SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--- 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 0-24796
--------------
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
BERMUDA
- ------------------------------------ ----------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Clarendon House, Church Street, Hamilton HM CX Bermuda
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 809-296-1431
Indicate by check mark whether 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 each 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.
Class Outstanding as of May 10, 1996
----- ------------------------------
Class A Common Stock, par value $.01 10,179,927
Class B Common Stock, par value $.01 8,078,297
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
($000's)
ASSETS March 31, December 31,
1996 1995
--------------- ---------------
CURRENT ASSETS:
Cash and cash equivalents 36,292 53,210
Investments in marketable securities 7,498 10,652
Restricted cash 2,630 4,216
Accounts receivable (net of allowances of $1,566, $1,105) 28,005 32,475
Program rights costs 7,993 9,219
Value-added tax recoverable 128 733
Advances to affiliates 1,333 953
Prepaid expenses 6,202 5,270
--------------- ---------------
Total current assets 90,081 116,728
INVESTMENT IN UNCONSOLIDATED AFFILIATES 15,445 12,433
LOANS TO AFFILIATES 8,003 6,272
PROPERTY, PLANT & EQUIPMENT (net of depreciation of $12,431, $10,281) 54,157 51,699
PROGRAM RIGHTS COSTS 16,533 10,496
BROADCAST LICENSE COSTS AND OTHER INTANGIBLES (net of amortization of $1,031, $1,007) 2,391 2,365
LICENSE ACQUISITION COSTS (net of amortization of $207, $54) 4,570 4,723
GOODWILL 1,414 1,510
ORGANIZATION COSTS (net of amortization of $549, $507) 1,292 1,337
DEVELOPMENT COSTS (net of allowance of $4,473, $4,373) 16,181 10,127
DEFERRED TAXES 1,781 559
OTHER ASSETS 3,057 3,778
--------------- ---------------
Total assets 214,905 222,027
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 13,896 12,956
Accrued liabilities 11,456 9,804
Duties and other taxes payable - 288
Income taxes payable 17,682 15,946
Dividend payable 3,866 -
Current portion of obligations under capital lease 2,039 2,111
Current portion of credit facilities 274 2,661
Advances from affiliates 1,573 2,687
--------------- ---------------
Total current liabilities 50,786 46,453
DEFERRED INCOME TAXES 2,102 2,317
OBLIGATIONS UNDER CAPITAL LEASE 8,044 8,747
LONG-TERM PORTION OF CREDIT FACILITIES 6,709 6,766
OTHER LIABILITIES 1,753 173
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 14,561 18,635
SHAREHOLDERS' EQUITY:
Preferred Stock, $0.01 par value: authorized: 5,000,000 shares;
issued and outstanding: none - -
Class A Common Stock, $0.01 par value: authorized:
30,000,000 shares; issued and outstanding:
10,299,549 shares at March 31, 1996 and at December 31, 1995 103 103
Class B Common Stock, $0.01 par value: authorized:
15,000,000 shares; issued and outstanding:
8,078,297 shares 81 81
Additional paid-in capital 188,067 187,997
176,872 Class A Treasury stock of $0.01 par value (2,476) (2,476)
--------------- ---------------
185,591 185,521
Accumulated deficit (55,751) (48,001)
Cumulative currency translation adjustment 926 1,232
--------------- ---------------
Total shareholders' equity 130,950 138,936
--------------- ---------------
Total liabilities and shareholders' equity 214,905 222,027
=============== ===============
1
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
Consolidated Statements of Operations
($000's, except per share data)
For the three months
ended March 31,
---------------
1996 1995
------- -------
GROSS REVENUES 28,890 22,563
Discounts and agency commissions (5,635) (3,876)
------- -------
NET REVENUES 23,255 18,687
STATION EXPENSES:
Other operating costs and expenses 12,492 6,163
Amortization of programming rights 4,306 3,031
Depreciation of station fixed assets and other intangibles 2,934 1,557
------- -------
Total station operating costs and expenses 19,732 10,751
Selling, general and administrative expenses 2,938 1,071
CORPORATE EXPENSES:
Corporate operating costs and development expenses 3,191 2,032
Stock compensation charge 0 455
------- -------
3,191 2,487
OPERATING INCOME (LOSS) (2,606) 4,378
EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATES (2,769) (3,530)
INTEREST AND OTHER INCOME 637 459
INTEREST EXPENSE (1,007) (1,010)
FOREIGN CURRENCY EXCHANGE GAIN (LOSS) (395) 507
------- -------
Net income (loss) before provision for income taxes (6,140) 804
Provision for income taxes (2,004) (3,001)
------- -------
Net loss before minority interest (8,144) (2,197)
MINORITY INTEREST IN INCOME (LOSS) OF CONSOLIDATED
SUBSIDIARIES 394 (1,197)
------- -------
Net Loss (7,750) (3,394)
------- -------
PER SHARE DATA
Net loss per share (0.42) (0.24)
======= =======
Weighted average number of common shares outstanding (000's) 18,374 14,021
------- -------
2
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
Consolidated Statements of Shareholders' Equity (Deficit)
For the Three Month Period Ended March 31, 1996
($000's)
Cumulative
Class A Class B Additional Currency
Common Common Paid-in Treasury Accumulated Translation
Stock Stock Capital Stock Deficit(1) Adjustment Total
--------- -------- ---------- ---------- ------------ ----------- ----------
BALANCE, December 31, 1995 103 81 187,997 (2,476) (48,001) 1,232 138,936
Foreign Currency Translation Adjustment - - - - - (306) (306)
Capital contributed by Shareholders - - 70 - - - 70
Net loss - - - - (7,750) - (7,750)
--------- -------- ---------- ---------- ------------ ---------- -----------
BALANCE, March 31, 1996 103 81 188,067 (2,476) (55,751) 926 130,950
========= ======== ========== ========== ============ ========== ===========
- --------------------------------
1) Of the accumulated deficit of $55,751,000 at March 31, 1996, $35,150,000
represents loss in unconsolidated affiliates.
