<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
PART I - FINANCIAL INFORMATION
------------------------------
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
ITEM 1 - FINANCIAL STATEMENTS
- ------
Condensed Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 (Unaudited).......................... 2
Condensed Consolidated Statements of Operations For the Three and Nine Months
Ended September 30, 1996 and 1995 (Unaudited)................................. 3
Condensed Consolidated Statement of Stockholders' Equity
For the Nine Months Ended September 30, 1996 (Unaudited)...................... 4
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1996 and 1995 (Unaudited)............. 5
Notes to Condensed Consolidated Financial Statements (Unaudited)............... 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------ AND RESULTS OF OPERATIONS............................................... 15
PART II - OTHER INFORMATION
---------------------------
ITEM 1 - LEGAL PROCEEDINGS....................................................... 19
- ------
ITEM 5 - OTHER INFORMATION....................................................... 19
- ------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K........................................ 20
- ------
</TABLE>
1
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AFTER CORPORATE REORGANIZATION - SEE NOTE 1)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents........... $ 69,228 $ 8,730
Restricted cash..................... 10,000 --
Short-term investments.............. 27,630 --
Receivables, including related
party receivables of $4,627 and
$1,623, respectively............... 5,635 2,045
Investments in and advances to
affiliated companies, accounted for
under the equity method............ -- 2,829
Property, plant and equipment, net
of accumulated depreciation of
$13,185 and $1,217, respectively.. 130,435 27,125
License fees, net of accumulated
amortization of $1,890 and $442,
respectively....................... 11,173 10,693
Goodwill, net of accumulated
amortization of $2,547 and $38,
respectively....................... 52,171 45,324
Other assets, net................... 18,890 2,549
-------- --------
Total assets............................ $325,162 $ 99,295
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued
liabilities and other.............. $ 29,123 $ 6,407
Accrued funding obligation.......... 1,173 1,834
Due to parent....................... 5,902 12,583
Senior notes and other debt......... 241,039 890
-------- --------
Total liabilities....................... 277,237 21,714
-------- --------
Minority interest in subsidiaries....... 578 2,515
-------- --------
Commitments (Note 5)
Stockholders' Equity:
Common Stock $.01 par value, 1,000
shares authorized, 500 and 487
issued and outstanding,
respectively....................... -- --
Additional paid-in capital.......... 112,246 93,782
Unrealized loss on investment....... (784) --
Cumulative translation adjustments.. 2,121 191
Accumulated deficit................. (66,236) (18,907)
-------- --------
Total stockholders' equity.............. 47,347 75,066
-------- --------
Total liabilities and stockholders' $325,162 $ 99,295
equity................................. ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
2
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AFTER CORPORATE REORGANIZATION - SEE NOTE 1)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ----------------------------
1996 1995 1996 1995
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Service and other revenue............... $ 7,392 $ 599 $ 13,262 $ 1,152
System operating expense, including
$155, none, $320 and none, respectively,
of related party expenses.............. (9,190) (455) (18,914) (1,870)
System selling, general and
administrative expense................. (6,455) (452) (13,987) (1,636)
Corporate general and administrative
expense................................ (214) (229) (746) (688)
Depreciation and amortization........... (7,686) (301) (15,935) (639)
-------- ------- -------- --------
Net operating loss................. (16,153) (838) (36,320) (3,681)
Equity in losses of affiliated
companies, net......................... (1,933) (7,244) (4,501) (12,518)
Gain on sale of investment in
affiliated company..................... -- 4,132 -- 4,132
Interest expense........................ (8,647) -- (12,855) --
Interest income......................... 1,967 -- 3,284 --
Other income (expense).................. 383 (29) 1,001 (33)
-------- ------- -------- --------
Net loss before minority interest.. (24,383) (3,979) (49,391) (12,100)
Minority interest in subsidiaries....... 457 70 2,062 309
-------- ------- -------- --------
Net loss........................... $(23,926) $(3,909) $(47,329) $(11,791)
======== ======= ======== ========
Net loss per common share............... $(47,948) $(8,027) $(96,393) $(24,211)
======== ======= ======== ========
Weighted average number of common shares
outstanding.......................... 499 487 491 487
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
3
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(AFTER CORPORATE REORGANIZATION - SEE NOTE 1)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL UNREALIZED CUMULATIVE
COMMON STOCK PAID-IN LOSS ON TRANSLATION ACCUMULATED
SHARES AMOUNT CAPITAL INVESTMENT ADJUSTMENT DEFICIT TOTAL
------ ------ --------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995........ 487 $ -- $ 93,782 $ -- $ 191 $(18,907) $ 75,066
Capital contributions from parent.. -- -- 10,664 -- -- -- 10,664
Acquisition of remaining 50%
interest in Saturn.............. 13 -- 7,800 -- -- -- 7,800
Unrealized loss on investment...... -- -- -- (784) -- -- (784)
Cumulative translation adjustment.. -- -- -- -- 1,930 -- 1,930
Net loss........................... -- -- -- -- -- (47,329) (47,329)
--- ----- -------- ----- ------ -------- --------
Balances, September 30, 1996....... 500 $ -- $112,246 $(784) $2,121 $(66,236) $ 47,347
=== ===== ======== ===== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AFTER CORPORATE REORGANIZATION - SEE NOTE 1)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995
------------- ------------
<S> <C> <C>
Net loss........................................................... $ (47,329) $(11,791)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Depreciation and amortization.................................... 15,935 639
Equity in losses of affiliated companies, net............... 4,501 12,518
Gain on sale of investment in affiliated company................. -- (4,132)
Minority interest share of losses................................ (2,062) (309)
Accretion of interest on senior notes............................ 12,028 --
Increase in receivables.......................................... (3,580) (290)
(Increase) decrease in other assets.............................. (6,855) (34)
Increase in accounts payable, accrued liabilities,
including related party, and other.............................. 24,881 773
--------- --------
