<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2000
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to_________
Commission File No. 000-25365
United Pan-Europe Communications N.V.
(Exact name of Registrant as specified in its charter)
The Netherlands 98-0191997
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Beech Avenue 100,
1119 PW Schiphol Rijk, The Netherlands 1119 PW
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (31) 20-778-9840
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 number of shares outstanding of the Registrant's common stock as of November
13, 2000 was:
441,246,729 ordinary shares A, including
shares represented by American Depository Receipts
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
PART 1 - FINANCIAL INFORMATION
------------------------------
<S> <C>
Item 1 - Financial Statements
------
Consolidated Balance Sheets of September 30, 2000 (Unaudited) and December 31, 1999.......................... 1
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2000 and 1999
(Unaudited).................................................................................................. 2
Consolidated Statement of Shareholders' Equity for the Nine Months Ended
September 30, 2000 (Unaudited)......................................................................... 3
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000
and 1999 (Unaudited)................................................................................... 4
Notes to Consolidated Financial Statements (Unaudited)....................................................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 27
------
Item 3 - Quantitative and Qualitative Disclosure About Market Risk.............................................. 52
------
PART II - OTHER INFORMATION
---------------------------
Item 2 - Changes in Securities and Use of Proceeds.............................................................. 57
------
Item 5 - Other Information...................................................................................... 58
------
Item 6 - Exhibits and Reports on Form 8-K....................................................................... 65
------
</TABLE>
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands of Euros, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
As of As of
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS:
Current assets
Cash and cash equivalents............................................................... 181,980 1,025,460
Restricted cash......................................................................... 17,135 17,135
Subscriber receivables, net of allowance for doubtful accounts of 36,138 and
16,754, respectively................................................................... 97,360 59,860
Other receivables, including related party receivables of 7,980 and 10,500,
respectively........................................................................... 148,784 101,870
Inventory.............................................................................. 159,540 66,403
Prepaid expenses and other current assets............................................... 135,676 72,925
------------- ------------
Total current assets............................................................. 740,475 1,343,653
Other investments........................................................................ 245,064 623,341
Investments in and advances to affiliated companies, accounted for under the
equity method, net..................................................................... 748,156 242,847
Property, plant and equipment, net of accumulated depreciation of 499,774 and
194,205, respectively.................................................................. 2,928,936 1,908,414
Goodwill and other intangible assets, net of accumulated amortization of 347,408
and 133,667, respectively.............................................................. 3,913,452 2,611,413
Deferred financing costs, net of accumulated amortization of 16,769 and 5,937,
respectively........................................................................... 119,153 77,861
Other assets............................................................................. 45,389 1,734
------------- ------------
Total assets..................................................................... 8,740,625 6,809,263
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities
Accounts payable, including related party payables of 4,284 and 2,785, respectively..... 336,099 239,747
Accrued liabilities..................................................................... 439,642 273,141
Subscriber prepayments and deposits..................................................... 74,709 41,208
Short-term debt......................................................................... 1,059,610 163,241
Current portion of long-term debt....................................................... 10,106 50,291
------------- ------------
Total current liabilities........................................................ 1,920,166 767,628
Long-term debt........................................................................... 6,049,224 3,903,410
Deferred taxes........................................................................... 13,743 15,961
Deferred compensation.................................................................... 61,291 70,804
Other long-term liabilities.............................................................. 32,495 19,365
------------- ------------
Total liabilities................................................................ 8,076,919 4,777,168
============= ============
Commitments and contingencies, see Note 10.
Minority interests in subsidiaries....................................................... 11,312 11,895
Shareholders' equity (As adjusted for stock split, see Note 11)
Priority stock, 1.0 par value, 300 shares authorized, 300 and 300 shares issued,
respectively........................................................................... - -
Ordinary stock, 1.0 par value, 600,000,000 shares authorized, 441,246,729 and
435,604,497 shares issued and outstanding, respectively................................ 441,247 435,605
Additional paid-in capital.............................................................. 2,703,980 2,371,951
Deferred compensation................................................................... (103,784) (47,425)
Accumulated deficit..................................................................... (2,589,250) (1,114,219)
Other cumulative comprehensive income................................................... 200,201 374,288
------------- ------------
Total shareholders' equity....................................................... 652,394 2,020,200
------------- ------------
Total liabilities and shareholders' equity....................................... 8,740,625 6,809,263
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
1
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENT OF OPERATIONS
(Stated in thousands of Euros, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service and other revenue.............................................. 257,877 125,518 695,466 276,152
Operating expense...................................................... (179,020) (75,051) (476,726) (143,613)
Selling, general and administrative expense............................ (171,984) (79,591) (419,871) (199,905)
Depreciation and amortization.......................................... (187,396) (87,170) (477,261) (154,513)
------------ ------------ ------------ ------------
Net operating loss................................................... (280,523) (116,294) (678,392) (221,879)
Interest income........................................................ 8,377 4,220 30,506 10,355
Interest expense....................................................... (176,783) (57,014) (484,465) (85,197)
Foreign exchange gain (loss) and other income (expense), net........... (153,653) 5,736 (277,605) 11,195
------------ ------------ ------------ ------------
Net loss before income taxes and other items......................... (602,582) (163,352) (1,409,956) (285,526)
Share in results of affiliated companies, net.......................... (40,638) (10,296) (71,696) (25,347)
Minority interests in subsidiaries..................................... 4,606 538 7,096 590
Income tax (expense) benefit........................................... (889) 2,685 (475) 3,193
------------ ------------ ------------ ------------
Net loss............................................................. (639,503) (170,425) (1,475,031) (307,090)
============ ============ ============ ============
Basic and diluted net loss per ordinary share(1)....................... (1.46) (0.44) (3.38) (0.85)
============ ============ ============ ============
Weighted-average number of ordinary shares outstanding(1).............. 438,812,857 389,553,582 436,973,545 361,760,589
============ ============ ============ ============
</TABLE>
(1) As adjusted for the stock split. See Note 11.
The conversion of Dutch Guilder amounts into Euros related to the financial
information presented prior to the creation of the Euro, was
calculated using the exchange rate of 1 Euro
to 2.20371 Dutch Guilders.
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Stated in thousands of Euros, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Priority Stock Ordinary Stock Additional
----------------------- ----------------------- Paid-In
Shares (2) Amount Shares (2) Amount Capital
--------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999...................... 300 - 435,604,497 435,605 2,371,951
Issuance of shares related to converted
United loan.................................... - - 624,942 625 (625)
Issuance of warrants............................ - - - - 121,010
Deferred compensation expense related to stock
options and restricted stock, net.............. - - - - 22,629
Amortization of deferred compensation........... - - - - -
SAB 51 gain on subsidiary's issuance of shares.. - - - - 53,765
Issuance of shares related to acquisiton of
minority interest UPC France................... - - 960,837 961 12,039
Issuance of shares for repayment of Stjarn note. - - 4,056,453 4,056 116,011
Deferred compensation on restricted stock....... - - - - 7,200
Unrealized loss on investments.................. - - - - -
Change in cumulative translation adjustments.... - - - - -
Net loss........................................ - - - - -
Total comprehensive income (loss)............... - - - - -
--------- --------- ----------- --------- ---------
Balance, September 30, 2000..................... 300 - 441,246,729 441,247 2,703,980
========= ========= =========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Comprehensive
Deferred Accumulated Income
Compensation Deficit (Loss) (1) Total
-------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1999...................... (47,425) (1,114,219) 374,288 2,020,200
Issuance of shares related to converted
United loan.................................... - - - -
Issuance of warrants............................ - - - 121,010
Deferred compensation expense related to stock
options and restricted stock, net.............. (22,629) - - -
Amortization of deferred compensation........... (26,530) - - (26,530)
SAB 51 gain on subsidiary's issuance of shares.. - - - 53,765
Issuance of shares related to acquisiton of
minority interest UPC France................... - - - 13,000
Issuance of shares for repayment of Stjarn note. - - - 120,067
Deferred compensation on restricted stock....... (7,200) - - -
Unrealized loss on investments.................. - - (206,308) (206,308)
Change in cumulative translation adjustments.... - - 32,221 32,221
Net loss........................................ - (1,475,031) - (1,475,031)
-----------
Total comprehensive income (loss)............... - - - (1,649,118)
-------------- ----------- --------------- -----------
Balance, September 30, 2000..................... (103,784) (2,589,250) 200,201 652,394
============== =========== =============== ===========
</TABLE>
(1) As of December 31, 1999, Other Cumulative Comprehensive Income (Loss)
represents foreign currency translation adjustments of 4,023 and unrealized
gain on investments of 370,265. As of September 30, 2000, Other Cumulative
Comprehensive Income (Loss) represents foreign currency translation
adjustments of 36,244 and unrealized gain on investments of 163,957.
(2) As adjusted for the stock split. See Note 11.
The conversion of Dutch Guilder amounts into Euros related to the financial
information presented prior to the creation of the Euro, was calculated using
the exchange rate of 1 Euro to 2.20371 Dutch Guilders.
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of Euros, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
----------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ (1,475,031) (307,090)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization...................................................... 477,261 154,513
Amortization of deferred financing costs........................................... 11,019 8,812
Accretion of interest expense...................................................... 196,302 15,190
Share in results of affiliated companies, net...................................... 71,696 25,347
Compensation expense related to stock options...................................... (30,850) 49,682
Minority interests in subsidiaries................................................. (7,096) (590)
Exchange rate differences in loans................................................. 251,581 (2,046)
Other.............................................................................. 9,870 (4,119)
Changes in assets and liabilities:
Increase in subscriber receivables................................................. (37,500) (4,715)
Increase in other receivables...................................................... (75,570) (18,172)
Increase in inventories............................................................ (52,490) (22,259)
Increase in other non-current assets............................................... (57,147) 3,910
Increase in other current liabilities.............................................. 187,987 61,128
Decrease in deferred taxes and other
long-term liabilities............................................................. (26,567) (219)
---------------- ----------------
Net cash flows from operating activities............................................ (556,535) (40,628)
---------------- ----------------
Cash flows from investing activities:
Restricted cash released, net....................................................... - (3,409)
Investment in securities, net....................................................... (44,538) (15,652)
Investments in and advances to affiliated companies, net............................ (315,383) (120,443)
Capital expenditures................................................................ (1,092,562) (295,242)
Acquisitions, net of cash acquired.................................................. (1,387,630) (1,729,351)
Sale of affiliated companies........................................................ - 16,648
---------------- ----------------
Net cash flows from investing activities............................................ (2,840,113) (2,147,449)
---------------- ----------------
Cash flows from financing activities:
Proceeds from initial public offering, net.......................................... - 1,206,910
Proceeds from senior notes.......................................................... 1,594,161 1,429,449
Proceeds from exercise of DIC option................................................ - 40,681
Proceeds from short-term borrowings................................................. 1,005,440 13,082
Proceeds from long-term borrowings.................................................. 455,432 611,488
Deferred financing costs............................................................ (59,722) (53,929)
Repayments of long-term and short-term borrowings................................... (442,487) (922,036)
Repayments on note payable to shareholder........................................... - (71,442)
Repayments on short-term note....................................................... - (16,499)
---------------- ----------------
Net cash flows from financing activities............................................ 2,552,824 2,237,704
---------------- ----------------
Effect of exchange rates on cash.................................................... 344 99
---------------- ----------------
Net (decrease) increase in cash and cash equivalents................................ (843,480) 49,726
Cash and cash equivalents at beginning of period.................................... 1,025,460 13,419
---------------- ----------------
Cash and cash equivalents at end of period.......................................... 181,980 63,145
================ ================
</TABLE>
The conversion of Dutch Guilder amounts to Euros related to the financial
information presented prior to the creation of the Euro, was calculated
using the exchange rate as of January 1, 1999, which
was 1 Euro to 2.20371 Dutch Guilders.
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS (2)
(Stated in thousands of Euros, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Non-cash investing and financing activities:
Unrealized (loss) gain on investments................................................. (206,308) 141,016
============ ============
Issuance of warrants.................................................................. 121,010 29,223
============ ============
Conversion of Stjarn Seller's Note.................................................... 120,067 93,479
============ ============
Supplemental cash flow disclosures:
Cash paid for interest................................................................ (259,300) (45,616)
============ ============
Cash received for interest............................................................ 26,238 9,737
============ ============
Significant Acquisitions:
Acquisition of K&T Group (1):
Property, plant and equipment......................................................... (236,959) -
Investments in affiliated companies................................................... (8,767) -
Goodwill.............................................................................. (817,893) -
Long-term liabilities................................................................. 234,457 -
Net current liabilities............................................................... 8,455 -
------------ ------------
(820,707) -
Receivables acquired.................................................................. (225,581) -
------------ ------------
Total cash paid...................................................................... (1,046,288) -
============ ============
Acquisition of 49% of United Telekabel Holding N.V.:
Property, plant and equipment......................................................... - (185,835)
Investments in affiliated companies................................................... - (41,439)
Goodwill.............................................................................. - (227,190)
Long-term liabilities................................................................. - 214,613
Net current liabilities............................................................... - 4,765
------------ ------------
Total cash paid...................................................................... - (235,086)
Cash acquired........................................................................ - 12,060
------------ ------------
- (223,026)
============ ============
Acquisition of 100% of StjarnTVnatet AB:
Property, plant and equipment......................................................... - (40,356)
Goodwill.............................................................................. - (413,264)
Long-term liabilities................................................................. - 30,164
Net current liabilities............................................................... - 52,345
------------ ------------
Total purchase price................................................................. - (371,111)
Seller's Note........................................................................ - 93,479
------------ ------------
Total cash paid...................................................................... - (277,632)
Cash acquired........................................................................ - 3,544
------------ ------------
- (274,088)
============ ============
Acquisition of 100% of @Entertainment, Inc.:
Property, plant and equipment......................................................... - (182,495)
Goodwill.............................................................................. - (917,983)
Other assets.......................................................................... - (19,847)
Net current assets.................................................................... - (47,665)
Long-term liabilities................................................................. - 417,279
------------ ------------
Total cash paid...................................................................... - (750,711)
Cash acquired........................................................................ - 58,147
------------ ------------
- (692,564)
============ ============
Acquisition of 50% of A2000:
Property, plant and equipment......................................................... - (90,243)
Goodwill.............................................................................. - (256,469)
Net current liabilities............................................................... - 23,429
Long-term liabilities................................................................. - 121,446
------------ ------------
- (201,837)
Receivables acquired.................................................................. - (12,211)
------------ ------------
Total cash paid....................................................................... - (214,048)
Cash acquired......................................................................... - 487
------------ ------------
- (213,561)
============ ============
</TABLE>
The conversion of Dutch Guilder amounts to Euros related to the financial
information presented prior to the creation of the Euro, was calculated
using the exchange rate of 1 Euro to 2.20371 Dutch Guilders.
The accompanying notes are an integral part of these
consolidated financial statements.
(1) These amounts are based on the preliminary purchase price allocation.
5
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands of Euros, except share and per share amounts)
(Unaudited)
1. Organization and Nature of Operations
United Pan-Europe Communications N.V. ("UPC" or the "Company") was
established as a joint venture for the purpose of acquiring and developing
multi-channel television and telecommunications systems in Europe. On July 13,
1995, UnitedGlobalCom, Inc. ("United"), a Delaware corporation, and Philips
Electronics N.V. ("Philips"), an N.V. in The Netherlands, contributed their
respective ownership interests in European and Israeli multi-channel television
systems to UPC. As a result of this transaction, United and Philips each owned a
50% economic and voting interest in UPC. On December 11, 1997, United acquired
Philips' 50% interest in UPC, thereby making it an effectively wholly-owned
subsidiary of United (subject to certain employee equity incentive compensation
arrangements). In February 1999, UPC concluded an initial public offering. UPC's
network footprint covers 17 countries in Europe and Israel and offers
communication services in many European countries through its business lines:
cable television, telephony, internet/data services, direct-to-home ("DTH") and
media.
The following chart presents a summary of the Company's significant
investments as of September 30, 2000:
6
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
UPC's Ownership
---------------
<S> <C>
Distribution:
Austria:
Telekabel Group............................................................. 95.0%
Belgium:
UPC Belgium (formerly Radio Public N.V./S.A.)............................... 100.0%
Czech Republic:
KabelNet.................................................................... 100.0%
Kabel Plus.................................................................. 99.9%
France:
UPC France (1).............................................................. 92.0%
Germany:
PrimaCom AG ("Primacom") (2)................................................ 25.1%
Hungary:
UPC Magyarorszag (formerly Telekabel Hungary)............................... 100.0%
Monor Communications Group, Inc. ("Monor").................................. 98.9%
Israel:
Tevel Israel International Communications Ltd. ("Tevel").................... 46.6%
Malta:
Melita Cable TV P.L.C. ("Melita")........................................... 50.0%
The Netherlands:
UPC Nederland (formerly United Telekabel Holding N.V. ("UTH")) (3).......... 100.0%
Norway:
UPC Norge AS ("UPC Norge") (formerly Janco Multicom )....................... 100.0%
Sweden:
UPC Sweden (formerly StjarnTVnatet AB ("Stjarn"))........................... 100.0%
Slovak Republic:
Trnavatel................................................................... 95.0%
Kabeltel.................................................................... 100.0%
UPC Slovensko s r.o. (formerly SKT spol s r.o.)............................. 100.0%
Romania:
Eurosat..................................................................... 51.0%
AST Romania (4)............................................................. 70.0%
Chello:
chello broadband N.V. ("chello")............................................ 100.0%
Priority Telecom:
Spain:
Munditelecom................................................................ 50.1%
Norway:
ElTele Ostfold.............................................................. 100.0%
The Netherlands:
Priority Telecom N.V. ("Priority Telecom").................................. 100.0%
Media:
Ireland:
Tara Televison Limited ("Tara")............................................. 80.0%
Poland:
UPC Polska, Inc ("UPC Polska") (formerly @Entertainment, Inc.
("@Entertainment"))........................................................ 100.0%
UPC Broadcast Centre Ltd. ("UPC Broadcast Centre") (formerly Wizja TV)...... 100.0%
Spain:
Iberian Programming Services ("IPS")........................................ 50.0%
United Kingdom:
Xtra Music Ltd.............................................................. 50.0%
Other:
SBS Broadcasting SA ("SBS")................................................. 23.5%
The Netherlands:
UPC Programming B.V. ("UPCtv").............................................. 100.0%
</TABLE>
(1) Our investments in Mediareseaux, Videopole, Time Warner Cable France, RCF
and Intercomm are held through UPC France.
(2) Our investment in Primacom was increased during the first quarter of 2000 to
25.1% and is being accounted for under the equity method of accounting. As
of December 31, 1999 this investment was classified as an "other investment"
and was accounted for under SFAS 115 as an available for sale investment.
(3) Our investments in GelreVision, A2000, Telekabel Velp, K&T Group, Tebecai
and Haarlem are held through UPC Nederland.
(4) Our investments in Multicanal Holdings, Control Cable Ventures, Diplomatic
International and Selektronic are held through AST Romania.
7
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies
Change in Reporting Currency to the Euro
Effective December 31, 1999, UPC changed its reporting currency to the
Euro. Prior to December 31, 1999, UPC's reporting currency was the Dutch
guilder. On January 1, 1999, the exchange rate between the Dutch guilder and the
Euro was fixed at 2.20371 Dutch guilders to 1 Euro. UPC has restated its prior
year consolidated financial statements by retroactively applying the fixed
exchange rate of 2.20371 to the Dutch guilder amount previously reported. The
comparative financial statements reported in Euros depict the same trends as
would have been presented if UPC had continued to present its financial
statements in Dutch guilders.
Basis of Presentation
The accompanying consolidated financial statements of the Company have been
prepared in accordance with United States generally accepted accounting
principles. The preparation of financial statements in conformity with United
States generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities, at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
In management's opinion, all adjustments of a normal, recurring nature have
been made which are necessary to present fairly the financial position of the
Company as of September 30, 2000 and the results of its operations for the nine
and three months ended September 30, 2000 and 1999. For a more complete
understanding of the Company's financial position and results of operations see
the consolidated financial statements of the Company included in the Company's
annual report on Form 10-K for the year ended December 31, 1999.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of UPC and all subsidiaries where it exercises a controlling interest through
the ownership of a majority voting interest, except for UTH from inception
(August 6, 1998) through February 1, 1999, where because of certain minority
shareholder's rights the Company accounted for its investment in UTH using the
equity method of accounting. On February 17, 1999, UPC acquired the minority
shareholder's interest in UTH and began consolidating UTH effective February 1,
1999. All significant intercompany accounts and transactions have been
eliminated in consolidation.
New Accounting Principles
The Financial Accounting Standards Board 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 value of a derivative depends on
its intended use and designation. In June 1999, the FASB approved Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133"
("SFAS 137"). SFAS 137 amends the effective date of SFAS 133, which will now be
effective for UPC's first quarter 2001.