3
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
Consolidated Statements of Cash Flows
($000's)
For the Three Month Periods
Ended March 31,
------------------
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss (7,750) (3,394)
Adjustments to reconcile net loss to net cash (used in) operating
activities:
Equity in loss of unconsolidated affiliates 2,769 3,530
Depreciation & amortization 7,240 4,588
Minority interest in income (loss) of consolidated subsidiaries (394) 1,197
Valuation allowance for development costs 100 150
Stock compensation charge -- 455
Changes in assets & liabilities:
Accounts receivable 3,138 (3,015)
Program rights costs (6,277) (3,653)
Value-added tax recoverable 651 (149)
Advances to affiliates (360) (175)
Prepaid expenses (385) (201)
Other assets 101 --
Accounts payable 1,016 (3,589)
Accrued liabilities 440 264
Income & other taxes payable (53) 3,859
Other liabilities 1,585 1,385
------- -------
Net cash from operating activities 1,821 1,252
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in unconsolidated affiliates (5,829) (6,016)
Investments in marketable securities 3,154 (1,000)
Restricted cash 1,679 --
Acquisition of fixed assets (5,962) (1,658)
Payments for broadcast license costs and other intangibles (92) --
Development costs (6,154) (1,834)
------- -------
Net cash used in investing activities (13,204) (10,508)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Current portion of credit facilities (2,356) (2,195)
Payments under capital lease (473) (264)
Loans to affiliates (1,733) --
Repayment of advances from affiliates (1,243) --
Capital contribution by shareholders 70 --
------- -------
Net cash used by financing activities (5,735) (2,459)
------- -------
IMPACT OF EXCHANGE RATE FLUCTUATIONS ON CASH 200 339
Net increase in cash and cash equivalents (16,918) (11,376)
CASH AND CASH EQUIVALENTS, beginning of period 53,210 42,002
------- -------
CASH AND CASH EQUIVALENTS, end of period 36,292 30,626
======= =======
4
CENTRAL EUROPEAN MEDIA ENTERPRISES LTD.
Notes to Consolidated Financial Statements
March 31, 1996
1. ORGANIZATION AND BUSINESS
Central European Media Enterprises Ltd., a Bermuda corporation ("CME"),
was formed in June 1994. Through its predecessor companies, CME has been in
operation since 1991. CME, together with its subsidiaries (CME and its
subsidiaries are collectively referred to as the "Company"), develops, owns and
operates national and regional commercial television stations and networks in
the newly emerging markets of Central and Eastern Europe and regional commercial
television stations in Germany.
The Company owns a 66% interest in Ceska Nezavisla Televizni Spolecnost
s.r.o. ("Nova TV"), which broadcasts as the only private national television
station in the Czech Republic.
In Slovenia, the Company launched "POP TV" in December 1995 together
with Boutique MMTV d.o.o. Ljubljana ("MMTV") and Tele 59 d.o.o. Maribor ("Tele
59"), (MMTV and Tele 59 are together referred to as the "Slovenian
Broadcasters") through the formation of the company Produkcija Plus d.o.o. ("Pro
Plus"). Pro Plus provides programming to the Slovenian Broadcasters and other
affiliated stations and sells national advertising in conjunction with POP TV
programming. The Company owns 58% of the equity of Pro Plus, but has an
effective economic interest of 72%, as a result of its ownership of 33% of the
profits of MMTV and 33% of the profits of Tele 59, each of which have a 21%
interest in Pro Plus. The Slovenian Broadcasters and one other affiliate began
broadcasting "POP TV" in December 1995 and currently broadcast to 72% of the
population. In Romania, the Company and two local partners, Adrian Sarbu and Ion
Tiriac launched "PRO TV" through the formation of Media Pro International S.A.
