<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 March 31, 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.)
Fred. Roeskestraat 123, P.O. Box 74763
1070 BT Amsterdam, The Netherlands 1070 BT
(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
May 12, 2000 was:
436,229,439 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
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Consolidated Balance Sheets as of March 31, 2000 (Unaudited) and December 31, 1999........................ 1
Consolidated Statements of Operations for the Three Months Ended March 31, 2000 and 1999
(Unaudited) ....................................................................................... 2
Consolidated Statement of Shareholders' Equity for the Three Months Ended
March 31, 2000 (Unaudited)......................................................................... 3
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000
and 1999 (Unaudited)............................................................................... 5
Notes to Consolidated Financial Statements (Unaudited).................................................... 7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations................ 20
- ------
Item 3 - Quantitative and Qualitative Disclosure About Market Risk............................................ 42
- ------
PART II - OTHER INFORMATION
---------------------------
Item 4 - Submission of Matters to a Vote of Security Holders.................................................. 47
- ------
Item 5 - Other Information.................................................................................... 47
- ------
Item 6 - Exhibits and Reports on Form 8-K..................................................................... 56
- ------
</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
March 31, December 31,
ASSETS: 2000 1999
------------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents........................................................................ 715,315 1,025,460
Restricted cash.................................................................................. 17,135 17,135
Subscriber receivables, net of allowance for doubtful accounts of 26,125 and 16,754, respectively 77,348 59,860
Costs to be reimbursed by affiliated companies, net of allowance for doubtful accounts of 63
and 63, respectively........................................................................... 8,606 10,500
Other receivables................................................................................ 92,954 91,370
Inventory........................................................................................ 97,147 66,403
Prepaid expenses and other current assets........................................................ 99,284 72,925
------------- -------------
Total current assets........................................................................ 1,107,789 1,343,653
Other investments.................................................................................... 445,664 623,341
Investments in and advances to affiliated companies, accounted for under the equity method, net...... 763,232 242,847
Property, plant and equipment, net of accumulated depreciation of 289,299 and 194,205, respectively.. 2,408,830 1,908,414
Goodwill and other intangible assets, net of accumulated amortization of 182,319 and 133,667,
respectively...................................................................................... 3,730,548 2,611,413
Deferred financing costs, net of accumulated amortization of 6,719 and 5,937, respectively........... 100,583 77,861
Other assets.......................................................................................... 31,819 1,734
------------- -------------
Total assets................................................................................ 8,588,465 6,809,263
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities
Accounts payable, including related party payables of 1,980 and 2,785, respectively............... 284,588 239,747
Accrued liabilities............................................................................... 350,571 273,141
Subscriber prepayments and deposits............................................................... 91,900 41,208
Short-term debt................................................................................... 417,765 163,241
Current portion of long-term debt................................................................. 68,103 50,291
-------------- ------------
Total current liabilities................................................................... 1,212,927 767,628
Long-term debt....................................................................................... 5,496,377 3,903,410
Deferred taxes....................................................................................... 14,718 15,961
Deferred compensation................................................................................ 89,049 70,804
Other long-term liabilities.......................................................................... 24,089 19,365
-------------- ------------
Total liabilities........................................................................... 6,837,160 4,777,168
-------------- ------------
Commitments and contingencies, see Note 10.
Minority interests in subsidiaries................................................................... 15,311 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, 436,229,439 and 435,604,497.........
shares issued, respectively.................................................................... 436,230 435,605
Additional paid-in capital........................................................................ 2,521,844 2,371,951
Deferred compensation............................................................................. (99,641) (47,425)
Accumulated deficit............................................................................... (1,581,590) (1,114,219)
Other cumulative comprehensive income ............................................................ 459,151 374,288
------------- -------------
Total shareholders' equity ................................................................. 1,735,994 2,020,200
------------- -------------
Total liabilities and shareholders' equity ................................................. 8,588,465 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 STATEMENTS OF
OPERATIONS (Stated in thousands of Euros,
except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
--------------------------------
Ended March 31,
--------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Service and other revenue...................................... 200,263 67,532
Operating expense.............................................. (142,545) (30,434)
Selling, general and administrative expense.................... (167,161) (47,344)
Depreciation and amortization.................................. (130,703) (28,678)
-------------- --------------
Net operating loss....................................... (240,146) (38,924)
Interest income................................................ 33,768 2,229
Interest expense............................................... (160,788) (17,355)
Gain on sale of assets......................................... - 6,637
Foreign exchange gain (loss) and other income (expense), net... (79,953) (6,959)
-------------- --------------
Net loss before income taxes and other items............. (447,119) (54,372)
Share in results of affiliated companies, net.................. (21,215) (9,199)
Minority interests in subsidiaries............................. 984 (35)
Income tax expense............................................. (21) (167)
-------------- --------------
Net loss................................................. (467,371) (63,773)
============== ==============
Basic and diluted net loss per ordinary share(1)............... (1.07) (0.20)
============== ==============
Weighted-average number of ordinary shares
outstanding(1)............................................... 435,608,107 322,187,433
============== ==============
</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
--------------------------------- ---------------------
Shares Amount Shares (2)
---------------- ---------------- ---------------------
<S> <C> <C> <C>
Balance, December 31, 1999........................................ 300 - 435,604,497
Issuance of shares related to converted United Loan............... - - 624,942
Deferred compensation expense related to stock options and
restricted stock, net ........................................... - - -
Amortization of deferred compensation ............................ - - -
SAB 51 gain on subsidiary's issuance of shares.................... - - -
Issuance of shares related to acquisition of minority interest
UPC France....................................................... - - -
Unrealized gain on investments................................... - - -
Change in cumulative translation adjustments .................... - - -
Net loss ....................................................... - - -
Total comprehensive income (loss)................................. - - -
---------------- ---------------- ---------------------
Balance, March 31, 2000........................................... 300 - 436,229,439
================ ================ =====================
</TABLE>
<TABLE>
<CAPTION>
Ordinary Stock Additional
------------------ Paid-In Deferred
Amount Capital Compensation
------------------ --------------------- ----------------------
<S> <C> <C> <C>
Balance, December 31, 1999........................................ 435,605 2,371,951 (47,425)
Issuance of shares related to converted United Loan............... 625 (625) -
Deferred compensation expense related to stock options and
restricted stock, net ........................................... - 83,753 (83,753)
Amortization of deferred compensation ............................ - - 31,537
SAB 51 gain on subsidiary's issuance of shares.................... - 53,765 -
Issuance of shares related to acquisition of minority interest
UPC France....................................................... - 13,000 -
Unrealized gain on investments................................... - - -
Change in cumulative translation adjustments .................... - - -
Net loss ....................................................... - - -
Total comprehensive income (loss)................................. - - -
------------------ --------------------- ----------------------
Balance, March 31, 2000........................................... 436,230 2,521,844 (99,641)
================== ===================== ======================
</TABLE>
<TABLE>
<CAPTION>
Other Cumulative
Comprehensive
Accumulated Income
Deficit (Loss) (1) Total
----------------- ------------------------ -------------------
<S> <C> <C> <C>
Balance, December 31, 1999........................................ (1,114,219) 374,288 2,020,200
Issuance of shares related to converted United Loan............... - - -
Deferred compensation
expense related to
stock options and restricted stock, net ...................... - - -
Amortization of deferred
compensation ................................................. - - 31,537
SAB 51 gain on subsidiary's issuance of shares.................... - - 53,765
Issuance of shares related to acquisition of minority interest
UPC France....................................................... - - 13,000
Unrealized gain on
investments................................................... - 48,762 48,762
Change in cumulative
translation adjustments ..................................... - 36,101 36,101
Net loss ....................................................... (467,371) - (467,371)
-------------------
Total comprehensive income (loss)................................. - - (382,508)
----------------- ------------------------ -------------------
Balance, March 31, 2000........................................... (1,581,590) 459,151 1,735,994
================= ======================== ===================
</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 March 31, 2000, Other Cumulative
Comprehensive Income (Loss) represents foreign currency translation
adjustments of 40,124 and unrealized gain on investments of 419,027.
(2) As adjusted for the stock splits. The change in nominal value is reflected
in the year ended December 31, 1999.
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
SHAREHOLDERS' EQUITY (Stated in thousands of
Euros, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
-------------------------
Ended March 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................................... (467,371) (63,773)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization.......................................... 130,703 28,678
Amortization of deferred financing costs............................... 3,640 325
Accretion of interest.................................................. 52,381 1,962
Share in results of affiliated companies, net.......................... 21,215 9,199
Compensation expense related to stock options.......................... 52,038 16,590
Minority interests in subsidiaries..................................... (984) 35
Exchange rate differences in loans..................................... 91,051 3,927
Other.................................................................. (9,813) (4,377)
Changes in assets and liabilities:
Increase in receivables............................................. (41,737) (13,814)
Decrease (increase) in inventories.................................. 6,436 (5,764)
(Increase) decrease in other non-current assets..................... (18,580) 19
Increase in other current liabilities............................... 177,422 41,446
(Increase) decrease in deferred taxes and other
long-term liabilities............................................. (29,926) 5,590
----------- -----------
Net cash flows from operating activities................................... (33,525) 20,043
----------- -----------
Cash flows from investing activities:
Restricted cash deposited.................................................. - (24,407)
Investment in securities, net.............................................. (44,538) -
Investments in and advances to affiliated companies, net of repayments..... (304,275) (3,250)
Capital expenditures....................................................... (253,202) (56,354)
Acquisitions, net of cash acquired......................................... (1,347,330) (223,026)
Sale of affiliated companies............................................... - 16,648
----------- -----------
Net cash flows from investing activities................................... (1,949,345) (290,389)
----------- -----------
Cash flows from financing activities:
Proceeds from initial public offering, net................................. - 1,211,389
Proceeds from senior notes................................................. 1,594,161 -
Proceeds from exercise of DIC option....................................... - 40,681
Proceeds from short-term borrowings........................................ 267,962 7,265
Proceeds from long-term borrowings......................................... 139,491 342,560
Deferred financing costs................................................... (31,764) (4,682)
Repayments of long-term and short-term borrowings.......................... (297,298) (770,575)
Repayments on note payable to shareholder.................................. - (71,442)
Repayments on short-term note.............................................. - (16,499)
----------- -----------
Net cash flows from financing activities................................... (1,672,552) 738,697
----------- -----------
Effect of exchange rates on cash........................................... 173 145
----------- -----------
Net (decrease) increase in cash and cash equivalents....................... (310,145) 468,496
Cash and cash equivalents at beginning of period........................... 1,025,460 13,419
----------- -----------
Cash and cash equivalents at end of period................................. 715,315 481,915
=========== ===========
</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 Three Months
Ended March 31,
----------------------------
2000 1999
------------- -----------
<S> <C> <C>
Non-cash investing and financing activities:
Unrealized gain on investments......................................... 48,762 66,806
============= ===========
Issuance of warrants................................................... - 29,223
============= ===========
Supplemental cash flow disclosures:
Cash paid for interest................................................. (123,110) (26,150)
============= ===========
Cash received for interest............................................. 34,134 1,878
============= ===========
Significant acquisitions:
Acquisition of K&T Group (1):
Property, plant and equipment.......................................... (236,959) -
Investments in affiliated companies.................................... (8,767) -
Goodwill............................................................... (822,326) -
Long-term liabilities.................................................. 234,457 -
Net current liabilities................................................ 8,455 -
------------- -----------
(825,140) -
Receivables acquired................................................... (221,148) -
------------- -----------
Total cash paid.................................................... (1,046,288) -
============= ===========
Acquisition of 49% of United Telekabel Holding N.V. (1):
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)
============= ===========
</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
AS OF MARCH 31, 2000
(Monetary amounts 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 16 countries in Europe and in Israel and offers
communication services in many European countries through its business lines:
cable television, telephone, internet/data services, direct-to-home ("DTH") and
programming.
The following chart presents a summary of the Company's significant
investments in cable television, telephone, internet/data services, DTH and
programming operations as of March 31, 2000:
-6-
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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")................. 97.14%
Ireland:
Tara Televison Limited ("Tara")............................ 80.0%
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.) (3). 100.0%
Priority Telecom N.V. ("Priority Telecom")................. 100.0%
chello broadband N.V. ("chello")........................... 100.0%
UPC Programming B.V. ("UPCtv")............................. 100.0%
Norway:
UPC Norge AS ("UPC Norge") (formerly Janco Multicom )...... 100.0%
ElTele Ostfold............................................. 100.0%
Poland:
@Entertainment, Inc. ("@Entertainment").................... 100.0%
Romania:
Eurosat.................................................... 51.0%
AST Romania (4)............................................ 70.0%
Slovak Republic:
Trnavatel.................................................. 95.0%
Kabeltel................................................... 100.0%
UPC Slovensko s r.o. (formerly SKT spol s r.o.)............ 100.0%
Spain:
Iberian Programming Services ("IPS")....................... 50.0%
Munditelecom............................................... 51.0%
Sweden:
StjarnTVnatet AB ("Stjarn")(Subsequent to March 31, 2000
changed into UPC Sweden)................................. 100.0%
United Kingdom:
Xtra Music Ltd............................................. 41.0%
Other:
SBS Broadcasting SA ("SBS")................................ 23.5%
(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, 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>
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 condensed 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 March 31, 2000 and the results of its operations for the three
months ended March 31, 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 financial 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 recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair 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 is
currently assessing the effect of this new standard.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 ("SAB 101") "Views on Selected Revenue
Recognition Issues" which provides the staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. SAB 101
is effective for the second quarter of 2000. The Company has evaluated SAB 101
and believes there is no effect on the revenue recognition policies currently in
place.
Reclassification
Certain prior year amounts have been reclassified for comparability with
the March 31, 2000 presentation.
-8-
<PAGE>
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% per annum and the balance of
the purchase price was paid in cash. Upon maturity of the note, UPC will have
the option to pay the note in either cash or its shares. 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.
@Entertainment Inc.
In August 1999, UPC acquired 100% of @Entertainment, Inc.
("@Entertainment") 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 assumption of receivables from A2000 of approximately 12.2
million. The acquisition was accounted for under purchase accounting. As of
September 1, 1999, UPC began consolidating its investment in A2000.
K&T Group
In March 2000, UPC acquired K&T Group, the cable interests of N.V. ENECO,
for a consideration of 1,046.3 million, including acquired receivables of
approximately 221.1 million. The acquisition was accounted for under purchase
accounting. Effective March 31, 2000, UPC began consolidating its investment in
K&T Group.
The following unaudited pro forma condensed consolidated operating results
for the three months ended March 31, 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 they 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.
-9-
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
March 31, 2000 March 31, 1999
--------------------------------------- -------------------- ------------------
Historical Pro Forma Historical Pro Forma
------------------- ------------------- -------------------- ------------------
<S> <C> <C>
Service and other revenue............... 200,263 217,507 67,532 138,025
=================== =================== ==================== ==================
Net loss................................ (467,371) (516,539) (63,773) (197,840)
=================== =================== ==================== ==================
Weighted-average number of
ordinary shares outstanding........ 435,608,107 435,608,107 322,187,433 341,807,738
=================== =================== ==================== ==================
Basic and diluted net loss
per ordinary share................. (1.07) (1.19) (0.20) (0.58)
=================== =================== ==================== ==================
</TABLE>
The following acquisitions were also completed or agreed upon subsequent to
December 31, 1999.