Net cash flows from operating activities (2,481) (2,626)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments................................. (132,887) --
Sale of short-term investments..................................... 105,257 --
Restricted cash.................................................... (10,000) --
Investments in and advances to affiliated companies and other
investments....................................................... (10,651) (22,607)
Proceeds from sale of investment in affiliated company............. -- 4,132
Purchase of property, plant and equipment.......................... (105,899) (6,970)
--------- --------
Net cash flows from investing activities........................... (154,180) (25,445)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions from parent.................................. 10,664 27,514
Proceeds from offering of senior notes............................. 225,115 --
Deferred debt offering costs....................................... (9,624) --
Borrowing on bridge loan payable to parent......................... 15,073 5,400
Payment of bridge loan payable to parent........................... (25,000) --
Borrowing on other debt............................................ 13 --
--------- --------
Net cash flows from financing activities........................... 216,241 32,914
--------- --------
EFFECT OF EXCHANGE RATES ON CASH................................... 918 166
--------- --------
INCREASE IN CASH AND CASH EQUIVALENTS.............................. 60,498 5,009
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..................... 8,730 --
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................... $ 69,228 $ 5,009
========= ========
NON-CASH STOCK ISSUANCE UTILIZED IN PURCHASE OF 50%
INTEREST IN SATURN................................................ $ 7,800 $ --
========= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
5
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996
(MONETARY AMOUNTS STATED IN THOUSANDS)
(UNAUDITED)
1. ORGANIZATION AND BACKGROUND
UIH Australia/Pacific, Inc. (the "Company"), a majority owned subsidiary of
United Australasian Communications as of September 30, 1996, which is a wholly-
owned subsidiary of United International Holdings, Inc. ("UIHI"), was formed on
October 14, 1994. The Company completed an offering (the "Offering") of 14%
Senior Discount Notes (the "Initial Notes") due 2006, Series A on May 14, 1996.
The Initial Notes were issued at a discount to their aggregate principal amount
of $443,000 and generated gross proceeds to the Company of approximately
$225,115. On September 12, 1996, pursuant to an exchange offer registered under
the Securities Act of 1933, the Company exchanged an identical principal amount
of 14% Senior Discount Notes, due 2006, Series B (the "Exchange Notes" and,
together with the Initial Notes, the "Notes"). The terms of the Exchange Notes
are identical in all material respects to the Initial Notes except for certain
transfer restrictions and registration rights related to the Initial Notes.
In connection with the Offering, UIHI merged into the Company UIHI's
subsidiaries that held interests in operating properties and early stage
projects in Australia and the South Pacific. The accompanying financial
statements have been prepared on a basis of reorganization accounting as though
the Company had performed all foreign development activities and made all
acquisitions of UIHI's foreign multi-channel television, programming and mobile
data interests in Australia, Tahiti and New Zealand since inception. The
Company commenced operations in January 1994 when UIHI began its development
related activities in the Australia/Pacific region. The Company reflected all
of the transfers from UIHI as a capital contribution from parent in the
accompanying consolidated financial statements. The accompanying consolidated
financial statements have been prepared as though the Company made investments
in the following entities on the original date UIHI or certain of its wholly-
owned subsidiaries made the investment:
. The Company acquired, through directly and indirectly held interests, an
effective 50% economic interest in two companies that form Austar, formerly
known as CEtv, in 1994. In December 1995, the Company increased its
effective economic interest in Austar to 90%. In May 1996, the Company
increased its effective economic interest in Austar to 94%, which was
subsequently increased to 96%, and in October 1996, acquired the remaining
4% economic interest (see Note 8). The companies that comprise Austar (CTV
Pty Ltd ("CTV") and STV Pty Ltd ("STV")) have acquired Multi-point
Microwave Distribution Systems ("MMDS") licenses to supply subscription
television services to television households in the north, northeastern and
southern regions of Australia outside of the country's largest cities and
are currently constructing multi-channel television systems to service many
of the television homes in their license areas. Those homes that cannot be
served by MMDS will be serviceable by a direct to home ("DTH") satellite
service marketed by Austar.
. The Company acquired an effective 90% economic interest in Telefenua S.A.
("Telefenua") in January 1995. The Company's economic interest will
decrease to 75% and 64% once the Company has received a 20% and 40%
internal rate of return on its investment in Telefenua, respectively.
Telefenua operates, since March 1995, the only multi-channel subscription
television system on the islands of Tahiti and Moorea in French Polynesia.
In July 1994, the Company acquired a 50% interest in Saturn Communications
Limited ("Saturn"). Saturn is constructing a wireline multi-channel
television system in New Zealand, primarily in the greater Wellington area.
In July 1996, the Company acquired the remaining 50% interest in Saturn in
exchange for 13 shares (2.6%) of the Company's common stock valued at
$7,800. These shares are convertible into shares of the Company's immediate
parent should the parent complete an initial public equity offering.
6
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
. XYZ Entertainment Pty Ltd ("XYZ Entertainment") is a programming company
that provides four channels to the Australian multi-channel television
market as part of the eight channel "Galaxy" package. Century United
Programming Ventures Pty Limited, an Australian corporation ("CUPV"),
owned equally by the Company and Century Communications Corp.
("Century"), holds a 50% interest in XYZ Entertainment. In October 1994,
the Company acquired an initial 50% interest in XYZ Entertainment. In
September 1995, a third party purchased a 50% interest in XYZ
Entertainment, thereby diluting the Company's indirect interest in XYZ
Entertainment to 25%.
. In August 1995, the Company acquired a 100% interest in United Wireless
Pty Limited ("United Wireless"), a provider of wireless mobile data
services in Australia, serving primarily Sydney and Melbourne, and is in
the initial stages of deploying its distribution network and marketing its
services.
