<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended February 28, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A common stock, par value $0.01 per share
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
---
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, computed by reference to the last sales price of such stock, as of
the close of trading on May 23, 1997 was $233,554,713.
The number of shares outstanding of the Registrant's common stock as of May
23, 1997 was:
Class A common stock 26,266,530 shares and
Class B common stock 12,934,986 shares
================================================================================
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
1997 ANNUAL REPORT ON FORM 10-K
Table of Contents
PART I
<TABLE>
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Page
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<S> <C> <C>
Item 1. Business.....................................................
Item 2. Properties...................................................
Item 3. Legal Proceedings............................................
Item 4. Submission of Matters to a Vote of Security Holders..........
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.....................................................
Item 6. Selected Financial Data......................................
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................
Item 8. Financial Statements and Supplementary Data..................
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................
PART III
Item 10. Directors and Executive Officers of the Registrant...........
Item 11. Executive Compensation.......................................
Item 12. Security Ownership of Certain Beneficial Owners and
Management..................................................
Item 13. Certain Relationships and Related Transactions...............
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K....................................................
</TABLE>
1
<PAGE>
PART I
Item 1. Business
- ------------------
(a) General Development of Business
- ------------------------------------
United International Holdings, Inc. (UIH or the Company) was formed in 1989
as a Delaware Corporation for the purpose of developing, acquiring and managing
foreign multi-channel television, programming and telephony operations. Together
with its strategic and financial partners, the Company as of December 31, 1996,
has ownership interests in, and provides management services to, existing multi-
channel television and telephony operating and development systems or
programming services in 24 countries. These operating systems served an
aggregate of approximately 3.1 million subscribers, passed approximately 7.0
million homes and had the potential to reach approximately 10.6 million homes as
of December 31, 1996. UIHs equity interest in those subscribers was 1.1 million,
homes passed was 3.4 million, and homes in service area was 5.0 million.
The Company believes that the development of the cable television and
programming industries in the United States over the past four decades indicates
the growth potential in markets outside the United States that are, to varying
degrees, far less developed in terms of the availability, geographic reach and
market penetration of multi-channel television services. In addition, recent
technological developments enable the Company to select from a variety of means
of delivering services to cost effectively pursue growth potential in particular
markets and develop systems capable of providing related communications services
such as telephony.
The Company invests in thematic television channels to be distributed by
operating systems in which the Company has an ownership interest as well as for
sale to other multi-channel television operators in contiguous markets. To date,
the Company has direct and indirect ownership interests in 19 programming
channels in 9 markets.
The Company has established a telecom and technology group to evaluate
communication opportunities in each of the various markets that the Company has
existing multi-channel television operations. Given the strength of UIHs
existing world-wide multi-channel television business, coupled with the
convergence of telecommunications technologies, the Company believes it is
uniquely positioned to dramatically enhance telephone service, provide greater
access and expand telecommunications systems in many countries. As of December
31, 1996, the Company owns interests in three telephony projects.
(b) Financial Information about Industry Segments
- --------------------------------------------------
The Company operates in the multi-channel television industry through
investing in, acquiring and managing multi-channel television, telephony and
programming operations.
(c) Narrative Description of Business
- --------------------------------------
Available Technology
A number of technologies are available for the delivery of multi-channel
television services to a subscriber's home. Cost, technical effectiveness and
the potential for future services are the primary considerations in selecting
the technology most appropriate for a particular market. Factors such as
population density, terrain, construction conditions and regulatory controls
contribute to the cost and technical effectiveness of a particular delivery
technology. The Company has used a number of the delivery systems described
below (fiber-optic cable, coaxial cable, wireless and other types of delivery
systems) in its existing operating systems, based upon the needs and conditions
of the respective market. The Company's system engineering and design strategy
continues to focus on using the most appropriate type or types of delivery
systems for the markets it serves, also taking into consideration the ability to
provide additional or ancillary services such as telephony.
Cable Television. A cable television system receives satellite and
broadcast television signals by means of high antennae, a microwave relay system
or satellite earth stations, and then amplifies the signals and distributes them
by coaxial or fiber-optic cable to the premises of its subscribers, who pay a
fee for the service. A cable television system may also originate its own
programming.
2
<PAGE>
The physical plant of a cable television system consists of four principal
operating components: (i) the headend facility, which receives television and
radio signals with microwave relay systems, special antennae and satellite earth
stations; (ii) the distribution network originating at the headend and extending
throughout the system that consists of coaxial or fiber-optic cables placed on
poles or buried underground and associated electronic equipment; (iii) a drop
cable that extends from the distribution network into the subscriber's home and
connects to the subscriber's television set; and, in certain circumstances, (iv)
a converter located in the subscriber's home which is necessary to expand
channel capacity to permit reception of more than 12 channels (unless the
subscriber has a cable-ready television set) or to unscramble scrambled signals.
