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 August 31, 1997
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. 0-21974
United International Holdings, Inc.
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1116217
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4643 South Ulster Street, #1300
Denver, Colorado 80237
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (303) 770-4001
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the Registrant's common stock as of
October 10, 1997 was:
Class A Common Stock -- 26,355,377 shares
Class B Common Stock -- 12,863,323 shares
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UNITED INTERNATIONAL HOLDINGS, INC.
TABLE OF CONTENTS
Page
Number
------
PART I - FINANCIAL INFORMATION
------------------------------
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Item 1 - Financial Statements
- ------
Condensed Consolidated Balance Sheets as of August 31, 1997 and February 28, 1997 (Unaudited)........ 2
Condensed Consolidated Statements of Operations For the Three and Six Months Ended August 31,
1997 and 1996 (Unaudited)........................................................................ 3
Condensed Consolidated Statement of Stockholders' (Deficit) Equity For the Six Months Ended
August 31, 1997 (Unaudited)...................................................................... 4
Condensed Consolidated Statements of Cash Flows For the Six Months Ended August 31, 1997
and 1996 (Unaudited) ............................................................................ 5
Notes to Condensed Consolidated Financial Statements (Unaudited)..................................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations............ 12
- ------
PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings................................................................................ 30
- ------
Item 5 - Other Information................................................................................ 21
- ------
Item 6 - Exhibits and Reports on Form 8-K................................................................. 30
- ------
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UNITED INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except share and per share amounts)
(Unaudited)
August 31, February 28,
1997 1997
---------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................................ $ 63,975 $ 68,784
Restricted cash and short-term investments........................................... 10,520 1,600
Short-term investments............................................................... 38,044 70,359
Management fee receivables from related parties...................................... 1,977 1,616
Subscriber receivables, net.......................................................... 5,014 2,939
Notes receivable..................................................................... 8,275 8,175
Costs to be reimbursed by affiliated companies, net.................................. 10,786 4,884
Other current assets, net, including $3,604 and $2,931 of related party
receivables, respectively.......................................................... 19,232 17,830
-------- --------
Total current assets............................................................. 157,823 176,187
Investments in and advances to affiliated companies, accounted for under
the equity method, net................................................................ 301,858 253,108
Other investments in affiliated companies, including marketable equity securities....... 3,248 4,293
Property, plant and equipment, net of accumulated depreciation of $56,062 and $29,378,
respectively.......................................................................... 214,345 219,342
Goodwill, net of accumulated amortization of $10,707 and $4,602, respectively .......... 118,650 122,249
Acquisition, transaction and development costs, net..................................... 2,257 6,249
Other non-current assets, net........................................................... 35,252 38,508
-------- --------
Total assets..................................................................... $833,433 $819,936
======== ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities
Accounts payable..................................................................... $ 23,787 $ 23,173
Construction payables................................................................ 8,978 38,331
Accrued liabilities, including $1,833 and $620 of related party
payables, respectively............................................................. 10,858 12,571
Purchase money notes payable to sellers, current..................................... 24,021 5,722
Accrued funding obligations, current................................................. 3,613 3,309
Note payable......................................................................... 110,000 --
Current portion of long-term debt.................................................... 4,705 4,965
Other current liabilities............................................................ 3,408 875
-------- --------
Total current liabilities........................................................ 189,370 88,946
Purchase money notes payable to sellers................................................. 11,806 12,966
Senior secured notes and other debt..................................................... 753,637 671,328
-------- --------
Total liabilities................................................................ 954,813 773,240
-------- --------
Minority interest in subsidiaries....................................................... 69 307
-------- --------
Preferred stock, $0.01 par value, 3,000,000 shares authorized, 170,513 and 170,513
shares of Convertible Preferred Stock, Series A issued and outstanding,
respectively, stated at liquidation value............................................ 31,922 31,293
-------- --------
Stockholders' (Deficit) Equity:
Class A Common Stock, $0.01 par value, 60,000,000 shares authorized, 26,349,067 and
26,097,263 shares issued and outstanding, respectively............................. 263 261
Class B Common Stock, $0.01 par value, 30,000,000 shares authorized, 12,863,323 and
12,971,775 shares issued and outstanding, respectively............................. 129 129
Additional paid-in capital........................................................... 341,224 340,753
Deferred compensation................................................................ (215) (624)
Unrealized loss on investments in marketable equity securities....................... (4,122) (6,069)
Cumulative translation adjustments................................................... (26,985) (15,801)
Accumulated deficit.................................................................. (463,665) (303,553)
-------- --------
Total stockholders' (deficit) equity............................................. (153,371) 15,096
-------- --------
Total liabilities and stockholders' (deficit) equity............................. $833,433 $819,936
======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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2
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UNITED INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands, except share and per share amounts)
(Unaudited)
For the Three For the Six
Months Ended Months Ended
August 31, August 31,
-------------------- ---------------------
1997 1996 1997 1996
-------- ------- --------- --------
<S> <C> <C> <C> <C>
Service and other revenue .......................................... $ 23,277 $ 4,255 $ 44,359 $ 6,427
Management fee income from related parties ......................... 457 313 738 630
-------- -------- --------- --------
Total revenue ............................................... 23,734 4,568 45,097 7,057
System operating expense ........................................... (15,107) (3,765) (27,896) (7,309)
System selling, general and administrative expense ................. (15,408) (7,032) (28,726) (10,775)
Corporate general and administrative expense ....................... (5,384) (4,576) (11,112) (8,742)
Depreciation and amortization ...................................... (19,293) (5,734) (38,751) (8,631)
-------- -------- --------- --------
Net operating loss ............................................ (31,458) (16,539) (61,388) (28,400)
Equity in losses of affiliated companies, net ...................... (18,225) (9,539) (37,542) (21,741)
Interest income .................................................... 1,693 3,594 3,451 5,715
Interest expense ................................................... (31,287) (18,177) (57,142) (31,894)
Interest income (expense), related parties, net .................... 533 (407) 673 (119)
Provision for losses on investment related costs ................... (2,018) (472) (6,454) (824)
Gain on sale of investment in affiliated company ................... -- 65,260 -- 65,260
Other (expense) income, net ........................................ (328) 725 (1,948) 404
-------- -------- --------- --------
Net (loss) income before minority interest .................... (81,090) 24,445 (160,350) (11,599)
Minority interest in subsidiaries .................................. 7 1,025 238 1,751
-------- -------- --------- --------
Net (loss) income ............................................. $(81,083) $ 25,470 $(160,112) $ (9,848)
======== ======== ========= ========
Net (loss) income per common share ................................. $ (2.07) $ 0.65 $ (4.09) $ (0.25)
======== ======== ========= ========
Weighted-average number of common shares outstanding ............... 39,208,962 39,022,756 39,191,640 39,015,668
========== ========== ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
3
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UNITED INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
(Stated in thousands, except share amounts)
(Unaudited)
Class A Class B
Common Stock Common Stock Additional Unrealized Cumulative
--------------- ---------------- Paid-In Deferred Loss on Translation Accumulated
Shares Amount Shares Amount Capital Compensation Investments Adjustments Deficit Total
------ ------ ------ ------- ---------- ------------ ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
February 28, 1997.....26,097,263 $261 12,971,775 $129 $340,753 $(624) $(6,069) $(15,801) $(303,553) $ 15,096
Issuance of Class A
Common Stock in
connection with
the Company's
Stock Option Plan.... 128,956 2 -- -- 641 -- -- -- -- 643
Issuance of Class A
Common Stock in
connection with
the Company's
401(k) Plan.......... 14,396 -- -- -- 196 -- -- -- -- 196
Exchange of Class B
Common Stock
for Class A
Common Stock......... 108,452 -- (108,452) -- -- -- -- -- -- --
Accretion of dividends
on convertible
preferred stock...... -- -- -- -- (629) -- -- -- -- (629)
Change in cumulative
translation
adjustments.......... -- -- -- -- -- -- -- (11,184) -- (11,184)
Compensation
expense related
to the extension
of stock option
exercise period...... -- -- -- -- 263 -- -- -- -- 263
Amortization of
deferred
compensation......... -- -- -- -- -- 409 -- -- -- 409
Change in unrealized
loss on investments.. -- -- -- -- -- -- 1,947 -- -- 1,947
Net loss............... -- -- -- -- -- -- -- -- (160,112) (160,112)
---------- ---- ---------- ---- ------- ----- ------- -------- --------- ---------
Balances,
August 31, 1997.......26,349,067 $263 12,863,323 $129 $341,224 $(215) $(4,122) $(26,985) $(463,665) $(153,371)
========== ==== ========== ==== ======== ===== ======= ======== ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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4
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UNITED INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands)
(Unaudited)
For the Six Months Ended
August 31,
-------------------------
1997 1996
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................................................................... $(160,112) $ (9,848)
Adjustments to reconcile net loss to net cash flows from operating activities:
Equity in losses of affiliated companies, net.................................................. 37,620 21,723
Gain on sale of investment in affiliated company............................................... -- (65,260)
Minority interest share of losses.............................................................. (238) (1,751)
Depreciation and amortization.................................................................. 38,751 8,631
Amortization of deferred compensation.......................................................... 409 426
Accretion of interest on senior notes and amortization of offering costs....................... 51,099 31,356
Issuance of common stock in connection with the Company's 401(k) Plan.......................... 196 163
Compensation expense recognized due to extension of stock option exercise period............... 263 --
Provision for losses on investment related costs............................................... 6,454 824
Increase in management fee receivables, net.................................................... (201) (301)
Decrease (increase) in other assets............................................................ 620 (8,839)
Increase (decrease) in accounts payable, accrued liabilities and other......................... 5,909 (949)
--------- ---------
Net cash flows used in operating activities....................................................... (19,230) (23,825)
--------- ---------
Cash flows from investing activities:
Purchase of short-term investments................................................................ (47,433) (179,639)
Proceeds from sale of short-term investments...................................................... 79,748 77,540
Restricted cash (deposited) released.............................................................. (8,920) 4,073
Advances to affiliated companies and other investments............................................ (13,303) (30,371)
Proceeds from sale of investments in affiliated companies......................................... -- 43,098
Purchase of interests in affiliated companies..................................................... (26,570) (23,292)
(Increase) decrease in costs to be reimbursed by affiliated companies, net........................ (5,048) 3,005
Increase in notes receivable...................................................................... (761) (1,764)
Repayments on notes receivable.................................................................... 4,593 10,264
Reimbursement of advance to related party......................................................... -- 307
Acquisition, transaction and development costs incurred........................................... (3,002) (2,822)
Proceeds from sale of property, plant and equipment............................................... 5,332 --
Purchase of property, plant and equipment......................................................... (47,098) (54,289)
(Decrease) increase in construction payables...................................................... (28,163) 6,521
--------- ---------
Net cash flows used in investing activities....................................................... (90,625) (147,369)
--------- ---------
Cash flows from financing activities:
Issuance of common stock in connection with the Company's Stock Option Plan....................... 641 65
Proceeds from offering of senior notes............................................................ -- 225,115
Deferred debt offering costs...................................................................... (7,045) (9,515)
Payment of sellers notes.......................................................................... (34,922) --
Borrowing of other debt .......................................................................... 149,286 8,902
Repayment of other debt........................................................................... (2,963) (13,684)
Payment of warrants tendered to the Company....................................................... -- (2,156)
--------- ---------
Net cash flows provided by financing activities................................................... 104,997 208,727
--------- ---------
Effect of exchange rates on cash.................................................................. 49 855
--------- ---------
(Decrease) increase in cash and cash equivalents.................................................. (4,809) 38,388
Cash and cash equivalents, beginning of period.................................................... 68,784 112,218
--------- ---------
Cash and cash equivalents, end of period.......................................................... $ 63,975 $ 150,606
========= =========
Non-cash investing and financing activities:
Purchase money notes payable to sellers........................................................ $ 52,061 $ --
========= =========
Note issued upon sale of investment in affiliated company...................................... $ 6,500 $ 35,000
========= =========
Conversion of note receivable to equity........................................................ $ 1,909 $ --
========= =========
Cash paid for interest......................................................................... $ 2,170 $ 553
========= =========
Cash received for interest..................................................................... $ 4,070 $ 5,357
========= =========
Assets acquired with capital leases............................................................ $ -- $ 1,707
========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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5
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UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AUGUST 31, 1997
(Monetary amounts stated in thousands)
(Unaudited)
1. ORGANIZATION AND BACKGROUND
United International Holdings, Inc. (together with its majority-owned
subsidiaries, the "Company" or "UIH") was formed as a Delaware corporation in
May 1989 for the purpose of developing, acquiring and managing foreign
multi-channel television, programming and telephony operations. The following
chart presents a summary of the Company's significant investments in
multi-channel television, programming and telephony operations as of August 31,
1997.