Tebecai Networken B.V. and Tebecai Telecom B.V.
In February 2000, UPC acquired, through UPC Nederland, 100% of the shares
of Tebecai Networken 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 LLC 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 0stfold and Vestfold Systems
In February 2000, UPC aquired 100% of the equity of ElTele 0stfold and
Vestfold ("ETO") from the energy companies Fredrikstad Energi as, 0stfold
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.
SBS
In February 2000, UPC acquired an additional 10.2% of SBS for 162.5
million, increasing its ownership to approximately 23.5%.
On March 9, 2000, UPC announced its intention to commence a tender offer
to acquire all the shares of SBS that it does not already own. The supervisory
boards of both companies have approved the transaction. UPC has agreed to
initiate an exchange offer to acquire SBS's shares at a per share price of USD40
in cash plus 0.57144 of a share of UPC's ordinary shares A, subject to
adjustment. UPC will adjust the stock portion of the purchase price under
certain circumstances so that SBS shareholders will receive not less than
USD77.50 and not more than USD86.00 for each SBS share exchanged, based on UPC's
average closing share price prevailing on the trading days ending shortly prior
to making the exchange offer. UPC intends that all shares not purchased in the
exchange offer will be converted into the right to receive the same cash and
stock consideration as provided in the exchange offer in a second step
transaction following consummation of the exchange offer. This transaction is
subject to a number of conditions, including regulatory approval. See Note 14.
-10-
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UPC Hungary
In March 2000, UPC acquired the 20.75% minority stake held in UPC Hungary
by the First Hungary Fund for 63.9 million in cash. This transaction allows UPC
to assume 100% control of its Hungarian operations.
Kabel Haarlem B.V.
In March 2000, UPC acquired 100% of the Haarlem cable network. UPC paid
62.2 million. Haarlem's cable network is located close to UPC Nederland's
existing properties, thus facilitating the roll-out of UPC's triple play
strategy in those areas. Effective March 31, 2000, UPC Nederland began
consolidating its investment in Haarlem.
Agreement to Acquire Dattelkabel
In March 2000, UPC signed a definitive agreement for the acquisition of
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 is paying a price of 28.3 million for Dattelkabel
including approximately 8.9 million of assumed debt. The transaction is subject
to regulatory approval and is expected to close in May 2000.
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 and 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 which was conducted over the
internet on March 8, 2000, the first time ever that a wireless license has been
sold by such a process. The benchmark auction was conducted by Ofcom, the Swiss
regulator for telecommunications services.
4. Investments in and Advances to Affiliated Companies, Accounted for Under
the Equity Method
<TABLE>
<CAPTION>
As of March 31, 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) (14,646) 13,459 83,130
Melita............................. 12,699 - (7) 851 13,543
Xtra Music......................... 10,164 - (3,564) 576 7,176
IPS................................ 10,065 - 2,766 3,465 16,296
SBS................................ 261,475 - (12,268) 14,669 263,876
Fox Kids Poland.................... 7,171 - (260) 225 7,136
Twoj Styl.......................... 10,023 - 294 500 10,817
PrimaCom........................... 344,718 - (5,806) - 338,912
Other, net......................... 23,539 - (2,223) 1,030 22,346
------------------- --------------- ---------------------- ---------------- ---------------
Total.............................. 769,671 (5,500) (35,714) 34,775 763,232
=================== =============== ====================== ================ ===============
</TABLE>
5. Other Investments
Marketable Equity Securities of United, at Fair Value
As of March 31, 2000, a subsidiary of UPC owned 5,569,240 shares of
United's Class A Common shares with a fair market value of 434,998. The fair
market value of the shares at December 31, 1999 was 390,881, resulting in an
unrealized gain of 44,117 for the three months ended March 31, 2000.
In September 1999, UPC agreed to form a 50 / 50 joint venture or a similar
arrangement with Liberty Media Corporation to evaluate content and distribution
opportunities in Europe. UPC may contribute its 5.6 million Class A common
shares of United that it owns and Liberty may contribute its 9.8 million Class B
common shares of United. In addition, Liberty is entitled to receive an
approximately USD287.0 million (269.6 million) redeemable preferred interest in
the venture to balance
-11-
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
its ownership interests. Liberty has announced that it expects to assign 50% of
its interest in the venture to Microsoft Corporation. Formation of the venture
is still pending.
6. Property, Plant and Equipment
March 31, December 31,
2000 1999
---------- -----------
Cable distribution networks......................... 2,031,151 1,523,871
Subscriber premises equipment and converters........ 163,794 152,713
MMDS distribution facilities........................ 547 7,997
DTH................................................. 103,003 70,775
Office equipment, furniture and fixtures............ 117,468 71,712
Buildings and leasehold improvements................ 170,533 143,868
Other............................................... 111,633 131,683
---------- -----------
2,698,129 2,102,619
Accumulated depreciation................... (289,299) (194,205)
---------- -----------
Property, plant and equipment, net......... 2,408,830 1,908,414
========== ===========
7. Goodwill and Other Intangible Assets
March 31, December 31,
2000 1999
---------- -----------
@Entertainment...................................... 973,209 929,956
UPC Nederland....................................... 1,667,826 758,962
Stjarn.............................................. 441,566 427,927
Telekabel Group..................................... 176,694 176,694
UPC France.......................................... 168,585 117,054
UPC Norge........................................... 84,987 84,874
Telekabel Hungary................................... 112,409 54,725
UPC ................................................ 87,276 29,223
UPC Belgium......................................... 20,863 20,863
UPC Slovensko s r.o................................. 23,286 22,883
Kabel Plus.......................................... 88,740 84,799
ElTele Ostfold...................................... 27,916 -
Monor............................................... 21,976 24,268
Other............................................... 17,534 12,852
---------- -----------
3,912,867 2,745,080
Accumulated amortization................... (182,319) (133,667)
---------- -----------
Goodwill and other intangible assets, net.. 3,730,548 2,611,413
========== ===========
8. Short-Term Debt
Stjarn Facilities
During the first quarter of 1999, the maturity of the Stjarn's facilities
was extended to June 30, 2000. As of March 31, 2000, the balance outstanding on
these facilities was 41.5 million.
-12-
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A2000 Facility Refinancing
In January 2000, UPC Netherlands (A2000) refinanced its existing bank
facilities with a one year term-loan bridge facility ("New A2000 facilities") 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 an annual interest rate of EURIBOR
+1.0%. The facilities expire in December 2000.
9. Long-Term Debt
As of As of
March 31, December 31,
2000 1999
--------- -----------
UPC 10.875% Euro Senior Notes due 2009.............. 754,717 754,717
UPC 10.875% Euro Senior Notes due 2009.............. 300,000 300,000
UPC 12.5% USD Senior Discount Notes due 2009........ 451,821 419,123
UPC 13.375% USD Senior Discount Notes due 2009...... 274,496 254,195
UPC 13.375% Euro Senior Discount Notes due 2009..... 105,550 102,207
UPC 10.875% USD Senior Notes due 2007............... 190,658 190,658
UPC 10.875% Euro Senior Notes due 2007.............. 100,000 100,000
UPC 11.25% USD Senior Notes due 2009................ 238,377 238,412
UPC 11.25% Euro Senior Notes due 2009............... 100,286 100,267
UPC 13.75% USD Senior Discount Notes due 2010....... 546,784 -
UPC 11.50% USD Senior Notes due 2010................ 294,764 -
UPC 11.25% USD Senior Notes due 2010................ 618,920 -
UPC 11.25% Euro Senior Notes due 2010............... 198,533 -
UPC Senior Credit Facility.......................... 488,572 357,482
@Entertainment Notes................................ 281,769 284,310
UPC Nederland Facilities............................ 364,060 584,650
UPC France Facilities............................... 163,637 145,249
Other............................................... 91,536 122,431
--------- -----------
5,564,480 3,953,701
Less current portion....................... (68,103) (50,291)
--------- -----------
Total...................................... 5,496,377 3,903,410
========= ===========
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 1,000 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
By the end of March 2000, UPC closed a fully committed EUR 2 billion stand
by revolving bank facility with one of its core banks. When drawn, the facility
will bear interest of EURIBOR +5.0%, while an annual commitment fee of 0.50% is
applicable over the undrawn amount. A drawing fee of 1.0% is applicable for each
-13-
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
drawing. The commitment expires December 31, 2000, and at that date the drawn
portion can be renewed with an increase in the borrowing rate, to be repaid
after 7 years from closing.
10. Commitments and Contingencies
Satellite Transponder Capacity
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 (118.6 million) payable in monthly
installments based on capacity used.
Programming, Broadcast and Exhibition Rights
@Entertainment has 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 digital direct-to-home ("DTH")
and cable systems. In connection with separating the distribution and
programming segments of @Entertainment, UPC allocated certain commitments
existing in the distribution business to programming. At March 31, 2000,
@Entertainment had an aggregate minimum commitment in relation to these
agreements of approximately USD202.5 million (210.6 million) over the next seven
years, approximating USD42.6 million (44.3 million) for the remainder of 2000,
USD53.7 million (55.8 million) in 2001, USD47.3 million (49.2 million) in 2002,
USD30.3 million (31.5 million) in 2003 and USD28.6 million (29.7 million) in
2004 and thereafter.
Purchase Commitments
As of March 31, 2000, @Entertainment had an aggregate minimum commitment
toward the purchase of the DTH reception systems from Philips Business
Electronics B.V. of approximately USD31.7 million (33.0 million) up to June 30,
2000.
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. The change in nominal value has been reflected in the
consolidated statement of shareholders' equity as if it occurred at the
beginning of 1999.
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
-14-
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As a subsidiary of United, the Company'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.
12. Segment and Geographic Information
The Company's business has historically been derived from its cable
television segment. This service has been provided in various European countries
where the Company owns and operates its systems. During 1997, the Company
introduced internet/data services and during 1999 the Company introduced
telephone services in several of its systems and began to develop its content
and programming business. In August 1999, the Company acquired @Entertainment,
which has a DTH business. In 1999, the Company began seperating its competitive
local exchange carrier ("CLEC") business, which is included in the telephony
segment.
The Company evaluates performance and allocates resources at the geographic
country level and by business line. The key operating performance criteria used
in this evaluation include revenue growth and operating income before
depreciation, amortization and stock-based compensation expense ("Adjusted
EBITDA"). Management generally considers Adjusted EBITDA to be a helpful way to
measure the performance of cable television operations and communications
companies. Management believes Adjusted EBITDA helps investors to assess the
cash flow from the Company'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. The Company is not entirely unrestricted to use
the cash represented by its Adjusted EBITDA. Several of the Company'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 the Company's use of cash. The
Company's presentation of Adjusted EBITDA may not be comparable to statistics
with a similar name reported by other companies. Not all companies and analysts
calculate Adjusted EBITDA in the same manner.
A summary of the segment information by geographic area is as follows:
<TABLE>
<CAPTION>
Revenue for the Three Months Ended March 31, 2000
----------------------------------------------------------------------------------------
Cable Internet/ Corporate & Inter-
Television Telephony Data DTH Programming Other company Total
---------- ---------- -------- ------- ----------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Netherlands:
Corporate ........... - - - - - - - -
UPCtv ............... - - - - 511 - - 511
chello .............. - - 5,431 - - - (5,381) 50
Priority Telecom .... - 459 - - - - - 459
Operating companies.. 43,290 15,735 5,254 - - - - 64,279
Austria ................ 20,697 7,121 5,597 - - - - 33,415
Belgium ................ 3,644 278 812 - - - - 4,734
Czech Republic ......... 6,278 258 - - - 1,035 - 7,571
Norway ................. 12,263 455 404 - - - - 13,122
Hungary ................ 11,766 5,299 58 - - - - 17,123
France ................. 14,080 1,875 409 - - - - 16,364
Poland ................. 17,258 - - 9,610 14,238 - (13,127) 27,979
Sweden ................. 8,220 - 845 - - - - 9,065
Other .................. 3,937 1,408 - - - 246 - 5,591
---------- ---------- -------- ------- -------- ---------- ------- -------
Total ................ 141,433 32,888 18,810 9,610 14,749 1,281 (18,508) 200,263
========== ========== ======== ======= ======== ========== ======= =======
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Revenue for the Three Months Ended March 31, 1999
-------------------------------------------------------------------------------------
Cable Internet/ Corporate & Inter-
Television Telephony Data DTH Programming Other company Total
---------- ---------- -------- ------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Netherlands:
Corporate ........... - - - - - 790 - 790
UPCtv ............... - - - - - - - -
chello .............. - - 392 - - - (392) -
Priority Telecom .... - - - - - - - -
Operating companies.. 14,854 3,192 301 - - - - 18,347
Austria ................ 19,796 111 2,109 - - - - 22,016
Belgium ................ 3,583 - 407 - - - - 3,990
Czech Republic ......... 1,016 - - - - - - 1,016
Norway ................. 10,927 3 85 - - - - 11,015
Hungary ................ 7,881 - 28 - - - - 7,909
France ................. 1,419 8 8 - - - - 1,435
Poland ................. - - - - - - - -
Sweden ................. - - - - - - - -
Other .................. 837 - - - 177 - - 1,015
---------- ---------- -------- ------- ---------- ---------- ------- -------
Total ................ 60,313 3,314 3,330 - 177 790 (392) 67,532
========== ========== ======== ======= ========== ========== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Adjusted EBITDA for the Three Months Ended March 31, 2000
---------------------------------------------------------------------------
Cable Internet/ Corporate &
Television Telephony Data DTH Programming Other Total
---------- ---------- -------- ------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
The Netherlands:
Corporate ........... - - - - - (22,701) (22,701)
UPCtv ............... - - - - (7,647) - (7,647)
chello .............. - - (27,149) - - - (27,149)
Priority Telecom .... - (1,529) - - - - (1,529)
Operating companies.. 21,472 (10,450) (5,279) - - - 5,743
Austria ................ 11,244 (1,569) 168 - - - 9,843
Belgium ................ 1,461 (141) (1,134) - - - 186
Czech Republic ......... 928 23 - - - 416 1,367
Norway ................. 4,905 (2,824) (849) - - - 1,232
Hungary ................ 3,644 2,940 (1,069) - - - 5,515
France ................. 1,517 (2,746) (986) - - - (2,215)
Poland ................. 1,072 - - (4,343) (14,609) (324) (18,204)
Sweden ................. 3,736 (705) (2,086) - - - 945
Other .................. 1,667 (1,385) (1,699) - (64) (1,310) (2,791)
---------- ---------- -------- ------- ---------- ---------- -------
Total ................ 51,646 (18,386) (40,083) (4,343) (22,320) (23,919) (57,405)
========== ========== ======== ======= ========== ========== =======
</TABLE>
-16-
<PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Adjusted EBITDA for the Three Months Ended March 31, 1999
---------------------------------------------------------------------------
Cable Internet/ Corporate
Television Telephony Data DTH Programming Other Total
---------- ---------- -------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
The Netherlands:
Corporate ......... - - - - - (4,649) (4,649)
UPCtv ............. - - - - (538) - (538)
chello ............ - - (5,242) - - - (5,242)
Priority Telecom .. - (149) - - - - (149)
Operating companies 7,679 (921) (489) - - - 6,269
Austria ........... 11,270 (2,020) (158) - - - 9,092
Belgium ........... 987 - (615) - - - 372
Czech Republic .... (218) - - - - - (218)
Norway ............ 4,595 (1,449) (1,114) - - - 2,032
Hungary ........... 2,696 - (2) - - - 2,694
France ............ (5) (959) (457) - - - (1,421)
Poland ............ - - - - - - -
Sweden ............ - - - - - - -
Other ............. 188 - - - (1,858) (228) (1,898)
---------- ---------- -------- ------- ---------- --------- ------
Total ........... 27,192 (5,498) (8,077) - (2,396) (4,877) 6,344
========== ========== ======== ======= ========== ========= ======
</TABLE>
-17-
<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 March 31,
------------------------------------
2000 1999
--------- ---------
<S> <C> <C>
Adjusted EBITDA ............................................. (57,405) 6,344
Depreciation and amortization ............................... (130,703) (28,678)
Stock-based compensation .................................... (52,038) (16,590)
------------------------------------
Net operating loss .................................... (240,146) (38,924)
Interest income ............................................. 33,768 2,229
Interest expense ............................................ (160,788) (17,355)
Gain on sale of assets ...................................... - 6,637
Foreign exchange gain (loss) and other income (expense), net (79,953) (6,959)
------------------------------------
Net loss before income taxes and other items .......... (447,119) (54,372)
Share in results of affiliated companies, net ............... (21,215) (9,199)
Minority interests in subsidiaries .......................... 984 (35)
------------------------------------
Net loss before income tax benefit (expense) .......... (467,350) (63,606)
====================================
</TABLE>
Total Assets
------------------------------
As of As of
March 31, December 31,
2000 1999
----------- -----------
The Netherlands:
Corporate................... 1,822,527 1,939,369
UPCtv....................... 15,641 28,427
chello...................... 68,566 36,609
Priority Telecom............ 41,685 4,164
Operating companies......... 2,813,659 1,526,945
Austria......................... 404,368 354,120
Belgium......................... 49,325 47,528
Czech Republic.................. 179,772 158,812
Norway.......................... 330,072 243,451
Hungary ........................ 188,208 214,108
France.......................... 781,923 495,673
Poland.......................... 1,277,596 1,211,373
Sweden.......................... 481,838 471,944
Other .......................... 133,285 76,740
---------- ----------
Total ........................ 8,588,465 6,809,263
========== ==========
-18-
<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:
For the Three Months Ended
--------------------------
March 31,
--------------------------
2000 1999
--------------------------
Net loss .......................................... (467,371) (63,773)
Other comprehensive income:
Change in cumulative translation adjustments .. 36,101 4,620
Change in unrealized gain on investments....... 48,762 66,806
--------------------------
Total comprehensive income (loss) ....... (382,508) 7,653
==========================
14. Subsequent Events
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
120 million was drawn in April 2000. The refinancing of the Rhone Vision Cable
Credit Facility with this facility is still under investigation. Availability is
subject to revenues and debt to equity ratios. In general, this facility
restricts the payment of dividends and distributions.
