UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 333-05017
United Australia/Pacific, Inc.
(formerly known as UNITED Australia/Pacific, Inc.)
(Exact name of Registrant as specified in its charter)
State of Colorado 84-1341958
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4643 South Ulster Street, #1300
Denver, Colorado 80237
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (303) 770-4001
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
The Company has no publicly-traded shares of capital stock. As of November 12,
1999, the Company had 17,810,249 shares of common stock outstanding.
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UNITED AUSTRALIA/PACIFIC, INC.
TABLE OF CONTENTS
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Page
Number
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PART I - FINANCIAL INFORMATION
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Item 1 - Financial Statements
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Condensed Consolidated Balance Sheets as of September 30, 1999 (Unaudited) and December 31, 1998......... 2
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30,
1999 and 1998 (Unaudited)............................................................................ 3
Condensed Consolidated Statement of Stockholder's Deficit for the Nine Months Ended September 30,
1999 (Unaudited)..................................................................................... 4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and
1998 (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
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Item 3 - Quantitative and Qualitative Disclosures about Market Risk.......................................... 23
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PART II - OTHER INFORMATION
---------------------------
Item 6 - Exhibits and Reports on Form 8-K.................................................................... 26
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UNITED AUSTRALIA/PACIFIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except share and per share amounts)
(Unaudited)
As of As of
September 30, December 31,
1999 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................................... $ 12,872 $ 181
Short-term liquid investments................................................................... 271,326 763
Subscriber receivables, net..................................................................... 8,090 6,322
Related party receivables....................................................................... 2,390 746
Prepaids and other current assets............................................................... 6,826 5,351
-------- --------
Total current assets......................................................................... 301,504 13,363
Investments in and advances to affiliated companies, accounted for under the equity method, net... 28,401 24,597
Property, plant and equipment, net of accumulated depreciation of $232,737 and $147,511,
respectively..................................................................................... 223,569 122,968
Goodwill and other intangible assets, net of accumulated amortization of $25,071 and $17,512,
respectively..................................................................................... 76,839 42,559
Deferred financing costs, net of accumulated amortization of $7,368 and $3,237, respectively...... 17,666 11,675
Other non-current assets, net..................................................................... 2,803 870
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Total assets................................................................................. $650,782 $216,032
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable................................................................................ $ 3,154 $ 5,426
Accrued liabilities............................................................................. 44,211 28,522
Construction payables........................................................................... 3,264 1,076
Current portion of due to parent................................................................ 12,792 3,665
Short-term debt................................................................................. - 36,738
Current portion of other long-term debt......................................................... 1,239 2,189
-------- --------
Total current liabilities.................................................................... 64,660 77,616
Due to parent..................................................................................... 10,177 6,578
Senior discount notes............................................................................. 394,453 356,640
Other long-term debt.............................................................................. 227,074 68,086
Other long-term liabilities....................................................................... 1,516 1,741
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Total liabilities............................................................................ 697,880 510,661
-------- --------
Minority interest................................................................................. 107,282 -
Stockholder's deficit:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued and outstanding...... - -
Common stock, $0.01 par value, 30,000,000 shares authorized, 17,810,249 shares
issued and outstanding........................................................................ 178 178
Additional paid-in capital...................................................................... 286,234 215,624
Deferred compensation........................................................................... (20,075) -
Accumulated deficit............................................................................. (395,624) (481,240)
Other cumulative comprehensive loss............................................................. (25,093) (29,191)
-------- --------
Total stockholder's deficit.................................................................. (154,380) (294,629)
-------- --------
Total liabilities and stockholder's deficit.................................................. $650,782 $216,032
======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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2
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UNITED AUSTRALIA/PACIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands, except share and per share amounts)
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue.......................................................... $ 41,745 $ 21,795 $ 106,565 $ 62,558
System operating expense, including related party expense
of $112, $990, $3,636 and $2,924, respectively................. (28,397) (20,933) (75,842) (50,684)
System selling, general and administrative expense............... (13,587) (12,294) (35,928) (34,216)
Corporate general and administrative expense, including
allocated expense from related party of $1,549, $(96),
$21,197 and $4,252, respectively............................... (2,833) 75 (22,610) (4,454)
Depreciation and amortization.................................... (25,086) (22,379) (75,029) (73,014)
---------- ---------- ---------- ----------
Net operating loss.......................................... (28,158) (33,736) (102,844) (99,810)
Gain on issuance of common equity securities by subsidiaries..... 226,951 - 249,249 -
Interest income.................................................. 2,430 32 2,497 158
Interest expense, including related party expense of $0,
$264, $0 and $887, respectively............................... (17,635) (14,166) (50,672) (41,461)
Other income (expense), net...................................... 413 (683) (5,353) (1,847)
---------- ---------- ---------- ----------
Net income (loss) before other items............................. 184,001 (48,553) 92,877 (142,960)
Share in results of affiliated companies, net.................... (4,175) (4,659) (12,855) (8,195)
Minority interest................................................ 5,594 - 5,594 -
---------- ---------- ---------- ----------
Net income (loss)........................................... $ 185,420 $ (53,212) $ 85,616 $ (151,155)
========== ========== ========== ==========
Change in cumulative translation adjustments..................... 2,458 (3,669) 5,838 208
---------- ---------- ---------- ----------
Comprehensive income (loss)................................. $ 187,878 $ (56,881) $ 91,454 $ (150,947)
========== ========== ========== ==========
Net income (loss) per common share:
Basic net income (loss)..................................... $ 10.41 $ (3.84) $ 4.81 $ (10.90)
========== ========== ========== ==========
Diluted net income (loss)................................... $ 10.13 $ (3.84) $ 4.68 $ (10.90)
========== ========== ========== ==========
Weighted-average number of common shares outstanding:
Basic....................................................... 17,810,249 13,864,941 17,810,249 13,864,941
========== ========== ========== ==========
Diluted..................................................... 18,298,249 13,864,941 18,298,249 13,864,941
========== ========== ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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3
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UNITED AUSTRALIA/PACIFIC, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S DEFICIT
(Stated in thousands, except share amounts)
(Unaudited)
Other
Cumulative
Common Stock Additional Comprehensive
-------------------- Paid-In Deferred Accumulated Income
Shares Amount Capital Compensation Deficit (Loss)(1) Total
---------- -------- ---------- ------------ ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1998........... 17,810,249 $178 $215,624 $ - $(481,240) $(29,191) $(294,629)
Cash contributions from parent........ - - 29,639 - - - 29,639
Non-cash contributions from parent.... - - 2,392 - - - 2,392
Net income............................ - - - - 85,616 - 85,616
Equity transactions of subsidiaries... - - 38,579 (38,579) - - -
Amortization of deferred
compensation........................ - - - 18,504 - - 18,504
Change in cumulative translation
adjustments......................... - - - - - 4,098 4,098
---------- ---- -------- -------- --------- -------- ---------
Balances, September 30, 1999.......... 17,810,249 $178 $286,234 $(20,075) $(395,624) $(25,093) $(154,380)
========== ==== ======== ======== ========= ======== =========
(1) As of September 30, 1999, Other Cumulative Comprehensive Income (Loss) represents foreign currency translation adjustments.
The accompanying notes are an integral part of this condensed consolidated financial statement.
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4
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UNITED AUSTRALIA/PACIFIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands)
(Unaudited)
For the Nine Months Ended
September 30,
----------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................................... $ 85,616 $(151,155)
Adjustments to reconcile net loss to net cash flows from operating activities:
Gain on issuance of common equity securities by subsidiaries.................................. (249,249) -
Minority interest............................................................................. (5,594) -
Depreciation and amortization................................................................. 75,029 73,014
Share in results of affiliated companies, net................................................. 6,477 8,195
Allocation of expense accounted for as capital contributions by parent........................ 2,391 3,617
Accretion of interest on senior notes and amortization of deferred financing costs............ 41,647 36,279
Stock-based compensation expense.............................................................. 18,894 -
Decrease in receivables, net.................................................................. (1,165) (3,614)
Decrease (increase) in other assets........................................................... 4,934 (3,568)
Increase in accounts payable, accrued liabilities and other................................... 8,455 8,588
--------- ---------
Net cash flows from operating activities........................................................ (12,565) (28,644)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term liquid investments....................................................... (270,044) -
Sale of short-term liquid investments........................................................... 1,444 12,325
Investments in and advances to affiliated companies............................................. (5,177) (10,895)
Consolidation (deconsolidation) of New Zealand subsidiary....................................... 613 (9,881)
Purchase of property, plant and equipment....................................................... (83,516) (38,228)
Other........................................................................................... (3,930) 121
--------- ---------
Net cash flows from investing activities........................................................ (360,610) (46,558)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash contributions from parent.................................................................. 29,639 53,455
Issuance of common stock by subsidiary.......................................................... 294,338 -
Borrowings on the New Austar Bank Facility and Saturn Bank Facility............................. 198,168 9,410
Payment of the Austar Bank Facility............................................................. (129,149) -
Payments on capital leases and other debt....................................................... (597) (499)
Deferred financing costs........................................................................ (8,056) -
--------- ---------
Net cash flows from financing activities........................................................ 384,343 62,366
--------- ---------
EFFECT OF EXCHANGE RATES ON CASH................................................................ 1,523 1,082
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS........................................................... 12,691 (11,754)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.................................................. 181 12,344
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................................................ $ 12,872 $ 590
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash received for interest...................................................................... $ 28 $ 259
========= =========
Cash paid for interest.......................................................................... $ 5,611 $ 3,808
========= =========
NON-CASH CONTRIBUTION FROM PARENT:
Non-cash capital contribution from parent....................................................... $ - $ 6,155
========= =========
CONSOLIDATION/DECONSOLIDATION OF NEW ZEALAND SUBSIDIARY:
Working capital................................................................................. $ 10,162 $ 4,159
Property, plant and equipment................................................................... (80,656) (26,484)
Elimination of investment in Saturn............................................................. 21,974 -
Goodwill and other assets....................................................................... (5,737) (2,805)
Notes payable and other debt.................................................................... 54,870 3,833
Minority interest............................................................................... - 11,416
--------- ---------
Total cash received (relinquished).............................................................. $ 613 $ (9,881)
========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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5
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UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
United Australia/Pacific, Inc. (the "Company" or "United A/P"), a wholly-owned
subsidiary of United Asia/Pacific Communications, Inc. ("UAP") (formerly known
as UIH Asia/Pacific Communications, Inc.), which is in turn an indirect
wholly-owned subsidiary of UnitedGlobalCom, Inc. ("United") (formerly known as
United International Holdings, Inc.), was formed on October 14, 1994, for the
purpose of developing, acquiring and managing foreign multi-channel television,
programming and telephony operations.