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********************** ************************************************************************************************************
* Philips Media B.V. * * *
* ("Philips") * * UIH *
* * * *
********************** ************************************************************************************************************
* *
* *
* *******************************************************************
* 50% * 50% * 100%
******************************* ***************************************************************************************************
* United and Philips * * United International Properties, Inc. *
*Communications B.V.("UPC")(1)* * ("UIPI") *
******************************* ***************************************************************************************************
* *
* *
* **********************************************************************
* * * *
* 98% * * 100% *
* *************************************** ************************* ***********************
**************************** *UIH Asia/Pacific Communications, Inc.* *UIH Latin America, Inc.* * Other *
* Europe * * ("UAP") * *-----------------------* * ----- *
* ------ * *************************************** * ("UIH LA") * *Tara Television *
*Radio Public * * * * * (Ireland) 100.0%*
* (Belgium) 100.0%* * *Comodoro/Trelew * *Monor *
*Kabel Net * **************************** * (Argentina)(5) 100.0%* * Communications *
* (Czech Republic) 100.0 * * 100% * *TV Cable SRL * * (Hungary) 48.6 *
*KTE (Eindhoven, The * ***************************** *********************** * (Peru) 100.0 * *Iberian *
* Netherlands) 100.0 * *UIH Australia/Pacific, Inc.* *HITV (China) 49.0%* *Bahia Blanca 80.0-* * Programming *
*Norkabel * *---------------------------* *SCS * * (Argentina)(5) 100.0 * * Services *
* (Norway) 100.0 * * ("UIH A/P") * * Philippines(4) 40.0 * *Cable Star (Peru) 94.0 * * ("IPS")(Spain) 33.8 *
*Intercabo * * * *********************** *Santa Fe * *Teleport *
* (Portugal) 100.0 * *Austar (Australia) 100.0%* * (Argentina) * * (Russia) 30.0 *
*Marne la Vallee * *United Wireless * * (5)(6) 69.0 * ***********************
* (France) 99.5 * * (Australia) 100.0 * *United Family *
*Telekable Group * *Telefenua (Tahiti)(2) 90.0 * * Communications *
* (Austria) 95.0 * *Saturn (New * * (Latin America *
*Multi Canal * * Zealand)(3) 65.0 * * Programming) 50.0 *
* (Romania) 90.0 * *XYZ (Australia) 25.0 * *Megapo (Mexico) 49.0 *
*Tranavatel SRO * ***************************** *Jundiai TV *
* (Slovak Republic) 75.0 * * (Brazil) 46.3 *
*Janco (Norway) 70.2 * *TV Show Brasil *
*Control Cable * * ("TVSB") *
* (Romania) 51.0 * * (Fortaleza, *
*A2000 (Amsterdam, * * Brazil) 40.0 *
* The Netherlands) 50.0 * *VTR Hipercable *
*Kabelkom (Hungary) 50.0 * * ("VTRH) (Chile) 34.0 *
*Melita Cable (Malta) 50.0 * *************************
*Citecable (France) 30.0 *
*Santander (Spain) 25.0 *
*Tevel (Israel) 23.3 *
*Princes Holdings *
* ("PHL")(Ireland) 20.0 *
****************************
</TABLE>
(1) In October 1997, the Company and Philips signed a definitive agreement
pursuant to which the Company and/or UPC will acquire Philips' 50% interest
in UPC, less the ratable dilution caused by UPC's incentive option plan.
(2) UIH A/P owns an effective 90% economic interest in the Tahiti project. UIH
A/P's economic interest will decrease to 75% and 64% once UIH A/P has
received a 20% and 40% internal rate of return on its investment in Tahiti,
respectively.
6
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UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) In July 1997, SaskTel Holdings (New Zealand), Inc. ("SaskTel") purchased a
35% equity interest in Saturn by investing approximately New Zealand
$("NZ$")30,000 (US$20,000) directly into Saturn for newly issued shares.
(4) UAP currently holds a convertible loan, which upon full conversion would
provide UAP with a 40% equity ownership interest in the Philippines
operating company.
(5) In September 1997, the Company signed a definitive agreement with
Supercanal Holding S.A. ("Supercanal") to sell all of the Company's assets
in Argentina, including its options to acquire additional properties, for
approximately $225,000 (subject to change with post-closing adjustments),
resulting in a gain of approximately $90,000. This transaction is expected
to close during the third quarter of fiscal 1998.
(6) On July 15, 1997, the Company increased its interest in Santa Fe from 31%
to 69%.
In July 1995, the Company and Philips Electronics B.V. contributed their
respective ownership interests in European and Israeli multi-channel television
systems to UPC. The Company and Philips each own a 50% economic and voting
interest in UPC and will continue to have equal board representation so long as
their share ownership is equal. In October 1997, the Company and Philips entered
into a definitive agreement whereby the Company and/or UPC agreed to acquire
from Philips their 50% equity interest in UPC along with 3.17 million shares of
the Company's Class A Common Stock currently held by Philips (the "Philips
Transaction"). The purchase price for the acquisition of these two assets is
$275,000. In addition, UPC, as part of the Philips Transaction, agreed to redeem
certain debt securities owed to Philips in the approximate amount of $155,000,
and issue to Philips a UPC stock appreciation right. Closing of the Philips
Transaction is expected to occur by late 1997.
In October 1997, UPC entered into a Dutch guilder ("NLG") 1,100,000
(approximately US$550,000) reducing revolving credit facility with a group of
commercial banks. Proceeds from the facility will provide a substantial portion
of the funds needed to consummate the Philips Transaction. In addition, UPC has
signed an underwritten commitment letter for a NLG258,000 (approximately
US$129,000) bridge loan, the proceeds of which will also be used to fund the
Philips Transaction. The balance of funding for the Philips Transaction will be
derived either from an investment by UIH of approximately $155,000 or from the
issuance by UPC of $162,000 of PIK Preferred Stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying interim condensed consolidated financial statements are
unaudited and include the accounts of the Company and all subsidiaries where it
exercises majority control and owns a majority economic interest, except when
the Company has temporary majority control. For the three and six months ended
August 31, 1996, the Company accounted for its investments in Cablevision S.A.
("Cablevision") and Red de Television y Servicios por Cable S.A. ("STX") under
the equity method, due to an expected joint venture in Chile with VTR S.A.
("VTR") wherein UIH LA subsequently contributed these interests to VTRH in
September 1996. For the three and six months ended August 31, 1997, the Company
accounted for its investments in Comodoro and Trelew, Argentina under the equity
method, due to an expected joint venture in Argentina. This joint venture was
subsequently abandoned due to the pending sale of these interests which
agreement was entered into in September 1997. All significant intercompany
accounts and transactions have been eliminated in consolidation. All affiliated
companies have calendar year-ends compared to the Company which has a fiscal
year-end of February 28 (February 29 in leap years). The Company records its
share of equity in income (losses) of affiliated companies or consolidates the
affiliated companies based on the affiliated companies' calendar year-end
results.
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 August 31, 1997, and the results of its operations for the
three and six months ended August 31, 1997 and 1996. 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 February 28, 1997.
7
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UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD
Investments in and advances to affiliated companies are as follows:
<TABLE>
<CAPTION>
As of August 31, 1997
--------------------------------------------------------------------------------------
Investments in Cumulative Equity Cumulative
and Advances to in Income (Losses) of Translation Valuation
Affiliated Companies Affiliated Companies Adjustments Allowance Total
-------------------- --------------------- ----------- ---------- --------
EUROPE
- ------
<S> <C> <C> <C> <C> <C>
UPC............................ $150,442 $ (65,388) $(18,403) $ -- $ 66,651
Monor Communications........... 27,690 (10,633) (5,629) -- 11,428
IPS............................ 12,824 (6,418) -- -- 6,406
LATIN AMERICA
- -------------
VTRH........................... 86,596 (5,930) (880) -- 79,786
Santa Fe....................... 51,366 (956) -- -- 50,410
Megapo......................... 32,491 (951) (1,459) -- 30,081
Comodoro/Trelew................ 28,323 (55) -- -- 28,268
TVSB........................... 7,038 (3,147) -- -- 3,891
Jundiai TV..................... 5,847 (1,105) -- -- 4,742
United Family Communications... 5,211 (1,651) -- -- 3,560
Other.......................... 200 -- -- -- 200
ASIA/PACIFIC
- ------------
XYZ............................ 17,645(1) (17,755) 110 -- --
SCS............................ 10,670 (418) 129 -- 10,381
HITV........................... 6,073 (19) -- -- 6,054
Other
- -----
Teleport....................... 3,119 (1,051) -- (2,068) --
-------- --------- -------- ------- --------
$445,535 $(115,477) $(26,132) $(2,068) $301,858
======== ========= ======== ======= ========
As of February 28, 1997
--------------------------------------------------------------------------------------
Investments in Cumulative Equity Cumulative
and Advances to in Income (Losses) of Translation Valuation
Affiliated Companies Affiliated Companies Adjustments Allowance Total
-------------------- --------------------- ----------- ---------- --------
EUROPE
- ------
UPC............................ $150,442 $(40,224) $(11,044) $ -- $ 99,174
Monor Communications........... 27,182 (8,221) (4,575) -- 14,386
IPS............................ 11,187 (4,734) -- -- 6,453
LATIN AMERICA
- -------------
VTRH........................... 82,010 (2,122) (1,502) -- 78,386
Megapo......................... 32,491 (727) (1,420) -- 30,344
TVSB........................... 6,132 (2,860) -- -- 3,272
Jundiai TV..................... 4,984 (1,214) -- -- 3,770
United Family Communications... 1,739 (10) -- -- 1,729
ASIA/PACIFIC
- ------------
XYZ............................ 16,202(1) (16,312) 110 -- --
SCS............................ 9,748 (366) 155 -- 9,537
HITV........................... 6,073 (16) -- -- 6,057
OTHER
- -----
Teleport....................... 3,119 (1,051) -- (2,068) --
-------- -------- -------- ------- --------
$351,309 $(77,857) $(18,276) $(2,068) $253,108
======== ======== ======== ======= ========
</TABLE>
(1) Includes an accrued funding obligation of $1,574 and $1,270 at August 31,
1997 and February 28, 1997, respectively. The Company does not have a
contractual funding obligation to XYZ; however, the Company would face
significant and punitive dilution if it did not make the scheduled
fundings.
