UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 SEPTEMBER 30, 1998.
OR
/ / TRANSITION REPORT PURSUANT TO THE SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT 1934
FROM THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 333-20307
POLAND COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
NEW YORK 06-1070447
(State or Other Jurisdiction of (IRS Employer
Incorporation of Organization) Identification No.)
ONE COMMERCIAL PLAZA
HARTFORD, CONNECTICUT 06103
(Address of Principal Executive Officers) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (860) 549-1674
Indicate by check (X) whether the registrant (1) has filed all reports required
to be fled 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
---- ----
The number of shares outstanding of Poland Communications, Inc.'s common stock
as of September 30, 1998, was:
Common Stock 18,948
POLAND COMMUNICATIONS, INC.
FORM 10-Q INDEX
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Poland Communications, Inc.
Consolidated Balance Sheets.................................... 3-4
Consolidated Statements of Operations.......................... 5
Consolidated Statements of Cash Flows.......................... 6
Notes to Consolidated Financial Statements..................... 7-8
Poland Cablevision (Netherlands) B.V.
Consolidated Balance Sheets................................... 9-10
Consolidated Statements of Operations......................... 11
Consolidated Statements of Cash Flows......................... 12
Notes to Consolidated Financial Statements.................... 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................... 14-19
Item 3. Quantitative and Qualitative Disclosures
About Market Risk........................................................... 20
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 21
Item 2. Changes in Securities and Use of Proceeds................................... 21
Item 3. Defaults Upon Senior Securities............................................. 21
Item 4. Submission of Matters to a Vote of Security Holders......................... 21
Item 5. Other Information........................................................... 21
Item 6. Exhibits and reports on Form 8-K............................................ 21
Signature Page......................................................................... 22
2
POLAND COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1998 1997
------------ ------------
(unaudited)
(in thousands)
Current assets:
Cash and cash equivalents ................................ $ 4,003 $ 25,750
Accounts receivable, net of allowances for doubtful
accounts of $1,519,000 in 1998 and $766,000 in 1997 2,903 2,120
Due from affiliate ....................................... -- 2,353
Other current assets ..................................... 1,858 2,233
--------- ---------
Total current assets ............................... 8,764 32,456
--------- ---------
Property, plant and equipment:
Cable television system assets ..................... 160,619 134,469
Construction in progress ........................... 3,496 1,904
Vehicles ........................................... 2,016 2,032
Other .............................................. 4,826 3,784
--------- ---------
170,957 142,189
Less accumulated depreciation ................. (43,586) (33,099)
--------- ---------
Net property, plant and equipment ............. 127,371 109,090
Inventories for construction ............................. 9,530 8,153
Intangibles, net ......................................... 32,419 33,440
Notes receivable from affiliates ......................... 438 6,472
Investment in affiliated companies ....................... 141 172
--------- ---------
Total assets .................................. $ 178,663 $ 189,783
--------- ---------
--------- ---------
See accompanying notes to unaudited consolidated financial statements.
3
POLAND COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)/EQUITY
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
(in thousands)
Current liabilities:
Accounts payable and accrued expenses ........................ $ 9,618 $ 5,662
Accrued interest ............................................. 5,527 2,175
Deferred revenue ............................................. 1,139 1,257
Income taxes payable ......................................... 2,442 1,765
Other current liabilities .................................... 68 733
--------- ---------
Total current liabilities ............................... 18,794 11,592
Due to affiliate ...................................................... 3,021 --
Notes payable ......................................................... 138,395 130,110
--------- ---------
Total liabilities ....................................... 160,210 141,702
--------- ---------
Minority interest ..................................................... 29 4,713
Redeemable preferred stock (liquidation value $85,000,000;
8,500 shares authorized, issued and outstanding) .................... 42,659 39,149
Commitments and contingencies (note 7)
Stockholders' (deficiency)/equity
Common stock, $.01 par value, 24,051 shares authorized; 18,948
shares issued and outstanding ........................... 1 1
Paid-in capital .............................................. 59,075 62,584
Cumulative translation adjustment ............................ (2,471) --
Accumulated deficit .......................................... (80,840) (58,366)
--------- ---------
Total stockholders' (deficiency)/equity ................. (24,235) 4,219
--------- ---------
Total liabilities and stockholders' (deficiency)/equity . $ 178,663 $ 189,783
--------- ---------
--------- ---------
See accompanying notes to unaudited consolidated financial statements.
4
POLAND COMMUNICATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
------------ ---------- ---------- ------------
(in thousands, except per share data)
Cable television revenue ......................... $ 13,265 $ 10,109 $ 37,836 $ 26,393
Operating expenses:
Direct operating expenses .................. 13,030 2,918 22,563 7,281
Selling, general and administrative expenses 3,356 7,417 12,014 21,480
Depreciation and amortization .............. 5,399 4,401 15,319 10,920
-------- -------- -------- --------
Total operating expenses ................ 21,785 14,736 49,896 39,681
-------- -------- -------- --------
Operating loss .......................... (8,520) (4,627) (12,060) (13,288)
Interest and investment income ................... 135 723 838 2,753
Interest expense ................................. (3,481) (2,293) (10,551) (9,880)
Foreign exchange loss, net ....................... (388) (476) (622) (898)
-------- -------- -------- --------
Loss before income taxes and
minority interest .......................... (12,254) (6,673) (22,395) (21,313)
Income tax benefit/(expense) ..................... 66 (246) (496) (358)
Minority interest ................................ 624 (343) 417 2,256
-------- -------- -------- --------
Net loss ................................... (11,564) (7,262) (22,474) (19,415)
Accretion of redeemable preferred stock .......... (1,192) (1,086) (3,510) (3,114)
-------- -------- -------- --------
Net loss applicable to holders of common stock ... $(12,756) $ (8,348) $(25,984) $(22,529)
-------- -------- -------- --------
-------- -------- -------- --------
Basic and diluted loss per common share .......... $(673.21) $(440.57) $(1,371.33) $(1,188.99)
-------- -------- -------- --------
-------- -------- -------- --------
See accompanying notes to unaudited consolidated financial statements.
