income/(loss)........ (1,427) (431) 4,236 103 2,481
Other income/(expense):
Share of income/(loss) from
equity investments.......... 603 2,570 (278) (3,173) (278)
Interest and other income...... 607 -- 502 33 1,142
Interest expense............... (3,970) (203) (502) 406 (4,269)
Amortization of deferred
financing costs............. (288) -- -- -- (288)
Foreign exchange loss.......... 133 92 (264) -- (39)
Loss on disposals.............. -- -- -- (251) (251)
------- ----- ------ ------ ------
Earnings/(loss) before
income taxes and
minority interest.... (4,342) 2,028 3,694 (2,882) (1,502)
Income taxes..................... -- 32 750 292 1,074
------- ----- ------ ------ ------
Loss before minority
interest............. (4,342) 1,996 2,944 (3,174) (2,576)
Minority interest................ -- -- 121 1,645 1,766
------- ----- ------ ------ ------
Net loss............... $(4,342) 1,996 2,823 (4,819) (4,342)
======= ===== ====== ====== ======
</TABLE>
12
<PAGE> 14
PLD TELEKOM INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES
PARENT (COMBINED) (COMBINED) ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by/(used in) operating
activities............................... 513 332 10,408 (5,758) 5,495
------ ---- ------ ------ ------
Cash flows from investing activities:
Capital expenditures..................... (49) (74) (6,423) 652 (5,894)
Escrow funds............................. (449) -- -- -- (449)
Investments and other assets............. (3,793) 650 (56) 4,363 1,164
------ ---- ------ ------ ------
Net cash used in investing
activities..................... (4,291) 576 (6,479) 5,015 (5,179)
------ ---- ------ ------ ------
Cash flows from financing activities:
Short-term borrowings/(repayments)....... -- -- (427) -- (427)
Issuance of stock........................ -- -- -- -- --
Related party advances and other......... -- (743) -- 743 --
------ ---- ------ ------ ------
Net cash provided by financing
activities.......................... -- (743) (427) 743 (427)
------ ---- ------ ------ ------
(Decrease)/Increase in cash and cash
equivalents......................... (3,778) 165 3,502 -- (111)
Cash and cash equivalents at beginning of
period................................... 5,513 241 11,502 -- 17,256
------ ---- ------ ------ ------
Cash and cash equivalents at end of
period................................... 1,735 406 15,004 -- 17,145
====== ==== ====== ====== ======
</TABLE>
13
<PAGE> 15
PLD TELEKOM INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES
PARENT (COMBINED) (COMBINED) ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by/(used in)
operating activities............ (907) (2,306) 5,422 4,500 6,709
------ ------ ------- ------ -------
Cash flows from investing
activities:
Capital expenditures............ -- (86) (8,758) (5,058) (13,902)
Escrow funds.................... (535) -- -- -- (535)
Investment and other assets..... (3,152) 694 (2,125) 2,498 (2,085)
------ ------ ------- ------ -------
Net cash used in
investing
activities............ (3,687) 608 (10,883) (2,560) (16,522)
------ ------ ------- ------ -------
Cash flows from financing
activities:
Short-term
borrowings/(repayments)...... -- -- 5,171 -- 5,171
Issuance of stock............... 95 -- -- -- 95
Related party advances and
other........................ -- 1,747 193 (1,940) --
------ ------ ------- ------ -------
Net cash provided by
financing
activities............ 95 1,747 5,364 (1,940) 5,266
------ ------ ------- ------ -------
(Decrease)/Increase in
cash and cash
equivalents........... (4,499) 49 (97) -- (4,547)
Cash and cash equivalents at
beginning of period............. 7,271 331 33,072 -- 40,674
------ ------ ------- ------ -------
Cash and cash equivalents at end
of period....................... 2,772 380 32,975 -- 36,127
====== ====== ======= ====== =======
</TABLE>
14
<PAGE> 16
NWE CAPITAL (CYPRUS) LTD.
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
15
<PAGE> 17
NWE CAPITAL (CYPRUS) LTD.