The Company has no operating activities of its own. The Company, prior to
the Offering discussed above, had been funded by capital contributions and loans
from UIHI which enabled it to make its investments in the entities described
above.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Effective July 5, 1996, the Company effected a 4.87 for 1 stock split. All
share and per share amounts have been restated for all periods presented to
reflect this event.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and all subsidiaries where it exercises majority control. During the
year ended December 31, 1995, the Company consolidated Telefenua, and subsequent
to August 31, 1995, United Wireless. Due to the Company's acquisition of the
majority economic interest in Austar in late December 1995, the accompanying
December 31, 1995 condensed consolidated balance sheet includes the accounts of
CTV and STV as of December 31, 1995. The Company recognized equity losses from
its investments in CTV and STV through December 31, 1995. The Company began
consolidating the operations of CTV and STV on January 1, 1996. In July 1996,
the Company acquired the remaining 50% interest in Saturn and began
consolidating its results. Prior to July 1996, the Company recognized equity
losses from its investment in Saturn. All significant intercompany accounts and
transactions have been eliminated in consolidation. Exchange rates used are as
of September 30, 1996, unless otherwise noted.
In management's opinion, the unaudited financial statements as of September
30, 1996 and for the three and nine months ended September 30, 1996 and 1995
include all adjustments necessary for a fair presentation. Such adjustments
were of a normal recurring nature.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents include cash and investments with original
maturities of less than three months. The portion of short-term investments and
the Company's investment in Australis Media Limited (see Note 8) which is
classified as available for sale in accordance with the provisions of Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115") is accounted for at fair market
7
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
value and includes those investments with original maturities of more than three
months. Cost approximates fair market value.
INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD
The Company accounts for its investments under the equity method of
accounting. Under this method, the investment, originally recorded at cost, is
adjusted to recognize the Company's share of net earnings or losses of the
affiliates, limited to the extent of the Company's investment in and advances to
the affiliates, including any debt guarantees or other contractual funding
commitments. The Company's share of net earnings or losses of affiliates
includes the amortization of basis differences related to the excess of cost
over net tangible assets acquired. Investments in and advances to affiliated
companies are as follows:
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1996
--------------------------------------------------------------------
INVESTMENTS IN CUMULATIVE EQUITY CUMULATIVE
AND ADVANCES TO IN LOSSES OF TRANSLATION
AFFILIATED COMPANIES AFFILIATED COMPANIES(2) ADJUSTMENTS TOTAL
-------------------- ----------------------- ----------- -----
<S> <C> <C> <C> <C>
XYZ Entertainment.. $15,289(1) $(15,399) $110 $--
======= ======== ==== ====
</TABLE>
(1) Includes $4,132 of proceeds received from the sale of 50% of the Company's
interest. As the Company had recorded equity in losses from XYZ
Entertainment in an amount equal to its invested capital, the Company
recognized a gain of $4,132 on this transaction. In addition, the Company
accrued a funding obligation of $1,173 as of September 30, 1996.
(2) Does not include cumulative equity in losses for Saturn of $2,733 as
Saturn's balance sheet is consolidated as of September 30, 1996.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1995
--------------------------------------------------------------------
INVESTMENTS IN CUMULATIVE EQUITY CUMULATIVE
AND ADVANCES TO IN LOSSES OF TRANSLATION
AFFILIATED COMPANIES AFFILIATED COMPANIES(1) ADJUSTMENTS TOTAL
--------------------- ------------------------ ----------- ------
<S> <C> <C> <C> <C>
Saturn............. $ 4,520 $ (1,803) $112 $2,829
XYZ Entertainment.. 11,718 (2) (11,828) 110 --
---------- -------- ---- ------
$ 16,238 $(13,631) $222 $2,829
========== ======== ==== ======
</TABLE>
(1) Does not include cumulative equity losses from Austar of $3,763, as Austar's
balance sheet is consolidated at December 31, 1995.
(2) Includes $4,132 of proceeds received from the sale of 50% of the Company's
interest. As the Company had recorded equity in losses from XYZ
Entertainment in an amount equal to its invested capital, the Company
recognized a gain of $4,132 on this transaction. In addition, the Company
accrued a funding obligation of $1,834 as of December 31, 1995.
The Company recognized $3,571 and $11,729 of equity losses from XYZ
Entertainment for the nine months ended September 30, 1996 and the year ended
December 31, 1995, respectively, including $1,173 and $1,834 of additional
equity losses associated with the Company's accrued funding obligation to XYZ
Entertainment as of September 30, 1996 and December 31, 1995, respectively. The
Company does not have a contractual funding obligation to XYZ Entertainment,
however, the Company would face significant dilution if it did not make the
scheduled fundings.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Additions, replacements
and major improvements are capitalized and costs for normal repair and
maintenance of property, plant and equipment are charged to expense as incurred.
Depreciation expense is computed using the straight-line method over the
estimated useful lives as shown below.
8
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
Average Years
-------------
<S> <C>
Cable plant............. 5-10
Other fixed assets...... 3-5
Furniture and fixtures.. 10
Leasehold improvements.. 6-10
</TABLE>
Property, plant and equipment consists of the following:
As of
December 31, September 30,
---------------- -------------
1994 1995 1996
------- ------- --------
Leasehold improvements........................... $ -- $ 1,582 $ 3,220
Plant and equipment.............................. -- 22,683 136,394
Capitalized network construction expenditures.... -- 2,776 507
Other............................................ 1 1,301 3,499
------- ------- --------
1 28,342 143,620
Accumulated depreciation and amortization........ -- (1,217) (13,185)
------- ------- --------
Net property, plant and equipment................ $ 1 $27,125 $130,435
======= ======= ========
LEASED ASSETS
Assets acquired under capital leases are included in property, plant and
equipment. The initial amount of the leased asset and corresponding lease
liability are recorded at the present value of future minimum lease payments.