5
POLAND COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended September 30,
-------------------------------
1998 1997
---------- ----------
(in thousands)
Cash flows from operating activities:
Net loss ............................................................ $(22,474) $(19,415)
Adjustments to reconcile net loss to
net cash provided by /(used in) operating activities:
Minority interest ............................................. (417) (2,256)
Depreciation and amortization ................................. 15,319 10,921
Non-cash option compensation expense -- 9,425
Other ......................................................... -- 195
Changes in operating assets and liabilities:
Accounts receivable ...................................... (783) (866)
Other current assets ..................................... 456 (899)
Accounts payable ......................................... 3,524 (649)
Accrued interest ......................................... 3,352 3,281
Amounts due to affiliates ................................ 5,374 (2,513)
Deferred revenue ......................................... (114) (102)
Accrued income taxes ..................................... 677 (930)
Other current liabilities ................................ (653) (1,147)
-------- --------
Net cash provided by /(used in) operating activities 4,261 (4,955)
-------- --------
Cash flows from investing activities:
Construction and purchase of property, plant and equipment (31,868) (25,615)
Proceeds from sale of investment securities .............. -- 25,115
Other investments ........................................ 20 1,388
Notes receivable from affiliate .......................... 6,034 (4,288)
Purchase of intangibles .................................. (40) --
Purchase of subsidiaries, net of cash received ........... (6,289) (10,834)
-------- --------
Net cash used in investing activities .............. (32,143) (14,234)
-------- --------
Cash flows from financing activities:
Proceeds from notes payable .............................. 6,500 --
Costs to obtain loans .................................... -- (1,306)
Repayment of notes payable ............................... (365) (750)
-------- --------
Net cash provided by/ (used in) financing activities 6,135 (2,056)
-------- --------
Net decrease in cash and cash equivalents .......... (21,747) (21,245)
Cash and cash equivalents at beginning of period .......................... 25,750 63,483
-------- --------
Cash and cash equivalents at end of period ................................ $ 4,003 $ 42,238
-------- --------
-------- --------
Supplemental cash flow information:
Cash paid for interest ................................... $ 6,573 $ 6,653
-------- --------
-------- --------
Cash paid for income taxes ............................... $ 511 $ 1,589
-------- --------
-------- --------
See accompanying notes to unaudited consolidated financial statements.
6
POLAND COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The information furnished by Poland Communications, Inc. and subsidiaries ("PCI"
or the "Company") has been prepared in accordance with United States generally
accepted accounting principles and the rules and regulations of the Securities
and Exchange Commission (the "SEC"). Certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to these rules and regulations. The accompanying consolidated
balance sheets, statements of operations and statements of cash flows are
unaudited but in the opinion of management reflect all adjustments (consisting
only of items of a normal recurring nature) which are necessary for a fair
statement of the Company's consolidated results of operations and cash flows for
the interim periods and the Company's financial position as of September 30,
1998. The accompanying unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and the
notes thereto included in the Company's 1997 Annual Report on Form 10-K filed
with the SEC (the "1997 Annual Report"). The interim financial results are not
necessarily indicative of the results of the full year.
2. RECLASSIFICATIONS
Certain amounts have been reclassified in the prior period unaudited
consolidated financial statement to conform to the 1998 unaudited consolidated
financial statement presentation.
3. ADOPTION OF NEW ACCOUNTING STANDARD
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income", which establishes standards for
the reporting and presentation of comprehensive income and its components in
a full set of financial statements. Comprehensive income/(loss) generally
encompasses all changes in stockholders' equity (except those arising from
transactions with owners) and includes net income/(loss), net unrealized
capital gains or losses on available for sale securities and foreign currency
translation adjustments. The Company's comprehensive loss differs from net
loss only by the foreign currency translation adjustment charged to
stockholders' equity for the period. Comprehensive loss for the nine-month
periods ended September 30, 1998 and 1997 was approximately $24,945,000 and
$19,415,000, respectively.
4. FOREIGN CURRENCY TRANSLATION
Effective January 1, 1998, Poland was no longer deemed to have a highly
inflationary economy. In accordance with this change, the Company established a
new functional currency basis for its Polish subsidiaries for non-monetary items
in accordance with guidelines established within EITF Issue 92-4, "Accounting
for a Change in Functional Currency When an Economy Ceases to Be Considered
Highly Inflationary." That basis is computed by translating the historical
reporting currency amounts of non-monetary items into the local currency at
current exchange rates.
5. LOSS PER SHARE
As noted in the 1997 Annual Report, the Company adopted SFAS No. 128, "Earnings
Per Share". The statement required that all prior period earnings per share
calculations including interim financial statements be restated to conform with
the provisions of this statement. Basic and diluted loss per ordinary share is
based on the weighted average number of ordinary shares outstanding of 18,948
for both the three-month and nine-month periods ended September 30, 1998 and
1997.
6. ACQUISITION
On August 15, 1998, the Company purchased the remaining minority interest in one
subsidiary of the Company which was held by unaffiliated third parties for an
aggregate purchase price of approximately $5,372,000. The acquisition was
accounted for using the purchase method with the purchase price allocated among
the assets acquired and liabilities assumed based upon their fair values at the
date of acquisition and any excess to goodwill. The purchase price exceed the
fair value of the assets acquired by approximately $1,104,000. The acquisition
is not expected to have a material effect on the Company's results of operations
in 1998.