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(THOUSANDS OF U.S. DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 10,490 7,849
Trade receivables, net of allowances...................... 12,016 12,725
Other receivables and prepaids............................ 2,472 3,266
VAT receivable............................................ 5,385 2,154
Due from related parties.................................. -- 468
Inventory................................................. 2,671 2,566
-------- --------
Total current assets.............................. 33,034 29,028
Property and equipment, net................................. 82,769 79,002
Telecommunications licenses, net............................ 41,208 42,286
Other receivables........................................... 3,012 3,012
Goodwill, net............................................... 1,526 1,580
Other assets................................................ 285 280
-------- --------
Total assets...................................... $161,834 155,188
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Bank indebtedness......................................... 900 900
Accounts payable.......................................... 4,868 3,064
Accrued liabilities....................................... 4,559 3,044
Advances from other group companies....................... 31,066 32,810
Due to related parties.................................... 553 818
Customer deposits and advances............................ 5,346 5,978
Current portion of long term debt......................... 3,863 3,988
-------- --------
Total current liabilities......................... 51,155 50,602
-------- --------
Long term debt.............................................. 11,089 12,458
Due to related parties...................................... 2,144 2,144
Minority interest........................................... 23,126 19,391
Commitments and contingencies (note 3)
Shareholder's equity:
Common stock, par value CYP 1 per share. Authorized
3,246,174 shares in 1998 and 1997; issued and
outstanding 1,000 shares in 1998 and 1997.............. 7,082 7,082
Contributed surplus....................................... 63,723 63,723
Accumulated surplus (deficit)............................. 3,515 (212)
-------- --------
Total shareholder's equity........................ 74,320 70,593
-------- --------
Total liabilities and shareholder's equity........ $161,834 155,188
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
16
<PAGE> 18
NWE CAPITAL (CYPRUS) LTD.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Telecommunications revenue.................................. $27,100 16,057
Direct costs................................................ 7,445 4,268
------- -------
Gross profit...................................... 19,655 11,789
Operating expenses:
General and administrative................................ 5,246 4,030
Management fees........................................... 400 --
Depreciation.............................................. 2,075 1,745
Amortization.............................................. 1,234 1,234
Taxes other than income taxes............................. 925 748
------- -------
Total operating expenses.......................... 9,880 7,757
Operating income.................................. 9,775 4,032
Other income/(expense):
Interest and other income................................. 536 64
Interest on long term debt................................ (229) (205)
Foreign exchange loss..................................... (110) (203)
------- -------
Income before income taxes and minority
interest........................................ 9,972 3,688
Income taxes................................................ 2,510 620
------- -------
Income before minority interest................... 7,462 3,068
Minority interest........................................... 3,735 1,919
------- -------
Net income........................................ $ 3,727 1,149
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
17
<PAGE> 19
NWE CAPITAL (CYPRUS) LTD.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 3,727 1,149
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 3,309 2,979
Minority interest...................................... 3,735 1,919
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable........... 709 (1,192)
Decrease (increase) in other receivables and
prepaids............................................ 794 6
(Increase) decrease in VAT receivable................ (3,231) 360
(Decrease) increase in inventory..................... (105) 163
Change in amounts due from and to related parties.... 203 96
(Decrease) increase in customer deposits and
advances............................................ (632) 477
Increase (decrease) in accounts payable and accrued
liabilities......................................... 2,272 (1,562)
------- -------
Net cash provided by operating activities......... 10,781 4,395
------- -------
Cash flows from investing activities:
Capital expenditures...................................... (4,459) (4,499)
Other assets.............................................. (109) 1
------- -------
Net cash used in investing activities............. (4,568) (4,498)
------- -------
Cash flows from financing activities:
Long term debt............................................ (2,111) (6,450)
Advances from other group companies....................... (1,461) 6,829
------- -------
Net cash (used in)/provided by financing
activities...................................... (3,572) 379
------- -------
Increase in cash and cash equivalents............. 2,641 276
Cash and cash equivalents at beginning of year.............. 7,849 5,185
------- -------
Cash and cash equivalents at end of year.................... $10,490 5,461
======= =======
Supplemental Information:
Non-cash investing and financing activities:
Purchase of equipment with PLD advances and under
long-term contracts.................................... $ 1,363 --
======= =======
Interest paid............................................. $ 19 --
======= =======
Income taxes paid......................................... $ 2,784 1,081
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
18
<PAGE> 20
NWE CAPITAL (CYPRUS) LTD.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements are unaudited
and have been prepared by NWE Capital (Cyprus) Ltd. (the "Company") pursuant to
the rules and regulations of the Securities and Exchange Commission (the "SEC").
In the opinion of management, the financial statements include all adjustments
(consisting primarily of normal recurring accruals) necessary to present fairly
the consolidated financial position of the Company as at March 31, 1998 and the
consolidated results of operations and cash flows of the Company for the three
months ended March 31, 1998 and 1997.
Certain information and footnote disclosures generally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such SEC rules
and regulations. Results for the interim period are not necessarily indicative
of the results for a full year.
These consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
fiscal year ended December 31, 1997.
(2) FUTURE ACTIVITIES
The Company's telecommunications businesses are developing rapidly in an
emerging economy which, by its nature, has an uncertain economic, political and
regulatory environment. The general risks of operating businesses in the former
Soviet Union include the possibility for rapid change in government policies,
economic conditions, the tax regime and foreign currency regulations.
Ultimate recoverability of the Company's investments in its operating
subsidiaries, PeterStar Company Limited ("PeterStar"), Wireless Technology
Corporations Limited ("WTC") and C.P.Y. Yellow Pages Limited ("Yellow Pages")
are dependent upon each of these subsidiaries achieving and maintaining
profitability, which is dependent to a certain extent on the stabilization of
the economies of the former Soviet Union, the ability to maintain the necessary
telecommunications licenses and the ability to obtain adequate financing to meet
capital commitments.
(3) COMMITMENTS AND CONTINGENCIES
(a) Russian Taxation
PeterStar and ALTEL (formerly known as BECET International) subsidiaries
have accrued profits and other taxes based on interpretations of the law which
may ultimately be disputed by the local taxation authorities. Management
believes that the exposure to additional profits and other taxes, fines and
penalties will not have a material adverse effect on the financial position or
results of operations of the Company.