The following chart presents a summary of the Company's significant investments
in multi-channel television, programming and telephony operations as of
September 30, 1999.
***********************************************************
* *
* United *
* *
***********************************************************
*
100% *
***********************************************************
* *
* United International Properties, Inc. ("UIPI") *
* *
***********************************************************
*
100%(1) *
***********************************************************
* *
* UAP *
* *
***********************************************************
*
100% *
***********************************************************
* *
* The Company(2) *
* *
***********************************************************
*
91.7% *
***********************************************************
* *
* United Austar, Inc. (3) *
* *
***********************************************************
*
75.5% *
***********************************************************
* Austar United Communications Limited *
* ("Austar United") *
* *
***********************************************************
*
*
***********************************************************
* *
*Australia: *
* CTV Pty Limited and STV Pty Limited *
* (collectively, "Austar") 100.0% *
* United Wireless Pty Limited ("United *
* Wireless") 100.0% *
* XYZ Entertainment Pty Limited ("XYZ *
* Entertainment") 50.0% *
*New Zealand: *
* Saturn Communications Limited ("Saturn") 100.0% *
* *
***********************************************************
(1) Effective October 8, 1999, UIPI purchased the remaining 2.0% interest in
UAP that it did not own. The seller has the right to repurchase these
shares at the original sale price, plus interest at 14.0% per annum, at any
time prior to October 8, 2000.
(2) The Company also holds an up to 90.0% economic interest in Telefenua S.A.
("Telefenua") in Tahiti.
(3) United Austar, Inc. is a holding company for United A/P's investment in
Austar United Communications Limited.
6
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UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") 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.
PRINCIPLES OF CONSOLIDATION
The accompanying interim condensed consolidated financial statements are
unaudited and include the accounts of the Company and all subsidiaries where the
Company exercises a controlling financial interest through the ownership of a
majority voting interest. On July 27, 1999, Austar United acquired from the
minority shareholder of Saturn ("SaskTel") its 35.0% interest in Saturn in
exchange for 13,659,574 of Austar United's shares, thereby increasing Austar
United's ownership interest in Saturn from 65.0% to 100%. As a result, Saturn is
consolidated in these financial statements effective July 27, 1999. The Company
previously consolidated the operations of Saturn from July 1, 1996 through
September 30, 1998. Prior to that time, the Company accounted for its investment
in Saturn under the equity method. During the fourth quarter of 1998, the
Company discontinued consolidating the results of operations of Saturn effective
as of January 1, 1998 and returned to the equity method of accounting through
July 26, 1999. The change was made to comply with the consensus guidance of the
Emerging Issues Task Force regarding Issue 96-16 ("EITF 96-16"), and related
rules of the SEC, because SaskTel had participating approval or veto rights with
respect to certain significant decisions of Saturn in the ordinary course of
business. Accordingly, the condensed consolidated statement of operations and
statement of cash flows for the period ended September 30, 1998 have been
adjusted to reflect the deconsolidation of Saturn effective as of January 1,
1998. Effective October 1, 1998, the Company discontinued consolidating the
results of operations of Telefenua due to an other-than-temporary loss of
control and began using the equity method of accounting. All significant
intercompany accounts and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS AND SHORT-TERM LIQUID INVESTMENTS
Cash and cash equivalents include cash and investments with original maturities
of less than three months. Short-term liquid investments include certificates of
deposit, commercial paper and government securities which have original
maturities greater than three months but less than twelve months. Short-term
liquid investments are classified as available-for-sale and are reported at fair
market value.
INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD
For those investments in unconsolidated subsidiaries and companies in which the
Company's voting interest is 20.0% to 50.0%, the Company's investments are held
through a combination of voting common stock, preferred stock, debentures or
convertible debt and/or the Company exerts significant influence through board
representation and management authority, the equity method of accounting is
used. 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 funding
commitments. The Company's proportionate share of net earnings or losses of
affiliates includes the amortization of the excess of its cost over its
proportionate interest in each affiliate's net tangible assets.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Additions, replacements,
installation costs and major improvements are capitalized, and costs for normal
repair and maintenance of property, plant and equipment are charged to expense
as incurred. Upon disconnection of a multi-channel multi-point distribution
system ("MMDS") or direct-to-home ("DTH") subscriber, the remaining book value
of the subscriber equipment, excluding converters which are recovered upon
disconnection, and the unamortized portion of capitalized labor are written off
and accounted for as additional depreciation expense. Depreciation is calculated
using the straight-line method over the estimated economic life of the asset.
7
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UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The economic lives of property, plant and equipment at acquisition are as
follows:
Subscriber premises equipment and converters.......... 3-10 years
MMDS/DTH distribution facilities...................... 5-10 years
Cable distribution networks........................... 5-10 years
Office equipment, furniture and fixtures.............. 3-10 years
Buildings and leasehold improvements.................. 3-10 years
Other................................................. 3-10 years
GOODWILL AND OTHER INTANGIBLE ASSETS
The excess of investments in consolidated subsidiaries over the net tangible
asset value at acquisition is amortized using the straight-line method over 15
years. The acquisition of MMDS licenses has been recorded at fair market value,
and amortization expense is computed using the straight-line method over the
term of the license, up to a maximum of 15 years.
REVENUE RECOGNITION
Revenue is primarily derived from the sale of multi-channel cable television
services to subscribers and is recognized in the period the related services are
provided. Initial installation fees are recognized as revenue in the period in
which the installation occurs, to the extent installation fees are equal to or
less than direct selling costs, which are expensed. To the extent installation
fees exceed direct selling costs, the excess fees are deferred and amortized
over the average contract period. All installation fees and related costs with
respect to reconnections and disconnections are recognized in the period in
which the reconnection or disconnection occurs because reconnection fees are
charged at a level equal to or less than related reconnection costs.
STAFF ACCOUNTING BULLETIN NO. 51 ("SAB 51") ACCOUNTING POLICY
Gains realized as a result of stock issuances by the Company's subsidiaries are
recorded in the statement of operations, except for any transactions which must
be credited directly to equity in accordance with the provisions of SAB 51.
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
"Basic net income (loss) per share" is determined by dividing net income (loss)
available to common stockholders by the weighted-average number of common shares
outstanding during each period. "Diluted net income (loss) per share" includes
the effects of potentially issueable common stock, but only if dilutive. The
Company's warrants are included in the Company's diluted net income (loss) per
share amounts for the three and nine months ended September 30, 1999.
FOREIGN OPERATIONS AND FOREIGN EXCHANGE RATE RISK
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 exchange rates 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 that result in unrealized gains or losses are
referred to as translation adjustments. Cumulative translation adjustments are
recorded as a separate component of stockholder's deficit and are included in
Other Cumulative Comprehensive Income (Loss).
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.
Cash flows from the Company's operations in foreign countries are translated
based on their functional currencies. As a result, amounts related to assets and
liabilities reported in the consolidated statements of cash flows will not agree
to changes in the corresponding balances in the consolidated balance sheets. The
effects of exchange rate changes on cash balances held in foreign currencies are
reported as a separate line item below cash flows from financing activities.
8
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UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Certain of the Company's foreign operating companies have notes payable and
notes receivable that are denominated in a currency other than their own
functional currency. In general, the Company and the operating companies do not
execute hedge transactions to reduce the Company's exposure to foreign currency
exchange rate risks. Accordingly, the Company may experience economic loss and a
negative impact on earnings and equity with respect to its holdings solely as a
result of foreign currency exchange rate fluctuations.
NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board ("FASB") recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair market value of a
derivative depends on its intended use and designation. SFAS 133 is effective
for fiscal years beginning after June 15, 1999. In June 1999, the FASB approved
Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133," which
amends SFAS 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company is currently assessing the effect of
this new standard.
RESTATEMENT
In June 1999, the 25.0% interest in XYZ Entertainment held by UAP was exchanged
for an 8.3% direct ownership interest in United Austar, Inc., increasing the
Company's interest in XYZ Entertainment to 50.0%. Based on the carrying value of
the Company's investment in United Austar, Inc., the Company recognized a gain
of $22.3 million from the resulting step-up in the carrying amount of the
Company's investment in United Austar, Inc., in accordance with SAB 51. This
transaction was previously accounted for as a contribution of capital rather
than a sale of subsidiary stock. Net income as restated decreased to $185.4 and
$85.6 million from $210.7 and $88.6 million as previously reported for the three
and nine months ended September 30, 1999, respectively. Basic net income per
share as restated decreased to $10.41 and $4.81 from $11.82 and $4.97 as
previously reported for the three and nine months ended September 30, 1999,
respectively. Diluted net income per share as restated decreased to $10.13 and
$4.68 from $11.51 and $4.84 as previously reported for the three and nine months
ended September 30, 1999, respectively.
1. RESTRUCTURING OF ASSETS AND INITIAL PUBLIC OFFERING
RESTRUCTURING OF ASSETS
In June 1999, the Company and its subsidiaries' interests in Austar, United
Wireless, XYZ Entertainment and Saturn were contributed to Austar United in
exchange for new shares issued by Austar United. On July 27, 1999, Austar United
acquired from SaskTel its 35.0% interest in Saturn in exchange for 13,659,574 of
Austar United's shares, thereby increasing Austar United's ownership interest in
Saturn from 65.0% to 100%.
INITIAL PUBLIC OFFERING
On July 27, 1999, Austar United successfully completed an initial public
offering ("Australian IPO") selling 103.5 million shares on the Australian Stock
Exchange, raising gross and net proceeds in Australian dollars ("A$")4.70
($3.03) per share of A$486.5 ($313.6) million and A$456.5 ($294.3) million,
respectively. Based on the carrying value of the Company's investment in Austar
United as of July 27, 1999, the Company recognized a gain of $226.9 million from
the resulting step-up in the carrying amount of the Company and its
subsidiaries' investment in Austar United, in accordance with SAB 51. No
deferred taxes were recorded related to this gain due to the Company's intent on
holding its investment in Austar United indefinitely. Austar United's offering
reduced the Company's ownership interest from 91.7% to approximately 69.2%.
Including all vested stock options granted to employees, the Company's ownership
interest in Austar United on a fully diluted basis is approximately 67.8%.
9
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UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER
THE EQUITY METHOD
<TABLE>
<CAPTION>
As of September 30, 1999
-------------------------------------------------------------------------------------------
Investments in Cumulative Share Cumulative
and Advances to in Results of Translation Valuation
Affiliated Companies Affiliated Companies Adjustments Allowance Total
-------------------- -------------------- ----------- ---------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
XYZ Entertainment (1).. $44,306 $(18,818) $ 2,913 $ - $28,401
Telefenua.............. 18,599 (14,215) - (4,384)(2) -
------- -------- ------- ------- -------
Total............. $62,905 $(33,033) $ 2,913 $(4,384) $28,401
======= ======== ======= ======= =======
As of December 31, 1998
-------------------------------------------------------------------------------------------
Investments in Cumulative Share Cumulative
and Advances to in Results of Translation Valuation
Affiliated Companies Affiliated Companies Adjustments Allowance Total
-------------------- -------------------- ----------- ---------- -------
(In thousands)
Saturn................. $49,808 $(23,138) $(2,881) $ - $23,789
XYZ Entertainment...... 19,363 (18,666) 111 - 808
Telefenua.............. 18,599 (14,215) - (4,384)(2) -
------- -------- ------- ------- -------
Total............. $87,770 $(56,019) $(2,770) $(4,384) $24,597
======= ======== ======= ======= =======
</TABLE>
(1) In June 1999, the 25.0% interest in XYZ Entertainment held by UAP was
exchanged for an 8.3% direct ownership interest in United Austar, Inc.
at its carrying value of $25.1 million.
(2) The Company has reserved the remaining balance of the Telefenua
investment of $4.4 million due to the uncertainty of realization.
5. PROPERTY, PLANT AND EQUIPMENT
As of As of
September 30, December 31,
1999 1998
------------- ------------
(In thousands)
Subscriber premises equipment and converters... $269,347 $187,247
MMDS/DTH distribution facilities............... 63,068 54,725
Cable distribution networks.................... 82,555 2,009
Office equipment, furniture and fixtures....... 18,505 9,810
Buildings and leasehold improvements........... 4,890 2,841
Other.......................................... 17,941 13,847
-------- --------
456,306 270,479
Accumulated depreciation.................... (232,737) (147,511)
-------- --------
Net property, plant and equipment........... $223,569 $122,968
======== ========
6. GOODWILL AND OTHER INTANGIBLE ASSETS
As of As of
September 30, December 31,
1999 1998
------------- ------------
(In thousands)
Austar United.................................. $101,910 $ -
Austar......................................... - 60,071
-------- --------
101,910 60,071
Accumulated amortization.................... (25,071) (17,512)
-------- --------
Net goodwill and other intangible assets.... $ 76,839 $ 42,559
======== ========
10
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. SENIOR DISCOUNT NOTES
As of As of
September 30, December 31,
1999 1998
------------- ------------
(In thousands)
May 1996 Notes (as defined below), net
of unamortized discount....................... $356,648 $321,687
September 1997 Notes (as defined below),
net of unamortized discount................... 37,805 34,953
-------- --------
Total senior discount notes................. $394,453 $356,640
======== ========
MAY 1996 NOTES
The 14.0% senior notes, which the Company issued in May 1996 at a discount from
their principal amount of $443.0 million (the "May 1996 Notes"), had an accreted
value of $356.6 million as of September 30, 1999. On and after May 15, 2001,
cash interest will accrue and will be payable semi-annually on each May 15 and
November 15, commencing November 15, 2001. The May 1996 Notes are due May 15,
2006. Effective May 16, 1997, the interest rate on these notes increased by an
additional 0.75% per annum to 14.75%. On October 14, 1998, the Company
consummated an equity sale resulting in gross proceeds to the Company of $70.0
million which reduced the interest rate from 14.75% to 14.0% per annum. Due to
the increase in the interest rate effective May 16, 1997 until consummation of
the equity sale, the May 1996 Notes will accrete to a principal amount of $447.4
million on May 15, 2001, the date cash interest begins to accrue. The quoted
fair market value of these notes was approximately $340.0 million and $223.7
million as of September 30, 1999 and December 31, 1998, respectively.
SEPTEMBER 1997 NOTES
The 14.0% senior notes, which the Company issued in September 1997 at a discount
from their principal amount of $45.0 million (the "September 1997 Notes"), had
an accreted value of $37.8 million as of September 30, 1999. On and after May
15, 2001, cash interest will accrue and will be payable semi-annually on each
May 15 and November 15, commencing November 15, 2001. The September 1997 Notes
are due May 15, 2006. Effective September 23, 1997, the interest rate on these
notes increased by an additional 0.75% per annum to 14.75%. On October 14, 1998,
the Company consummated an equity sale, reducing the interest rate from 14.75%
to 14.0% per annum. Due to the increase in the interest rate effective September
23, 1997 until consummation of the equity sale, the September 1997 Notes will
accrete to a principal amount of $45.4 million on May 15, 2001, the date cash
interest begins to accrue. The quoted fair market value of these notes was
approximately $34.5 million and $22.7 million as of September 30, 1999 and
December 31, 1998, respectively.
On November 17, 1997, pursuant to the terms of the indentures governing the May
1996 Notes and the September 1997 Notes (collectively, the "Notes"), the Company
issued warrants to purchase 488,000 shares of its common stock, which
represented 3.4% of the Company's common stock at that time. The warrants are
exercisable at a price of $10.45 per share which would result in gross proceeds
of approximately $5.1 million upon exercise. The warrants are exercisable
through May 15, 2006. The warrants were valued at $3.7 million and have been
reflected as an additional discount to the Notes on a pro-rata basis and as an
increase in additional paid-in capital.
