UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001 Commission file number 1-11484
------------------
HUNGARIAN TELEPHONE AND CABLE CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3652685
---------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
32 Center Street, Darien, CT 06820
(Address of principal executive offices)
(203) 656-3882
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
-----
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest possible date:
Common Stock, $.001 par value 12,103,180 Shares
(Class) (Outstanding at November 14, 2001)
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Table of Contents
Part I. Financial Information: Page No.
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Consolidated Condensed Balance Sheets 2
Consolidated Condensed Statements of Operations and
Comprehensive Income (Loss) 3
Consolidated Condensed Statements of Stockholders' Deficiency 4
Consolidated Condensed Statements of Cash Flows 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Part II. Other Information 24
Signatures 26
- 1 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
(In thousands, except share data)
Assets September 30, 2001 December 31, 2000
------ ------------------ -----------------
(unaudited)
Current assets:
Cash and cash equivalents $ 17,773 $ 15,596
Restricted cash 173 107
Accounts receivable, net 4,914 5,511
Other current assets 2,569 2,917
------------ ------------
Total current assets 25,429 24,131
Property, plant and equipment, net 98,679 101,670
Goodwill, less accumulated amortization 6,098 6,331
Other intangibles, less accumulated amortization 3,695 3,806
Deferred costs 7,041 8,212
Other assets 5,609 3,168
------------ ------------
Total assets $ 146,551 $ 147,318
============ ============
Liabilities and Stockholders' Deficiency
----------------------------------------
Current liabilities:
Current installments of long-term debt $ 16,021 $ 8,063
Short-term loans 3,665 3,722
Accounts payable 608 2,577
Accruals 4,512 5,307
Other current liabilities 2,132 1,725
Due to related parties 1,206 1,226
------------ ------------
Total current liabilities 28,144 22,620
Long-term debt, excluding current installments 113,429 124,814
Due to related parties - 676
Deferred credits and other liabilities 8,877 10,086
------------ ------------
Total liabilities 150,450 158,196
------------ ------------
Commitments and Contingencies
Stockholders' deficiency:
Cumulative Convertible Preferred stock, $.01 par value;
$70.00 liquidation value. Authorized 200,000 shares;
issued and outstanding 30,000 shares in 2001 and 2000 - -
Common stock, $.001 par value. Authorized
25,000,000 shares; issued and outstanding
12,103,180 shares in 2001 and 12,087,179 in 2000 12 12
Additional paid-in capital 144,706 144,601
Accumulated deficit (163,451) (170,143)
Accumulated other comprehensive income 14,834 14,652
------------ ------------
Total stockholders' deficiency (3,899) (10,878)
------------ ------------
Total liabilities and stockholders' deficiency $ 146,551 $ 147,318
============ ============
See accompanying notes to consolidated condensed financial statements.
- 2 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations and Comprehensive Income (Loss)
For the Three and Nine Month Periods Ended
September 30, 2001 and 2000
(In thousands, except share and per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Telephone service revenues, net $ 11,452 $ 10,662 $ 33,683 $ 32,686
Operating expenses:
Operating and maintenance expenses 4,224 3,965 12,542 12,622
Depreciation and amortization 2,359 2,329 6,964 7,218
----------- ---------- ----------- -----------
Total operating expenses 6,583 6,294 19,506 19,840
----------- ---------- ----------- -----------
Income from operations 4,869 4,368 14,177 12,846
Other income (expenses):
Foreign exchange gains (losses), net (3,477) (3,167) 1,863 (5,670)
Interest expense (3,248) (4,297) (10,343) (14,713)
Interest income 301 429 1,079 1,212
Other, net (29) (6) (4) 41
----------- ----------- ----------- -----------
Net income (loss) $ (1,584) $ (2,673) $ 6,772 $ (6,284)
Cumulative convertible preferred stock
dividends (in arrears) (27) (27) (80) (80)
----------- ----------- ----------- -----------
Net income (loss) ascribable to common stockholders (1,611) (2,700) 6,692 (6,364)
Comprehensive income adjustments (148) 1,504 182 2,580
----------- ---------- ----------- -----------
Total comprehensive income (loss) $ (1,759) $ (1,196) $ 6,874 $ (3,784)
=========== =========== =========== ===========
Net income (loss) per common share:
Basic $ (0.13) $ (0.22) $ 0.55 $ (0.53)
=========== =========== =========== ===========
Diluted $ (0.13) $ (0.22) $ 0.54 $ (0.53)
=========== =========== =========== ===========
Weighted average number of common shares outstanding:
Basic 12,103,180 12,015,179 12,098,923 12,006,252
=========== ========== =========== ===========
Diluted 12,103,180 12,015,179 12,552,759 12,006,252
=========== ========== =========== ===========
See accompanying notes to consolidated condensed financial statements.
- 3 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Condensed Statements of Stockholders' Deficiency
(In thousands, except share data)
(unaudited)
Accumulated
Other Total
Common Preferred Additional Accumulated Comprehensive Stockholders'
Shares Stock Stock Paid-in Capital deficit Income Deficiency
-----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31,
2000 12,087,179 $ 12 - 144,601 (170,143) 14,652 $ (10,878)
Exercise of options and
pre-emptive rights 16,001 - - 114 - - 114
Modification of option - - - (9) - - (9)
terms
Cumulative convertible
preferred stock - - - - (80) - (80)
dividends (in arrears)
Net income - - - - 6,772 - 6,772
Foreign currency
translation - - - - - 182 182
adjustment
-----------------------------------------------------------------------------------------------------------------------------------
Balances at September 30,
2001 12,103,180 $ 12 - 144,706 (163,451) 14,834 $ (3,899)
-----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
- 4 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
For the Nine Month Periods Ended September 30, 2001 and 2000
(In thousands)
(unaudited)
2001 2000
---- ----
Net cash provided by (used in) operating activities $ 10,702 5,016
---------- -----------
Cash flows from investing activities:
Construction of telecommunication networks (3,206) (4,509)
Increase in construction deposits (2,653) (1,897)
Proceeds from sale of assets 27 279
---------- -----------
Net cash used in investing activities (5,832) (6,127)
---------- -----------
Cash flows from financing activities:
Borrowings under long-term debt agreements - 117,170
Repayments and settlement of long-term debt (3,291) (117,534)
Borrowings under short-term debt agreements - 3,754
Deferred financing costs paid under long-term debts agreements (3,104)
Proceeds from exercise of stock options and pre-emptive rights 114 264
---------- -----------
Net cash (used in) provided by financing activities (3,177) 550
----------- -----------
Effect of foreign exchange rate changes on cash 484 (2,272)
---------- -----------
Net increase (decrease) in cash and cash equivalents 2,177 (2,833)
Cash and cash equivalents at beginning of period 15,596 17,197
---------- -----------
Cash and cash equivalents at end of period $ 17,773 14,364
========== ===========
See accompanying notes to consolidated condensed financial statements.
