UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarter ended March 31, 1997
-----------------------------------------------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
-------------------- ---------------------
Commission File Number: 333-05017
UIH Australia/Pacific, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1341958
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4643 South Ulster St. #1300 Denver, CO 80237
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(303) 770-4001
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
The Company has no publicly-trading shares of capital stock. As of May 15,
1997, the Company had 500 shares of common stock outstanding.
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UIH AUSTRALIA/PACIFIC, INC.
TABLE OF CONTENTS
Page
Number
------
PART I - FINANCIAL INFORMATION
------------------------------
Item 1 - Financial Statements
- ------
Condensed Consolidated Balance Sheets as of March 31,
1997 (Unaudited) and December 31, 1996............................ 2
Condensed Consolidated Statements of Operations For
the Three Months Ended March 31 ,1997
and 1996 (Unaudited).............................................. 3
Condensed Consolidated Statement of Stockholders'
Equity For the Three Months Ended
March 31, 1997 (Unaudited)....................................... 4
Condensed Consolidated Statements of Cash Flows For
the Three Months Ended March 31, 1997
and 1996 (Unaudited).............................................. 5
Notes to Condensed Consolidated Financial
Statements (Unaudited)............................................ 6
Item 2 - Management's Discussion and Analysis of Financial
- ------ Condition and Results of Operations............................... 10
PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings................................................. 16
- ------
Item 5 - Other Information................................................. 17
- ------
Item 6 - Exhibits and Reports on Form 8-K.................................. 17
- ------
<PAGE>
<TABLE>
<CAPTION>
UIH AUSTRALIA/PACIFIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except share and per share data)
(Unaudited)
March 31, December 31,
1997 1996
----------- ------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents........................................................ $ 4,314 $ 19,220
Short-term investments........................................................... -- 18,640
Subscriber receivables........................................................... 2,304 1,625
Related party receivables........................................................ 2,317 1,958
Other current assets............................................................. 4,044 2,393
-------- --------
Total current assets.................................................... 12,979 43,836
Other investments in affiliated companies, including marketable equity securities... 1,638 1,372
Property, plant and equipment, net of accumulated depreciation of $40,358 and
$27,038, respectively.......................................................... 187,955 193,170
License fees, net of accumulated amortization of $2,973 and $2,520, respectively... 10,004 10,387
Goodwill, net of accumulated amortization of $5,227 and $3,835, respectively....... 56,101 58,134
Other non-current assets, net, including related party receivables of $1,600 and
$1,600, respectively........................................................... 11,256 12,424
-------- --------
Total assets............................................................ $279,933 $319,323
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued liabilities and accounts payable, including related party payables of
$2,685 and $1,905, respectively........................................... $ 28,781 $ 20,412
Construction payables........................................................... 16,786 38,331
Accrued funding obligation...................................................... 979 1,270
Other current liabilities....................................................... 1,084 1,108
-------- --------
Total current liabilities.............................................. 47,630 61,121
Due to parent....................................................................... 3,348 2,758
Senior discount notes and other liabilities......................................... 258,834 251,397
-------- --------
Total liabilities...................................................... 309,812 315,276
-------- --------
Stockholders' Equity:
Common stock $0.01 par value, 1,000 shares authorized, 500 and 500 shares
issued and outstanding, respectively........................................ -- --
Additional paid-in capital....................................................... 112,485 112,485
Unrealized loss on investment.................................................... (3,146) (3,412)
Cumulative translation adjustments............................................... 856 1,867
Accumulated deficit.............................................................. (140,074) (106,893)
-------- --------
Total stockholders' equity............................................ (29,879) 4,047
-------- --------
Total liabilities and stockholders' equity............................ $279,933 $319,323
======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
UIH AUSTRALIA/PACIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands, except share and per share data)
(Unaudited)
For the Three Months Ended
March 31,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
Service and other revenue................................................................... $ 14,492 $ 1,934
System operating expense, including related party expense of $402 and $143,
respectively............................................................................ (10,062) (5,083)
System selling, general and administrative expense ......................................... (11,034) (2,044)
Corporate general and administrative expense, including management fees to a
related party of $188 and $188, respectively............................................ (283) (292)
Depreciation and amortization............................................................... (17,305) (2,748)
-------- --------
Net operating loss...................................................................... (24,192) (8,233)
Equity in losses of affiliated companies.................................................... (366) (1,033)
Interest income............................................................................. 216 57
Interest expense ........................................................................... (8,591) (224)
Interest income (expense), related party, net .............................................. (30) 331
Other expense, net.......................................................................... (218) (288)
-------- ---------
Net loss before minority interest....................................................... (33,181) (9,390)
Minority interest in subsidiaries........................................................... -- 726
-------- --------
Net loss ............................................................................... $(33,181) $ (8,664)
======== ========
Net loss per common share .................................................................. $(66,362) $(l7,791)
======== ========
Weighted average number of common shares outstanding........................................ 500 487
======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UIH AUSTRALIA/PACIFIC, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Stated in thousands, except share data)
(Unaudited)
Unrealized
Common Stock Additional Gain (Loss) Cumulative
--------------- Paid-In On Translation Accumulated
Shares Amount Capital Investment Adjustment Deficit Total
------ ------ ---------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996.. 500 $ -- $112,485 $(3,412) $ 1,867 $(106,893) $ 4,047
Unrealized gain on
investment................ -- -- -- 266 -- -- 266
Change in cumulative
translation adjustment..... -- -- -- -- (1,011) -- (1,011)
Net loss..................... -- -- -- -- -- (33,181) (33,181)
--- ---- -------- ------- ------- -------- --------
Balances, March 31, 1997..... 500 $ -- $112,485 $(3,146) $ 856 $(140,074) $(29,879)
=== ==== ======== ======= ======= ========= ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
UIH AUSTRALIA/PACIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands)
(Unaudited)
For the Three Months Ended
March 31,
-----------------------------
1997 1996
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................. $(33,181) $ (8,664)
Adjustments to reconcile net loss to net cash flows from operating activities........