("Media Pro International"), a commercial television network. The Company holds
a 77.5% equity interest in Media Pro International, although the Company's
partners hold options which, if exercised, would reduce the Company's interest
to approximately 66%. Media Pro International launched operations in December
1995 and currently broadcasts to approximately 9.6 million people.
The Company also owns a 50.6% non-controlling interest in PULS ("PULS",
formerly known as 1A Berlin), a regional television station based in Berlin,
Germany, and a 50% voting interest (non-voting profit participation) in Franken
Funk & Fernsehen GmbH ("FFF"), which owns 74.8% of a regional television station
in Nuremberg, Germany, NMF Neue Medien Franken GmbH and Co., K.G. ("NMF"). The
Company's interest in PULS increased for the three months ended March 31, 1996
to 50.6% from 48.48% at December 31, 1995 as a result of additional capital
calls paid by Company and not satisfied by the other partners of PULS.
The Company continues to pursue and develop opportunities for
television broadcasting throughout Central and Eastern Europe and on a regional
basis in Germany. The Company has formed Slovenska televizna Spolocnost S.R.O.
in Slovakia which expects to launch Markiza TV by the end of the third quarter
1996. The Company also has interests in companies seeking licenses or seeking to
expand upon regional licenses in Poland, Ukraine and Hungary.
The accompanying consolidated financial statements represent the
financial statements of the entities formed since 1991, presented as of March
31, 1996 and December 31, 1995, and for the three months ended March 31, 1996
and March 31, 1995.
5
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with the
accounting principles generally accepted in the United States. In the opinion of
management, these consolidated financial statements include all adjustments
necessary to fairly state the Company's financial position and results of
operations. The results for the three months ended March 31, 1996 are not
necessarily indicative of the results expected for the year.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company's wholly-owned subsidiaries, Nova TV, PRO TV and POP TV as
consolidated entities and reflect the interests of the minority owners of Nova
TV, PRO TV and POP TV for the three months ended March 31, 1996. POP TV and PRO
TV began operations in December of 1995 and thus Nova TV was the only
consolidated entity for the three months ended March 31, 1995. The results of
the operating stations, PULS and FFF, in which the Company has minority or
non-controlling ownership interests, are included in the accompanying
consolidated financial statements as investments in unconsolidated affiliates
using the equity method. The Company's investments in broadcast operations under
development and other broadcast development opportunities are reflected in the
balance sheet as investments in unconsolidated affiliates or development costs,
depending on the stage of the project.
Net Loss Per Share
Net loss per share was computed by dividing the Company's net loss by
the weighted average number of Common Shares (both Class A and Class B) and
common share equivalents outstanding during the period ended March 31, 1996. The
impact of outstanding options and warrants has not been included in the
computation of net loss per share, as the effect of their inclusion would be
anti-dilutive.
3. SUMMARY FINANCIAL INFORMATION FOR PULS AND FFF
March 31, 1996 December 31, 1995
-------------- -----------------
PULS FFF PULS FFF
---- --- ---- ---
$'000 $'000 $'000 $'000
----- ----- ----- -----
Current assets 9,026 915 6,938 2,538
Non-current assets 14,705 4,809 15,971 3,308
Current liabilities (5,112) (2,007) (5,678) (1,410)
Non-current liabilities (8,290) (9,063) (9,081) (9,526)
------- ------- ------- -------
Net assets 10,329 (5,346) 8,150 (5,090)
------- ------- ------- -------
FOR THE THREE MONTHS ENDED
March 31, 1996 March 31, 1995
-------------- --------------
PULS FFF PULS FFF
---- --- ---- ---
$'000 $'000 $'000 $'000
----- ----- ----- -----
Net revenues 849 1,178 615 1,083
Operating loss (4,292) (984) (5,928) (1,603)
Net loss (4,338) (1,093) (6,002) (1,821)
6
The Company's share of the losses of PULS and FFF accounted for by the
equity method for the three months ended March 31, 1996 and 1995 were $2.8
million and $3.5 million, respectively.
As of March 31, 1996 FFF had DM 10 million ($6.8 million) in loans from
the Company, the loans bear an annual interest rate of 10.5%. The Company has
agreed to subordinate its claims under the loans to all other claims against
FFF.
4. DIVIDENDS
In March 1996, Nova TV declared a dividend of Kc 330 million
($12,066,000) to be paid in equal installments of Kc 165 million each
($6,033,000) in May and November of 1996.