The Company has entered into cross-currency swaps related to USD 1,552.0
million of dollar-denominated senior notes. Under SFAS 133 these cross-currency
swaps will not qualify for hedge accounting, and therefore the cross-currency
swaps, as well as the senior notes which they are related to, will have to be
presented separately on the balance sheet. The senior notes would have to be
revalued at the spot rate based on the USD/Euro exchange rate at each balance
sheet date, with changes being recorded as foreign exchange gains/losses in the
statement of operations. The cross-currency swaps will likewise have to be
marked to market at each balance sheet date, with changes recorded in the
statement of operations. If the Company were to implement SFAS 133 to cross
currency swaps
8
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
in place at September 30, 2000, the impact on net income would be a net gain
between 40.0 million and 70.0 million for the nine month period ended September
30,2000. In addition to the cross currency swaps, the Company is also a party to
a number of other derivative arrangements, primarily through call arrangements
embedded in its outstanding senior notes. These calls are embedded derivatives
under SFAS 133 and for purposes of implementing SFAS 133 will need to be
bifurcated and accounted for separate and apart from the underlying debt. The
impact of adopting SFAS 133 on these embedded derivatives is still being
evaluated.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 "Views on Selected Revenue Recognition
Issues" ("SAB 101") which provides the staff's views in applying generally
accepted accounting principles to selected revenue recognition issues.
Implementation of SAB 101 is required for the fourth quarter of 2000. The
Company has assessed the effect of this new standard and does not expect the
effect to be material.
Reclassifications
Certain prior period amounts have been reclassified for comparability with
the September 30, 2000 presentation.
3. Acquisitions
United Telekabel Holding N.V.
In February 1999, UPC acquired the remaining 49% of UTH which it did not
already own from NUON for 235.1 million. In addition, UPC repaid NUON and
assumed from NUON a 15.1 million subordinated loan, including accrued interest,
dated December 23, 1998, owed by UTH to NUON. Effective February 1, 1999, UPC
began consolidating its investment in UTH.
StjarnTVnatet AB
In July 1999, UPC acquired Stjarn, which operates cable television systems
serving the greater Stockholm area, for a purchase price of USD397.0 million
(371.1 million). USD100.0 million (93.5 million) of the purchase price was paid
in the form of a one year note with interest at 8.0% per annum and the balance
of the purchase price was paid in cash. The Stjarn acquisition was structured as
a purchase of shares of Stjarn's parent holding company, NBS Nordic Broadband
Services AB ("NBS Nordic"). The acquisition was accounted for under purchase
accounting. Effective August 1, 1999, UPC began consolidating its investment in
Stjarn. In July 2000, in accordance with the original terms of the note, UPC
elected to repay the one-year note, plus accrued interest, with 4,056,453 of its
ordinary shares A.
@Entertainment Inc.
In August 1999, UPC acquired 100% of @Entertainment, which provides cable
television, DTH satellite television and related programming services in Poland,
for a purchase price of USD807.0 million (750.7 million). The acquisition was
accounted for under purchase accounting. Effective August 1, 1999, UPC began
consolidating its investment in @Entertainment.
A2000
In September 1999, UPC acquired, through UPC Nederland, the remaining 50%
of A2000 that it did not already own for USD229.0 million (214.0 million),
including the repayment and the assumption of loans from A2000 to its former
shareholder of approximately 12.2 million. The acquisition was accounted for
under purchase accounting. As of September 1, 1999, UPC Nederland began
consolidating its investment in A2000.
9
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Eneco K&T Group
In March 2000, UPC acquired the Eneco K&T Group ("K&T"), the cable
interests of ENECO N.V., for a consideration of 1,046.3 million, including the
repayment to ENECO N.V. and the assumption of debt from K&T to ENECO N.V. of
225.6 million. The acquisition was accounted for under purchase accounting.
Effective March 31, 2000, UPC began consolidating its investment in K&T Group.
Pro Forma Information
The following unaudited pro forma condensed consolidated operating results
for the nine months ended September 30, 2000 and 1999 give effect to UPC's
acquisitions of the remaining 49% of UTH, 100% of Stjarn, 100% of
@Entertainment, the remaining 50% of A2000 and 100% of K&T Group as if these
acquisitions had occurred at the beginning of the period presented. This
unaudited pro forma condensed consolidated financial information does not
purport to represent what the Company's results of operations would actually
have been if such transactions had in fact occurred on such date. The Company
uses preliminary purchase price allocations when reporting the value of certain
assets and liabilities acquired in business combinations. The Company finalizes
such purchase price allocations within one year of consummating a business
combination. Accordingly, the pro forma operating results reflect the usage of
these preliminary purchase price allocations in addition to other currently
available information and certain assumptions that management believes are
reasonable.
<TABLE>
<CAPTION>
For the Nine Months Ended For the Nine Months Ended
September 30, 2000 September 30, 1999
------------------------------- -------------------------------
Historical Pro Forma Historical Pro Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Service and other revenue.............. 695,466 712,710 276,152 449,057
=========== =========== =========== ===========
Net loss............................... (1,475,031) (1,524,019) (307,090) (689,416)
=========== =========== =========== ===========
Weighted-average number of
ordinary shares outstanding........... 436,973,545 436,973,545 361,760,589 367,048,389
=========== =========== =========== ===========
Basic and diluted net loss
per ordinary share................... (3.38) (3.49) (0.85) (1.16)
=========== =========== =========== ===========
</TABLE>
The following acquisitions were also completed or agreed upon subsequent to
December 31, 1999.
Tebecai Netwerken B.V. and Tebecai Telecom B.V.
In February 2000, UPC acquired, through UPC Nederland, 100% of the shares
of Tebecai Netwerken B.V. and Tebecai Telecom B.V. ("Tebecai"), for a purchase
price of 62.2 million. Tebecai owns and operates cable networks in Zutphen,
Doetinchem and the surrounding municipalities. The acquisition was accounted for
under purchase accounting. Effective February 1, 2000, UPC Nederland began
consolidating its investment in Tebecai.
Intercomm France Holding S.A.
In February 2000, UPC acquired, through UPC France, Intercomm France
Holding S.A. ("Intercomm") (a wholly-owned subsidiary of Intercomm Holdings,
L.L.C.). UPC funded the acquisition with 36.0 million cash and shares in UPC
France. Following the transaction, UPC controls 92% of its combined French
entities with Intercomm Holdings L.L.C. owning the remaining 8%. The acquisition
was accounted for under purchase accounting. Effective March 1, 2000, UPC France
began consolidating its investment in Intercomm.
ElTele Ostfold and Vestfold Systems
In February 2000, UPC aquired 100% of the equity of ElTele Ostfold and
Vestfold ("ETO") from the energy companies Fredrikstad Energi AS, Ostfold
Energiverk and Hafslund. UPC paid NKR 320.0 million (39.3 million) for the
companies. Effective March 1, 2000, UPC began consolidating its investment in
ETO.
10
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SBS
In February 2000, UPC acquired an additional 10.2% of SBS for 162.5
million, increasing its ownership to approximately 23.5%. The investment in SBS
is accounted for under the equity method of accounting.
UPC Magyarorszag Minority Interest
In March 2000, UPC acquired the 20.75% minority stake held in UPC
Magyarorszag by the First Hungary Fund for 63.9 million in cash, increasing
UPC's ownership to 100%.
Kabel Haarlem B.V.
In March 2000, UPC acquired, through UPC Nederland, 100% of the Haarlem
cable network for 62.2 million. The acquisition was accounted for under the
purchase accounting. Effective March 1, 2000, UPC Nederland began consolidating
its investment in Haarlem.
Awards for Wireless Licenses
In March 2000, UPC's wireless communications division, Priority Wireless,
won two national licenses to build and operate broadband fixed wireless access
networks in the 3.5 GHz band in Spain and Switzerland. In addition, UPC was
awarded regional 26 GHz licenses in Geneva and Zurich. The Spanish license was
awarded at no cost by the Ministry of Public Works and Telecommunications in a
competitive tender based on technical and financial ability. Priority Wireless
won the Swiss license for 95.2 million, which was funded in July, by competing
in a public auction. The auction was conducted by Ofcom, the Swiss regulator for
telecommunications services.
In April 2000, Priority Wireless secured another broadband fixed wireless
access license in Finland. The Finnish license is a 26 GHz broadband fixed
wireless access license which covers the nine most populous regions in Finland,
including the capital Helsinki. The license was granted at no cost by Finland's
regulatory authority.
On July 12, 2000, Priority Wireless was awarded one of the two national
French fixed wireless licenses. The license gives UPC access to both 3.5 and 26
GHz spectrum throughout France. The license was awarded at no cost by the
Autorite de Regulation des Telecommunications (ART), the French regulatory
authority. UPC won this license jointly with Marine-Wendel and NRJ through their
consortium Fortel, in which Priority Wireless has a 47.5% interest.
Agreement to Acquire Interest in Telewest Communications plc
On June 26, 2000, UPC announced that it will acquire a 25% economic
interest in Telewest Communications plc ("Telewest"). The economic interest in
Telewest will be acquired by UPC from United's successor corporation ("New
United") as part of a series of related transactions by United and Liberty Media
Corporation ("Liberty") whereby Liberty will contribute to New United its
European and Latin American broadband assets in return for 75.3 million shares
of Class B common stock of New United, which will acquire all of the outstanding
stock of United pursuant to a merger of United with a newly formed wholly-owned
subsidiary of New United.
The Liberty broadband assets contributed to New United will include a non-
voting, 99% economic interest in a limited liability company ("LLC") which holds
724.3 million ordinary and limited voting shares of Telewest, representing
approximately 25% of the total issued share capital in Telewest. Subsequent to
closing, New United has agreed to contribute the LLC interest into a newly
formed Dutch company, or "New UPC", which will acquire all of the issued and
outstanding stock of UPC, pursuant to a merger of UPC into a newly formed wholly
owned subsidiary of New UPC, and New United will contribute to New UPC the
interests in Telewest that New United acquires from Liberty in return for equity
in New UPC. The UPC transaction will result in New United holding a direct and
indirect ownership interest in New UPC of approximately 61.0%. The merger of UPC
into a subsidiary of New UPC requires the approval of UPC's supervisory
directors and a majority of its shareholders and compliance with other Dutch
corporate legal procedures. Pursuant to the terms of UPC's indentures, the
merger will also require delivery of a fairness opinion. The remaining 1%
economic interest in the LLC and sole management power over the LLC will be held
by Liberty. UPC has a right to obtain this interest after clearance of all
appropriate regulatory and third party approvals. UPC will account for its
interest in Telewest under the equity method of accounting.
11
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Closing of the transaction is also subject to certain regulatory,
shareholder and third party approvals which the parties expect to complete
during the course of first half 2001.
Agreement with Excite@Home to Form Joint Venture
On July 18, 2000, UPC, United and Excite@Home announced plans to
merge UPC's chello broadband subsidiary with Excite@Home's international
broadband operations to form Excite chello. Upon formation, Excite chello will
combine Excite@Home's international portal, media and high-speed data ventures
with chello's high-speed internet operations and its exclusive access to the
broadband networks of UPC and United. The proposed transaction is subject to
receipt of various third party approvals and satisfaction of various other
significant conditions.
Acquisition of DattelKabel
On July 27, 2000, UPC acquired 100% of the equity interest in DattelKabel
a.s. from Nuon International Projects B.V. (a wholly owned subsidiary of Nuon,
N.V.). DattelKabel is a Prague-based cable TV operator. UPC paid 24.5 million
for DattelKabel. The acquisition was accounted for under purchase accounting.
Effective August 2000, UPC began consolidating its investment in DattelKabel.
Xtra Music Limited
In August 2000, UPC together with Liberty Digital Inc., through Liberty
Digital's subsidiary, DMX Music, purchased the interests of the third party
shareholders in Xtra Music Ltd., thus creating a 50:50 joint venture company
between UPC and Liberty Digital.
12
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Investments in and Advances to Affiliated Companies, Accounted for Under
the Equity Method
<TABLE>
<CAPTION>
As of September 30, 2000
----------------------------------------------------------------------------------------------------------
Investments in Cumulative Cumulative Cumulative
and Advances to Dividends Share in Results of Translation
Affiliated Companies Received Affiliated Companies Adjustments Total
-------------------- ---------- -------------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Tevel.................... 89,817 (5,500) (30,581) 20,995 74,731
Melita................... 12,699 - (520) 1,039 13,218
Xtra Music............... 14,039 - (5,676) 903 9,266
IPS...................... 10,065 (2,742) 4,801 5,491 17,615
SBS...................... 261,999 - (27,356) 42,655 277,298
Fox Kids Poland.......... 7,171 - (260) 321 7,232
Twoj Styl................ 10,023 (2,275) 2,044 (2,072) 7,720
PrimaCom................. 345,096 - (18,811) - 326,285
Other, net............... 21,079 - (5,192) (1,096) 14,791
-------------------- ---------- -------------------- ----------- ---------
Total.................... 771,988 (10,517) (81,551) 68,236 748,156
==================== ========== ==================== =========== =========
</TABLE>
5. Other Investments
Marketable Equity Securities of United, at Fair Value
As of September 30, 2000, a subsidiary of UPC owned 5,569,240 of United's
Class A common shares with a fair market value of 189,950. The fair market value
of the shares at December 31, 1999 was 390,881, resulting in an unrealized loss
of 200,931 for the nine months ended September 30, 2000.
In September 1999, UPC agreed to form a 50 / 50 joint venture or a similar
arrangement with Liberty to evaluate content and distribution opportunities in
Europe. UPC would have contributed its 5.6 million Class A common shares of
United that it owns to the joint venture. Due to the Telewest transaction (see
Note 3), formation of the joint venture will not be consummated.
Terayon Warrants
UPC acquired warrants from Terayon Communication Systems, Inc. ("Terayon"),
a public company, for 2 million shares of Terayon's common stock as a part of a
relationship agreement entered into with Terayon in January 2000. The Company
recorded the receipt of these warrants in accordance with EITF 96-18 "Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services", whereby an asset representing
the fair value of the warrants at the date of receipt was recorded in "other
investments" and a credit was recorded to "other long-term liabilities" which is
being amortized to income over the term of the relationship agreement. For the
nine months period ended September 30, 2000, 9.4 million was amortized and has
been reflected in "foreign exchange gain (loss) and other income (expense)" in
the accompanying statement of operations.
13
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Property, Plant and Equipment
As of As of
September 30, December 31,
2000 1999
------------- ------------
Cable distribution networks................... 2,554,367 1,610,058
Subscriber premises equipment and converters.. 334,460 152,713
DTH, MMDS and distribution facilities......... 172,292 78,772
Office equipment, furniture and fixtures...... 206,683 71,712
Buildings and leasehold improvements.......... 101,597 109,147
Other......................................... 59,311 80,217
------------- ------------
3,428,710 2,102,619
Accumulated depreciation.............. (499,774) (194,205)
------------- ------------
Property, plant and equipment, net.... 2,928,936 1,908,414
============= ============
7. Goodwill and Other Intangible Assets
As of As of
September 30, December 31,
2000 1999
------------- ------------
UPC Nederland................................. 1,665,182 758,962
UPC Polska.................................... 1,012,543 929,956
UPC Sweden.................................... 429,863 427,927
UPC N.V....................................... 209,752 29,223
Telekabel Group............................... 179,907 176,694
UPC France.................................... 173,971 117,054
Priority Wireless Group....................... 107,498 -
UPC Norge..................................... 78,097 84,874
UPC Magyarorszag.............................. 121,330 54,725
Kabel Plus.................................... 112,641 84,799
Other......................................... 170,076 80,866
------------- ------------
4,260,860 2,745,080
Accumulated amortization..................... (347,408) (133,667)
------------- ------------
Goodwill and other intangible assets, net.... 3,913,452 2,611,413
============= ============
14
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Short-Term Debt
As of As of
September 30, December 31,
2000 1999
------------- ------------
UPC Bridge Loan.............................. 500,000 -
New A2000 Facilities......................... 231,428 -
UPC Corporate Facility....................... 227,381 -
DIC Loan..................................... 53,442 -
Gelrevision Facility......................... 34,941 -
Stjarn Seller's Note......................... - 99,378
Stjarn Facilities............................ - 39,088
A2000 Facility............................... - 20,447
Other Bank Loans............................. 12,418 4,328
------------- ------------
Total.................................. 1,059,610 163,241
============= ============
UPC Bridge Loan
In connection with the K&T acquisition, UPC Nederland received a short-term
bridge loan of Euro 500 million, secured with guarantees of certain of UPC's
Dutch assets ("UPC Bridge Loan"). Drawdowns of the UPC Bridge Loan were used to
refinance certain existing intercompany loans from UPC N.V. The UPC Bridge Loan
expires in December 2000. The UPC Bridge Loan bears an annual interest rate of
EURIBOR + 2.0%/2.5%. Subsequent to September 30, 2000, UPC repaid this loan
with proceeds from the Euro 4.0 billion financing (see Note 14).
New A2000 Facilities
In January 2000, UPC Nederland (A2000) refinanced its existing bank
facilities with a one year term-loan bridge facility of 231.4 million and a one
year revolving credit bridge facility of 49.9 million, subject to certain
availability covenants ("New A2000 Facilities"). The facilities are secured by
mortgages and pledges, including pledges on the shares of A2000 Holding,
Kabeltelevisie Amsterdam and A2000 Hilversum. The borrowers are restricted from
incurring additional indebtedness and from paying dividends and distributions,
subject to certain exceptions. These facilities bear an annual interest rate of
EURIBOR +1.0%. Subsequent to September 30, 2000, UPC repaid this facility with
the proceeds from the Euro 4.0 billion financing (see Note 14).
UPC Corporate Facility
In August 2000, UPC entered into an unsecured USD 200.0 million bridge
facility with United, with an annual accrued interest of 12%. The principal
amount and interest are due in full on October 1, 2001, if no demand is made
before that date. If UPC sells any equity interest that constitutes an "asset
sale" as defined by United's indenture, it must use a portion of the proceeds
from the asset sale to repay the bridge facility. UPC intends to repay this
facility from proceeds from the sale of the convertible preference shares, at
such time convertible shares can be issued (see Note 14).
Stjarn Seller's Note
In July 2000, the Stjarn seller's note reached maturity. In accordace with
the original terms of the note, UPC elected to settle the principal and accrued
interest on the note, by issuing 4,056,453 of its ordinary shares A.
15
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-Term Debt
<TABLE>
<CAPTION>
As of As of
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Senior Notes July 1999 Offering................ 1,579,911 1,473,840
Senior Notes October 1999 Offering............. 1,062,284 985,739
Senior Notes January 2000 Offering............. 1,810,160 -
UPC Senior Credit Facility..................... 638,876 357,482
@Entertainment Notes........................... 330,159 284,310
UPC Nederland Facilities....................... 363,244 584,650
UPC France Facilities.......................... 226,649 145,249
Other.......................................... 48,047 122,431
------------- ------------
6,059,330 3,953,701
Less current portion...................... (10,106) (50,291)
------------- ------------
Total..................................... 6,049,224 3,903,410
============= ============
</TABLE>
January 2000 Senior Notes and Discount Notes Offering
In January 2000, UPC closed a bond offering consisting of four tranches:
USD 300 million of senior notes due 2010 with an 11 1/2% coupon; USD 600 million
and Euro 200 million of senior notes due 2010 with an 11 1/4% coupon; and USD
1.0 billion aggregate principal amount 13 3/4% senior discount notes due 2010.
The senior discount notes were sold at 51.224% of the face amount, yielding
gross proceeds of USD 512.2 million. The senior discount notes will accrue, but
not pay, interest until August 2005, at which date the interest payments will
become current. UPC has entered into cross-currency swaps, swapping a total of
USD 300 million of the 11 1/2% series into a fixed Euro coupon of 10% with a
notional value of Euro 297 million until August 2008.
Stand-by Facility
At the end of March 2000, a fully committed Euro 2.0 billion stand-by
revolving credit facility was provided. The facility is guaranteed by UPC and
certain subsidiaries. When drawn, the facility bears interest of EURIBOR
+6.0%/7.0%, stepping up after March 31, 2001 with periodic increases capped at
an annual rate of 18.0%, while an annual commitment fee of 0.50% is applicable
over the undrawn amount. A drawing fee ranging from 1.5% to 2.0% is applicable
for each drawing. The commitment terminates on December 31, 2000, and the
facility reaches maturity on March 29, 2007. Due to the stand-by nature, UPC
continuously reviews the level of this facility and may cancel availability
depending on other capital raised or planned to be raised. Subsequent to
September 30, 2000, this facility was partially drawn to fund the acquisition of
EWT/TSS (see Note 14).
UPC France Refinancing
On April 7, 2000 Mediareseaux refinanced its existing debt and the existing
debt of Videopole and RCF with a Euro 250 million bridge facility, of which Euro
148.0 million was outstanding at September 30, 2000. The refinancing of the
Rhone Vision Cable Credit Facility with this facility was completed in the
fourth quarter of 2000. Availability is subject to revenues and debt-to-equity
ratios. In general, this facility restricts the payment of dividends and
distributions. Subsequent to September 30, 2000, UPC repaid this facility with
the proceeds from the Euro 4.0 billion financing (see Note 14).