(b) Purchase Commitments
At March 31, 1998, PeterStar has commitments of approximately $12.4 million
related to the acquisition of telecommunications equipment. The PeterStar supply
contract provides for financing of the entire amount over approximately five
years.
(c) Management Services
On January 1, 1998, PLD entered into a two year agreement with ALTEL, under
which PLD would provide certain consulting, informational services, management
support services and personnel expertise. The agreement provides for a fee of
$25,000 per month plus 3.4% of monthly gross revenues.
19
<PAGE> 21
NWE CAPITAL (CYPRUS) LTD.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
ALTEL has negotiated an agreement with its other shareholder effective
January 1, 1998 with a two year term. The shareholder will provide certain
consulting services, management support services and personnel expertise.
Payments under this agreement are 300,000 tenge per month plus 1.0% of monthly
gross revenues.
(d) Guarantee
In June 1996, PLD issued senior discount notes and convertible subordinated
notes with an aggregate principal amount of $149.5 million. The Company is a
guarantor of the debt under the terms of the related indentures.
(e) Line Rental
While is 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.
(4) COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income," was issued in June 1997. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. This Statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in an annual financial statement
that is displayed with the same prominence as other financial statements. The
Company adopted SFAS 130 as of January 1, 1998. For the three months ended March
31, 1998, comprehensive loss was equal to consolidated net loss reported on the
consolidated statement of operations. As SFAS 130 only requires additional
disclosures in the Company's consolidated financial statements, its adoption did
not have any impact on the Company's consolidated financial position or results
of operations.
20
<PAGE> 22
TECHNOCOM LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
21
<PAGE> 23
TECHNOCOM LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
------- -------
(THOUSANDS OF U.S.
DOLLARS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. 4,385 4,671
Trade receivables, net of allowances...................... 3,677 2,942
Other receivables......................................... 1,824 2,806
Due from related parties.................................. 5,954 5,591
------ ------
TOTAL CURRENT ASSETS.............................. 15,840 16,010
Property and equipment, net................................. 51,084 50,656
Telecommunications licenses, net............................ 1,966 2,005
Due from related parties.................................... 1,912 2,253
Other investments and assets, net........................... 930 1,307
------ ------
TOTAL ASSETS...................................... 71,732 72,231
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... 10,694 11,410
Accrued liabilities....................................... 879 1,590
Due to related parties.................................... 20,029 18,693
Deferred taxes............................................ 468 549
------ ------
TOTAL CURRENT LIABILITIES......................... 32,070 32,242
Other liabilities........................................... 289 337
Due to related parties...................................... 835 336
Supplier financing.......................................... 2,900 3,327
SHAREHOLDERS' EQUITY
Capital stock............................................... 1 1
Preference shares, par value $1.00 per share, authorized,
issued and fully paid -- 1,000 shares
Ordinary shares, par value IR(pound)1 per share,
authorized -- 1,000 shares, issued and fully
paid -- 199 shares
Share premium............................................. 40,390 40,390
Accumulated deficit....................................... (4,753) (4,402)
------ ------
TOTAL SHAREHOLDERS' EQUITY.................................. 35,638 35,989
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. 71,732 72,231
====== ======
</TABLE>
See accompanying notes to the consolidated condensed financial statements
22
<PAGE> 24
TECHNOCOM LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
REVENUES:
Telecommunications........................................ 5,377 5,544
Finance lease income...................................... 447 610
----- -----
TOTAL REVENUES.................................... 5,824 6,154
DIRECT COSTS................................................ 2,178 3,780
----- -----
GROSS PROFIT................................................ 3,646 2,374
OPERATING EXPENSES:
General and administrative................................ 2,430 1,869
Depreciation.............................................. 854 423
Amortization.............................................. 65 23
----- -----
TOTAL OPERATING EXPENSES.......................... 3,349 2,315
OPERATING INCOME FROM CONTINUING OPERATIONS................. 297 59
OTHER (EXPENSES)/INCOME:
Share of losses of equity investments..................... (210) (278)
Interest income........................................... 81 436
Interest expenses......................................... (143) (350)
----- -----
INCOME/(LOSS) BEFORE TAXATION AND MINORITY INTEREST......... 25 (133)
Income taxes................................................ (377) (128)
----- -----
LOSS BEFORE MINORITY INTEREST..................... (352) (261)
Minority interest........................................... -- (120)
----- -----
NET LOSS.................................................... (352) (381)
===== =====
</TABLE>
See accompanying notes to the consolidated condensed financial statements
23
<PAGE> 25
TECHNOCOM LIMITED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1998 1997
----- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... (352) (381)
Adjustments to reconcile net loss to net cash provided
by/(used in) operating activities:
Depreciation and amortization............................. 919 446
Share of loss of equity investments....................... 210 278
Minority interest......................................... -- 121
Changes in operating assets and liabilities:
Increase in trade receivables............................. (735) (450)
Decrease/(increase) in other receivables.................. 772 (88)
Changes in due from/to related parties.................... 1,813 906
(Decrease)/increase in accounts payable and deferred
taxes.................................................. (797) 602
Decrease in accrued liabilities........................... (711) (1,684)
Decrease in other liabilities............................. (48) --
----- ------
CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES............. 1,071 (250)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on long-term indebtedness........................... (427) --
Proceeds from bank borrowings............................... -- 5,171
----- ------
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES............. (427) 5,171
CASH FLOWS FROM INVESTMENT ACTIVITIES
Capital expenditures........................................ (782) (4,368)
Other investments and assets................................ (148) 212
----- ------
CASH USED IN INVESTMENT ACTIVITIES.......................... (930) (4,156)
(Decrease)/increase in cash and cash equivalents............ (286) 765
Cash and cash equivalents at beginning of period............ 4,671 27,997
----- ------
CASH AT CASH EQUIVALENTS AT END OF PERIOD................... 4,385 28,762
===== ======
Supplemental disclosure:
Interest paid............................................... 50 251
===== ======
Income taxes paid........................................... -- --
===== ======
</TABLE>
See accompanying notes to the consolidated condensed financial statements
24
<PAGE> 26
TECHNOCOM LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(1) BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements are unaudited
and have been prepared by Technocom Limited (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC"). In
the opinion of management, the consolidated financial statements include all
adjustments necessary to present fairly the consolidated financial position of
the Company as of March 31, 1998 and the consolidated results of operations and
cash flows of the Company for the three months ended March 31, 1998 and 1997.