5. SUBSEQUENT EVENTS
None.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The Company began operations through predecessor companies in 1991 to
capitalize on the substantial market opportunities created by the emergence of
private commercial television and the corresponding significant growth of
television advertising expenditures in those markets. The Company operates the
leading national television station in the Czech Republic, has interests in
regional stations in Berlin and Nuremberg, Germany and most recently, launched
national television broadcasting networks in Romania and Slovenia in December
1995. These operations broadcast to an aggregate of approximately 27 million
people. The Company expects to commence broadcast operations in the Slovak
Republic and Leipzig and Dresden during 1996, thus extending its reach to a
projected 35 million people. In addition, the Company intends to commence
broadcast operations in Hungary in 1997 and is pursuing broadcast development
opportunities in Poland, Ukraine, Germany and other regions.
The Company's revenues are derived principally from the sale of
television advertising to local, national and international advertisers. The
Company also engages in certain barter transactions in which the stations
exchange unsold commercial advertising time for goods and services such as
programming, broadcasting equipment, car rentals and newspaper advertising
space. The experience of the television industry is that advertising sales tend
to be lowest during the third quarter of each calendar year, which includes the
summer holiday schedules (typically July and August) and highest during the
fourth quarter of each calendar year.
The primary expenses incurred in operating broadcast stations are
employee salaries, programming costs, broadcast transmission expenses and
selling, general and administrative expenses. Certain of the Company's
operations do not require the direct incurrence of broadcast transmission
expenses. Licence fees payable to government entities in connection with
securing television licences from government authorities, if any, are usually
minimal. However, the Company incurs significant development expenses, including
funding and negotiating with local partners, researching and preparing license
applications, preparing business plans and conducting pre-operating activities.
The Company conducts all of its operations through subsidiaries.
Accordingly, the primary internal sources of the Company's cash are dividends
and other distributions from its subsidiaries. The Company's ability to obtain
dividends or other distributions is subject to, among other things, restrictions
on dividends under applicable local
7
laws and foreign currency exchange regulations of the jurisdictions in which its
subsidiaries operate. The subsidiaries' ability to make distributions or
otherwise repatriate funds to the Company are also subject to their having
sufficient funds from their operations legally available for the payment thereof
which are not needed to fund their operations, obligations or other business
plans and, in some cases, the approval of the other partners, stockholders or
creditors of these entities. The laws under which the Company's currently
operating subsidiaries are organized provide generally that dividends may be
declared by the partners or shareholders out of yearly profits subject to the
maintenance of registered capital and required reserves and after the recovery
of accumulated losses.
The following table sets forth certain operating data for the three
months ended March 31, 1996 and 1995, respectively, and for the year ended
December 31, 1995 (dollars in thousands). For the three months ended March 31,
1995 Nova TV was the only operation included as a consolidated entity in the
figures below. POP TV and PRO TV began operations in December 1995:
Three months ended Year ended
------------------ ----------
March 31, March 31, December 31,
--------- --------- ------------
1996 1995 1995
---- ---- ----
Net revenues 23,255 18,687 98,919
Less:
Station operating expenses, excluding depreciation and (12,492) (6,163) (29,881)
amortization
Station selling, general and administrative expenses (2,938) (1,071) (6,816)
Cash program rights costs (6,277) (3,653) (24,040)
Broadcast cash flow 1,548 7,800 38,182
Broadcast cash flow margin 6.7% 41.7% 38.6%
for the period ended March 31, 1996
-----------------------------------
Nova TV PRO TV POP TV
------- ------ ------
Net revenues 20,620 1,551 1,084
Less:
Station operating expenses, excluding depreciation and (7,919) (2,748) (1,825)
amortization
Station selling, general and administrative expenses (1,477) (804) (657)
Cash program rights costs (4,233) (1,704) (340)
Broadcast cash flow 6,991 (3,705) (1,738)
Broadcast cash flow margin 33.9% - -
"Broadcast cash flow" is net revenues, less station operating expenses
excluding depreciation and amortization, station selling, general and
administrative expenses, and cash program rights costs. Cash program rights
costs represent cash payments for current programs payable and such payments do
not necessarily correspond to program use. The Company has included broadcast
cash flow because it is commonly used in the broadcast industry as a measure of
performance. Broadcast cash flow should not be considered as a substitute
measure of operating performance or liquidity prepared in accordance with
generally accepted accounting principles.
8
Broadcast cash flow margin for Nova TV has decreased 7.8 percentage
points to 33.9% for the three months ended March 31, 1996 from 41.7% for the
three months ended March 31, 1995. This is the result of increased cash payments
on long term program contracts for Nova TV's program library and increased
station operating expenses. In 1995 Nova TV entered into several long-term
programming contracts that require the majority of the payments to be made
during the first 24 months of the agreement. In addition during the three months
ended March 31, 1996 Nova TV increased its accrual for annual volume discounts
on advertising sales as larger volume advertisers have purchased an increasing
percentage of advertising time. This resulted in increases in quarterly
discounts on Nova TV's gross advertising revenue and lower net revenues by
approximately $627,000.