7
On July 16, 1998, the Company's parent @Entertainment, Inc., purchased the
unaffiliated minority interest in a subsidiary of the Company for aggregate
consideration of $10.6 million.
7. COMMITMENTS AND CONTINGENCIES
Programming Commitments
The Company has entered into programming agreements with certain third party
content providers. The programming agreements have terms which range from one to
five years and require that payments for programs be paid either at a fixed
amount or based upon the number of subscribers connected to the system each
month. At September 30, 1998, the Company had a minimum commitment under such
agreements of approximately $613,000 for the remainder of 1998, $1,607,000 in
1999, $1,931,000 in 2000, $1,810,000 in 2001, $1,855,000 in 2002 and $3,138,000
in 2003 and thereafter. For the nine months ended September 30, 1998 and 1997
the Company incurred programming fees of approximately $15,964,000 and
$2,825,000 respectively, pursuant to these agreements.
Litigation and Claims
From time to time, the Company is subject to various claims and suits arising
out of the ordinary course of business. While the ultimate result of all such
matters is not presently determinable, based upon current knowledge and facts,
management does not expect that their resolution will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
8
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1998 1997
------------ ------------
(unaudited)
(in thousands)
Current assets:
Cash ................................................... $ 1,636 $ 4,951
Accounts receivable, net of allowances for doubtful
accounts of $878,000 in 1998 and $608,000 in 1997 1,885 1,222
Other current assets ................................... 459 1,283
--------- ---------
Total current assets ............................ 3,980 7,456
--------- ---------
Property, plant and equipment:
Cable television system assets .................. 127,580 108,475
Construction in progress ........................ 1,157 --
Vehicles ........................................ 1,673 1,619
Other ........................................... 4,028 3,246
--------- ---------
134,438 113,340
Less accumulated depreciation ............. (35,465) (27,378)
--------- ---------
Net property, plant and equipment ......... 98,973 85,962
Inventories for construction ........................... 7,065 5,887
Intangibles, net ....................................... 8,851 9,887
--------- ---------
Total assets ....................... $ 118,869 $ 109,192
--------- ---------
--------- ---------
See accompanying notes to unaudited consolidated financial statements.
9
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
September 30, December 31,
1998 1997
------------ ------------
(unaudited)
(in thousands)
Current liabilities:
Accounts payable and accrued expenses ............ $ 5,748 $ 2,574
Deferred revenue ................................. 509 609
Other current liabilities ........................ -- 18
--------- ---------
Total current liabilities .................... 6,257 3,201
Due to affiliate ............................................. 21,971 14,505
Notes payable to affiliates .................................. 153,880 134,509
--------- ---------
Total liabilities ............................ 182,108 152,215
--------- ---------
Minority interest ............................................ -- 2,523
Stockholders' deficiency:
Capital stock par value, $0.50 par; 200,000 shares
authorized, issued and outstanding ........... 100 100
Paid-in capital .................................. 4,662 4,713
Cumulative translation adjustment ................ (1,773) --
Accumulated deficit .............................. (66,228) (50,359)
--------- ---------
Total stockholders' deficiency ............... (63,239) (45,546)
--------- ---------
Total liabilities and stockholders' deficiency $ 118,869 $ 109,192
--------- ---------
--------- ---------
See accompanying notes to unaudited consolidated financial statements.
10
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
------------ ------------ ----------- ------------
(in thousands, except per share data)
Cable television revenue ............................. $ 8,955 $ 7,609 $ 25,682 $ 20,989
Operating expenses:
Direct operating expenses .................... 9,022 2,032 15,722 5,567
Selling, general and administrative expenses . 1,908 3,795 8,402 12,044
Depreciation and amortization ................ 3,501 2,737 9,815 7,658
-------- -------- -------- --------
Total operating expenses ................ 14,431 8,564 33,939 25,269
-------- -------- -------- --------
Operating loss .......................... (5,476) (955) (8,257) (4,280)
Interest income ...................................... 43 41 117 131
Interest expense ..................................... (3,294) (2,869) (9,538) (8,279)
Foreign exchange loss, net ........................... (587) (477) (495) (1,252)
-------- -------- -------- --------
Loss before income taxes and minority interest (9,314) (4,260) (18,173) (13,680)
Income tax expense ................................... (12) (74) (221) (179)
Minority interest .................................... 1,319 329 2,525 1,090
-------- -------- -------- --------
Net loss ..................................... $ (8,007) $ (4,005) $(15,869) $(12,769)
-------- -------- -------- --------
-------- -------- -------- --------
Basic and diluted net loss per common share .. ($ 40.04) ($ 20.03) ($ 79.35) ($ 63.85)
-------- -------- -------- --------
-------- -------- -------- --------
See accompanying notes to unaudited consolidated inancial statements.