- 5 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying consolidated condensed financial statements of
Hungarian Telephone and Cable Corp. ("HTCC" or the "Registrant"
and, together with its consolidated subsidiaries, the "Company")
have been prepared without audit and, in the opinion of
management, include all adjustments, consisting mainly of normal
recurring accruals, necessary for a fair presentation. Results for
interim periods are not necessarily indicative of the results for
a full year.
The accompanying consolidated condensed financial statements
include the financial statements of the Company and its majority
owned subsidiaries; Kelet-Nograd Com Rt., ("KNC"), Raba-Com Rt.,
("Raba-Com"), Hungarotel Tavkozlesi Rt. ("Hungarotel"), Papa es
Tersege Telefon Koncesszios Rt. ("Papatel") (KNC, Raba-Com,
Hungarotel and Papatel are each an Operating Company and
together, the "Operating Companies"), HTCC Consulting Rt. ("HTCC
Consulting") and Pilistav Rt. ("Pilistav"). All material
intercompany balances and transactions have been eliminated.
The accompanying consolidated condensed financial statements are
prepared in accordance with U.S. generally accepted accounting
principles (U.S. GAAP). In preparing financial statements in
conformity with U.S. GAAP, management is required to make
estimates and assumptions. These estimates and assumptions affect
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements, as well as revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The consolidated condensed financial statements should be read in
conjunction with the audited consolidated financial statements of
Hungarian Telephone and Cable Corp. and its subsidiaries for the
year ended December 31, 2000, including the notes thereto, set
forth in the Company's annual report on Form 10-K filed with the
United States Securities and Exchange Commission ("SEC").
- 6 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
(b) Net Income (Loss) Per Share
Net income (loss) per share ("EPS") is computed by dividing income
or loss ascribable to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS is
computed similar to basic earnings per share, except that the
weighted average shares outstanding are increased to include
additional shares from the assumed exercise of stock options and
the conversion of the convertible preferred stock, where dilutive.
The number of additional shares is calculated by assuming that
outstanding stock options were exercised, or preferred securities
were converted, and that the proceeds from such exercises or
conversions were used to acquire shares of common stock at the
average market price during the reporting period.
The following is a reconciliation from basic earnings per share to
diluted earnings per share for the three and nine month periods
ended September 30, 2001 and 2000:
3 months ended 9 months ended
-------------- --------------
2001 2000 2001 2000
---- ---- ---- ----
($ in thousands,
except share data)
Net income (loss) ascribable to
common stockholders $(1,611) $(2,700) $6,692 $(6,364)
plus: preferred stock dividends 27 27 80 80
------- ------- -------- -------
Net income (loss) $(1,584) $(2,673) $6,772 $(6,284)
======== ======== ====== ========
Determination of shares:
Weighted average common
shares outstanding -
basic 12,103,180 12,015,179 12,098,923 12,006,252
Assumed conversion of
dilutive stock options and
cumulative convertible
preferred stock - - 453,836 -
---------- ---------- ---------- ------------
Weighted average common
shares outstanding -
diluted 12,103,180 12,015,179 12,552,759 12,006,252
Net income (loss) per common
share:
Basic $(0.13) $(0.22) $0.55 $(0.53)
Diluted $(0.13) $(0.22) $0.54 $(0.53)
- 7 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
For the nine month period ended September 30, 2001, 2,734,400
stock options and warrants were excluded from the computation of
diluted earnings per share due to their antidilutive effect. For
the three month period ended September 30, 2001 and the three and
nine month periods ended September 30, 2000, potentially dilutive
common stock equivalents and convertible preferred stock were
excluded from the computation of diluted net loss per common share
because they were antidilutive.
(c) Foreign Exchange Financial Instruments
Foreign exchange financial instrument contracts are utilized by
the Company to manage certain foreign exchange rate risks. Company
policy prohibits holding or issuing derivative financial
instruments for trading purposes.
(2) Cash and Cash Equivalents
At September 30, 2001, cash of $2,723,000 comprised the following:
$608,000 on deposit in the United States, and $2,115,000
consisting of $210,000 denominated in U.S. dollars and the
equivalent of $1,905,000 denominated in Hungarian Forints on
deposit with banks in Hungary.
Cash equivalents amounted to approximately $15,050,000 at
September 30, 2001 and consisted of Hungarian government
securities, denominated in Hungarian Forints, purchased under
agreements to resell which mature within three months.
(3) Related Parties
Current amounts due to related parties totalling $1,206,000 at September
30, 2001 are comprised of the following: $254,000 due to a subsidiary of
Citizens Communications Company, representing cumulative preferred stock
dividends in arrears, and $952,000 representing payments due to three
former officers under separate termination, consulting and
non-competition agreements. The Company paid approximately $906,000
during each of the nine month periods ended September 30, 2001 and 2000
to the former officers under these agreements.
- 8 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
(4) Segment Disclosures
The Company operates in a single industry segment, telecommunications
services. The Company has constructed a modern telecommunications
infrastructure in order to provide a full range of the Company's products
and services in its five concession areas in Hungary. While the Company's
chief operating decision maker monitors the revenue streams of the
various products and services, operations are managed and financial
performance is evaluated based on the delivery of multiple services to
customers over an integrated network. Substantially all of the Company's
assets are located in Hungary and all of its operating revenues are
generated in Hungary.
Products and Services
The Company groups its products and services into the following
categories:
Telephone Services - local dial tone and switched products and services
that provide incoming and outgoing calls over the public switched
network. This category includes reciprocal compensation revenues and
expenses (i.e. interconnect).