Within the Management's Discussion and Analysis of the Financial
Condition and Results of Operations, balance sheet accounts are translated from
foreign currencies into United States dollars at March 31, 1996 and 1995
exchange rates; statement of operations accounts are translated from foreign
currencies into United States Dollars at the weighted average exchange rates for
the three month periods ended March 31, 1996 and 1995.
Application of Accounting Principles
The Company prepares its financial statements in United States dollars
and in accordance with generally accepted accounting principles in the United
States. The Company's consolidated operating statements include the results of
Nova TV, PRO TV and POP TV and separately set forth the minority interest
attributable to other owners of Nova TV, PRO TV and POP TV for the three months
ended March 31, 1996. POP TV and PRO TV began operations in December 1995 and
thus Nova TV was the only consolidated entity for the three months ended March
31, 1995. The results of other broadcast operations, PULS and FFF, are accounted
for using the equity method which reflects the Company's share of the net income
or losses in those operations. The Company's investments in broadcast operations
under development and other broadcast development opportunities are reflected on
the balance sheet as investments in associated companies or development costs,
depending on the stage of the project.
Results of Operations
Three months ended March 31, 1996 compared to the three months ended March 31,
1995
The Company's net revenues increased by $4,568,000 to $23,255,000 in
the three months ended March 31, 1996 from $18,687,000 in the three months ended
March 31, 1995. This increase is primarily attributable to the increase in
advertising revenues earned by Nova TV, partially to the Company's new
operations, PRO TV and POP TV, which began broadcasting in December 1995 and is
partially offset by increases in volume discounts on Nova TV's gross advertising
revenue. In the three months ended March 31, 1996 Nova TV increased its accrual
for annual volume discounts on advertising sales as larger volume advertisers
have purchased an increasing percentage of advertising time. Since the Company
has a minority ownership or non-controlling interest in PULS and FFF, losses
incurred by PULS and FFF are accounted for under the equity method and,
therefore, no revenues are presented in respect of these entities.
Station operating costs and expenses increased by $8,981,000 to
$19,732,000 in the three months ended March 31, 1996 from $10,751,000 in the
three months ended March 31, 1995. As a percentage of net revenues, station
operating costs and expenses increased from 58% for the three months ended March
31, 1995 to 85% for three months ended March 31, 1996. These expenses represent
the costs associated with the operations of Nova TV, PRO TV and POP TV including
amortization of programming rights of $4,306,000 and $3,031,000, and
depreciation of station assets and amortization of other intangibles of
$2,934,000 and $1,557,000 in the three months ended March 31, 1996 and 1995,
respectively. The increase in station operating costs and expenses is primarily
attributable to the addition of the Company's new operations, PRO TV and POP TV,
both of which began operations at the end of 1995, and partially to increased
amortization on Nova TV's larger program library.
9
Station selling, general and administrative expenses increased
$1,867,000 to $2,938,000 in the three months ended March 31, 1996 from
$1,071,000 in the three months ended March 31, 1995. As a percentage of net
revenues, station selling, general and administrative expenses increased from 6%
for the three months ended March 31, 1995 to 13% for the three months ended
March 31, 1995. This increase in station selling, general and administrative
expenses as a percentage of net revenues is primarily the result of additional
station selling, general and administrative expenses from the Company's start up
of PRO TV and POP TV. PRO TV and POP TV began operations in December of 1995.
Corporate operating costs and development expenses in the three months
ended March 31, 1996 and 1995 were $3,191,000 and $2,032,000 respectively,
increasing $1,159,000. The increases are primarily attributable to the Company's
increased scope of operations and the number of development projects.
The non-cash stock compensation charge of $0 recognized in the three
months ended March 31, 1996 and, $455,000 in the three months ended March 31,
1995, relates to shares granted to a former officer of the Company.
Operating income decreased $6,984,000 as the Company generated
operating loss of $2,606,000 in the three months ended March 31, 1996 compared
to operating profit of $4,378,000 in the three months ended March 31, 1995. The
overall decrease in the Company's operating results is primarily attributable to
operating losses from the Company's new operations, PRO TV and POP TV, both
launched in December 1995 and partially to increased development expenses and
increased amortization on a larger Nova TV program library.