16
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Commitments and Contingencies
Leases
UPC has entered into various short- and long-term agreements with third
parties, varying in term from 3 to 15 years, for indefeasible rights of use
("IRU's") on fiber optic cable as well as for operational leases. Under these
agreements UPC has commitments for discounted future minimum lease payments, and
for operation and maintenance charges, which total approximately Euro 84.5
million as of September 30, 2000.
A subsidiary of UPC leases DTH technical equipment, conduit and satellite
transponder capacity, as well as several offices and warehouses. At September
30, 2000, these leases had an aggregate minimum commitment of approximately
USD246.7 million (280.5 million) over the next seven years.
UPC has entered into an agreement for the long-term lease of satellite
transponder capacity providing service from Europe to Europe, North America and
South America. The term of the agreement is 156 months, with a minimum aggregate
total cost of approximately USD114.0 million (129.6 million) payable in monthly
installments based on capacity used.
Programming, Broadcast and Exhibition Rights
Subsidiaries of UPC have entered into long-term programming agreements and
agreements for the purchase of certain exhibition or broadcast rights with a
number of third-party content providers for its DTH and cable systems. At
September 30, 2000, these long-term agreements had an aggregate minimum
commitment of approximately USD285.7 million (324.8 million) over the next seven
years.
UPC has entered into a long-term programming agreement for the right to
receive and transmit programming for certain of its cable systems. The initial
term of the agreement is seven years, but may be extended for an additional
period of three years. UPC pays a monthly license fee based on subscribers and
other factors, with initial minimum aggregate total costs of approximately
USD153.5 million (174.5 million).
Purchase Commitments
A subsidiary of UPC has an aggregate minimum purchase commitment toward the
purchase of DTH reception systems from Philips Electronics B.V. of approximately
USD43.6 million (49.6 million) over the next two years.
Litigation and Claims
From time to time, the Company is subject to various claims and suits
arising out of the ordinary course of business. While the ultimate result of all
such matters is not presently determinable, based upon current knowledge and
facts, management does not expect that their resolution will have a material
adverse effect on the Company's consolidated financial position or results of
operations.
11. Shareholders' Equity
At an extraordinary general meeting of shareholders in March 2000, the
shareholders approved the amendment of UPC's Articles of Association to (i)
split each ordinary share A, priority share, preference share A and preferred
share B (as of December 31, 1999, with a nominal value of Euro2.00 each) into
three shares with a nominal value of Euro1.00 each, (ii) split each ordinary
share B (as of December 31, 1999, with a nominal value of Euro0.02 each) into
three shares with a nominal value of Euro0.01 each and (iii) pay up an amount of
Euro145.2 million on account of the share premium reserve of the Company. All
share and per share amounts in the accompanying consolidated financial
statements and notes thereto have been retroactively restated to reflect the
share split from 3:1.
17
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
General
The equity classifications and amounts as stated in these consolidated
financial statements do not necessarily reflect the statutory equity of the
Company, as the statutory equity is subject to Dutch generally accepted
accounting principles. The statutory equity is the basis for any distributions
to shareholders.
United Indenture
As a subsidiary of United, UPC's activities are restricted by the covenants
in United's indentures dated February 5, 1998 and April 29, 1999 (the "United
Indentures"). The United Indentures generally limit the additional amount of
debt that UPC or its subsidiaries or controlled affiliates may borrow, or
preferred shares that they may issue. Generally, additional borrowings, when
added to existing indebtedness, must satisfy, among other conditions, at least
one of the following tests: (i) may not exceed 7.0 times the borrower's
consolidated operating cash flow; (ii) operating cash flow must exceed 1.75
times its consolidated interest expense; or (iii) may not exceed 225% of the
borrower's consolidated invested equity capital. In addition, there must be no
existing default under the United Indentures at the time of the borrowing. The
United Indentures also restrict UPC's ability to make certain asset sales and
certain payments. UPC has agreed with United that it will not take any action
that would result in a breach of the United Indenture covenants. The maturity
dates of the United Indentures are February 2008 and May 2009, respectively.
Microsoft Warrants Agreement
On January 25, 1999, UPC and Microsoft Corporation signed a letter of intent
providing for the establishment of a technical services relationship. In
connection with this letter of intent, UPC granted Microsoft warrants to
purchase up to 11,400,000 shares or ADSs at Microsoft's option, at an exercise
price of USD9.33 (Euro 10.6). Half of the warrants are exercisable after one
year from issuance for a period of up to three years. The other half of the
warrants were to vest and become exercisable based on certain performance
criteria to be established in the definitive agreements. The first half of the
warrants were for the right to negotiate the licensing of technology from
Microsoft under definitive agreements to be negotiated in the future. UPC
recorded as contract acquisition rights approximately 29.2 million associated
with the first half of the warrants. The accounting for the cost associated with
the second half of the warrants was not initially recognized as it depended on
the establishment of the ultimate nature of the performance criteria related to
earning these warrants.
In May 2000, UPC and Microsoft entered into a technology agreement ("Interim
Technology Agreement"). The Interim Technology Agreement is effective until
either June 30, 2003 or the execution of a definitive technology agreement. The
Interim Technology Agreement is non-exclusive and was entered into for the
purpose of assisting UPC in delivering interactive TV to UPC customers using a
Microsoft platform. The parties have initiated discussions to transform the
Interim Technology Agreement into a definitive agreement and during this process
some of the initial terms may be changed. Simultaneously with entering into the
Interim Technology Agreement, Microsoft announced its intention to exercise the
first tranche of warrants and the original warrant agreement was modified to
waive the performance criteria on the second tranche of warrants. The total cash
exercise price payable by Microsoft upon the exercise of the first tranche of
warrants is USD53.2 million (Euro 60.4 million), which will be offset by a
development contribution of USD20.0 million (Euro 22.7 million) from UPC to
Microsoft under the Interim Technology Agreement. The USD20.0 million (Euro 22.7
million) payment will be accounted for as a contract acquisition right for the
technology associated with the Interim Technology Agreement. The second tranche
of warrants is also accounted for as a contract acquisition right of
approximately USD108.2 million (Euro 121.0 million). The amortization period for
the remaining contract rights from the first tranche of warrants and the new
contract rights from the second tranche of warrants, as well as the USD20.0
million (Euro 22.7 million) development contribution, will be the three year
life of the Interim Technology Agreement. The issuance of shares from the
exercise of the first tranche of warrants and the net cash payment to UPC is
expected to occur in the fourth quarter of 2000.
18
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Segment and Geographic Information
UPC's business has historically been derived from its cable television
segment. This service has been provided in various European countries where UPC
owns and operates its systems. During 1997, UPC introduced internet/data
services in several of its systems. During 1998, UPC introduced telephony
services in several of its systems and began to develop its content business. In
1999, UPC entered into the DTH business with its acquisition of @Entertainment
and began separating its competitive local exchange carrier ("CLEC") business
from its residential business, which is included in the telephony segment.
UPC evaluates performance and allocates resources at the geographic country
level and by business line. Management generally considers Adjusted EBITDA
to be a helpful way to measure the performance of cable television operations
and communications companies. Adjusted EBITDA represents earnings before net
interest expense, income tax expense (benefit), depreciation, amortization,
stock-based compensation charges, minority interest, share in results of
affiliated companies (net), currency exchange gains (losses) and other non-
operating income (expense) items. Management believes Adjusted EBITDA helps
investors to assess the cash flow from UPC's operations from period to period
and thus to value its 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 generally accepted accounting principles, or as
an indicator of a company's operating performance. UPC is not entirely
unrestricted to use the cash represented by its Adjusted EBITDA. Several of
UPC's consolidated operating companies are restricted by the terms of their debt
arrangements. Each company has its own operating expenses and capital
expenditure requirements, which can limit UPC's use of cash. UPC'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 Adjusted
EBITDA in the same manner.
19
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the segment information by geographic area is as follows:
<TABLE>
<CAPTION>
Revenue for the Three Months Ended September 30, 2000
------------------------------------------------------------------------------------------
Digital/
Cable Internet/ Corporate Inter-
Television Telephony Data DTH Media & Other company Total
---------- --------- --------- ------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Netherlands:
Corporate................... - - - - - - - -
UPCtv....................... - - - - 2,405 - (543) 1,862
chello...................... - - 8,790 - - - (8,684) 106
Priority Telecom............ - 3,436 - - - - - 3,436
Operating companies......... 57,539 29,159 11,397 - - 232 - 98,327
Austria........................ 21,102 8,481 7,230 - - - - 36,813
Belgium........................ 4,301 394 1,232 - - - - 5,927
Czech Republic................. 6,647 258 95 - - 581 - 7,581
Norway......................... 12,189 1,011 813 - - - - 14,013
Hungary........................ 11,950 5,561 108 186 - 3 - 17,808
France......................... 14,490 2,521 690 - - - - 17,701
Poland......................... 18,782 - - 15,818 16,217 - (15,940) 34,877
Sweden......................... 8,199 63 1,726 - - - - 9,988
Other.......................... 8,177 - - 41 - 1,220 - 9,438
---------- --------- --------- ------- --------- --------- ------- ---------
Total........................ 163,376 50,884 32,081 16,045 18,622 2,036 (25,167) 257,877
========== ========= ========= ======= ========= ========= ======= =========
<CAPTION>
Revenue for the Three Months Ended September 30, 1999
------------------------------------------------------------------------------------------
Digital/
Cable Internet/ Corporate Inter-
Television Telephony Data DTH Media & Other company Total
---------- --------- --------- ------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Netherlands:
Corporate................... - - - - - 3,035 - 3,035
UPCtv....................... - - - - 37 - - 37
chello...................... - - 1,762 - - - (1,762) -
Priority Telecom............ - - - - - - - -
Operating companies......... 30,523 7,090 1,915 - - 70 - 39,598
Austria........................ 19,891 2,027 3,546 - - - - 25,464
Belgium........................ 3,559 - 580 - - - - 4,139
Czech Republic................. 1,251 - - - - - - 1,251
Norway......................... 11,756 91 126 - - - - 11,973
Hungary........................ 8,371 - 20 - - - - 8,391
France......................... 9,503 757 174 - - - - 10,434
Poland......................... 10,039 - - 3,535 3,546 - (3,272) 13,848
Sweden......................... 4,830 - 138 - - - - 4,968
Other.......................... 2,198 - - - 182 - - 2,380
---------- --------- --------- ------- --------- --------- ------- ---------
Total........................ 101,921 9,965 8,261 3,535 3,765 3,105 (5,034) 125,518
========== ========= ========= ======= ========= ========= ======= =========
</TABLE>
20
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Revenue for the Nine Months Ended September 30, 2000
---------------------------------------------------------------------------------------------------
Digital/
Cable Internet/ Corporate Inter-
Television Telephony Data DTH Media & Other company Total
---------- --------- --------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Netherlands:
Corporate.................. - - - - - - - -
UPCtv...................... - - - - 3,602 - (543) 3,059
chello..................... - - 21,452 - - - (21,231) 221
Priority Telecom........... - 8,795 - - - - - 8,795
Operating companies........ 157,874 69,628 25,577 - - 595 - 253,674
Austria....................... 62,326 23,429 19,271 - - - - 105,026
Belgium....................... 11,978 1,021 3,135 - - - - 16,134
Czech Republic................ 18,959 756 95 - - 2,351 - 22,161
Norway........................ 36,555 2,266 1,791 - - - - 40,612
Hungary....................... 35,217 16,185 236 186 - 10 - 51,834
France........................ 43,617 6,720 1,743 - - - - 52,080
Poland........................ 54,442 - - 38,491 44,202 - (42,749) 94,386
Sweden........................ 24,701 297 4,158 - - - - 29,156
Other......................... 16,155 - - 41 - 2,132 - 18,328
---------- --------- --------- --------- --------- --------- -------- ---------
Total....................... 461,824 129,097 77,458 38,718 47,804 5,088 (64,523) 695,466
========== ========= ========= ========= ========= ========= ======== =========
<CAPTION>
Revenue for the Nine Months Ended September 30, 1999
---------------------------------------------------------------------------------------------------
Digital/
Cable Internet/ Corporate Inter-
Television Telephony Data DTH Media & Other company Total
---------- --------- --------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Netherlands:
Corporate.................. - - - - - 4,513 - 4,513
UPCtv...................... - - - - 49 - - 49
chello..................... - - 3,460 - - - (3,460) -
Priority Telecom........... - - - - - - - -
Operating companies........ 69,897 16,061 3,056 - - 70 - 89,084
Austria....................... 59,138 3,073 8,275 - - - - 70,486
Belgium....................... 10,891 - 1,511 - - - - 12,402
Czech Republic................ 3,389 - - - - - - 3,389
Norway........................ 34,120 122 306 - - - - 34,548
Hungary....................... 24,201 - 65 - - - - 24,266
France........................ 12,315 1,086 302 - - - - 13,703
Poland........................ 10,039 - - 3,535 3,546 - (3,272) 13,848
Sweden........................ 4,830 - 138 - - - - 4,968
Other......................... 4,325 - - - 571 - - 4,896
---------- --------- --------- --------- --------- --------- -------- ---------
Total....................... 233,145 20,342 17,113 3,535 4,166 4,583 (6,732) 276,152
========== ========= ========= ========= ========= ========= ======== =========
</TABLE>
21
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Adjusted EBITDA for the Three Months Ended September 30, 2000
---------------------------------------------------------------------------------------
Digital/
Cable Internet/ Corporate
Television Telephony Data DTH Media & Other Total
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
The Netherlands:
Corporate.................. - - - - - (38,563) (38,563)
UPCtv...................... - - - - (15,502) - (15,502)
chello..................... - - (33,397) - - (407) (33,804)
Priority Telecom........... - (9,616) - - - - (9,616)
Operating companies........ 28,416 (13,697) (8,464) - - (4,099) 2,156
Austria....................... 10,371 (1,289) 513 - - - 9,595
Belgium....................... 1,259 96 (1,738) - - - (383)
Czech Republic................ 707 12 61 (4,287) - 251 (3,256)
Norway........................ 4,677 (2,753) (636) - - (106) 1,182
Hungary....................... 4,038 3,083 (602) (3,456) - 3 3,066
France........................ 3,850 (6,289) (2,488) - - 8 (4,919)
Poland........................ 400 - (297) (953) (11,385) (178) (12,413)
Sweden........................ 2,757 (1,022) (1,785) - - (99) (149)
Other......................... 4,431 (653) 1,979 - (343) 636 6,050
---------- --------- --------- --------- --------- --------- ---------
Total....................... 60,906 (32,128) (46,854) (8,696) (27,230) (42,554) (96,556)
========== ========= ========= ========= ========= ========= =========
<CAPTION>
Adjusted EBITDA for the Three Months Ended September 30, 1999
---------------------------------------------------------------------------------------
Digital/
Cable Internet/ Corporate
Television Telephony Data DTH Media & Other Total
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
The Netherlands:
Corporate.................. - - - - - (11,695) (11,695)
UPCtv...................... - - - - (2,726) - (2,726)
chello..................... - - (17,290) - - - (17,290)
Priority Telecom........... - (732) - - - - (732)
Operating companies........ 13,557 (3,803) (2,555) - - 728 7,927
Austria....................... 11,135 (1,907) 345 - - - 9,573
Belgium....................... 1,122 (3) (431) - - - 688
Czech Republic................ (72) - - - - - (72)
Norway........................ 4,863 (1,936) (1,341) - - - 1,586
Hungary....................... 3,144 - (8) - - - 3,136
France........................ 2,966 (1,131) (456) - - (1,302) 77
Poland........................ (934) - - (3,843) (9,113) (1,659) (15,549)
Sweden........................ 2,583 (25) (959) - - - 1,599
Other......................... 865 13 54 - (973) (1,385) (1,426)
---------- --------- --------- --------- --------- --------- ---------
Total....................... 39,229 (9,524) (22,641) (3,843) (12,812) (15,313) (24,904)
========== ========= ========= ========= ========= ========= =========
</TABLE>
22
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Adjusted EBITDA for the Nine Months Ended September 30, 2000
---------------------------------------------------------------------------------------
Digital/
Cable Internet/ Corporate
Television Telephony Data DTH Media & Other Total
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
The Netherlands:
Corporate.................. - - - - - (83,578) (83,578)
UPCtv...................... - - - - (35,702) - (35,702)
chello..................... - - (94,503) - - (1,638) (96,141)
Priority Telecom........... - (23,335) - - - - (23,335)
Operating companies........ 78,011 (34,533) (19,979) - - (8,640) 14,859
Austria....................... 32,699 (4,732) 1,017 - - - 28,984
Belgium....................... 4,232 (169) (4,261) - - - (198)
Czech Republic................ 2,987 48 61 (4,339) - 882 (361)
Norway........................ 13,990 (8,970) (2,440) - - (233) 2,347
Hungary....................... 11,855 8,929 (2,731) (3,536) - 10 14,527
France........................ 10,538 (15,822) (6,552) - - (303) (12,139)
Poland........................ 1,905 - (297) (6,560) (38,644) (1,377) (44,973)
Sweden........................ 9,275 (2,804) (6,290) - - (99) 82
Other......................... 7,526 (1,587) (1,609) (59) (543) (81) 3,647
---------- --------- --------- --------- --------- --------- ---------
Total....................... 173,018 (82,975) (137,584) (14,494) (74,889) (95,057) (231,981)
========== ========= ========= ========= ========= ========= =========
<CAPTION>
Adjusted EBITDA for the Nine Months Ended September 30, 1999
---------------------------------------------------------------------------------------
Digital/
Cable Internet/ Corporate
Television Telephony Data DTH Media & Other Total
---------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
The Netherlands:
Corporate.................. - - - - - (21,957) (21,957)
UPCtv...................... - - - - (5,556) - (5,556)
chello..................... - - (34,947) - - - (34,947)
Priority Telecom........... - (1,424) - - - - (1,424)
Operating companies........ 33,065 (6,414) (4,102) - - 417 22,966
Austria....................... 32,953 (6,686) 201 - - - 26,468
Belgium....................... 3,444 (3) (1,495) - - - 1,946
Czech Republic................ (328) - - - - - (328)
Norway........................ 14,815 (4,445) (3,333) - - - 7,037
Hungary....................... 8,267 - (20) - - - 8,247
France........................ 2,810 (3,266) (1,293) - - (1,302) (3,051)
Poland........................ (934) - - (3,843) (9,113) (1,659) (15,549)
Sweden........................ 2,583 (25) (959) - - - 1,599
Other......................... 1,484 13 (26) - (3,221) (1,385) (3,135)
---------- --------- --------- --------- --------- --------- ---------
Total....................... 98,159 (22,250) (45,974) (3,843) (17,890) (25,886) (17,684)
========== ========= ========= ========= ========= ========= =========
</TABLE>
23
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Following is a reconciliation of Adjusted EBITDA to UPC's net loss
before income taxes:
<TABLE>
<CAPTION>
For the Three Months Ended September 30, For the Nine Months September 30,
--------------------------------------- -------------------------------------
2000 1999 2000 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Adjusted EBITDA.................................... (96,556) (24,904) (231,981) (17,684)
Depreciation and amortization...................... (187,396) (87,170) (477,261) (154,513)
Stock-based compensation........................... 3,429 (4,220) 30,850 (49,682)
----------------- ----------------- ----------------- -----------------
Net operating loss................................. (280,523) (116,294) (678,392) (221,879)
Interest income.................................... 8,377 4,220 30,506 10,355
Interest expense................................... (176,783) (57,014) (484,465) (85,197)
Foreign exchange gain (loss) and other
income (expense), net............................. (153,653) 5,736 (277,605) 11,195
----------------- ----------------- ----------------- -----------------
Net loss before income taxes and other items....... (602,582) (163,352) (1,409,956) (285,526)
Share in results of affiliated companies, net...... (40,638) (10,296) (71,696) (25,347)
Minority interests in subsidiaries................. 4,606 538 7,096 590
----------------- ----------------- ----------------- -----------------
Net loss before income tax benefit (expense)....... (638,614) (173,110) (1,474,556) (310,283)
================= ================= ================= =================
</TABLE>
Total Assets
-----------------------------------
As of As of
September 30, December 31,
2000 1999
--------------- --------------
The Netherlands:
Corporate..................... 1,541,448 1,939,369
UPCtv......................... 44,566 28,427
chello........................ 107,871 36,609
Priority Telecom.............. 185,628 4,164
Operating companies........... 2,864,173 1,526,945
Austria........................... 437,478 354,120
Belgium........................... 47,970 47,528
Czech Republic.................... 211,538 158,812
Norway............................ 289,719 243,451
Hungary........................... 352,586 214,108
France............................ 786,297 495,673
Poland............................ 1,305,133 1,211,373
Sweden............................ 467,454 471,944
Other............................. 98,764 76,740
--------------- --------------
Total............................ 8,740,625 6,809,263
=============== ==============
24
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Comprehensive Income (Loss)
The components of total comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss............................................... (639,503) (170,425) (1,475,031) (307,090)
Other comprehensive income (loss):
Change in -
Cumulative translation adjustments................. 29,346 (58,731) 32,221 (54,918)
Unrealized gain (loss) on investments.............. (152,644) 4,881 (206,308) 141,016
------------ ------------ ------------ ------------
Total comprehensive income (loss)................ (762,801) (224,275) (1,649,118) (220,992)
============ ============ ============ ============
</TABLE>
14. Subsequent Events
Acquisition of an Interest in EWT/TSS Group
In October 2000, UPC acquired, through its subsidiary UPC Germany Gmbh ("UPC
Germany"), 100% of EWT/TSS Group ("EWT/TSS"). UPC funded the acquisition with
238.4 million cash and shares in UPC Germany. Following the acquisition, UPC
owns 51% of UPC Germany. EWT/TSS is headquartered in Augsburg, Germany.