Depreciation and amortization..................................................... 17,305 2,748
Equity in losses of affiliated companies.......................................... 366 1,033
Minority interest share of losses................................................. -- (726)
Increase in technical assistance agreement payables............................... 397 811
Accretion of interest on senior discount notes.................................... 8,434 --
Increase in subscriber receivables................................................ (691) (335)
Increase in other assets.......................................................... (1,668) (1,909)
Increase (decrease) in accounts payable, accrued liabilities and other............ 8,859 (1,736)
-------- --------
Net cash flows from operating activities............................................. (179) (8,778)
-------- --------
Cash flows from investing activities:
Purchase of short-term investments................................................... (3,256) --
Proceeds from sale of short-term investments......................................... 21,896 --
Investments in and advances to affiliated companies and other investments............ -- (3,538)
Purchase of property, plant and equipment............................................ (12,886) (17,762)
Increase (decrease) in construction payables......................................... (20,888) 5,799
-------- --------
Net cash flows from investing activities............................................. (15,134) (15,501)
-------- --------
Cash flows from financing activities:
Capital contributions from parent.................................................... -- 3,867
Deferred debt offering costs......................................................... 472 --
Borrowing on bridge loan payable to parent........................................... 1,312 12,600
Borrowing on other debt.............................................................. -- 725
Payment on other debt................................................................ (348) --
-------- --------
Net cash flows from financing activities............................................. 1,436 17,192
-------- --------
Effect of exchange rates on cash..................................................... (1,029) 148
-------- --------
Increase in cash and cash equivalents................................................ (14,906) (6,939)
Cash and cash equivalents, beginning of period....................................... 19,220 8,730
-------- --------
Cash and cash equivalents, end of period............................................. $ 4,314 $ 1,791
======== ========
Non-cash investing and financing activities:
Cash received for interest........................................................ $ 281 $ --
======== ========
Assets acquired with capital leases............................................... $ -- $ 795
======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
5
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
UIH Australia/Pacific, Inc. (the "Company"), and all subsidiaries where it
exercises majority control and owns a majority economic interest. Telefenua S.A.
("Telefenua"), United Wireless Pty Limited ("United Wireless") and the companies
that comprise Austar (CTV Pty Limited and STV Pty Limited) were consolidated for
all periods presented. The Company has consolidated the operations of Saturn
Communications Limited ("Saturn") since July 1, 1996. Prior to that time, the
Company accounted for its investment in Saturn under the equity method. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
In management's opinion, the unaudited financial statements as of March 31,
1997 and for the three months ended March 31, 1997 and 1996 include all
adjustments necessary for a fair presentation. Such adjustments were of a normal
recurring nature.
INVESTMENTS IN AND ADVANCES TO AN AFFILIATED COMPANY, ACCOUNTED FOR UNDER THE
EQUITY METHOD
The Company accounts for its investment in XYZ Entertainment Pty Limited
("XYZ Entertainment" or "XYZ") under the equity method of accounting. Under this
method, the investment, originally recorded at cost, is adjusted to recognize
the Company's proportionate share of net earnings or losses of the affiliate,
limited to the extent of the Company's investment in and advances to the
affiliate, including any debt guarantees or other contractual funding
commitments. The Company's proportionate share of net earnings or losses of XYZ
Entertainment includes the amortization of basis differences related to the
excess of cost over net tangible assets acquired. Investments in and advances to
XYZ Entertainment are as follows:
<TABLE>
<CAPTION>
As of
March 31, 1997
-------------------------------------------------------------------------
Investments in Cumulative Equity Cumulative
and Advances to in Losses of Translation
Affiliated Company Affiliated Company Adjustments Total
------------------ ------------------ ----------- -----
<S> <C> <C> <C> <C>
XYZ Entertainment................ $16,568(1) $(16,678) $110 $ --
======= ======== ==== =====
</TABLE>
<TABLE>
<CAPTION>
As of
December 31, 1996
--------------------------------------------------------------------------
Investments in Cumulative Equity Cumulative
and Advances to in Losses of Translation
Affiliated Company Affiliated Company Adjustments Total
------------------ ------------------ ----------- -----
<S> <C> <C> <C> <C>
XYZ Entertainment ............... $16,202(1) $(16,312) $110 $ --
======= ======== ==== =====
</TABLE>
(1) Includes an accrued funding obligation of $979 and $1,270 at March 31,
1997 and December 31, 1996, respectively.