8. OTHER LONG-TERM DEBT
As of As of
September 30, December 31,
1999 1998
------------- ------------
(In thousands)
Austar Bank Facility........................... $173,448 $ 67,352
Saturn Bank Facility........................... 52,288 -
Capitalized leases and other................... 2,577 2,923
-------- --------
228,313 70,275
Less current portion...................... (1,239) (2,189)
-------- --------
Total other long-term debt................ $227,074 $ 68,086
======== ========
11
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AUSTAR BANK FACILITY
In July 1997, Austar secured a senior syndicated term debt facility (the "Austar
Bank Facility") in the amount of A$200.0 million to fund its subscriber
acquisition and working capital needs. Austar had drawn the full amount of the
facility by April 1999 when it secured a new syndicated senior secured debt
facility (the "New Austar Bank Facility") for A$400.0 million to refinance the
A$200.0 million Austar Bank Facility and to fund Austar's subscriber acquisition
and working capital needs. The New Austar Bank Facility consists of two
sub-facilities: (i) A$200.0 million amortizing term facility ("Tranche 1") and
(ii) A$200.0 million cash advance facility ("Tranche 2"). Tranche 1 was used to
refinance the Austar Bank Facility, and Tranche 2 is available upon the
contribution of additional equity on a 2:1 debt-to-equity basis. As of September
30, 1999, Austar had drawn A$266.0 ($173.4) million on the New Austar Bank
Facility. All of Austar's assets are pledged as collateral for this facility. In
addition, pursuant to this facility, Austar cannot pay any dividends, interest
or fees under its technical assistance agreements without the consent of the
majority banks. The New Austar Bank Facility bears interest at the professional
market rate in Australia plus a margin ranging from 1.75% to 2.25% based upon
certain debt to cash flow ratios. The New Austar Bank Facility is fully
repayable pursuant to an amortization schedule beginning December 31, 2002 and
ending March 31, 2006.
SATURN BANK FACILITY
On July 15, 1999, Saturn closed a syndicated senior debt facility (the "Saturn
Bank Facility") in the amount of NZ$125.0 ($64.7) million to fund the completion
of Saturn's network. As of September 30, 1999, Saturn had drawn NZ$101.0 ($52.3)
million against the facility and expects to draw down the remaining balance by
the end of fourth quarter 2000. This debt facility has an interest rate of 3.0%
over the current base rate upon draw down which has averaged approximately 8.1%.
The Saturn Bank Facility is repayable over a five year period beginning fourth
quarter 2001.
9. RELATED PARTY
Effective May 1, 1996, the Company and United Management, Inc. ("United
Management") (formerly known as UIH Management, Inc.), an indirect wholly-owned
subsidiary of United, executed a 10-year management services agreement (the
"Management Agreement"), pursuant to which United Management performs certain
administrative, accounting, financial reporting and other services for the
Company, which has no separate employees of its own. Pursuant to the Management
Agreement, the management fee was $0.75 million for the first year of such
agreement (beginning May 1, 1996), and it increases on each anniversary date of
the Management Agreement by 8.0% per year. Effective March 31, 1997, United
Management assigned its rights and obligations under the Management Agreement to
UAP, the Company's immediate parent, and extended the agreement for 20 years
from that date (the "UAP Management Agreement"). In addition, the Company
reimburses UAP or United for any out-of-pocket expenses including travel,
lodging and entertainment expenses, incurred by UAP or United on behalf of the
Company. In December 1997, United began allocating corporate general and
administrative expense to the Company in the form of deemed capital
contributions, based on increased activity at the operating system level.
Management believes that this method of allocating costs is reasonable. For the
nine months ended September 30, 1999 and 1998, the Company recorded $21.2
million and $4.3 million, respectively, in corporate general and administrative
expense allocated from United and management fees due from the Company to UAP.
The September 30, 1999 amount includes $17.6 million of non-cash stock-based
compensation expense related to UAP stock appreciation rights.
Austar, Saturn, Telefenua and United Wireless are also parties to technical
assistance agreements with UAP whereby such operating companies pay to UAP fees
based on their respective gross revenues. In addition, United has appointed
certain of its employees to serve in senior management positions at the
operating systems. The operating systems reimburse United for certain direct
costs incurred by United, including salaries and benefits relating to these
senior management positions, pursuant to the terms of the technical assistance
agreements. For the nine months ended September 30, 1999 and 1998, the Company
recorded $3.6 million and $2.9 million, respectively, in related party
management fees due from the operating systems to UAP. Effective June 24, 1999,
the rights under these management fee agreements, excluding Telefenua, have been
assigned to Austar United as part of the restructuring associated with the
Australian IPO.
In addition, effective June 24, 1999, United and Austar United executed a
management services agreement pursuant to which United performs certain
technical and consulting services in return for a monthly management fee. The
monthly fee payable by Austar United to United in 1999 is $0.2 million per
month. This amount may be adjusted before January 1 of each year by the board of
12
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
directors of United but may not increase by more than 15.0% in any one year.
This agreement also requires that Austar United reimburse United for all direct
and other expenses reasonably incurred by United on behalf of Austar United. The
agreement will continue through December 31, 2010.
Included in the amount due to parent is the following:
<TABLE>
<CAPTION>
As of As of
September 30, December 31,
1999 1998
------------- ------------
(In thousands)
<S> <C> <C>
Austar United............................................................. $ 1,714 $ -
Austar technical assistance agreement obligations, including deferred
management fees of $11,212 and $5,973, respectively (1)................. 13,806 8,347
Saturn technical assistance agreement obligations......................... 1,809 -
United Wireless technical assistance agreement obligations................ 723 605
Payable to parent for management fees..................................... 1,741 1,056
Other..................................................................... 489 235
------- -------
20,282 10,243
Less current portion................................................. (10,105) (3,665)
------- -------
Total due to parent.................................................. $10,177 $ 6,578
======= =======
</TABLE>
(1) Austar United and UAP have the option of converting these management
fees into equity.
10. STOCK OPTION PLAN
The Austar United Communications Executive Share Option Plan ("AU Plan") was
established June 17, 1999. Effective on the Australian IPO date of July 27,
1999, certain employees of United and Austar United were granted options under
the AU Plan in direct proportion to their previous holding of UAP options under
the UAP stock option plan. A total of 20,401,954 options were granted at a
strike price of A$1.80 each, A$2.90 below the Australian IPO price of A$4.70.
Each option holder was also given retroactive vesting through the Australian IPO
date to reflect vesting under the old UAP Plan, resulting in a total of
9,126,018 options vested. The total intrinsic value as of the Australian IPO
date was $38.6 million, which was recorded in the statement of stockholder's
equity with a corresponding deferred compensation amount of $21.0 million for
those options not yet vested. The net $17.6 million of intrinsic value that was
previously recorded on UAP's books was recorded as a deemed capital contribution
from UAP to Austar United as of June 30, 1999. The Company will continue to
amortize deferred compensation under variable plan accounting as these options
vest on a monthly basis. For the two months ended September 30, 1999 an
additional $1.3 million of compensation expense was recorded in the statement of
operations. On July 27, 1999, the AU Plan became a fixed option plan for all
future grants.
11. SEGMENT INFORMATION
The Company's business has historically been derived from its video
entertainment segment. This service has been provided in various countries where
the Company owns and operates its systems. Accordingly, the Company's current
reportable segments are the various countries in which it operates multi-channel
television, programming and/or telephony operations. These reportable segments
are evaluated separately because each country presents different marketing
strategies and technology issues as well as distinct economic climates and
regulatory constraints. The key operating performance criteria used in this
evaluation include revenue growth, operating income before depreciation,
amortization, management fees, non-cash general and administrative expense
allocated from parent, stock-based compensation charges ("Adjusted EBITDA"), and
capital expenditures. Senior management of the Company does not view segment
results below Adjusted EBITDA, therefore, interest income, interest expense,
provision for losses on investment related costs, gain on sale of investments,
share in results of affiliated companies, minority interests in subsidiaries and
other expenses are not broken out by segment below.
13
<PAGE>
UNITED AUSTRALIA/PACIFIC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended For the Nine Months Ended For the Nine Months Ended
September 30, 1999 September 30, 1998 September, 1999 September 30, 1998
-------------------------- -------------------------- ------------------------- ------------- -----------
Adjusted Adjusted Adjusted Adjusted
Revenue EBITDA(1) Revenue EBITDA(1) Revenue EBITDA(1) Revenue EBITDA(1)
------- --------- ------- --------- ------- --------- ------- ---------
(In thousands) (In thousands) (In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Australia......... $39,596 $ 703 $20,643 $(10,435) $104,416 $ (738) $59,147 $(19,541)
New Zealand....... 2,149 (832) - - 2,149 (832) - -
Tahiti............ - - 1,152 (7) - - 3,411 122
Corporate......... - (18) - (22) - (148) - (203)
------- ----- ------- -------- -------- ------- ------- --------
Total........ $41,745 $(147) $21,795 $(10,464) $106,565 $(1,718) $62,558 $(19,622)
======= ===== ======= ======== ======== ======= ======= ========
</TABLE>
As of As of
September December 31,
1999 1998
---------------------------
Total Assets
---------------------------
(In thousands)
Australia......... $512,384 $181,169
New Zealand....... 128,602 23,789
Tahiti............ - -
Corporate......... 9,796 11,074
-------- --------
Total........ $650,782 $216,032
======== ========
(1) "Adjusted EBITDA" represents net operating earnings before depreciation,
amortization, non-cash general and administrative expense allocated from
parent, stock-based compensation charges and management fees. Industry
analysts generally consider Adjusted EBITDA to be a helpful way to measure
the performance of cable television operations and communications
companies. Management believes Adjusted EBITDA helps investors to assess
the cash flow from operations from period to period and thus, to value the
Company's business. Adjusted EBITDA should not, however, be considered a
replacement for net income, cash flows or for any other measure of
performance or liquidity under GAAP, or as an indicator of a company's
operating performance. The Company's presentation of Adjusted EBITDA may
not be comparable to statistics with a similar name reported by other
companies. Not all companies and analysts calculate EBITDA in the same
manner.