Closing of Euro 4.0 Billion Financing
In October 2000, UPC closed an Euro 4.0 billion operating and term loan
facility ("The UPC Bank Facilities"). The UPC Bank Facilities are guaranteed by
existing cable operating companies, excluding Polish and German assets. The UPC
Bank Facilities bear interest at EURIBOR +0.75%/4.0% depending on certain
ratios, and UPC pays an annual commitment fee of 0.5% of the undrawn amount. The
facility is arranged by Chase Manhattan Bank and Toronto Dominion Bank and
further syndicated to a group of European and American (Banking) institutions. A
first drawing has been made in October 2000 to refinance existing operating
company bank debt totaling Euro 2.0 billion. The UPC Bank Facilities will
finance further digital rollout and triple play by UPC's existing cable
companies, excluding Polish and German operations, subject to availability.
Starting 2004, the available amount will decrease and the facility reaches final
maturity in 2009.
Agreement to Sell Convertible Preference Shares
In October 2000, UPC filed a proxy statement with the SEC for an
extraordinary general shareholders meeting at which the Company will seek
shareholder approval to amend its articles of association. The amendment will
permit the creation of new classes of convertible preference shares. Subject to
such approval, UPC has agreed to issue EUR 1.43 billion worth of convertible
preference shares for cash, to a group of investors including Motorola Inc.,
Liberty, United, funds managed by Capital Research and Management Company, and
certain discretionary clients of Alliance Capital. The convertible preference
shares will be issued at a discount based on an 8% dividend yield and will be
convertible into ordinary shares of UPC at a conversion price of Euro 35.455. In
addition to the convertible preference shares, these investors will receive
warrants to purchase ordinary shares of UPC at a premium of 20% to the
conversion price. The total number of warrants will equal 15% of the total
purchase price divided by the conversion price. If the convertible preference
shares are not converted or voluntarily redeemed by UPC, after 12 years UPC will
be required to redeem the convertible preference shares in
25
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
either cash or shares, at its option. Also, UPC can require the convertible
preference shares to be converted upon certain circumstances. UPC expects the
sale to close in late 2000.
Acquisition of Cignal Global Communications
In November 2000, Priority Telecom acquired through a merger and exchange
offer Cignal Global Communications ("Cignal"), a US based provider of global
network services. In the stock-based deal, Priority Telecom acquired 100% of
Cignal in exchange for a 16% interest in Priority Telecom.
26
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
(Stated in thousands of Euros, unless stated otherwise)
The following discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. 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 both known and unknown risks, uncertainties and other factors
that may cause our actual results, performance or achievements, or industry
results, to be materially different from what we say or imply with the forward-
looking statements. These factors include, among other things, changes in
television viewing preferences and habits by our subscribers and potential
subscribers, their acceptance of new technology, media alternatives and new
video services we may offer. They also include subscribers' and potential
subscribers' acceptance of our newer telephony and internet/data services, our
ability to manage and grow our newer telephony and internet/data services, our
ability to secure adequate capital to fund other system growth and development
and our planned acquisitions, risks inherent in investment and operations in
foreign countries, changes in government regulation, and changes in the nature
of key strategic relationships with joint ventures. We have announced many
potential acquisitions, many of which are subject to various conditions, some of
which may not occur. These forward-looking statements apply only as of the time
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 or
circumstances on which these forward-looking statements are based. The following
discussion and analysis of financial condition and results of operations covers
the three and nine months ended September 30, 2000 and 1999, as restated to
include Iberian Programming Services for all periods in which its operations
were part of United's consolidated results, and should be read together with our
consolidated financial statements and related notes included elsewhere herein.
These consolidated financial statements provide additional information regarding
our financial activities and condition.
Introduction
Our network footprint covers 17 countries in Europe and Israel. We provide
communications services in many European countries through our business lines:
cable television, telephony, internet/data services, DTH and media. Our
subscriber base is the largest of any group of broadband communications networks
operated across Europe. We intend to continue looking at opportunities to
increase our presence in the European market through acquisitions as the
European telecommunications market consolidates, and to implement our branded
package of video, voice and internet/data product offerings in systems we
acquire.
We commenced our present business in July 1995. Most of our operating
systems have provided video services for a long time. During late 1997, we
introduced internet/data services as a product offering in our consolidated
systems. During 1998, we began the development of several other new businesses
including chello broadband, Priority Telecom and UPCtv. During 1998, the
internet/data service business and telephone business were developed at both
local country operating companies and at the corporate Pan-European level. In
1999, we began development of our CLEC business and our wireless business. Also
in 1999, through the acquisition of @Entertainment, we acquired a DTH platform.
Acquisitions
Since formation, we have developed largely through acquisitions. The most
recent acquisitions have resulted in significant growth in our consolidated
revenues and expenditures. The following table summarizes our larger
acquisitions during 1999 and the first nine months of 2000.
27
<PAGE>
<TABLE>
<CAPTION>
Interest Closing Purchase
Operating Companies Acquired Location Date Price
------------------- -------- --------------- -------------------------- ------------------
(millions of euro)
<S> <C> <C> <C> <C>
UTH (1) 49.0% The Netherlands February 1999 235.1
Gelrevision 100% The Netherlands June 1999 106.1
SBS 13.3% Pan-European July/August 1999 93.0
10.2% Pan-European February 2000 162.5
Stjarn 100% Sweden July 1999 371.1
Videopole 100% France August 1999 126.8
Time Warner Cable France 100% France August 1999 80.3
@Entertainment 100% Poland August 1999 750.7
A2000 (2) 50.0% The Netherlands September 1999 214.0 (4)
Czech/Slovak
Kabel Plus 94.6% Republics October 1999 141.9
Primacom AG 25.1% Germany December 1999 - March 2000 344.2
Intercomm 100% France February 2000 100.0
Tebecai 100% The Netherlands February 2000 62.2
ElTele Ostfold / Vestfold 100% Norway March 2000 39.3
Kabel Haarlem B.V 100% The Netherlands March 2000 62.2
Eneco K&T Group 100% The Netherlands March 2000 1,046.3 (4)
UPC Magyarorszag (3) 20.75% Hungary March 2000 63.9
DattelKabel 100% Czech Republic July 2000 24.5
</TABLE>
(1) We acquired the 49.0% of UTH which we did not already own.
(2) We acquired the 50.0% of A2000 which we did not already own.
(3) We acquired the 20.75% of UPC Magyarorszag which we did not already own.
(4) Including acquisition of loans to former shareholder
Cable Distribution Activities in 2000
Acquisition of Intercomm France
In February 2000, our subsidiary, UPC France, acquired Intercomm from
Intercomm Holdings. At closing, this acquisition added approximately 550,000
franchise homes to our cable footprint in France. Over 400,000 of Intercomm's
homes are located close to a number of the properties acquired by us in our 1999
acquisitions of the Reseaux Cables de France and Videopole networks, thus
facilitating the roll-out of our triple play strategy (video, voice and
internet/data) in those areas. We funded this acquisition with a 36 million cash
payment and 8% of the shares in UPC France.
Acquisition of Tebecai Netwerken B.V. and Tebecai Telecom B.V.
In February 2000, we acquired Tebecai, a cable system based in the east of
The Netherlands. Tebecai owns and operates cable networks in Zutphen, Doetinchem
and the surrounding municipalities. At closing, the company had approximately
78,000 basic cable television subscribers and 2,800 internet subscribers.
Tebecai's network is fully upgraded and 80% two-way capable. The Tebecai
transaction continues our strategy of acquiring cable systems in The Netherlands
which are located adjacent to our existing operations.
28
<PAGE>
Acquisition of ElTele Ostfold and Vestfold
In March 2000, we acquired 100% of the equity of ETO from the energy
companies Fredrikstad Energi AS, Ostfold Energiverk and Hafslund. At closing,
ETO had approximately 300 kilometers of fibre and approximately 125 business
customers between them, providing broadband services to business customers in
the Ostfold, Vestfold, Telemark and Buskerud regions of Norway. The business
activities of the companies will be incorporated into UPC's Priority Telecom
CLEC division while the infrastructure will be managed by UPC Norway and used to
service both business and residential customers. As a result of the acquisition,
we also acquired a 26 GHz spectrum license in Norway.
Acquisition of UPC Magyarorszag Minority Interest
In March 2000, we acquired the 20.75% minority stake in UPC Magyarorszag.
This transaction allowed us to assume 100% control of our Hungarian operations.
Acquisition of Kabel Haarlem B.V.
In March 2000, we acquired 100% of the Haarlem cable network in The
Netherlands. We plan to introduce our cable telephone and high speed internet
services to subscribers of the Haarlem cable network as quickly as possible. We
will also introduce our digital set-top computer to subscribers of the network
in the fourth quarter of 2000.
Acquisition of Eneco K&T Group
In March 2000, we acquired K&T, which owns and operates cable networks
in Rotterdam, Dordrecht and the surrounding municipalities. At closing K&T had
approximately 610,000 homes passed, 590,000 basic cable television subscribers
and over 6,000 broadband internet subscribers. K&T's network is substantially
upgraded and, with 85% of the network two-way capable, we are ready to offer
most of these customers interactive broadband services. In addition, K&T's glass
fibre ring which covers an area of approximately 100km around The Hague, offers
us the opportunity to quickly roll out internet/data and telephony services and
rapidly build its base of business subscribers in The Netherlands.
Agreement to Acquire Interest in Telewest Communications plc
On June 26, 2000, we announced our agreement to acquire a 25% economic
interest in Telewest, with approximately 4.7 million homes passed, 1.2 million
cable subscribers and 1.7 million fixed line telephony subscribers as of the
date of announcement. We will acquire the economic interest in Telewest from
United's successor corporation ("New United") as part of a series of related
transactions by United and Liberty whereby Liberty will contribute to New United
its European and Latin American broadband assets in return for 75.3 million
shares of Class B common stock of New United, which will acquire all of the
outstanding stock of United pursuant to a merger of United with a newly formed
wholly-owned subsidiary of New United.
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<PAGE>
The Liberty broadband assets contributed to New United will include a non-
voting, 99% economic interest in a LLC which holds 724.3 million ordinary and
limited voting shares of Telewest, representing approximately 25% of the total
issued share capital in Telewest. Subsequent to closing, New United will
contribute the LLC interest into a newly formed Dutch company, or "New UPC",
which will acquire all of the issued and outstanding stock of UPC, pursuant to a
merger of UPC into a newly formed wholly owned subsidiary of New UPC, and New
United will contribute to New UPC the interests in Telewest that New United
acquires from Liberty in return for equity in New UPC. The UPC transaction will
result in New United holding a direct and indirect ownership interest in New UPC
of approximately 61.0%. The merger of UPC into a subsidiary of New UPC requires
the approval of UPC's supervisory directors and a majority of its shareholders
and compliance with other Dutch corporate legal procedures. Pursuant to the
terms of UPC's indentures, the merger will also require delivery of a fairness
opinion. The remaining 1% economic interest in the LLC and sole management power
over the LLC will be held by Liberty. We have a right to obtain this interest
after clearance of all appropriate regulatory and third party approvals.
Closing of the transaction is also subject to certain regulatory,
shareholder and third party approvals which the parties expect to complete
during the course of first half 2001.
Acquisition of DattelKabel
In July 2000, we acquired 100% of the equity interest in DattelKabel a.s.
from Nuon International Projects B.V. (a wholly owned subsidiary of Nuon, N.V.).
DattelKabel is a Prague-based cable TV operator. DattelKabel had approximately
130,500 homes passed and 55,325 basic cable TV subscribers at closing.
DattelKabel also has approximately 1,425 residential and business broadband
internet customers. Its network has been fully upgraded to 862 MHz standard,
with over 94% of homes passed capable of receiving two-way signals.
Acquisition of EWT/TSS Group
In October 2000, our subsidiary UPC Germany Gmbh ("UPC Germany") acquired
100% of EWT/TSS. UPC funded the acquisition with 238.4 million cash and shares
in UPC Germany. At closing EWT/TSS was the fourth largest independent German
broadband cable operator and had approximately 1.1 million homes passed and
650,000 subscribers in Germany. The company offers broadband cable video and
internet access services and has commenced cable telephone services in Berlin.
Following this transaction, our interest in UPC Germany is 51%.
Internet Activities in 2000
Agreement with Excite@Home to Form Joint Venture
On July 18, 2000, together with United and Excite@Home, we announced
plans to merge our chello broadband subsidiary with Excite@Home's international
broadband operations to form Excite chello. Upon formation, Excite chello will
combine Excite@Home's international portal, media and high-speed data ventures
with chello's high-speed internet operations and its exclusive access to our and
United's broadband networks. The proposed transaction is subject to receipt of
various third party approvals and satisfaction of various other significant
conditions.
Receipt of License to Offer Internet Service in Poland
On July 26, 2000, we announced that a subsidiary of @Entertainment, UPC
Telewizja Kablowa ("UTK") was granted a 15-year data transmission license by the
Ministry of Communications. The license authorizes UTK to provide data
transmission service to its customers throughout the territory of Poland, using
its own networks and those leased from other licensed operators. UTK plans to
gradually introduce internet services in the cities where UTK operates upon
completion of upgrading of networks and testing the service. The first cities
will be Warsaw and Krakow. In Poland, just like in other countries, we will
offer the
30
<PAGE>
internet access service through our subsidiary, chello broadband.
Telephony Activities in 2000
Acquisition of Cignal Global Communications
In November 2000, Priority Telecom acquired through a merger and exchange
offer Cignal Global Communications ("Cignal"), a US-based provider of global
network services. In the stock-based deal, Priority Telecom acquired 100% of
Cignal in exchange for a 16% interest in Priority Telecom.
The networks combine Cignal's seven Gbps of long-haul capacity connecting
Europe, the Americas and Asia with Priority Telecom's access to more than 12,000
kilometers of local loop fibre in key European cities including Oslo, Stockholm,
Amsterdam, Rotterdam, Brussels, Vienna, Prague and Budapest. The combined
companies currently operate in 18 markets and plan to market a wide range of
products and services including broadband data, private IP networking, ATM,
hosting, leased line and voice services.
Awards of Wireless Licenses
In March 2000, our wireless communications division, Priority Wireless, won
two national licenses to build and operate broadband fixed wireless access
networks in the 3.5 GHz band in Spain and Switzerland. In addition, we were
awarded regional 26 GHz licenses in Geneva and Zurich. The Spanish license was
awarded at no cost by the Ministry of Public Works and Telecommunications in a
competitive tender based on technical and financial ability. Priority Wireless
won the Swiss license for 95.2 million by competing in a public auction.
In April 2000, Priority Wireless secured another broadband fixed wireless
access license in Finland. The Finnish license is a 26 GHz broadband fixed
wireless access license which covers nine regions in Finland, including the
capital Helsinki. The license was granted at no cost by Finland's regulatory
authority.
In July 2000, Priority Wireless was awarded one of the two national French
fixed wireless licenses. The license gives us access to both 3.5 and 26 GHz
spectrum throughout France. The license was awarded at no cost by the French
regulatory authority. We won this license jointly with Marine-Wendel and NRJ
through their consortium Fortel in which Priority Wireless has a 47.5% interest.
We will be responsible for constructing, managing, and delivering services over
the network.
Media Activities in 2000
Formation of Programming Joint Venture with MTV Networks Europe
In March 2000, UPCtv and MTV Networks Europe formed a 50/50 joint venture
partnership which plans to produce and distribute two 24-hour music channels
specifically targeted at the Polish marketplace: MTV Polska, and VH1 Polska. In
addition, the company will be responsible for creation and distribution of
related MTV and VH1 branded web-sites, and will act as distribution agent in
Poland for MTV Networks Europe's digital channel portfolio, including M2, MTV
Extra, MTV Base and VH1 Classic. Both MTV Polska and VH1 Polska will be
distributed via the UPC Polska DTH and PTK cable platforms as well as other
cable operators.
Xtra Music Limited
In August 2000, UPC together with Liberty Digital Inc., through Liberty
Digital's subsidiary, DMX Music, purchased the interests of the third party
shareholders in Xtra Music Ltd., thus creating a 50:50 joint venture company
between UPC and Liberty Digital. Xtra Music Ltd. distributes 80 channels of DMX
Music programming to 25 European countries via the Astra satellite system and to
the Middle East via an agreement with Orbit Communications.
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<PAGE>
Adjusted EBITDA
Management generally considers Adjusted EBITDA to be a helpful way to
measure the performance of cable television operations and communications
companies. Adjusted EBITDA represents earnings before net interest expense,
income tax expense (benefit), depreciation, amortization, stock-based
compensation charges, minority interest, share in results of affiliated
companies (net), currency exchange gains (losses) and other non-operating income
(expense) items. We believe Adjusted EBITDA helps investors to assess the cash
flow from our 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 generally
accepted accounting principles, or as an indicator of a company's operating
performance. We are not entirely unrestricted to use the cash represented by our
Adjusted EBITDA. Several of our consolidated operating companies are restricted
by the terms of their debt arrangements. Each company has its own operating
expenses and capital expenditure requirements, which can limit our use of cash.
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 Adjusted EBITDA in the same manner.
The introduction of telephony services and internet/data services had a
significant negative impact on operating income (loss) and Adjusted EBITDA
during 1999 and the first nine months of 2000. We expected this negative impact
due to the high costs associated with obtaining subscribers, branding and
launching these new services against the incumbent operators. This negative
impact is expected to decline. We intend for these new businesses to be Adjusted
EBITDA positive after two to three years following introduction of the service,
but there can be no assurance this will occur.
We currently classify our business into six segments, comprised of 1) cable
television, 2) telephony (Priority Telecom and UPC affiliates), 3) internet/data
(chello and UPC affiliates), 4) DTH, 5) media and 6) digital, corporate and
other. Included in the telephony segment is the CLEC business, which we began
separating in 1999. The following table presents an overview of our revenue and
Adjusted EBITDA by segment for the three and nine months ended September 30,
2000 and 1999.
<TABLE>
<CAPTION>
For the Three Months Ended September 30, For the Nine Months Ended September 30,
---------------------------------------- ---------------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(Euros, in thousands) (Euros, in thousands)
<S> <C> <C> <C> <C>
Revenue:
Cable................................. 163,376 101,921 461,824 233,145
Telephony............................. 50,884 9,965 129,097 20,342
Internet/data......................... 32,081 8,261 77,458 17,113
DTH................................... 16,045 3,535 38,718 3,535
Media................................. 18,622 3,765 47,804 4,166
Digital, Corporate and Other.......... 2,036 3,105 5,088 4,583
Intercompany.......................... (25,167) (5,034) (64,523) (6,732)
------------ ------------ ------------ ------------
257,877 125,518 695,466 276,152
============ ============ ============ ============
Adjusted EBITDA:
Cable................................. 60,906 39,229 173,018 98,159
Telephony............................. (32,128) (9,524) (82,975) (22,250)
Internet/data......................... (46,854) (22,641) (137,584) (45,974)
DTH................................... (8,696) (3,843) (14,494) (3,843)
Media................................. (27,230) (12,812) (74,889) (17,890)
Digital, Corporate and Other.......... (42,554) (15,313) (95,057) (25,886)
------------ ------------ ------------ ------------
(96,556) (24,904) (231,981) (17,684)
============ ============ ============ ============
</TABLE>
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<PAGE>
Overview of Our Activities
To date, our primary source of revenue has been cable television services.
For the three and nine months ended September 30, 2000, our cable television
services accounted for approximately 63.4% and 66.4%, respectively, of our
consolidated revenues, compared to 81.2% and 84.4% for the same periods in 1999.
We believe that an increasing percentage of our future revenues will come from
our other services. Video services will continue to decline as a percentage of
our total revenue, as our revenues from other services continue to increase.
These are forward-looking statements and will not be fulfilled unless our new
services grow dramatically. Our capital constraints, technological limitations,
competition, lack of programming, loss of personnel, adverse regulation and many
other factors could prevent our new services from growing as we expect.