Network Services - point-to-point dedicated services that provide a
private transmission channel for the Company's customers' exclusive use
between two or more locations, both in local and long distance
applications.
Other Service and Product Revenues - PBX hardware sales and service
revenues, as well as miscellaneous other telephone service revenues.
The revenues generated by these products and services for the periods
ended September 30 were as follows:
3 months ended 9 months ended
-------------- --------------
2001 2000 2001 2000
---- ---- ---- ----
($ in thousands)
Telephone services $10,456 $ 9,861 $30,995 $30,354
Network services 720 603 1,960 1,772
Other service and product
revenues 276 198 728 560
------- ------- ------- -------
$11,452 $10,662 $33,683 $32,686
======= ======= ======= =======
- 9 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
Major Customers
For the periods ended September 30, 2001 and 2000, none of the Company's
customers accounted for more than 10% of the Company's total revenues.
(5) Long-term Debt
On November 9, 2001, the Company and its bank lenders under the Company's
Senior Secured Debt Facility Agreement (the "Debt Agreement") amended the
Debt Agreement. The amendment eliminated the covenant requiring the
Company to maintain a minimum level of EBITDA, measured in Hungarian
forints, each quarter and waived for the fourth quarter 2001 and first
quarter of 2002 a financial covenant requiring the Company to maintain a
minimum senior debt service coverage ratio. In connection with the
elimination and such waivers, the Company agreed to (i) make a payment by
November 21, 2001 in the amount of approximately $7.9 million (at
November 9, 2001 exchange rates) into escrow to cover the interest and
principal repayment under the Debt Facility due December 31, 2001; (ii)
between May 1, 2002 and May 12, 2002 pay the interest and principal due
on June 30, 2002 under the Debt Facility into escrow; (iii) make a
prepayment by November 21, 2001 of 5% of the original loan (approximately
$5.6 million at November 9, 2001 exchange rates); (iv) immediately cancel
the remaining EUR 1 million undrawn portion of the EUR 5 million revolver
portion of the Debt Agreement (v) cancel the remaining portion (EUR 4
million) of the revolver portion of the Debt Agreement following the
repayment of such principal and accrued interest by the Company in April
2002; (vi) pay an additional 15 basis points of interest on the floating
rate term loan portion of the Debt Agreement; and (vii) pay a waiver fee
of EUR 195,000 to the banking syndicate. The amendment also provides that
after May 31, 2002, the Company may request that the banking syndicate
reinstate the revolver portion (EUR 5 million) of the Debt Agreement.
However, any such reinstatement would be at the discretion of each member
of the banking syndicate individually with regard to its original
commitment at April 11, 2000. Further, the amended agreement allows for
those lenders participating in the reinstatement of the revolver to
increase their individual commitments such that, in the aggregate all of
the lenders participating in the reinstated revolver could provide up to
the original revolver amount of EUR 5 million. Included in current
installments of long-term debt as of September 30, 2001 is the 5%
prepayment mentioned above.
(6) Derivative Instruments and Hedging Activities
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments
and Hedging Activities", as subsequently amended by Statement of
Financial Accounting Standards No. 138
- 10 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
("SFAS 138"). Accordingly, the Company carries its foreign currency
forward contracts at fair value in its consolidated balance sheet. The
fair value is based on forward rates provided by the counterparty bank
with which the Company has entered into the forward contract. The foreign
currency forward contracts the Company has entered into do not qualify
for hedge accounting, as defined under SFAS 133 and 138 and, accordingly,
changes in the fair value of the forward contracts are reported in the
consolidated statement of operations and comprehensive income, as a part
of net foreign exchange gains/(losses).
Prior to the adoption of SFAS 133 and 138, the Company accounted for its
foreign currency forward contracts under Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation" ("SFAS 52").
The transition adjustment on adoption of SFAS 133 and 138 was not
material and has not been separately presented as the effect of a change
in accounting principle. The fair value of the Company's foreign currency
forward contracts at September 30, 2001 and December 31, 2000 are
approximately $138,000 and $13,000, respectively.
- 11 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Introduction
Hungarian Telephone and Cable Corp. ("HTCC" or the "Registrant" and,
together with its consolidated subsidiaries, the "Company") is engaged primarily
in the provision of telecommunications services through its majority-owned
operating subsidiaries, Kelet-Nograd Com Rt. ("KNC"), Raba Com Rt. ("Raba-Com"),
Papa es Tersege Telefon Koncesszios Rt. ("Papatel") and Hungarotel Tavkozlesi
Rt. ("Hungarotel"). The Company earns substantially all of its
telecommunications revenue from measured service fees, monthly line rental fees,
connection fees, public pay telephone services and ancillary services (including
charges for additional services purchased at the customer's discretion).
During 1996 and 1997, the Company embarked on a significant network
development program which met its substantial demand backlog, increased the
number of basic telephone access lines in service and modernized existing
facilities. The development and installation of the network in each of the
Company's operating areas required significant capital expenditures.
The Company achieved EBITDA1 of $7.2 million during the quarter ended
September 30, 2001, up from EBITDA of $6.7 million for the quarter ended
September 30, 2000. Now that the Company's networks are substantially built-out,
the ability of the Company to generate sufficient revenues to satisfy cash
requirements and maintain profitability will depend upon a number of factors,
including the Company's ability to attract additional customers both in and
outside its operating areas and increased revenues per customer. These factors
are expected to be primarily influenced by the success of the Company's
operating and marketing strategies, as well as market acceptance of
telecommunications services both in and outside the Company's operating areas.
In addition, the Company's profitability may be affected by changes in the
Company's regulatory environment and other factors that are beyond the Company's
control.
Since commencing the provision of telecommunications services in the
first quarter of 1995, the Company's network construction and expansion program
has added approximately 143,000 access lines through September 30, 2001 to the
approximately 60,000 access lines acquired directly from Magyar Tavkozlesi Rt.
("Matav"), the former State-controlled monopoly telephone company.
--------
1 EBITDA is defined by the Company as net revenue less operating and maintenance
expenses. The Company has included information concerning EBITDA because it
believes that it is used by certain investors as one measure of the Company's
financial performance. EBITDA is not a measure of financial performance under
U.S. generally accepted accounting principles and is not necessarily comparable
to similarly titled measures used by other companies. EBITDA should not be
construed as an alternative to operating income or to cash flows from operating
activities (as determined in accordance with U.S. generally accepted accounting
principles) as a measure of liquidity.