Adjusted EBITDA reconciles to the consolidated statements of operations as
follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C>
Net operating loss............................................. $(28,158) $(33,736) $(102,844) $(99,810)
Depreciation and amortization.................................. 25,086 22,379 75,029 73,014
Stock-based compensation expense............................... 1,264 - 18,894 -
Non-cash general and administrative expense
allocation from parent....................................... 823 (315) 2,391 3,617
Management fees................................................ 838 1,208 4,812 3,557
-------- -------- --------- --------
Consolidated Adjusted EBITDA.............................. $ (147) $(10,464) $ (1,718) $(19,622)
======== ======== ========= ========
</TABLE>
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes thereto included elsewhere herein. Such
condensed consolidated financial statements provide additional information
regarding our financial activities and condition.
We have no employees of our own. UAP, our parent, provides various management,
financial reporting, accounting and other services for us pursuant to the terms
of the UAP Management Agreement. Until June 24, 1999, Austar, Saturn, Telefenua
and United Wireless were also parties to technical service agreements with UAP
for which such operating companies paid to UAP fees based on their respective
gross revenues. Effective June 24, 1999, these technical service agreements with
UAP, excluding Telefenua, were assigned to Austar United.
Certain statements in this report may constitute "forward-looking statements"
within the meaning of the federal securities laws. These forward-looking
statements may include, among other things, statements concerning our plans,
objectives and future economic prospects, expectations, beliefs, future plans
and strategies, anticipated events or trends and similar expressions concerning
matters that are not historical facts. These forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements or industry results, to be
materially different from what we say or imply with such forward-looking
statements. These factors include, among other things, changes in television
viewing preferences and habits by subscribers and potential subscribers, their
acceptance of new technology, programming alternatives and new services we may
offer, our ability to secure adequate capital to fund other system growth and
development, risks inherent in investment and operations in foreign countries,
changes in government regulation, changes in the nature of key strategic
relationships with partners and joint venturers, and other factors referenced in
this report. These forward-looking statements apply only as of the date of this
report, and we have no obligation or plans to provide updates or revisions to
these forward-looking statements, or any other changes in events, conditions or
circumstances on which these statements are based. Our statements contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations in this report related to Year 2000 issues are hereby denominated as
"Year 2000 Statements" within the meaning of the Year 2000 Information and
Readiness Disclosure Act.
INTRODUCTION
As of September 30, 1999, we held (i) an effective 69.2% economic interest in
Austar, (ii) a 69.2% interest in Saturn, (iii) a 34.6% interest in XYZ
Entertainment and (iv) a 69.2% interest in United Wireless through Austar
United. In connection with the July 1999 Australian IPO, we decreased our
interest in Austar United from 91.7% to approximately 69.2% (67.8% on a fully
diluted basis after vested employee options). We also hold an up to 90.0%
economic interest in Telefenua.
Immediately prior to the Australian IPO, Austar United issued 13,659,574 shares
of Austar United to SaskTel for SaskTel's 35.0% interest in Saturn. As a result,
Saturn has been consolidated in these financial statements effective July 27,
1999. We previously consolidated the operations of Saturn from July 1, 1996
through September 30, 1998. Prior to that time, we accounted for our investment
in Saturn under the equity method. During the fourth quarter of 1998, we
discontinued consolidating the results of operations of Saturn effective as of
January 1, 1998 and returned to the equity method of accounting through July 26,
1999. The change was made to comply with the consensus guidance of the Emerging
Issues Task Force regarding Issue 96-16 ("EITF 96-16"), and related rules of the
SEC, because SaskTel had participating approval or veto rights with respect to
certain significant decisions of Saturn in the ordinary course of business.
Accordingly, the condensed consolidated statement of operations and statement of
cash flows for the period ended September 30, 1998 have been adjusted to reflect
the deconsolidation of Saturn effective as of January 1, 1998. Effective October
1, 1998, we discontinued consolidating the results of operations of Telefenua
due to an other-than-temporary loss of control and began using the equity method
of accounting.
15
<PAGE>
SUMMARY OPERATING DATA
The following tables set forth certain unaudited operating data:
<TABLE>
<CAPTION>
As of September 30, 1999
------------------------------------------------------------------------------------
Net
Television Basic Economic
Homes in Homes Subscribers/ Basic Ownership
Service Area Passed Lines Penetration Interest
------------ ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Multi-channel television:
Austar..................... 2,085,000 2,083,108 360,708 17.3% 69.2%
Saturn..................... 141,000 83,582 13,907 16.6% 69.2%
--------- --------- -------
Total................... 2,226,000 2,166,690 374,615
========= ========= =======
Telephony:
Saturn..................... 141,000 83,071 20,547 24.7% 69.2%
========= ========= =======
Programming:
XYZ Entertainment.......... N/A N/A 870,972(1) N/A 34.6%
========= ========= =======
Data:
Saturn (2)................. 141,000 83,071 4,826 5.8% 69.2%
========= ========= =======
As of September 30, 1998
------------------------------------------------------------------------------------
Net
Television Basic Economic
Homes in Homes Subscribers/ Basic Ownership
Service Area Passed Lines Penetration Interest
------------ ---------- ------------ ----------- ---------
Multi-channel television:
Austar..................... 2,085,000 2,072,706 251,255 12.1% 100.0%
Saturn..................... 141,000 42,712 4,651 10.9% 65.0%
--------- --------- -------
Total................... 2,226,000 2,115,418 255,906
========= ========= =======
Telephony:
Saturn..................... 141,000 26,974 4,190 15.5% 65.0%
========= ========= =======
Programming:
XYZ Entertainment.......... N/A N/A 647,255 (1) N/A 50.0%
========= ========= =======
</TABLE>
(1) This figure represents the total subscribers to the five-channel XYZ
Entertainment package.
(2) Saturn launched data services in late 1998.
16
<PAGE>
SELECTED SYSTEM OPERATING DATA. The following table displays selected system
operating data in Austar's local currency and U.S. dollar:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Austar (A$):
Revenue.................... 58,425 34,620 157,893 93,890
Adjusted EBITDA (1)........ (1,484) (16,355) (12,135) (25,795)
Austar (US$):
Revenue.................... 37,935 20,588 102,121 58,934
Adjusted EBITDA (1)........ (968) (9,718) (7,804) (15,513)
</TABLE>
(1) "Adjusted EBITDA" represents net operating earnings before
depreciation, amortization, non-cash general and administrative expense
allocated from parent and management fees. Industry analysts generally
consider Adjusted EBITDA to be a helpful way to measure the performance
of cable television operations and communications companies. We believe
Adjusted EBITDA helps investors to assess the cash flow from operations
from period to period and thus, to value our business. Adjusted EBITDA
should not, however, be considered a replacement for net income, cash
flows or for any other measure of performance or liquidity under GAAP,
or as an indicator of a company's operating performance. Our
presentation of Adjusted EBITDA may not be comparable to statistics
with a similar name reported by other companies. Not all companies and
analysts calculate EBITDA in the same manner.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, we had invested approximately $446.5 million in our
projects. These fundings do not include amounts contributed by shareholders
other than the Company, proceeds from the Australian IPO, the operating
subsidiary bank borrowings or amounts contributed in either cash or stock to
acquire additional economic interests.
As of
September 30,
SOURCES OF FUNDINGS: 1999
--------------
(In thousands)
Senior discount notes proceeds, net of offering costs...... $244,652
Cash contributions and other equity from parent (1)........ 197,344
Cash received for interest................................. 4,546
--------
Total................................................. $446,542
========
As of
September 30,
USES OF FUNDINGS: 1999
--------------
(In thousands)
Austar (1)................................................. $349,429
Saturn..................................................... 44,612
Telefenua.................................................. 16,738
XYZ Entertainment.......................................... 16,481
United Wireless............................................ 11,344
Other...................................................... 7,938
--------
Total................................................. $446,542
========
(1) Includes issuance/use of $29.8 million and $6.2 million in United
convertible preferred stock in 1995 and 1998, respectively, to acquire
additional economic interests in Australia.
17
<PAGE>
We are responsible for our proportionate share of capital requirements of the
operating companies. We have funded our proportionate share to date with capital
contributions by United through UAP and proceeds from private debt offerings and
have reduced our proportionate share to date with subsidiary bank debt and
strategic partner contributions. We do not expect to contribute additional
capital to Austar United for their on-going operating and development
requirements, as future funding will come from the Australian IPO proceeds, the
New Austar Bank Facility, the Saturn Bank Facility and operating cash flow.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Cash and cash equivalents increased $12.7 million from $0.2 million as of
December 31, 1998 to $12.9 million as of September 30, 1999. Principal sources
of cash during the nine months ended September 30, 1999 included proceeds from
the Australian IPO of $294.3 million, borrowings on the New Austar Bank Facility
and the Saturn Bank Facility of $198.1 million, cash contributions from parent
of $29.6 million and other investing and financing sources totaling $3.6
million.