Loss in unconsolidated affiliated companies decreased $761,000 to
$2,769,000 for the three months ended March 31, 1996 from $3,530,000 for the
three months ended March 31, 1995. The Company's share of losses in PULS for the
three months ended March 31, 1996 was lower despite the Company's increase in
ownership from 43.25% at March 31, 1995 to 50.6% at March 31, 1996. PULS has
begun a new local programming format and reduced operating costs as well as
slightly increased net revenues. In addition losses at FFF have also decreased
as a result of a similar change in its programming format and slightly increased
net revenues.
Interest and other income increased $178,000 to $637,000 in the three
months ended March 31, 1996 from $459,000 for the three months ended March 31,
1995. This increase is primarily attributable to the interest earned on the
proceeds of the issuance of the Company's Class A Common Stock pursuant to a
public offering in November 1995.
Interest expense decreased $3,000 to $1,007,000 in the three months
ended March 31, 1996 from $1,010,000 in the three months ended March 31, 1995.
This interest expense relates to interest on bank loans and a capital lease on
the building at Nova TV.
Provision for income taxes was $2,004,000 for the three months ended
March 31, 1996 and $3,001,000 for the three months ended March 31, 1995. The
1996 income tax provision primarily relates to income taxes payable in the Czech
Republic on Nova TV pre-tax profits.
Minority interest in (income) loss of consolidated subsidiaries was
$394,000 in the three months ended March 31, 1996 and ($1,197,000) in the three
months ended March 31, 1995. This decrease is primarily the result of losses for
the Company's new operations PRO TV and POP TV launched in December 1995.
The net loss of the Company was $7,750,000 and $3,394,000 for the three
months ended March 31, 1996 and 1995 respectively. The increase in losses is
primarily attributable to the losses from the Company's start up operations, PRO
TV and POP TV as well as decreased profits of Nova TV and higher development
costs, offset by reductions in losses of PULS and FFF as well as lower taxes on
the profits of Nova TV.
10
Liquidity and Capital Resources
Cash provided by operating activities was $1,821,000 in the three
months ended March 31, 1996 and $1,252,000 in the three months ended March 31,
1995. This increase was due to additional cash generated by Nova TV .
Accounts receivable decreased by $3,138,000 to $28,005,000 net of
currency fluctuations, at March 31, 1996 due principally to more rapid
collection of Nova TV's receivables and the translation impact of a weaker Czech
koruna partially offset by the addition of accounts receivable from PRO TV and
POP TV. Current liabilities increased to $50,786,000 at March 31, 1996 from
$46,453,000 at March 31, 1995 principally as a result of increased programming
contracts, increased accounts payables and accrued liabilities related to the
Company's new operations, PRO TV and POP TV and increased tax liabilities
arising primarily on Nova TV's 1996 profits.
Cash used in investing activities was ($13,204,000) and ($10,508,000)
for the three months ended March 31, 1996 and 1995, respectively, primarily due
to fixed asset acquisition in the Company's new operations, PRO TV and POP TV,
and higher capitalized development costs for the three months ended March 31,
1996.
The Company's investment in unconsolidated affiliates increased, net of
currency fluctuations, to $15,445,000 as of March 31, 1996 from $12,433,000 as
of December 31, 1995. This is a result of additional investments in PULS of
$5,108,000 and FFF of $721,000, partially offset by the Company's share of the
losses in PULS of $2,196,000 and FFF of $573,000 for the three months ended
March 31 1996. The investments reflect an additional capital call of DM
5,000,000 ($3,387,000) for PULS and an additional loan of DM 1,000,000
($721,000) to FFF during the three months ended March 31, 1996.
In the three month period ended March 31, 1996 the Company invested
$5,962,000 in property, plant and equipment and $6,154,000 in development
activities.
Cash used in financing activities was ($5,735,000) for the three months
ended March 31, 1996, principally consisting of the repayment of bank loans,
loans to affiliates and repayment of advances from affiliates.
Broadcast cash flow was $1,548,000 for the three months ended March 31,
1996, comprising revenues of $23,255,0000, less station operating expenses and
station selling, general and administrative expenses aggregating ($15,430,000),
less cash costs of program rights of ($6,277,000).
From 1991, when the Company began to pursue rights to television
broadcast licenses until its successful initial public offering in October 1994,
the Company relied on certain affiliates for capital in the form of both debt
and equity to fund its operating and capital requirements. Prior to the
Company's initial public offering a total of $33.4 million had been invested
and/or loaned or advanced by these affiliates. $17.7 million of loans and
advances, including related interest, were repaid from the proceeds of the
Company's initial public offering.
The Company's initial public offering completed in October 1994 raised
net proceeds of $68.8 million from the issuance of 5,462,500 shares of Class A
Common Stock. Proceeds of the Company's initial public offering have been used
to fund the Company's operations (approximately $16.0 million), development
activities (approximately $27.0 million), overhead (approximately $8.1 million)
and to repay the loans and advances from affiliates in the amounts described
above. In November 1995, the Company completed a second public offering of
4,000,000 shares of Class A Common Stock (the `1995 Offering') which raised $
86,574,000 of net proceeds.