Agreement to Amend SBS Exchange Offer Agreement
In April 2000, UPC and SBS amended the Exchange Offer Agreement such that
in the event UPC's average closing share prices for a randomly selected ten days
immediately prior to the scheduled commencement of the exchange offer were not
to be in excess of the originally specified level, which currently equates to
USD49.00 per share, UPC would have the right to terminate the Exchange Offer
Agreement prior to commencing the offer.
On May 12, 2000, UPC filed a registration statement on Form S-4 with
respect to the exchange offer for SBS shares.
Agreement to Acquire an Interest in EWT/TSS Group
In April 2000, UPC announced that, through its subsidiary UPC Germany GmbH
("UPC Germany"), it will acquire 100% of EWT/TSS Group ("EWT/TSS"). The
consideration for the acquisition of EWT/TSS will be a mixture of 25% cash and
75% stock in UPC Germany. The cash portion is expected to be approximately 237.2
million. EWT/TSS is headquartered in Augsburg, Germany.
Agreement to Acquire Cignal Global Communications
In April 2000, Priority Telecom, announced that it has signed a Memorandum
of Understanding to acquire Cignal Global Communications, a US based provider of
global network services. In a stock-based deal, Priority Telecom is acquiring
100% of Cignal in exchange for a 16% interest in Priority Telecom.
-19-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
The following discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. These
forward-looking statements may include 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 unanticipated 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, programming alternatives and new video
services we may offer. They also include our ability to finance and complete
announced transactions and to manage and grow our newer telephone and
Internet/data services. 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 months ended March 31, 2000 and March 31, 1999, as restated to include
Ibercom, Inc. 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 16 countries in Europe and Israel. We provide
communications services in many European countries through our business lines:
cable television, telephone, internet/data services, DTH and programming. Our
subscriber base is the largest of any group of broadband communications networks
operated across Europe. We intend to continue 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.
UPC commenced its 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.
Aquisitions
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 quarter of 2000.
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<PAGE>
<TABLE>
<CAPTION>
Interest Closing Purchase
Operating Companies Acquired Location Date Price
(millions of euro)
- -------------------------------------- -------- ----------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
UTH (1)............................... 49% 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% The Netherlands September 1999 201.8
Kabel Plus............................ 94.6% Czech/Slovak 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 62.9
ElTele Osfold / Vesfold............... 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
UPC Magyaroszag (3)................... 20.75% Hungary March 2000 63.9
</TABLE>
(1) We acquired the 49% of UTH which we did not already own.
(2) We acquired the 50% of A2000 which we did not already own.
(3) We acquired the 20.75% of UPC Magyaroszag which we did not already own.
Acquisitions during First Quarter of 2000.
Acquisition of Intercomm France
In February 2000, our subsidiary, UPC France, acquired Intercomm France
("Intercomm") from Intercomm Holdings. This acquisition adds approximately
550,000 franchise homes to our cable footprint in France making UPC the 4th
largest French cable operator with over 1.8 million franchise homes, more than 1
million homes passed and approximately 400,000 cable subscribers. Over 400,000
of Intercomm's homes are located close to a number of the properties acquired by
us in our recent purchase of the Reseaux Cables de France and Videopole
networks, thus facilitating the roll-out of our triple play strategy in those
areas. We funded this acquisition with a Euro 36 million cash payment and 8% of
the shares in UPC France.
Acquisition of Tebecai Networken B.V. and Tebecai Telecom B.V.
In February 2000, we acquired Tebecai Netwerken B.V. and Tebecai Telecom
B.V. ("Tebecai"), a cable system based in the east of Holland. Tebecai owns and
operates cable networks in Zutphen, Doetinchem and the surrounding
municipalities. The company has 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 which sit adjacent to our existing operations.
Acquisition of ElTele 0stfold and Vestfold
In February 2000, we acquired 100% of the equity of ElTele 0stfold and
Vestfold from the energy companies Fredrikstad Energi as, 0stfold Energiverk and
Hafslund. ElTele 0stfold and Vestfold currently have approximately 300
kilometers of fibre and approximately 125 business customers between them and
are among the leading providers of broadband services to business customers in
the 0stfold, Vestfold, Telemark and Buskerud regions of Norway. The business
activities of the companies will be incorporated into UPC's Priority 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,
UPC also acquired a 26 GHz spectrum in Norway.
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<PAGE>
Acquisition of UPC Hungary Minority Interest
In March 2000, UPC acquired the 20.75 minority stake held in UPC Hungary by
the First Hungary Fund for 63.9 million in cash. This transaction allows UPC to
assume 100% control of its Hungarian operations.
Acquisition of Kabel Haarlem B.V.
In March 2000, we acquired the Haarlem cable network in The Netherlands. We
will now seek 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, making Haarlem the second city in the Netherlands to
enjoy new digital services.
Acquisition of Eneco K&T Group
In March 2000, we acquired the Eneco K&T Group ("K&T"). K&T owns and
operates cable networks in Rotterdam, Dordrecht and the surrounding
municipalities. With approximately 610,000 homes passed, K&T has some 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 telephone services and rapidly build its base
of business subscribers in The Netherlands.
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 will produce and distribute two new 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 VHI Classic. Both MTV Polska and VH1 Polska will be
distributed via the UPC-owned Wizja TV DTH and PTK cable platforms and via other
cable operators.
Awards for 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 26GHz 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 licence for 95.2 million by competing in a public auction which
was conducted over the internet on March 8, 2000, the first time ever that a
wireless license has been sold by such a process. The benchmark auction was
conducted by Ofcom, the Swiss regulator for telecommunications services.
Acquisition of UPC Magyaroszag Minority
In March 2000, UPC acquired the 20.75% minority stake held in UPC
Masyaroszag by the First Hungary Fund for 63.9 million in cash. This transaction
allows UPC to assume 100% control of its Hungarian operations.
SBS Tender Offer
On March 9, 2000 we entered into an Exchange Offer Agreement for a tender
offer to acquire all the shares of SBS that we do not already own. SBS owns and
operates television and radio broadcasting stations in Scandinavia and other
European markets. SBS currently owns and operates television stations that
broadcast into Norway, Sweden, Denmark, Flemish Belgium and The Netherlands, and
together with two European partners, operates the first national private
television network in Hungary. Additionally, SBS owns a minority interest in a
national television network in Italy, operates a television station in Slovenia
under the terms of a management and funding agreement and owns 50% of a Swiss
company which in March 1999 was awarded a national terrestrial broadcasting
license to broadcast in Switzerland. SBS also owns and operates radio stations,
which broadcast in Denmark, Sweden and Finland.
The supervisory boards of both companies have approved the transaction. We
have agreed to initiate an exchange offer to acquire SBS's shares at a per share
price of USD40 in cash plus 0.57144 of a share of our ordinary shares A, subject
to adjustment. We will adjust the stock portion of the purchase price under
certain circumstances so that SBS shareholders will receive not less than
USD77.50 and not more than USD86.00 for each SBS share exchanged, based on our
average closing share price prevailing on the trading days ending shortly prior
to making the exchange offer. We intend that all shares not purchased in the
exchange offer will be converted into the right to receive the same cash and
stock consideration as provided in the exchange offer, in a
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<PAGE>
second step transaction following consummation of the exchange offer. This
transaction is subject to a number of conditions, including regulatory approval.
Subsequent to March 9, 2000 there was the occurrence of a "Trigger Event",
as defined in the Exchange Offer Agreement, occasioned by the recent decline in
our share price. We have elected not to terminate the Exchange Offer Agreement
dated March 9, 2000. We have agreed to amend the Exchange Offer Agreement such
that in the event that our average closing share prices for a randomly selected
ten days in the twenty days immediately prior to the scheduled commencement of
the exchange offer were not to be in excess of the originally specified level,
which currently equates to USD49.00 per share, we would have the right to
terminate the Exchange Offer Agreement prior to commencing the offer.
On May 12, 2000, UPC filed a registration statement on Form S-4 with
respect to the tender offer for SBS shares.
Agreement to Acquire Dattelkabel
In March 2000, we signed a definitive agreement for the acquisition of 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 which is expected to have around 120,600 homes passed and
58,500 basic cable TV subscribers at the time of closing of this transaction.
Dattelkabel also has around 550 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.
The purchase price is 28.3 million for Dattelkabel, including approximately
8.9 million of assumed debt. The transaction is subject to regulatory approval
and is expected to close in May 2000.
Acquisitions Pending or Closed Subsequent to March 31, 2000
Subsequent to March 31, 2000, we have announced or closed the following
transactions.
Agreement to Acquire an Interest in EWT/TSS Group
In April 2000, we announced that, through our subsidiary UPC Germany GmbH
("UPC Germany"), we will acquire 100% of EWT/TSS Group ("EWT/TSS"). The
consideration for the acquisition of EWT/TSS will be a combination of 25% cash
and 75% stock in UPC Germany. After completion of the transaction, the Stritzl
family, who currently run the company, will retain significant influence on the
operations of the EWT/TSS group by becoming a large minority shareholder in UPC
Germany.
EWT is the fourth largest independent German broadband cable operator and
has 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. EWT/TSS is headquartered in
Augsburg, Germany.
Agreement to Acquire in Cignal Global Communications
In April 2000, Priority Telecom, announced that it has signed a Memorandum
of Understanding to acquire Cignal Global Communications, a US based provider of
global network services. In a stock-based deal, Priority Telecom is acquiring
100% of Cignal in exchange for a 16% interest in Priority Telecom.
The networks will combine Cignal's seven Gbps of long-haul capacity
connecting Europe, The Americas and Asia with Priority Telecom's access to
12,000+ kms 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 providing access to
approximately 750,000 businesses, and will market a wide range of products and
services including broadband data, private IP networking, ATM, hosting, leased
line and voice services.
Award of Wireless License in Finland
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, the Telecommunications Administration Centre, following a
rigorous process based on technical and financial ability.
Agreement to Develop Programming
In April 2000, we announced the launch of a new channel in association with
Buena-Vista International ("BVI"), a division of Disney Television, and Sony
Pictures Entertainment ("SPE") to offer a 24 hour premium movie channel in The
Netherlands and Belgium. The channel, to be called CineNova, will show both new
and library film content from Hollywood and around the world including BVI,
Columbia, Tristar and Touchstone Pictures and will be transmitted over our cable
networks in both countries as well as those of MediaCabel and
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<PAGE>
Casema. The channel will launch in May 2000 in The Netherlands and be available
in Belgium as from September 2000. We will have a 10% stake in the new venture,
while BVI and SPE will each take a 45% stake.
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, 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 telephone services and internet/data services had a
significant negative impact on operating income (loss) and Adjusted EBITDA
during 1999. We expected this negative impact due to the high costs associated
with obtaining subscribers, branding and launching these new services against
the incumbent operator. 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.
Stock-based compensation expense results from our stock option and phantom
stock option plans. Prior to our initial public offering, our stock option plan
required variable plan accounting. Under variable plan accounting, increases in
the fair market value of our shares result in compensation charges that are
expensed for vested options. Decreases in fair market value would result in
compensation credits. A compensation charge is generally a non-cash expense.
Following our initial public offering, our stock option plan no longer requires
variable plan accounting, however, our phantom stock option plan and the chello
plans continue to require variable plan accounting.
We currently classify our business into six segments, comprised of 1) cable
television, 2) telephone (Priority Telecom and UPC affiliates), 3) internet/data
(chello and UPC affiliates), 4) DTH, 5) programming and 6) corporate and other.
Included in the telephone segment is our CLEC, which we began separating in
1999. The following table presents an overview of our revenue and Adjusted
EBITDA by segment for the three months ended March 31, 2000 and 1999.