During the nine months ended September 30, 1999, cash was used principally for
purchase of short-term liquid investments of $270.0 million, payment of the
Austar Bank Facility of $129.1 million, purchases of property, plant and
equipment totaling $83.5 million to continue new subscriber connections at
Austar and the build-out of existing projects, the funding of operating
activities of $12.6 million, deferred financing costs of $8.1 million,
investments in and advances to affiliated companies of $5.2 million and other
uses totaling $4.4 million.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
We incurred a net loss during the nine months ended September 30, 1998 of $151.2
million, which included non-cash items such as depreciation and amortization
expense totaling $73.0 million and accretion of interest on the Notes and
amortization of deferred financing costs totaling $36.3 million.
Cash and cash equivalents decreased $11.7 million from $12.3 million as of
December 31, 1997 to $0.6 million as of September 30, 1998. Principal sources of
cash during the nine months ended September 30, 1998 included cash contributions
from parent of $53.5 million, net proceeds from the sale of short-term
investments of $12.3 million, borrowings on the Austar Bank Facility of $9.4
million and other investing and financing sources of $1.2 million.
During the nine months ended September 30, 1998, cash was used principally for
the purchase of property, plant and equipment of $38.2 million to construct
Austar's and Telefenua's systems, the funding of operating activities of $28.6
million, investments in and advances to affiliated companies of $10.9 million,
the deconsolidation of Saturn of $9.9 million and other investing and financing
uses totaling $0.5 million.
RESULTS OF OPERATIONS
On July 27, 1999, Austar United acquired from SaskTel its 35.0% interest in
Saturn in exchange for 13,659,574 of its shares, thereby increasing Austar
United's ownership interest in Saturn from 65.0% to 100%. As a result, Saturn
was consolidated in these financial statements as of July 27, 1999. We had
previously discontinued consolidating the results of operations of Saturn and
returned to the equity method of accounting, effective as of January 1, 1998
(see Note 2 to our financial statements). Accordingly, the results of operations
for the three and nine months ended September 30, 1998 have been restated to
reflect the effect of this change.
EXCHANGE RATES. We translate revenue and expense from our foreign subsidiaries
using the weighted-average exchange rates during the period. However, for ease
of presentation, the spot rates for the countries in the Australia/Pacific
region are shown below for the Australian and New Zealand dollar per one U.S.
dollar.
Australian New Zealand
Dollars Dollars
---------- -----------
September 30, 1999..................... 1.5336 1.9316
December 31, 1998...................... 1.6332 1.8939
September 30, 1998..................... 1.6855 2.0000
December 31, 1997...................... 1.5378 1.7161
18
<PAGE>
REVENUE. We recognized revenue of $41.7 million and $106.6 million for the three
and nine months ended September 30, 1999, respectively, compared to $21.8
million and $62.6 million for the same periods in the prior year. This was an
increase of $19.9 million and $44.0 million for the three and nine months ended
September 30, 1999, respectively, compared to the amounts for the corresponding
periods in the prior year.
AUSTAR
Revenue for Austar increased $17.3 million, or 84.0% from $20.6 million for the
three months ended September 30, 1998 to $37.9 million for the three months
ended September 30, 1999. Austar's revenue increased $43.2 million, or 73.3%,
from $58.9 million for the nine months ended September 30, 1998 to $102.1
million for the nine months ended September 30, 1999. The U.S. dollar increase
in revenue was positively impacted by $2.8 million and $3.1 million due to
fluctuation in exchange rates between the three and nine months ended September
30, 1999, respectively, compared to the same periods in the prior year. On a
functional currency basis, Austar's revenue increased A$23.8 million from A$34.6
million for the three months ended September 30, 1998 to A$58.4 million for the
three months ended September 30, 1999, a 68.8% increase. Austar's functional
currency revenue increased A$64.0 million, from A$93.9 million for the nine
months ended September 30, 1998 to A$157.9 million for the nine months ended
September 30, 1999, a 68.2% increase. These increases were primarily due to
subscriber growth (360,708 at September 30, 1999 compared to 251,255 at
September 30, 1998) and increased average monthly revenue per subscriber as
Austar continues to expand its customer base. The average monthly revenue per
subscriber increased A$7.48 ($4.88) from an average per subscriber of A$46.36
($30.23) for the nine months ended September 30, 1998 to an average of A$53.84
($35.11) per subscriber for the nine months ended September 30, 1999, a 16.1%
increase.
ADJUSTED EBITDA. Adjusted EBITDA was negative $0.1 million and negative $1.7
million for the three and nine months ended September 30, 1999, respectively,
compared to negative $10.5 million and negative $19.6 million for the same
periods in the prior year. This was an improvement in the Adjusted EBITDA loss
of $10.4 million and $17.9 million for the three and nine months ended September
30, 1999, respectively, compared to the amounts for the corresponding periods in
the prior year.
AUSTAR
Austar's Adjusted EBITDA loss decreased $8.7 million, or 89.7%, from negative
$9.7 million for the three months ended September 30, 1998 to negative $1.0
million for the three months ended September 30, 1999. Austar's Adjusted EBITDA
loss decreased $7.7 million, or 49.7%, from negative $15.5 million for the nine
months ended September 30, 1998 to negative $7.8 million for the nine months
ended September 30, 1999. The U.S. dollar Adjusted EBITDA loss decrease was
positively impacted by $0.1 million due to fluctuation in exchange rates between
the three months ended September 30, 1999 and 1998 and the U.S. dollar Adjusted
EBITDA loss decrease was positively impacted by $0.2 million due to fluctuation
in exchange rates between the nine months ended September 30, 1999 and 1998.
These decreases in Adjusted EBITDA loss for the three and nine months were
primarily due to Austar achieving incremental sales growth while keeping certain
costs fixed, such as the national customer service center, corporate management
staff and media-related marketing costs. On a functional currency basis,
Austar's Adjusted EBITDA loss decreased A$14.9 million from negative A$16.4
million for the three months ended September 30, 1998 to negative A$1.5 million
for the three months ended September 30, 1999, a 90.9% decrease. Austar's
functional currency Adjusted EBITDA loss decreased A$13.7 million, from negative
A$25.8 million for the nine months ended September 30, 1998 to negative A$12.1
million for the nine months ended September 30, 1999, a 53.1% decrease.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
increased $2.7 million and $2.0 million for the three and nine months ended
September 30, 1999, respectively, compared to the amounts for the corresponding
periods in the prior year as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
--------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Austar...................................... $23,229 $21,774 $72,183 $70,009
Saturn...................................... 1,540 - 1,540 -
Other....................................... 317 605 1,306 3,005
------- ------- ------- -------
Total depreciation and amortization
expense.............................. $25,086 $22,379 $75,029 $73,014
======= ======= ======= =======
</TABLE>
19
<PAGE>
AUSTAR
Depreciation and amortization expense for Austar increased $1.4 million, or
6.4%, from $21.8 million for the three months ended September 30, 1998 to $23.2
million for the three months ended September 30, 1999. Depreciation and
amortization expense for Austar increased $2.2 million, or 3.1% from $70.0
million for the nine months ended September 30, 1998 to $72.2 million for the
nine months ended September 30, 1999. The U.S. dollar increases were negatively
impacted by $1.7 million due to fluctuation in exchange rates between the three
months ended September 30, 1999 and 1998 and negatively impacted by $2.1 million
due to fluctuation in exchange rates between the nine months ended September 30,
1999 and 1998. On a functional currency basis, Austar's depreciation and
amortization expense decreased A$0.7 million, from A$35.1 million for the three
months ended September 30, 1998 to A$34.4 million for the three months ended
September 30, 1999, a 2.0% decrease. On a functional currency basis, Austar's
depreciation and amortization expense increased A$1.1 million, from A$106.4
million for the nine months ended September 30, 1998 to A$107.5 million for the
nine months ended September 30, 1999, a 1.0% increase.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE. Corporate general and
administrative expense increased $3.0 million from $(0.1) million for the three
months ended September 30, 1998 due to an allocation adjustment to $2.9 million
for the three months ended September 30, 1999. Corporate general and
administrative expense increased $18.1 million from $4.5 million for the nine
months ended September 30, 1998 to $22.6 million for the nine months ended
September 30, 1999. This increase was primarily attributable to a stock-based
compensation charge of $18.9 million from the AU Plan for the nine months ended
September 30, 1999 compared to nil for the same period in 1998.
GAIN ON ISSUANCE OF SECURITIES BY SUBSIDIARY.
Restructuring of Assets. In June 1999, the 25.0% in XYZ Entertainment held by
UAP was exchanged for an 8.3% ownership interest in United Austar, Inc.,
increasing the Company's interest in XYZ Entertainment to 50.0%. Based on the
carrying value of our investment in United Austar, Inc., we recognized a gain of
$22.3 million from the resulting step-up in the carrying amount of our
investment in United Austar, Inc., in accordance with SAB 51.