- 12 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Comparison of Three Months Ended September 30, 2001 and Three Months Ended
September 30, 2000
The Company's Hungarian subsidiaries' functional currency is the
Hungarian forint. The average Hungarian forint/U.S. dollar exchange rate for the
three months ended September 30, 2001 was 283.16, as compared to an average
Hungarian forint/U.S. dollar exchange rate for the three months ended September
30, 2000 of 286.30. When comparing the three months ended September 30, 2001 to
the three months ended September 30, 2000, it should be noted that all U.S.
dollar reported amounts have been affected by this 1% appreciation of the
Hungarian forint.
Net Revenues
Quarter ended
September 30,
(dollars in millions) 2001 2000 % change
Measured service revenues 7.3 7.7 (5)
Subscription revenues 4.1 3.3 24
Net interconnect charges (1.6) (1.7) 6
------ -----
Net measured service and subscription revenues 9.8 9.3 5
Connection fees 0.6 0.6 -
Other operating revenues, net 1.1 0.8 38
----- -----
Telephone Service Revenues, Net 11.5 10.7 7
===== =====
The Company recorded a 7% increase in net telephone service revenues to
$11.5 million for the three months ended September 30, 2001 from $10.7 million
for the three months ended September 30, 2000.
Net measured service and subscription revenues increased 5% to $9.8
million for the three months ended September 30, 2001, from $9.3 million for the
three months ended September 30, 2000. Measured service revenues decreased 5% to
$7.3 million during the three months ended September 30, 2001 from $7.7 million
during the three months ended September 30, 2000. Subscription revenues
increased 24% to $4.1 million during the three months ended September 30, 2001
from $3.3 million during the three months ended September 30, 2000. Measured
service revenues decreased in functional currency terms by approximately 5% due
to an average 3.6% decrease in call tariffs between 2000 and 2001 as a result of
continued tariff re-balancing which was introduced during 2000 and an
approximate 1% decrease in the number of revenue days between the two periods.
Subscription revenues increased in functional currency terms by approximately
23% as a result of continued tariff re-balancing. Under tariff re-balancing, a
more cost-driven payment structure is envisaged, with monthly subscription fees
increasing to cover network infrastructure expenses over time. In Hungary, as in
many other countries over the past several years, cheaper local call charges
have been subsidized by expensive international and domestic long-distance
calls. The overall effect on a gross revenue basis for the Company and for the
telecom industry as a whole is expected to be neutral.
These revenues have been reduced by net interconnect charges which
totalled $1.6 million during the three months ended September 30, 2001, compared
to $1.7 million during the three months ended September 30, 2000. As a
percentage of measured service and subscription
- 13 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
revenues, net interconnect charges have declined from 15.5% for the three months
ended September 30, 2000 to 14% for the three months ended September 30, 2001.
Connection fees, which represent fees paid by customers to connect to
the Company's networks, remained consistent at $0.6 million for each of the
three month periods ended September 30, 2001 and 2000. During the fourth quarter
of 2000, the Company implemented the SEC's Staff Accounting Bulletin No. 101
("SAB 101"), with effect from January 1, 2000, which requires connection fees
and corresponding direct incremental costs to be deferred and amortized over
future periods. As a result of the implementation of SAB 101, certain connection
fees and related operating and maintenance costs recognized in prior periods
were deferred and are being amortized over the estimated average subscriber life
of 7 years. The adoption of SAB 101 has not had a material impact on the
Company's results of operations. The amortization of deferred connection fee
revenue and associated direct incremental costs is included in net telephone
service revenues and operating and maintenance expenses, respectively. The
adoption of SAB 101 in the fourth quarter of 2000 caused connection fee revenues
for the three months ended September 30, 2000 to be restated from what was
previously reported of $0.3 million to $0.6 million.
Other operating revenues, which include revenues generated from the
provision of direct lines, operator services and other miscellaneous telephony
service revenues, totalled $1.1 million for the three months ended September 30,
2001, as compared to $0.8 million for the three months ended September 30, 2000.
Operating and Maintenance Expenses
Operating and maintenance expenses increased to $4.2 million for the
three month period ended September 30, 2001, from $4.0 million for the three
month period ended September 30, 2000. The adoption of SAB 101 in the fourth
quarter of 2000 caused operating and maintenance expenses for the three months
ended September 30, 2000 to be restated from what was previously reported of
$3.7 million to $4.0 million. In functional currency terms, operating and
maintenance expenses increased approximately 8% for the three months ended
September 30, 2001, as compared to the three months ended September 30, 2000,
due to inflationary increases in costs at the Company's Hungarian subsidiaries.
In U.S. dollar terms, however, the increase in such costs in functional currency
terms has been offset by a reduction in the Company's U.S. dollar denominated
operating expenses between the periods.
Depreciation and Amortization
Depreciation and amortization charges increased $0.1 million to $2.4
million for the three months ended September 30, 2001 from $2.3 million for the
three months ended September 30, 2000, due to the appreciation of the Hungarian
forint between the periods. Depreciation and amortization charges remained
consistent in functional currency terms between the periods.
- 14 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Income from Operations
Income from operations increased to $4.9 million for the three months
ended September 30, 2001 from $4.4 million for the three months ended September
30, 2000. Contributing to such improvement were higher net telephone service
revenues, partially offset by slightly higher operating and maintenance
expenses.
Foreign Exchange Losses
Foreign exchange losses amounted to $3.5 million for the three months
ended September 30, 2001, compared to foreign exchange losses of $3.2 million
for the three months ended September 30, 2000. Such foreign exchange losses
resulted primarily from the weakening of the Hungarian forint against the
Company's EUR 85.6 million denominated debt outstanding, partially offset by the
strengthening of the Hungarian forint against the Company's U.S. dollar 25
million denominated debt during the three month period ended September 30, 2001.
At September 30, 2001, the Hungarian forint had weakened in value by
approximately 6% against the euro and strengthened approximately 2% against the
U.S. dollar as compared to June 30, 2001. When non-Hungarian forint debt is
re-measured into Hungarian forints, the Company reports foreign exchange
gains/losses when the Hungarian forint appreciates/devalues against such
non-forint currencies. See the "Inflation and Foreign Currency" and "Market Risk
Exposure" sections below.