A significant advantage of cable television over alternative multi-channel
television technologies is that cable has the capacity to transmit a greater
number of channels and a larger amount of data. In addition, because cable can
be used to transmit as well as receive data, cable television operators can
provide interactive services to subscribers such as telephone service,
television shopping services and interactive television programming.
Many of the operating companies in which the Company has an ownership
interest utilize cable television technologies, although in some cases
supplemented by other multi-channel television technologies. Because of cable's
greater channel capacity and ability to handle interactive services, the
Company's existing operating systems typically construct cable delivery systems
when to do so is cost effective as compared to alternative technologies. The
high population density in the franchise areas of the Company's Israel and
Amsterdam systems, for example, makes cable delivery systems very cost effective
to construct and operate.
Wireless Cable Television Systems. Microwave Multi-point Distribution
System (MMDS) and Subscription Television Service (STVS) have the capabilities
of providing directly to homes, apartment houses, hotels and other buildings,
television signals that provide programming in a manner that is similar to cable
television systems. MMDS uses microwave signals transmitted from antennae and
received by household reception antennae with an unobstructed line-of-sight to
the transmitting antenna. MMDS systems provide video programming and data
transmission to individual subscribers offering a complement of channels
comparable, though not as numerous, to that offered by cable television systems.
MMDS is a more cost-effective way of serving low-density rural areas than
construction of an underground or aerial cable distribution network. The
Company's Australia, Tahiti, Czech Republic and Ireland operating systems use
MMDS in a majority of their franchise areas.
Direct-to-home. Direct-to-home (DTH) and Direct Broadcast Satellite (DBS)
services provide programming by direct satellite transmission to houses that
have a satellite dish. High powered DTH satellites are designed to enable
broadcasters and programmers to reach the maximum number of television viewers
possible. Programming distributed over a DTH satellite is accessed by households
and also by local cable systems that redistribute that programming through
ground-based cable to households. In addition, the total television audience can
be increased significantly because the satellites high transmission power
enables households equipped with 18-36 inch (60-90 cm) satellite dishes and
related equipment to receive the programming directly from the satellite. The
Companys Australia systems utilize DTH service for a portion of the systems.
Ownership Structure of the Company
The Companys operations are organized in three geographic regions: (i)
Europe, consisting primarily of the Companys 50% interest in United and Philips
Communications B.V. (UPC); (ii) Latin America and (iii) Asia/Pacific. In
February 1997, the Company and its partner Philips Media B.V. (Philips) in UPC
signed a letter of intent for the Company and/or UPC to acquire Philips 50%
interest in UPC (the UPC Acquisition), except for ratable dilution caused by
UPCs incentive stock option plan.
Europe--UPCs ownership interests in the Israel (Tevel Israel International
Communications Limited (Tevel)), Ireland (Princes Holdings Limited (PHL)) and
Malta (Melita Cable TV plc (Melita)) systems are held through United
International Investments (UII), UPCs partnership with Tele-Communications, Inc.
(TCI). UPCs ownership interests in Norway (Norkabelgruppen A/S (NorKabel)),
Hungary-cable (Kabelkom Holding Co. (Kabelkom)), Austria (Telekabel Wien
(Telekabel Group)), Amsterdam (A2000 Holding N.V. (A2000)), Belgium (Radio
Public NV/SA), Eindhoven (Kabeltelevisie Eindhoven N.V. (KTE)), France (S.A.
Citecable and S.A. Media Reseaux (Citecable)), Czech Republic (Kabel Net
Holdings, a.s. (Kabel Net)) and Spain (Santander de Cable, S.A. (Santander de
Cable)) are held directly. In addition to its interests in UPC, the Company owns
interests in a Hungary-telephony system (Monor Communications Group, Inc. (Monor
Communications)) and a programming venture, Spanish Program Services C.V. (Spain
Programming), which interests are held indirectly by United International
Properties, Inc. (UIPI), a wholly-owned subsidiary of the Company.
3
<PAGE>
Latin America--The Companys ownership interests in Argentina ((Bahia
Blanca) which includes Cable Total S.A., TV Cable S.A. and Cablevision Du-ke
S.A. Cerrivideo Cable, S.A., Multivision, S.A.) Chile (VTR Hipercable S.A.
(VTRH)), Brazil, Jundiai TV Cabo (Jundiai), and TV Show Brasil, Limitada
(TVSB)), Mexico (Megapo Communicaciones de Mexico, S.A. de C.V. (Megapo)) and
Peru (Cable Star S.A. (Cable Star) and TV Cable S.R.L. (Tacna)) systems are held
through UIH Latin America, Inc. (UIH LA), a wholly-owned subsidiary of the
Company. UIH LA also holds an indirect 50% interest in United Family
Communications, a joint venture that is developing three programming channels
for distribution to Latin American markets.