Certain information and footnote disclosures generally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules and
regulations. Results for the interim period are not necessarily indicative of
the results for a full year.
These consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
fiscal year ended December 31, 1997.
(2) BUSINESS OPERATIONS AND FUTURE ACTIVITIES
The Company was incorporated under the laws of the Republic of Ireland in
January 1992. The Company's principal activity is the provision of
telecommunications services in Russia. The Company conducts its business
activities directly and through a number of subsidiaries and other affiliates,
most of which are incorporated in Russia. The Company established a registered
foreign representative office in Russia in October 1995.
The Company operates 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 possibilities of
rapid change in government policies, economic conditions, the tax regime and
foreign currency regulations. In addition, its satellite-based long distance
network is at an early stage of its development and operation.
Ultimate recoverability of the Company's investments is dependent upon each
of the subsidiaries achieving and maintaining profitability, which is dependent
to a certain extent on a 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.
(3) COMMITMENTS AND CONTINGENCIES
The Company's Russian Subsidiary, 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.
As of March 31, 1998 the Company has commitments of approximately $500,000
related to the acquisition of telecommunications equipment.
The Company and certain of its 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, in the opinion of the Company's directors,
will not have a material adverse effect on the financial position or results of
operations of the Company.
There are no material pending legal proceedings to which the Company or any
of its property is subject.
25
<PAGE> 27
TECHNOCOM LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
The Company has entered into bank guarantees under certain of its
telecommunications equipment supplier financing agreements. The amount of the
guarantees reduce automatically in accordance with installments paid. The
amounts outstanding at March 31, 1998 amounted to $3,240,000.
(4) COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income," was issued in June 1997. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. This Statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in an annual financial statement
that is displayed with the same prominence as other financial statements. The
Company adopted SFAS 130 as of January 1, 1998. For the three months ended March
31, 1998, comprehensive loss was equal to consolidated net loss reported on the
consolidated statement of operations. As SFAS 130 only requires additional
disclosures in the Company's consolidated financial statements, its adoption did
not have any impact on the Company's consolidated financial position or results
of operations.
26
<PAGE> 28
WIRELESS TECHNOLOGY CORPORATIONS LIMITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
27
<PAGE> 29
WIRELESS TECHNOLOGY CORPORATIONS LIMITED
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
--------- ------------
(THOUSANDS OF U.S. DOLLARS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,892 5,294
Trade receivables, net of allowance....................... 3,754 3,462
Inventory................................................. 1,473 1,640
Prepaid expenses and other current assets................. 487 798
------- ------
Total current assets.............................. 13,606 11,194
Property and equipment, net................................. 23,476 23,362
Telecommunications license, net............................. 23,166 23,693
------- ------
Total assets...................................... $60,248 58,249
======= ======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 1,352 1,197
Due to related parties.................................... 1,490 1,875
Customer deposits and advances............................ 3,323 3,070
Income tax payable........................................ 34 58
------- ------
Total current liabilities......................... 6,199 6,200
------- ------
Commitments and contingencies (note 3)
Minority interest........................................... 5,746 4,489
Shareholder's equity:
Common stock, par value of $1 per share,
authorized -- 20,001,000 shares, issued and
outstanding -- 20,000,002 shares....................... 20,000 20,000
Contributed capital....................................... 30,803 30,803
Accumulated deficit....................................... (2,500) (3,243)
------- ------
Total shareholder's equity........................ 48,303 47,560
------- ------
Total liabilities and shareholder's equity........ $60,248 58,249
======= ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
28
<PAGE> 30
WIRELESS TECHNOLOGY CORPORATIONS LIMITED
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31
(UNAUDITED)
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1998 1997
------ -----
<S> <C> <C>
Telecommunications revenues................................. $9,549 6,067
Direct costs................................................ 1,948 1,432
------ -----
Gross profit................................................ 7,601 4,635
Operating expenses:
General and administrative................................ 2,313 1,760
Management fees........................................... 400 262
Depreciation and amortization............................. 1,388 1,443
Taxes other than income tax............................... 135 74
------ -----
Total operating expenses.......................... 4,236 3,539
------ -----
Operating income............................................ 3,365 1,096
Other income (expense):
Interest and other income................................. 91 29
Foreign exchange loss..................................... (110) (119)
------ -----
Net income before income tax and minority interest..... 3,346 1,006
Income tax.................................................. 1,346 141
------ -----
Net income before minority interest............... 2,000 865
Minority interest........................................... 1,257 689
------ -----
Net income.................................................. $ 743 176
====== =====
</TABLE>
See accompanying notes to consolidated condensed financial statements.