8
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UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Additions, replacements
and major improvements are capitalized, and costs for normal repair and
maintenance of property, plant and equipment are charged to expense as incurred.
All subscriber equipment and capitalized installation labor is depreciated over
three years. Upon disconnection of a multi-point microwave distribution system
("MMDS") subscriber, the remaining book value of the subscriber equipment,
excluding converters which are recovered upon disconnection, and the capitalized
labor is written off. Depreciation expense is computed using the straight-line
method over the estimated useful lives shown below. Detail of property, plant
and equipment is as follows:
<TABLE>
<CAPTION>
As of As of
August 31, February 28, Average
1997 1997 Life
---------- ------------ -------
<S> <C> <C> <C>
Subscriber premises equipment and converters....... $143,663 $126,007 3
MMDS distribution facilities....................... 58,423 57,074 5-10
Cable distribution networks........................ 24,763 22,795 5-10
Furniture and fixtures............................. 3,337 3,418 5-10
Leasehold improvements............................. 4,765 3,593 6-10
Other.............................................. 35,456 35,833 3-5
--------- --------
270,407 248,720
Accumulated depreciation....................... (56,062) (29,378)
-------- --------
Net property, plant and equipment.............. $214,345 $219,342
======== ========
</TABLE>
Assets acquired under capital leases are included in property, plant and
equipment. The initial amount of the leased asset and corresponding lease
liability are recorded at the present value of future minimum lease payments.
Leased assets are amortized over the life of the relevant lease.
FOREIGN OPERATIONS
The functional currency for the Company's foreign operations is the
applicable local currency for each affiliate company, except for countries which
have experienced hyper-inflationary economies. For countries which have
hyper-inflationary economies, the financial statements are prepared in United
States 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 U.S.
dollars result in unrealized gains or losses referred to as translation
adjustments. Cumulative translation adjustments are recorded as a separate
component of stockholders' (deficit) equity.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses which are
reflected in income as unrealized (based on period-end translations) or realized
upon settlement of the transactions.
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows," cash flows from the Company's operations in foreign
countries are translated based on average exchange rates for the period while
balance sheet amounts are translated at period-end exchange rates. As a result,
amounts related to assets and liabilities reported on the Condensed Consolidated
Statements of Cash Flows will not agree with changes in the corresponding
balances on the Condensed Consolidated Balance Sheets. The effects of exchange
rate changes on cash balances held in foreign currencies are reported as a
separate line below cash flows from financing activities.
NEW ACCOUNTING PRINCIPLE
The Financial Accounting Standards Board recently issued Statement of
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which is
required to be adopted by affected companies for fiscal years ending after
December 15, 1997; early adoption is not permitted. SFAS 128 revises the
standards for the computation of earnings per share and the related disclosure
requirements. The Company does not believe that the provisions of SFAS 128 will
have a material effect on the Company's reported earnings per share.
9
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
3. ACQUISITIONS AND DISPOSITIONS
In May 1997, the Company entered into an agreement with SuperCable CA, the
largest cable operator in Venezuela, to sell the Company's cable television
assets in Venezuela for $10,500. The transaction is expected to close in the
third quarter of fiscal 1998. The Company has received $4,000 in proceeds from
the sale and will receive the remaining amount either in 18 monthly installments
or as a lump sum, at the option of the buyer.
In July 1997, SaskTel purchased a 35% equity interest in Saturn by
investing approximately NZ$30,000 (US$20,000) directly into Saturn for newly
issued shares. The Company believes that SaskTel, a division of Saskatchewan
Telecommunications Holdings Corporation of Saskatchewan, Canada, will contribute
telephony expertise to Saturn in providing cable/telephony service in the
Wellington, New Zealand area. The proceeds from the sale are expected to provide
a portion of the capital necessary for completion of the scheduled build-out of
the project, and SaskTel's 35% equity interest will reduce the Company's
proportionate share of future fundings.
4. NOTE PAYABLE
On April 24, 1997, UIH LA entered into a credit agreement with a bank for a
loan of up to $125,000 for a term of nine months, extendible up to a maximum of
18 months at an interest rate of LIBOR plus 6%. As of August 31, 1997, UIH LA
had borrowed $110,000 under this credit agreement of which 8% of the outstanding
loan balance must remain as restricted cash. Proceeds from the loan have been
used to fund acquisitions and provide for capital expenditures for existing
properties. The loan is extendible up to 18 months with (i) an increase in the
interest rate of 50 basis points for each three months it is extended beyond the
initial nine month term, (ii) cash fees of 1% to 3% each three months if it is
extended beyond nine months and (iii) warrants to purchase common stock equal to
0.5% of UIH LA's outstanding common stock if it is extended beyond nine months,
another 2% of UIH LA's outstanding common stock and 2.75% of UIH's outstanding
common stock if it is extended beyond 12 months and another 3% of UIH's
outstanding common stock if it is extended beyond 15 months. In lieu of the
extension fees and warrants, UIH may, at its option, inject an additional
$50,000 of equity into UIH LA to be used to repay the outstanding loan. The
warrants to purchase UIH common stock have an exercise price equal to the lower
of the fair market value at the closing date or at the grant date. The note
payable is secured by all of UIH LA's capital stock and substantially all of its
assets. The Company expects to use the proceeds from the sale of the Argentine
properties (see Note 6) to repay this note payable.
5. SENIOR SECURED NOTES AND OTHER DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
As of As of
August 31, February 28,
1997 1997
----------- ------------
<S> <C> <C>
November 1994 14% senior secured discount notes, net of unamortized discount.... $285,154 $264,985
November 1995 14% senior secured discount notes, net of unamortized discount.... 96,473 90,161
February 1996 14% senior secured discount notes, net of unamortized discount.... 58,470 55,193
May 1996 14.75% UIH A/P senior discount notes, net of unamortized discount...... 262,587 245,182
Austar interim financing facility, including accrued interest of $521 and $0,
respectively.................................................................. 38,212 --
Note payable to a company, interest at 1.5% above the rate published by a
certain Chilean bank, principal and interest due quarterly until June 1998,
secured by shares of STX...................................................... 3,772 5,447
Capitalized lease obligations................................................... 3,978 4,959
Mortgage note, interest at 7.885%, 7 year term.................................. 1,025 1,252
Other........................................................................... 8,671 9,114
-------- --------
758,342 676,293
Less current portion....................................................... (4,705) (4,965)
-------- --------
Total senior secured notes and other debt.................................. $753,637 $671,328
======== ========
</TABLE>
10
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The $285,154 of 14% senior secured notes were issued in November 1994 at a
discount from their principal amount of $394,000 and accrete interest at a rate
of 15.24% compounded semi-annually. No cash interest payments will be made prior
to maturity on November 15, 1999.
The $96,473 of 14% senior secured notes were issued in November 1995 at a
discount from their principal amount of $130,000 and accrete interest at a rate
of 14% compounded semi-annually. No cash interest payments will be made prior to
maturity on November 15, 1999.
The $58,470 of 14% senior secured notes were issued in February 1996 at a
discount from their principal amount of $75,350 and accrete interest at a rate
of 11.875% compounded semi-annually. No cash interest payments will be made
prior to maturity on November 15, 1999.
The $262,587 of 14% UIH A/P senior notes were issued in May 1996 at a
discount from their principal amount of $443,000. Effective May 16, 1997, the
interest rate increased from 14% to 14.75% compounded semi-annually. Due to this
increase in the interest rate, the UIH A/P senior notes will accrete to a
principal amount of $455,574 if an equity sale as discussed below is not
completed by November 16, 1997. The additional 0.75% interest will accrete until
such time as UIH A/P effects an equity sale resulting in $70,000 of additional
equity; if this is not consummated, the then holders of the 14% UIH A/P senior
notes will be entitled to receive warrants to purchase 3.4% of the common stock
of UIH A/P, assuming the aggregate fair market value of UIH A/P's equity is
$150,000, or, in certain circumstances, of UIH A/P's immediate parent. Cash
interest will not be paid prior to May 15, 2001. Thereafter, cash interest will
be payable semi-annually on each May 15 and November 15, commencing November 15,
2001. The senior notes mature on May 15, 2006.
In July 1997, Austar secured a financing facility from a bank for a senior
syndicated term debt facility in the amount of Australian $("A$")200,000
(US$155,000) (the "Austar Bank Facility"). The proceeds of the Austar Bank
Facility will be used to fund Austar's construction and subscriber acquisition
and working capital needs. The Austar Bank Facility consists of three
sub-facilities: (i) A$50,000 revolving working capital facility; (ii) A$60,000
cash advance facility available upon the contribution of additional equity on a
2:1 debt-to-equity basis; and (iii) A$90,000 term loan facility, which will be
available on the basis of Austar having achieved minimum subscriber and
operating cash flow levels. The maximum amount of equity required in (ii) above
would be A$30,000, approximately A$15,500 of which has already been contributed
through August 31, 1997 and the remainder of which is expected to be contributed
by a third party equity provider, UAP or the Company. The cash advance and term
loan facilities are fully repayable pursuant to an amortization schedule
beginning December 31, 2001 and ending June 30, 2004. As of June 30, 1997,
Austar had drawn A$50,000 (US$38,212) on an interim financing facility, which
was subsequently repaid from the proceeds of the Austar Bank Facility.
6. SUBSEQUENT EVENTS
In September 1997, the Company signed a definitive stock purchase and sale
agreement with Supercanal to sell all of the Company's assets in Argentina,
including its options to acquire additional properties, for approximately
$225,000, resulting in a gain of approximately $90,000. This transaction is
expected to close during the third quarter of fiscal 1998. The Company received
$5,000 upon signing the agreement and will receive the remaining sale price at
closing except for $12,500, of which $7,500 will be received 60 days after
closing and the final $5,000 will be received 18 months after closing. The sale
price may be adjusted upon verification of the total number of subscribers and
the liabilities existing at closing.
In September 1997, UIH A/P issued an additional $45,000 aggregate principal
amount of its 14% senior discount notes due 2006. Gross proceeds from the sale
of these notes totaled approximately $29,900.