11
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended September 30,
-------------------------------
1998 1997
-------------- --------------
(in thousands)
Cash flows from operating activities:
Net loss ........................................................ $(15,869) $(12,769)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Minority interest ............................................... (2,525) (1,090)
Depreciation and amortization ................................... 9,815 7,658
Interest expense added to notes payable
to affiliates ............................................. 9,500 --
Other ........................................................... -- 423
Changes in operating assets and liabilities:
Accounts receivable ....................................... (663) (322)
Other current assets ...................................... 802 (1,124)
Accounts payable .......................................... 3,176 697
Deferred revenue .......................................... (100) (409)
Amounts due to affiliates ................................. 7,666 --
Other current liabilities ................................. (18) 111
-------- --------
Net cash provided by (used in) operating activities..... 11,784 (6,825)
-------- --------
Cash flows from investing activities:
Construction and purchase of property, plant and equipment (24,922) (21,077)
Purchase of intangible assets ................................... 3 --
Other investments ............................................... -- 1,409
-------- --------
Net cash used in investing activities ...................... (24,919) (19,668)
-------- --------
Cash flows from financing activities:
Proceeds from borrowings from affiliates ................... 9,871 15,883
Increase in due to affiliate ............................... -- 7,362
Dividend to parent ......................................... (51) --
-------- --------
Net cash provided by financing activities .................. 9,820 23,245
-------- --------
Net decrease in cash ....................................... (3,315) (3,248)
Cash at beginning of the period ................................. 4,951 7,015
-------- --------
Cash at end of the period ....................................... $ 1,636 $ 3,767
-------- --------
-------- --------
Supplemental cash flow information:
Cash paid for interest ..................................... $ 57 $ 185
-------- --------
-------- --------
Cash paid for income taxes ................................. $ 222 $ 202
-------- --------
-------- --------
See accompanying notes to unaudited consolidated financial statements.
12
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
Financial information is included for Poland Cablevision (Netherlands) B.V.
and subsidiaries ("PCBV") as PCBV is a guarantor of PCI's 9 7/8% Senior Notes
due 2003 and 9 7/8% Series B Senior Notes due 2003, (collectively, the "PCI
Notes"). The information furnished by PCBV has been prepared in accordance
with United States generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to these rules and
regulations. The accompanying consolidated balance sheets, statements of
operations and statements of cash flows are unaudited but in the opinion of
management reflect all adjustments (consisting only of items of a normal
recurring nature) which are necessary for a fair statement of PCBV's
consolidated results of operations and cash flows for the interim periods and
PCBV's financial position as of September 30, 1998. The accompanying
unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and the notes thereto
included in PCI's 1997 Annual Report on Form 10-K filed with the SEC (the
"1997 PCI Annual Report"). The interim financial results are not necessarily
indicative of the results of the full year.
2. RECLASSIFICATIONS
Certain amounts have been reclassified in the prior period unaudited
consolidated financial statement to conform to the 1998 unaudited consolidated
financial statement presentation.
3. ADOPTION OF NEW ACCOUNTING STANDARD
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income", which establishes standards for the
reporting and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income/(loss) generally encompasses
all changes in stockholders' equity (except those arising from transactions with
owners) and includes net income/(loss), net unrealized capital gains or losses
on available for sale securities and foreign currency translation adjustments.
PCBV's comprehensive loss differs from net loss only by the foreign currency
translation adjustment charged to stockholders' equity for the period.
Comprehensive loss for the nine-month periods ended September 30, 1998 and 1997
was $17,642,000 and $12,769,000, respectively.
4. FOREIGN CURRENCY TRANSLATION
Effective January 1, 1998, Poland was no longer deemed to have a highly
inflationary economy. In accordance with this change, the Company established a
new functional currency basis for its Polish subsidiaries for non-monetary items
in accordance with guidelines established within EITF Issue 92-4, "Accounting
for a Change in Functional Currency When an Economy Ceases to Be Considered
Highly Inflationary." That basis is computed by translating the historical
reporting currency amounts of non-monetary items into the local currency at
current exchange rates.
5. LOSS PER SHARE
As noted in the 1997 PCI Annual Report, the Company adopted SFAS No. 128,
"Earnings Per Share". The statement required that all prior period earnings per
share calculations including interim financial statements be restated to conform
with the provisions of this statement. Basic and diluted loss per ordinary share
is based on the weighted average number of ordinary shares outstanding of
200,000 for both the three-month and the nine-month periods ended September 30,
1998 and 1997.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis provides information concerning the
results of operations and financial condition of the Company. Such discussion
and analysis should be read in conjunction with the accompanying unaudited
consolidated financial statements of the Company. Additionally, the following
discussion and analysis should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
audited consolidated financial statements included in Part II of the Company's
1997 Annual Report. The following discussion focuses on material trends, risks
and uncertainties affecting the results of operations and financial condition of
the Company.
Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, that are not historical facts but rather reflect
the Company's current expectations concerning future results and events. The
words "believes," "expects," "intends," "plans," "anticipates," "likely," "will"
and similar expressions identify such forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company (or entities in which the Company has interests), or
industry results, to differ materially from future results, performance or
achievements expressed or implied by such forward-looking statements.
Such risks, uncertainties and other factors include, among others: general
economic and business conditions and industry trends; the regulatory and
competitive environment of the industries in which the Company, and the entities
in which the Company has interests, operate; uncertainties inherent in new
business strategies, new product launches and development plans; rapid
technological changes; the acquisition, development and/or financing of
telecommunications networks and services; the development and provision of
programming for new television and telecommunications technologies; the
continued strength of the multi-channel video programming distribution industry;
future financial performance, including availability, terms and deployment of
capital; the ability of vendors to deliver required equipment, software and
services; availability of qualified personnel; changes in, or failure or
inability to comply with, government regulations; changes in the nature of key
strategic relationships with joint ventures; competitor responses to the
Company's products and services; the overall market acceptance of such products
and services, including acceptance of the pricing of such products and services;
acquisition opportunities: and other factors.
Readers are cautioned not to place undue reliance on these forward-looking
statements which reflect management's view only as of the date of this Quarterly
Report on Form 10-Q. The Company undertakes no obligation to publicly release
the result of any revisions to these forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events, conditions or circumstances.