29
<PAGE> 31
WIRELESS TECHNOLOGY CORPORATIONS LIMITED
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Cash flows provided by operating activities:
Net income................................................ $ 743 176
Adjustments to reconcile net income to net cash provided
operating activities:
Depreciation and amortization.......................... 1,388 1,443
Gain on disposal....................................... (15) --
Bad debt expense....................................... 180 150
Minority interest...................................... 1,257 689
Changes in operating assets and liabilities:
Increase in trade receivables........................ (472) (465)
Decrease (increase) in inventory..................... 167 (30)
Decrease (increase) in prepaid expenses and other
current assets...................................... 311 (177)
Increase (decrease) in accounts payable and accrued
liabilities......................................... 155 (1,547)
(Decrease) increase in due to related parties........ (385) 243
Increase in customer deposits and advances........... 253 347
(Decrease) increase in income tax payable............ (24) 236
------ ------
Net cash provided by operating activities......... 3,558 1,065
------ ------
Cash flows used in investing activities -- purchase of
property and equipment.................................... (960) (574)
------ ------
Cash flows from financing activities........................ -- --
------ ------
Increase in cash and cash equivalents............. 2,598 491
Cash and cash equivalents at beginning of period............ 5,294 2,733
------ ------
Cash and cash equivalents at end of period.................. $7,892 3,224
====== ======
Supplemental disclosures:
Interest paid............................................. $ -- --
====== ======
Income taxes paid......................................... $1,361 838
====== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
30
<PAGE> 32
WIRELESS TECHNOLOGY CORPORATIONS LIMITED
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(1) BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements are unaudited
and have been prepared by Wireless Technology Corporations Limited ("WTC" or
"the Company") pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). In the opinion of management, the consolidated
financial statements include all adjustments (consisting primarily of normal
recurring accruals) necessary to present fairly the consolidated financial
position of the Company as of March 31, 1998 and the consolidated results of
operations and cash flows of the Company for the three months ended March 31,
1998 and 1997.
Certain information and footnote disclosures generally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules and
regulations. Results for the interim period are not necessarily indicative of
the results for a full year.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto for the fiscal year
ended December 31, 1997.
(2) FUTURE ACTIVITIES
The Company's results are dependent the ability of its subsidiary, ALTEL,
formerly known as BECET International ("ALTEL"), to retain existing subscribers,
to attract new subscribers, and to control operating expenses. ALTEL's cellular
telecommunications system is developing in an emerging economy which, by its
nature, has an uncertain economic, political, and regulatory environment. The
general risks of operating businesses in Kazakhstan include the possibility for
rapid changes in government policies, economic conditions, the tax regime, and
foreign currency regulations.
Ultimate recoverability of the Company's investment in ALTEL is dependent
upon ALTEL maintaining profitability, which is dependent on the stability of the
economy of Kazakhstan, the ability to maintain the necessary telecommunications
licenses, and the ability to obtain adequate financing to meet capital
requirements.
(3) COMMITMENTS AND CONTINGENCIES
The Company's parent, PLD Telekom Inc.("PLD"), issued senior discount notes
and convertible subordinated notes with an aggregate principal amount of $149.5
million in June 1996. The Company, along with other PLD subsidiaries, is a
guarantor of the debt securities under the terms of the related indentures.
(4) COMPREHENSIVE INCOME
Statements of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income," was issued in June 1997. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. This Statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in an annual financial statement
that is displayed with the same prominence as other financial statements. The
Company adopted SFAS 130 as of January 1, 1998. For the three months ended March
31, 1998, comprehensive loss was equal to consolidated net loss reported on the
consolidated statement of operations. As SFAS 130 only requires additional
disclosures in the Company's consolidated financial statements, its adoption did
not have any impact on the Company's consolidated financial position or results
of operations.
31
<PAGE> 33
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This document contains certain forward-looking statements that are subject
to risks and uncertainties. Forward-looking statements include certain
information relating to political, social and economic conditions in the
countries of the former Soviet Union and the Commonwealth of Independent States,
the commencement of certain programs and the proposed offering of certain
services by the Company's operating subsidiaries, proposed changes in the
Company's corporate structure and centers of operations and interpretations and
actions of certain regulatory authorities, including in the United States,
Canada, Russia and Kazakhstan, as well as information contained elsewhere in
this Report where statements are preceded by, followed by, or include the words
"believes," "expects," "anticipates," and similar expressions. For such
statements the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. Actual events or results may differ materially from those discussed
in forward-looking statements as a result of various factors, including without
limitation, those discussed elsewhere in this Report.