11
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(MONETARY AMOUNTS STATED IN THOUSANDS)
THE FOLLOWING DISCUSSION CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AND IN THE
COMPANY'S REPORT ON FORM 8-K DATED SEPTEMBER 24, 1996.
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
condensed consolidated financial statements and related notes thereto included
elsewhere herein. Such condensed consolidated financial statements provide
additional information regarding the Company's financial activities and
condition.
The Company conducts no operations other than through its operating
companies in which it holds varying interests. Because the operating companies
have, since inception, been engaged primarily in organizational, start-up and
construction activities, the Company believes that its historical results of
operations discussed herein are not indicative of the results of operations
which will follow the completion of construction and initial marketing of
service by the operating companies.
LIQUIDITY AND CAPITAL RESOURCES
The Company's expenditures to date have been made in developing
multi-channel television, programming and telephony operations in foreign
countries. Except for the Company's working capital requirements, the Company's
future cash needs will depend on management's acquisition and development
decisions. The Company does not expect any operating company to pay dividends in
the foreseeable future and accordingly does not expect any distributions to be
made by any affiliates, many of which are restricted due to existing loan
agreements. The indenture governing UIH A/P's senior notes permits dividends to
be paid from UIH A/P to the Company only if certain financial conditions are
met; however, these conditions are not presently being met.
During the six months ended August 31, 1997, the Company incurred a net
loss of $160,112 of which $37,620 was from non-cash equity in losses of
affiliated companies. The Company also recorded accretion of non-cash interest
expense on its senior notes and amortization of debt offering costs totaling
$51,099. Provision for losses on investment related costs totaled $6,454 due
primarily to a reduction of the Company's cost investment in International
Broadcasting Corporation to fair market value as well as write-offs of various
acquisition, transaction and development costs primarily in the Asia/Pacific
region. The Company purchased short-term investments of $47,433 and sold
short-term investments of $79,748 as part of its cash management activities. The
Company invested $13,303 of cash in its affiliated companies and other
investments as a result of its projected fundings. Purchases of interests in
affiliated companies totaled $26,570, representing interests acquired in
Comodoro, Trelew and Santa Fe, Argentina. The Company received $4,593 from
VenInfotel L.L.C. as payment on its note, as well as $5,332 in cash proceeds
from the sale of property, plant and equipment and its Venezuelan assets.
Purchases of property, plant and equipment totaled $47,098 with construction
payables decreasing by $28,163, both primarily as a result of Austar
construction activity. Debt offering costs related to Asia/Pacific debt and
equity financings and the UIH LA credit agreement totaled $7,045 during the
period, with borrowings of $110,000 under the UIH LA credit agreement and
$39,286 on the Austar interim financing facility. The Company also paid down
$34,922 on its purchase money notes for Comodoro, Santa Fe and Bahia Blanca
during the period.
During the six months ended August 31, 1996, the Company incurred a net
loss of $9,848 of which $21,723 was from non-cash equity in losses of affiliated
companies. The Company also recorded accretion of non-cash interest expense on
the senior notes and amortization of debt offering costs totaling $31,356. The
Company recognized a gain on sale of an affiliated company of $65,260 for the
sale of Net Sao Paulo and received proceeds from the sale of $78,098, which was
satisfied with $43,098 in cash and a $35,000 note receivable. For the six months
ended August 31, 1996, the Company purchased $54,289 of property, plant and
equipment, the majority of which was purchased by the Company's majority-owned
subsidiaries in Australia and Tahiti, as those entities continued to construct
their systems. The Company also experienced a related increase in construction
payables of $6,521 during the period. The Company incurred $2,822 of
acquisition, transaction and development costs, primarily with respect to its
Latin America and Asia/Pacific regions. The Company invested $30,371 of cash in
its affiliated companies and other investments as a result of its projected
12
<PAGE>
fundings. The Company also purchased an additional 35% equity interest in STX
for cash of $23,292 and a note payable of $7,263. The Company purchased
short-term investments of $179,639 and sold short-term investments of $77,540 as
part of its cash management activities. The Company also paid $2,156 for
warrants tendered to the Company. UIH A/P received proceeds from the sale of its
senior notes of $225,115 and incurred offering costs of $9,515. The Company
borrowed additional debt of $1,639 and repaid two loans totaling $13,684.
As of August 31, 1997, the Company had executed guarantees of certain
facilities totaling approximately $12,000. The Company has estimated future
fundings and capital commitments by region, as described in the following
paragraphs. Each such description contains the Company's current plans with
respect to financing such commitments. While the Company currently anticipates
funding the projects summarized below, there can be no assurance that the
Company's actual expenditures will equal the currently anticipated amounts.
The following table summarizes the Company's remaining projected funding
requirements for its European projects. The Company plans on funding its
remaining commitments in Europe through existing cash.
<TABLE>
<CAPTION>
Projected Fundings
---------------------------------------------------
Total Portion Remaining
Expected Funded as of as of
Operating System Type of Project Fundings August 31, 1997 August 31, 1997
- ---------------- --------------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
UPC Cable systems $171,059 $171,059 $ --
Monor Communications Telephony/cable systems 26,580 26,580 --
IPS Programming 12,558 12,361 197
Tara Television Programming 10,142 5,586 4,556
-------- -------- ------
$220,339 $215,586 $4,753
======== ======== ======
</TABLE>
The Company currently does not expect to contribute additional capital to
UPC for its on-going operating or development requirements, as UPC will finance
its operating systems and development opportunities with its operating cash flow
and cash on hand, as well as possible equity and debt financings. At this time,
the Company does not know which acquisition or other development projects UPC
will pursue and is unable to estimate the amount of funds that will be necessary
for UPC to develop the projects it chooses to pursue. The Company may, however,
invest up to $155,000 in UPC as part of the Philips Transaction (see Note 1).
The Company will use the proceeds form the sale of its Argentine properties (see
Note 6) plus existing cash on hand to fund such an investment.
In addition, the Company had total expected fundings of $4,741 related to
Teleport. As of August 31, 1997, the Company had remaining projected fundings of
$2,000, representing the Company's guarantee of affiliate debt.
The following table summarizes UIH LA's remaining projected funding
requirements for its projects:
<TABLE>
<CAPTION>
Projected Fundings
---------------------------------------------------
Total Portion Remaining
Expected Funded as of as of
Operating System Type of Project Fundings August 31, 1997 August 31, 1997
- ---------------- --------------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
VTRH Cable systems $ 94,243 $ 86,243 $ 8,000
Bahia Blanca(1) Cable systems 56,991 50,735 6,256
Santa Fe(1) Cable systems 50,738 33,808 16,930
Megapo Cable systems 32,033 32,033 --
Comodoro/Trelew(1) Cable systems 27,911 15,270 12,641
United Family Communications Programming 21,300 4,770 16,530
Cable Star Cable system 12,839 5,252 7,587
TVSB MMDS 8,060 6,060 2,000
Jundiai TV Cable system 5,456 5,456 --
TV Cable SRL Cable system 850 731 119
-------- -------- -------
$310,421 $240,358 $70,063
======== ======== =======
</TABLE>
(1) In September 1997, the Company signed a definitive stock purchase and
sale agreement with Supercanal to sell all of the Company's assets in Argentina,
including its options to acquire additional properties, for approximately
$225,000 (subject to post-closing adjustments). This transaction is expected to
close during the third quarter of fiscal 1998. The Company will use the proceeds
from the sale of these properties to retire or reduce loans made to UIH LA. Net
proceeds after repayment of debt will be used by UIH to invest in UPC as part of
the Philips Transaction or for other UIH corporate purposes.
13
<PAGE>
In April 1997, UIH LA entered into a credit agreement with a bank which
provides for borrowings of up to $125,000, of which $110,000 had been borrowed
as of August 31, 1997. Under the terms of the existing credit agreement, this
loan must be paid from the proceeds of the Argentine sale. UIH LA will fund the
majority of its remaining commitments (which would be $34,236 as of August 31,
1997, assuming the sale of the Argentine properties) through any or all of the
following sources: a new, smaller debt facility for UIH LA; proceeds from the
sale of certain non-core assets, including the sale of Venezuela; or proceeds
from further investments by UIH or other financial or strategic partners. The
Company received $4,000 in proceeds from the sale of Argentine and will receive
the remaining amount either in 18 monthly installments or as a lump sum, at the
option of the buyer.
The following table summarizes UAP's remaining projected funding
requirements for its projects:
<TABLE>
<CAPTION>
Projected Fundings
--------------------------------------------------
Total Portion Remaining
Expected Funded as of as of
Operating System Type of Project Fundings August 31, 1997 August 31, 1997
- ---------------- --------------- -------- --------------- ---------------
AUSTRALIA/PACIFIC:
<S> <C> <C> <C> <C>
Austar MMDS/DTH system $225,346 $204,605 $20,741
Saturn Cable system 66,489 28,376 38,113
Telefenua MMDS 17,400 16,737 663
XYZ Programming 13,974 12,564 1,410
United Wireless Mobile data services 8,226 6,787 1,439
OTHER UAP PROJECTS:
SCS Cable system 14,038 9,076 4,962
HITV Microwave relay network 6,600 5,980 620
-------- -------- -------
$352,073 $284,125 $67,948
======== ======== =======
</TABLE>
In July 1997, SaskTel purchased a 35% equity interest in Saturn by
investing approximately NZ$30,000 (US$20,000) directly into Saturn for newly
issued shares. The Company believes that SaskTel, a division of Saskatchewan
Telecommunications Holdings Corporation of Saskatchewan, Canada, will contribute
telephony expertise to Saturn in providing cable/telephony service in the
Wellington, New Zealand area. The proceeds from the sale are providing a portion
of the capital necessary for completion of the project.
In September 1997, UIH A/P issued an additional $45,000 aggregate principal
amount of its 14% senior discount notes due 2006. Gross proceeds from the sale
of these notes totaled approximately $29,900. UIH A/P plans to use the proceeds
from the sale to fund the capital expenditure and working capital requirements
of its subsidiaries and affiliates as permitted by the terms of the UIH A/P
indentures.
To the extent the operating companies in the Asia/Pacific region fund their
construction and other costs through project financing, UAP's portion of
estimated additional funding would be reduced proportionately. In addition to
the Austar Bank Facility and cash on hand, UAP may to raise additional capital
through capital contributions from the Company, further issuances of debt either
by UAP, UIH A/P or its operating companies, or by the sale of all or a part of
its equity in certain of its operating subsidiaries. UIH A/P's indentures and
UIH's indentures place restrictions on UAP and certain of its subsidiaries with
respect to the amount of additional debt each may incur. UIH A/P and all of its
operating companies are currently restricted under the UIH indentures. UIH A/P,
Austar and Telefenua are restricted under UIH A/P's indentures. The restrictions
imposed by the indentures will be eliminated upon the retirement of UIH's notes
at their maturity in November 1999 and upon retirement of UIH A/P's notes at
their maturity in May 2006.