The Company recognized $366 and $4,484 of equity losses from XYZ
Entertainment for the three months ended March 31, 1997 and the year ended
December 31, 1996, respectively. The Company does not have a contractual funding
obligation to XYZ Entertainment; however, the Company would face significant and
punitive dilution if it did not make the scheduled fundings.
6
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands)
(Unaudited)
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.
All subscriber equipment and capitalized installation labor is depreciated over
3 years. Upon disconnection of a subscriber, the remaining book value of the
subscriber equipment, excluding converters which are recovered upon
disconnection, and the capitalized labor are written off. Depreciation expense
is computed using the straight-line method over the asset's estimated useful
life as shown below:
Average Years
-------------
MMDS distribution facilities......................... 5-10
Cable distribution networks.......................... 5-10
Subscriber premises equipment and converters......... 3
Furniture and fixtures............................... 10
Leasehold improvements............................... 6-10
Other................................................ 3-5
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 calculated at average rates based on their reporting currencies.
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 are
reported as a separate line below cash flows from financing activities.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. OTHER INVESTMENTS IN AFFILIATED COMPANIES, INCLUDING MARKETABLE EQUITY
SECURITIES
In May 1996, the Company used $10,000 of the proceeds from its offering
(the "May 1996 Offering") of the 14% Senior Discount Notes due 2006 (the
"Notes") (see Note 4) to acquire a United International Holdings, Inc. ("UIH")
subsidiary which guaranteed $10,000 of debt for Australis Media Limited
("Australis"), Austar's primary supplier of programming. As consideration for
giving the guarantee, the Company received warrants valued at $784 to acquire
4,171,460 ordinary shares or convertible debentures. On October 31, 1996, the
Company's $10,000 guarantee of Australis' debt expired. The Company used $3,339
of the related cash to acquire 7,736,171 debentures of Australis. Further, the
Company exercised warrants to acquire Australis common stock and debentures at
A$0.20 per share for 3,016,832 shares of Australis common stock and 1,154,628
debentures. Each debenture is convertible into one common share of Australis. As
of March 31, 1997 and December 31, 1996, the Company had recognized unrealized
losses of $3,146 and $3,412, respectively, on the Australis investment in
accordance with the provisions of SFAS 115.
7
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands)
(Unaudited)
<TABLE>
<CAPTION>
3. PROPERTY, PLANT AND EQUIPMENT
As of As of
March 31, December 31,
1997 1996
----------- ------------
<S> <C> <C>
MMDS distribution facilities............................ $ 56,931 $ 57,073
Cable distribution networks............................. 14,223 11,672
Subscriber premises equipment and converters............ 130,176 125,238
Furniture and fixtures.................................. 2,005 2,031
Leasehold improvements.................................. 3,421 3,465
Other................................................... 21,557 20,729
--------- ---------
228,313 220,208
Accumulated depreciation..................... (40,358) (27,038)
--------- ---------
Net property, plant and equipment............ $ 187,955 $ 193,170
========= =========
</TABLE>
4. SENIOR DISCOUNT NOTES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
Senior discount notes and other liabilities consists of the following:
As of As of
March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Senior discount notes, net of unamortized discount...... $ 253,616 $ 245,182
Capitalized lease obligations........................... 4,270 4,522
Mortgage note, interest at 7.885%, 7 year term.......... 1,150 1,252
Other................................................... 687 1,337
--------- ---------
259,723 252,293
Less current portion......................... (889) (896)
--------- ---------
$ 258,834 $ 251,397
========= =========
</TABLE>
On May 14, 1996, the Company raised total gross proceeds of approximately
$225,115 from the private placement of $443,000 aggregate principal amount of
the Notes. No cash interest payments are required until May 15, 2001, at which
time cash interest payments will be payable semi-annually on each May 15 and
November 15. The Notes are due May 15, 2006. In September 1996, the Notes were
exchanged for 14% Senior Discount Notes due 2006, Series B. Effective May 16,
1997, the interest rate on the Notes will increase by an additional 0.75% per
annum.