We believe that our new services will continue to have a negative impact on
our operating income and Adjusted EBITDA due to the one-time costs associated
with obtaining customers. We have defined these costs as "customer acquisition
costs" and track these costs on a regular basis. Customer acquisition costs
consist of sales commissions and call for action type advertising.
Cable Television
Our operating systems generally offer a range of video service subscription
packages including a basic tier, which typically includes 26 to 32 channels, and
an expanded basic tier, which typically includes 6 to 13 additional channels. In
some systems, we also offer mini-tiers, premium programming, which typically
includes 2 channels, and pay-per-view programming, which includes 5 to 10
channels.
Historically, video services revenue has increased as a result of:
. acquisitions of systems,
. subscriber growth from both well established and developing systems and
. increases in revenue per subscriber from basic rate increases and the
introduction of expanded basic tiers and pay-per-view services.
Pricing
We usually charge a one-time installation fee when we connect video
subscribers, a monthly subscription fee that depends on whether basic or
expanded basic tier service is offered, and incremental amounts for those
subscribers purchasing pay-per-view and premium programming, which are generally
offered only to expanded basic tier subscribers.
In our Western European markets, price controls by various local and
national governmental agencies apply to the basic tier services. Expanded basic
tier, pay-per-view and premium programming are subject to EU and national
competition laws generally but are not subject to sector-specific price
controls.
Costs of Operations
Video services operating costs include the direct costs of programming,
franchise fees and operating expenses necessary to provide the service to the
subscriber. Direct costs of programming are variable, based on the number of
subscribers. The cost per subscriber is established by negotiation between us
and the program supplier or rates negotiated by cable associations. Franchise
fees, where applicable, are generally based upon a percentage of revenue and
typically range from 3% to 5% in Belgium and are approximately 13.5% in Austria.
Other operating expenses include operating personnel, service vehicles,
maintenance and plant electricity.
Selling, general and administrative expenses include branding, marketing
and customer acquisition costs, personnel related costs, legal, accounting,
human resources, office facilities and other overhead costs.
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<PAGE>
Results of Operations - Cable Television
The following table sets forth information from, or derived from, our
consolidated statements of operations for the three and nine months ended
September 30, 2000 and 1999.
<TABLE>
<CAPTION>
For the Three Months Ended September 30, For the Nine Months Ended September 30,
---------------------------------------- ---------------------------------------
2000 1999 2000 1999
------------ ------------ ------------ -----------
(Euros, in thousands) (Euros, in thousands)
<S> <C> <C> <C> <C>
Service and other revenue...................... 163,376 101,921 461,824 233,145
Operating expense.............................. (69,159) (39,369) (185,748) (80,633)
Selling, general and administrative expense.... (33,311) (23,323) (103,058) (54,353)
------------ ------------ ------------ -----------
60,906 39,229 173,018 98,159
Adjustments:
Stock-based compensation expense............... - - - -
------------ ------------ ------------ -----------
Adjusted EBITDA................................ 60,906 39,229 173,018 98,159
============ ============ ============ ===========
As a percentage of revenue:
Operating expense.............................. -42.3% -38.6% -40.2% -34.6%
============ ============ ============ ===========
Selling, general and administrative expense.... -20.4% -22.9% -22.3% -23.3%
============ ============ ============ ===========
Adjusted EBITDA................................ -37.3% 38.5% 37.5% 42.1%
============ ============ ============ ===========
</TABLE>
Revenue - Cable Television
During the three months ended September 30, 2000, our cable television
revenue increased 61.5 million to 163.4 million from 101.9 million for the three
months ended September 30, 1999, a 60.4% increase. During the nine months ended
September 30, 2000, our cable television revenue increased 228.7 million to
461.8 million from 233.1 million for the nine months ended September 30, 1999, a
98.1% increase. For both the three month period and the nine month period, the
increase in cable television revenue resulted primarily from our acquisitions,
which are included in our consolidated results of operations from their
respective dates of acquisition. Cable television revenue for the three months
ended September 30, 2000, compared to the three months ended September 30, 1999,
includes an increase of cable television revenue attributable to acquisitions
which closed subsequent to our initial public offering in February 1999 totaling
41.0 million, or 66.7% of the total increase. Of this increase, acquisitions in
The Netherlands represent 56.4%, the acquisition in Poland represents 21.7%,the
acquisition in Sweden represents 8.3%, and the acquisition in the Czech Republic
represents 13.6%. The increase in cable television revenue for the nine months
ended September 30, 2000, compared to the nine months ended September 30, 1999,
includes an increase of cable television revenue attributable to acquisitions
which closed subsequent to our initial public offering in February 1999 totaling
154.3 million, or 67.5% of the total increase. Of this increase, acquisitions in
The Netherlands represent 46.0%, the acquisition in Poland represents 28.8%,the
acquisition in Sweden represents 12.9%, and the acquisition in the Czech
Republic represents 12.3%. The remaining increase in cable television revenue
came from subscriber growth and increased revenue per subscriber.
Operating Expense - Cable Television
During the three months ended September 30, 2000, our cable television
operating expense increased 29.8 million to 69.2 million from 39.4 million for
the three months ended September 30, 1999, a 75.6% increase. During the nine
months ended September 30, 2000, our cable television operating expense
increased 105.1 million to 185.7 million from 80.6 million for the nine months
ended September 30, 1999, a 130.4% increase. The increase in cable television
operating expense primarily relates to our acquisitions, which are included in
our consolidated results of operations from their respective dates of
acquisition. The increase in cable television operating expense for the three
months ended September 30, 2000, compared to the three months ended September
30 1999, includes an increase of cable television operating expense attributable
to acquisitions which closed subsequent to our initial public offering, totaling
14.8 million, or 49.7% of the increase. Of this increase,
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<PAGE>
acquisitions in The Netherlands represents 63.5%, the acquisition in Poland
represents 7.4%,the acquisition in Sweden represents 8.8%, and the acquisitions
in the Czech Republic represent 20.3%. The increase in cable television
operating expense for the nine months ended September 30, 2000, compared to the
nine months ended September 1999, includes an increase of cable television
operating expense, attributable to acquisitions which closed subsequent to our
initial public offering, totaling 50.7 million, or 48.2% of the increase. Of
this increase, acquisitions in The Netherlands represents 49.7%, the acquisition
in Poland represents 18.5%,the acquisition in Sweden represents 12.6%, and the
acquisitions in the Czech Republic represent 19.2%.
As a percentage of revenue, operating expense increased from 38.6% for the
three months ended September 30, 1999 to 42.3% for the three months ended
September 30, 2000 and increased from 34.6% for the nine months ended September
30, 1999 to 40.2% for the nine months ended September 30, 2000. This increase is
primarily due to higher operating costs as a percentage of revenue for systems
we acquired subsequent to our initial public offering. We expect to reduce this
percentage in future years through revenue growth and operating efficiencies.
Selling, General and Administrative Expense - Cable Television
During the three months ended September 30, 2000, our cable television SG&A
expense increased 10.0 million to 33.3 million from 23.3 million for the three
months ended September 30, 1999, a 42.9% increase. During the nine months ended
September 30, 2000, our cable television SG&A expense increased 48.7 million to
103.1 million from 54.4 million for the nine months ended September 30, 1999, a
89.5% increase. The increase in cable television SG&A expense primarily relates
to our acquisitions which closed subsequent to our initial public offering,
which are included in our consolidated results of operations from their
respective dates of acquisition. The increase in cable television SG&A expense
for the three months ended September 30, 2000, compared to the three months
ended September 1999, includes an increase of cable television SG&A expense
attributable to acquisitions which closed subsequent to our initial public
offering totaling 8.1 million, or 81.0% of the increase. Of this increase,
acquisitions in The Netherlands represent 39.6%, the acquisition in Poland
represents 29.6%, the acquisition in Sweden represents 8.6% and the acquisitions
in the Czech Republic represent 22.2%. The increase in cable television SG&A
expense for the nine months ended September 30, 2000, compared to the nine
months ended September 1999, includes an increase of cable television SG&A
expense, attributable to acquisitions which closed subsequent to our initial
public offering, totaling 38.4 million, or 78.9% of the increase. Of this
increase, acquisitions in The Netherlands represent 28.4%, the acquisition in
Poland represents 41.9%, the acquisition in Sweden represents 14.6% and the
acquisitions in the Czech Republic represent 15.1%.
Telephony
We began to offer cable telephony services in July 1997. We currently offer
local cable telephony services, under the brand name Priority Telecom, in our
Austrian, Dutch, French, Swedish and Norwegian systems. Priority Telecom
launched its service on a trial basis in Vienna in November 1998 and in February
1999 launched its business and residential service. Our Priority Telecom service
was officially launched in an area of UPC France in March 1999, UPC Norge in
April 1999, and a part of UPC Nederland's service area in May 1999. We also
provide national and international long distance voice telephony services. In
addition to our cable telephony operations, our Kabel Plus system in the Czech
Republic and our Monor system in Hungary offer traditional telephony services.
Telephony also includes our subsidiary Priority Wireless, which we created in
July 1999 to capitalize on wireless opportunities across Europe.
Our operating systems offer a full complement of telephony services,
including caller ID, call waiting, call forwarding, call blocking, distinctive
ringing and three-way calling.
We believe that our networks and facilities provide the opportunity for
cost-effective access to potential business telephony customers and an excellent
starting point for expanding our CLEC business within our footprint. Priority
Telecom has further expanded its European CLEC network via recent acquisitions
of networks in Spain, Norway and France. Priority Telecom is positioned as our
Pan-European CLEC. This position will be established via both organic growth and
acquisitions. In the business market, Priority Telecom offers product packages
of traditional voice telephony and IP Data services to the small and medium
sized business customers.
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<PAGE>
For the large segment, tailor-made solutions are currently offered in the
Netherlands and Priority Telecom aims at marketing these solutions on a Pan-
European scale.
Pricing
In order to achieve high-growth from early market entry, we price our
telephony service at a discount compared to services offered by incumbent
telecommunications operators. Initially, we might also waive or substantially
discount installation fees.
Revenue from residential telephony consists of a flat monthly line rental
and a usage charge based upon minutes. Other telephony revenue includes IP data
services to the small and medium sized business customers, carrier select
revenue, as well as lease line and other business revenues.
Costs of Operations
Our telephony cost of operations include interconnection costs, number
portability fees, network operations, customer operations and customer care.
Interconnection costs are variable based upon usage as determined through
negotiated interconnect agreements.
Selling, general and administrative expense includes branding, marketing
and customer acquisition costs, personnel related costs, such as stock-based
compensation expense, legal, accounting, human resources, office facilities
and other overhead costs. Customer acquisition costs consist of sales
commissions and call-for-action type advertising.
Results of Operations - Telephony
The following table sets forth information from, or derived from, our
consolidated statements of operations for the three and nine months ended
September 30, 2000 and 1999.
36
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30, For the Nine Months Ended September 30,
---------------------------------------- ---------------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
(Euros, in thousands) (Euros, in thousands)
<S> <C> <C> <C> <C>
Service and other revenue...................... 50,884 9,965 129,097 20,342
Operating expense.............................. (47,693) (10,547) (112,594) (20,461)
Selling, general and administrative expense.... (31,451) (11,337) (92,246) (30,066)
-------------- -------------- -------------- --------------
(28,260) (11,919) (75,743) (30,185)
Adjustments:
Stock-based compensation expense............... (3,868) 2,395 (7,232) 7,935
-------------- -------------- -------------- --------------
Adjusted EBITDA................................ (32,128) (9,524) (82,975) (22,250)
============== ============== ============== ==============
As a percentage of revenue:
Operating expense.............................. -93.7% -105.8% -87.2% -100.6%
============== ============== ============== ==============
Selling, general and administrative expense.... -61.8% -113.8% -71.5% -147.8%
============== ============== ============== ==============
Adjusted EBITDA................................ -63.1% -95.6% -64.3% -109.4%
============== ============== ============== ==============
</TABLE>
Revenue - Telephony
During the three months ended September 30, 2000, our telephony revenue
increased 40.9 million to 50.9 million from 10.0 million for the three months
ended September 30, 1999, a 409% increase. During the nine months ended
September 30, 2000, our telephony revenue increased 108.8 million to 129.1
million from 20.3 million for the nine months ended September 30, 1999, a 536%
increase. During 1999, we launched local telephony services, under the brand
name Priority Telecom, in our Austrian, Dutch, French and Norwegian systems. In
addition, A2000, which we began consolidating effective September 1, 1999, had
existing telephony service from July 1997. We acquired Kabel Plus and Monor in
November 1999 and late December 1999, respectively, and began consolidating
their operations effective November 1, 1999 and January 1, 2000, respectively.
In 2000, we launched local telephony services in our Swedish system. CLEC
revenue included in telephony for the three and nine months ended September 30,
2000 is 24.8 and 58.6, respectively. In late 1999, we began separating the CLEC
business from the residential.
Operating Expense - Telephony
During the three months ended September 30, 2000, our telephony operating
expense increased 37.2 million to 47.7 million from 10.5 million for the three
months ended September 30, 1999, a 354% increase. During the nine months ended
September 30, 2000, our telephony operating expense increased 92.1 million to
112.6 million from 20.5 million for the nine months ended September 30, 1999, a
449% increase. The increase in 2000 primarily relates to the expansion of our
footprint.
Selling, General and Administrative Expense - Telephony
During the three months ended September 30, 2000, our telephony SG&A
expense increased 20.2 million to 31.5 million from 11.3 million for the three
months ended September 30, 1999, a 179% increase. During the nine months ended
September 30, 2000, our telephony SG&A expense increased 62.1 million to 92.2
million from 30.1 million for the nine months ended September 30, 1999, a 206%
increase. In addition to increased SG&A costs from expansion of our footprint,
during the three months and nine months ended September 30, 2000, we continued
to incur costs related to the development of the Priority Telecom brand and
Priority Wireless activities.
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<PAGE>
Internet/data
We are in the early stages of executing our internet/data business, and the
profitability of both the internet as a mass market delivery vehicle and our
business is unproven. Our expansion plans contemplate geographic coverage across
several continents, with locally tailored content and products and services in
multiple languages. We operate our internet/data business internationally
through chello broadband and locally through our local operating companies.
chello broadband launched its service in April 1999 and has now launched
its services in 9 countries. chello broadband provides high-speed internet
access and local portal and integrated broadband content to our local operating
companies and non-affiliated operating companies through franchise agreements.
Under the franchise agreements, chello broadband provides our affiliates and
non-affiliated local operators with high-speed connectivity through AORTA,
caching, local language broadband portals, and marketing support for a fee based
upon a percentage of subscription and installation revenue. In the future the
franchise agreements further provide that the local operator will receive a
percentage of the revenue from chello broadband generated e-commerce and
advertising.
Our local operating companies manage the local network including the
upgrade, management and maintenance, sales and training, customer support and
service, installation and cost of customer premise equipment. To date,
substantially all of chello broadband's revenues are subscription-based and
derived from our local operating companies. These intercompany revenues have
been eliminated in our consolidated operating results. We believe we have an
opportunity to grow non-affiliated revenue through the chello broadband service
in future years. We cannot predict whether our products and services, including
broadband internet services in general, will become accepted or profitable in
these markets.
Pricing
To date, virtually all of our revenues have been derived from monthly
subscription fees of which chello broadband receives approximately 40% for its
service. Most local operators have chosen to waive installation charges. In the
future, we expect to generate revenues from advertising and e-commerce as we
develop our portals and our digital set-top computer services. Currently, our
services are offered to residential subscribers at flat subscription fees. Our
flat fee is designed to be generally lower than the costs associated with dial-
up internet access, including the access fees and phone charges with dial-up
access. For business subscribers to services other than our standard broadband
internet access services, we generally agree pricing with local operators on a
case by case basis, depending on the size and capacity requirements of the
businesses.
Cost of Operations
Our operating expenses consist primarily of leased-line and network
development and management costs associated with AORTA and our network.
Additional costs of operations include local connectivity costs, and help desk
and customer care costs. Stock-based compensation expenses related to personnel
directly working in operations are also a part of our operating expense.
Selling, general and administrative expenses include branding, marketing,
customer acquisition costs, personnel-related costs, including stock-based
compensation expenses, legal, accounting, office facilities and other
overhead. Customer acquisition costs consist of sales commissions and call-for-
action type advertising.
Results of Operations - Internet/data
The following table sets forth information from, or derived from, our
consolidated statements of operations for the three and nine months ended
September 30, 2000 and September 30, 1999.
38
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30, For the Nine Months Ended September 30,
------------------------------------------ -----------------------------------------
2000 1999 2000 1999
-------------------- -------------------- -------------------- --------------------
Affiliates chello Affiliates chello Affiliates chello Affiliates chello
---------- -------- ---------- -------- ---------- -------- ---------- --------
(Euros, in thousands) (Euros, in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service and other revenue................... 23,291 8,790 6,499 1,762 56,006 21,452 13,653 3,460
Operating expense........................... (27,675) (10,050) (7,008) (9,279) (60,709) (45,922) (13,198) (19,328)
Selling, general and administrative expense. (9,073) (35,101) (4,842) (11,631) (38,378) (60,340) (11,482) (22,700)
---------- -------- ---------- -------- ---------- -------- ---------- --------
(13,457) (36,361) (5,351) (19,148) (43,081) (84,810) (11,027) (38,568)
Adjustments:
Stock-based compensation expense............ - 2,964 - 1,858 - (9,693) - 3,621
---------- -------- ---------- -------- ---------- -------- ---------- --------
Adjusted EBITDA............................. (13,457) (33,397) (5,351) (17,290) (43,081) (94,503) (11,027) (34,947)
========== ======== ========== ======== ========== ======== ========== ========
As a percentage of revenue:
Operating expense........................... -118.8% -114.3% -107.8% -526.6% -108.4% -214.1% -96.7% -558.6%
========== ======== ========== ======== ========== ======== ========== ========
Selling, general and administrative expense. -39.0% -399.3% -74.5% -660.1% -68.5% -281.3% -84.1% -656.1%
========== ======== ========== ======== ========== ======== ========== ========
Adjusted EBITDA............................. -57.8% -379.9% -82.3% -981.3% -76.9% -440.5% -80.8% -1010.0%
========== ======== ========== ======== ========== ======== ========== ========
</TABLE>
Revenue - Internet/data
During the three months ended September 30, 2000, our internet/data revenue
increased 23.8 million to 32.1 million from 8.3 million for the three months
ended September 30, 1999, a 287% increase. During the nine months ended
September 30, 2000, our internet/data revenue increased 60.4 million to 77.5
million from 17.1 million for the nine months ended September 30, 1999, a 353%
increase. The increase in internet/data revenue for both the three and nine
month periods ended September 30, 2000, compared to 1999 is primarily due to
the launch of residential and business cable-modem high-speed internet access
services, branded as chello broadband in April 1999. During the second quarter
of 1999, we launched chello broadband on the upgraded portion of our networks in
Austria, Belgium, France, The Netherlands (with the exception of A2000) and
Norway. We launched chello broadband in our A2000 system and in Sweden in the
fourth quarter of 1999.
Internet/data revenue for the three months ended September 30, 2000 and
1999, includes 8.7 million and 1.8 of intercompany revenues, respectively, which
are eliminated in our consolidated operating results. Internet/data revenue for
the nine months ended September 30, 2000 and 1999, includes 21.2 million and 3.5
of intercompany revenues, respectively, which are eliminated in our consolidated
operating results.
Operating Expense - Internet/data
During the three months ended September 30, 2000, our internet/data
operating expense increased 21.4 million to 37.7 million from 16.3 million for
the three months ended September 30, 1999, a 131% increase. During the nine
months ended September 30, 2000, our internet/data operating expense increased
74.1 million to 106.6 million from 32.5 million for the nine months ended
September 30, 1999, a 228% increase. The increase in internet/data operating
expense for both the three month and nine month periods ended September 30,
2000, compared to 1999 is primarily due to the launch of chello broadband. For
the nine months ended September 30, 2000, this increase is partially offset by a
stock-based compensation credit recorded in the second quarter of 2000 of 6.0
million, compared to stock-based compensation expense of nil for the nine months
ended September 30, 1999.
39
<PAGE>
Selling, General and Administrative Expense - Internet/data
During the three months ended September 30, 2000, our internet/data SG&A
expense increased 27.7 million to 44.2 million from 16.5 million for the three
months ended September 30, 1999, a 167.9% increase. During the nine months ended
September 30, 2000, our internet/data SG&A expense increased 64.5 million to
98.7 million from 34.2 million for the nine months ended September 30, 1999, a
188.6% increase. During both the three and nine months ended September 30, 2000
as compared to 1999, internet/data SG&A expense increased due to the launch of
chello broadband. For the nine months ended September 30, 2000, this increase is
partially offset by a stock-based compensation credit recorded in the second
quarter of 2000 of 3.7 million, compared to 3.6 million expense for the nine
months ended September 30, 1999.