BASIS OF PRESENTATION
The Company's key interests at March 31, 1998 include a 60% equity interest
in PeterStar, which provides telecommunications services in St. Petersburg,
Russia; a 50% equity interest in ALTEL, which provides cellular services in
Kazakhstan; and a 80.4% equity interest in Technocom which, through its 49%
equity interest in Teleport-TP, operates an international teleport in Moscow,
fiber optic networks in Moscow and its environs and a satellite-based long
distance network across Russia.
EBITDA is used as a measure of operating performance and is defined as
earnings (or loss) from continuing operations before income taxes and minority
interest plus net interest (interest expense less interest and other income)
plus depreciation and amortization. It is presented as supplemental disclosure
because it assists in understanding the Company's operating results. EBITDA,
however, may not be comparable to similarly titled measures of other companies
and should not be considered in isolation or as a substitute for net income,
cash flow provided by operating activities or other income or cash flow data
prepared in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
Certain of the Company's subsidiaries pay management fees to their
shareholders, including the Company. The figures presented for the subsidiaries
reflect all payments of such fees -- ie, management fees are included in
operating expenses in the same way as other expenses of the subsidiary.
Profitability measures -- EBITDA, operating profit and net income -- are
therefore quoted after accounting for such payments.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Versus Three Months Ended March 31, 1997
Overview. The Company reported a net loss of $4.5 million ($0.14 per
share) and operating income of $7.2 million on revenues of $35.2 million for the
three months ended March 31, 1998 compared to a net loss of $4.3 million ($0.14
per share) and operating income of $2.5 million on revenues of $23.9 million
reported in first quarter of 1997. EBITDA of $12.7 million reported in the first
quarter of 1998 compared with $6.3 million in the first quarter of 1997.
The $4.5 million 1998 first quarter loss incorporated after-tax profit
contributions of $6.2 million from PeterStar, $2.5 million from ALTEL (formerly
BECET International) and corporate interest income of $0.7 million, inclusive of
interest income received from subsidiaries, offset by a net loss of $0.4 million
at Technocom, corporate general and administrative expenses of $1.8 million (net
of management fees received from subsidiaries), interest on corporate bank
indebtedness and long-term debt of $5.0 million, corporate amortization and
depreciation charges of $3.0 million, and minority interest charges of $3.7
million.
Revenues. Revenues increased 47.2% from $23.9 million in the first quarter
of 1997 to $35.2 million in the first quarter of 1998 primarily as a result of
strong revenue growth at PeterStar and ALTEL which together accounted for 77% of
the Company's consolidated revenues.
32
<PAGE> 34
The following table shows the Company's consolidated revenues by principal
operating subsidiary for the three months ended March 31, 1998 and 1997 and the
percentage growth in revenues between the periods:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------------- -------------------- CHANGE OVER
($ MILLION) % ($ MILLION) % PRIOR PERIOD
----------- ----- ----------- ----- ------------
<S> <C> <C> <C> <C> <C>
PeterStar........................ 17.5 49.7% 10.0 41.8% 75.0%
Altel............................ 9.6 27.3% 6.1 25.5% 57.4%
Technocom........................ 5.8 16.5% 6.0 25.1% -3.3%
BCL.............................. 2.2 6.3% 1.8 7.5% 22.2%
Other............................ 0.1 0.2% 0.0 0.0% 0.0%
---- ----- ---- ----- ----
35.2 100.0% 23.9 100.0% 47.3%
</TABLE>
Management expects overall revenues to continue to grow at a relatively
high rate in the near term. The extent of unsatisfied demand and a lack of
competition in many of the markets in which the Company currently operates will
continue to sustain this growth rate. As the build-out of Teleport-TP's
pan-Russian satellite-based network continues throughout 1998, Technocom's
revenues are expected to provide a larger contribution to the Company's
consolidated revenues.
Gross profit. Gross profit increased 58.4% to $24.4 million for the three
months ended March 31, 1998 from $15.4 million recorded in the first three
months of 1997. As a percentage of revenues, gross profit increased to 69.3%
from 64.3% a year earlier. Gross profits, as a percentage of revenues, are
expected to remain relatively stable over the near term as gradual tariff
reductions experienced at the operating level have generally been offset by
reductions in carrier charges with the operating companies' carriers.
General and administrative expenses. General and administrative expenses,
which include salaries and sales and marketing expenses in all five of the
Company's operating subsidiaries, together with corporate office overhead,
increased 34.7% to $9.7 million for the three months ended March 31, 1998 from
$7.2 million recorded in the first three months of 1997. As a percentage of
revenues, general and administrative expenses decreased to 27.5% in the first
quarter of 1998 from 30.3% in the first quarter of 1997 reflecting continued
leveraging of the Company's fixed operating costs. This downward trend, as a
percentage of revenues, is likely to continue in the near future.