If the Company does not consummate an issuance of capital stock resulting
in gross proceeds to the Company of at least $70,000 (an "Equity Sale") prior to
November 16, 1997, the then holders of the Notes will be entitled to receive
warrants to purchase 3% of the common stock of the Company, assuming the
aggregate fair market value of the Company's equity is $150,000, or, in certain
circumstances, of the Company's immediate parent. The Company plans to pursue
additional sources of funding that may constitute an Equity Sale although there
can be no assurance that the Company will be successful in concluding an Equity
Sale prior to November 16, 1997.
5. RELATED PARTY
The Company and UIH Management, Inc. ("UIH Management"), a wholly-owned
subsidiary of UIH, executed a 10-year management services agreement (the
"Management Agreement"), pursuant to which UIH Management will perform certain
administrative, accounting, financial reporting and other services for the
Company, which has no separate employees of its own. Effective March 31, 1997,
UIH Management assigned, and UIH Asia/Pacific Communications, Inc. ("UAP")
assumed, UIH Management's rights and obligations under the Management Agreement.
For the year ended December 31, 1996, approximately $250 was allocated to the
Company for such services. The management fee, pursuant to the Management
Agreement, is $750 for the first year of such agreement, which fees shall
increase on the first anniversary date of the Management Agreement and each
anniversary date thereafter by 8% per year. In addition, the Company shall
reimburse UAP for any out-of-pocket expenses incurred by UAP in performance of
its duties under the Management Agreement, including travel, lodging and
entertainment expenses.
8
<PAGE>
UIH AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Included in the amount due to parent is the following:
As of As of
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Austar technical assistance agreement obligations ................. $ 2,019 $ 1,135
Telefenua technical assistance agreement obligations .............. 2,166 1,879
Saturn technical assistance agreement obligations ................. 228 1,002
Saturn bridge loan................................................. 1,182 --
Other.............................................................. 438 647
------- -------
6,033 4,663
Less current portion ............................. (2,685) (1,905)
------- ------
$ 3,348 $ 2,758
======= =======
</TABLE>
6. SUBSEQUENT EVENTS
In April 1997, Austar received an underwriting commitment from The Chase
Manhattan Bank ("Chase") for a Senior Syndicated Term Debt Facility in the
amount of Australian $ ("A$") A$200,000 (US$155,000) (the "Bank Facility"). The
proceeds of the Bank Facility will be used to fund Austar's subscriber
acquisition and working capital needs. The Bank Facility consists of three
sub-facilities: (i) A$50,000 revolving working capital facility, available at
closing (June 1997); (ii) A$90,000 term loan facility, which will be available
on the basis of Austar having achieved minimum subscriber and operating cash
flow levels; and (iii) A$60,000 cash advance facility available upon the
contribution of additional equity on a 2:1 debt-to-equity basis. The maximum
amount of equity required would be A$30,000, approximately A$7,500 of which has
already been contributed during 1997.
The cash advance and term loan facilities will be fully repayable pursuant
to an amortization schedule beginning December 31, 2001 and ending June 30,
2004. Chase has also provided Austar with an interim financing facility of
A$50,000 which will be refinanced from the proceeds of the Bank Facility.
9
<PAGE>
ITEM 2 - 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 REPORT ON FORM 8-K DATED MAY 15, 1997.
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. UAP, the Company's parent,
provides various management, financial reporting, accounting and other services
for the Company pursuant to the terms of the Management Agreement between UAP
and the Company. Austar, Saturn and Telefenua are also parties to technical
service agreements with UAP for which such operating companies pay to UAP fees
based, in part, on their respective gross revenues. (See Note 5.)
LIQUIDITY AND CAPITAL RESOURCES
The Company is responsible for its proportionate share of the capital
requirements of the operating companies and has funded its share to date with
capital contributed by UIH and from the proceeds of the May 1996 Offering. In
April 1997, Austar received an underwriting commitment of A$200,000 (US$155,000)
to fund its subscriber acquisition and working capital needs. (See Note 6.)
If the Company does not consummate an issuance of capital stock resulting
in gross proceeds to the Company of at least $70,000 (an "Equity Sale") prior to
November 16, 1997, the then holders of the Notes will be entitled to receive
warrants to purchase 3% of the common stock of the Company, assuming the
aggregate fair market value of the Company's equity is $150,000, or, in certain
circumstances, of the Company's immediate parent. The Company plans to pursue
additional sources of funding that may constitute an Equity Sale although there
can be no assurance that the Company will be successful in concluding an Equity
Sale prior to November 16, 1997.