The Company was paid a dividend of approximately $1.4 million in 1995
by Nova TV. In March 1996, Nova TV declared a dividend of Kc 330,000,000
($12,066,000) to be paid in equal installments of Kc 165,000,000 each
($6,033,000) in May and November 1996.
Concurrent with the 1995 Offering, the Company's largest shareholder,
Ronald S. Lauder, was issued 297,346 shares of Class A Common Stock at the price
to public in the Offering less underwriting discounts and commissions in
exchange for a note of the Company in the principal amount of $6,500,000 held by
him.
11
Primarily, as a result of the 1995 Offering and the cash dividend from
Nova TV in 1995, the Company had cash of $36,292,000 at March 31, 1996
($53,210,000 at December 31, 1995) and marketable securities of $7,498,000 at
March 31, 1996 ($10,652,000 at December 31, 1995) available to finance its
future activities.
The Company has made and will continue to make investments to develop
broadcast operations in Central and Eastern Europe and regions of Germany. The
Company's cash needs for those investment activities currently exceed cash
generated from operations, resulting in external financing requirements that may
be satisfied through bank debt facilities or other means.
The Company believes that substantially all of the funding required by
Nova TV has been obtained. The Company expects that Nova TV's future cash
requirements will be satisfied through operating cash flows and available
borrowing facilities. Nova TV currently has two loan facilities with Ceska
Sporitelna, an investor in the station. The first facility consists of a long
term loan due on December 30, 1999 in the principal amount of Kc 300 million
($11.0 million) and currently bears interest at a rate of 14.5% per annum,
subject to change based on fluctuations in the lender's base rate, of which
180,000,000 Kc ($6,582,000) was outstanding at March 31, 1996. Principal
payments of 60,000,000 Kc ($2,194,000) are due each year on this facility. In
January 1996 Nova TV paid the 60,000,000 Kc due on this facility for 1996. The
second facility is line of credit loan, obtained in November 1995, for an amount
up to 250,000,000 Kc ($9,141,000) bearing interest at a rate of 12% per annum.
This facility was unutilized at March 31, 1996. These loans are secured by Nova
TV's equipment, vehicles and receivables.
In exchange for certain assets, PRO TV has assumed two loans from an
affiliated entity, payable to Tiriac bank of Romania, which is partially owned
by a PRO TV investor. The principal portion of the first loan is $250,000 which
bears interest at a rate of 12% per annum. This loan has variable monthly
payments with a final balloon payment of $165,000 due in September 1996. The
second loan is for a principal amount of $300,000, with equal monthly payments
of $37,500 through April 1996 and bears interest at a rate of 12.1% per annum.
These loans are secured by certain equipment of Media Pro International)
Under the partnership agreement for PULS, the Company is not required
to contribute any additional capital to PULS; however, if any of the partners in
PULS, including the Company, do not fund future capital requirements their
equity interest in PULS may be diluted. In the three months ended March 31,
1996, the Company funded additional capital contributions of DM 7,500,000
($5,108,000) to PULS of which DM 2,500,000 ($1,721,000) related to a 1995
capital call. In addition, in the three months ended March 31, 1996 the Company
funded a shareholder loan to FFF of DM 1,000,000 ($721,000). PULS and FFF are
expected to require additional funding of up to DM 7,000,000 ($4,741,000) and DM
2,000,000 ($1,355,000) respectively for the remainder of 1996.
Except for the Company's working capital requirements, the Company's
future cash needs will depend on management's acquisition and development
decisions. The Company is actively engaged in the development of additional
investment opportunities in broadcast licenses and investments in existing
broadcasting companies throughout Germany and Central and Eastern Europe. The
Company incurs limited expenses in identifying and pursuing broadcast
opportunities before any investment decision is made. The Company anticipates
making additional investments in other broadcast operations, supplemented by
capital raised from local financial strategic partners as well as local debt and
lease financing, to the extent that it is available and appropriate for each
project.
The laws under which the Company's currently operating subsidiaries and
affiliates are organized provide generally that dividends may be declared by the
partners or shareholders out of yearly profits subject to the maintenance of
registered capital, required reserves and after the recovery of accumulated
losses. In the case of the Company's Dutch and Netherlands Antilles
subsidiaries, the Company's voting power is sufficient to compel the making of
distributions. However, the Company's voting power is not sufficient to compel
Nova TV to make distributions. In the case of PULS, the PULS Partnership
Agreement provides that if profits are available for distribution, 66 2/3% of
the partnership interest may require that 40% of such profits be placed in
reserves until DM 16,700,000 are reserved. All profits in excess thereof must be
distributed. The agreement relating to FFF does not
12
contain restrictions on distributions out of available profits. In the case of
PRO TV, dividends may be paid from the profits of PRO TV subject to a reserve of
5% of annual profits until the aggregate reserves equal to 20% of PRO TV's
registered capital. A majority vote of shareholders is required to declare a
dividend. The Company is the majority owner of PRO TV. The laws of countries
where the Company is developing operations contain restrictions on the payment
of dividends.