Asia/Pacific--All of the Companys interests in the Asia/Pacific region are
held through UIH Asia/Pacific Communications, Inc. (UAP), a wholly-owned
subsidiary of the Company. UAPs ownership interests in Australia (CTV Pty
Limited (CTV) and STV Pty Limited (STV), the companies that comprise Austar
Entertainment Pty Limited (Austar), XYZ Entertainment Pty Limited (XYZ) and
United Wireless Pty Limited (United Wireless)), Tahiti (Telefenua, S.A.
(Telefenua)) and New Zealand (Saturn Communications Limited (Saturn)) are held
through UIH Australia/Pacific, Inc. (UIH A/P), an indirect majority-owned
subsidiary of the Company held through UAP. UAPs ownership interests in the
Philippines (Sun Cable Systems (SCS)) and in China (Hunan International TV
Communications Company Limited (HITV)) are held directly by UAP. UAPs ownership
interest in International Broadcasting Corp. is held by UIH Asia Investment Co.
(UIH Asia), a partnership.
The ownership structure of the Companys operating systems varies depending
on the circumstances and constraints unique to the particular system including
(i) local ownership requirements, (ii) U.S. and foreign tax considerations,
(iii) financial arrangements between the Company and its partners and (iv)
arrangements to facilitate local financing for each system. The ownership
structure also reflects various business objectives at both the Company and the
operating system level.
Ownership Structure
A summary representation of the ownership structure of the Company as of
February 28, 1997 is as follows:
[CHART APPEARS HERE]
4
<PAGE>
(1) In September 1996, UPC acquired 100% of UCI, a partnership which held
interests in Norkabel, Kabelkom and Swedish Cable. UPC sold Swedish Cable
in October 1996.
(2) During the third quarter of 1997, UIH A/P acquired the remaining 6% interest
in Austar.
(3) In July 1996, UIH A/P increased its ownership interest in Saturn to 100%.
In exchange for acquiring the additional 50% interest, UIH A/P gave Saturns
other shareholder a 2.6% interest in UIH A/P.
(4) UIH A/P owns an effective 90% economic interest in the Tahiti project. UIH
A/Ps 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.
(5) UAP currently holds a convertible loan, which upon full conversion would
provide UAP with a 40% equity ownership interest in the Philippines
operating company.
(6) In September 1996, UIH LA completed an agreement with VTR S.A. (VTR), a
leading Chilean conglomerate with interests in telecommunications and
natural resources, under which the parties formed the joint venture VTR
Hipercable S.A. (VTRH). UIH LA and VTR contributed its respective Chilean
multi-channel television assets to VTRH of which UIH LA owns 34%. In
December 1997, UIH LA will have the option to increase its interest to 50%
after a revaluation of the properties (and corresponding reallocation of
interest) subject to minimum and maximum values. Prior to formation of the
joint venture, UIH LA held 100% interests in Cablevision and STX, both of
which are Chilean multi-channel television operators.
(7) UIH LA owns 100% of two subsidiaries and 80% of a third subsidiary that
serve the Bahia Blanca and Punta Alta areas and has agreed, subject to
certain conditions, to acquire the remaining 20% of the subsidiary in 1998.
(8) In February 1997, the Company and Philips Media B.V. (Philips) signed a
letter of intent for the Company and/or UPC to acquire Philips 50% interest
in UPC, except for ratable dilution caused by UPCs incentive option plan.
(9) In January 1997, UPC acquired 70.2% of Janco, which serves the City of
Oslo. UPC has the right to acquire the remaining interest in Janco in
2000.