Interest Expense
Interest expense decreased to $3.2 million for the three months ended
September 30, 2001 from $4.3 million for the three months ended September 30,
2000. This $1.1 million decrease is primarily attributable to approximately $0.8
million of amortization of forward points on forward foreign currency contracts
accounted for under SFAS 52, included in interest expense for the three months
ended September 30, 2000. The Company adopted the provisions of SFAS 133 and
SFAS 138 on January 1, 2001 and the foreign currency forward contracts the
Company has entered into during 2001 do not qualify for hedge accounting as
defined under SFAS 133 and SFAS 138. Profits or losses on forward foreign
currency contracts are included in foreign exchange gains/losses in 2001. The
Company's weighted average interest rate on its debt obligations went from 7.95%
for the three months ended September 30, 2000 to 8.06% for the three months
ended September 30, 2001, a 1% increase. See "Liquidity and Capital Resources"
section below.
Net Loss
As a result of the factors discussed above, the Company recorded a net
loss ascribable to common stockholders of $1.6 million, or $0.13 per share on a
basic and diluted basis, during the three months ended September 30, 2001 as
compared to a net loss ascribable to common stockholders of $2.7 million, or
$0.22 per share on a basic and diluted basis, during the three months ended
September 30, 2000.
- 15 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Comparison of Nine Months Ended September 30, 2001 to Nine Months Ended
September 30, 2000
As previously mentioned, the Company's Hungarian subsidiaries'
functional currency is the Hungarian forint. The average Hungarian forint/U.S.
dollar exchange rate for the nine months ended September 30, 2001 was 288.47, as
compared to an average Hungarian forint/U.S. dollar exchange rate for the nine
months ended September 30, 2000 of 275.34. When comparing the nine months ended
September 30, 2001 to the nine months ended September 30, 2000, it should be
noted that all U.S. dollar reported amounts have been affected by this 5%
devaluation in the Hungarian forint.
Net Revenues
Year-to-date
(dollars in millions) 2001 2000 % change
Measured service revenues 21.8 23.4 (7)
Subscription revenues 11.9 10.0 19
Net interconnect charges (4.8) (5.0) 4
------ ------
Net measured service and subscription revenues 28.9 28.4 2
Connection fees 1.6 1.6 -
Other operating revenues 3.2 2.7 19
------ -----
Telephone Service Revenues, Net 33.7 32.7 3
====== ======
The Company recorded a 3% increase in net telephone service revenues of
$33.7 million for the nine months ended September 30, 2001, as compared to
revenues of $32.7 million for the nine months ended September 30, 2000.
Net measured service and subscription revenues increased 2% to $28.9
million for the nine months ended September 30, 2001 from $28.4 million for the
nine months ended September 30, 2000. Measured service revenues decreased 7% to
$21.8 million, while subscription revenues increased 19% to $11.9 million for
the nine months ended September 30, 2001. Measured service revenues decreased in
functional currency terms by approximately 2% as a result of an average 3.6%
decrease in call tariffs between 2000 and 2001 as a result of continued tariff
re-balancing which was introduced during 2000, offset by an increase in average
access lines in service from approximately 201,500 for the nine months ended
September 30, 2000 to approximately 205,400 during the nine months ended
September 30, 2001. Subscription revenues increased in functional currency terms
by approximately 26% as a result of continued tariff re-balancing. Under tariff
re-balancing, a more cost-driven payment structure is envisaged, with the actual
monthly subscription fees increasing to cover network infrastructure expenses
over time. In Hungary, as in many other countries over the past several years,
cheaper local call charges have been subsidized by expensive international and
domestic long-distance calls. The overall effect on a gross revenue basis for
the Company and the telecom industry as a whole is expected to be neutral. The
increase in subscription revenues in functional currency terms has been offset
to an extent by the approximate 5% devaluation of the functional currency
between the periods and, therefore, subscription revenues show only a 19%
increase in U.S. dollar terms.
- 16 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
These revenues have been reduced by net interconnect charges which
totalled $4.8 million for the nine months ended September 30, 2001, as compared
to $5.0 million for the nine months ended September 30, 2000. As a percentage of
measured service and subscription revenues, net interconnect charges have
declined from 15.0% for the nine months ended September 30, 2000 to 14.2% for
the nine months ended September 30, 2001.
Connection fees, which represent fees paid by customers to connect to
the Company's networks, remained consistent at $1.6 million for each of the nine
month periods ended September 30, 2001 and 2000. During the fourth quarter of
2000, the Company implemented the SEC's Staff Accounting Bulletin No. 101 ("SAB
101"), with effect from January 1, 2000, which requires connection fees and
corresponding direct incremental costs to be deferred and amortized over future
periods. As a result of the implementation of SAB 101, certain connection fees
and related operating and maintenance costs recognized in prior periods were
deferred and are being amortized over the estimated average subscriber life of 7
years. The adoption of SAB 101 has not had a material impact on the Company's
results of operations and the amortization of deferred connection fee revenue
and associated direct incremental costs is included in net telephone service
revenues and operating and maintenance expenses, respectively. The adoption of
SAB 101 in the fourth quarter of 2000 caused connection fee revenues for the
nine months ended September 30, 2000 to be restated from what was previously
reported of $0.8 million to $1.6 million.
Other operating revenues, which include revenues generated from the
provision of direct lines, operator services and other miscellaneous telephony
service revenues, totalled $3.2 million for the nine months ended September 30,
2001, as compared to $2.7 million for the nine months ended September 30, 2000.
Operating and Maintenance Expenses
Operating and maintenance expenses decreased 1% to $12.5 million for
the nine months ended September 30, 2001, as compared to $12.6 million for the
nine months ended September 30, 2000. The adoption of SAB 101 in the fourth
quarter of 2000 caused operating and maintenance expenses for the nine months
ended September 30, 2000 to be restated from what was previously reported of
$11.8 million to $12.6 million. In functional currency terms, operating and
maintenance expenses increased 9% for the nine months ended September 30, 2001,
as compared to the nine months ended September 30, 2000, due to inflationary
increases in costs. In U.S. dollar terms, however, the increase in such costs in
functional currency terms has been offset by the 5% devaluation of the Hungarian
forint between the periods and a reduction in the Company's U.S. dollar
denominated operating expenses between the periods.