If UIH A/P does not consummate an issuance of capital stock resulting in
gross proceeds to UIH A/P of at least $70,000 (an "Equity Sale") prior to
November 16, 1997, the then holders of the UIH A/P Notes will be entitled to
receive warrants to purchase 3.4% of the common stock of UIH A/P, assuming the
aggregate fair market value of UIH A/P's equity is $150,000, or, in certain
circumstances, of UIH A/P's immediate parent. UIH A/P may pursue additional
sources of funding that may constitute an Equity Sale. At this time, the Company
believes that it is unlikely that UIH A/P will be successful in concluding an
Equity Sale prior to November 16, 1997.
14
<PAGE>
Because the Company and UIH A/P do not currently have positive cash flow,
their ability to repay their obligations on the senior notes at maturity will be
dependent on developing one or more sources of cash prior to the maturities of
their respective senior notes. The Company may (i) seek to refinance all or a
portion of the senior notes at maturity through sales of additional debt or
equity securities of the Company, (ii) seek to sell all or a portion of its
interests in one or more of its affiliated companies, (iii) negotiate with its
current financial and strategic partners to permit the cash produced by its
affiliated companies, such as UPC, to be distributed to equity holders rather
than reinvested in the businesses of such affiliated companies, and/or (iv) seek
to invest in companies that will make substantial cash distributions on or
before the maturity of the senior notes.
RESULTS OF OPERATIONS
SERVICE AND OTHER REVENUE. Service and other revenue increased $19,022 and
$37,932 during the three and six months ended August 31, 1997, respectively,
compared to the amounts for the corresponding periods in the prior year as
follows:
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
August 31, August 31,
---------------------- --------------------
1997 1996 1997 1996
------- ------ ------- ------
<S> <C> <C> <C> <C>
Asia/Pacific........................................... $16,219 $3,936 $30,711 $5,870
Latin America.......................................... 7,058 246 13,648 484
Europe and other....................................... -- 73 -- 73
------- ------ ------- ------
Total service and other revenue.................... $23,277 $4,255 $44,359 $6,427
======= ====== ======= ======
</TABLE>
ASIA/PACIFIC
------------
AUSTAR
Service revenue at Austar was $15,055 and $28,524 for the three
and six months ended June 30, 1997, respectively, compared to $3,059 and
$4,127 for the corresponding periods in 1996. For the six months ended
June 30, 1997, revenues consisted primarily of service and installation
fees from basic subscribers of $23,930 and $3,836, respectively, with
other revenue totaling $758. For the six months ended June 30, 1996,
revenues consisted primarily of service and installation fees from basic
subscribers of $2,627 and $1,494, respectively, with other revenue
totaling $6. The increase in service revenue was primarily due to
subscriber growth (149,495 at June 30, 1997 compared to 29,282 at June
30, 1996) as Austar continues to roll-out its services, which were
initially launched in August 1995.
TELEFENUA
Telefenua's service revenue increased to $959 and $1,875 from $876
and $1,738 for the three and six months ended June 30, 1997 and 1996,
respectively. The increase was primarily attributable to subscriber
growth (6,080 at June 30, 1997 compared to 4,361 at June 30, 1996).
SATURN
The Company began consolidating the results of Saturn effective
July 1, 1996. Accordingly, the Company reported no service revenue for
Saturn for the six months ended June 30, 1996. For the three and six
months ended June 30, 1997, the Company reported service revenue
of $98 and $181, respectively, compared with service revenue for Saturn
of $52 and $104 for the corresponding periods in 1996. The increase was
primarily due to an increase in subscribers (2,288 at June 30, 1997
compared to 1,125 at June 30, 1996).
LATIN AMERICA
-------------
The Company began consolidating the results of Bahia Blanca
effective November 1, 1996. Accordingly, the Company reported no revenue
for Bahia Blanca for the three and six months ended June 30, 1996. Bahia
Blanca's revenue, consisting primarily of service fees, was $13,043 for
the six months ended June 30, 1997. The remainder of Latin America's
revenue for the six months ended June 30, 1997, totaling $605, was
attributable to TV Cable SRL and Cable Star.
15
<PAGE>
MANAGEMENT FEE INCOME FROM RELATED PARTIES. Management fee income increased $144
and $108 during the three and six months ended August 31, 1997, respectively,
compared to the amounts for the corresponding periods in the prior year as
follows:
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
August 31, August 31,
----------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Asia/Pacific........................................... $ 14 $ 29 $121 $163
Latin America.......................................... 356 217 481 356
Europe and other....................................... 87 67 136 111
---- ---- ---- ----
Total management fee income from related parties.... $457 $313 $738 $630
==== ==== ==== ====
</TABLE>
SYSTEM OPERATING EXPENSE. System operating expense increased $11,342 and $20,587
during the three and six months ended August 31, 1997, respectively, compared to
the amounts for the corresponding periods in the prior year as follows:
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
August 31, August 31,
----------------- -----------------
1997 1996 1997 1996
------- ------ ------ ------
<S> <C> <C> <C> <C>
Asia/Pacific........................................... $11,087 $3,314 $21,064 $6,744
Latin America.......................................... 2,842 104 5,382 218
Europe and other....................................... 1,178 347 1,450 347
------- ------ ------- ------
Total system operating expense...................... $15,107 $3,765 $27,896 $7,309
======= ====== ======= ======
</TABLE>
ASIA/PACIFIC
------------
AUSTAR
The Company reported operating expense from Austar of $9,999 and
$18,466 for the three and six months ended June 30, 1997, respectively,
compared to $2,623 and $5,281 for the comparable periods in the prior
year. For the six months ended June 30, 1997, Austar's operating expense
consisted primarily of satellite programming fees ($9,024), salaries and
benefits ($3,073) and MMDS spectrum license fees ($1,279), with the
remainder consisting of system travel, maintenance, vehicle and customer
billing expenses. For the six months ended June 30, 1996, Austar's
operating expense consisted primarily of salaries and benefits ($1,964),
satellite programming fees ($995) and MMDS spectrum license fees ($688),
with the remainder consisting of system travel, maintenance, vehicle and
customer billing expenses. The increase in operating expense in 1997 was
primarily due to the on-going roll-out of Austar's services and the
corresponding increase in subscribers. Austar is currently experiencing
high operating expenses relative to service revenues due to certain fixed
operating expenses (such as management overhead, license fees and certain
office-related costs). Austar expects operating expense as a percentage
of service revenue to decline as start-up costs decrease and as certain
fixed operating expenses are spread over expected increases in service
revenues.
TELEFENUA
Operating expense at Telefenua decreased to $459 and $885 for the
three and six month period ended June 30, 1997, respectively, from $501
and $1,073 for the corresponding periods in 1996. These decreases are
primarily due to decreases in technical-related repairs and maintenance
costs as well as a weakening in the local currency, partially offset by
increased programming costs associated with the increase in subscribers.
Telefenua's operating expense for the six months ended June 30, 1997
consisted primarily of programming-related expenses ($557) with the
remainder consisting of payroll-related costs and technical-related
costs. Telefenua's operating expense for the six months ended June 30,
1996 consisted primarily of programming-related expenses ($602) with the
remainder consisting of payroll-related costs and technical-related
costs.
16
<PAGE>
SATURN
The Company began consolidating the results of Saturn effective
July 1, 1996. Accordingly, the Company reported no operating expense for
Saturn for the six months ended June 30, 1996. For the three and six
months ended June 30, 1997, the Company reported system operating expense
of $932 and $1,659, respectively, for Saturn compared with system
operating expense of $378 and $720 for the corresponding periods in 1996.
For the six months ended June 30, 1997, system operating expense
consisted primarily of payroll ($721) and office expenses related to the
system design and engineering work for the expansion of Saturn's
Wellington system and to the provision of service to existing customers.
For the six months ended June 30, 1996, system operating expense
consisted primarily of payroll ($341) and office expenses.
LATIN AMERICA
-------------
The Company began consolidating the results of Bahia Blanca
effective November 1, 1996. Accordingly, the Company reported no system
operating expense for the three and six months ended June 30, 1996. Bahia
Blanca's system operating expense for the three and six months ended
June 30, 1997 was $2,587 and $4,893, respectively, consisting primarily
of programming expenses and salaries.
SYSTEM SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. System selling, general and
administrative expense increased $8,376 and $17,951 during the three and six
months ended August 31, 1997, respectively, compared to the amounts for the
corresponding periods in the prior year as follows:
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
August 31, August 31,
----------------- -------------------
1997 1996 1997 1996
------- ------ ------- -------
<S> <C> <C> <C> <C>
Asia/Pacific........................................... $11,574 $6,633 $22,608 $10,242
Latin America.......................................... 2,853 123 4,917 257
Europe and other....................................... 981 276 1,201 276
------- ------ ------- -------
Total system selling, general and
administrative expense............................. $15,408 $7,032 $28,726 $10,775
======= ====== ======= =======
</TABLE>
ASIA/PACIFIC
------------
AUSTAR
Austar's system selling, general and administrative expense
increased to $10,083 and $19,609 from $5,964 and $8,823 for the three and
six months ended June 30, 1997 and 1996, respectively. During the six
months ended June 30, 1997, system selling, general and administrative
expense at Austar consisted primarily of salaries associated with the
National Customer Operations Center and Austar's Sydney corporate
headquarters ($6,009), marketing costs related to print, radio and
television advertisements ($4,833), office-related expenses including
rent and utilities ($3,361) and direct sales commissions ($2,897). During
the six months ended June 30, 1996, system selling, general and
administrative expense at Austar consisted primarily of salaries
associated with the National Customer Operations Center and Austar's
Sydney corporate headquarters ($3,464), marketing costs related to print,
radio and television advertisements ($1,906), office-related expenses
including rent and utilities ($1,605) and direct sales commissions
($1,030). The increase in 1997 was primarily due to the on-going roll-out
of Austar's services. Austar expects that system selling, general and
administrative expense as a percent of service revenue will continue to
decline over the remainder of 1997 as certain fixed expenses are spread
over expected increases in service revenues.
TELEFENUA
System selling, general and administrative expense consolidated by
the Company from Telefenua decreased to $538 and $1,011 for the three and
six months ended June 30, 1997, respectively, from $661 and $1,268 for
the same periods in the prior year. This decline was primarily due to a
reduction in marketing costs during 1997 as well as a weakening of the
local currency.
17
<PAGE>
SATURN
The Company began consolidating the results of Saturn effective
July 1, 1996. Accordingly, the Company reported no system selling,
general and administrative expense for Saturn for the six months ended
June 30, 1996. Saturn's system selling, general and administrative
expense was $746 and $1,396 for the three and six months ended June 30,
1997, respectively, compared to $442 and $801 for the comparable periods
in 1996. For the six months ended June 30, 1997, system selling, general
and administrative expense consisted primarily of marketing and support
salaries and benefits ($721) associated with increased marketing efforts
to expand the subscriber base as Saturn's system expands. For the six
months ended June 30, 1996, system selling, general and administrative
expense consisted primarily of marketing and support salaries and
benefits ($341).