The following table sets forth, as of March 31, 1997, (i) the total
estimated funding required for the construction and initial marketing of the
operating companies' systems in their existing license areas, including any
capital invested to date and the application of any operating cash flow sources
for such operating companies, (ii) the total amount of capital invested in each
of the operating companies and the portion funded by the Company and (iii) the
total estimated additional funding required based on the assumptions stated in
clause (i) above and the Company's estimated portion of such funding. Such
amounts are expected to be funded over the next 24 to 36 months. The estimated
required additional funding numbers below have not been reduced to give effect
to any surplus cash flow of any one operating company which might be available
to fund the requirements of another operating company. 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. The Company's portion of estimated additional funding
would be increased proportionately to the extent cash flow from the operating
companies and other sources of financing are not sufficient to meet project
funding requirements. To the extent that the other shareholders of XYZ fail to
fund their pro rata share of the additional shareholder capital, the Company may
fund all or a portion of such shortfall.
10
<PAGE>
<TABLE>
<CAPTION>
Estimated Total Project Capital Invested Estimated Required
Funding Requirements As of March 31, 1997 (1) Additional Funding
Operating ------------------------ ---------------------------- -----------------------
Company The Company Total The Company(2) Total(2) The Company Total
- --------- ----------- --------- ------------- ---------- ----------- --------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Austar............ $ 369.8 $ 369.8 $ 211.6(3) $ 211.6(3) $ 158.2(4) $ 158.2
Saturn............ 109.7 109.7 25.2(5) 25.2(5) 84.5 84.5
XYZ............... 14.0 56.0 11.1 44.4 2.9 11.6
Telefenua......... 17.4 17.4 16.7 16.7 0.7 0.7
United Wireless... 8.2 8.2 5.2 5.2 3.0 3.0
-------- -------- -------- -------- ------- -------
Total........ $ 519.1 $ 561.1 $ 269.8 $ 303.1 $ 249.3 $ 258.0
======== ======== ======== ======== ======= =======
</TABLE>
(1) Certain amounts contributed by the Company's partners were contributed
in currencies other than U.S. dollars. Such amounts have been translated
to U.S. dollars using a convenience translation.
(2) Includes amounts contributed to Austar (approximately $11.1 million) and
Saturn (approximately $2.9 million) by shareholders other than the Company,
which amounts were contributed by such shareholders prior to the
acquisition of their respective interests by the Company.
(3) Does not include the $58.6 million paid by the Company to increase its
economic interest in Austar to approximately 100%.
(4) Includes an underwriting commitment for a debt facility of A$200 million
(US$155 million), which reduces the Company's portion of the additional
funding requirements.
(5) Does not include the value of shares of common stock exchanged for shares
of the Company to increase the Company's interest in Saturn to 100%.
The Company believes that it will be required to fund a total of
approximately $249,300 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. In addition to recently completed bank
credit facilities (see Note 6) and cash on hand, the Company intends to raise
additional capital through capital contributions from its parent corporation,
further issuances of debt either by the Company or the Operating Companies, or
by the sale of all or a part of its equity in certain of its operating
subsidiaries. The Company's indenture and UIH's indentures place restrictions on
the Company and certain of its subsidiaries with respect to the amount of
additional debt each may incur. The Company and all of the operating companies
are currently restricted under the UIH Indenture. The Company, Austar and
Telefenua are restricted under the Company's Indenture. The restrictions imposed
by the Indentures will be eliminated upon the retirement of UIH's notes at their
maturity in November 1999, and upon the retirement of the Company's Notes at
their maturity in May 2006, respectively.
In addition, the Company is currently negotiating the sale of a minority
interest in Saturn to strategic partners to provide a substantial portion of the
capital required to complete the build-out of Saturn's currently planned system.
The Company is also negotiating to sell all or a portion of its interest in
Telefenua, the proceeds of which would be used to fund its other businesses.
There can be no assurance that the Company will be successful in completing
either sale.
During the period from January 1, 1996 to May 13, 1996, the closing date of
the May 1996 Offering, UIH contributed capital of $17,300 to the Company and
made additional bridge loans of $15,100 to Austar. On May 13, 1996, the Company
sold the Notes with net proceeds to the Company from such sale totaling
$215,500. At that time, the Company acquired $25,000 of the Austar bridge loans
from UIH with proceeds from the May 1996 Offering and converted those loans
(plus accrued interest of $600) to equity of Austar. Subsequently, the Company
funded an additional $25,000 to Austar, thereby increasing the Company's
interest in Austar to 96%. Prior to the closing of the May 1996 Offering,
approximately $5,000 of the SFCC bridge loans was converted into convertible
debentures of SFCC, which are convertible into preferred stock of SFCC. The
remaining SFCC bridge loans totaling $2,600 (including accrued interest) will be
either (i) repaid by SFCC, after which time the Company would invest the
proceeds of such repayment as permitted under the Company's Indenture, or (ii)
converted by the Company into equity of SFCC.
11
<PAGE>
In October 1996, the Company acquired from Australis for $7,920 the
approximately 4% remaining economic interest in Austar and purchased ordinary
shares and convertible notes of Australis for $4,000, issued upon exercise of
warrants and other rights granted to the Company.
During the three months ended March 31, 1996, UIH contributed capital of
$3,867 to the Company and made bridge loans of $12,600 to Austar and Telefenua.