Leased assets are amortized over the life of the relevant lease.
LICENSE FEES
The acquisition of MMDS licenses has been recorded at cost. The cost to
acquire these licenses, $8,890, acquired for a 5-year period for Australia, will
be amortized over the initial license period. They are renewable every 5 years.
In Tahiti, the license rights, totaling $2,225, are amortized over a 10-year
period.
GOODWILL
The Company's acquisition of an additional 40% economic interest in CTV and
STV was recorded as a step acquisition. The majority of the purchase price of
$45,081 was recorded as goodwill as the underlying net book value of all
identifiable tangible and intangible assets approximated their respective fair
values at that date. Accordingly, goodwill of $44,790 was recorded and is being
amortized over 15 years beginning January 1, 1996. The Company's acquisition of
the additional 50% interest in Saturn in exchange for 13 shares of the Company's
stock resulted in an additional $9,178 of goodwill being recorded which is being
amortized over 15 years.
RECOVERABLE AMOUNTS OF TANGIBLE AND INTANGIBLE ASSETS
The carrying amount of all tangible and intangible assets are reviewed at
least annually to determine whether they exceed their recoverable amount. Such
amounts are deemed recoverable so long as projected undiscounted net cash flows
from each asset exceeds the carrying amounts. If not, a provision is made to
reduce the carrying amount to equal the discounted projected cash flows (or fair
value).
REVENUE RECOGNITION
Monthly service and installation fees are recognized as revenue in the period
the related services are provided to the subscribers.
INCOME TAXES
The Company is included as a member of UIHI's consolidated tax return and will
remain a member of the UIHI consolidated group (as long as non-UIHI ownership of
the Company does not exceed 20%). UIHI and the Company are parties to a tax
sharing agreement that defines the parties' rights and obligations with respect
to tax liabilities and benefits relating to the Company and its operations as
part of the consolidated group of UIHI. In general, UIHI is responsible for
filing consolidated tax returns and paying the associated taxes and the Company
will reimburse UIHI for the portion of the tax cost relating to the Company and
its operations.
9
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109") which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of transactions which have been included
in the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Net deferred tax assets are then reduced by a valuation allowance for amounts
which do not satisfy the realization criteria of SFAS 109.
FOREIGN OPERATIONS
The functional currency for the Company's foreign operations is the applicable
local currency for each affiliate company. Assets and liabilities of foreign
subsidiaries are translated at the exchange rate in effect at period end and the
statements of operations are translated at the average exchange rates during the
period. Exchange rate fluctuations on translating foreign currency financial
statements into U.S. dollars result in unrealized gains or losses referred to as
translation adjustments. Cumulative translation adjustments are recorded as a
separate component of stockholders' equity.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in income as unrealized (based on period end translations)
or realized upon settlement of the transactions.
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows," cash flows from the Company's operations in foreign
countries are translated based on average exchange rates for the period while
balance sheet amounts are translated at period end exchange rates. As a result,
amounts related to assets and liabilities reported on the Condensed Consolidated
Statements of Cash Flows will not agree to changes in the corresponding balances
on the Condensed Consolidated Balance Sheets. The effects of exchange rate
changes on cash balances held in foreign currencies is reported as a separate
line below cash flows from financing activities.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
current presentation.
3. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD
Investments in and advances to affiliated companies accounted for under the
equity method amount to $0 and $2,829 as of September 30, 1996 and December 31,
1995, respectively. (See Note 2 for detail.)
Condensed financial information for the Company's significant equity investees
is presented below.
CTV
Condensed consolidated income statement data for CTV, stated in U.S. dollars,
which is derived from unaudited interim financial statements, is as follows (CTV
is consolidated for balance sheet purposes at December 31, 1995 and effective
January 1, 1996 for income statement purposes):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
---------------------------
<S> <C>
CONDENSED CONSOLIDATED INCOME STATEMENT DATA
Revenue......................................... $ 103
Operating, selling, general and
administrative expenses........................ (2,446)
Depreciation and amortization................... (322)
-------
Net operating loss........................... (2,665)
Interest, net................................... 869
Other........................................... 248
-------
Net loss..................................... $(1,548)
=======
</TABLE>
10
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
STV
Condensed consolidated income statement data for STV, stated in U.S. dollars,
which is derived from unaudited interim financial statements, is as follows (STV
is consolidated for balance sheet purposes at December 31, 1995 and effective
January 1, 1996 for income statement purposes):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
--------------------------
<S> <C>
CONDENSED CONSOLIDATED INCOME STATEMENT DATA
Revenue...................................... $ --
Operating, selling, general and
administrative expenses..................... (1,652)
Depreciation and amortization................ (72)
-------
Net operating loss...................... (1,724)
Interest, net................................ 313
-------
Net loss................................ $(1,411)
=======
</TABLE>
COMBINED FINANCIAL INFORMATION - CTV AND STV
Condensed combined financial information for CTV and STV, stated in U.S.
dollars, which is derived from unaudited interim financial statements, is as
follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
--------------------------
CONDENSED CONSOLIDATED INCOME STATEMENT DATA
<S> <C>
Revenue...................................... $ 10,544
Operating, selling, general and
administrative expenses..................... (26,415)
Depreciation and amortization................ (12,269)
--------
Net operating loss...................... (28,140)
Interest, net................................ (700)
Other........................................ 347
--------
Net loss................................ $(28,493)
========
</TABLE>
XYZ ENTERTAINMENT
Condensed consolidated income statement data for XYZ Entertainment, stated
in U.S. dollars, which is derived from unaudited interim financial statements,
is as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1996 1995(1)
----------- ------------
CONDENSED CONSOLIDATED INCOME STATEMENT DATA
<S> <C> <C>
Revenue......................................$ 5,930 $ 271
Operating, selling, general and
administrative expenses..................... (15,434) (22,077)
Depreciation and amortization................ (2,736) (1,848)
-------- --------
Net operating loss...................... (12,240) (23,654)
Interest, net................................ 139 147
Other........................................ (1,731) --
-------- --------
Net loss................................$(13,832) $(23,507)
======== ========
</TABLE>
(1) XYZ Entertainment was formed during late 1994.