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For the Three Months Ended March 31,
------------------------------------
2000 1999
-------------- --------------
(Euros, in thousands)
Revenue:
Cable .................................. 141,433 60,313
Telephone .............................. 32,888 3,314
Internet/data .......................... 18,810 3,330
DTH .................................... 9,610 -
Programming ............................ 14,749 177
Corporate and Other .................... 1,281 790
Intercompany ........................... (18,508) (392)
-------------- --------------
200,263 67,532
============== ==============
Adjusted EBITDA:
Cable .................................. 51,646 27,192
Telephone .............................. (18,386) (5,498)
Internet/data .......................... (40,083) (8,077)
DTH .................................... (4,343) -
Programming ............................ (22,320) (2,396)
Corporate and Other .................... (23,919) (4,877)
-------------- --------------
(57,405) 6,344
============== ==============
Overview of Our Activities
To date, our primary source of revenue has been video entertainment
services. For the three months ended March 31, 2000 and 1999, our video services
accounted for approximately 70.6% and 89.3%, respectively, of our consolidated
revenues. We believe that an increasing percentage of our future revenues will
come from telephone and internet/data services. Within a decade, video services
could account for half of our total revenue, as our revenue from other services
continue to increases. 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 EBITDA due to the one-time costs associated with
obtaining customers. We have defined these costs as "customer acquisition
costs" and have begun to track these costs. 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
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. 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 direct operating expenses include operating personnel, service vehicles,
maintenance and plant electricity.
Selling, general and administrative expenses include personnel-related
costs, marketing, sales and commissions, legal and accounting, office facilities
and other overhead costs.
Results of Operations - Cable Television
The following table sets forth information from, or derived from, our
consolidated statements of operations for the three months ended March 31, 2000
and 1999.
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
2000 1999
------------------------------------
(Euros, in thousands)
<S> <C> <C>
Service and other revenue ..................... 141,433 60,313
Operating expense ............................. (57,304) (19,974)
Selling, general and administrative expense ... (32,483) (13,147)
--------------- ---------------
51,646 27,192
Adjustments:
Stock-based compensation expense .............. - -
--------------- ---------------
Adjusted EBITDA ............................... 51,646 27,192
=============== ===============
As a percentage of revenue:
Operating expense ............................. -40.5% -33.1%
=============== ===============
Selling, general and administrative expense ... -23.0% -21.8%
=============== ===============
Adjusted EBITDA ............................... 36.5% 45.1%
=============== ===============
</TABLE>
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Revenue - Cable Television
During the three months ended March 31, 2000, our cable television revenue
increased 81.1 million to 141.4 million from 60.3 million for the three months
ended March 31, 1999, a 134.5% increase. 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.
The increase in cable television revenue attributable to acquisitions totaled
72.0 million, or 88.8% of the total increase. Of this increase, acquisitions in
The Netherlands represent 38.9%, acquisitions in France represent 15.3%, the
acquisition in Poland represents 24.0% and the acquisition in Sweden represents
10.0%. 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 March 31, 2000, our cable television
operating expense increased 37.3 million to 57.3 million from 20.0 million for
the three months ended March 31, 1999, a 186.5% 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 attributable
to acquisitions totaled 39.1 million, or 104.8% of the increase. Of this
increase, acquisitions in The Netherlands represents 7.7%, acquisitions in
France represent 17.9%, the acquisition in Poland represents 50.5% and the
acquisition in Sweden represents 5.9%. The increase in cable television
operating expense related to new acquisitions was partially offset by decreased
operating expense from our existing systems.
As a percentage of revenue, operating expense increased 7.4% from 33.1%
for the three months ended March 31, 1999 to 40.5% for the three months ended
March 31, 2000. This 22.4% increase is primarily due to higher operating costs
as a percentage of revenue for systems we acquired during 1999. 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 March 31, 2000, our cable television SG&A
expense increased 19.4 million to 32.5 million from 13.1 million for the three
months ended March 31, 1999, a 148.1% increase. The increase in cable television
SG&A 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 SG&A expense attributable to acquisitions
totaled 15.5 million, or 79.5% of the total increase. Of this increase,
acquisitions in The Netherlands represent 13.4% the acquisition in Poland
represent 78.1%. Management expects that as the new acquisitions are integrated,
these costs as a proportion of net revenues will trend downwards.
Telephone
We began to offer cable telephone services in July 1997, through our equity
investment in A2000. We currently offer local cable telephone services, under
the brand name Priority Telecom, in our Austrian, Dutch, French 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
services. 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 telephone services. In addition to our cable telephone
operations, our Monor system in Hungary offers traditional telephone services.
Our operating systems offer a full complement of telephone 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 telephone customers and an excellent
starting point for expanding our CLEC business within the UPC footprint.
Priority Telecom has further expanded it's Pan-European CLEC network via recent
acquisitions of networks in Spain and Norway. Priority Telecom is positioned as
UPC's 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 telephone and IP Data services to the small and
medium sized business customers. 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
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<PAGE>
In order to achieve high-growth from early market entry, we price our
telephone service at a discount compared to services offered by incumbent
telecommunications operators. Initially, we will also waive or substantially
discount installation fees.
Revenue from residential telephone consists of a flat monthly line rental
and a usage charge based upon minutes. Other telephone 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 telephone 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 interconnection agreements.
Selling, general and administrative expenses includes branding, marketing
and customer acquisition costs, personnel related costs, such as stock-based
compensation expense, legal and 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 - Telephone
The following table sets forth information from, or derived from, our
consolidated statements of operations for the three months ended March 31, 2000
and 1999.
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
2000 1999
------------------------------------
(Euros, in thousands)
<S> <C> <C>
Service and other revenue ...................... 32,888 3,314
Operating expense .............................. (27,320) (3,755)
Selling, general and administrative expense .... (26,190) (6,243)
--------------- ---------------
(20,622) (6,684)
Adjustments:
Stock-based compensation expense ............... 2,236 1,186
--------------- ---------------
Adjusted EBITDA ................................ (18,386) (5,498)
=============== ===============
As a percentage of revenue:
Operating expense .............................. -83.1% -113.3%
=============== ===============
Selling, general and administrative expense .... -79.6% -188.4%
=============== ===============
Adjusted EBITDA ................................ -55.9% -165.9%
=============== ===============
</TABLE>
Revenue - Telephone
During the three months ended March 31, 2000, our telephone revenue
increased 29.6 million to 32.9 million from 3.3 million for the three months
ended March 31, 1999, a 897.0% increase. During 1999, we launched local
telephone 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 an existing telephone service
from July 1997. We acquired Monor in late December 1999, and began consolidating
its operations effective January 1, 2000.
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Operating Expense - Telephone
During the three months ended March 31, 2000, our telephone operating
expense increased 23.5 million to 27.3 million from 3.8 million for the three
months ended March 31, 1999, a 618.4% increase. During 1999, we launched local
telephone 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 an existing telephone service
from July 1997. We acquired Monor in late December 1999, and began consolidating
its operations effective January 1, 2000
Selling, General and Administrative Expense - Telephone
During the three months ended March 31, 2000, our telephone SG&A expense
increased 20.0 million to 26.2 million from 6.2 million for the three months
ended March 31, 1999, a 322.6% increase. Telephone SG&A expense for the three
months ended March 31, 2000 increased primarily due to the launch during 1999 of
local telephone services, under the brand name Priority Telecom, in our
Austrian, Dutch, French and Norwegian systems. In addition, during the three
months ended March 31, 2000, we continued to incur costs related to the
development of the Priority Telecom brand.
Internet/data
Services
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 launched its service in April 1999, and 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 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 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. During 1999,
substantially all of chello's revenues were 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 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.
We have commercially launched or trial launched our services in eight
markets, five of which are our subsidiaries. In these markets we offer
high-speed internet access and local language portals that integrate
multi-media, locally relevant content and services specially designed for the
broadband environment.
Pricing
To date, virtually all of our revenues have been derived from monthly
subscription fees of which chello 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 ranging from 27 to
40 per month, including VAT. 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.
-29-
<PAGE>
Cost of Operations
Our operating expenses consist primarily of leased-line and network
development and management costs associated with AORTA and our network
generally. Additional costs of operations include portal design and
development, 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 and accounting, office facilities and other
overhead. Customer acquisition costs include 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 months ended March 31, 2000
and March 31, 1999.
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------
(Euros, in thousands)
Affiliates chello Affiliates chello
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Service and other revenue (1).................. 13,379 5,431 2,938 392
Operating expense ............................. (16,713) (19,429) (2,885) (1,910)
Selling, general and administrative expense ... (9,600) (34,089) (2,888) (4,089)
--------------- --------------- --------------- ---------------
(12,934) (48,087) (2,835) (5,607)
Adjustments:
Stock-based compensation expense .............. -- 20,938 -- 365
--------------- --------------- --------------- ---------------
Adjusted EBITDA ............................... (12,934) (27,149) (2,835) (5,242)
=============== =============== =============== ===============
As a percentage of revenue:
Operating expense ............................. -124.9% -357.7% -98.2% -487.2%
=============== =============== =============== ===============
Selling, general and administrative expense ... -71.8% -627.7% -98.3% -1,043.1%
=============== =============== =============== ===============
Adjusted EBITDA ............................... -96.7% -499.9% -96.6% -1,337.2%
=============== =============== =============== ===============
</TABLE>
(1) Affiliate revenue and operating expenses are net of intercompany
transactions with chello.
Revenue - Internet/data
During the three months ended March 31, 2000, our internet/data revenue
increased 15.5 million to 18.8 million from 3.3 million for the three months
ended March 31, 1999, a 469.7% increase. The increase in internet/data revenue
is primarily due to the launch of residential and business cable-modem high-
speed internet access services, branded 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 March 31, 2000 and 1999,
includes 5.4 million and 0.4 of intercompany revenues, which are eliminated in
our consolidated operating results.
Operating Expense - Internet/data
During the three months ended March 31, 2000, our internet/data operating
expense increased 31.3 million to 36.1 million from 4.8 million for the three
months ended March 31, 1999, a 652.1% increase. The increase is primarily due to
the launch of residential and business cable-modem high-speed internet access
services, branded as chello broadband in April 1999. Included in the
internet/data operating expense for the three
-30-
<PAGE>
months ended March 31, 2000 is 3.1 million of stock-based compensation expense
compared to nil for the three months ended March 31, 1999.
Selling, General and Administrative Expense - Internet/data
During the three months ended March 31, 2000, our internet/data SG&A
expense increased 36.7 million to 43.7 million from 7.0 million for the three
months ended March 31, 1999, a 524.3% increase. Included in the internet/data
SG&A expense for the three months ended March 31, 2000 is 17.8 million of
stock-based compensation expense, compared to 0.4 million for the three months
ended March 31, 1999. The increase in SG&A expense is also attributable to the
launch of residential and business cable-modem high-speed internet access
services, branded as chello broadband in April 1999.
DTH
Through the acquisition of @Entertainment in August 1999, we have 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 programming business
by separating them into two business lines. We have incurred significant start-
up and restructuring costs in this endeavor. The DTH platform will be extended
outside of Poland in the second half of 2000.
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 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. 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.
Selling, general and administrative expenses include marketing and
subscriber acquisition costs, legal and accounting, 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 months ended March 31, 2000.
The results of operations for DTH are from @Entertainment which was acquired in
August 1999.
-31-
<PAGE>
For the Three Months
Ended March 31,
-----------------------
2000
-----------------------
(Euros, in thousands)
Service and other revenue ............................. 9,610
Operating expense ..................................... (13,105)
Selling, general and administrative expense ........... (848)
-----------------------
(4,343)
Adjustments:
Stock-based compensation expense -
-----------------------
Adjusted EBITDA ....................................... (4,343)
=======================
As a percentage of revenue:
Operating expense ..................................... -136.4%
=======================
Selling, general and administrative expense ........... -8.8%
=======================
Adjusted EBITDA ....................................... -45.2%
=======================
Programming
Our consolidated programming business has been created through internal
development and through acquisitions. Historically we have been and are involved
in several country-specific programming ventures, including those dedicated to
creating channels for Spain, Israel and Malta. We have developed and launched
six channels of various genres since May 1999 and we are constructing 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 in August 1999, we have obtained a Polish-language
programming business under the brand name Wizja TV. Both directly and through
other joint ventures, Wizja TV produces television programming. We distribute
our programming packages to third parties, as well as to affiliates.
We expect to incur substantial operating losses related to our programming
for the next year, while we develop and expand our subscriber base. We are
currently negotiating with two major cable associations in Poland in order to
expand our distribution to other cable television providers.
Pricing
For our programming channels, including our UPCtv and some Wizja TV
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 marketing and
subscriber acquisition costs, legal and accounting, office facilities and other
overhead costs.
Results of Operations - Programming
The following table sets forth information from, or derived from, our
consolidated statements of operations for the three months ended March 31, 2000
and March 31, 1999.
-32-
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
2000 1999
------------------------------------
(Euros, in thousands)
<S> <C> <C>
Service and other revenue ...................... 14,749 177
Operating expense .............................. (32,527) (815)
Selling, general and administrative expense .... (4,605) (1,895)
--------------- ---------------
(22,383) (2,533)
Adjustments:
Stock-based compensation expense ............... 63 137
--------------- ---------------
Adjusted EBITDA ................................ (22,320) (2,396)
=============== ===============
As a percentage of revenue:
Operating expense .............................. -220.5% -460.5%
=============== ===============
Selling, general and administrative expense .... -31.2% 1070.6%
=============== ===============
Adjusted EBITDA ................................ -151.3% -1353.7%
=============== ===============
</TABLE>
Revenue - Programming
During the three months ended March 31, 2000, our programming revenue
increased 14.5 million to 14.7 million from 0.2 million for the three months
ended March 31, 1999. The increase is primarily due to our acquisition of
@Entertainment. Programming revenue from @Entertainment's subsidiary, Wizja TV,
for the three months ended March 31, 2000 was 14.2 million.
Wizja TV provides programming to our operating systems in Poland and
generates revenue for its services from the local operator. These intercompany
revenues are eliminated in our consolidated operating results.
Operating Expense - Programming
During the three months ended March 31, 2000, our programming operating
expense increased 31.7 million to 32.5 million from 0.8 million for the three
months ended March 31, 1999. The increase is primarily due to our acquisition of
@Entertainment. Programming operating expense from @Entertainment's subsidiary,
Wizja TV, for the three months ended March 31, 2000 was 26.0 million. The
remaining increase in operating expense for programming for the three months
ended March 31, 2000 relates to development activity from UPCtv.
SG&A Expense - Programming
During the three months ended March 31, 2000, SG&A expense for our
programming business increased 2.7 million to 4.6 million from 1.9 million for
the three months ended March 31, 1999. The increase is due to our acquisition of
@Entertainment. The SG&A expense of @Entertainment's subsidiary, Wizja TV, for
the three months ended March 31, 2000 was 2.8 million. This increase was
partially offset by a decrease in SG&A expense for programming for the three
months ended March 31, 2000 from UPCtv.