OVERVIEW
The Company operates the largest cable television system in Poland with
approximately 1,565,000 homes passed and approximately 887,000 total subscribers
as at September 30, 1998. The Company continues to realize subscriber growth
through a combination of increased penetration, new network build-out and
acquisitions. In addition, since the offering of the Wizja TV programming
package on its cable television networks beginning June 5, 1998, the Company has
realized a 1.9% increase in the number of subscribers.
Having established itself as the leading cable television service provider in
Poland, the Company continues to focus its efforts toward the strategic
objectives of increasing cash flow and enhancing the value of its cable
networks. To accomplish these objectives, the Company's business and operating
strategy in the cable television business is to (i) provide compelling
programming, (ii) increase pricing and maximize revenue per cable subscriber,
(iii) expand its regional clusters, (iv) increase subscriber penetration, and
(v) realize additional operating efficiencies.
During 1998, management has completed or is in the process of completing several
strategic actions in support of this business and operating strategy. On June 5,
1998, the Company began providing the Wizja TV programming package, with its
initial eleven channel primarily Polish-language programming, to its cable
subscribers. Since that date, the package has been expanded to nineteen
channels, seventeen of which are in the Polish language and seventeen of which
are exclusive to Wizja TV package. Management believes that this selection of
high-quality Polish-language programming will provide it with a significant
competitive advantage in increasing its cable subscriber penetration rates.
The Company has implemented a pricing strategy designed to increase revenue per
subscriber and to achieve real profit margin increases in U.S. dollar terms. The
Company has increased the monthly price for the Basic Tier service to reflect
the increased channel availability, and premium channels such as Wizja 1 (which
is owned by the Company's parent) and the
14
HBO Poland service (a Polish-language version of HBO's premium movie channel)
will each be offered to cable customers for an additional monthly charge. The
Company expects that it may continue to experience increases in its churn rate
above historical levels during the implementation of its current pricing
strategy. However, management believes the Company will be able to successfully
command higher prices while maintaining relatively low annual cable television
churn rates as a result of its customer service standards, the technical quality
of its networks and the broad selection of quality programming.
The Company continues to expand the coverage areas of its regional clusters,
through selected build-out and acquisitions. During 1998, the Company focused
its build-out primarily in areas where it could fill-in and expand existing
clusters. Additionally, the Company acquired several smaller cable television
operators.
In support of its goal of realizing additional operating efficiencies, the
Company, during the first nine months of 1998, completed a reorganization for
the purpose of streamlining the organizational structure according to
market-driven concepts. The Company expects to realize additional operating
efficiencies during 1998 and 1999 through the centralization of subscriber
management and customer support services in the Call Center. The Call Center
became operational during the first six months of 1998 for cable customers in
certain regional clusters and will continue to become operational for other
cable customers as expansion of Call Center activities progresses. The Company
is also in the process of installing an integrated management information system
for both its billing and accounting systems, which is designed to further
improve employee productivity and customer service for its cable business.
Historically, the cable networks the Company has acquired have had lower
operating margins than the Company's existing cable networks. Upon consummation
of an acquisition, the Company seeks to achieve operating efficiencies and
reduce operating costs by rationalizing the number of headends and reducing
headcount, among other things. The Company generally has been able to manage its
acquired cable television networks with experienced personnel from one of its
existing regional clusters. Management has also focused on reducing the number
of technical personnel necessary to operate acquired networks after connecting
the networks to the Company's existing headends, or, if required, rebuilding the
acquired networks to the Company's technical standards. In part due to these
efforts, the Company has generally been able to increase the operating margins
in its acquired systems, although there can be no assurance that it will be able
to continue to do so.
The Company's revenues have been and will continue to be derived primarily from
monthly subscription fees for cable television services and one-time
installation fees for connection to its cable television networks. The Company
charges cable subscribers fixed monthly fees for their choice of service tiers
and for other services, such as premium channels, tuner rentals and additional
outlets, all of which are included in monthly subscription fees. The Company
currently offers broadcast, intermediate (in limited areas) and basic tiers of
cable service. At September 30, 1998 approximately 76% of the Company's
subscribers received the Company's basic tier. During the nine months ended
September 30, 1998, approximately 94% of the Company's revenue was derived from
monthly subscription fees compared to approximately 87% during the nine months
ended September 30, 1997. The Company's revenue performance during 1998 has been
generally strong with 43% growth in revenues for the nine months ended September
30, 1998 as compared to the nine months ended September 30, 1997. This increase
was caused mainly by organic growth in subscribers via increased penetration and
build-out of existing networks, increases in subscription rates and the
introduction of an additional premium channel into the programming offerings.
The Company divides operating expenses into (i) direct operating expenses, (ii)
selling, general and administrative expenses and (iii) depreciation and
amortization expenses. Direct operating expenses consist of programming
expenses, maintenance and related expenses necessary to service, maintain and
operate the Company's cable systems, billing and collection expenses and
customer service expenses. Selling, general and administrative expenses consist
principally of administrative costs, including office related expenses,
professional fees and salaries, wages and benefits of non-technical employees,
advertising and marketing expenses, bank fees and bad debt expense. Depreciation
and amortization expenses consist of depreciation of property, plant and
equipment and amortization of intangible assets.
Although its revenue performance was strong for the nine months ended September
30, 1998, the Company generated an operating loss of $12.1 million for the nine
months ended September 30, 1998, primarily due to increased direct operating
expenses related to the subscriber growth and increased programming expense
related to the purchase of the Wizja TV programming package from an affiliated
company as well as high depreciation and amortization charges related to the
expansion of the cable networks.