11
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SATURN
Condensed consolidated income statement data for Saturn, stated in U.S.
dollars, which is derived from unaudited interim financial statements, is as
follows (Saturn is consolidated effective July 1, 1996):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
CONDENSED CONSOLIDATED INCOME STATEMENT DATA 1996 1995
---------- ----------
<S> <C> <C>
Revenue................................................... $ 148 $ 95
Operating, selling, general and adminstrative expenses... (3,016) (1,242)
Depreciation and amortization............................. (281) (327)
-------- -------
Net operating loss................................... (3,149) (1,474)
Other..................................................... (449) (6)
-------- -------
Net loss............................................. $ (3,598) $(1,480)
======== =======
</TABLE>
4. SENIOR NOTES AND OTHER DEBT
The senior notes and other debt consist of the following as of September
30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Senior Notes............................ $237,024 $ --
Capitalized lease obligations........... 4,005 890
Other debt.............................. 10 --
-------- -------
$241,039 $ 890
======== =======
</TABLE>
The $237,024 of 14% senior notes were issued in May 1996 at a discount from
their principal amount of $443,000 and accrete interest at a rate of 14%
compounded semi-annually. Cash interest will not be paid prior to May 15, 2001.
Thereafter, cash interest will be payable semi-annually on each May 15 and
November 15, commencing November 15, 2001. The senior notes mature May 15,
2006.
5. COMMITMENTS
On July 24, 1994 and October 12, 1995, CTV and STV, respectively, entered
into a franchise agreement with Australis Media Limited ("Australis"). Austar
acquires the majority of its programming from Australis. Under the agreement,
certain minimum payments are due based on a proportion of subscriber revenue.
The future commitments are dependent upon the number of subscribers.
A wholly-owned subsidiary of the Company guaranteed $10,000 of obligations
of Australis. This guarantee is secured by a cash deposit of $10,000. See Note
8, "Subsequent Events."
6. RELATED PARTY
In connection with the reorganization discussed in Note 1, the Company and
UIHI executed a 10-year management services agreement (the "UIHI Management
Agreement"), pursuant to which UIHI will continue to perform certain
administrative, accounting, financial reporting and other services for the
Company, which has no separate employees of its own. For the nine months ended
September 30, 1996 and 1995, the Company recorded approximately $563 and $688
for such services. Pursuant to the UIHI Management Agreement, UIHI will be paid
a management fee of $750 for the first year of such agreement, which fees shall
increase on the first anniversary date of the UIHI Management Agreement and each
anniversary date thereafter by 8% per year. In addition, the Company shall
reimburse UIHI for any out-of-pocket expenses incurred by UIHI in performance of
its duties under the UIHI Management Agreement, including travel, lodging and
entertainment expenses.
12
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
UIHI has executed technical assistance agreements with CTV and STV pursuant
to which it will provide various management and technical services. Under the
agreements, UIHI receives a management fee equal to 5% of CTV and STV's total
revenue for the first two years, 4% for the next six years, 3% for the following
two years and 2% thereafter. In addition, UIHI is reimbursed for all direct
costs associated with services it provides for Austar. Austar's managing
director, chief operating officer and marketing director are employees of UIHI
that have been seconded to Austar. UIHI has also appointed five other management
personnel which are seconded to Austar and five of six directors. As of October
31, 1996, UIHI appointed all six directors.
UIHI and Telefenua have executed a technical services agreement whereby UIHI
has agreed to provide technical, administrative and operational assistance to
Telefenua encompassing the following areas: (i) engineering, design,
construction, and equipment purchasing, (ii) marketing, pricing and packaging of
services, (iii) selection of programming and negotiations with suppliers, and
(iv) accounting, billing and subscriber management systems. UIHI receives a
management fee equal to 5% of Telefenua's gross revenue through 1996, 3% of
gross revenue for the following 12 months, and 2% thereafter.
Saturn and UIHI have executed a technical services agreement pursuant to
which UIHI provides technical, administrative and operational assistance to
Saturn encompassing the following areas: (i) engineering, design, construction,
and equipment purchasing, (ii) marketing, pricing and packaging of services,
(iii) selection of programming and negotiations with suppliers and (iv)
accounting, billing and subscriber management systems. UIHI receives a
management fee equal to 5% of Saturn's gross revenue through July 1999. UIHI is
also reimbursed for all direct and indirect costs associated with these
services. The managing director, construction manager and vice president of
engineering are employees of UIHI that have been seconded to Saturn pursuant to
the terms of the technical services agreement.