Depreciation and Amortization
Depreciation and amortization charges decreased $0.2 million, or 3%, to
$7.0 million for the nine months ended September 30, 2001 from $7.2 million for
the nine months ended September 30, 2000, due primarily to the devaluation of
the Hungarian forint between the periods. Depreciation and amortization charges
increased in functional currency terms by approximately 2% due to additional
capital expenditures.
- 17 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Income from Operations
Income from operations increased to $14.2 million for the nine months
ended September 30, 2001, compared to $12.8 million for the nine months ended
September 30, 2000. Contributing to such improvement were higher net telephone
service revenues, lower operating and maintenance expenses and lower
depreciation and amortization charges.
Foreign Exchange Gains (Losses)
Foreign exchange gains amounted to $1.9 million for the nine months
ended September 30, 2001, compared to foreign exchange losses of $5.7 million
for the nine months ended September 30, 2000. The foreign exchange gains
resulted primarily from the appreciation of the Hungarian forint against the
Company's average EUR 87.3 million denominated debt outstanding during the
period. At September 30, 2001, the Hungarian forint had appreciated in value by
approximately 3% against the euro and by approximately 1% against the U.S.
dollar as compared to January 1, 2001. When non-Hungarian forint debt is
re-measured into Hungarian forints, the Company reports foreign exchange
gains/losses on its consolidated financial statements when the Hungarian forint
appreciates/devalues against such non-forint currencies. See the "Inflation and
Foreign Currency" and "Market Risk Exposure" sections below.
Interest Expense
Interest expense decreased to $10.3 million for the nine months ended
September 30, 2001 from $14.7 million for the nine months ended September 30,
2000. This $4.4 million decrease is attributable to lower interest rates paid on
borrowings in currencies other than the Hungarian forint. The decrease results
from the Company's medium-term credit facility entered into in April 2000,
pursuant to which the Company's borrowings went from being mostly Hungarian
forint denominated to mostly euro denominated, and the Company's weighted
average interest rate on its debt obligations went from 11.51% for the nine
months ended September 30, 2000, to 8.68% for the nine months ended September
30, 2001, a 25% decrease. Included in interest expense for the nine months ended
September 30, 2000 is approximately $1.4 million of amortization of forward
points on forward foreign currency contracts accounted for under SFAS 52. The
Company adopted the provisions of SFAS 133 and SFAS 138 on January 1, 2001 and
the foreign currency forward contracts the Company has entered into during 2001
do not qualify for hedge accounting as defined under SFAS 133 and SFAS 138. See
"Liquidity and Capital Resources" section below.
Net Income (Loss)
As a result of the factors discussed above, the Company recorded income
ascribable to common stockholders of $6.7 million, or $0.55 per share, or $0.54
per share on a diluted basis, for the nine months ended September 30, 2001 as
compared to a net loss ascribable to common stockholders of $6.4 million, or
$0.53 per share on a basic and diluted basis, for the nine months ended
September 30, 2000.
- 18 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Liquidity and Capital Resources
The Company has historically funded its capital requirements primarily
through a combination of debt, equity and vendor financing. The development and
installation of the network in each of the Company's operating areas has
required significant capital expenditures ($195.9 million at historical exchange
rates through September 30, 2001). Since the end of 1998, the Company's networks
have had the capacity, with only normal capital expenditure requirements, to
provide basic telephone services to virtually all of the potential subscribers
within its operating areas.
Net cash provided by operating activities totalled $10.7 million during
the nine months ended September 30, 2001, compared to $5.0 million during the
nine months ended September 30, 2000. For the nine months ended September 30,
2001 and 2000, the Company used $5.8 million and $6.1 million, respectively, in
investing activities, which was primarily used to fund additions to the
Company's telecommunications networks. Financing activities used net cash of
$3.2 million for the nine months ended September 30, 2001, compared with net
cash provided by financing activities of $0.6 million for the nine months ended
September 30, 2000.
On April 11, 2000, the Company entered into an EUR 130 million Senior
Secured Debt Facility Agreement (the "Debt Agreement") with a European banking
syndicate. The Company drew down EUR 129 million of the Facility on April 20,
2000 ($121 million at April 20, 2000 exchange rates), which funds were used,
along with $7.3 million of other Company funds (at April 20, 2000 exchange
rates), to pay off the entire outstanding EUR 134 million (approximately $126
million at April 20, 2000 exchange rates) principal and interest due on a bridge
loan primarily denominated in Hungarian forints, which was due to mature on May
12, 2000, and to pay fees associated with the Debt Agreement.
On November 9, 2001, the Company and its bank lenders amended the Debt
Agreement. The amendment eliminated the covenant requiring the Company to
maintain a minimum level of EBITDA, measured in Hungarian forints, each quarter
and waived for the fourth quarter 2001 and first quarter of 2002 a financial
covenant requiring the Company to maintain a minimum senior debt service
coverage ratio. In connection with the elimination and such waivers, the Company
agreed to (i) make a payment by November 21, 2001 in the amount of approximately
$7.9 million (at November 9, 2001 exchange rates) into escrow to cover the
interest and principal repayment under the Debt Facility due December 31, 2001;
(ii) between May 1, 2002 and May 12, 2002 pay the interest and principal due on
June 30, 2002 under the Debt Facility into escrow; (iii) make a prepayment by
November 21, 2001 of 5% of the original loan (approximately $5.6 million at
November 9, 2001 exchange rates); (iv) immediately cancel the remaining EUR 1
million undrawn portion of the EUR 5 million revolver portion of the Debt
Agreement (v) cancel the remaining portion (EUR 4 million) of the revolver
portion of the Debt Agreement following the repayment of such principal and
accrued interest by the Company in April 2002; (vi) pay an additional 15 basis
points of interest on the floating rate term loan portion of the Debt Agreement;
and (vii) pay a waiver fee of EUR 195,000 to the banking syndicate. The
amendment also provides that after May 31, 2002, the Company may request that
the banking syndicate reinstate the revolver portion (EUR 5 million) of the Debt
Agreement. However, any
- 19 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
such reinstatement would be at the discretion of each member of the banking
syndicate individually with regard to its original commitment at April 11, 2000.