15
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1997
CABLE TELEVISION REVENUE. Revenue increased $3.2 million or 31.68 % from $10.1
million in the three months ended September 30, 1997 to $13.3 million in the
three months ended September 30, 1998 and $11.4 million or 43.2 % from $26.4
million in the first nine months of 1997 to $37.8 million in the first nine
months of 1998. This increase was primarily attributable to a 16.4% increase in
the number of basic subscribers from approximately 566,000 at September 30, 1997
to approximately 659,000 at September 30, 1998, as well as an increase in
monthly subscription rates. Approximately 27.7% of the increase in basic
subscribers was the result of acquisitions and the remainder was due to
build-out of the Company's existing cable networks.
Revenue from monthly subscription fees represented 82.6% and 91.6% of cable
television revenue for the three months ended September 30, 1997 and 1998,
respectively. Monthly subscription revenue constituted 85.0% and 88.2% of cable
television revenue for the nine months ended September 30, 1997 and 1998,
respectively. Installation fee revenue for the three months ended September 30,
1998 decreased by 66.7%, from $0.6 million to $0.2 million and decreased by
57.9% for nine months ended September 30, 1998, from $1.9 million to $0.8
million compared to the corresponding period in 1997. During the three months
ended September 30, 1998, the Company generated approximately $0.7 million of
additional premium subscription revenue and approximately $4,100 of additional
premium channel installation revenue as a result of providing the HBO Poland
service pay movie channel to cable subscribers as compared to $0.3 million and
$85,500 for the three months period ended September 30, 1997. For the nine
months ended September 30, 1997 and 1998 premium subscription revenue was $ 0.4
million and $ 2.4 million respectively, where premium channel installation
revenue was $ 237,500 and $28,000 for the nine months periods ending September
30, 1997 and 1998 respectively.
DIRECT OPERATING EXPENSES. Direct operating expenses increased $10.1 million, or
346.5%, from $2.9 million for the three months ended September 30, 1997 to $13.0
million for the three months ended September 30, 1998 and $15.3 million, or
209.6%, from $7.3 million for the nine months ended September 30, 1997 to $22.6
million for the nine months ended September 30, 1998, principally as a result of
purchase of the Wizja TV programming package from an affiliated company and
higher levels of technical personnel and increased maintenance expenses
associated with recently acquired networks as well as the increased size of the
Company's cable television system. Direct operating expenses increased from
28.9% of revenues for the three months ended September 30, 1997 to 98.2% of
revenues for the three months ended September 30, 1998 and increased from 27.6%
of revenues for the nine months ended September 30, 1997 to 59.7% of revenues
for the nine months ended September 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $4.0 million or 54.7% from $7.4 million for
the three months ended September 30, 1997 to $3.4 million for the three months
ended September 30, 1998 and decreased $9.5 million or 44.1% from $21.5 million
for the nine months ended September 30, 1997 to $12.0 million for the nine
months ended September 30, 1998. A portion of this decrease was attributable to
non-recurring, non-cash compensation expense of approximately $2.1 million
recorded in the three months ended September 30, 1997 and approximately $9.4
million recorded in the nine months ended September 30, 1997 in connection with
stock options granted to certain employees.
As a percentage of revenue, selling, general and administrative expenses
decreased from 73.4% for the three months ended September 30, 1997 to
approximately 25.3% for the three months ended September 30, 1998 and from 81.4%
for the nine months ended September 30, 1997 to 31.8% for the nine months ended
September 30, 1998. However, without considering the non-cash compensation
expense recorded in 1997 the comparison would have been 52.6% and 25,3% for the
three months ended September 30, 1997 and 1998, respectively and 45.8% and 31.8%
for the nine months ended September 30, 1997 and 1998, respectively.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense rose $1.0
million, or 22.7%, from $4.4 million for the three months ended September 30,
1997 to $5.4 million for the three months ended September 30, 1998 and $4.4
million, or 40.3%, from $10.9 million for the nine months ended September 30,
1997 to $15.3 million for the nine months ended September 30, 1998 principally
as a result of depreciation and amortization of additional cable television
networks and related goodwill acquired and the continued build-out of the
Company's cable networks. Depreciation and amortization expense as a percentage
of revenues decreased from 43.5% for the three months ended September 30, 1997
to 40.7% for the three months ended September 30, 1998 and from 41.4% for the
nine months ended September 30, 1997 to 40.5% for the nine months period ended
September 30, 1998.
INTEREST EXPENSE. Interest expense increased $1.2 million, or 52.2%, from $2.3
million for the three months ended September 30, 1997 to $3.5 million for the
three months ended September 30, 1998 and $0.7 million, or 7.1%, from $9.9
16
million for the nine months ended September 30, 1997 to $10.6 million for the
nine months ended September 30, 1998 as a result of interest paid on loans
assumed with acquisitions of subsidiaries and a loan drawn down in June 1998.
INTEREST AND INVESTMENT INCOME. Interest and investment income decreased $0.6
million, or 85,7%, from $0.7 million for the three months ended September 30,
1997 to $0.1 million for the three months ended September 30, 1998 and $1.9
million, or 67.9%, from $2.8 million for the nine months ended September 30,
1997 to $0.9 million for the nine months ended September 30, 1998 primarily due
to the reduction in the level of cash available for investment.
FOREIGN EXCHANGE LOSS, NET. For the three months ended September 30, 1998,
foreign exchange loss amounted to $0.4 million as compared to a foreign exchange
loss of $0.5 million for the three months ended September 30, 1997. For the nine
months ended September 30, 1998, foreign exchange loss was $0.6 million compared
to a foreign exchange loss of $0.9 million for the nine months ended September
30, 1997.