LATIN AMERICA
-------------
The Company began consolidating the results of Bahia Blanca
effective November 1, 1996. Accordingly, the Company reported no system
general and administrative expenses for Bahia Blanca for the three and
six months ended June 30, 1996. Bahia Blanca's system general and
administrative expenses for the three and six months ended June 30, 1997
were $2,575 and $4,395, respectively, consisting primarily of
marketing-related costs and salaries with the remainder consisting of
billing, office and utility costs.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE. Corporate general and
administrative expense increased $808 and $2,370 during the three and six months
ended August 31, 1997, respectively, compared to the amounts for the
corresponding periods in the prior year. The increase was primarily attributable
to professional services incurred in connection with the lawsuit against the
Wharf group of companies, professional services incurred in connection with the
letter of intent and the definitive agreement with Philips whereby the Company
and/or UPC would acquire from Philips their 50% interest in UPC and charges
related to employee severance agreements.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
increased $13,559 and $30,120 during the three and six months ended August 31,
1997, respectively, compared to the amounts for the corresponding periods in the
prior year. The increase was due to depreciation on a larger fixed asset base as
the operating companies, particularly Austar, expand their networks and due to
depreciation and purchased goodwill amortization associated with the
consolidation of Bahia Blanca effective November 1, 1996.
EQUITY IN LOSSES OF AFFILIATED COMPANIES, NET. The Company recognized net equity
in losses of affiliated companies of $18,225 and $37,542 for the three and six
months ended August 31, 1997, respectively, compared to $9,539 and $21,741 for
the same periods in the prior year as follows:
<TABLE>
<CAPTION>
Three Months Ended August 31, 1997 Three Months Ended August 31, 1996
---------------------------------- ----------------------------------
Company Equity in Company Equity in
Ownership Income (Losses) of Ownership Income (Losses) of
Interest Affiliated Companies Interest Affiliated Companies
--------- -------------------- --------- --------------------
<S> <C> <C> <C> <C>
EUROPE
UPC........................................... 50.0% $(11,344) 50.0% $(4,686)
Monor Communications.......................... 48.6% (1,063) 48.4% (591)
IPS........................................... 33.8% (791) 33.8% (1,148)
LATIN AMERICA
United Family Communications.................. 50.0% (1,206) -- --
Megapo........................................ 49.0% (340) 49.0% 50
TVSB.......................................... 40.0% (138) 40.0% (324)
VTRH(1)....................................... 34.0% (1,209) -- --
Santa Fe(2)................................... 31.0% (956) -- --
Cablevision(1)................................ -- -- 100.0% (1,298)
STX(1)........................................ -- -- 100.0% 255
Net Sao Paulo(3).............................. -- -- 34.0% --
ASIA/PACIFIC
Saturn(4)..................................... -- -- 50.0% (529)
XYZ........................................... 25.0% (1,077) 25.0% (1,007)
OTHER............................................ 40.0-100.0% (101) 40.0-46.3% (261)
-------- -------
Total equity in losses of affiliated
companies, net.............................. $(18,225) $(9,539)
======== =======
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended August 31, 1997 Six Months Ended August 31, 1996
---------------------------------- ----------------------------------
Company Equity in Company Equity in
Ownership Income (Losses) of Ownership Income (Losses) of
Interest Affiliated Companies Interest Affiliated Companies
--------- -------------------- --------- --------------------
<S> <C> <C> <C> <C>
EUROPE
UPC........................................... 50.0% $(25,164) 50.0% $(11,168)
Monor Communications.......................... 48.6% (2,372) 48.4% (1,187)
IPS........................................... 33.8% (1,684) 33.8% (1,933)
LATIN AMERICA
United Family Communications.................. 50.0% (1,640) -- --
Megapo........................................ 49.0% (194) 49.0% (208)
TVSB.......................................... 40.0% (269) 40.0% (777)
VTRH(1)....................................... 34.0% (3,767) -- --
Santa Fe(2)................................... 31.0% (956) -- --
Cablevision(1)................................ -- -- 100.0% (1,614)
STX(1)........................................ -- -- 100.0% 530
Net Sao Paulo(3).............................. -- -- 34.0% (1,649)
ASIA/PACIFIC
Saturn(4)..................................... -- -- 50.0% (928)
XYZ........................................... 25.0% (1,443) 25.0% (1,639)
OTHER............................................ 40.0-100.0% (53) 40.0-76.9% (1,168)
-------- --------
Total equity in losses of affiliated
companies, net.............................. $(37,542) $(21,741)
======== ========
</TABLE>
(1) The Company contributed its interests in STX and Cablevision to its joint
venture VTRH effective September 1, 1996.
(2) In July 1997, the Company increased its ownership in Santa Fe to 69%.
(3) In August 1996, the Company sold its interest in Net Sao Paulo for $78,098
and recognized a gain of $65,260 on the sale.
(4) In July 1996, UIH A/P increased its ownership interest in Saturn to 100%.
In exchange for acquiring the additional 50% interest, the Company issued
to Saturn's other shareholder a 2.6% interest in UIH A/P. On May 15, 1997,
this shareholder in UIH A/P exchanged its 2.6% interest in UIH A/P for a 2%
interest in UAP.
RESULTS OF OPERATIONS - UPC
---------------------------
REVENUE. During the six months ended June 30, 1997, as compared to June 30,
1996, revenue increased $22,308 to $88,613 from $66,305, a 33.6% increase.
A substantial portion of this increase was directly attributable to the
acquisition of Norkabelgruppen AS ("Norkabel") and Janco Kabel TV AS
("Janco") in Norway. Norkabel was acquired effective October 1, 1996 and
Janco was acquired effective January 1, 1997, and were not included in the
June 30, 1996 results. The remaining increase in revenue was comprised of
increased revenue in Austria and the Czech Republic from subscriber growth
and in the Netherlands from an increase in the average revenue per
subscriber. In addition, the revenue for period ended June 30, 1997
includes revenue from several of UPC's development systems including
Portugal, France, the Slovak Republic and Romania which were not included
in June 30, 1996 operating results. The increase in revenue was negatively
impacted by $7,717 due to fluctuations in exchange rates between 1996 and
1997.
OPERATING EXPENSE. During the six months ended June 30, 1997, as compared
to June 30, 1996, operating and general and administrative expense
excluding depreciation increased $19,779 to $60,294 from $40,515, a 48.8%
increase. A substantial portion of this increase was directly attributable
to the acquisition of Norkabel and Janco which were not included in the
June 30, 1996 results. The remaining increase was comprised primarily of
operating expenses related to development systems in Portugal, France, the
Slovak Republic and Romania. In addition, operating expenses during the six
months ended June 30, 1997, as compared to June 30, 1996, included expenses
related to the introduction of new services including tier programming in
Austria, Belgium and the Netherlands and data services in Austria and
Belgium. The increase in operating expense was positively impacted by
$4,716 due to fluctuations in exchange rates between 1996 and 1997.
19
<PAGE>
NET OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION. During the six
months ended June 30, 1997, as compared to June 30, 1996, net operating
income increased $2,529 to $28,319 from $25,790, a 9.8% increase. A
substantial portion of this increase was directly attributable to the
acquisition of Norkabel and Janco which was offset by net operating losses
in Portugal, France and the Slovak Republic. The increase in net operating
income was negatively impacted by $3,002 due to fluctuations in exchange
rates between 1996 and 1997.
DEPRECIATION AND AMORTIZATION EXPENSE. During the six months ended June 30,
1997, as compared to June 30, 1996, depreciation and amortization expense
increased by $9,469 to $36,423 from $26,954, the majority of which was
directly attributable to Norkabel and Janco with the remainder attributable
to new development systems. This increase was positively impacted by $3,137
due to fluctuations in exchange rates between 1996 and 1997.
FOREIGN EXCHANGE LOSS. During the six month periods ended June 30, 1997 and
1996, UPC recognized $16,594 and $9,021, respectively, in foreign exchange
losses related to the convertible loan notes due to Philips. These notes
are denominated in U.S. dollars; the increase in the loss is attributable
to the U.S. dollar to Dutch guilder exchange rate movement.
FINANCE EXPENSE. During the six month periods ended June 30, 1997 and 1996,
finance expense increased $10,153 to $17,252 from $7,099 due to debt
acquired in the Norkabel acquisition, additional debt to finance the United
Communications International acquisition (including Norkabel), additional
interest costs associated with the Philips notes resulting from the change
in the Dutch guilder and the U.S. dollar average exchange rate, and
additional debt to fund development projects and the corporate office.
OTHER ITEMS. During the six month period ended June 30, 1997, UPC
established a reserve for its investment in Portugal of $5,291.
EXCHANGE RATE. The exchange rate between the Dutch guilder and the U.S.
dollar has increased from 1.71 at June 30, 1996 to 1.96 at June 30, 1997.
The average exchange rate between the Dutch guilder and the U.S. dollar has
increased from 1.67 for the six months ended June 30, 1996 to 1.89 for the
six months ended June 30, 1997.
INTEREST INCOME. Interest income decreased $1,901 and $2,264 during the three
and six months ended August 31, 1997, respectively, compared to the amounts for
the corresponding periods in the prior year. The decrease was due to reduced
cash and short-term investment balances related to the funding of the company's
investments in affiliated operating systems.
INTEREST EXPENSE. Interest expense increased $13,110 and $25,248 during the
three and six months ended August 31, 1997, respectively, compared to the
amounts for the corresponding periods in the prior year. The increase was
primarily due to the issuance of senior notes by UIH A/P in May 1996.
PROVISION FOR LOSSES ON INVESTMENT RELATED COSTS. Provision for losses on
investment related costs increased $1,546 and $5,630 during the three and six
months ended August 31, 1997, respectively, compared to the amounts for the
corresponding periods in the prior year. The Company capitalizes direct and
incremental costs incurred relative to pursuing potential investments. If an
investment is made, these costs are either reimbursed to the Company by the
operating entity or capitalized as part of the cost basis of the investment. If
the potential investment is abandoned, these costs are expensed. The majority of
the increase was due to the Company's write-off to fair market value of its
investment in International Broadcasting Corporation due to permanent
impairment.