Included in the amount due to parent as of September 30, 1996 are the
following:
<TABLE>
<CAPTION>
<S> <C>
Payable to UIHI for management fee and invoices paid by UIHI
on the Company's behalf..................................... $1,345
Austar technical assistance agreements........................ 1,193
Saturn technical assistance agreement......................... 1,426
Telefenua technical assistance agreement...................... 1,879
United Wireless payable to UIHI............................... 59
------
$5,902
======
</TABLE>
7. PRO FORMA INFORMATION
The following pro forma information for the nine months ended September 30,
1996 and 1995 gives effect to the acquisitions increasing the Company's economic
interest in Austar to 100% and Saturn to 100% as if each had occurred on January
1, 1995. The pro forma financial information does not purport to represent what
the Company's results of operations would actually have been if such
transactions had in fact occurred on such date. The pro forma adjustments are
based upon currently available information and upon certain assumptions that
management believes are reasonable under current circumstances.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1996 1995
------------- ------------
<S> <C> <C>
Service and other revenue............... $ 13,365 $ 1,350
======== ========
Equity in losses of affiliated $ (3,571) $(10,295)
companies, net......................... ======== ========
Net loss................................ $(50,340) $(16,124)
======== ========
</TABLE>
13
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. SUBSEQUENT EVENTS
On October 31, 1996, the Company's $10,000 guarantee of Australis' debt
expired. The Company used $3,339 of the related restricted cash to acquire
7,736,171 debentures of Australis. Further, the Company exercised warrants to
acquire Australis common stock and debentures at 0.20 Australian dollars ("A$")
per share for 3,016,832 shares of Australis common stock and 1,154,628
debentures for $661. Each debenture is convertible into one common share of
Australis.
Also, on October 31, 1996, the Company acquired Australis' remaining 4%
economic interest in Austar for $7,900.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(MONETARY AMOUNTS STATED IN THOUSANDS)
The following discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and in the
Company's Form S-4 effective August 12, 1996.
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
condensed consolidated financial statements and related notes thereto included
elsewhere herein. Such condensed consolidated financial statements provide
additional information regarding the Company's financial activities and
condition.
The Company conducts no operations other than through its operating companies
in which it holds varying interests. Because the operating companies have,
since inception, been engaged primarily in organizational, start-up and
construction activities, the Company believes that its historical results of
operations discussed herein are not indicative of the results of operations
which will follow the completion of construction and initial marketing of
service by the operating companies.
The Company has no employees of its own. UIHI, the Company's parent,
provides various management, financial reporting, accounting, and other services
for the Company pursuant to the terms of the UIHI Management Agreement between
UIHI and the Company. Austar, Saturn and Telefenua are also parties to
technical service agreements with UIHI for which such operating companies pay to
UIHI fees based, in part, on their respective gross revenues. (See Note 6 of
the condensed consolidated financial statements.)
LIQUIDITY AND CAPITAL RESOURCES
The Company has generated negative cash flow from operating activities for
all periods presented as a result of start-up costs associated with Austar,
Telefenua, Saturn, XYZ Entertainment and United Wireless (the "Operating
Companies") constructing and marketing their multi-channel television and
telecommunications services and establishing the organizational infrastructure
required for the operation of their businesses. The Company is responsible for
its proportionate share of the capital requirements of the Operating Companies
and prior to completion of the Offering funded its share with capital
contributed by UIHI.
In May 1996, the Company raised total gross proceeds of $225,115 from the
private offering (the "Offering") of $443,000 aggregate principal amount of the
14% Senior Discount Notes due 2006 (the "Notes"). The proceeds will be
primarily used to fund system construction and initial marketing costs and
working capital requirements of the Operating Companies as discussed in the
table on the following page.
From commencement of operations to May 1996, the Company was financed by
capital contributed by UIHI. During the nine months ended September 30, 1995,
UIHI contributed $27,514 to the Company and made bridge loans of $5,400 to
Austar, $22,607 of which was used to finance the Company's investments in
Austar, XYZ Entertainment and Saturn. Approximately $781 was used for costs
incurred in the acquisition and development of its projects, the majority of
which was for Telefenua. The Company used $6,060 in cash to fund the operations
of Telefenua. Approximately $6,970 was used for the purchase of property, plant
and equipment by Telefenua as it is in the process of building its MMDS system.
The Company received $4,132 for the sale of 50% of its interest in XYZ
Entertainment and recognized a gain of the same amount. The remainder was used
in operations.
During the nine months ended September 30, 1996, UIHI contributed capital of
$10,664 to the Company and made bridge loans of $15,073 to Austar. In addition,
the Company raised $215,491 in proceeds, net of deferred debt offering costs,
from the Offering. The bridge loans were used to fund the construction and
initial marketing of Austar's and Telefenua's systems. The Company also made
$10,651 in capital contributions to Saturn and XYZ Entertainment during the nine
months ended September 30, 1996 using the capital contributed to it by UIHI.
Approximately $105,899 was used for the purchase of property, plant and
equipment primarily by Austar, Saturn,
15
<PAGE>
and Telefenua as these entities are in the process of building their systems.
The Company purchased and sold $132,887 and $105,257, respectively, of short-
term investments in connection with its cash management activities.
In May 1996, the Company acquired $25,000 of the Austar bridge loans and
repaid UIHI with proceeds from the Offering. Approximately $5,000 of bridge
loans were converted into convertible debentures of Telefenua prior to closing
of the Offering. In May 1996, the remaining Austar bridge loans were converted
to equity of Austar. The remaining Telefenua bridge loans acquired by the
Company will be either (i) repaid by Telefenua after which time the Company
would invest the proceeds of such repayment as permitted under its indenture or
(ii) converted by the Company into capital of Telefenua.
The following table summarizes the Company's remaining projected funding
requirements for its projects based on its ownership interest as of September
30, 1996 and the consummation in October 1996 of its acquisition of the
remaining interest in Austar. To the extent that the other shareholders of XYZ
Entertainment fail to fund their pro rata share of the additional shareholder
capital, the Company may fund all or a portion of such shortfall, in which case
the shareholder's ownership interest would be diluted proportionately. The
Company has monthly capital commitments to XYZ Entertainment that total
approximately $4,326 through December 31, 1996. To the extent the Company fails
to make any capital contribution to XYZ Entertainment, it would face significant
dilution.