MINORITY INTEREST. Minority interest income was $624,000 for the three months
ended September 30, 1998, compared to minority interest expense of $343,000 for
the corresponding period in 1997. Minority interest income was $417,000 for the
nine months ended September 30, 1998 compared to minority interest income of
$2.3 million for the corresponding period in 1997.
NET LOSS. For the three months ended September 30, 1997 and the three months
ended September 30, 1998, the Company had net losses of $7.3 million and $11.6
million, respectively and for the nine months ended September 30, 1997 and the
nine months ended September 30, 1998, the Company had net losses of $19.4
million and $22.5 million, respectively. Those losses were the result of the
factors discussed above.
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS. Net loss applicable to common
stockholders increased from $8.3 million for the three months ended September
30, 1997 to $12.8 million for the three months ended September 30, 1998 and from
$22.5 million for the nine months ended September 30, 1997 to $26.0 million for
the nine months ended September 30, 1998 due to the accretion of redeemable
preferred stock and the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has met its cash requirements in recent years primarily with (i)
capital contributions and loans from certain of the Company's former principal
stockholders, including Polish Investments Holding L.P. ("PIHLP"), the Cheryl
Anne Chase Marital Trust ("CAC Trust"), certain members of David T. Chase's
family and family trusts (the "Chase Family") (collectively the "Chase
Entities") and ECO Holdings III Limited Partnership ("ECO"), who became
principal stockholders of @Entertainment, Inc. ("@Entertainment"), the Company's
parent, pursuant to a corporate reorganization (the "Former Principal
Stockholders"), (ii) borrowings under available credit facilities, (iii) cash
flows from operations, and (iv) the sale of $130 million aggregate principal
amount of senior debt notes by the Company (the "Notes"). The Company had
positive cash flows from operating activities in 1995 and 1996 of $3.8 million
and $6.1 million, respectively, primarily due to the increase of cash received
from subscribers and the deferral of the payment of interest expense.
The Company had a negative cash flow from operating activities for the nine
months ended September 30, 1997 of $5.0 million as compared to a positive cash
flow from operating activities for the nine months ended September 30,1998 of
$4.3 million.
Cash used for the purchase and build-out of the Company's cable television
networks was $23.9 million and $31.9 million for the nine months ended September
30, 1997 and 1998, respectively. The increase in the nine months of 1998
compared to the same period in 1997 is due to the build-out and upgrade of
recently acquired networks and subsidiaries.
Cash used for the acquisition of subsidiaries, net of cash received, was $10.8
million and $6.3 million in the nine months ended September 30, 1997 and 1998,
respectively. The Company spent approximately $4.8 million and $5.8 million in
the nine months ended September 30, 1997 and 1998 respectively, to upgrade major
acquired networks to meet PCI's technical standards.
Since the commencement of its operations in 1990, the Company has required
external funds to finance the build-out of its existing networks and to finance
acquisitions of new cable television networks. The Company had relied on the
equity investments and loans from stockholders and their affiliates and
borrowings under available credit facilities to provide the funding for these
activities. The Company does not expect that the Former Principal Stockholders
or their affiliates will continue to make capital contributions and loans to the
Company. There can be no assurance that @Entertainment will make capital
contributions and loans to the Company.
17
Pursuant to the indentures governing their outstanding senior indebtedness,
@Entertainment and the Company are subject to certain restrictions and
covenants, including, without limitation, covenants with respect to the
following matters: (i) limitation on additional indebtedness; (ii) limitation on
restricted payments; (iii) limitation on issuances and sales of capital stock of
subsidiaries; (iv) limitation on transactions with affiliates; (v) limitation on
liens; (vi) limitation on guarantees of indebtedness by subsidiaries; (vii)
purchase of notes upon a change of control; (viii) limitation on sale of assets;
(ix) limitation on dividends and other payment restrictions affecting
subsidiaries; (x) limitation on investments in unrestricted subsidiaries; (xi)
limitation on lines of business; and (xii) consolidations, mergers, and sale of
assets. The Company is in compliance with these covenants.
The Company's current strategic objectives are to increase cash flow and enhance
the value of its cable networks. To accomplish these objectives, the Company's
business and operating strategy in the cable television business is to (i)
provide compelling programming, (ii) increase pricing and maximize revenue per
subscriber, (iii) expand its regional clusters, (iv) increase subscriber
penetration, and (v) realize additional operating efficiencies.
The Company is dependent on obtaining new financing to achieve this business
strategy. Future sources of financing for the Company could include public or
private debt offerings or bank financings or a combination thereof, subject to
the restrictions contained in the indentures governing the Company's and
@Entertainment's outstanding senior indebtedness. Moreover, if the Company's
plans or assumptions change, if its assumptions prove inaccurate, if it
consummates unanticipated investments in or acquisitions of other companies, if
it experiences unexpected costs or competitive pressures, or if the net proceeds
from the sale of the Notes, existing cash, and projected cash flow from
operations prove to be insufficient, the Company may need to obtain greater
amounts of additional financing. While it is the Company's intention to enter
only into new financing or refinancings that it considers advantageous, there
can be no assurance that such sources of financing would be available to the
Company in the future, or, if available, that they could be obtained on terms
acceptable to the Company.