The bridge loans were used to fund the construction and initial marketing of
Austar's and Telefenua's systems. The Company also made $3,538 in capital
contributions to Saturn and XYZ during the three months ended March 31, 1996
using the capital contributed to it by UIH. Approximately $17,762 of the loans
and capital contributed was used for the purchase of property, plant and
equipment by Austar and Telefenua as these systems are in the process of
building their multi-point microwave distribution systems ("MMDS") and direct-
to-home ("DTH") satellite systems. The remainder was used in operations.
During the three months ended March 31, 1997, the Company recognized losses
of $33,181 of which $17,305 was from non-cash depreciation and amortization and
$366 of non-cash equity in losses of affiliated companies. The Company also
recorded non-cash accretion of interest on the Notes of $8,434. The Company made
bridge loans to Saturn and Telefenua totaling $1,312 during the quarter. During
the three months ended March 31, 1997, the Company purchased $12,886 of
property, plant and equipment and had a decrease in construction payables of
$20,888 compared with fixed asset purchases of $17,762 and an increase in
construction payables of $5,799 for the corresponding period in the prior year.
The majority of this construction activity relates to Austar. Austar expended
less on property, plant and equipment and had a decrease in construction
payables as the build-out of its system is nearing completion. In addition,
Austar conserved cash for current operations until the Bank Facility
underwriting was committed. The Company also purchased $3,256 of short-term
investments and sold $21,896 of short-term investments as part of its cash
management activities. The remainder of cash was primarily used in operations.
RESULTS OF OPERATIONS
The operating companies have, since inception, been engaged primarily in
the construction of their networks and organizational and start-up activities.
As a result, the Company has generated negative cash flow from operating
activities for all periods presented. Accordingly, 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.
SERVICE AND OTHER REVENUE. The Company's service and other revenue increased
$12,558 for the three months ended March 31, 1997 compared to the amount for the
corresponding period of the prior year as follows:
For the Three Months Ended
March 31,
--------------------------
1997 1996
----- ----
Australia
Austar (1)................................... $ 13,469 $ 1,068
United Wireless (2).......................... 24 4
Tahiti
Telefenua (3)................................ 916 862
New Zealand
Saturn (4)................................... 83 --
--------- ---------
Total service and other revenue............... $ 14,492 $ 1,934
========= =========
(1) Austar launched service in August 1995 and was consolidated effective
January 1, 1996.
(2) The Company acquired a 100% interest in United Wireless in September 1995.
(3) Telefenua launched service in March 1995 and has been consolidated for all
periods presented.
(4) 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 effective July 1996.
12
<PAGE>
AUSTAR
Service revenues at Austar were $13,469 for the three months ended March
31, 1997. Revenues consisted primarily of service and installation fees from
basic subscribers of $11,044 and $2,066, respectively, with other revenue
totaling $359. The increase in service revenues for the three months ended March
31, 1997 relative to the comparable prior year period was primarily attributable
to subscriber growth (129,156 at March 31, 1997 compared to 14,037 at March 31,
1996). The increase in subscribers was the result of the on-going roll-out of
Austar's services which were initially launched in August 1995.
TELEFENUA
Telefenua's service revenues increased to $916 from $862 during the three
month periods ended March 31, 1997 and 1996, respectively. The increase is
primarily attributable to subscriber growth (5,537 at March 31, 1997 compared to
4,500 at March 31, 1996).
SATURN
The Company began consolidating the results of Saturn effective July 1,
1996. Accordingly, the Company reported no service revenue for Saturn for the
three months ended March 31, 1996. Saturn's actual service revenues for the
three months ended March 31, 1997 and 1996 were $83 and $52, respectively. The
increase is attributable to an increase in subscribers from 1,100 at March 31,
1996 to 2,052 at March 31, 1997.
SYSTEM OPERATING EXPENSE. System operating expense increased $4,979 for the
three months ended March 31, 1997 compared to the amount for the corresponding
period of the prior year as follows:
For the Three Months Ended
March 31,
--------------------------
1997 1996
----- ----
Austar (1)................................. $ 8,467 $ 4,223
Telefenua (3).............................. 426 572
Saturn (4)................................. 727 --
United Wireless (2)........................ 442 288
-------- --------
Total system operating expense........ $ 10,062 $ 5,083
======== ========
Footnotes (1) - (4): See discussion of the Company's SERVICE AND OTHER REVENUE.
AUSTAR
The Company reported operating expense from Austar of $8,467 for the three
months ended March 31, 1997, consisting primarily of salary and benefits ($854),
satellite programming fees ($4,149) and annual MMDS spectrum license fees
($643), with the remainder consisting primarily of office-related expenses and
system travel and recruitment expenses. Austar's operating expense for the
comparable period in 1996 were $4,223. The increase in operating expense in
1997 is primarily attributable to the continued roll-out of Austar's services,
which were launched in August 1995, and the corresponding increase in
subscribers. Austar is experiencing high operating expenses relative to service
revenues due to certain fixed operating expenses (such as management overhead,
license fees and certain office-related costs). Austar expects operating
expenses as a percent of service revenues to decline as start-up costs are
reduced and as certain fixed operating expenses are spread over expected
increases in service revenues.