20
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 5 - OTHER INFORMATION
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 June 30, 1997
------------------------------------------------------------------------------------------
UIH
Equity in UIH UIH
Homes in UIH Homes in Equity Equity in
Service Homes Basic Basic Paid-in Service in Homes Basic
Area Passed Subscribers Penetration Ownership Area Passed Subscribers
-------- ------ ----------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EUROPE
- -------
UPC SYSTEMS:
Netherlands (Amsterdam)
Cable................ 567,000 558,642 522,594 93.5% 25.0% 141,750 139,661 130,649
Austria
Cable................ 842,100 627,952 432,315 68.8% 47.5% 399,998 298,277 205,350
Norway
Cable................ 529,924 454,442 317,356 69.8% 35.1-50.0% 227,414 193,696 134,711
Hungary (Kabelkom)
Cable................ 270,000 268,000 248,000 92.5% 25.0% 67,500 67,000 62,000
Israel
Cable................ 350,000 342,520 235,438 68.7% 11.7% 40,950 40,075 27,546
Belgium
Cable................ 133,000 133,000 126,973 95.5% 50.0% 66,500 66,500 63,487
Ireland (PHL)
Cable/MMDS........... 355,000 346,853 125,259 36.1% 10.0% 35,500 34,685 12,526
Netherlands (Eindhoven)
Cable................ 92,190 89,425 84,950 95.0% 50.0% 46,095 44,713 42,475
Malta
Cable................ 179,000 147,485 54,018 36.6% 21.3% 38,127 31,414 11,506
Romania
Cable................ 150,000 68,907 40,427 58.7% 25.5-45.0% 51,900 21,709 11,768
Czech Republic
Cable/MMDS/MATV...... 258,600 137,899 40,232 29.2% 50.0% 129,300 68,950 20,116
Slovak Republic
Cable................ 21,839 17,287 13,499 78.1% 37.5% 8,190 6,483 5,062
France (Marne la Vallee)
Cable................ 86,000 21,225 3,749 17.7% 49.8% 42,828 10,570 1,867
Spain (Santander)
Cable................ 74,235 58,763 3,503 6.0% 12.5% 9,279 7,345 438
Portugal
Cable................ 186,449 12,195 2,833 23.2% 50.0% 93,225 6,098 1,417
---------- --------- --------- --------- --------- ---------
Total UPC.......... 4,095,337 3,284,595 2,251,146 1,398,556 1,037,176 730,918
---------- --------- --------- --------- --------- ---------
UIH SYSTEMS:
Hungary (Monor Telefon)
Cable/Telephony(5)... 85,000 129,815 76,006 58.5% 46.3% 39,355 60,104 35,190
Spain (IPS)
Programming.......... N/A N/A 229,000 N/A 33.8% N/A N/A 77,402
Ireland (Tara
Television)(6)
Programming.......... N/A N/A 111,279 N/A 100.0% N/A N/A 111,279
---------- --------- --------- --------- --------- ---------
Total Europe....... 4,180,337 3,414,410 2,667,431 1,437,911 1,097,280 954,789
---------- --------- --------- --------- --------- ---------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
As of June 30, 1997
------------------------------------------------------------------------------------------
UIH
Equity in UIH UIH
Homes in UIH Homes in Equity Equity in
Service Homes Basic Basic Paid-in Service in Homes Basic
Area Passed Subscribers Penetration Ownership Area Passed Subscribers
-------- ------ ----------- ----------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LATIN AMERICA (UIH LA)
- ----------------------
Chile
Cable................ 2,321,000 1,467,478 344,590 23.5% 34.0% 789,140 498,943 117,161
Argentina
Cable................ 372,600 294,260 182,374 62.0% 31.0-100.0% 240,810 197,660 119,876
Mexico
Cable................ 341,600 166,117 52,536 31.6% 49.0% 167,384 81,397 25,743
Brazil (Jundiai)
Cable................ 70,000 47,754 16,766 35.1% 46.3% 32,410 22,110 7,763
Brazil (Fortaleza)
MMDS................. 387,000 387,000 12,146 3.1% 40.0% 154,800 154,800 4,858
Peru
Cable................ 140,000 23,034 5,319 23.1% 94.0-100.0% 133,400 21,815 5,036
---------- --------- --------- --------- --------- ---------
Total UIH LA...... 3,632,200 2,385,643 613,731 1,517,944 976,725 280,437
---------- --------- --------- --------- --------- ---------
ASIA/PACIFIC (UAP)
- ------------------
Australia (Austar)
MMDS/DTH............. 1,622,000 1,589,000 149,495 9.4% 98.0% 1,589,560 1,557,220 146,505
Philippines
Cable................ 600,000 170,511 62,537 36.7% 39.2% 235,200 66,840 24,515
Tahiti
MMDS................. 31,000 19,728 6,080 30.8% 88.2% 27,342 17,400 5,363
New Zealand
Cable................ 141,000 16,113 2,288 14.2% 98.0% 138,180 15,791 2,242
Australia (XYZ)
Programming.......... N/A N/A 443,073 N/A 24.5% N/A N/A 108,553
China
Microwave Relay(12).. N/A N/A N/A N/A 48.0% N/A N/A N/A
Australia (United
Wireless)
Wireless Data........ N/A N/A N/A N/A 98.0% N/A N/A N/A
---------- --------- --------- --------- --------- ---------
Total UAP.......... 2,394,000 1,795,352 663,473 1,990,282 1,657,251 287,178
---------- --------- --------- --------- --------- ---------
Total UIH..........10,206,537 7,595,405 3,944,635 4,946,137 3,731,256 1,522,404
========== ========= ========= ========= ========= =========
</TABLE>
22
<PAGE>
As of and for the
Six Months Ended June 30, 1997
------------------------------------------
(In thousands)(1)
------------------------------------------
Net Long-
Service Income Adjusted Term
Revenue (Loss) EBITDA(2) Debt
-------- ------ --------- -----
EUROPE
- -------
UPC SYSTEMS:
Netherlands (Amsterdam)
Cable................ $ 24,413 $ (5,676) $ 9,983 $186,345
Austria
Cable(3)............. 41,410 885 21,138 --
Norway
Cable(4)............. 24,023 (5,558) 8,986 73,672
Hungary (Kabelkom)
Cable................ 12,474 1,529 4,791 --
Israel
Cable................ 48,084 8,128 24,581 7,071
Belgium
Cable(3)............. 9,929 (330) 3,909 --
Ireland (PHL)
Cable/MMDS........... 17,829 1,593 6,601 48,507
Netherlands (Eindhoven)
Cable................ 5,016 (717) 3,043 43,003
Malta
Cable................ 5,358 (766) 2,153 16,883
Romania
Cable................ 486 146 324 --
Czech Republic
Cable/MMDS/MATV...... 1,727 (5,756) (1,917) --
Slovak Republic
Cable................ 210 (182) (73) --
France (Marne la Vallee)
Cable................ 452 (1,861) (1,403) --
Spain (Santander)
Cable................ 243 (713) (442) --
Portugal
Cable................ 169 (2,096) (1,575) --
-------- -------- ------- --------
Total UPC.......... 191,823 (11,374) 80,099 375,481
-------- -------- ------- --------
UIH SYSTEMS:
Hungary (Monor Telefon)
Cable/Telephony(5)... 7,137 (4,920) 4,020 30,000
Spain (IPS)
Programming.......... 3,724 (4,973) (3,133) 3,500
Ireland (Tara
Television)(6)
Programming.......... -- (2,749) (2,650) --
-------- -------- ------- --------
Total Europe....... 202,684 (24,016) 78,336 408,981
-------- -------- ------- --------
23
<PAGE>
As of and for the
Six Months Ended June 30, 1997
------------------------------------------
(In thousands)(1)
------------------------------------------
Net Long-
Service Income Adjusted Term
Revenue (Loss) EBITDA(2) Debt
-------- ------ --------- -----
LATIN AMERICA (UIH LA)
- ----------------------
Chile
Cable................ $ 53,313 $ (8,860) $10,620 $ 7,578
Argentina
Cable................ 23,035 1,053 4,513 --
Mexico
Cable................ 4,525 1,281 1,304 136
Brazil (Jundiai)
Cable................ 3,656 306 1,324 97
Brazil (Fortaleza)
MMDS(6).............. 3,445 (452) 935 --
Peru
Cable................ 605 (756) (429) 99
-------- -------- ------- --------
Total UIH LA...... 88,579 (7,428) 18,267 7,910
-------- -------- ------- --------
ASIA/PACIFIC (UAP)
- ------------------
Australia (Austar)
MMDS/DTH............. 27,800 (40,553) (8,419) 38,212
Philippines
Cable(8)............. 4,175 178 1,425 --
Tahiti
MMDS(9).............. 1,875 (1,441) 71 1,025
New Zealand
Cable(10)............ 177 (3,916) (2,615) 31
Australia (XYZ)
Programming(11)...... 6,520 (5,201) (3,231) --
China
Microwave Relay(12).. N/A N/A N/A N/A
Australia (United
Wireless)
Wireless Data(11).... 129 (2,068) (1,370) --
-------- -------- ------- --------
Total UAP.......... 40,676 (53,001) (14,139) 39,268
-------- -------- ------- --------
Total UIH......... $331,939 $(84,445) $82,464 $456,159
======== ======== ======= ========
24
<PAGE>
<TABLE>
<CAPTION>
As of March 31, 1997
------------------------------------------------------------------------------------------
UIH
Equity in UIH UIH
Homes in UIH Homes in Equity Equity in
Service Homes Basic Basic Paid-in Service in Homes Basic
Area Passed Subscribers Penetration Ownership Area Passed Subscribers
-------- ------ ----------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EUROPE
- -------
UPC SYSTEMS:
Netherlands (Amsterdam)
Cable................ 564,000 556,975 524,188 94.1% 25.0% 141,000 139,244 131,047
Austria
Cable................ 840,000 624,091 429,861 68.9% 47.5% 399,000 296,443 204,184
Norway
Cable................ 529,693 448,060 316,601 70.7% 35.1-50.0% 227,299 190,505 134,414
Hungary (Kabelkom)
Cable................ 268,000 267,929 246,768 92.1% 23.5% 62,980 62,963 57,990
Israel
Cable................ 350,000 338,612 234,695 69.3% 11.7% 40,950 39,618 27,459
Belgium
Cable................ 133,000 133,000 127,383 95.8% 50.0% 66,500 66,500 63,692
Ireland (PHL)
Cable/MMDS........... 350,000 344,370 124,604 36.2% 10.0% 35,000 34,437 12,460
Netherlands (Eindhoven)
Cable................ 92,042 89,281 84,817 95.0% 50.0% 46,021 44,641 42,409
Malta
Cable................ 146,384 146,384 52,799 36.1% 21.3% 31,180 31,180 11,246
Romania
Cable................ 148,000 68,707 40,852 59.5% 25.5-45.0% 51,390 21,658 11,911
Czech Republic
Cable/MMDS/MATV...... 258,600 128,835 38,018 29.5% 50.0% 129,300 64,418 19,009
Slovak Republic
Cable................ 21,839 15,577 11,768 75.5% 37.5% 8,190 5,841 4,413
France (Marne la Vallee)
Cable................ 68,000 12,660 2,344 18.5% 50.0% 34,000 6,330 1,172
Spain (Santander)
Cable................ 74,235 58,763 3,503 6.0% 12.5% 9,279 7,345 438
Portugal
Cable................ 186,449 9,327 2,192 23.5% 50.0% 93,225 4,664 1,096
--------- --------- --------- --------- --------- ---------
Total UPC.......... 4,030,242 3,242,571 2,240,393 1,375,314 1,015,787 722,940
--------- --------- --------- --------- --------- ---------
UIH SYSTEMS:
Hungary (Monor Telefon)
Cable/Telephony(5)... 85,000 126,024 72,651 57.6% 46.3% 39,355 58,349 33,637
Spain (IPS)
Programming.......... N/A N/A 206,000 N/A 33.8% N/A N/A 69,628
Ireland (Tara
Television)(6)
Programming.......... N/A N/A 73,103 N/A 100.0% N/A N/A 73,103
--------- --------- --------- --------- --------- ---------
Total Europe....... 4,115,242 3,368,595 2,592,147 1,414,669 1,074,136 899,308