INFLATION AND CURRENCY EXCHANGE FLUCTUATIONS
Since the fall of Communist rule in 1989, Poland has experienced high levels of
inflation and significant fluctuation in the exchange rate for the zloty. The
Polish government has adopted policies that slowed the annual rate of inflation
from approximately 250% in 1990 to approximately 27% in 1995, approximately 20%
in 1996 and to approximately 14.9% in 1997. The rate of inflation for the nine
months period ended September 30, 1998 was 6.7%. The exchange rate for the zloty
has stabilized and the rate of devaluation of the zloty has generally decreased
since 1991, although the zloty/dollar exchange rate has decreased in the nine
months ended September 30, 1998. Inflation and currency exchange fluctuations
have had, and may continue to have, a material adverse effect on the business,
financial condition and results of operations of the Company.
Substantially all of the Company's debt obligations and certain of the Company's
operating expenses and capital expenditure are, and are expected to continue to
be, denominated in or indexed to U.S. Dollars. By contrast, substantially all of
the Company's revenues are denominated in zloty. Any devaluation of the zloty
against the U.S. Dollar that the Company is unable to offset through price
adjustments will require the Company to use a larger portion of its revenues to
service its U.S. Dollar-denominated obligations. While the Company may consider
entering into transactions to hedge the risk of exchange rate fluctuations, it
is unlikely that the Company will be able to obtain hedging arrangements on
commercially satisfactory terms. Accordingly, shifts in currency exchange rates
may have an adverse effect on the ability of the Company to service its U.S.
Dollar-denominated obligations and, thus, on the Company's financial condition
and results of operations.
YEAR 2000 COMPLIANCE
The Company's cable television operations are dependent upon computers
systems and other technological devices with imbedded microprocessor chips that
are intended to utilize dates and process data beyond December 31, 1999. In
January 1997, the Company developed a plan to address the impact that potential
year 2000 problems may have on Company operations and to implement necessary
changes to address such problems (the "Y2K Plan"). During the course of the
development of its Y2K Plan, the Company has identified certain critical
operations, which need to be year 2000 compliant for the Company to operate
effectively. These critical operations include accounting and billing systems,
customer service and service delivery systems, and field and headend devices.
Largely as a result of its high rate of growth over the past few years,
18
the Company has entered into an agreement to purchase a new system to replace
its current accounting system and an agreement to purchase specialized
billing software for the Company's new customer service and billing center.
The vendors of the new accounting system and of the billing software have
confirmed to the Company that these products are year 2000 compliant. The
Company has completed the testing phase of the new accounting system, and
the implementation phase is planned to be completed by the end year of 1998.
The Company expects implementation of the billing software to be completed
for the majority of its cable subscribers by the end of 1999.
The Company believes that its most significant year 2000 risk is its
dependency upon third party programming, software, services and equipment,
because the Company does not have the ability to control third parties in their
assessment and remediation procedures for potential year 2000 problems. Should
these parties not to be prepared for year 2000 conversion, their products or
services may fail and may cause interruptions in, or limitations upon, the
Company's provision of the full range of its cable service to its customers. In
effort to prevent any such interruptions or limitations, the Company is in the
process of communicating with each of its material third party suppliers of
programming, software, services and equipment to determine the status of their
year 2000 compliance programs. The Company expects to complete this process by
September 30, 1999, and it anticipates that all phases of its Y2K Plan will be
completed by December 31,1999.
The Company has not yet developed a contingency plan to address the
situation that may result if the Company or its third party suppliers are unable
to achieve year 2000 compliance with regard to any products or services utilized
in the Company's operations. The Company does not intend to decide on the
development of such a contingency until it has gathered all of the relevant Year
2000 compliance data from its third party suppliers.
The Company has not yet determined the full costs of its Y2K Plan and
its related impact on the financial condition of the Company. The company has to
date not incurred any replacement and remedation costs for equipment or systems
as a result of the year 2000 non-compliance. Rather, due to the rapid growth and
development of its cable system, the Company had made substantial capital
investments in equipment and systems for reasons other than year 2000 concerns.
The total cost of the Company's new accounting system and billing software
package is estimated to be approximately $2,400,000.
The Company believes that any year 2000 compliance issues it may face
can be remedied without a material financial impact on the Company, but no
assurance can be made in this regard until all of data has been gathered from
the Company's third party suppliers. At this date the Company cannot predict the
financial impact on its operations if year 2000 problems are caused by products
or services supplied to the Company by such third parties.
IMPACT OF NEW ACCOUNTING STANDARDS NOT YET ADOPTED
SFAS No. 131, "Disclosures about Segment of an Enterprise and Related
Information," was issued in September 1997 and establishes standards for the
reporting of information relating to operating segments in annual financial
statements, as well as disclosure of selected information in interim financial
reports. This statement supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise," which required reporting segment information
by industry and geographic area (industry approach). Under SFAS No. 131,
operating segments are defined as components of a company for which separate
financial information is available and used by management to allocate resources
and assess performance (management approach). This statement is effective for
year-end 1998 financial statements. Interim financial information will be
required beginning in 1999 (with comparative 1998 information). The Company does
not anticipate that this standard will significantly impact the composition of
its current operating segments, which are consistent with the management
approach.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes standards of accounting
for these transactions. SFAS No. 133 is effective for the Company beginning on
July 1, 1999. The Company currently has no derivative instruments or hedging
activities.
19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
20
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is subject to various claims and suits arising
out of the ordinary course of business. While the ultimate result of all such
matters is not presently determinable, based upon current knowledge and facts,
management does not expect that their resolution will have a material adverse
effect on the Company's consolidated financial position or result of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION:
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the second
quarter of 1998.
21
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.
POLAND COMMUNICATIONS, INC.
By: /s/ David Keefe
David Keefe
Chief Executive Officer and Director
By: /s/ Piotr M. Majchrzak
Piotr M. Majchrzak
Chief Financial Officer
Date: November 16, 1998
22