Results of Operations - Corporate and Other
-33-
<PAGE>
The following table sets forth information from, or derived from, our
consolidated statements of operations for the three months ended March 31,
2000 and March 31, 1999.
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
2000 1999
------------------------------------
(Euros, in thousands)
<S> <C> <C>
Service and other revenue ...................... 1,281 790
Operating expense .............................. (1,537) (1,487)
Selling, general and administrative expense .... (52,465) (19,081)
--------------- ---------------
(52,721) (19,778)
Adjustments:
Stock-based compensation expense ............... 28,802 14,901
--------------- ---------------
Adjusted EBITDA ................................ (23,919) (4,877)
=============== ===============
As a percentage of revenue:
Operating expense .............................. -120.0% -188.2%
=============== ===============
Selling, general and administrative expense .... -4,095.6% -2,415.3%
=============== ===============
Adjusted EBITDA ................................ -1,867.2% -617.3%
=============== ===============
</TABLE>
Selling, General and Administrative Expense - Corporate and Other
During the three months ended March 31, 2000, our corporate and other SG&A
expense increased 33.4 million to 52.5 million from 19.1 million for the three
months ended March 31, 1999, a 174.9% increase. The increase is primarily due to
increased corporate expense related to our stock option plan. For the three
months ended March 31, 2000, stock-based compensation was 28.8 million, compared
to 14.9 million for the three months ended March 31, 1999. In addition, as
compared to the three months ended March 31, 1999, we incurred an increase in
development costs, such as costs related to the development of our digital set-
top computer. Increased systems costs related to the planning and preparation
for implementing Pan-European financial and customer care systems were also
incurred during the three months ended March 31, 2000. We also incurred costs in
the three months ended March 31, 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.
Depreciation and Amortization
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<PAGE>
During the three months ended March 31, 2000, our depreciation and
amortization expense increased 102.0 million to 130.7 million from 28.7 million
for the three months ended March 31, 1999, a 355.4% increase. Of this increase,
approximately 36.8 million relates to increased amortization expense for
goodwill created in connection with acquisitions completed in 1999. Amortization
related to acquisitions made in The Netherlands and Poland represents 10.7% and
16.2%, respectively. Depreciation expense also increased due to the acquisitions
made subsequent to March 31, 1999, 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 March 31, 2000, interest income increased
31.6 million to 33.8 million from 2.2 million, a 1,436.4% increase. During the
three months ended March 31, 2000, we earned interest income on the cash
received from the proceeds of our January 2000 debt offering, as well as from
the remaining proceeds of our October 1999 debt offering and our October 1999
secondary equity offering.
Interest Expense
During the three months ended March 31, 2000, interest expense increased
143.4 million to 160.8 million from 17.4 million during the same period in 1999,
a 824.1% increase. This increase was 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. See "Liquidity and
Capital Resources".
Gain on Sale of Assets
During the three months ended March 31, 1999, we realized a gain on the
sale of assets totaling 6.6 million. The gain primarily relates to the sale of
our Hungarian programming assets in February 1999.
Foreign Exchange Gain (Loss) and Other Income (Expense)
Foreign exchange gain (loss) and other income (expense) reflected a loss of
80.0 million for the three months ended March 31, 2000, compared to a loss of
7.0 million for the same period in 1999. The increased foreign exchange loss
during the three months ended March 31, 2000 was due primarily to our
dollar-denominated senior discount notes and the increased value of the U.S.
dollar against the Euro subsequent to December 31, 1999.
Share in Results of Affiliated Companies, Net
The table below sets forth our share in results of affiliated companies for
the applicable periods.
-35-
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
2000 1999
------------------------------------
(Euros, in thousands)
<S> <C> <C>
UTH ............................................ - (2,454)
A2000 .......................................... - (4,530)
Hungary (Kabelkom, programming and
cable television) ........................ - (99)
Tevel .......................................... (6,457) (1,868)
Melita ......................................... (267) 5
Monor .......................................... - (136)
Xtra Music ..................................... (674) (197)
SBS ............................................ (7,085) -
IPS ............................................ 629 149
Primacom ....................................... (5,806) -
Other .......................................... (1,555) (69)
--------------- ---------------
Total .......................................... (21,215) (9,199)
=============== ===============
</TABLE>
For the three months ended March 31, 2000, our share in net losses of
affiliated companies increased 12.0 million to 21.2 million from 9.2 million for
the three months ended March 31, 1999, a 130.4% increase. The increase was
primarily due to increased losses from SBS, Primacom and Tevel for the three
months ended March 31, 2000. These increases were partially offset by the
consolidation of UTH effective February 1, 1999 and the consolidation of A2000
effective September 1, 1999.
Statements of Cash Flows
We had cash and cash equivalents of 715.3 million as of March 31, 2000, an
increase of 233.4 million from 481.9 million as of March 31, 1999.
Cash Flows from Operating Activities
During the three months ended March 31, 2000, net cash flow from operating
activities decreased 53.5 million to a use of 33.5 million from a source of 20.0
million for the comparable period in 1999. This decrease was primarily related
to increased cash needs for working capital related to entities acquired during
1999 and 2000, and start-up costs for internet/data, telephone and development
activities.
Cash Flows from Investing Activities
We used approximately 1,949.3 million of cash in investing activities
during the three months ended March 31, 2000. Cash was used principally for
acquisitions, including Eneco, for 1,046.3 million, UPC Magyaroszag for 63.9
million, Tebecai for 62.2 million, Haarlem for 62.2 million, and other
acquisitions totaling 112.4 million. Capital expenditures for property, plant
and equipment represented 253.2 million. During this period we made a net
investment in affiliates of 304.3 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 18.2 million. We made a net investment in @Entertainment bonds and
other investments of 44.5 million.
We used approximately 290.4 million of cash in investing activities during
the three months ended March 31, 1999. Cash was used principally for acquisition
of UTH for 223.0 million, net of cash acquired. Capital expenditures for
property, plant and equipment represented 56.4 million. We had a net increase in
restricted cash from the deposit of 38.2 million for the acquisition of SKT
Bratislava and the release of 13.7 million upon pay-off of the bridge bank
facility. During this period we made a net investment in affiliates of 3.3
million and we received proceeds from the sale of our Hungarian programming
assets of 16.6 million.
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<PAGE>
Cash Flows from Financing Activities
We had 1,672.6 million of cash flows from financing activities during the
three months ended March 31, 2000. The principal source of cash was net proceeds
from our senior notes and discount notes offering in January 2000 of 1,594.2
million. Additional sources of cash were from long-term and short-term
borrowings of 139.5 million and 268.0 million, respectively. Long-term
borrowings included borrowings under the UPC Senior Credit Facility of 62.5
million, and other borrowings of 77.0 million. We used short term debt proceeds
from the New A2000 Facility of 231.4 million to pay off the existing A2000
Facilities. We had additional proceeds from short-term debt of 36.6 million
including 32.9 million from the GelreVision facility. We paid down other long-
term and short-term loans of 297.3 million. During the three months ended March
31, 2000, we incurred deferred financing costs of 31.8 million.
We had 738.7 million of cash flows from financing activities during the
three months ended March 31, 1999. The principal source of cash was net proceeds
from our initial public offering of 1,211.4 million. Additional sources of cash
were from long-term and short-term borrowings of 342.6 million and 7.3 million,
respectively, which includes borrowings on the UTH Facility of 245.0 million,
borrowings under the UPC Senior Revolving Credit Facility of 88.7 million and
borrowings on the Mediareseaux Facility of 8.8 million. Concurrent with the
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 the initial public offering to pay 281.3 million of the UPC
Senior Revolving Credit Facility, 50.0 million of the UPC Bridge Bank Facility
and 71.4 million of the United Loan. An additional 86.7 million of the Senior
Revolving Credit Facility was paid by Telekabel Wien. 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. We
paid down other loans of 14.1 million. We used proceeds from the sale of our
programming assets in Hungary to pay the Time Warner Note totaling 16.5 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, telephone 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 recently entered into agreements with Philips and General Instruments
for the development and purchase of an integrated digital set-top computer for
video and internet/data services, as well as for Internet-based telephone. A2000
has agreed with the City of Amsterdam to deploy during the year 2000, 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 budgeted 1,800 million
for capital expenditures, excluding capital expenditures for certain of our new
acquisitions.
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.
-37-
<PAGE>
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 telephone and internet/data.
We and our consolidated and unconsolidated affiliates had the following
principal long-term and short-term debt facilities outstanding as of March 31,
2000. Debt denominated in currencies other than Euros has been translated to
Euros for the outstanding balance as of March 31, 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.
-38-
<PAGE>
<TABLE>
<CAPTION>
Facility Size or Outstanding
Final Principal At March 31,
Description (Borrower) Maturity Interest Rate Amount 2000
- ------------------------------------------- -------------------------------------------- ---------------- ------------------
(in millions) (in millions Euro)
<S> <C> <C> <C> <C>
UPC and Consolidated Subsidiaries:
Long-Term Debt
Senior Notes 2007 EURIBOR + 4.8% and 9.92% Euro 190.7 190.7
2007 10.875% Euro 100.0 100.0
2009 EURIBOR + 4.8% and 9.92% Euro 240.2 238.4
2009 11.25% Euro 101.0 100.3
2009 EURIBOR + 4.15% and 8.54% Euro 754.7 754.7
2009 10.875% Euro 300.0 300.0
2010 11.250% USD 600.0 618.9
2010 10.000% Euro 297.0 294.8
2010 11.250% Euro 200.0 198.5
Senior Discount Notes 2009 12.50% USD 735.0 (1) 451.8
2009 13.375% USD 478.01(1) 274.5
2009 13.375% Euro 191.0(1) 105.6
2010 13.750% USD 1,000.0 (1) 546.8
PCI Notes 2003 9.875% per annum USD 130.0 16.9
@Entertainment 1998 Senior Discount Notes 2008 14.5% per annum USD 224.2 134.2
@Entertainment 1999 Senior Discount Notes 2009 14.5% per annum USD 235.5 117.8
@Entertainment 1999 Series C 2008 7% per annum on USD 36.0 12.9
Senior Discount Notes principal at maturity
UPC Senior Credit Facility 2006 EURIBOR/LIBOR + 0.75% to Euro 1,000.0 488.6
2.0% per annum
New TeleKabel Facility 2007 EURIBOR + 0.75% to 2.0% per Euro 340.0 225.2
annum
CNBH Facility 2008 AIBOR + 0.6% to 1.6% per NLG 274.0 120.5
annum
Mediareseaux Facility (2) 2007 LIBOR + 0.75% to 2.0% FFR 680.0 53.3
RCF Credit Facility (2) Dec 2005 PIBOR + 1.5% FFR 252.4 31.6
Rhone Vision Cable Facility June 2002 LIBOR + 1% FFR 680.0 61.0
Videopole Facility (2) 2006 EURIBOR + 1.25% FFR 65.0 7.7
DIC Loan 2000 8.0% per annum + 6.0% of USD 45.0 43.8
principal amount at maturity
Short-Term Debt
Stjarn Facilities March 2000 NBU + 0.60% / STIBOR + 1.25% SEK 521.0 41.5
Stjarn Seller's Note August 2000 8.0% per annum USD 100.0 103.9
New A2000 Facilities 2000 EURIBOR + 1.0% per annum NLG 620.0 231.4
Unconsolidated Affiliates:
Tevel Facilities 2007-2010 Fixed rate ranging from 5.5% - NIS 977.5 241.8
6.00%
Melita Facility 2007 6.75% - 7.50% Lm 14.0 28.8
</TABLE>
(1) At maturity.
(2) Refinanced per April 7, 2000.
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.
-39-
<PAGE>
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 approximately 715.3 million of unrestricted cash and cash
equivalents on hand as of March 31, 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, bonds 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
1,000 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 512,240,000. 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 EUR 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%. The
facilities expire in December 2000.
By the end of March 2000 we closed a fully committed EUR 2 billion standby
revolving bank facility with one of our core banks. When drawn, the facility
will bear interest of EURIBOR +5.0%, while an annual commitment fee of 0.50% is
applicable over the undrawn amount. A drawing fee of 1.0% is applicable for each
drawing. The commitment expires December 31, 2000, and at that date the drawn
portion can be renewed with an increase in the borrowing rate, to be repaid
after 7 years from closing.
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
120 million is drawn in April 2000. The refinancing of the Rhone Vision Cable
Credit Facility with this facility is still under investigation. Availability
is subject to revenues and debt to equity ratios. In general, this facility
restricts the payment of dividends and distributions.
Certain Dutch Property Tax Issues
One of our Dutch systems was assessed for a transfer tax on immovable
property in the amount of 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
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<PAGE>
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, if
necessary.
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, we may
experience economic loss and a negative impact on earnings and equity with
respect to our holdings solely as a result of foreign currency exchange rate
fluctuations. 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.
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, 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.
We do not expect the introduction of the Euro to affect materially 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.
-41-
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
Investment Portfolio
As of March 31, 2000, UPC has cash and cash equivalents of approximately
715.3 million. UPC has 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 UPC's and its consolidated
subsidiaries' foreign currency exchange risk for cash and debt which is
denominated in foreign currencies outside of the European Monetary Union as of
March 31,2000, 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 and British Pounds.
-42-
<PAGE>
Amount Outstanding
as of March 31, 2000
-----------------------
Book Value Fair Value
---------- ----------
(Euros, in thousands)
Cash and Cash Equivalents
- -------------------------
USD Cash..................... 34,378 34,378
British Pound................ 3,795 3,795
<TABLE>
<CAPTION>
Amount Outstanding Expected Repayment
as of March 31, 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>
Dollar Denominated Facilities
- -----------------------------
DIC Loan.............................. 43,792 43,792 43,792 - - - -
8.0% per annum + 6.0% of
principal at maturity
Stjarn Seller's Note.................. 103,916 103,916 103,916 - - - -
8.0% per annum
UPC USD Senior Discount Notes, 2009... 451,821 378,414 - - - - -
12.5% per annum
UPC USD Senior Discount Notes, 2009... 274,496 243,612 - - - - -
13.375% per annum
UPC USD Senior Discount Notes, 2010... 546,784 509,649 - - - - -
13.750% per annum
UPC USD Senior Notes, 2010............ 618,920 595,977 - - - - -
11.25% per annum
PCI Notes 9.875% per annum........... 16,875 16,875 - - - 16,875 -
@Entertainment 1998 Senior Discount
Notes 14.5% per annum.............. 134,208 131,278 - - - - -
@Entertainment 1999 Senior Discount
Notes 14.5% per annum.............. 117,825 130,389 - - - - -
@Entertainment .......................
1999 Series C Senior Discount Notes... 12,861 12,861 - - - - -
7.0% per annum on the principal
amount at maturity
</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
-43-
<PAGE>
The table below provides information about our financial instruments that
are sensitive to changes in interest rates as of March 31,2000, 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 the Company's reporting currency.