Depreciation. Depreciation increased 34.8% to $3.1 million in the first
quarter of 1998 compared to $2.3 million incurred in the first quarter of 1997
reflecting the investment of over $40.0 million in property and equipment over
the past 12 months. Depreciation will continue to grow in absolute terms as
approximately $44.2 million has been budgeted for capital expenditures over the
course of 1998. Depreciation represented 8.8% of revenues for the three months
ended March 31, 1998 compared to 9.7% a year earlier and is expected to decrease
as a percentage of revenues as the Company nears completion of the first phase
build-out of its core networks.
Amortization expense. In the first quarter of 1998, the Company incurred
total amortization charges of $3.1 million compared to $2.3 million incurred in
the first quarter of 1997. Of this amount, $2.5 million related to the
amortization of telecommunications licenses held by PeterStar, ALTEL and
Teleport-TP and $0.4 million related to amortization of deferred finance costs.
Deferred finance costs relating to the June 1996 offering are being amortized
over 8 years, the term of the Senior Notes, while deferred finance costs
relating to the November 1997 issuance will be fully amortized during 1998.
The increase in amortization expense in the first quarter of 1998 was
primarily due to the acquisition by the Company in November 1997 of an
additional 29.65% interest in Technocom for consideration, including acquisition
costs, of $33.3 million. This resulted in additional amortization charges of
$0.7 million. The additional excess of purchase price over identifiable,
tangible assets of $27.1 million arising on the acquisition was allocated to
goodwill and telecommunications licenses. The value allocated to goodwill ($11.1
million) is being amortized over 20 years and the value allocated to
Teleport-TP's licenses ($16.0 million) is being amortized over its remaining
term which expires in 2004.
33
<PAGE> 35
PeterStar and ALTEL's telecommunications licenses expire in 2004 and 2009,
respectively, and their values, recorded on the Company's consolidated balance
sheet, are being amortized over their remaining terms. The Company does not
anticipate any problems renewing the telecommunications licenses currently held
by any of these companies upon their expiry.
Interest expense. Interest expense of $5.2 million in the first quarter of
1998 compared with $4.3 million incurred in the first quarter of 1997 and
consisted of interest on bank indebtedness and short-term borrowings of $0.6
million, interest accreted on the Senior Notes of $4.0 million and interest
accrued on the Convertible Notes of $0.6 million. Interest on the Senior Notes
becomes payable semi-annually commencing June 1999 while interest on the
Convertible Notes is currently paid semi-annually.
Interest and other income. Interest and other income of $0.9 million in
the first quarter of 1998 compared with $1.1 million earned in the first quarter
of 1997 and included $0.4 million earned on the Company's funds held in escrow.
Income taxes. The income tax charge for the three months ended March 31,
1998 was $3.0 million compared with $1.1 million during the same period in 1997.
The provision for income taxes relates substantially to current income taxes in
the Company's Russian and Kazak businesses and reflects the improved
profitability of these subsidiaries.
The following table compares the results of operations of the Company's
principal operating subsidiaries for the three months ended March 31, 1998 with
the three months ended March 31, 1997:
<TABLE>
<CAPTION>
PETERSTAR ALTEL TECHNOCOM BCL
THREE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
MARCH 31 MARCH 31 MARCH 31 MARCH 31
------------ ------------ ------------ --------------
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ----- -----
(UNAUDITED, THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ 17.5 10.0 9.6 6.1 5.8 6.1 2.2 1.8
Gross profit -- $............... 12.0 7.3 7.6 4.6 3.7 2.1 1.1 1.5
Gross profit -- %............... 68.6% 73.0% 79.2% 75.4% 63.8% 34.4% 50.0% 83.3%
Operating income/(loss) -- $.... 7.1 3.7 3.9 1.5 0.3 (0.2) 0.0 0.3
Operating income -- %........... 40.6% 37.0% 40.6% 24.6% 5.2% n/a 0.0% 16.7%
Net income/(loss) -- $.......... 6.2 3.1 2.5 1.4 (0.4) (0.6) 0.0 0.5
Net income -- %................. 35.4% 31.0% 26.0% 23.0% n/a n/a 0.0% 27.8%
EBITDA -- $..................... 8.8 4.3 4.6 2.4 1.0 0.0 0.1 0.9
EBITDA -- %..................... 50.3% 43.0% 47.9% 39.3% 17.2% 0.0% 4.5% 50.0%
% PLD ownership................. 60.0% 60.0% 50.0% 50.0% 80.4% 50.8% 100.0% 100.0%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1998, a total of $5.5 million in cash
was generated from operations, $5.2 million was used in investing activities and
$0.4 million was used to pay down supplier financing. Investments during the
quarter on telecommunications equipment and infrastructure included $3.3 within
PeterStar, $1.0 million within ALTEL and $0.8 within Teleport-TP.
As at March 31, 1998, the Company had working capital, not including funds
held in escrow, of $0.6 million compared to a working capital deficit of $1.4
million at the end of 1997.
Funds held in escrow at March 31, 1998 increased to $34.3 million from
$33.9 million at the end of 1997 reflecting interest earned on these funds
during the period. During the quarter, the Company was successful in amending
the indentures governing the release of the escrow funds to broaden the range of
transactions for which the Company may draw such funds to finance the capital
expenditure needs of its operating subsidiaries. The indentures were also
amended to revise certain covenants relating to corporate indebtedness, the
guarantee of subsidiary debt and the establishment of U.S. special purpose
subsidiaries. Subsequent to
34
<PAGE> 36
March 31, 1998, the Company drew down $8 million from escrow which will be used
towards funding, in part, the $44.2 million in planned capital expenditures for
the group in 1998.