DTH
Through the acquisition of @Entertainment in August 1999, we obtained a DTH
platform serving the Polish market place. Prior to the acquisition of
@Entertainment we had no DTH activities. Subsequent to our acquisition of
@Entertainment we began to restructure the Polish DTH and media business by
separating them into two business lines. We have incurred significant start-up
and restructuring costs in this endeavor. @Entertainment has been rebranded as
UPC Polska Inc. ("UPC Polska"). During the third quarter of 2000, we launched
our DTH operations in Hungary, Czech Republic and Slovakia, leveraging off our
platform in Poland.
Pricing
For our DTH services, we generally charge a one-time installation fee when
we connect the subscriber, a monthly subscription fee for a basic service and
additional monthly subscription fees for premium programming, which includes a
movie channel and a sports channel. For the period from the date of acquisition
of @Entertainment, August 6, 1999 to November 7, 1999, we sold our DTH reception
systems to our customers at a price below cost due to promotional incentives.
Subsequent to November 7, 1999, we have retained ownership of these systems.
Costs of Operations
DTH operating costs include the costs of media rights, production costs,
and distribution costs, including transponder fees and operating costs. A
significant portion of these costs are fixed in nature through contractual
commitments.
Selling, general and administrative expenses include branding, marketing
and customer acquisition costs, personnel related costs, legal, accounting,
human resources, office facilities and other overhead costs.
Results of Operations - DTH
The following table sets forth information from, or derived from, our
consolidated statements of operations for the three and nine months ended
September 30, 2000 and 1999. The results of operations for DTH are primarily
from UPC Polska, which was acquired in August 1999.
40
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30, For the Nine Months Ended September 30,
---------------------------------------- ---------------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
(Euros, in thousands) (Euros, in thousands)
<S> <C> <C> <C> <C>
Service and other revenue...................... 16,045 3,535 38,718 3,535
Operating expense.............................. (11,773) (3,477) (30,020) (3,477)
Selling, general and administrative expense.... (12,968) (3,901) (23,192) (3,901)
-------------- -------------- -------------- --------------
(8,696) (3,843) (14,494) (3,843)
Adjustments:
Stock-based compensation expense............... - - - -
-------------- -------------- -------------- --------------
Adjusted EBITDA................................ (8,696) (3,843) (14,494) (3,843)
============== ============== ============== ==============
Operating expense.............................. -73.4% -98.4% -77.5% -98.4%
============== ============== ============== ==============
Selling, general and administrative expense.... -80.8% -110.4% -59.9% -110.4%
============== ============== ============== ==============
Adjusted EBITDA................................ -54.2% -108.7% -37.4% -108.7%
============== ============== ============== ==============
</TABLE>
Media
Our consolidated media business has been created through internal
development and through acquisitions. Historically we have been and are involved
in several country-specific media ventures, including those dedicated to
creating channels for Spain, Ireland and Malta. Our subsidiary UPCtv has
developed and launched eight channels of various genres since May 1999 and we
have constructed a Pan-European digital distribution platform that will enable
digital distribution of our new channels and other signals to our upgraded
networks. Through the acquisition of @Entertainment rebranded UPC Polska in
August 1999, we obtained a Polish-language programming platform under the brand
name Wizja TV. In the fall of 2000, we launched sports channels in Hungary, the
Czech Republic and Slovakia simultaneously with the launch of our DTH Platform.
We distribute our programming packages to third parties, as well as to
affiliates. As of September 30, 2000, we had approximately 17.6 million channel
subscribers on an aggregate basis and approximately 10.3 million channel
subscribers on a proportionate basis for channels which we have an interest in.
We expect substantial operating losses related to our media activities to
continue while we develop and expand our subscriber base.
Pricing
For our programming channels, including our UPCtv and some Wizja channels,
we primarily charge cable operators on a per-subscriber fee basis.
Costs of Operations
Programming operating costs include the costs of programming rights,
production costs, and distribution costs, including transponder fees and
operating costs. A significant portion of these costs are fixed in nature
through contractual commitments.
Selling, general and administrative expenses include branding, marketing,
personnel related costs, legal, accounting, human resources, office facilities
and other overhead costs.
41
<PAGE>
Results of Operations - Media
The following table sets forth information from, or derived from, our
consolidated statements of operations for the three and nine months ended
September 30, 2000 and September 30, 1999.
<TABLE>
<CAPTION>
For the Three Months Ended September 30, For the Nine Months Ended September 30,
---------------------------------------- ---------------------------------------
2000 1999 2000 1999
------------------- -------------------- ------------------- --------------------
(Euros, in thousands) (Euros, in thousands)
<S> <C> <C> <C> <C>
Service and other revenue....... 18,622 3,765 47,804 4,166
Operating expense............... (33,236) (9,515) (93,583) (12,203)
Selling, general and
administrative expense........ (12,680) (7,125) (29,300) (10,117)
-------------- ------------- ------------- ------------
(27,294) (12,875) (75,079) (18,154)
Adjustments:
Stock-based compensation
expense....................... 64 63 190 264
-------------- ------------- ------------- ------------
Adjusted EBITDA................. (27,230) (12,812) (74,889) (17,890)
============== ============= ============= ============
As a percentage of revenue:
Operating expense............... -178.5% -252.7% -195.8% -292.9%
============== ============= ============= ============
Selling, general and
administrative expense........ -68.1% -189.2% -61.3% -242.8%
============== ============= ============= ============
Adjusted EBITDA................. -146.2% -340.3% -156.7% -429.4%
============== ============= ============= ============
</TABLE>
Revenue - Media
During the three months ended September 30, 2000, our media revenue
increased 14.8 million to 18.6 million from 3.8 million for the three months
ended September 30, 1999, a 389% increase. During the nine months ended
September 30, 2000, our media revenue increased 43.6 million to 47.8 million
from 4.2 million for the nine months ended September 30, 1999, a 1,038%
increase. The increase is primarily due to our acquisition of UPC Polska. Media
revenue from UPC Polska's programming platform, Wizja TV, for the three and nine
months ended September 30, 2000, was 16.2 million and 44.2 million,
respectively.
Media revenue for the three months ended September 30, 2000 and 1999,
includes 16.5 million and 3.3 million , respectively, of intercompany revenues,
which are eliminated in our consolidated operating results. Media revenue for
the nine months ended September 30, 2000 and 1999, includes 43.3 million and 3.3
million, respectively, of intercompany revenues, which are eliminated in our
consolidated operating results.
Operating Expense - Media
During the three months ended September 30, 2000, our media operating
expense increased 23.7 million to 33.2 million from 9.5 million for the three
months ended September 30, 1999, a 249% increase. During the nine months ended
September 30, 2000, our media operating expense increased 81.4 million to 93.6
million from 12.2 million for the nine months ended September 30, 1999, a 667%
increase. The increase is primarily due to our acquisition of UPC Polska. Media
operating expense from Wizja TV for the three and nine months ended September
30, 2000, was 24.6 million and 72.8 million, respectively. The remaining
increase in operating expense for media for the three and nine months ended
September 30, 2000, relates to activity from UPCtv and the launch of the sports
channels in Eastern Europe.
42
<PAGE>
SG&A Expense - Media
During the three months ended September 30, 2000, SG&A expense for our
media business increased 5.6 million to 12.7 million from 7.1 million for the
three months ended September 30, 1999, a 79% increase. During the nine months
ended September 30, 2000, SG&A expense for our media business increased 19.2
million to 29.3 million from 10.1 million for the nine months ended September
30, 1999, a 190% increase. The increase is primarily due to our acquisition of
UPC Polska. The SG&A expense of Wizja TV, for the three and nine months ended
September 30, 2000, was 3.0 million and 10.0 million, respectively. The
remaining increase in SG&A expense for media for the three and nine months ended
September 30, 2000 relates to development activity from UPCtv and the launch of
our sports channels in Eastern Europe.
Results of Operations - Digital, Corporate and Other
The following table sets forth information from, or derived from, our
consolidated statements of operations for the three and nine months ended
September 30, 2000 and September 30, 1999.
<TABLE>
<CAPTION>
For the Three Months Ended September 30, For the Nine Months Ended September 30,
---------------------------------------- ---------------------------------------
2000 1999 2000 1999
------------------- -------------------- ------------------ --------------------
(Euros, in thousands) (Euros, in thousands)
<S> <C> <C> <C> <C>
Service and other revenue......... 2,036 3,105 5,088 4,583
Operating expense................. (4,601) (890) (12,673) (1,045)
Selling, general and
administrative expense.......... (37,400) (17,432) (73,357) (67,286)
------------- ------------ ------------- ------------
(39,965) (15,217) (80,942) (63,748)
Adjustments:
Stock-based compensation
expense.......................... (2,589) (96) (14,115) 37,862
------------- ------------ ------------- ------------
Adjusted EBITDA................... (42,554) (15,313) (95,057) (25,886)
============= ============ ============= ============
</TABLE>
Selling, General and Administrative Expense - Digital, Corporate and Other
For the three and nine months ended September 30, 2000, we recorded a
stock-based compensation credit of 2.6 million and 14.1 million, respectively,
in corporate and other SG&A expense compared to a stock-based compensation
credit of 0.1 million and expense of 37.9 million for the comparable periods in
1999. A decrease in our stock price in 2000 resulted in a stock-based
compensation credit for our phantom stock option plan, which requires variable
plan accounting. Excluding stock-based compensation, our corporate and other
SG&A for the three and nine months ended September 30, 2000 was 40.0 million and
87.5 million, respectively. For the three and nine months ended September 30,
1999, corporate and other SG&A excluding stock-based compensation, was 17.5
million and 29.4 million, respectively. The increased costs in 2000, relate to
the development of our digital set-top computer, as well as increased systems
costs related to the planning and preparation for implementing Pan-European
financial and customer care systems. We also incurred costs in the three and
nine months ended September 30, 2000, related to the development of our
regulatory office, as well as additional staffing costs for communications,
legal, finance, treasury, investor relations and corporate development.
The following analysis relates to our consolidated operations as a whole.
43
<PAGE>
Depreciation and Amortization
During the three months ended September 30, 2000, our depreciation and
amortization expense increased 100.2 million to 187.4 million from 87.2 million
for the three months ended September 30, 1999, a 114.9% increase. During the
nine months ended September 30, 2000, our depreciation and amortization expense
increased 322.8 million to 477.3 million from 154.5 million for the nine months
ended September 30, 1999, a 208.9% increase. Of this increase, approximately
46.0 million and 122.2 million for the three and nine months, respectively,
relates to increased amortization expense for goodwill created in connection
with acquisitions which closed subsequent to our initial public offering.
Amortization related to acquisitions made in The Netherlands and Poland
represents 41.8% and 36.8% for the three months ended September 30, 2000 and
37.3% and 40.4% for the nine months ended September 30, 2000, respectively.
Depreciation expense also increased due to the acquisitions which closed
subsequent to our initial public offering, which we have consolidated, as well
as additional depreciation expense on capital expenditures to upgrade the
network in our Western European systems and new-build for developing systems.
Interest Income
During the three months ended September 30, 2000 as compared to the three
months ended September 30, 1999, interest income increased 4.2 million to 8.4
million from 4.2 million, a 100% increase. During the nine months ended
September 30, 2000, interest income increased 20.1 million to 30.5 million from
10.4 million for the nine months ended September 30, 1999, a 193.3% increase.
During the three and nine months ended September 30, 2000, we earned interest
income on the cash received from the proceeds of our January 2000 debt offering
and the remaining proceeds of our October 1999 debt offering and our October
1999 equity offering.
Interest Expense
During the three months ended September 30, 2000 as compared to the three
months ended September 30, 1999, interest expense increased 119.8 million to
176.8 million from 57.0 million. During the nine months ended September 30, 2000
as compared to the nine months ended September 30, 1999, interest expense
increased 399.3 million to 484.5 million from 85.2 million. The increase in 2000
is primarily due to our offering of senior notes and senior discount notes in
July 1999, October 1999 and January 2000. In addition, interest expense related
to the @Entertainment senior discount notes is consolidated in our results
effective August 1, 1999. A significant amount of our interest expense in 2000
relates to accretion on our discount notes, which is not currently cash pay. See
''Liquidity and Capital Resources''.
<TABLE>
<CAPTION>
For the Three Months Ended September 30, For the Nine Months Ended September 30,
---------------------------------------- ---------------------------------------
2000 1999 2000 1999
------------------ --------------------- ------------------ --------------------
<S> <C> <C> <C>
Cash Current Pay:
Bank..................... (33,835) (11,207) (77,507) (31,446)
Senior Notes............. (74,346) (17,984) (210,591) (17,984)
Other.................... (1,346) (1,035) (10,737) (3,464)
-------------- ------------- ------------- ------------
(109,527) (30,226) (298,835) (52,894)
Non-Cash Accretion:
Discount Notes........... (59,445) (16,423) (164,391) (16,423)
DIC Loan................. (3,881) (2,627) (9,134) (7,215)
Deferred Financing....... (3,930) (7,738) (12,105) (8,665)
-------------- ------------- ------------- ------------
(67,256) (26,788) (185,630) (32,303)
-------------- ------------- ------------- ------------
Total Interest Expense..... (176,783) (57,014) (484,465) (85,197)
============== ============= ============= ============
</TABLE>
44
<PAGE>
Foreign Exchange Gain (Loss) and Other Income (Expense)
Foreign exchange gain (loss) and other income (expense), net, reflected a
loss of 153.7 million for the three months ended September 30, 2000, compared to
a gain of 5.7 million for the same period in 1999. For the nine months ended
September 30, 2000, foreign exchange gain (loss) and other income (expense)
reflected a loss of 277.6 million compared to a gain of 11.2 million for the
nine months ended September 30, 1999. The increased foreign exchange loss during
the three and nine months ended September 30, 2000 was due primarily to losses
on our dollar-denominated senior notes and senior discount notes from the
increased value of the U.S. dollar against the Euro subsequent to December 31,
1999.
Share in Results of Affiliated Companies, Net
For the three months ended September 30, 2000, our share in net losses of
affiliated companies increased 30.3 million to 40.6 million from 10.3 million
for the three months ended September 30, 1999. For the nine months ended
September 30, 2000, our share in net losses of affiliated companies increased
46.4 million to 71.7 million from 25.3 million for the nine months ended
September 30, 1999. The increase was primarily due to increased losses, which
includes the amortization of excess basis, from SBS, Primacom and Tevel for the
three and nine months ended September 30, 2000.
Statements of Cash Flows
We had cash and cash equivalents of 182.0 million as of September 30,
2000, an increase of 118.9 million from 63.1 million as September 30, 1999.
Cash Flows from Operating Activities
During the nine months ended September 30, 2000, net cash flow from
operating activities decreased 515.9 million due to a use of 556.5 million
compared to a use of 40.6 million for the comparable period in 1999. This
decrease was primarily related to increased cash needs for working capital
related to companies we acquired during 1999 and 2000, and start-up costs for
internet/data, telephony and development activities.
Cash Flows from Investing Activities
We used approximately 2,840.1 million of cash in investing activities
during the nine months ended September 30, 2000, compared to 2,147.4 million for
the nine months ended September 30, 1999, an increase of 32.3%. During the nine
months ended September 30, 2000, cash was used principally for acquisitions,
including Eneco, for 1,046.3 million, net of cash acquired, UPC Magyaroszag for
63.9 million, net of cash acquired, Tebecai for 62.2 million, net of cash
acquired, Haarlem for 62.2 million, net of cash acquired and other acquisitions
totaling 153.0 million, net of cash acquired. Capital expenditures for property,
plant and equipment represented 1,092.6 million. During this period we made a
net investment in affiliates of 315.4 million, including our acquisitions of an
additional 10.5% interest in SBS for 162.5 million, including direct costs
incurred, shares in Primacom AG for 123.6 million and other investments in
affiliates of 29.3 million. We also made a net investment in securities of 44.5
million.
For the nine months ended September 30, 1999, cash for investing
activities was used principally for acquisitions, including UTH for 223.0
million, net of cash acquired, Gelrevision for 106.0 million, net of cash
acquired, Stjarn for 274.1 million, net of cash acquired, @Entertainment for
692.6 million, net of cash acquired, A2000 for 213.6, net of cash acquired and
other acquisitions for 220.1 million, net of cash acquired. Capital expenditures
for property, plant and equipment represented 295.2 million. We had a net
increase in restricted cash of 3.4 million from the release of 13.8 million upon
pay-off of the bridge bank facility, and the escrow of 17.2 million related to
the acquisition of Time Warner Cable France. During this period we made net
investments in affiliates of 120.4 million, including our acquisition of an
interest in SBS for 94.8 million with direct costs incurred and other
investments in affiliates of 25.6 million. We received proceeds from the sale of
our Hungarian programming assets of 16.6 million. We also made an investment in
securities of 15.7 million.
45
<PAGE>
Cash Flows from Financing Activities
We had 2,552.8 million of cash flows from financing activities during the
nine months ended September 30, 2000, compared to 2,237.7 million for the nine
months ended September 30, 1999. The principal source of cash for the nine
months ended September 30, 2000, was net proceeds from our senior notes and
discount notes offering in January 2000 of 1,594.2 million. For the nine months
ended September 30, 2000, additional sources of cash were from long-term and
short-term borrowings of 455.4 million and 1,005.4 million, respectively. Long-
term borrowings included borrowings under the UPC Senior Credit Facility of
281.4 million, 148.0 million under the new France Facility, and other borrowings
of 26.0 million. We used proceeds of 231.4 million from the New A2000 Facility
to pay off the existing A2000 Facilities. We had additional proceeds from short-
term debt of 774.0 million, including 32.9 million from the GelreVision
facility, 500.0 million from the new UPC Bridge Loan and 227.4 million under the
UPC Corporate Facility. We paid down other long-term and short-term loans of
211.1 million, including three French facilities amounting to 90.4 million, the
Stjarn facility amounting to 49.8 million, and the Monor facility amounting to
33.3 million. During the nine months ended September 30, 2000, we incurred
deferred financing costs of 59.7 million.
For the nine months ended September 30, 1999, the principal sources of
cash included net proceeds from our initial public offering of 1,206.9 million
and gross proceeds from the offering of the UPC Senior Notes due 2009 of 1,429.4
million. Additional sources of cash were from long-term and short-term
borrowings of 611.5 million and 13.1 million, respectively. Long-term borrowings
included borrowings on the New Telekabel Facility of 245.0 million, borrowings
under the UPC Senior Revolving Credit Facility of 49.9 million, borrowings on
the Mediareseaux Facility of 24.6 million, borrowings under the UPC Senior
Credit Facility of 280.6 million and other borrowings of 11.3 million.
Concurrent with our initial public offering, DIC exercised its option to acquire
our shares for proceeds of 40.7 million, which we used to pay 39.8 million of
the DIC Loan. We used proceeds from our initial public offering to pay 281.3
million of the UPC Senior Revolving Credit Facility, 49.9 million of the UPC
Bridge Bank Facility and 71.4 million of the United Loan. As part of the
acquisition of UTH in February 1999, we also paid a loan to NUON of 15.0
million. In March 1999, UTH paid off its existing credit facility of 281.3
million with proceeds from the New Telekabel Facility and funding from UPC. In
July 1999, we paid down the UPC Senior Revolving Credit Facility of 207.8
million with proceeds from the UPC Senior Credit Facility. We paid down other
loans of 46.9 million, including 18.9 million for the Telekabel Hungary
Facility. We used proceeds from the sale of our programming assets in Hungary to
pay the Time Warner Note totaling 16.5 million. During the nine months ended
September 30, 1999, we incurred deferred financing costs of 53.9 million.
Consolidated Capital Expenditures
Since 1995, we have been upgrading our existing cable television system
infrastructure and constructing our new-build infrastructure with two-way high
capacity technology to support digital video, telephony and internet/data
services. Capital expenditures for the upgrade and new-build construction can be
reduced at our discretion, although such reductions require lead-time in order
to complete work-in-progress and can result in higher total costs of
construction.
We have received commitments from Philips and Motorola for the development
and purchase of an integrated digital set-top computer for video and
internet/data services, as well as for internet-based telephony. UPC Nederland
(A2000) has agreed with the City of Amsterdam to commence deployment during the
year 2000, of a significant number of digital set-top computers to our existing
customers who elect to take our expanded tier service.
In addition to the network infrastructure and related equipment and
capital resources described above, development of our newer businesses, chello
broadband, Priority Telecom, including CLEC, our digital distribution platform
and DTH, including expansion into Central Europe, require capital expenditures
for construction and development of our Pan-European distribution and
programming facilities, including our origination facility, network operating
center, near video on demand server complex and related support systems and
equipment. For the year ended December 31, 2000, we have currently budgeted 1.7
billion for capital expenditures, excluding capital expenditures for certain of
our new acquisitions.
46
<PAGE>
Liquidity and Capital Resources
Historically, we have financed our operations and acquisitions primarily
from:
. cash contributed by United upon our formation,
. debt financed at the UPC corporate level and project debt financed at the
operating company level,
. equity raised in our initial public offering and secondary offering,
. debt raised in our July 1999, October 1999 and January 2000 offerings of
senior notes and senior discount notes, and
. operating cash flow.