<TABLE>
<CAPTION>
Amount Outstanding Expected Repayment
as of March 31, 2000 as of December 31,
----------------------- -----------------------------------------------
Book Value Fair Value 2000 2001 2002 2003 2004
---------- ---------- ------ ------ ------ ------ ------
(Euros, in thousands)
Variable Rate Facilities
- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
UPC 10.875% Euro Senior Notes due 2009.... 754,898 768,391 - - - - -
EURIBOR +4.15% and 8.54%,
average rate in 2000 of 7.15% and 8.54%
UPC 10.875% USD Senior Notes due 2007..... 190,658 200,761 - - - - -
EURIBOR +4.8% and 9.92%,
average rate in 2000 of 8.3% and 9.92%
UPC 11.25% USD Senior Notes due 2009....... 238,377 246,379 - - - - -
EURIBOR +4.8% and 9.92%,
average rate in 2000 of 8.3% and 9.92%
UPC Senior Credit Facility................. 488,572 488,572 - - 43,827 77,916 97,394
EURIBOR/LIBOR + 0.75% to 2.0%,
average rate in 2000 of 6.31%
New Telekabel Facility..................... 225,248 225,248 33,807 - 12,750 25,500 51,000
EURIBOR + 0.75% to 2.0%,
average rate in 2000 of 5.5%
CNBH Facility.............................. 120,518 120,518 - 3,600 8,400 15,600 21,600
AIBOR + 0.6% to 1.6%
average rate in 2000 of 5.0%
New A2000 Facilities....................... 231,428 231,428 231,428 - - - -
EURIBOR + 1.0%,
average rate in 2000 of 4.8%
Mediareseaux Facility (1).................. 53,319 53,319 53,319 - - - -
LIBOR +0.75% to 2.0%,
average rate in 2000 of 5.42%
RCF Credit Facility (1).................... 31,644 31,644 31,644 - - - -
PIBOR + 1.5%,
average rate in 2000 of 4.9%
RVC Facility............................... 60,960 60,960 60,960 - - - -
LIBOR + 1.0%,
average rate in 2000 of 4.4%
Videopole Facility (1)..................... 7,620 7,620 7,620 - - - -
EURIBOR + 1.25%,
average rate in 2000 of 4.8%
</TABLE>
(1) Refinanced per April 7, 2000.
-44-
<PAGE>
<TABLE>
<CAPTION>
Amount Outstanding Expected Repayment
as of March 31, 2000 as of December 31,
------------------------ --------------------------------------------
Book Value Fair Value 2000 2001 2002 2003 2004
---------- ---------- ------ ------ ------ ------ ------
(Euros, in thousands)
Fixed Rate Facilities
<S> <C> <C> <C> <C> <C> <C> <C>
DIC Loan............................................. 43,792 43,792 43,792 - - - -
8.0% per annum + 6.0% of
principal at maturity
UPC Euro Senior Notes, 2009.......................... 300,000 283,500 - - - - -
10.875% per annum
UPC USD Senior Discount Notes, 2009.................. 451,821 378,414 - - - - -
12.5% per annum
UPC USD Senior Discount Notes, 2009.................. 274,496 243,612 - - - - -
13.375% per annum
UPC Euro Senior Discount Notes, 2009................. 105,550 100,275 - - - - -
13.375% per annum
UPC USD Senior Discount Notes, 2010.................. 546,784 509,649 - - - - -
13.75% per annum
UPC Euro Senior Notes, 2007.......................... 100,000 97,000 - - - - -
10.875% per annum
UPC Euro Senior Notes, 2009.......................... 100,286 97,213 - - - - -
11.25% per annum
UPC USD Senior Notes, 2010........................... 618,920 595,977 - - - - -
11.25% per annum
UPC Euro Senior Notes, 2010.......................... 294,764 297,989 - - - - -
11.50% per annum
UPC Euro Senior Notes, 2010.......................... 198,533 202,820 - - - - -
11.25% per annum
PCI Notes............................................ 16,875 16,875 - - - 16,875 -
9.875% per annum
@Entertainment 1998 Senior Discount Notes............ 134,208 131,278 - - - - -
14.5% per annum
@Entertainment 1999 Senior Discount Notes............ 117,825 130,389 - - - - -
14.5% per annum
@Entertainment 1999 Series C Senior Discount Notes.. 12,861 12,861 - - - - -
7.0% per annum on the principal
amount at maturity
Stjarn Seller's Note................................. 103,916 103,916 103,916 - - - -
8.0% per annum
</TABLE>
-45-
<PAGE>
Equity Prices
As of March 31, 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 investment in PrimaCom AG is accounted for
under the equity method of accounting.
Fair Value as of
Number of Shares March 31, 2000
----------------------------------------------------
(Stated in thousands of Euros, except share amounts)
United................ 5,569,240 434,998
Primacom.............. 4,948,039 398,317
As of March 31, 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 March 31, 2000 as of December 31,
--------------------------- -------------------
Convertible Debt Book Value Fair Value 2000 2001
- ----------------------------------------------------------------------------------------
(Euros, in thousands)
<S> <C> <C> <C> <C>
DIC Loan............................ 43,792 43,792 43,792 -
8.0% per annum + 6.0% of
principal at maturity
Stjarn Seller's Note................ 103,916 103,916 103,916 -
8.0% per annum
</TABLE>
Cross-Currency Swap
July 1999 Senior Notes Offering
Concurrent with the closing of our senior notes offering in July 1999, we
entered into a cross-currency swap, swapping the USD800.0 million, 10 7/8% fixed
rate senior notes into fixed and variable rate Euro notes with a notional amount
totalling Euro754.7 million. One half of the Euro notes (Euro377.35) have a
fixed interest rate of 8.54% through August 1, 2004, thereafter switching to a
variable interest rate of EURIBOR + 4.15%. The remaining Euro377.35 million have
a variable interest rate of EURIBOR + 4.15% through August 1, 2009. The
cross-currency swap provides the bank with the right to terminate the swap at
fair value commencing August 1, 2004 with the payment of a call premium equal to
the call premium which we would pay to the USD800.0 million senior note holders
if the notes are called on or after August 1, 2004. We accounted for the cross-
currency swap by bifurcating the instrument into two components, (1) the swap of
USD fixed rate debt for Euro variable and fixed rate debt through August 1, 2004
(the earliest call date) and (2) the residual portion of the cross-currency
swap. The swap of USD fixed rate debt for Euro variable and fixed rate debt is
accounted for as a hedge, and accordingly we carry the Euro denominated debt on
the balance sheet and recognize interest expense according to the provisions of
the Euro debt. The residual portion of the cross-currency swap is marked to fair
value at each reporting period through the statement of operations. The fair
value of the Euro debt at March 31, 2000 is equal to the fair value of the
USD800.0 million senior notes adjusted for the fair value of the swap component,
which was a gain of Euro75.2 million at March 31, 2000. The fair value of the
residual portion of the cross-currency swap was a loss of Euro5.4 million at
March 31, 2000.
October 1999 Senior Notes Offering
Concurrent with the closing of our senior notes in October 1999, we entered
into a cross-currency swap, swapping the USD252.0 million, 11 1/4% fixed rate
senior notes into fixed and variable rate Euro notes with a notional amount
totaling Euro240.2 million. One half of the Euro notes (Euro120.1) have a fixed
interest rate of 9.92% through November 1, 2004, thereafter switching to a
variable interest rate of EURIBOR + 4.80%. The remaining Euro120.1 million have
a variable interest rate of EURIBOR + 4.80% through November 1, 2009. The
cross-currency swap provides the bank with the right to terminate the swap at
fair value commencing November 1, 2004 with the payment of a call premium equal
to the call premium which we would pay to the USD252.0 million senior note
holders if the notes are called on or after November 1, 2004. We accounted for
the swap as described above. The fair value of the Euro debt at March 31, 2000
is equal to the fair value of the USD252.0 million senior notes adjusted for the
fair
-46-
<PAGE>
value of the swap component, which was a gain of Euro18.5 million at March 31,
2000. The fair value of the residual portion of the cross-currency swap was a
gain of Euro1.1 million at March 31, 2000.
Additionally, we entered into a swap of the USD 200.0 million senior notes
for Euro notes with fixed and variable rate components of 9.92% for Euro 120.1
million and EURIBOR + 4.8% for Euro 120.1 million. The swap is accounted for as
a hedge, and accordingly we carry the Euro denominated debt on the balance sheet
and recognize interest expense according to the provisions of the Euro debt.
January 2000 Senior Notes Offering
In January 2000, we closed a bond offering consisting of four tranches:
USD300.0 million of senior notes due 2010 with a 11 1/2% coupon; USD600.0
million and Euro200.0 million of senior notes due 2010 with a 11 1/4% coupon;
and USD1,000.0 million aggregate principal amount of ten year 13 3/4% senior
discount notes due 2010. The USD300.0 million of senior notes were swapped into
Euro notes with a fixed rate below 10%. The swap is accounted for as a hedge,
and accordingly we carry the Euro denominated debt on the balance sheet and
recognize interest expense according to the provisions of the Euro debt.
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At an Extraordinary General Meeting of Shareholders held on March 13, 2000,
in Amsterdam, the motion to split each Class Ordinary A shares of UPC into three
shares was approved. At the same meeting the motion to appoint Anton M. Tuijten
as a new Member of the Board of Management was approved.
-47-
<PAGE>
Summary Operating Data 2000
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 March 31, 2000
-------------------------------------------------------------------
Homes in Two way
Service Homes Homes Basic Basic
Area Passed Passed Subscribers Penetration
------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Multi-channel TV:
Consolidated companies:
Norway.................................. 529,000 468,335 63,827 330,012 70.5%
Sweden.................................. 770,000 421,624 227,000 246,087 58.4%
Belgium................................. 530,000 150,426 147,903 125,642 83.5%
France.................................. 2,105,542 1,080,960 120,555 375,288 34.7%
The Netherlands......................... 2,513,715 2,421,167 1,945,152 2,255,031 93.1%
Austria................................. 1,080,640 907,870 824,290 476,037 52.4%
Poland.................................. 1,950,000 1,769,569 - 1,023,477 57.8%
Hungary (Telekabel Hungary)............. 915,500 680,197 100,307 518,185 76.2%
Hungary (Monor)......................... 85,561 70,061 84,916 32,574 46.5%
Czech Republic.......................... 868,250 776,881 17,740 364,275 46.9%
Romania ................................ 509,320 391,690 - 261,594 66.8%
Slovak Republic ........................ 417,813 309,198 - 247,455 80.0%
Non-consolidated companies:
Germany (Primacom) (1).................. 1,422,826 1,422,826 30,456 919,641 64.6%
Israel.................................. 660,000 616,975 385,447 431,334 69.9%
Malta................................... 177,000 175,174 - 77,296 44.1%
----------- ----------- ----------- -----------
Total................................ 14,535,167 11,662,953 3,947,593 7,683,928
=========== =========== =========== ===========
Direct to Home (DTH):
Consolidated companies:
Poland.................................. - - - 303,699 N/A
----------- ----------- ----------- -----------
Total................................ - - - 303,699
=========== =========== =========== ===========
<CAPTION>
As at March 31, 2000
--------------------------------------------------------
UPC UPC UPC
UPC Equity in Equity in Equity in
Paid-in Homes in Homes Basic
Ownership Service Area Passed Subscribers
-------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Multi-channel TV:
Consolidated companies:
Norway.................................. 100.0% 529,000 468,335 330,012
Sweden.................................. 100.0% 770,000 421,624 246,087
Belgium................................. 100.0% 530,000 150,426 125,642
France.................................. 92.0% 1,937,099 994,483 345,265
The Netherlands......................... 100.0% 2,513,715 2,421,167 2,255,031
Austria................................. 95.0% 1,026,608 862,477 452,235
Poland.................................. 100.0% 1,950,000 1,769,569 1,023,477
Hungary (Telekabel Hungary)............. 100.0% 915,500 680,197 518,185
Hungary (Monor)......................... 97.1% 83,114 68,057 31,642
Czech Republic.......................... 99.9% 867,382 776,104 363,911
Romania ................................ 51.0-70.0% 343,604 268,521 178,548
Slovak Republic ........................ 95-100% 416,758 308,327 246,895
Non-consolidated companies:
Germany (Primacom) (1).................. 25.1% 357,129 357,129 230,830
Israel.................................. 46.6% 307,560 287,510 201,002
Malta................................... 50.0% 88,500 87,587 38,648
-------------- ------------ ------------
Total................................ 12,635,969 9,921,513 6,587,410
============== ============ ============
Direct to Home (DTH):
Consolidated companies:
Poland.................................. 100.0% - - 303,699
-------------- ------------ ------------
Total................................ - - 303,699
============== ============ ============
</TABLE>
<PAGE>
Summary Operating Data 2000 (continued)
<TABLE>
<CAPTION>
As at March 31, 2000
------------------------------------------------------------------------
Subscribers Lines UPC
---------------------------- ------------------------------ Paid-in
Residential Businesses Residential Businesses Ownership
------------- -------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Cable Telephony
Consolidated companies:
Norway........................................... 5,291 18 5,951 163 100.0%
France .......................................... 18,348 6 18,917 396 92.0%
The Netherlands.................................. 82,273 62 95,405 2,600 100.0%
Austria.......................................... 52,593 559 54,089 2,310 95.0%
----------- ------------ ------------ ------------
Total......................................... 158,505 645 174,362 5,469
=========== ============ ============ ============
Non-Cable Telephony
Consolidated companies:
The Netherlands (Uniport Carrier Select) (2)..... 23,262 8,301 - - 80.0%
Mundi Telecom.................................... 3,244 2,243 - - 51.0%
Czech Republic................................... 3,622 - 3,648 - 99.9%
Hungary (Monor)(3)............................... 64,717 3,331 66,875 6,453 97.1%
----------- ------------ ------------ ------------
Total......................................... 94,845 13,875 70,523 6,453
=========== ============ ============ ============
<CAPTION>
As at March 31, 2000
----------------------------------------------------------------
UPC UPC UPC UPC
Equity in Equity in Equity in Equity in
Residential Business Residential Business Lines
Subscribers Subscribers Lines Served Served
--------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
Cable Telephony
Consolidated companies:
Norway........................................... 5,291 18 5,951 163
France .......................................... 16,880 6 17,404 364
The Netherlands.................................. 82,273 62 95,405 2,600
Austria.......................................... 49,963 531 51,385 2,195
------------ ------------ ------------- --------------
Total......................................... 154,407 617 170,145 5,322
============ ============ ============= ==============
Non-Cable Telephony
Consolidated companies:
The Netherlands (Uniport Carrier Select) (2)..... 18,610 6,641 - -
Mundi Telecom.................................... 1,654 1,144 - -
Czech Republic................................... 3,618 - 3,644 -
Hungary (Monor).................................. 62,866 3,236 64,962 6,268
------------ ------------ ------------- --------------
Total......................................... 86,748 11,021 68,606 6,268
============ ============ ============= ==============
</TABLE>