13
<PAGE>
TELEFENUA
Operating expenses consolidated by the Company from Telefenua decreased to
$426 for the quarter ended March 31, 1997 from $572 during the comparable period
of 1996, primarily due to decreases in technical-related repairs and maintenance
and tape production costs, partially offset by increased programming costs
associated with the aforementioned increase in subscribers between March 31,
1996 and 1997. Telefenua's operating expenses in the first quarter of 1997
consisted primarily of programming-related expenses ($284) with the remainder
consisting of payroll-related costs and technical-related costs.
SATURN
The Company began consolidating Saturn effective July 1, 1996. Accordingly,
the Company reported no operating expenses for Saturn in its consolidated
statement of operations for the quarter ended March 31, 1996. Saturn's operating
expenses were approximately $727 for the quarter ended March 31, 1997 consisting
primarily of payroll ($359) and office expenses ended related to the provision
of service to existing customers and on-going system design and engineering work
for expansion of Saturn's Wellington system. Saturn's actual system operating
expenses for the comparable quarter in 1996 were $342.
SYSTEM SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. System selling, general and
administrative expense increased $8,990 for the three months ended March 31,
1997 compared to the amount for the corresponding period of the prior year as
follows:
For the Three Months Ended
March 31,
---------------------------
1997 1996
---- ----
Austar (1)......................................... $ 9,526 $ 1,294
Telefenua (3)...................................... 473 607
Saturn (4)......................................... 650 --
United Wireless (2)................................ 385 143
-------- --------
Total system selling, general
and administrative expense................. $ 11,034 $ 2,044
======== ========
Footnotes (1) - (4): See discussion of the Company's SERVICE AND OTHER REVENUE.
AUSTAR
System selling, general and administrative expenses consolidated by the
Company from Austar were $9,526 for the quarter ended March 31, 1997 and
consisted primarily of $1,512 in marketing costs related to print, radio and
television advertisements utilized in the continued marketing of Austar's
services throughout its service areas during 1997, direct sales commissions
($1,576), general and administrative salaries associated with Austar's Sydney
corporate headquarters and National Customer Operations Center ($3,073) and
office related expenses, including rent and utilities, of $1,725. Austar's
system selling, general and administrative expenses were $1,294 for the
comparable quarter in 1996. The increase relates to marketing efforts associated
with Austar's continued expansion of service to all of its service areas,
including the initiation of DTH service in 1996, and increased customer support
costs as Austar's subscriber base grows. Austar expects that system general and
administrative expenses as a percent of service revenues will decline over the
remainder of 1997 as certain fixed expenses are spread over expected increases
in service revenues.
TELEFENUA
System selling, general and administrative expenses consolidated by the
Company from Telefenua decreased to $473 during the first quarter of 1997
compared to $607 during the comparable period in 1996, primarily due to an
unfavorable change in the exchange rate as well as decreased travel and
marketing costs.
14
<PAGE>
SATURN
The Company began consolidating the results of Saturn effective July 1,
1996. Accordingly, the Company reported no system selling, general and
administrative expense from Saturn for the quarter ended March 31, 1996.
Saturn's actual selling, general and administrative costs increased to $650 in
the first quarter of 1997 from $343 for the first quarter of 1996. Actual system
selling, general and administrative expense at Saturn for the quarter ended
March 31, 1997 consisted primarily of marketing and support salaries of $359
associated with increased marketing efforts to expand the subscriber base as
Saturn's system expands.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE. The Company's corporate general
and administrative expense decreased slightly from $292 to $283 for the quarters
ended March 31, 1996 and 1997, respectively, and consists primarily of
management fees to a related party of approximately $188.
DEPRECIATION AND AMORTIZATION. The Company's depreciation and amortization
expense increased $14,557 during the three months ended March 31, 1997 compared
to the corresponding period of the prior year. This increase in depreciation and
amortization expense was primarily attributable to the significant deployment of
operating assets and subscriber growth at Austar during the latter part of 1996
and, to a lesser extent, in 1997.
EQUITY IN LOSSES OF AFFILIATED COMPANIES. The Company recognized equity in
losses of affiliated companies as follows:
For the Three Months Ended
March 31,
--------------------------
1997 1996
---- ----
Saturn (1)............................................ $ -- $ 401
XYZ Entertainment (2)................................. 366 632
------- -------
Total equity in losses of affiliated companies... $ 366 $ 1,033
======= =======
(1) The Company acquired a 50% interest in Saturn in July 1994. The Company
increased it ownership in Saturn to 100% and began consolidating its
results effective July 1996.