In general, we have used the cash contributed by United upon formation and
debt and equity raised at the UPC corporate level to fund acquisitions,
developing systems and corporate overhead. We have financed our well-established
systems and, when possible, our developing systems, with project debt and
operating cash flow. Well-established systems generally have stable positive
cable cash flows that are used to partially offset funding necessary for new
product offerings, including telephony and internet/data.
We and our consolidated affiliates had the following principal long-term
and short-term debt facilities outstanding as of September 30, 2000. Debt
denominated in currencies other than Euros has been translated to Euros for the
outstanding balance as of September 30, 2000. Several of the debt facilities
listed below have financial covenants and other restrictions which could limit
access to funds. See our notes to consolidated financial statements for
additional details.
47
<PAGE>
<TABLE>
<CAPTION>
Facility Size Outstanding
Final or Principal At September 30,
Description (Borrower) Maturity Interest Rate Amount 2000
---------------------------------------------------------------------------------------------------------------------------------
(in millions) (in millions of Euros)
<S> <C> <C> <C> <C>
UPC and Consolidated
Subsidiaries:
Long-Term Debt
Senior Notes 2007 EURIBOR + 4.8% and 9.92% Euro190.7 190.7
2007 10.875% Euro100.0 100.0
2009 EURIBOR + 4.8% and 9.92% Euro240.2 238.3
2009 11.25% Euro101.0 100.3
2009 EURIBOR + 4.15% and 8.54% Euro754.7 754.7
2009 10.875% Euro300.0 300.0
2010 11.250% USD600.0 677.6
2010 9.980% Euro297.0 294.7
2010 11.250% Euro200.0 198.6
Senior Discount Notes 2009 12.50% USD735.0 (1) 525.2
2009 13.375% USD478.01 (1) 320.4
2009 13.375% Euro191.0 (1) 112.6
2010 13.750% USD1,000.0 (1) 639.3
PCI Notes 2003 9.875% per annum USD130.0 16.5
@Entertainment 1998 Senior
Discount Notes 2008 14.5% per annum USD224.2 158.2
@Entertainment 1999 Senior
Discount Notes 2009 14.5% per annum USD235.5 140.1
@Entertainment 1999 Series C
Senior Discount Notes 2008 7% per annum on USD36.0 15.3
principal at maturity
UPC Senior Credit Facility (2) 2006 EURIBOR/LIBOR + 0.75% to Euro1,000.0 638.9
2.0% per annum
New TeleKabel Facility (2) 2007 EURIBOR + 0.75% to 2.0% per Euro340.0 225.2
annum
CNBH Facility (2) 2008 AIBOR + 0.6% to 1.6% per NLG274.0 121.1
annum
Rhone Vision Cable
Facility (2) June 2002 LIBOR + 1% FFR680.0 61.0
UPC France Facility (2) 2001 EURIBOR + 2.5% Euro250.0 148.0
Short-Term Debt
UPC Corporate Facility 2001 12.0% per annum USD200.0 227.4
GelreVision Facility (2) 2000 EURIBOR + 0.8% / 1.5% per annum NLG90.0 34.9
New A2000 Facilities (2) 2000 EURIBOR + 1.0% per annum NLG620.0 231.4
UPC Bridge Loan (2) 2000 EURIBOR + 2.0% / 2.5% per annum Euro500.0 500.0
DIC Loan 2000 8.0% per annum + 6.0% of USD45.0 53.4
principal amount at maturity
</TABLE>
(1) At maturity.
(2) Subsequent to September 30, 2000 UPC repaid this facility/loan with the
proceeds from the Euro 4.0 billion financing (See Note 14).
48
<PAGE>
Restrictions under our July 1999, October 1999 and January 2000 Indentures
Our activities are restricted by the covenants of our indentures dated
July 30, 1999, October 29, 1999 and January 20, 2000, under which senior notes
and senior discount notes were issued. Among other things, our indentures place
certain limitations on our ability, and the ability of our subsidiaries, to
borrow money, issue capital stock, pay dividends in stock or repurchase stock,
make investments, create certain liens, engage in certain transactions with
affiliates, and sell certain assets or merge with or into other companies.
Under the terms of our indentures, if we raise additional equity, we will
be permitted to incur additional debt.
Restrictions under United Indentures
As a subsidiary of United, our activities are restricted by the covenants
in United's indentures dated February 5, 1998 and April 29, 1999. The United
indentures generally limit the additional amount of debt that we or our
subsidiaries or controlled affiliates may borrow, or preferred shares that we or
they may issue.
Sources of Capital
We had 182.0 million of unrestricted cash and cash equivalents on hand as
of September 30, 2000. In addition, we had borrowing capacity at the corporate
and project debt level. In 1999, we raised over 5.0 billion from a combination
of banks, bond markets and equity markets. We intend to continue to access these
sources of capital, as well as less traditional sources including vendor
financing, equity partners, and leasing structures.
In January 2000, we closed a bond offering consisting of four tranches:
USD 300 million of senior notes due 2010 with an 11 1/2% coupon; USD 600 million
and Euro 200 million of senior notes due 2010 with an 11 1/4% coupon; and USD
1.0 billion aggregate principal amount 13 3/4% senior discount notes due 2010.
The senior discount notes were sold at 51.224% of the face amount, yielding
gross proceeds of USD 512.2 million. The senior discount notes will accrue, but
not pay, interest until August 2005, at which date the interest payments will
become current. UPC has entered into cross-currency swaps, swapping a total of
USD 300 million of the 11 1/2% series into a fixed Euro coupon of 10.0% with a
notional value of Euro 297 million until August 2008.
In January 2000, UPC Nederland (A2000), refinanced its existing bank
facilities with a one year term-loan bridge facility of 231.4 million and a one
year revolving credit bridge facility of 49.9 million, subject to certain
availability covenants. The facilities are secured by mortgages and pledges,
including pledges on A2000 Holding, Kabeltelevisie Amsterdam and A2000
Hilversum. The borrowers are restricted from incurring additional indebtedness
and from paying dividends and distributions, subject to certain exceptions.
These facilities bear interest at an annual rate of EURIBOR +1.0%. Subsequent to
September 30, 2000, we repaid this facility with the proceeds from the Euro 4.0
billion financing.
At the end of March 2000, a fully committed Euro 2 billion stand-by
revolving credit facility was provided. The facility is guaranteed by UPC and
certain subsidiaries. When drawn, the facility will bear interest at EURIBOR
+6.0%-7.0%, stepping up after March 31, 2001, with periodic increases capped at
an annual rate of 18.0%. An annual commitment fee of 0.5% is applicable over the
undrawn amount. A drawing fee ranging from 1.5% to 2.0% is applicable for each
drawing. The commitment terminates on December 31, 2000, and the facility
reaches maturity on March 29, 2007. Due to the stand-by nature, UPC continuously
reviews the level of this facility and may cancel availability depending on
other capital raised or planned to be raised. Subsequent to September 30, 2000,
this facility was partially drawn to fund the acquisition of EWT/TSS.
On April 7, 2000, Mediareseaux refinanced its existing debt and the
existing debt of Videopole and RCF with a Euro 250 million bridge facility of
which Euro 148.0 million was outstanding at September 30, 2000. The refinancing
of the Rhone Vision Cable Credit Facility with this facility was completed in
the fourth quarter of 2000. Availability is subject to revenues and debt to
equity ratios. In general, this facility restricts the payment of dividends and
distributions. Subsequent to September 30, 2000, we repaid this facility with
the proceeds from the Euro 4.0 billion financing.
49
<PAGE>
In connection with the Eneco K&T acquisition, UPC Nederland has received a
short-term bridge loan of Euro 500 million secured with guarantees of certain of
our Dutch assets. Drawdowns of the UPC Bridge Loan were to refinance certain
existing inter-company loans from UPC N.V. The bridge will expire in December
2000. The full Euro 500 million has been drawn on the bridge as of September 30,
2000. Subsequent to September 30, 2000, we repaid this facility with the
proceeds from the Euro 4.0 billion financing.
In October 2000, UPC closed an Euro 4.0 billion operating and term loan
facility ("The UPC Bank Facilities"). The facility is guaranteed by existing
cable operating companies, excluding Polish and German assets. The UPC Bank
Facilities bear interest at EURIBOR +0.75%-4.0% depending on certain ratios, and
we pay an annual commitment fee of 0.5% over the undrawn amount. The facility is
arranged by Chase Manhattan Bank and Toronto Dominion Bank and further
syndicated to a group of European and American (Banking) institutions. A first
drawing was made in October 2000, to refinance existing operating company bank
debt totaling Euro 2.0 billion. The UPC Bank Facilities will finance further
digital rollout and triple play by our existing cable companies, excluding
Polish and German operations, subject to availability. Starting 2004, the
available amount will decrease and the facility reaches final maturity in 2009.
Subject to shareholder approval of amendment to our articles of
association, we have agreed to sell Euro 1.43 billion worth of convertible
preference shares for cash, to a group of investors, including United. We expect
the sale to close in late 2000.
Certain Dutch Tax Issues
One of our Dutch systems was assessed for a transfer tax on immovable
property in the amount of Euro 0.8 million for the purchase of a cable network.
We have always regarded our cable networks as movable property and not subject
to such transfer tax. We are appealing this tax assessment. Should we be
unsuccessful, our Dutch systems may be assessed for taxes on similar
transactions. We cannot predict the extent to which the taxes could be assessed
retroactively or the amount of tax that our systems may be assessed for,
although it may be substantial, being 6% of the value attributable to our
systems at the date of transfer. Because we own 100% of UPC Nederland, any tax
liabilities assessed against our Dutch systems will be consolidated with our
results. We believe that, if our appeal is unsuccessful, most cable television
companies and other utilities in The Netherlands would become subject to similar
tax liabilities. If this happens, we expect these entities would lobby the Dutch
tax authorities with us against such tax assessments. We cannot assure that such
lobbying would be successful.
In October 1999, the Dutch tax authorities issued an assessment on the
1995 tax return of one of our subsidiaries. The assessment, on a taxable amount
of approximately 36.3 million, resulted in a tax payable of approximately 12.7
million. The Dutch tax authorities indicated that this assessment was issued to
reserve the rights of the Dutch tax authorities pending expiration of time under
the statute of limitations. The assessment does not express an opinion of the
Dutch tax authorities on the taxes due and is still subject to discussion. We
filed an appeal against the assessment to defend our tax filing position.
Inflation and Foreign Currency Exchange Rate Losses
To date, we have not been impacted materially by inflation.
The value of our monetary assets and liabilities is affected by
fluctuations in foreign currency exchange rates as accounts payable for certain
equipment purchases and certain operating expenses, such as DTH and programming
expenses, are denominated in currencies other than the functional currency of
the entity making such payments. We and some of our operating companies have
notes payable and notes receivable that are denominated in, and loans payable
that are linked to, a currency other than their own functional currency,
exposing us to foreign currency exchange risks on these monetary assets and
liabilities. Historically, we and our operating companies have not hedged our
exposure to foreign currency exchange rate operating risks. Accordingly, from
time to time, we will 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. In connection with our offerings of senior notes in
July 1999, October 1999 and January 2000, we entered into cross-currency swap
agreements, exchanging dollar-denominated notes for Euro-denominated notes.
50
<PAGE>
The functional currency for our operations generally is the applicable
local currency for each operating company. We have consolidated operations in
countries outside of the European Monetary Union including Norway, Sweden,
Poland, Hungary, Romania, the Czech Republic and the Slovak Republic and
operations which report in US dollars. Assets and liabilities of foreign
subsidiaries are translated at the 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 Euros result in unrealized gains or losses referred to as
translation adjustments. Cumulative translation adjustments are recorded as a
separate component of shareholders' equity. Transactions denominated in
currencies other than the local currency are recorded based on exchange rates at
the time such transactions arise. Subsequent changes in exchange rates result in
transaction gains and losses which are reflected in income as unrealized, based
on period-end translations, or realized upon settlement of the transactions.
Cash flows from our operations in foreign countries are translated based
on their reporting currencies. As a result, amounts related to assets and
liabilities reported on the consolidated statements of cash flows will not agree
with changes in the corresponding balances on the consolidated balance sheets.
The effects of exchange rate changes on cash balances held in foreign currencies
are reported as a separate line below cash flows from financing activities.
European Economic and Monetary Union
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the Euro. The participating countries adopted the Euro as their
common legal currency on that day. The Euro trades on currency exchanges and is
available for non-cash transactions during the transition period between January
1, 1999 and January 1, 2002. During this transition period, the existing
currencies are scheduled to remain legal tender in the participating countries
as denominations of the Euro and public and private parties may pay for goods
and services using either the Euro or the participating countries' existing
currencies.
During the transition period, all operating companies' billing systems
will include amounts in Euro as well as the respective country's existing
currency. All of our accounting and management reporting systems currently are
multi-currency functional.
We do not expect the introduction of the Euro to materially affect our
cable television and other operations. However, we do believe the introduction
of the Euro will reduce our exposure to risk from foreign currency and interest
rate fluctuations.
51
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
Investment Portfolio
As of September 30, 2000, we have cash and cash equivalents of
approximately 182.0 million. We have invested this cash in highly liquid
instruments, which meet high credit quality standards with original maturities
at the date of purchase of less than three months. These investments will be
subject to interest rate risk and foreign exchange fluctuations (with respect to
amounts invested in currencies outside the European Monetary Union); however,
the Company does not expect any material losses with respect to its investment
portfolio.
Impact of Foreign Currency Rate Changes
We are exposed to foreign exchange rate fluctuations related to our
monetary assets and liabilities, including those of our operating subsidiaries,
which are denominated in currencies outside of the European Monetary Union. Our
exposure to foreign exchange rate fluctuations also arises from intercompany
charges.
The tables below provide information about us and our consolidated
subsidiaries' foreign currency exchange risk for cash and debt which is
denominated in foreign currencies outside of the European Monetary Union as of
September 30, 2000, including cash flows based on the expected repayment date
and related weighted-average interest rates for debt. The information is
presented in Euro equivalents, as the Euro is the Company's reporting currency.
The instruments' actual cash flows are denominated in US Dollars, Slovakian
Crowns, Polish Zloty and British Pounds.
<TABLE>
<CAPTION>
Amounts Outstanding
as of September 30, 2000
---------------------------------
Book Value Fair Value
--------------- -----------------
(Euros, in thousands)
<S> <C> <C>
Cash and Cash Equivalents
-----------------------------
US Dollar.................... 33,467 33,467
Slovakian Crowns............. 8,655 8,655
Polish Zloty................. 5,146 5,146
British Pounds............... 3,082 3,082
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Amount Outstanding Expected Repayment
as of September 30, 2000 as of December 31,
------------------------ ---------------------------------------------------
Book Value Fair Value 2000 2001 2002 2003 2004
---------- ---------- ------- ------- ------- ------- -------
(Euros, in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
US Dollar Denominated Facilities
-------------------------------------------
DIC Loan................................... 53,442 53,442 53,442 - - - -
8.0% per annum + 6.0% of principal
at maturity..............................
UPC USD Senior Discount Notes, 2009........ 525,194 396,920 - - - - -
12.5% per annum
UPC USD Senior Discount Notes, 2009........ 320,386 258,133 - - - - -
13.375% per annum
UPC USD Senior Discount Notes, 2010........ 639,317 534,343 - - - - -
13.750% per annum
UPC USD Senior Notes, 2010................. 677,559 588,346 - - - - -
11.25% per annum
PCI Notes.................................. 16,495 16,495 - - - 16,495 -
9.875% per annum
@Entertainment 1998 Senior
Discount Notes........................... 158,228 138,891 - - - - -
14.5% per annum
@Entertainment 1999 Senior
Discount Notes........................... 140,104 120,216 - - - - -
14.5% per annum
@Entertainment 1999 Series C
Senior Discount Notes.................... 15,332 15,332 - - - - -
7.0% per annum on the
principal amount at maturity
UPC Corporate Facility..................... 227,381 227,381 - 227,381 - - -
12.0% per annum
</TABLE>
Historically, we and our operating companies have not executed hedge
transactions to reduce the Company's exposure to foreign currency exchange rate
risk related to our foreign currency denominated cash and debt. 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. In connection with our offerings of senior notes in
July 1999, October 1999 and January 2000, we entered into cross-currency swap
agreements, exchanging dollar-denominated notes for Euro denominated notes.
Interest Rate Sensitivity
The table below provides information about our financial instruments that
are sensitive to changes in interest rates as of September 30, 2000, including
cash flows based on the expected repayment dates and the related weighted-
average interest rates. The information is presented in Euro equivalents, as the
Euro is our reporting currency.
53
<PAGE>
<TABLE>
<CAPTION>
Amount Outstanding Expected Repayment
as of September 30, 2000 as of December 31,
------------------------ ---------------------------------------------------
Book Value Fair Value 2000 2001 2002 2003 2004
---------- ---------- ------- ------- ------- ------- -------
(Euros, in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Variable Rate Facilities
-------------------------------------------
UPC 10.875% Euro Senior Notes due 2009..... 754,717 779,352 - - - - -
EURIBOR+4.15% and 8.54%,
average rate in 2000 of 7.92% and 8.54%
UPC 10.875% USD Senior Notes due 2007...... 190,658 200,094 - - - - -
EURIBOR+4.8% and 9.92%,
average rate in 2000 of 8.6% and 9.92%
UPC 11.25% USD Senior Notes due 2009....... 238,308 248,115 - - - - -
EURIBOR+4.8% and 9.92%,
average rate in 2000 of 8.6% and 9.92%
UPC Senior Credit Facility (1)............. 638,876 638,876 638,876 - - - -
EURIBOR/LIBOR + 0.75% to 2.0%,
average rate in 2000 of 7.5%
New Telekabel Facility (1)................. 225,150 225,150 225,150 - - - -
EURIBOR + 0.75% to 2.0%,
average rate in 2000 of 6.0%
CNBH Facility (1).......................... 121,078 121,078 121,078 - - - -
AIBOR + 0.6% to 1.6%
average rate in 2000 of 5.4%
New A2000 Facilities (1)................... 227,381 227,381 227,381 - - - -
EURIBOR +1.0%
average rate in 2000 of 4.8%
RVC Credit Facility (1).................... 60,960 60,960 60,960 - - - -
EURIBOR + 1.0%,
average rate in 2000 of 5.02%
UPC NL Bridge Loan (1)..................... 500,000 500,000 500,000 - - - -
EURIBOR + 2.0% to 2.5%,
average rate in 2000 of 6.6%
UPC France Facility (1).................... 147,952 147,952 147,952 - - - -
EURIBOR + 2.5%
average rate in 2000 of 7.21%
</TABLE>
(1) Subsequent to September 30, 2000, we repaid this facility/loan with the
proceeds from the Euro 4.0 billion financing.
54
<PAGE>
<TABLE>
<CAPTION>
Amount Outstanding Expected Repayment
as of September 30, 2000 as of December 31,
------------------------ ---------------------------------------------------
Book Value Fair Value 2000 2001 2002 2003 2004
---------- ---------- ------- ------- ------- ------- -------
(Euros, in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Facilities
-------------------------------------------
DIC Loan................................... 53,442 53,442 53,442 - - - -
8.0% per annum + 6.0% of
principal at maturity
UPC Euro Senior Notes, 2009................ 300,000 255,000 - - - - -
10.875% per annum
UPC USD Senior Discount Notes, 2009........ 525,194 396,920 - - - - -
12.5% per annum
UPC USD Senior Discount Notes, 2009........ 320,386 258,133 - - - - -
13.375% per annum
UPC Euro Senior Discount Notes, 2009....... 112,609 91,680 - - - - -
13.375% per annum
UPC USD Senior Discount Notes, 2010........ 639,317 534,343 - - - - -
13.75% per annum
UPC Euro Senior Notes, 2007................ 100,000 87,750 - - - - -
10.875% per annum
UPC Euro Senior Notes, 2009................ 100,323 87,113 - - - - -
11.25% per annum
UPC USD Senior Notes, 2010................. 677,559 588,346 - - - - -
11.25% per annum
UPC Euro Senior Notes, 2010................ 294,677 295,026 - - - - -
11.50% per annum
UPC Euro Senior Notes, 2010................ 198,607 175,000 - - - - -
11.25% per annum
PCI Notes.................................. 16,495 16,495 - - - 16,495 -
9.875% per annum
@Entertainment 1998 Senior
Discount Notes........................... 158,228 138,891 - - - - -
14.5% per annum
@Entertainment 1999 Senior
Discount Notes........................... 140,104 120,216 - - - - -
14.5% per annum
@Entertainment 1999 Series C
Senior Discount Notes.................... 15,332 15,332 - - - - -
7.0% per annum on the
principal amount at maturity
UPC Corporate Facility..................... 227,381 227,381 - 227,381 - - -
12.0% per annum
</TABLE>
Equity Prices
As of September 30, 2000, we are exposed to equity price fluctuations related to
our investment in equity securities. Our investment in United is classified as
available for sale. Changes in the price of the stock are reflected as
unrealized gains (losses) in our statement of shareholders' equity, until such
time as the stock is sold and any unrealized gain (loss) will be reflected in
the statement of operations. Our investments in PrimaCom and SBS are accounted
for under the equity method of accounting.