Further, the amended agreement allows for those lenders participating in the
reinstatement of the revolver to increase their individual commitments such
that, in the aggregate all of the lenders participating in the reinstated
revolver could provide up to the original revolver amount of EUR 5 million. (The
description and summary of the amendment to the Debt Agreement do not purport to
be complete, and are subject to, and qualified in their entirety by reference to
such amendment, a copy of which is filed as an exhibit hereto.)
The Company believes that its current cash flow would have allowed it
to meet its working capital needs and continue its network development plans, as
well as meet its obligations under the Debt Agreement prior to the Debt
Agreement being amended. The amendment has enabled the Company to significantly
reduce its debt, thus positively re-balancing the Company's debt-to-equity
ratio. The reduced interest payments as a result of the Company's reduced debt
level are expected to positively affect the Company's net results in future
quarters.
Inflation and Foreign Currency
In May 2001, the National Bank of Hungary widened the trading band the
Hungarian forint is allowed to trade within from +/- 2.25% of the mid-point of
the band to +/- 15%. This widening caused the Hungarian forint to initially
appreciate in value against the euro by approximately 4%. Subsequent to the band
widening, and without any notice, in June 2001 the National Bank of Hungary
lifted all remaining foreign exchange restrictions concerning the Hungarian
forint, thus making the Hungarian forint fully and freely convertible. The
lifting of the restrictions initially caused a large amount of investment money
to flow into the Hungarian markets and the Hungarian forint has appreciated in
value against the euro during 2001. During the second quarter of 2001, the
Company experienced large foreign exchange gains primarily related to the
re-measurement of the Company's euro denominated debt, however due to
fluctuations in the Hungarian forint exchange rate market, the Hungarian
forint/euro exchange rate gave back much of its gains of the second quarter in
the third quarter of 2001. With the widening of the trading band as previously
mentioned, the potential volatility of the Hungarian forint has increased as is
evidenced by the second quarter and third quarter 2001 exchange rate gains and
losses. See the "Market Risk Exposure" section below.
The Company's Hungarian operations generate revenues in Hungarian
forints and incur operating and other expenses, including capital expenditures,
predominately in Hungarian forints but also in U.S. dollars and euros. In
addition, certain of the Company's balance sheet accounts are denominated in
currencies other than the Hungarian forint, the Company's Hungarian
subsidiaries' functional currency. Accordingly, when such accounts are
translated into Hungarian forints, the Company is subject to foreign exchange
gains and losses which are reflected as a component of net income or loss. When
the Company and its subsidiaries' forint-denominated accounts are translated
into U.S. dollars for financial reporting purposes, the Company is subject to
translation adjustments, the effect of which is reflected as a component of
stockholders' deficiency.
- 20 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
While the Company has the ability to increase the prices it charges for
its services commensurate with increases in the Hungarian Consumer Price Index
("CPI") pursuant to its licenses from the Hungarian government, it may choose
not to implement the full amount of the increase permitted due to competitive
and other concerns. In addition, the rate of increase in the Hungarian CPI may
not be sufficient to offset potential negative exchange rate movements and as a
result, the Company may be unable to generate cash flows to the degree necessary
to meet its obligation in currencies other than the Hungarian forint.
Market Risk Exposure
The Company is exposed to various types of risk in the normal course of
its business, including the impact of foreign currency exchange rate
fluctuations and interest rate changes. Company operations, including all
revenues and approximately 88% of operating expenses are Hungarian forint based
and are therefore subject to exchange rate variability between the Hungarian
forint and the U.S. dollar. In the past, the "crawling peg" policy of the
Hungarian National Bank, combined with the +/- 2.25% trading band, allowed the
Hungarian forint to be somewhat predictable versus the euro (e.g. the Hungarian
forint/euro exchange rate went from 264.58 as of January 1, 2001 to 266.70 as of
March 31, 2001). However, due to the lifting of all foreign exchange
restrictions concerning the Hungarian forint and the volatility in euro/U.S.
dollar exchange rates, Hungarian forint/euro and Hungarian forint/U.S. dollar
exchange rate variability has increased. This increase in variability is evident
by the fact that the Hungarian forint/euro exchange rate went from 243.59 as of
June 30, 2001 to 257.75 as of September 30, 2001, an approximate 6% depreciation
in value. At the same time, the Hungarian forint/U.S. dollar exchange rate went
from 287.39 as of June 30, 2001 to 281.29 as of September 30, 2001, an
approximate 2% appreciation in value.
The debt obligations of the Company are Hungarian forint, euro and U.S.
dollar denominated. The interest rate on the Hungarian forint debt obligations
is based on the Budapest Bank Offer Rate (BUBOR). The interest rates on the euro
and U.S. dollar denominated obligations are based on EURIBOR and USD LIBOR,
respectively. Over the medium to long term, the BUBOR rate is expected to follow
inflation and devaluation trends and the Company does not currently believe it
has any material interest rate risk on any of its Hungarian forint denominated
debt obligations. If a 1% change in the BUBOR interest rate were to occur, the
Company's interest expense would increase or decrease by approximately $0.4
million annually based upon the Company's September 30, 2001 debt level. If a 1%
change in EURIBOR interest rates were to occur, the Company's interest expense
would increase or decrease by approximately $0.8 million annually based upon the
Company's September 30, 2001 debt level. If a 1% change in USD LIBOR interest
rates were to occur, the Company's interest expense would increase or decrease
by approximately $0.3 million annually based upon the Company's September 30,
2001 debt level.
The Company is also exposed to exchange rate risk insofar as the
Company has debt obligations in other than the functional currency of its
majority owned Hungarian subsidiaries. Given the Company's debt obligations,
which include euro and U.S. dollar denominated debt, if a 1% change in Hungarian
forint/euro exchange rates were to occur, the Company's exchange rate exposure
would increase or decrease by approximately $0.8 million annually based upon the
- 21 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Company's September 30, 2001 debt level. If a 1% change in Hungarian forint/U.S.
dollar exchange rates were to occur, the Company's exchange rate exposure would
increase or decrease by approximately $0.3 million annually.