INITIAL PUBLIC OFFERING. On July 27, 1999, Austar United successfully completed
the Australian IPO selling 103.5 million shares on the Australian Stock Exchange
raising gross and net proceeds at A$4.70 ($3.03) per share of A$486.5 ($313.6)
million and A$456.5 ($294.3) million, respectively. Based on the carrying value
of our investment in Austar United as of July 27, 1999, we recognized a gain of
$226.9 million from the resulting step-up in the carrying amount of our
investment in Austar United, in accordance with SAB 51. No deferred taxes were
recorded related to this gain due to our intent on holding our investment in
Austar United indefinitely.
INTEREST EXPENSE. Interest expense increased $3.5 million and $9.2 million for
the three and nine months ended September 30, 1999, respectively, compared to
the amounts for the corresponding periods in the prior year. These increases
were primarily due to interest expense related to the Austar Bank Facility which
was $4.2 million and $12.1 million for the three and nine months ended September
30, 1999, respectively, compared to $1.7 million and $5.3 million for the three
and nine months ended September 30, 1998, respectively.
OTHER INCOME/EXPENSE. Other expense, net decreased $1.1 million for the three
months ended September 30, 1999 compared to the corresponding period in the
prior year. Other expense, net increased $3.5 million for the nine months ended
September 30, 1999 compared to the amount for the corresponding period in the
prior year. This increase was primarily due to a programming license write-off
of $3.7 million in May 1999.
SHARE IN RESULTS OF AFFILIATED COMPANIES, NET. Our share in results of
affiliated companies totaled a loss of $4.2 million and $12.9 million for the
three and nine months ended September 30, 1999, respectively, compared to $4.7
million and $8.2 million for the same periods in the prior year as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
--------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Saturn (1).................................. $(2,679) $(4,056) $ (6,324) $(8,062)
XYZ Entertainment........................... (1,496) (603) (6,531) (133)
------- ------- -------- -------
Total share in results of affiliated
companies, net............................. $(4,175) $(4,659) $(12,855) $(8,195)
======= ======= ======== =======
</TABLE>
(1) Equity in losses through July 26, 1999 only, due to acquisition of
additional 35.0% by Austar United.
20
<PAGE>
YEAR 2000 READINESS DISCLOSURE
Our multi-channel television, programming and telephony operations are heavily
dependent upon computer systems and other technological devices with embedded
chips. Such computer systems and other technological devices may not be capable
of accurately recognizing dates beginning on January 1, 2000. This problem could
cause miscalculations, resulting in our multi-channel television and telephony
systems or programming services malfunctioning or failing to operate.
YEAR 2000 PROGRAM. In response to possible Year 2000 problems, the Board of
Directors of United established a Task Force to assess the impact that potential
Year 2000 problems may have on company-wide operations, including the Company
and its operating companies, and to implement necessary changes to address such
problems. The Task Force reports directly to the United Board. In creating a
program to minimize Year 2000 problems, the Task Force identified certain
critical operations of our business. These critical operations are service
delivery systems, field and headend devices, customer service and billing
systems and corporate management and administrative operations (e.g., cash flow,
accounts payable and accounts receivable, payroll and building operations).
The Task Force has established a three-phase program to address potential Year
2000 problems:
(a) Identification Phase: identify and evaluate computer systems and other
devices (e.g., headend devices, switches and set top boxes) on a
system by system basis for Year 2000 compliance.
(b) Implementation Phase: establish a database and evaluate the
information obtained in the Identification Phase, determine
priorities, implement corrective procedures, define costs and ensure
adequate funding.
(c) Testing Phase: test the corrective procedures to verify that all
material compliance problems will operate on and after January 1,
2000, and develop, as necessary, contingency plans for material
operations.
As of September 30, 1999, 97.0% of our operating systems had completed the
Identification Phase and the Task Force is working on the Implementation Phase
for these systems. The Task Force has researched almost 100% of the items
identified during the Identification Phase as to Year 2000 compliance. Of the
items researched, 95.0% are either compliant or can be easily remediated without
significant cost to us. Based on current data to date, the computer systems for
all corporate operations are expected to be in compliance prior to Year 2000 and
should not require material remediation or replacement.
The Task Force commenced the Testing Phase in first quarter 1999. The Task Force
is supervising the Testing Phase of the computer systems for our headend
controllers and our customer service billing systems and routers. Based on
current data to date, testing will continue to the end of 1999. At this time, we
anticipate that all material aspects of the program will be completed before
January 1, 2000. Certain of our operating systems have not completed the
Identification Phase, including Tahiti and certain Australian programming
interests. Despite the Task Force's attempts to include these systems in the
Year 2000 Programs, these systems have not responded. Therefore, we have no
information on which to determine if these systems will be Year 2000 compliant
by December 31, 1999. If none of these systems are compliant, we do not believe
that their operation failure will have a material adverse effect on our business
as a whole. The basis for determining the above percentages includes these
systems. In general, United is managing the program with its internal Task
Force. In addition, we have retained independent consultants to assist with our
operations in New Zealand, the results of which are not included in the above
percentages.
In addition to its program, United is a member of a Year 2000 working group,
which has 12 cable television companies and meets under the auspices of Cable
Labs. The dialogue with the other cable operators has assisted United in
developing its Year 2000 program. Part of the agenda of the working group is to
develop test procedures and contingency plans for critical components of
operating systems for the benefit of all of its members. These test procedures
and plans have been completed and made available to members, including United
and the Company.
THIRD PARTY DEPENDENCIES. We believe our largest Year 2000 risk is our
dependency upon third-party products. Two significant areas on which our systems
depend upon third-party products are programming and telephony interconnects. We
do not have the ability to control such parties in their assessment and
remediation procedures for potential Year 2000 problems. Should these parties
not be prepared for Year 2000, their systems may fail and we would not be able
to provide service to our customers. Notwithstanding these limitations, the Task
Force monitors the websites for all vendors used by us, to the extent available,
for information on such vendors' Year 2000 programs. To the extent applicable,
the Task Force uses such information to verify Year 2000 compliance and to
implement remediation procedures. For example, this is how the Task Force
21
<PAGE>
learned that previously compliant reports on computer hardware and software from
third party vendors have been re-classified as non-compliant or conditional
compliant. Such changes are not within the control of the Company.
We also have requested information from various third parties on the status of
their Year 2000 compliance programs in an effort to prevent any possible
interruptions or failures. To date, responses to such communications have been
limited and the responses received state only that the party is working on Year
2000 issues and does not have a definitive position at this time. As a result,
we are unable to assess the risk posed by our dependence upon such third
parties' systems. Vendors for critical equipment components, such as the headend
controllers mentioned below, have been more responsive and we believe
substantially all of our equipment will be Year 2000 compliant. We cannot,
however, give any assurance concerning compliance of equipment because such
belief is based on information provided by vendors, which cannot be
independently verified, and because of the uncertainties inherent in Year 2000
remediation.
The Task Force is considering certain limited contingency plans, including
preparing back-up programming and stand-by power generators. Such contingency
plans may not, however, resolve the problem in a satisfactory manner. With
respect to other third-party systems, each operating system is responsible for
inquiring of their vendors and other entities with which they do business (e.g.,
utility companies, financial institutions and facility owners) as to such
entities' Year 2000 compliance programs. In addition, the Task Force has
distributed a contingency plan to all of our operating systems. Such plan sets
forth preparation procedures and recovery solutions.
The Task Force is working closely with the manufacturers of our headend devices
to remedy any Year 2000 problems assessed in the headend equipment. Recent
information from the two primary manufacturers of such equipment indicate that
most of the equipment used in our operating systems are not date sensitive.
Where such equipment needs to be upgraded for Year 2000 issues, such vendors are
upgrading without charge. These upgrades are expected to be completed before
year-end 1999, but such a process is not wholly within our control or our
systems' control. Approximately 99.0% of the headend controllers, which are the
most critical component of the headend devices have been upgraded and tested as
compliant. With respect to billing and customer care systems, we use standard
billing and customer care programs from several vendors. The Task Force is
working with such vendors to achieve Year 2000 compliance for all systems.
COSTS OF COMPLIANCE. The Task Force is not able to determine the full cost of
its Year 2000 program and its related impact on our financial condition. In the
course of our business, we have made substantial capital adjustments over the
past few years in improving our systems, primarily for reasons other than Year
2000. Because these upgrades also resulted in Year 2000 compliance, replacement
and remediation costs have been low. The Task Force estimates the cost for the
Year 2000 program to be $1.5 million. The cost includes certain identified
replacement and remediation procedures and external consultants. Such estimate
does not, however, include internal costs because we do not separately track the
internal costs incurred for the Year 2000 program. Although no assurance can be
made, we believe that the known Year 2000 compliance issues can be remedied
without a material financial impact. No assurance can be made, however, as to
the total cost for the Year 2000 program until completion of the project. In
addition, we can not predict the financial impact we will incur if Year 2000
problems are caused by third parties upon which our systems are dependent or
experienced by entities in which we hold investments. The failure of any one of
these parties to implement Year 2000 procedures could have a material adverse
impact on our operations and financial condition.