55
<PAGE>
<TABLE>
<CAPTION>
Fair Value as of
Number of Shares September 30, 2000
----------------------------------------------------
(Stated in thousands of Euros, except share amounts)
<S> <C> <C>
United.................... 5,569,240 189,950
PrimaCom AG............... 4,948,039 154,379
SBS....................... 6,000,000 271,580
Terayon (1)............... 2,000,000 43,671
</TABLE>
(1) Represents warrants to acquire shares. Fair value based on Black and Scholes
model as of September 30, 2000.
As of September 30, 2000, we are also exposed to equity price fluctuations
related to our debt which is convertible into our ordinary shares. The table
below provides information about our convertible debt, including expected cash
flows and related weighted-average interest rates.
<TABLE>
<CAPTION>
Amount Outstanding Expected Repayment
as of September 30, 2000 as of December 31,
------------------------ ------------------
Convertible Debt Book Value Fair Value 2000 2001
---------------------- ---------- ---------- ------ ------
(Euros, in thousands)
<S> <C> <C> <C> <C>
DIC Loan.............. 53,442 53,442 53,442 -
8.0% per annum + 6.0%
of principal at maturity
</TABLE>
56
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 2 - Changes in Securities and Use of Proceeds
------
On August, 2000, we issued 4,056,453 ordinary shares A to EQT Scandinavia
Limited, as a payment in full of the outstanding principal and interest (USD
108.0 million) of a promissory note given in connection with our acquisition of
Stjarn. The shares were issued pursuant to the Section 4 (2) of the Securities
Act of 1933, as amended (the "Act"), exemption from the registration
requirements of the Act.
57
<PAGE>
Item 5. Other Information
Summary Operating Data 2000
The operating data set forth below reflect the aggregate statistics of the
operating systems in which the Company has an ownership interest.
<TABLE>
<CAPTION>
As at September 30, 2000
---------------------------------------------------------------------------------------------------------------
UPC UPC UPC
Homes in Two way UPC Equity in Equity in Equity in
Service Homes Homes Basic Basic Paid-in Homes in Homes Basic
Area Passed Passed Subscribers Penetration Ownership Service Area Passed Subscribers
--------- ---------- --------- ----------- ----------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Multi-channel TV:
Consolidated
companies:
Norway........... 529,000 473,740 99,466 331,370 69.9% 100.0% 529,000 473,740 331,370
Sweden........... 770,000 424,624 230,851 250,489 59.0% 100.0% 770,000 424,624 250,489
Belgium.......... 530,000 152,052 152,052 123,973 81.5% 100.0% 530,000 152,052 123,973
France........... 2,518,283 1,124,583 343,746 382,133 34.0% 92.0% 2,316,820 1,034,616 351,562
The
Netherlands..... 2,552,120 2,440,632 1,963,202 2,257,508 92.5% 100.0% 2,552,120 2,440,632 2,257,508
Austria.......... 1,080,960 913,750 904,310 474,029 51.9% 95.0% 1,026,912 868,063 450,328
Poland........... 1,950,000 1,811,297 84,000 1,042,483 57.6% 100.0% 1,950,000 1,811,297 1,042,483
Hungary
(Telekabel
Hungary)........ 915,500 753,739 164,912 570,330 75.7% 100.0% 915,500 753,739 570,330
Hungary
(Monor)......... 85,561 70,587 84,916 34,200 48.5% 98.9% 84,620 69,811 33,824
Czech
Republic........ 894,320 775,167 72,000 409,332 52.8% 100.0% 894,320 775,167 409,332
Romania.......... 668,519 460,016 - 282,577 61.4% 51.0-70.0% 467,943 327,551 201,352
Slovak
Republic........ 417,813 296,529 - 244,117 82.3% 95.0-100% 416,758 295,655 243,550
Non-consolidated
companies:
Germany
(Primacom) (1).. 1,422,826 1,422,826 30,456 919,641 64.6% 25.1% 357,129 357,129 230,830
Israel........... 660,000 631,420 393,187 447,092 70.8% 46.6% 307,560 294,242 208,345
Malta............ 181,534 177,054 - 81,577 46.1% 50.0% 90,767 88,527 40,789
---------- ---------- --------- --------- ---------- ---------- ---------
Total........... 15,176,436 11,928,016 4,523,098 7,850,851 13,209,449 10,166,845 6,746,065
========== ========== ========= ========= ========== ========== =========
Direct to
Home (DTH):
Consolidated
companies:
Poland........... - - - 383,237 N/A 100.0% - - 383,237
Hungary
(Telekabel
Hungary)........ - - - 10,206 N/A 100.0% - - 10,206
Czech
Republic........ - - - 395 N/A 100.0% - - 395
Slovak
Republic........ - - - 1,203 N/A 100.0% - - 1,203
---------- ---------- --------- --------- ---------- ---------- ---------
Total.......... - - - 395,041 - - 395,041
========== ========== ========= ========= ========== ========== =========
</TABLE>
58
<PAGE>
Summary Operating Data 2000 (continued)
<TABLE>
<CAPTION>
As at September 30, 2000
-----------------------------------------------------------------------------------
UPC
Subscribers Lines UPC Equity in
------------------------ ------------------------ Paid-in Residential
Residential Businesses Residential Businesses Ownership Subscribers
----------- ---------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cable Telephony
Consolidated companies:
Norway........................................ 10,528 148 11,534 3,242 100.0% 10,528
France........................................ 29,588 14 30,489 560 92.0% 27,221
The Netherlands............................... 119,257 246 142,536 14,818 100.0% 119,257
Austria....................................... 80,509 1,107 81,853 3,431 95.0% 76,484
----------- ---------- ----------- ---------- -----------
Total........................................ 239,882 1,515 266,412 22,051 233,490
=========== ========== =========== ========== ===========
Non-Cable Telephony
Consolidated companies:
The Netherlands (Uniport Carrier Select) (2).. 35,656 8,306 - - 80.0% 28,525
Mundi Telecom................................. 3,861 3,472 - - 50.1% 1,934
Czech Republic................................ 3,553 - 3,553 - 100.0% 3,553
Hungary (Monor) (3)........................... 65,585 3,469 67,701 6,660 98.9% 64,864
----------- ---------- ----------- ---------- -----------
Total........................................ 108,655 15,247 71,254 6,660 98,876
=========== ========== =========== ========== ===========
<CAPTION>
As at September 30, 2000
-------------------------------------------
UPC UPC UPC
Equity in Equity in Equity in
Business Residential Business Lines
Subscribers Lines Served Served
----------- ------------ --------------
<S> <C> <C> <C>
Cable Telephony
Consolidated companies:
Norway........................................ 148 11,534 3,242
France........................................ 13 28,050 515
The Netherlands............................... 246 142,536 14,818
Austria....................................... 1,052 77,760 3,259
----------- ------------ --------------
Total........................................ 1,459 259,880 21,834
=========== ============ ==============
Non-Cable Telephony
Consolidated companies:
The Netherlands (Uniport Carrier Select) (2).. 6,645 - -
Mundi Telecom................................. 1,739 - -
Czech Republic................................ - 3,553 -
Hungary (Monor) (3)........................... 3,431 66,956 6,587
----------- ------------ --------------
Total........................................ 11,815 70,509 6,587
=========== ============ ==============
</TABLE>
<TABLE>
<CAPTION>
As at September 30, 2000
-----------------------------------------------------------------------------------
3rd Party UPC
Subscribers ISP Subscribers (9) UPC Equity in
------------------------ ------------------------ Paid-in Residential
Residential Businesses Residential Businesses Ownership Subscribers
----------- ---------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Data services
Consolidated companies:
Norway........................................ 9,766 223 - - 100.0% 9,766
Sweden........................................ 24,119 - - - 100.0% 24,119
Belgium....................................... 12,597 981 - - 100.0% 12,597
France........................................ 8,911 - - - 92.0% 8,198
The Netherlands............................... 116,072 2,236 19,633 336 100.0% 116,072
Austria....................................... 78,076 1,577 - - 95.0% 74,172
Hungary (Telekabel Hungary)................... 1,339 - - - 100.0% 1,339
Czech Republic................................ 2,160 - - - 100.0% 2,160
Non-consolidated companies:
Germany (Primacom) (1)........................ 150 - - - 25.1% 38
----------- ---------- ----------- ---------- -----------
Total........................................ 253,190 5,017 19,633 336 248,461
=========== ========== =========== ========== ===========
<CAPTION>
As at September 30, 2000
-------------------------------------------
UPC UPC UPC
Equity in Equity in Equity in
Business Residential Business Lines
Subscribers Lines Served Served
----------- ------------ --------------
<S> <C> <C> <C>
Data services
Consolidated companies:
Norway........................................ 223 - -
Sweden........................................ - - -
Belgium....................................... 981 - -
France........................................ - - -
The Netherlands............................... 2,236 19,633 336
Austria....................................... 1,498 - -
Hungary (Telekabel Hungary)................... - - -
Czech Republic................................ - - -
Non-consolidated companies:
Germany (Primacom) (1)........................ - - -
----------- ------------ --------------
Total........................................ 4,938 19,633 336
=========== ============ ==============
</TABLE>
59
<PAGE>
Summary Financial Data 2000 (4)
<TABLE>
<CAPTION>
At September 30,
For the nine months period ending September 30, 2000 (8) 2000
-------------------------------------------------------------------------------------------------
Net Net Long-
Operating Income/ Adjusted Capital Term
Revenue Income/(loss) (loss) EBITDA (5) Expenditures (6) Debt (7)
------- ------------- ------- ---------- ---------------- --------
(Euros, in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated companies:
Norway....................... 40,612 (23,105) (41,617) 2,347 62,350 243,530
Sweden....................... 29,156 (27,238) (33,876) 82 11,853 29,029
Belgium...................... 16,134 (7,342) (8,420) (198) 5,813 -
France....................... 52,080 (59,247) (86,140) (12,139) 124,930 226,649
The Netherlands.............. 253,674 (157,351) (239,346) 14,859 229,773 363,244
Austria...................... 105,026 (12,040) (21,751) 28,984 98,879 195,119
Hungary
(Telekabel Hungary)......... 33,087 (6,041) (12,461) 4,309 55,272 -
Hungary (Monor).............. 18,747 4,917 (186) 10,218 2,914 -
Poland....................... 94,386 (130,465) (206,698) (44,973) 93,589 333,736
Czech Republic............... 22,161 (13,040) (17,372) (361) 8,439 15,237
Romania...................... 7,552 2,286 1,687 2,552 1,225 -
Slovak Republic.............. 8,912 (5,150) (5,887) 1,763 4,873 -
Non-consolidated companies:
Israel (11).................. 115,875 N/A (33,509) 27,862 N/A 233,135
Malta........................ 12,016 2,005 (443) 3,994 2,998 28,723
Germany (Primacom) (10)...... 82,572 (16,246) (23,056) 31,304 40,673 238,485
</TABLE>
60
<PAGE>
Summary Operating Data 1999
The operating data set forth below reflects the aggregate statistics of the
operating systems in which the Company has an ownership interest.
<TABLE>
<CAPTION>
As at September 30, 1999
----------------------------------------------------------------------------------------------------------------
UPC UPC UPC
Homes in Two way UPC Equity in Equity in Equity in
Service Homes Homes Basic Basic Paid-in Homes in Homes Basic
Area Passed Passed Subscribers Penetration Ownership Service Area Passed Subscribers
----------- --------- --------- ----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Multi-channel TV:
Consolidated
companies:
Norway............. 529,000 466,742 44,492 324,469 69.5% 100.0% 529,000 466,742 324,469
Sweden............. 770,000 421,624 72,679 241,359 57.2% 100.0% 770,000 421,624 241,359
Belgium............ 133,090 133,090 131,816 123,952 93.1% 100.0% 133,090 133,090 123,952
France............. 1,265,827 900,020 238,309 331,029 36.8% 95.3-99.6% 1,251,192 887,713 326,522
The Netherlands
(UPC Nederland).. 1,710,192 1,652,887 1,311,887 1,515,802 91.7% 100.0% 1,710,192 1,652,887 1,515,802
Austria............ 1,081,710 908,030 734,440 461,589 50.8% 95.0% 1,027,625 862,629 438,510
Poland............. 1,950,000 1,705,569 - 983,947 57.7% 100.0% 1,950,000 1,705,569 983,947
Hungary
(Telekabel
Hungary)........ 901,500 624,898 - 498,325 79.7% 79.3% 714,439 495,232 394,923
Czech Republic..... 239,484 160,558 - 56,638 35.3% 100.0% 239,484 160,558 56,638
Romania............ 240,000 143,274 - 94,234 65.8% 51.0-100.0% 225,300 128,770 82,809
Slovak Republic.... 344,343 220,399 - 191,592 86.9% 95.0-100% 343,288 219,529 191,033
Non-consolidated
companies:
Malta.............. 175,000 167,744 - 75,000 44.7% 50.0% 87,500 83,872 37,500
Hungary (Monor).... 85,000 70,061 - 32,011 45.7% 47.5% 40,412 33,310 15,219
Israel............. 610,500 599,443 377,234 415,754 69.4% 46.6% 284,493 279,340 193,741
----------- --------- --------- ----------- ------------ ----------- -----------
Total..... 10,035,646 8,174,339 2,910,857 5,345,701 9,306,015 7,530,865 4,926,424
=========== ========= ========= =========== ============ =========== ===========
</TABLE>
61
<PAGE>
Summary Operating Data 1999 (continued)
<TABLE>
<CAPTION>
As at September 30, 1999
-----------------------------------------------------------------------------------
UPC
Subscribers Lines served UPC Equity in
------------------------ ------------------------ Paid-in Residential
Residential Businesses Residential Businesses Ownership Subscribers
----------- ---------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Telephony
Consolidated Companies
Norway....................................... 1,327 1 1,573 355 100.0% 1,327
France....................................... 8,024 163 8,354 239 95.3-99.6% 7,992
The Netherlands (UPC Nederland) (2).......... 50,982 8,451 56,277 10,879 100.0% 48,170
Austria...................................... 15,377 366 16,329 1,222 95.0% 14,608
Non-consolidated Companies
Hungary (Monor) (3).......................... - - 65,936 6,944 47.5% -
----------- ---------- ----------- ---------- -----------
Total....................................... 75,710 8,981 148,469 19,639 72,097
=========== ========== =========== ========== ===========
Dataservices
Consolidated Companies:
Norway....................................... 1,634 4 n/a n/a 100.0% 1,634
Sweden....................................... 2,311 - n/a n/a 100.0% 2,311
Belgium...................................... 4,359 548 n/a n/a 100.0% 4,359
France....................................... 1,796 15 n/a n/a 95.3-99.6% 1,789
The Netherlands (UPC Nederland).............. 37,911 1,156 n/a n/a 100.0% 37,911
Austria...................................... 28,034 1,151 n/a n/a 95.0% 26,632
Hungary (Telekabel Hungary).................. 67 53 n/a n/a 79.3% 53
----------- ---------- ----------- ---------- -----------
Total....................................... 76,112 2,927 n/a n/a 74,689
=========== ========== =========== ========== ===========
<CAPTION>
-------------------------------------------
UPC UPC UPC
Equity in Equity in Equity in
Business Residential Business Lines
Subscribers Lines Served Served
----------- ------------ --------------
<S> <C> <C> <C>
Cable Telephony
Consolidated Companies
Norway....................................... 1 1,573 355
France....................................... 162 8,321 238
The Netherlands (UPC Nederland) (2).......... 6,772 53,465 9,200
Austria...................................... 348 15,513 1,161
Non-Cable Telephony
Non-consolidated Companies
Hungary (Monor) (3).......................... - 31,349 3,301
----------- ------------ --------------
Total....................................... 7,283 110,221 14,255
=========== ============ ==============
Dataservices
Consolidated Companies:
Norway....................................... 4 n/a n/a
Sweden....................................... - n/a n/a
Belgium...................................... 548 n/a n/a
France....................................... 15 n/a n/a
The Netherlands (UPC Nederland).............. 1,156 n/a n/a
Austria...................................... 1,093 n/a n/a
Hungary (Telekabel Hungary).................. 42 n/a n/a
----------- ------------ --------------
Total....................................... 2,858 n/a n/a
=========== ============ ==============
</TABLE>
62
<PAGE>
Summary Financial Data 1999
<TABLE>
<CAPTION>
At September 30,
For the nine months period ending September 30, 1999 (8) 1999
----------------------------------------------------------------------------
Net Capital Long-
Income/ Adjusted Expenditures Term
Revenue (loss) EBITDA (5) (6) Debt (7)
------- ------- ---------- ------------- --------
(Euros, in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated companies
Norway..................................... 34,548 (25,295) 7,037 30,625 108,088
Sweden..................................... 4,968 (5,179) 1,599 3,388 -
Belgium.................................... 12,402 (4,549) 1,946 5,135 -
France..................................... 13,703 (14,034) (3,051) 33,340 187,558
The Netherlands (UPC Nederland)............ 89,084 (51,710) 22,966 81,888 581,202
Austria.................................... 70,486 (932) 26,468 48,196 132,265
Poland..................................... 13,848 (45,504) (15,549) 3,713 407,555
Hungary (Telekabel Hungary)................ 24,266 (1,105) 8,247 22,397 230
Czech Republic............................. 3,389 (1,450) (328) 1,137 -
Romania.................................... 1,784 260 737 275 -
Slovak Republic............................ 2,660 (1,495) 708 2,913 -
Non-Consolidated companies:
The Netherlands (A2000) (12)............... 46,745 (21,705) 9,387 36,474 n/a
Israel..................................... 117,635 (1,505) 52,479 22,871 219,106
Malta...................................... 11,118 707 4,558 5,562 24,411
Hungary (Monor)............................ 14,040 2,170 9,086 2,138 34,260
</TABLE>
63
<PAGE>
(1) Statistics of Primacom are as of December 31, 1999.
(2) UTH's 80% subsidiary Uniport offers a carrier select telephony service.
(3) Our Monor service offers traditional telephony service.
(4) The financial information presented herein has been taken from unaudited
financial information of the respective operating companies that were
providing service as of September 30, 2000. Certain information presented
herein has been derived from financial statements prepared in accordance
with foreign generally accepted accounting principles which differ from
U.S. generally accepted accounting principles.
(5) Adjusted EBITDA represents operating income before depreciation,
amortization, and stock based compensation charges. Industry analysts
generally consider Adjusted EBITDA to be a helpful way to measure the
performance of cable television operations and communications companies
such as us. We believe Adjusted EBITDA helps investors to assess the cash
flow from our operations from period to period and thus to value our
business. Adjusted EBITDA should not, however, be considered a replacement
for net income, cash flow or for any other measure of performance or
liquidity under generally accepted accounting principles or as an indicator
of a company's operating performance. We are not entirely unrestricted to
use the cash represented by our Adjusted EBITDA. Several of our
consolidated operating companies are restricted by terms of their debt
arrangements. Each company has its own operating expenses and capital
expenditure requirements, which can limit our use of cash. Our
representation of Adjusted EBITDA may not be comparable to statistics with
a similar name reported by other companies. Not all companies and analysts
calculate Adjusted EBITDA in the same manner.
(6) Tangible capital expenditures only.
(7) Excludes intercompany debt.
(8) Financial data for new acquisitions (1999 and 2000) are included from their
effective date of consolidation.
(9) Internet subscribers who are served by non-UPC internet providers.
(10) Financials of Primacom are for the nine months ended June 30, 2000, as
compiled from documents filed with the SEC.
(11) Financial data for Israel represents the eight months ended August 31,
2000.
(12) A2000 includes operations for the eight month period ended August 1999. As
of September 30, 1999, A2000 is consolidated in UPC Nederland.
64
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.1 Euro 3.5 billion Facility, Euro 95.0 million Facility, USD 347.5
million Facility dated October 26, 2000, between UPC Distribution
Holding B.V. and UPC Financing Partnership and TD Bank Europe Limited
and Toronto Dominion (Texas), Inc. as Facility Agents.
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during the Quarter
Date Filed Date of Event Item Reported
------------------ ------------------ -------------
July 12, 2000 June 26, 2000 Item 5 - Announcement of
proposed transaction
with United and Liberty
Media.
July 31, 2000 June 18, 2000 Item 5 - Announcement of
proposed merger of
chello broadband
subsidiary with
Excite@Home's
international
operations.
September 22, 2000 September 12, 2000 Item 5 - Announcement of
agreement to sell
convertible preference
shares.
65
<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 PAN-EUROPE COMMUNICATIONS N.V.
Date: November 14, 2000
-----------------
By: /S/ Charles H.R. Bracken
--------------------------
Charles H.R. Bracken
Board of Management Member and Chief Financial Office
(A Duly Authorized Officer and Principal Financial Officer)
66