The Company utilizes foreign currency forward contracts to reduce its
exposure to exchange rate risks associated with cash payments in euro maturing
within six months under the Company's long-term debt obligations. The forward
contracts establish the exchange rates at which the Company will sell the
contracted amount of Hungarian forints for euros at a future date. The Company
utilizes forward contracts which are six months in duration and at maturity will
either receive or pay the difference between the contracted forward rate and the
exchange rate at the settlement date. The contracted amount of foreign currency
forwards at September 30, 2001 is EUR 6,030,000 (approximately $5,525,000). The
counterparties to the Company's foreign currency forward contracts are
substantial and creditworthy multinational commercial banks which are recognized
market makers. The risk of counterparty nonperformance associated with these
contracts is not considered by the Company to be material.
Prospective Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, Business Combinations
("SFAS 141") and No. 142, Goodwill and Other Intangible Assets ("SFAS 142").
SFAS 141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Under SFAS 142, goodwill and intangible
assets with indefinite lives are no longer amortized but are reviewed annually
(or more frequently if impairment indicators arise) for impairment. Separable
intangible assets that are not deemed to have indefinite lives will continue to
be amortized over their useful lives. The amortization provisions of SFAS 142
apply to goodwill and intangible assets acquired after June 30, 2001. With
respect to goodwill and intangible assets acquired prior to July 1, 2001, the
Company is required to adopt SFAS 142 effective January 1, 2002. The Company is
continuing to evaluate the effect, if any, the adoption of the provisions of
SFAS 142, that are effective January 1, 2002, will have on its results of
operations and financial position.
In July 2001, the FASB issued Statement of Financial Accounting
Standard No. 143, Accounting for Asset Retirement Obligations ("SFAS 143"). This
Statement requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. SFAS 143 is
effective for fiscal years beginning after June 15, 2002. The Company is
currently evaluating the effect, if any, the adoption of the provisions of SFAS
143 will have on its results of operations and financial position.
In October 2001, the FASB issued Statement of Financial Accounting
Standard No. 144, Accounting for Impairment or Disposal of Long-Lived Assets
("SFAS 144"). The provisions of SFAS 144 require the use of a consistent
accounting model for long-lived assets to be disposed of by sale, whether
previously held and used, or newly acquired, and extend the presentation of
discontinued operations to include more disposal transactions. SFAS 144 is
effective for all fiscal quarters of all fiscal years beginning after December
15, 2001. The Company is currently
- 22 -
Part I. Financial Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
evaluating the effect, if any, the adoption of the provisions of SFAS 144 will
have on its results of operations and financial position.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The information required by this Item is contained under the heading
"Market Risk Exposure" under Item 2. "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
- 23 -
Part II. Other Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Item 1. Legal Proceedings
As reported in Item 3. "Legal Proceedings" in the Company's Report on
Form 10-K for the year ended December 31, 2000, KNC, a subsidiary of
the Company, was a defendant in a lawsuit filed in Hungary over the use
by KNC of wireless technology to certain homes instead of a fixed
connection. KNC won the case on appeal. The plaintiff failed to file a
request for review with the Hungarian Supreme Court. Therefore, the
lawsuit is permanently terminated with KNC prevailing.
As reported in Item 3. "Legal Proceedings" in the Company's Report on
Form 10-K for the year ended December 31, 2000 and Item 1., Part II of
the Company's report on Form 10-Q for the quarterly periods ended March
31, 2001 and June 30, 2001, the Company is involved in various legal
proceedings in Hungary with a Hungarian contractor and one of the
contractor's creditors. As reported, a hearing in one of these cases
was to take place on November 5, 2001 but the judge adjourned the
hearing until December 2001.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Default Upon Senior Securities
(a) None.
(b) On May 12, 1999, the Company issued 30,000 shares of Preferred
Stock Series A with a liquidation value of $70 per share to a
subsidiary of Citizens Communications Company. Any holder of
such Preferred Shares is entitled to receive cumulative cash
dividends payable in arrears at the annual rate of 5%,
compounded annually, on the liquidation value. As of September
30, 2001, the total arrearage on the Preferred Shares was
$254,000.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
Number Description
-------- -----------
2 Plan of acquisition, reorganization, arrangement,
liquidation or succession (None)
- 24 -
Part II. Other Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
3(i) Certificate of Incorporation of the Registrant, as
amended, filed as Exhibit 4.1 to the Registrant's
Registration Statement on Form S-8 filed on January
31, 2001 (File #333-54688) and incorporated herein
by reference
3(ii) By-laws of the Registrant, as amended, filed as
Exhibit 4.2 to the Registrant's Registration
Statement on Form S-8 filed on January 31, 2001
(File #333-54688) and incorporated herein by
reference
4.1 Specimen Common Stock Certificate, filed as Exhibit
4(a) to the Registrant's Registration Statement on
From SB-2 filed on October 27, 1994 and incorporated
herein by reference (File #33-80676)
4.2 Certificate of Designation of Series A - Preferred
Stock of Hungarian Telephone and Cable Corp., filed
as Exhibit 4.1 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1999
and incorporated herein by reference
10.1 Amendment No. 1 to the Senior Secured Debt Facility
Agreement between Hungarian Telephone and Cable
Corp. and its Subsidiaries and Citibank
International PLC as Facility Agent dated November
9, 2001
11 Statement re computation of per share earnings
(not required)
15 Letter re unaudited interim financial information
(not required)
18 Letter re change in accounting principles (none)
19 Report furnished to security holders (none)
22 Published report regarding matters submitted to vote
of security holders (not required)
24 Power of Attorney (not required)
(b) Reports on Form 8-K
None.
- 25 -
Part II. Other Information
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hungarian Telephone and Cable Corp.
November 14, 2001 By: /s/ Ole Bertram
--------------------------------
Ole Bertram
Chief Executive Officer
and President
November 14, 2001 By:/s/ William McGann
---------------------------------
William McGann
Chief Accounting Officer,
Controller and Treasurer
- 26 -
HUNGARIAN TELEPHONE AND CABLE CORP. AND SUBSIDIARIES
Index to Exhibits
-----------------
Exhibit
Number Description
------- -----------
10.1 Amendment No. 1 to the Senior Secured Debt Facility
Agreement between Hungarian Telephone and Cable Corp.
and its Subsidiaries and Citibank International PLC
as Facility Agent dated November 9, 2001