--------- --------- --------- --------- --------- ---------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
As of March 31, 1997
------------------------------------------------------------------------------------------
UIH
Equity in UIH UIH
Homes in UIH Homes in Equity Equity in
Service Homes Basic Basic Paid-in Service in Homes Basic
Area Passed Subscribers Penetration Ownership Area Passed Subscribers
-------- ------ ----------- ----------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LATIN AMERICA (UIH LA)
- ----------------------
Chile
Cable................ 2,321,000 1,464,092 326,849 22.3% 34.0% 789,140 497,791 111,129
Argentina (Bahia Blanca)
Cable................ 113,000 98,990 59,722 60.3% 80.0-100.0% 113,000 98,990 59,722
Mexico
Cable................ 341,600 166,117 53,440 32.2% 49.0% 167,384 81,397 26,186
Brazil (Jundiai)
Cable................ 70,000 45,301 14,301 31.6% 46.3% 32,410 20,974 6,621
Brazil (Fortaleza)
MMDS................. 387,000 387,000 12,391 3.2% 40.0% 154,800 154,800 4,956
Peru
Cable................ 140,000 19,104 3,910 20.5% 94.0-100.0% 133,400 18,043 3,694
--------- --------- --------- --------- --------- ---------
Total UIH LA...... 3,372,600 2,180,604 470,613 1,390,134 871,995 212,308
--------- --------- --------- --------- --------- ---------
ASIA/PACIFIC (UAP)
- ------------------
Australia (Austar)
MMDS/DTH............. 1,622,000 1,571,000 129,156 8.2% 97.4% 1,579,828 1,530,154 125,798
Philippines
Cable................ 600,000 167,483 55,309 33.0% 40.0% 240,000 66,993 22,124
Tahiti
MMDS................. 31,000 19,584 5,537 28.3% 87.7% 27,187 17,175 4,856
New Zealand
Cable................ 141,000 16,281 2,052 12.6% 97.4% 137,334 15,858 1,999
Australia (XYZ)
Programming.......... N/A N/A 390,000 N/A 24.4% N/A N/A 95,160
China
Microwave Relay(12).. N/A N/A N/A N/A 49.0% N/A N/A N/A
Australia (United
Wireless)
Wireless Data........ N/A N/A N/A N/A 97.4% N/A N/A N/A
--------- --------- --------- --------- --------- ---------
Total UAP.......... 2,394,000 1,774,348 582,054 1,984,349 1,630,180 249,937
--------- --------- --------- --------- --------- ---------
Total UIH.......... 9,881,842 7,323,547 3,644,814 4,789,152 3,576,311 1,361,553
========= ========= ========= ========= ========= =========
</TABLE>
26
<PAGE>
As of and for the
Three Months Ended March 31, 1997
------------------------------------------
(In thousands)(1)
------------------------------------------
Net Long-
Service Income Adjusted Term
Revenue (Loss) EBITDA(2) Debt
-------- ------ --------- -----
EUROPE
- -------
UPC SYSTEMS:
Netherlands (Amsterdam)
Cable................ $ 12,169 $ (2,473) $ 5,500 $186,345
Austria
Cable(3)............. 21,077 939 11,193 --
Norway
Cable(4)............. 11,763 (2,822) 4,467 73,672
Hungary (Kabelkom)
Cable................ 6,191 939 2,502 --
Israel
Cable................ 23,320 4,217 11,493 5,736
Belgium
Cable(3)............. 5,088 (238) 1,706 --
Ireland (PHL)
Cable/MMDS........... 8,748 (734) 3,226 52,296
Netherlands (Eindhoven)
Cable................ 2,488 (376) 1,598 42,983
Malta
Cable................ 2,584 (442) 1,075 15,584
Romania
Cable................ 204 51 120 --
Czech Republic
Cable/MMDS/MATV...... 832 (2,727) (909) --
Slovak Republic
Cable................ 84 (17) 58 --
France (Marne la Vallee)
Cable................ 168 (859) (692) --
Spain (Santander)
Cable................ 215 (394) (135) 7
Portugal
Cable................ 63 (1,035) (834) --
-------- -------- ------- --------
Total UPC.......... 94,994 (5,971) 40,368 376,623
-------- -------- ------- --------
UIH SYSTEMS:
Hungary (Monor Telefon)
Cable/Telephony(5)... 3,530 (2,769) 2,037 30,000
Spain (IPS)
Programming.......... 1,639 (2,647) (1,766) 3,500
Ireland (Tara
Television)(6)
Programming.......... -- (1,454) (1,407) --
-------- -------- ------- --------
Total Europe....... 100,163 (12,841) 39,232 410,123
-------- -------- ------- --------
27
<PAGE>
As of and for the
Three Months Ended March 31, 1997
------------------------------------------
(In thousands)(1)
------------------------------------------
Net Long-
Service Income Adjusted Term
Revenue (Loss) EBITDA(2) Debt
-------- ------ --------- -----
LATIN AMERICA (UIH LA)
- ----------------------
Chile
Cable................ $ 23,222 $ (6,016) $ 1,521 $ 8,947
Argentina
Cable................ 6,312 (147) 1,589 --
Mexico
Cable................ 2,273 1,120 1,516 371
Brazil (Jundiai)
Cable................ 1,827 267 727 97
Brazil (Fortaleza)
MMDS(6).............. 1,721 (240) 393 --
Peru
Cable................ 278 (393) (220) --
-------- -------- ------- --------
Total UIH LA...... 35,633 (5,409) 5,526 9,415
-------- -------- ------- --------
ASIA/PACIFIC (UAP)
- ------------------
Australia (Austar)
MMDS/DTH............. 13,033 (19,021) (3,961) --
Philippines
Cable(8)............. 1,572 (128) 502 --
Tahiti
MMDS(9).............. 915 (527) 59 1,118
New Zealand
Cable(10)............ 81 (1,517) (1,180) --
Australia (XYZ)
Programming(11)...... 3,140 (1,188) (1,191) --
China
Microwave Relay(12).. N/A N/A N/A N/A
Australia (United
Wireless)
Wireless Data(11).... 23 (963) (720) --
-------- -------- ------- --------
Total UAP.......... 18,764 (23,344) (6,491) 1,118
-------- -------- ------- --------
Total UIH......... $154,560 $(41,594) $38,267 $420,656
======== ======== ======= ========
28
<PAGE>
(Monetary amounts stated in thousands)
(1) The financial information presented above has been taken from unaudited
financial information of the respective operating companies that were
providing service as of June 30, 1997. Certain information presented above
has been derived from financial statements prepared in accordance with
foreign generally accepted accounting principles which differ from U.S.
generally accepted accounting principles. In addition, certain amounts have
been converted to U.S. dollars using the June 30, 1997 exchange rates for
the convenience translation. Operating systems in the following countries
reported to the Company in U.S. dollars: Ireland (Tara only), Hungary,
Spain (IPS only), Brazil, Mexico, Chile, Peru, Argentina and Tahiti.
Therefore, the financial information presented above for these countries
was not affected by the convenience translation.
(2) Adjusted EBITDA represents net income (loss), as determined using generally
accepted accounting principles which may differ from those used in the
United States, plus net interest expense, income tax expense, depreciation,
amortization, minority interest, management fee expense, currency exchange
gains (losses) and other non-operating income (expense) items. Industry
analysts generally consider adjusted EBITDA to be an appropriate measure of
the performance of multi-channel television operations. Adjusted EBITDA
should not be considered as an alternative to net income or to cash flows
or to any other generally accepted accounting principles measure of
performance or liquidity as an indicator of an entity's operating
performance.
(3) In addition to the debt noted above, Austria and Belgium had intercompany
loans, which eliminated upon consolidation, of BF3,900,000 ($108,363) as of
June 30 and March 31, 1997. UPC also had a subordinated convertible loan
payable to Philips (including accrued interest) totaling NLG313,800
($159,768) and NLG300,028 ($152,756) as of June 30 and March 31, 1997,
respectively.
(4) In addition to the debt noted above, Norkabel had loans payable to UPC
(including accrued interest) of $121,084 and $119,054 as of June 30 and
March 31, 1997, respectively.
(5) The Company owns a 48.6% interest in Monor Communications Group, Inc. which
holds a 95.27% interest in the operating company Monor Telefon. The number
of homes passed and basic subscribers includes the sum of cable and
telephony statistics in Monor Telefon's service area.
(6) Tara Television offers a free introductory period for its channel and will
begin collecting revenues in late 1997.
(7) TVSB had a loan payable to the Company of $792 at June 30 and March 31,
1997.
(8) SCS had convertible loans payable to the Company of P244,223 ($9,259) and
P248,849 ($9,437) as of June 30 and March 31, 1997, respectively.
(9) Telefenua had loan payable to the Company of $11,791 and $11,575 as of June
30 and March 31, 1997, respectively.
(10) In addition to the debt noted above, Saturn had loans payable to the
Company totaling NZ$29,300 ($19,936) and NZ$30,039 ($20,870) as of June 30
and March 31, 1997, respectively.
(11) XYZ and United Wireless show capital contributions as shareholder loans
which totaled A$64,030 ($48,266) and A$5,490 ($4,138), respectively, as of
June 30, 1997 and A$58,452 ($45,942) and A$4,378 ($3,441), respectively, as
of March 31, 1997.
(12) The Company has a 49% interest in HITV, a joint venture that owns a
microwave relay system in the Hunan Province that transmits two provincial
channels to approximately 400,000 cable television homes in the region.
HITV launched service in July 1997.
29
<PAGE>
ITEM 1 - LEGAL PROCEEDINGS
Carl M. Johnson, an individual who claimed to have worked with UIH in
connection with the acquisition by Austar of certain of its licenses, filed a
complaint in 1996 claiming that UIH owed him an equity interest in unspecified
subsidiaries of UIH. This matter was settled in September 1997.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter.
None.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED INTERNATIONAL HOLDINGS, INC.
Date: October 15, 1997
-------------------------
By: /S/ J. Timothy Bryan
-------------------------
J. Timothy Bryan
Chief Financial Officer
(A Duly Authorized Officer and Principal Financial Officer)
31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITED
INTERNATIONAL HOLDINGS, INC.'S FORM 10-Q FOR THE QUARTER ENDED AUGUST 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> AUG-31-1997
<CASH> 63,975
<SECURITIES> 3,248
<RECEIVABLES> 5,014
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 157,823
<PP&E> 270,407
<DEPRECIATION> 56,062
<TOTAL-ASSETS> 833,433
<CURRENT-LIABILITIES> 189,370
<BONDS> 753,637
31,922
0
<COMMON> 392
<OTHER-SE> (122,441)
<TOTAL-LIABILITY-AND-EQUITY> 833,433
<SALES> 0
<TOTAL-REVENUES> 45,097
<CGS> 0
<TOTAL-COSTS> 27,896
<OTHER-EXPENSES> 38,751
<LOSS-PROVISION> 6,454
<INTEREST-EXPENSE> 57,142
<INCOME-PRETAX> (160,112)
<INCOME-TAX> 0
<INCOME-CONTINUING> (160,112)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (160,112)
<EPS-PRIMARY> (4.09)
<EPS-DILUTED> 0
</TABLE>