<PAGE>
Summary Operating Data 2000 (continued)
<TABLE>
<CAPTION>
As at March 31, 2000
-------------------------------------------------------------------
3rd Party
Subscribers ISP Subscribers (9) UPC
--------------------------- --------------------------- Paid-in
Residential Businesses Residential Businesses Ownership
------------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Data services
Consolidated companies:
Norway............................. 4,921 89 - - 100.0%
Sweden............................. 11,484 15 - - 100.0%
Belgium............................ 8,869 763 - - 100.0%
France............................. 5,022 - - - 92.0%
The Netherlands.................... 80,404 1,846 11,298 151 100.0%
Austria............................ 54,510 1,342 - - 95.0%
Hungary (Telekabel Hungary)........ 299 - - - 100.0%
Non-Consolidated Companies:
Germany (Primacom)................. 150 - - - 25.1%
Total........................... 165,659 4,055 11,298 151
============ =========== ============ ===========
<CAPTION>
As at March 31, 2000
-----------------------------------------------------------------
UPC UPC UPC UPC
Equity in Equity in Equity in Equity in
Residential Business 3rd Party ISP 3rd Party ISP
Subscribers Subscribers Res. Subscribers Bus. Subscribers
------------- ------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Data services
Consolidated companies:
Norway............................. 4,921 89 - -
Sweden............................. 11,484 15 - -
Belgium............................ 8,869 763 - -
France............................. 4,620 - - -
The Netherlands.................... 80,404 1,846 11,298 151
Austria............................ 51,785 1,275 - -
Hungary (Telekabel Hungary)........ 299 - - -
Non-Consolidated companies:
Germany (Primacom)................. 38 - - -
Total........................... 162,420 3,988 11,298 151
=========== =========== ============= ============
</TABLE>
<PAGE>
Summary Operating Data 2000 (continued)
<TABLE>
<CAPTION>
As at March 31, 2000 (8)
-------------------------------------------------------------------------------------
Net Net
Operating Income/ Adjusted Capital Long Term
Revenue Income/(loss) (loss) EBITDA (5) Expenditures (6) Debt (7)
---------- --------------- --------- ------------ ------------------ -----------
(Euros, in thousands)
Consolidated companies:
<S> <C> <C> <C> <C> <C> <C>
Norway................................. 13,122 (3,405) (11,534) 1,232 20,020 219,684
Sweden................................. 9,065 (643) (9,686) 945 4,260 29,608
Belgium................................ 4,734 78 (2,265) 186 1,804 -
France ................................ 16,364 (9,395) (21,609) (2,215) 34,929 171,272
The Netherlands(11).................... 64,279 (12,664) (49,762) 5,743 64,567 611,001
Austria................................ 33,415 7,195 (4,777) 9,843 29,727 151,886
Hungary (Telekabel Hungary)............ 10,972 (586) (2,968) 2,140 10,461 -
Hungary (Monor)........................ 6,151 592 (1,180) 3,375 277 -
Poland................................. 27,979 (38,396) (65,068) (18,204) 31,634 281,769
Czech Republic......................... 7,571 470 (3,625) 1,367 480 -
Romania................................ 1,147 83 35 427 181 -
Slovak Republic........................ 3,023 113 (2,163) 1,017 1,042 -
Non-consolidated companies:
Germany (Primacom) (12)............... 28,099 (7,110) (12,288) 9,326 (11,529) 207,843
Israel................................. 43,152 (2,402) (11,160) 11,720 12,672 241,787
Malta.................................. 4,037 467 (202) 1,142 1,176 28,761
</TABLE>
<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 of March 31, 1999
--------------------------------------------------------------------------------
Homes in Two way UPC
Service Homes Homes Basic Basic Paid-in
Area Passed Passed Subscribers Penetration Ownership
--------- -------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Multi-channel TV:
The Netherlands (A2000)...... 578,500 575,000 386,109 533,722 92.8% 50.0%
The Netherlands (UTH)........ 950,714 916,220 600,000 870,409 95.0% 100.0%
Austria...................... 1,076,190 903,200 623,490 457,165 50.6% 95.0%
Hungary (Telekabel Hungary).. 901,500 528,719 - 442,390 83.7% 79.3%
Israel....................... 595,000 583,408 364,000 406,970 69.8% 46.6%
Norway....................... 529,900 464,941 18,685 322,735 69.4% 100.0%
Belgium...................... 133,030 133,030 104,039 126,818 95.3% 100.0%
Malta........................ 179,000 164,553 - 71,040 43.2% 50.0%
Romania...................... 180,000 98,174 - 62,524 63.7% 51.0-100.0%
Czech Republic............... 229,531 153,949 - 54,691 35.5% 100.0%
Hungary (Monor).............. 85,000 68,339 - 31,108 45.5% 44.8%
France....................... 190,000 82,320 82,320 32,662 39.7% 99.6%
Slovak Republic.............. 64,493 40,494 - 25,697 63.5% 75.0-100%
--------- --------- --------- ---------
Total................... 5,692,858 4,712,347 2,178,643 3,437,931
========= ========= ========= =========
<CAPTION>
As of March 31, 1999
----------------------------------------
UPC UPC UPC
Equity in Equity in Equity in
Homes in Homes Basic
Service Area Passed Subscribers
------------ --------- -----------
<S> <C> <C> <C>
Multi-channel TV:
The Netherlands (A2000)...... 289,250 287,500 266,861
The Netherlands (UTH)........ 950,714 916,220 870,409
Austria...................... 1,022,381 858,040 434,307
Hungary (Telekabel Hungary).. 714,439 419,010 350,594
Israel....................... 277,270 271,868 189,648
Norway....................... 529,900 464,941 322,735
Belgium...................... 133,030 133,030 126,818
Malta........................ 89,500 82,277 35,520
Romania...................... 165,300 84,209 51,514
Czech Republic............... 229,531 153,949 54,691
Hungary (Monor).............. 38,080 30,616 13,936
France....................... 189,240 81,991 32,531
Slovak Republic.............. 59,143 36,205 22,895
---------- ---------- ----------
Total................... 4,687,778 3,819,856 2,772,459
========== ========== ==========
</TABLE>
<PAGE>
Summary Operating Data 1999 (continued)
<TABLE>
<CAPTION>
As at March 31, 1999
------------------------------------------------------------
Subscribers Lines served UPC
----------------------- ----------------------- Paid-in
Residential Businesses Residential Businesses Ownership
----------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Telephony
The Netherlands (A2000) (10). 22,338 3 24,512 830 50.0%
The Netherlands (UTH) (2) ... 16,608 4,152 16,608 4,152 100.0%
Austria ..................... 767 41 767 112 95.0%
Norway ...................... 211 -- 239 -- 100.0%
France ...................... 523 -- 551 -- 99.6%
Hungary (Monor) (3) ......... -- -- 63,828 6,382 44.8%
--------- -------- ---------- ---------
Total ..................... 40,447 4,196 106,505 11,476
========= ======== ========== =========
Dataservices
The Netherlands (A2000) (10). 11,058 493 n/a n/a 50.0%
The Netherlands (UTH) ....... 5,042 -- n/a n/a 100.0%
Austria ..................... 13,918 941 n/a n/a 95.0%
Norway ...................... 884 5 n/a n/a 100.0%
Belgium ..................... 2,551 365 n/a n/a 100.0%
Hungary (Telekabel Hungary) . 64 46 n/a n/a 79.3%
France ...................... 82 -- n/a n/a 99.6%
--------- -------- ---------- ---------
Total ..................... 33,599 1,850 n/a n/a
========= ======== ========== =========
<CAPTION>
As at March 31, 1999
------------------------------------------------------
UPC UPC UPC UPC
Equity in Equity in Equity in Equity in
Residential Business Residential Business Lines
Subscribers Subscribers Lines Served Served
----------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Telephony
The Netherlands (A2000) (10). 11,169 2 12,256 415
The Netherlands (UTH) (2) ... 16,608 4,152 16,608 4,152
Austria ..................... 729 39 729 106
Norway ...................... 211 -- 239 --
France ...................... 521 -- 549 --
Hungary (Monor) (3) ......... -- -- 28,563 2,856
-------- -------- ---------- ----------
Total ..................... 29,238 4,193 58,944 7,529
======== ======== ========== ==========
Dataservices
The Netherlands (A2000) ..... 5,529 247 n/a n/a
The Netherlands (UTH) ....... 5,042 -- n/a n/a
Austria ..................... 13,222 894 n/a n/a
Norway ...................... 884 5 n/a n/a
Belgium ..................... 2,551 365 n/a n/a
Hungary (Telekabel Hungary) . 51 36 n/a n/a
France ...................... 82 -- n/a n/a
-------- -------- ---------- ----------
Total ..................... 27,361 1,547 n/a n/a
======== ======== ========== ==========
</TABLE>
-53-
<PAGE>
Summary Financial Data 1999 (4)
<TABLE>
<CAPTION>
At March 31,
For the three months period ending March 31, 1999 1999
--------------------------------------------------------------------------
Net Long-
Income/ Adjusted Capital Term
Revenue (loss) EBITDA (5) Expenditures (6) Debt (7)
------- ------- ---------- ---------------- --------
(Euros, in thousands)
<S> <C> <C> <C> <C> <C>
The Netherlands (A2000) ..... 16,327 (6,392) 4,985 8,398 226,479
The Netherlands (UTH) ....... 27,353 (12,966) 10,169 10,273 359,855
Austria ..................... 22,016 161 9,092 9,049 89,586
Hungary (Telekabel Hungary) . 7,909 303 2,694 4,245 18,685
Israel ...................... 32,780 3,008 12,963 7,232 228,057
Norway ...................... 11,015 (7,343) 2,032 8,746 74,616
Belgium ..................... 3,990 (1,662) 372 1,251 --
Malta ....................... 3,623 308 1,617 1,511 21,217
Romania ..................... 563 84 231 56 --
Czech Republic .............. 1,016 (668) (218) 190 --
Hungary (Monor) ............. 4,542 (5) 875 583 38,245
France ...................... 1,435 (2,801) (1,421) 7,097 27,146
Slovak Republic ............. 274 (424) (51) 238 --
</TABLE>
<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 telephone service.
(4) Financial information has been prepared in accordance with Dutch GAAP.
(5) Adjusted EBITDA represents earnings before net interest expense, income tax
expense, 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.
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 CAPEX only.
(7) Excludes intercompany debt.
(8) Financial data for new acquisitions (1998 and 1999) are included from their
effective date of consolidation.
(9) Internet subscribers who are served by non-UPC internet providers.
(10) A2000 offers cable telephony service.
(11) The acquisition of K&T Group was closed in March 2000, consequently the
financials of K&T Group are not included.
(12) Financials of Primacom for the fourth quarter of 1999 are calculated based
upon the 20-F form and the 6K form.
-55-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K TO BE UPDATED
----------------------------------------------
(a) Exhibits
10. Standstill Agreement with Microsoft Corporation
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during the Quarter
<TABLE>
<CAPTION>
Date of Report Item Reported Financial Statements Filed
-------------- ------------- --------------------------
<S> <C> <C>
February 18, 2000 Agreement to acquire K&T Group. None
March 14, 2000 Exchange Offer Agreement with None
SBS Broadcasting S.A.
March 20, 2000 Announcement of three-for-one None
stocksplit
</TABLE>
-56-
<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: May 15, 2000
--------------------------
By: /s/ Charles H.R. Bracken
----------------------------
Charles H.R. Bracken
Board of Management Member and Chief Financial Officer
(A Duly Authorized Officer and Principal Financial Officer)
-57-
<PAGE>
EXHIBIT 10
STANDSTILL AGREEMENT
This Standstill Agreement is entered into as of February 12, 1999,
between United Pan-Europe Communications, N.V., a company formed under the laws
of the Netherlands, (the "Company") and Microsoft Corporation, a Washington
corporation (the "Stockholder").
Background
----------
The Stockholder proposes to acquire approximately 10,000,000 shares of
the Company's ordinary shares either directly or in the form of American
Depository Shares ("ADSs") and may in the future acquire warrants to purchase
additional shares. Shares of the Company beneficially owned by Stockholder,
including, without limitation, any ADSs or shares that may be purchased by the
Stockholder pursuant to the exercise of warrants, are referred to in this
Agreement as the "Shares." If Stockholder purchaser all Shares contemplated,
Stockholder will own approximately 8 percent of the outstanding ordinary shares
and may acquire warrants to purchase an additional 3 percent of the outstanding
ordinary shares. To induce the Company to sell the Shares to the Stockholder,
the Stockholder has agreed to the restrictions set forth below on the
acquisition, ownership and disposition of Equity Securities (as defined below)
by the Stockholder or its Affiliates (as defined below).
Agreement
---------
The Company and the Stockholder agree as follows:
Section 1. Definitions. As used in this Agreement, the following
-----------
terms have the meanings indicated below.
Acquisition. As defined in Section 2(a).
-----------
Affiliate. An Affiliate of a specified person means each person or
---------
entity that, directly or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, the person
specified.
Beneficial Ownership and Derivative Terms. As determined pursuant to
-----------------------------------------
Rule 13d-3 under the Exchange Act and any successor regulation, except that in
calculating Beneficial Ownership, notwithstanding any such rule or regulation,
there shall be given effect to the issuance of such Equity Securities as may be
issuable upon the exercise, conversion or exchange of Rights beneficially owned
by such person or Group (if immediately exercisable) but not any other Rights.
For purposes of determining the Equity Securities or Rights beneficially owned
by any person or Group, the Equity Securities or Rights beneficially owned by
the Stockholder and any other person that is a party to this Agreement shall be
included.
<PAGE>
Disinterested Director. Any member of the Supervisory Board of the
----------------------
Company who is not (i) an Affiliate or associate (as such term is defined in the
rules under the Exchange Act) of any member of the Stockholder Group or (ii) a
designee or representative of the Stockholder.
Disposition. As defined in Section 4(a).
-----------
Equity Securities. Ordinary shares of the Company and any other
-----------------
shares that are entitled to vote generally at a general meeting of shareholders
(including those represented by ADSs).
Exchange Act. The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations thereunder.
Group. As defined in Section 13(d) of the Exchange Act and the rules
-----
and regulations thereunder.
Maximum Percentage. Fifteen percent of the number of outstanding
------------------
Equity Securities of the Company.
Rights. Securities of the Company (which may include Equity
------
Securities) exercisable, convertible or exchangeable for or into Equity
Securities (with or without consideration) or that carry any right to subscribe
for or acquire Equity Securities.
Securities Act. The Securities Act of 1933, as amended, and the rules
--------------
and regulations thereunder.
Shares. As defined under Background.
------
Stockholder Equity Securities. The Equity Securities and Rights
-----------------------------
beneficially owned from time to time by the Stockholder or any of its
Affiliates.
Stockholder Group. The Stockholder, each of its Affiliates and all
-----------------
members of any Group of which the Stockholder or any of its Affiliates is a
member.
Term. The term of this agreement shall be for a period of five (5)
----
years from the date of acquisition of the initial ADSs by Stockholder.
Voting Power. The number of votes an Equity Security has in a general
------------
election of Directors.