While losses from development activities are expected to continue in
1996, management believes that the net proceeds of the 1995 Offering together
with the Company's current cash balances, dividends from Nova TV, potential
corporate debt facilities and local financing of broadcast operations and
broadcast operations under development should be adequate to satisfy the
Company's operating and capital requirements for approximately 12 months.
Foreign currency
The Company and its subsidiaries generate revenues primarily in Czech
korunas ("Kc"), Romanian lei ("ROL"), Slovenian tolar ("SIT") and German marks
("DM"), and incur substantial operating expenses in those currencies. The Czech
koruna, Romanian lei and Slovenian tolar are managed currencies with limited
convertibility. The Company also incurs operating expenses of programming in
United States dollars and other foreign currencies. For entities operating in
economies that are considered non-highly inflationary which include Nova TV and
POP TV balance sheet accounts are translated from foreign currencies into United
States dollars at the relevant period-end exchange rate; statement of operations
accounts are translated from foreign currencies into United States dollars at
the weighted average exchange rates for the respective periods. The resulting
translation adjustments are reflected in a component of shareholders' equity.
PRO TV operates in an economy qualifying as highly inflationary. Accordingly,
non-monetary assets are translated at historical exchange rates and monetary
assets are translated at current exchange rates. Translation adjustments are
included in the determination of the income. Currency translation adjustments
relating to transactions of the Company in currencies other than the functional
currency of the entity involved are reflected in the operating results of the
Company. The official exchange rates for the Czech koruna, Romanian lei,
Slovenian tolar and market exchange rate for the German mark, at the end of, and
during, the periods indicated were as follows:
At December 31, 1995 At March 31, 1996
-------------------- -----------------
Czech koruna equivalent of $1.00 26.60 27.35
Romanian lei equivalent of $1.00 2,578 * 3,070
Slovenian tolar equivalent of $1.00 126 ** 133
German mark equivalent of $1.00 1.43 1.48
Average for the three Average for the three
month period ended month period ended
March 31, 1995 March 31, 1996
-------------- --------------
Czech koruna equivalent of $1.00 27.15 27.14
Romanian lei equivalent of $1.00 N.A. 3,532
Slovenian tolar equivalent of $1.00 N.A. 132
German mark equivalent of $1.00 1.48 1.48
* Period from December 1, 1995 only.
** Period from December 15, 1995 only.
The Company's financial position and results of operations as of March
31, 1996 and for the three months ended March 31, 1996 have been impacted by
changes in foreign currency exchange rates since the beginning of 1995. The
Czech koruna, Romanian lei, Slovenian tolar and German mark have all weakened
against the dollar as shown above during these periods. Nova TV, PRO TV and POP
TV s' operating results (which comprise the Company's results to the `station
selling, general and administrative expenses line) together with related
interest costs and minority interests are therefore lower than would be the case
had the weighted average exchange rate for
13
the three months ended March 31, 1996 remained the same as for the year ended
December 31, 1995. Similarly, loss in unconsolidated affiliates was lower than
would have been the case had weighted average exchange rates remained unchanged.
14
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Various competitors of PULS and NMF have instituted legal action
against the media authorities for Berlin-Brandenburg and the Nuremberg area
seeking to overturn their decisions to award broadcast licenses to PULS and NMF,
respectively. These actions were instituted in 1994, and there have been no
proceedings in relation thereto in the last 12 months. An unfavourable decision
in either of these actions could have a material adverse effect on the Company.
The Company is, from time to time, a party to litigation that arises in
the normal course of its business operations. The Company is not presently a
party to any such litigation which could reasonably be expected to have a
material adverse effect on its business or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The following exhibits are attached:
Exhibit
-------
27.01 Financial Data Schedule
b) No reports on Form 8-K were filed during the quarter ended
March 31, 1995.
15
SIGNATURE
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.
/s/ Leonard M. Fertig
Date: May 13, 1996 -------------------------------
Leonard M. Fertig
Chief Executive Officer
(Duly Authorized Officer)
/s/ John A. Schwallie
Date: May 13, 1996 -------------------------------
John A. Schwallie
Chief Financial Officer
(Principal Financial Officer)
16
Exhibit Index
Exhibit Page Number
- ------- -----------
27.01 Financial Data Schedule 18
17