<TABLE>
<CAPTION>
PROJECTED FUNDING
---------------------------------------------------------------
TOTAL EXPECTED PORTION FUNDED AS OF REMAINING AS OF
LOCATION TYPE OF PROJECT FUNDINGS SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
- -------- --------------- -------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Australia (Austar) MMDS/DTH systems $355,315 $118,436(1) $236,879
New Zealand Cable system 92,822 16,557(2) 76,265
Tahiti MMDS system 17,399 16,136 1,263
Australia (XYZ) Programming 14,328 10,002 4,326
United Wireless Mobile data services 8,200 3,536 4,664
-------- -------- --------
$488,064 $164,667 $323,397
======== ======== ========
</TABLE>
(1) Does not include the $50,700 paid by the Company to other shareholders of
Austar to increase its ownership interest nor the $7,900 paid to
Australis to acquire the remaining approximate 4% interest in Austar in
October 1996.
(2) Does not include $7,800 of common stock of the Company issued in connection
with the acquisition of the remaining 50% interest in Saturn.
The Company believes that it will be required to fund a total of
approximately $323,397 to build-out its existing projects over the next four
years. To the extent the operating companies fund their construction and other
costs through project financing, the Company's portion of estimated additional
funding would be reduced proportionately. To fund this amount, in addition to
the cash on hand, the Company intends to raise additional capital through the
sale of its immediate parent company's equity securities and/or further
issuances of debt either by the Company or the Operating Companies. The
Company's indenture and UIHI's indentures place restrictions on the Company and
certain of its subsidiaries with respect to incurring additional debt.
In May 1996, the Company used $10,000 of the net proceeds of the Offering
to fund the acquisition of UIH AML from UIHI. UIH AML was formed by UIHI to make
or procure guarantees of $10,000 in borrowings by Australis under an Australis
bank facility (the "Australis Bank Facility"). UIHI contributed $10,000 in cash
to UIH AML, which cash was restricted for as long as UIH AML was guaranteeing
borrowings under the Australis Bank Facility. Such restricted cash was released
in October 1996 when UIH AML was released from its obligation under the
Australis Guarantee (see Note 8). In connection with the guarantee, UIH AML
received warrants to purchase approximately 4.2 million ordinary shares or
convertible notes of Australis at an exercise price of A$0.20 per share. In
October 1996, UIH AML exercised its Australis warrants for $661 and acquired
3,016,832 shares of Australis common stock and 1,154,628 debentures. Also, in
October 1996, UIH AML acquired 7,736,171 debentures with $3,339 of the
restricted cash.
RESULTS OF OPERATIONS
The Company has experienced losses since its inception. The Operating
Companies are in the early stages of construction and marketing their multi-
channel television systems and programming services. The Company does not
currently anticipate that such Operating Companies will generate net income
during the foreseeable future as they are completing construction of their
respective multi-channel television and telecommunications systems and
programming services.
16
<PAGE>
Service and Other Revenue. The Company's service and other revenue for the
three and nine months ended September 30, 1996 increased $6,793 and $12,110,
respectively, compared to the amounts for the corresponding periods of the prior
year as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1996 1995 1996 1995
---------- -------- --------- --------
<S> <C> <C> <C> <C>
Austar (1)........... $6,418 $ -- $10,544 $ --
Telefenua (2)........ 893 599 2,632 1,152
Saturn (3)........... 44 -- 44 --
United Wireless (4).. 37 -- 42 --
------ ----- ------- ------
$7,392 $ 599 $13,262 $1,152
====== ===== ======= ======
</TABLE>
(1) Austar launched service in August 1995 and was consolidated effective
January 1, 1996.
(2) Telefenua launched service in March 1995 and has been consolidated for all
periods presented.
(3) The Company acquired a 50% interest in Saturn in July 1994. The Company
increased its ownership in Saturn to 100% and began consolidating its
results in July 1996.
(4) The Company acquired a 100% interest in United Wireless in September 1995.
System Operating Expense. System operating expenses for the three and nine
months ended September 30, 1996 increased $8,735 and $17,044, respectively,
compared to the amounts for the corresponding periods of the prior year as
follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- -------------------
1996 1995 1996 1995
----------- ------- --------- --------
<S> <C> <C> <C> <C>
Austar (1)........... $ 7,758 $ -- $15,749 $ --
Telefenua (2)........ 569 455 1,642 1,870
Saturn (3)........... 599 -- 599 --
United Wireless (4).. 264 -- 924 --
------- ----- ------- ------
$ 9,190 $ 455 $18,914 $1,870
======= ===== ======= ======
</TABLE>
Footnotes (1) - (4): See discussion of the Company's Service Revenue.
System Selling, General and Administrative Expense. System selling, general and
administrative expenses for the three and nine months ended September 30, 1996
increased $6,003 and $12,351 respectively, compared to the amounts for the
corresponding periods of the prior year as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- -------------------
1996 1995 1996 1995
---------- -------- --------- --------
<S> <C> <C> <C> <C>
Austar (1)........... $4,555 $ -- $10,667 $ --
Telefenua (2)........ 690 452 1,959 1,636
Saturn (3)........... 889 -- 889 --
United Wireless (4).. 321 -- 472 --
------ ----- ------ ------
$6,455 $ 452 $13,987 $1,636
====== ===== ====== ======
</TABLE>
Footnotes (1) - (4): See discussion of the Company's Service Revenue.
Corporate General and Administrative Expense. The Company's corporate general
and administrative expenses for the three and nine months ended September 30,
1996 decreased $15 and increased $58, respectively, compared to the amounts for
the corresponding periods of the prior year. General and administrative expenses
vary primarily according to staffing requirements in the region.
Depreciation and Amortization. The Company's depreciation and amortization
increased $7,385 and $15,296 during the three and nine months ended September
30, 1996, respectively, compared to the amounts for the
17
<PAGE>
corresponding periods of the prior year due primarily to the acquisition of
Austar and the launch of its system in August 1995 and due to Telefenua
launching its system in March 1995.