As at March 31, 1998, the Company reported consolidated total assets of
$338.2 million, up from $335.6 million at December 31, 1997, which consisted of
$54.5 million in current assets, (including $17.1 million in cash and cash
equivalents), $139.2 million in property and equipment, $76.4 million in
unamortized telecommunications licenses relating to PeterStar, ALTEL and
Teleport-TP, escrow funds of $34.3 million and other assets and investments of
$33.8 million including $11.0 million in goodwill, net of amortization, relating
to the Company's November 1997 acquisition of an additional 29.65% interest in
Technocom.
Long-term indebtedness of $136.4 million, consisting primarily of the
Company's Senior and Convertible Notes, as a percentage of total assets, was
40.3% at March 31, 1998 compared to $133.5 million or 39.8% of total assets at
December 31, 1997.
Shareholders' equity of $122.7 million at March 31, 1998 compared with
$127.2 million at December 31, 1997 and consisted of $204.3 million in common
stock and additional paid-in capital offset by the Company's deficit of $81.6
million. The Company's ratio of long-term indebtedness to equity at March 31,
1998 was 111.2% compared to 104.9% at December 31, 1997.
Under the terms of the Company's $123.0 million Senior Note offering placed
in June 1996, the Company is required to raise $20.0 million in an equity
financing by May 31, 1998. The Company failed to do so, as a result of which the
rate at which the Senior Notes accrete automatically increased to 14.5% until
the end of the semi-annual interest period in which an offering is completed.
The obligation to raise $20.0 million by May 31, 1998 was also a requirement
under the terms of the $12.32 million Series A and $3.1 million Series B
Revolving Credit Notes issued in November 1997 in connection with the Company's
additional investment in Technocom. Because the Company did not raise $20.0
million in equity prior to May 31, 1998, the annual interest rate on the 12%
Series A and B Notes, which mature on December 30, 1998 and September 30, 1998,
respectively, will automatically increased to 15%, commencing June 1, 1998. The
Company is also required under the terms of the Revolving Credit Notes to reduce
the aggregate commitments of such Notes by $1 million on July 31, 1998 and on
the last day of each month thereafter.
The Company expects to complete an equity financing later this year with
proceeds used to pay off the Revolving Credit Notes. The Company's operations
will continue to be financed with the Company's existing cash balances, escrow
funds, internally generated cash flow from operations and supplier financing.
However, to the extent that the Company experiences lower than expected
revenues, higher operating costs, or higher development costs associated with
the build-out of the PeterStar, ALTEL or Teleport-TP networks, the Company may
be required to seek additional debt or equity financing for operations.
In addition, the Company is constantly assessing acquisition opportunities
throughout the C.I.S. which would complement and add value to the Company's
existing businesses. To the extent that the Company enters into any agreements
to acquire or invest in additional companies operating in the C.I.S., additional
debt and equity financing may be required. There can be no assurance that such
financing can or will be obtained on satisfactory terms.
SUBSEQUENT EVENTS
On April 19, 1998, the Company entered into separate agreements with News
America Incorporated ("News America"), a wholly owned subsidiary of News
Corporation Limited, and Cable and Wireless plc ("Cable & Wireless") regarding,
among other things, the acquisition by the Company of: (i) an additional 11%
interest in its subsidiary PeterStar from News America (after its acquisition of
such interest from Cable & Wireless); and (ii) a 50% interest in BELCEL, a
mobile telephone business in Belarus, together with certain intercompany
indebtedness from Cable & Wireless. In connection with these acquisitions, the
Company agreed to issue an aggregate of 4.3 million shares of its Common Stock
to News America and Cable & Wireless. In addition, Cable & Wireless and News
America entered into an agreement providing for the sale by Cable & Wireless to
News America of its complete stake in the Company (including the Common
35
<PAGE> 37
Stock being issued by the Company to Cable & Wireless in exchange for the
interest in BELCEL) and a warrant to purchase 250,000 shares of Common Stock.
The transactions are conditioned on, among other things, clearance under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (which was
received on May 4, 1998) and approval of the acquisition of the additional
PeterStar interest by the shareholders of the Company. The Company currently
expects the transactions to close in August 1998.
News Corporation Limited, one of the largest media companies in the world
with total assets of $32.7 billion and total annual revenues in excess of $12
billion as of December 31, 1997, manages diversified global operations in the
U.S., the U.K., Australia, Latin America and the Pacific Basin. These operations
include: the production and distribution of motion pictures and television
programming; television, satellite and cable broadcasting; the publication of
newspapers, magazines, books and promotional free-standing inserts; the
development of digital broadcasting, conditional access and subscription
management systems; and the provision of computer information services.
36
<PAGE> 38
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
37
<PAGE> 39
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: July 22, 1998 By: /s/ SIMON EDWARDS
--------------------------------------
Simon Edwards
Senior Vice President, Chief Financial
Officer and Treasurer
38