22
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
------------------------------------------------------------------
INVESTMENT PORTFOLIO
We do not use derivative financial instruments in our non-trading investment
portfolio. We place our cash and cash equivalent investments in highly liquid
instruments that meet high credit quality standards with original maturities at
the date of purchase of less than three months. We also place our short-term
investments in liquid instruments that meet high credit quality standards with
original maturities at the date of purchase of between three and twelve months.
We also limit the amount of credit exposure to any one issue, issuer or type of
instrument. These investments are subject to interest rate risk and will fall in
value if market interest rates increase, however, we do not expect any material
loss with respect to our investment portfolio.
IMPACT OF FOREIGN CURRENCY RATE CHANGES
We are exposed to foreign exchange rate fluctuations related to the operating
subsidiaries' monetary assets and liabilities and the financial results of
foreign subsidiaries when their respective financial statements are translated
into U.S. dollars during consolidation. Our exposure to foreign exchange rate
fluctuations also arises from intercompany charges such as the cost of
equipment, management fees and certain other charges. These intercompany
accounts are predominantly denominated in the functional currency of the foreign
subsidiary.
The operating companies' monetary assets and liabilities are subject to foreign
currency exchange risk as certain equipment purchases and payments for certain
operating expenses, such as programming expenses, are denominated in currencies
other than their own functional currency. In addition, certain of the operating
companies have notes payable and notes receivable which are denominated in a
currency other than their own functional currency. Foreign currency rate changes
also affect our share in results of our unconsolidated affiliates such as XYZ
Entertainment.
The spot rates for the countries in the Australia/Pacific region are shown below
for the Australian and New Zealand dollars per one U.S. dollar.
Australian New Zealand
Dollars Dollars
----------- -----------
September 30, 1999............................ 1.5336 1.9316
December 31, 1998............................. 1.6332 1.8939
September 30, 1998............................ 1.6855 2.0000
December 31, 1997............................. 1.5378 1.7161
In general, the Company and the operating companies do not execute hedge
transactions to reduce our exposure to foreign currency exchange rate risk.
Accordingly, we may experience economic loss and a negative impact on earnings
and equity with respect to our holdings solely as a result of foreign currency
exchange rate fluctuations.
The countries in which the operating companies now conduct business generally do
not restrict the removal or conversion of local or foreign currency, however,
there is no assurance this situation will continue. We may also acquire
interests in companies that operate in countries where the removal or conversion
of currency is restricted.
23
<PAGE>
INTEREST RATE SENSITIVITY
The table below provides information about our primary debt obligations. The
information is presented in U.S. dollar equivalents, which is our reporting
currency. The instrument's actual cash flows are denominated in both U.S.
dollars (the Notes), Australian dollars (New Austar Bank Facility) and New
Zealand dollars (Saturn Bank Facility).
<TABLE>
<CAPTION>
As of September 30, 1999
------------------------------------------
Book Value Fair Value
---------- ----------
(U.S. dollars, in thousands, except interest rates)
<S> <C> <C>
Long-term and short-term debt:
Fixed rate USD denominated Notes....................... $394,453 $374,578
Average interest rate................................ 14.00% 15.04%
Variable rate NZ$ denominated Saturn Bank Facility..... $ 52,288 $ 52,288
Average interest rate................................ 8.03% 8.03%
Variable rate A$ denominated New Austar Bank Facility.. $173,448 $173,448
Average interest rate................................ 7.65% 7.65%
</TABLE>
The table below presents principal cash flows and related weighted-average
interest rates by expected maturity dates for our debt obligations. The
information is presented in U.S. dollar equivalents, which is our reporting
currency. The instrument's actual cash flows are denominated in both U.S.
dollars (the Notes), Australian dollars (New Austar Bank Facility) and New
Zealand dollars (Saturn Bank Facility).
<TABLE>
<CAPTION>
As of September 30, 1999
------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total
-------- -------- -------- -------- -------- ---------- ---------
(U.S. dollars, in thousands, except interest rates)
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term and short-term debt:
Fixed rate USD denominated Notes....................... $ - $ - $ - $ - $ - $394,453 $394,453
Variable rate NZ$ denominated Saturn Bank Facility..... $ - $ - $647 $5,177 $ 9,319 $ 37,145 $ 52,288
Variable rate A$ denominated New Austar Bank Facility.. $ - $ - $ - $ - $51,553 $121,895 $173,448
</TABLE>
Interest rate swap agreements are used by the Company from time to time, to
manage interest rate risk on its floating rate debt facilities. Interest rate
swaps are entered into depending on our assessment of the market, and generally
are used to convert the floating rate debt to fixed rate debt. Interest
differentials paid or received under these swap agreements are recognized over
the life of the contracts as adjustments to the effective yield of the
underlying debt, and related amounts payable to, or receivable from, the
counterparties are included in the consolidated balance sheet.
Currently, we have four interest rate swaps to manage interest rate exposure on
the New Austar Bank Facility. Two of these swap agreements expire in 2002 and
effectively convert an aggregate principal amount of A$50.0 ($32.6) million of
variable rate, long-term debt into fixed rate borrowings. The other two swap
agreements expire in 2004 and convert an aggregate principal amount of A$100.0
($65.2) million of variable rate, long-term debt into fixed rate borrowings. As
of September 30, 1999, the weighted-average fixed rate under these agreements
was 7.95%. As a result of these swap agreements, interest expense was increased
by approximately A$0.3 ($0.2) million during the third quarter 1999.
In addition, we have an interest rate swap to manage our exposure on the Saturn
Bank Facility which effectively converts an aggregate principal amount of
NZ$60.6 ($31.4) million of variable rate, long-term debt into fixed rate
borrowings. The interest rate swap includes a stepped fix rate with an
additional margin which is expected to decline as the debt to EBITDA ratio
declines. As of September 30, 1999, the average fixed rate under the agreement
was 9.34%. As a result of this swap agreement, interest expense was increased by
approximately NZ$0.2 ($0.1) million during the third quarter 1999.
24
<PAGE>
Fair values of the interest rate swap agreements are based on the estimated
amounts that we would receive or pay to terminate the agreements at the
reporting date, taking into account current interest rates and the current
creditworthiness of the counterparties. As of September 30, 1999, we estimate
that we would have paid approximately A$3.4 ($2.2) million to terminate the
agreements on the New Austar Bank Facility.
The table below provides information about our interest rate swaps. The table
presents notional amounts and weighted-average interest rates by expected
(contractual) maturity dates. Notional amounts are used to calculate the
contractual payments to be exchanged under the contract. The information is
presented in U.S. dollar equivalents (in thousands), which is our reporting
currency. The instrument's actual cash flows are denominated in Australian and
New Zealand dollars.
<TABLE>
<CAPTION>
As of September 30, 1999
------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total
-------- -------- -------- -------- -------- ---------- ---------
(U.S. dollars, in thousands, except interest rates)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps:
Variable to fixed (New Austar Bank Facility)........... $ - $ - $ - $32,603 $ - $65,206 $97,809
Average pay rate %................................... 7.95% 7.95% 7.95% 7.95% 7.95% 7.95% 7.95%
Average receive rate %............................... 7.65% 7.65% 7.65% 7.65% 7.65% 7.65% 7.65%
Variable to fixed (Saturn Bank Facility)............... $ - $ - $ - $ - $ - $31,373 $31,373
Average pay rate %................................... 9.34% 9.09% 10.19% 10.19% 9.69% 9.94% 9.74%
Average receive rate %............................... 8.03% 8.03% 8.03% 8.03% 8.03% 8.03% 8.03%
</TABLE>
25
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(a) Exhibits
10.1 Supplemental Deed dated July 15, 1999 by and among Saturn
Communications Limited, as the Borrower, Kiwi Cable Company
Limited, as Guarantor, SaskTel Holding, (New Zealand) Inc. and
Saturn (NZ) Holding Company Pty Ltd, as the Mortgagors, each
financial institution specified as a bank in Schedule 1 attached
thereto, and Toronto Dominion Australia Limited, as the Agent.
(1)
10.2 Second Supplemental Deed and Capital Contribution dated July 29,
1999 by and among Saturn Communications Limited, as the Borrower,
Kiwi Cable Company Limited, as Guarantor, Austar United
Communications Limited and Saturn (NZ) Holding Company Pty Ltd,
as the Mortgagors and Toronto Dominion Australia Limited, as the
Agent. (1)
27.1 Financial Data Schedule
(1) Incorporated by reference from the Company's Quarterly Report on
Form 10-Q dated November 15, 1999.
(b) Reports on Form 8-K filed during the quarter.
Date of Filing Date of Event Item Reported
--------------------- ----------------- ------------------------
July 28, 1999 July 27, 1999 Item 5 - Other Events
26
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED AUSTRALIA/PACIFIC, INC.
Date: August 14, 2000
---------------------------------------
By: /S/ Valerie L. Cover
---------------------------------------
Valerie L. Cover
Controller
(A Duly Authorized Officer and Principal Financial Officer)
27