Equity in Losses of Affiliated Companies, Net. The Company recognized equity in
losses of affiliated companies as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Austar(1)............................... $ -- $ 1,061
Saturn(2)............................... -- 278
XYZ Entertainment(3).................... 1,933 5,905
------ -------
Total equity in losses of
affiliated companies, net......... $1,933 $ 7,244
====== =======
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1995
---- ----
Austar(1)............................... $ -- $ 1,411
Saturn(2)............................... 930 812
XYZ Entertainment(3).................... 3,571 10,295
------ -------
Total equity in losses of
affiliated companies, net......... $4,501 $12,518
====== =======
</TABLE>
(1) The Companies that comprise Austar were incorporated in mid-1994. The
Company acquired an initial interest in these companies in the fall of 1994
and increased its economic interest in these companies to 90% in late
December 1995. Austar launched its first MMDS system in August 1995.
(2) The Company acquired a 50% interest in Saturn in July 1994. The Company
increased its ownership in Saturn to 100% and began consolidating its
results in July 1996.
(3) XYZ was formed in October 1994 and began distributing its four channels in
April 1995.
Interest Expense. Interest expense increased due to the sale of the Notes in
May 1996 discussed in Note 1 to the condensed consolidated financial statements.
The Notes accrete interest at a rate of 14% compounded semi-annually.
Interest Income. Interest income increased due to the cash received from the
Company's issuance of the Notes in May 1996 discussed above.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Other than as described below, the Company is not a party to any other
material legal proceedings, nor is it currently aware of any other threatened
material legal proceedings. From time to time, the Company may become involved
in litigation relating to claims arising out of its operations in the normal
course of its business.
In October 1996, a complaint was served on UIHI by an individual who claimed
to have worked with UIHI in connection with the acquisition by Austar of certain
of its licenses claiming that UIHI owes him a 12.5% equity interest in
unspecified subsidiaries of UIHI in consideration of services purportedly
provided. This complaint seeks an unspecified amount of damages. UIHI intends
to vigorously defend these claims, which UIHI believes are without merit.
On November 6, 1996, Austar filed a complaint in the Supreme Court of New
South Wales, Commercial Division, seeking an injunction to prevent (i) Australis
from transferring its satellite delivery systems and associated infrastructure
to its joint venture with Optus Vision and (ii) Optus Vision from using such
infrastructure to deliver DTH services in Austar's franchise area. Austar
believes that using the infrastructure by any entity other than Austar for the
provision of DTH services within Austar's franchise areas violates the terms of
Austar's franchise agreement with Australis which granted Austar an exclusive
license and franchise to use the infrastructure within its franchise areas.
Austar is seeking injunctive relief or, in the alternative, damages associated
with this violation of its franchise agreements.
ITEM 5 - OTHER INFORMATION
SUMMARY OPERATING DATA
The following table sets forth certain unaudited financial and operating
data of the operating companies:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------------------------------------------------------------
TELEVISION
HOMES IN ECONOMIC
SERVICE HOMES OWNERSHIP
OPERATING SYSTEM AREA SERVICEABLE SUBSCRIBERS INTEREST
- ---------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Austar
MMDS(1)......... 800,000 634,115 34,284 100% (2)
DTH............. 737,000 737,000 25,992 --
Saturn............. 141,000 10,468 1,235 100%
Telefenua.......... 31,000 18,633 4,678 90%
XYZ Entertainment.. N/A(3) N/A 258,210(4) 25%
--------- --------- -------
Total........ 1,709,000 1,400,216 324,399
========= ========= =======
</TABLE>
(1) Austar intends to construct MMDS systems in markets containing approximately
800,000 television homes. Homes in these markets which are out of the line-
of-sight of the MMDS signals will be offered the DTH service which Austar is
marketing on an exclusive basis.
(2) In October, the Company acquired the remaining interest in Austar. See Note
8.
(3) The Company expects that XYZ Entertainment's programming package will be
marketed to virtually all of Australia's 6.0 million television households
by Australian multi-channel television providers, including Austar,
Australis, Foxtel Management Pty Limited and East Coast Television Pty
Limited.
(4) Total estimated subscribers to the eight channel Galaxy package to which XYZ
Entertainment supplies four channels.
19
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter.
Date of Report Item Reported Financial Statements Filed
-------------- ------------- --------------------------
None
20
<PAGE>
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.
UIH AUSTRALIA/PACIFIC, INC.
Date: November 13, 1996
-----------------------------------------------
By: /S/ Bernard G. Dvorak
-----------------------------------------------
Bernard G. Dvorak
Chief Financial Officer
(A Duly Authorized Officer and Principal Financial Officer)
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UIH
AUSTRALIA/PACIFIC, INC.'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 69,228
<SECURITIES> 0
<RECEIVABLES> 1,008
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 143,620
<DEPRECIATION> 13,185
<TOTAL-ASSETS> 325,162<F2>
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 241,039
0
0
<COMMON> 0
<OTHER-SE> 46,010
<TOTAL-LIABILITY-AND-EQUITY> 325,162
<SALES> 0
<TOTAL-REVENUES> 13,262
<CGS> 0
<TOTAL-COSTS> 18,914
<OTHER-EXPENSES> 15,935
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,855
<INCOME-PRETAX> (47,329)
<INCOME-TAX> 0
<INCOME-CONTINUING> (47,329)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (47,329)
<EPS-PRIMARY> (96.393)
<EPS-DILUTED> 0
<FN>
<F1>The Company does not have a classified balance sheet. See the condensed
consolidated balance sheet for more information.
<F2>See the condensed consolidated balance sheet for the detail of total assets.
</FN>
</TABLE>