(2) XYZ was formed in October 1994 and began distributing its four channels in
April 1995.
INTEREST EXPENSE. Interest expense increased from $224 to $8,591 for the three
months ended March 31, 1996 and 1997, respectively, primarily due to the sale of
the Notes in May 1996 discussed in Note 2 to the condensed consolidated
financial statements. The Notes currently accrete interest at a rate of 14%
compounded semi-annually.
INTEREST INCOME. Interest income increased from $57 to $216 for the three months
ended March 31, 1996 and 1997, respectively, primarily due to the investment of
cash received from the Company's issuance of the Notes in May 1996.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - 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.
On November 6, 1996, Austar filed a complaint in the Supreme Court of New
South Wales, Commercial Division, seeking injunctive relief 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 the use of 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. On December
6, 1996, Australis filed counterclaims against Austar and the Company alleging
generally that Austar and the Company breached implied terms of the Australis
Arrangement by seeking such injunctive relief. In addition, Optus Vision claims
that the exclusive nature of Austar's franchise agreements violates Australia's
Trade Practices Act. On May 9, 1997, pursuant to the court's permission, Austar
amended its complaint to include claims that the agreement between Australis and
Optus Vision violates Australia's Trade Practices Act and that Austar is
entitled to damages arising from interference with its contractual relations
with Australis under the Franchise Agreements. Austar's complaint was also
amended to add as defendants two affiliates of Optus Vision: Publishing and
Broadcasting Ltd. and its subsidiary, Pay TV Optus. The Company intends to
vigorously defend its position.
16
<PAGE>
ITEM 5 - OTHER INFORMATION
<TABLE>
<CAPTION>
SUMMARY OPERATING DATA
The following tables set forth certain unaudited operating data of the
operating companies:
As of
March 31, 1997
-------------------------------------------------------------------
Television
Homes in Economic
Service Homes Ownership
Operating System Area Servicable Subscribers Interest
- ---------------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Austar
MMDS(1)...................... 875,000 824,000 62,482 100%
DTH.......................... 747,000 747,000 66,674 100%
Saturn.......................... 141,000 16,281 2,052 100%
Telefenua....................... 31,000 19,584 5,537 90%
XYZ Entertainment............... N/A(2) N/A 390,000(3) 25%
--------- --------- -------
Total................... 1,794,000 1,606,865 526,745
========= ========= =======
</TABLE>
<TABLE>
<CAPTION>
As of
March 31, 1996
-------------------------------------------------------------------
Television
Homes in Economic
Service Homes Ownership
Operating System Area Servicable Subscribers Interest
- ---------------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Austar
MMDS......................... 771,600 347,038 14,037 90%
DTH.......................... 735,000 735,000 - 90%
Saturn.......................... 141,000 6,000 1,100 50%
Telefenua....................... 31,000 15,450 4,500 90%
XYZ Entertainment............... N/A(2) N/A 185,000(3) 25%
--------- --------- -------
Total................... 1,678,600 1,103,488 204,637
========= ========= =======
</TABLE>
(1) Austar intends to construct MMDS systems in markets containing
approximately 875,000 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) The Company expects that XYZ Entertainment's programming package will be
marketed to virtually all of Australia's 6.5 million television households
by Australian multi-channel television providers, including Austar,
Australis, Foxtel Management Pty Limited and East Coast Television Pty
Limited.
(3) Total estimated subscribers to the eight channel Galaxy package to which
XYZ Entertainment supplies four channels.
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.
None.
17
<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: May 15, 1997
-------------------------------------------------------
By: /S/ J. Timothy Bryan
-------------------------------------------------------
J. Timothy Bryan
Chief Financial Officer
(A Duly Authorized Officer and Principal Financial Officer)
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UIH
AUSTRALIA/PACIFIC, INC.'S FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<EXCHANGE-RATE> 0.00001
<PERIOD-END> MAR-31-1997
<CASH> 4,314
<SECURITIES> 1,638<F1>
<RECEIVABLES> 2,304
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,979
<PP&E> 187,955
<DEPRECIATION> 40,358
<TOTAL-ASSETS> 279,933
<CURRENT-LIABILITIES> 47,630
<BONDS> 258,834
0
0
<COMMON> 0
<OTHER-SE> (29,879)
<TOTAL-LIABILITY-AND-EQUITY> 279,933
<SALES> 0
<TOTAL-REVENUES> 14,492
<CGS> 0
<TOTAL-COSTS> 10,062
<OTHER-EXPENSES> 17,305
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,591
<INCOME-PRETAX> (33,181)
<INCOME-TAX> 0
<INCOME-CONTINUING> (33,181)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,181)
<EPS-PRIMARY> (66.362)
<EPS-DILUTED> 0
<FN>
<F1> FMV=1,638 Cost=4,000
</FN>
</TABLE>