Section 2. Acquisition of Equity Securities or Rights. (a)(i)
------------------------------------------
Except as specifically permitted by this Section 2 or as specifically consented
to by a majority of the Disinterested Directors, the Stockholder shall not, and
shall cause each of its Affiliates not to, directly or indirectly acquire
beneficial ownership of any Equity Securities or Rights (an
-2-
<PAGE>
"Acquisition") during the Term if the Stockholder Group then beneficially
owns, or after such Acquisition would beneficially own, in the aggregate, Shares
constituting more than the Maximum Percentage.
(ii) The Stockholder shall not be in breach of this Section 2
solely because the Stockholder Group becomes the beneficial owners of a number
of shares exceeding the Maximum Percentage after and solely because of (A) any
action taken by the Company (including, without limitation, the repurchase or
redemption by the Company of Equity Securities or Rights, the issuance of Equity
Securities pursuant to an offer by the Company to its security holders of rights
to subscribe for Equity Securities or the declaration by the Company of a
dividend in respect of any class of Equity Securities payable at the election of
such security holders either in cash or in Equity Securities) in respect of
which no member of the Stockholder Group shall have taken any action except as
permitted to be taken by holders of Equity Securities or Rights in their
capacities as such (including, without limitation, an election not to tender any
Stockholder Equity Securities pursuant to any such offer to repurchase, an
election to purchase Equity Securities or Rights pursuant to any such
subscription offer or an election to be paid a dividend in respect of
Stockholder Equity Securities in Equity Securities or Rights instead of cash);
or (B) after any other action taken by the Company to reduce the number of
outstanding Equity Securities.
(b) During the Term the Stockholder shall not, and shall cause each of
its Affiliates not to, solicit proxies with respect to Equity Securities or
become a participant in a solicitation of proxies with respect to Equity
Securities, in either case within the meaning of Regulation 14A under the
Exchange Act (or any successor regulation).
(c) During the term the Stockholder shall not, and shall cause each of
its Affiliates not to, participate in concert with any Group with respect to
Equity Securities if the combined Voting Power of the Equity Securities of
Stockholder and such Group would exceed the Maximum Percentage of the Voting
Power of all outstanding Equity Securities.
(d) During the Term the Stockholder shall not, and shall cause each of
its Affiliates not to, deposit any Stockholder Equity Securities in any voting
trust or subject any Stockholder Equity Securities to a voting agreement or
other arrangement with similar effect.
(e) If the Stockholder Group acquires beneficial ownership of any
Equity Securities (other than the initial purchase of Shares) or Rights, during
the Term the Stockholder shall give notice to the Company as provided in Section
5 of this Agreement. If such Equity Securities are acquired by an Affiliate
during the Term that has not previously delivered to the Company an undertaking
pursuant to Section 4(c) of this Agreement, the Stockholder shall promptly cause
such Affiliate to deliver to the Company an undertaking to be bound by all
provisions of this Agreement applicable to the Stockholder. The Stockholder has
separately disclosed the extent and nature of any beneficial ownership of Equity
Securities by the Stockholder or its Affiliates as of the date of this
Agreement.
-3-
<PAGE>
3. Disposition in Case of Excess Voting Power. (a) Subject to
------------------------------------------
Section 3(c), if the number of Equity Securities or the Voting Power of the
Equity Securities in relation to the outstanding Equity Securities beneficially
owned by the Stockholder Group exceeds in the aggregate the Maximum Percentage
at any time then, in addition to any remedies that the Company may have for any
breach of this Agreement, the Company shall have the remedies specified in
Section 3(b).
(b) (i) the Stockholder Group shall, as promptly as commercially
practicable, dispose of a number of Equity Securities sufficient to reduce the
total Voting Power of the outstanding Equity Securities beneficially owned by
the Stockholder Group to a percentage less than or equal to the Maximum
Percentage, and
(ii) until making the disposition required by Section 3(b)(i)
above, the Stockholder Group shall cause persons duly authorized to vote the
number of Stockholder Equity Securities in excess of the Maximum Percentage (the
"Excess Securities") entitled to vote to be present at all meetings of the
stockholders of the Company at which such Stockholder Equity Securities shall be
entitled to vote, or shall cause proxies to be present at all such meetings, to
enable all such Excess Securities to be counted for quorum purposes, and shall
cause all such Excess Securities to be voted with respect to any matter
submitted for approval of the stockholders of the Company at such meetings
either (A) in the manner recommended by the Board of Directors of the Company
with the approval of a majority of the Disinterested Directors or (B) in the
same proportion as the holders of the remaining Equity Securities voting on any
matter vote with respect to such matter.
(c) This Section 3 shall apply to the Stockholder Group and each
other person or Group that is or becomes a party to this Agreement in the
following manner. If any Acquisition or Disposition by the Stockholder Group
results in a violation described in Section 3(a) of this Agreement, the
Stockholder and its Affiliates shall comply with Section 3(b). If any
Acquisition or Disposition by another person or Group results in a violation of
this Agreement described in Section 3(a) without any Acquisition or Disposition
on the part of the Stockholder Group, such person or Group shall comply with
Section 3(b) and the Stockholder and its Affiliates need not do so.
Section 4. Dispositions of Shares. (a) During the Term except as
----------------------
provided below in Section 4(b), the Stockholder shall not, and shall cause each
of its Affiliates not to, transfer beneficial ownership of any Equity Securities
or Rights (including without limitation a pledge) (a "Disposition"), to a person
or Group, unless the person or Group acquiring such Equity Securities or Rights
first executes and delivers to the Company an undertaking to be bound by all
provisions of this Agreement applicable to the Stockholder as though such person
or Group were the Stockholder. During the Term the Stockholder shall not, and
shall cause each of its Affiliates not to, pledge or otherwise encumber any
Equity Securities or Rights without making arrangements satisfactory to the
Company to ensure that any transfer upon foreclosure or similar action will
satisfy the requirements of the preceding sentence. Any attempted transfer in
violation of this Agreement shall be void.
-4-
<PAGE>
(b) Section 4(a) shall not apply to (i) a transfer to one or more
underwriters in connection with a bona fide public offering registered under the
Securities Act (ii) transfers in the open market (except block sales), (iii)
block sales provided that the Stockholder knows the identity of the ultimate
purchaser or purchasers and has no reason to believe that such person or Group
(including such person) would acquire as a result of such a transfer or
transfers beneficial ownership of more than 15% of the outstanding units or
Voting Power of Equity Securities of the Company (iv) bona fide transactions
(after the first six (6) months following commencement of the Term) with
nationally recognized investment firms that constitute hedges in the market
place of the Equity Securities or (v) pursuant to any tender or exchange offer
approved by the Supervisory Board of the Company or in connection with any
merger or consolidation in which the Company is acquired or pursuant to a plan
of liquidation of the Company.
(c) If during the Term, Stockholder and any of its Affiliates
transfer Equity Securities exceeding 7.5% of the outstanding Equity Securities
in a single block transaction (or a series of transactions with the same
purchaser substantially equivalent to a block transaction) the restrictions in
this Agreement shall apply to the purchaser who shall sign and deliver to the
Company as a condition to the transfer an agreement containing such
restrictions.
(d) The Stockholder and any of its Affiliates may transfer any or
all the Equity Securities or Rights owned by it to one or more Affiliates of the
Stockholder if any such Affiliates acquiring Equity Securities first executes
and delivers to the Company an undertaking to be bound by all provisions of this
Agreement applicable to the Stockholder.
Section 5. Reporting Requirements. (a) The Stockholder shall give,
----------------------
and shall cause each of its Affiliates to give, written notice to the Company of
any Acquisition or Disposition of Equity Securities or Rights by any member of
the Stockholder Group not later than the tenth business day following the end of
the calendar month in which such Acquisition or Disposition occurred. Such
notice shall state the date of each such Acquisition or Disposition, the number
and type of Equity Securities or Rights involved in each such Acquisition and
Disposition and, in the case of each Acquisition, the identity of the person
acquiring beneficial ownership of such Equity Securities or Rights and in the
case of each Disposition, to the extent known, the identity of the persons
acquiring Equity Securities or Rights in each such Disposition. The Stockholder
shall comply and shall cause each of its Affiliates to comply, with their
respective obligations under Section 13 of the Exchange Act as relates to
beneficial ownership of the Company's equity securities.
(b) The Stockholder shall promptly (but in any event within three
business days) give the Company notice of any change of control of the
Stockholder or any of its Affiliates that beneficially own Equity Securities, or
any change in control of any other member of the Stockholder Group that comes to
the Stockholder's attention or any change in the composition of the Stockholder
Group affecting the determination of Beneficial Ownership.
-5-
<PAGE>
Section 6. Legend. (a) The Company shall cause a legend
------
substantially to the following effect to be placed on each certificate
representing any Equity Securities or Rights issued to the Stockholder or its
Affiliates:
"The right to attend, and vote the securities
represented by this certificate at, any
meeting of the stockholders of United Pan-
European Communications, N.V. (the "Company")
is subject to a Standstill Agreement dated
February __, 1999, among the Company and
Microsoft Corporation, a copy of which is
available from the Company upon request, and
any sale, pledge, hypothecation, transfer,
assignment or other disposition of such
securities is subject to such Agreement."
(b) Upon surrender to the Company of any certificate representing
any Equity Securities or Rights disposed of by the Stockholder or any Affiliate
of the Stockholder in a transaction not subject to Section 4 of this Agreement,
the Company shall promptly cause to be issued (i) to the transferee or
transferees of such Equity Securities or Rights one or more certificates without
the legend set forth in Section 6(a) above and (ii) to the holder of Equity
Securities or Rights represented by such certificates so surrendered one
certificate representing such Equity Securities or Rights, if any, as shall not
have been so disposed of, with the legend set forth in Section 6(a). Upon
termination of the obligations of the parties under Sections 1, 2, 3, 4 and 5 of
this Agreement pursuant to Section 8 below and the surrender to the Company of
any certificate representing Equity Securities or Rights, the Company shall
cause to be issued to the holder of such Equity Securities or Rights one or more
certificates without the legend set forth in Section 6(a).
Section 7. Remedies. The parties each acknowledge and agree that in
--------
the event of any breach of this Agreement, the nonbreaching party would be
irreparably harmed and could not be made whole by monetary damages.
Accordingly, the parties to this Agreement, in addition to any other remedy to
which they may be entitled hereunder or at law or in equity, shall be entitled
to compel specific performance of this Agreement.
Section 8. Termination. The obligations of the parties under
-----------
Sections 1, 2, 3, 4, and 5 shall terminate at the end of the Term.
Section 9. Notices. All notices, requests, demands and other
-------
communications required or permitted hereunder shall be in writing, shall be
deemed to have been duly given when delivered personally or mailed in the United
States by registered or certified mail, postage prepaid, or sent by telecopy,
addressed as follows:
-6-
<PAGE>
(a) If to the Company, to it at:
United Pan-European Communications, N.V.
Fred Roeskestraat 123, 1076 EE
Amsterdam, The Netherlands
Attention: General Counsel
Fax: 011-3120-778-9841
with copies to:
United International Holdings, Inc.
4643 South Ulster Street
Suite 1300
Denver, Colorado 80237
Attention: General Counsel
Fax: (303) 770-4207
Holme Roberts & Owen
1700 Lincoln, Suite 4100
Denver, Colorado 80203
Attention: W. Dean Salter, Esq.
Fax: (303) 866-0200
(b) If to Stockholder, to it at:
Microsoft Corporation
One Microsoft Way, Building 8
Redmond, WA 98052-6399
Fax: 425-936-7329
Attention: Greg Maffei, Chief Financial Officer
with a copy to:
Microsoft Corporation
One Microsoft Way, Building 8
Redmond, WA 98052-6399
Fax: 425-869-1327
Attention: Robert Schulman, General Counsel/Finance and
Administration
Preston Gates & Ellis
5000 Columbia Center
Seattle, WA 98104-7078
Fax: 206-623-7022
Attention: Kent Carlson
-7-
<PAGE>
or to such other person or address or addresses as either party shall specify by
notice in accordance with this Section 9. All notices, requests, demands,
waivers and communications shall be deemed to have been received on the date of
delivery or on the third business day after mailing, except that any change of
address shall be effective only upon actual receipt. Written notice given by
telecopy shall be deemed effective only when received by the party to whom
given.
Section 10. Entire Agreement. This Agreement contains all the terms
----------------
and conditions agreed upon by the parties hereto, and no other agreements, oral
or otherwise, regarding the subject matter hereof shall have any effect unless
in writing and executed by the parties after the date of this Agreement.
Section 11. Applicable Law. This Agreement shall be governed by
--------------
Colorado law without regard to conflicts of law rules.
Section 12. Headings. The headings in this Agreement are for
--------
convenience only and are not to be considered in interpreting this Agreement.
Section 13. Counterpart Execution. This Agreement may be executed in
---------------------
any number of counterparts, each of which shall be deemed an original but all of
which will constitute a single agreement.
Section 14. Successors; Assignment. This Agreement shall be binding
----------------------
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
Section 15. Parties in Interest. Nothing in this Agreement, express
-------------------
or implied, is intended to confer upon any person or entity other than the
parties hereto and their permitted successors and assigns any benefits, rights
or remedies.
Section 16. Severability. The invalidity or unenforceability of any
------------
provision of this Agreement in any application shall not affect the validity or
enforceability of such provision in any other application or the validity or
enforceability of any other provision.
Section 17. Waivers and Amendments. No waiver of any provision of
----------------------
this Agreement shall be deemed a further or continuing waiver of that provision
or a waiver of any other provision of this Agreement. This Agreement may not be
amended except in a writing
-8-
<PAGE>
signed by both parties. The Company may waive rights under this Agreement only
with the prior approval of a majority of the Disinterested Directors.
Executed as of the date set forth above.
UNITED PAN-EUROPE COMMUNICATIONS, N.V.,
a Netherlands company
By: /s/ J. Timothy Bryan
-------------------------------------------------
Title: President
MICROSOFT CORPORATION,
a Washington corporation
By: /s/ Robert A. [illegible]
-------------------------------------------------
Title: Assistant Secretary
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITED
PAN-EUROPE N.V.'S MARCH 31, 2000 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> EURO
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 0.9959
<CASH> 732,450
<SECURITIES> 0
<RECEIVABLES> 170,302
<ALLOWANCES> (26,125)
<INVENTORY> 97,147
<CURRENT-ASSETS> 1,107,789
<PP&E> 2,408,830
<DEPRECIATION> (289,299)
<TOTAL-ASSETS> 8,588,465
<CURRENT-LIABILITIES> 1,212,927
<BONDS> 4,456,675
0
0
<COMMON> 436,230
<OTHER-SE> 1,299,764
<TOTAL-LIABILITY-AND-EQUITY> 8,588,465
<SALES> 0
<TOTAL-REVENUES> 200,263
<CGS> 0
<TOTAL-COSTS> (309,706)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (160,788)
<INCOME-PRETAX> (467,392)
<INCOME-TAX> (21)
<INCOME-CONTINUING> (467,371)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (467,371)
<EPS-BASIC> (1.07)
<EPS-DILUTED> (1.07)
</TABLE>