5
<PAGE>
Summary Operating Data
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 December 31, 1996
-------------------------------------------------------------------------------------------------
UIH
UIH Equity UIH
Homes in UIH Equity in in Equity in
Service Homes Basic Basic "Paid-in" Homes in Homes Basic
Area Passed Subscribers Penetration Ownership % Service Area Passed Subscribers
--------- -------- ----------- ------------ ----------- ------------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Europe
- ------
UPC Systems:
Austria
Cable.................. 838,600 623,100 428,453 68.8% 47.5% 398,810 295,973 203,515
Netherlands (Amsterdam)
Cable................. 562,000 555,459 523,940 94.3% 25.0% 140,500 138,865 130,985
Belgium
Cable................. 133,000 133,000 127,815 96.1% 50.0% 66,500 66,500 63,908
Netherlands (Eindhoven)
Cable................. 91,872 89,116 84,660 95.0% 50.0% 45,936 44,558 42,330
Israel
Cable................. 340,000 334,426 231,712 69.3% 11.7% 39,780 39,128 27,113
Ireland
Cable/MMDS............ 452,077 340,993 121,475 35.6% 10.0% 45,208 34,099 12,148
Czech Republic
Cable/MMDS/MATV....... 258,600 121,782 35,288 29.0% 50.0% 129,300 60,891 17,644
Slovakia
Cable................. 36,239 13,435 9,003 67.0% 37.5% 13,590 5,038 3,376
Malta
Cable................. 179,000 145,371 51,500 35.4% 21.3% 38,127 30,964 10,970
Hungary
Cable................. 266,000 265,058 247,013 93.2% 23.5% 62,510 62,289 58,048
Norway
Cable................. 277,123 221,441 156,915 70.9% 50.0% 138,562 110,721 78,458
Spain
Cable................. 57,800 51,418 3,048 5.9% 12.5% 7,225 6,427 381
Portugal
Cable................. 186,449 5,430 1,191 21.9% 50.0% 93,225 2,715 596
Romania
Cable................. 126,000 50,072 30,210 60.3% 25.5-45.0% 32,130 17,070 9,200
France
Cable................. 203,000 55,848 8,974 16.1% 15.0-47.5% 73,675 10,581 1,830
--------- --------- --------- --------- ------- -------
Total.......... 4,007,760 3,005,949 2,061,197 1,325,078 925,819 660,502
--------- --------- --------- --------- ------- -------
UIH Systems:
Monor
Cable/Telephony....... 85,000 125,000 70,638 56.5% 43.3% 36,805 54,125 30,586
<CAPTION>
As of December 31, 1995
--------------------------------------------------------------------------
UIH UIH
UIH Equity in Equity in
Homes Basic Basic "Paid-in" Homes Basic
Passed Subscribers Penetration Ownership % Passed Subscribers
-------- ----------- ------------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Europe
- ------
UPC Systems:
Austria
Cable.................. 608,000 414,775 68.2% 47.5% 288,800 197,018
Netherlands (Amsterdam)
Cable................. 516,998 488,631 94.5% 25.0% 129,250 122,158
Belgium
Cable................. 134,000 127,843 95.4% 50.0% 67,000 63,922
Netherlands (Eindhoven)
Cable................. 88,290 83,408 94.5% 50.0% 44,145 41,704
Israel
Cable................. 318,721 218,230 68.5% 11.7% 37,290 25,533
Ireland
Cable/MMDS............ 285,899 108,238 37.9% 10.0% 28,590 10,824
Czech Republic
Cable/MMDS/MATV....... 71,916 26,195 36.4% 50.0% 35,959 13,098
Slovakia
Cable................. 7,424 3,715 50.0% 37.5% 2,784 1,393
Malta
Cable................. 133,082 36,759 27.6% 21.3% 28,346 7,830
Hungary
Cable................. 234,734 217,801 92.8% 2.0% 4,695 4,356
Norway
Cable................. 217,267 152,257 70.1% 4.2% 9,125 6,395
Spain
Cable................. 19,405 1,395 7.2% 12.5% 2,426 174
Portugal
Cable................. -- -- -- -- -- --
Romania
Cable................. -- -- -- -- -- --
France
Cable................. 50,040 7,041 14.1% 15.0% 7,506 1,056
--------- --------- ------- -----------
Total.......... 2,685,776 1,886,288 685,916 495,461
--------- --------- ------- -----------
UIH Systems:
Monor
Cable/Telephony....... 94,893 46,051 48.5% 43.3% 41,089 19,940
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1996
----------------------------------------------------------------------------------------------
UIH UIH UIH
Homes in UIH Equity in Equity Equity in
Service Homes Basic Basic Paid-in Homes in in Homes Basic
Area Passed Subscribers Penetration Ownership Service Area Passed Subscribers
--------- ------ ----------- ----------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Latin America
- -------------
Chile (1)
Cable................. 2,321,000 1,482,000 321,730 21.7% 34.0% 789,140 503,880 109,388
Mexico
Cable................. 341,600 166,117 54,446 32.8% 49.0% 167,384 81,397 26,679
Brazil, Fortaleza
MMDS.................. 387,000 387,000 12,011 3.1% 40.0% 154,800 154,800 4,804
Brazil, Jundiai
Cable................. 70,000 41,889 11,126 26.6% 46.3% 32,410 19,395 5,151
Argentina (Bahia Blanca)
Cable................. 113,000 98,990 60,166 60.8% 100.0% 113,000 98,990 60,166
Peru (Arequipa & Tacna)
Cable................. 140,000 13,720 3,325 24.2% 97.0% 133,400 12,949 3,144
--------- --------- --------- --------- --------- ---------
Total............ 3,372,600 2,189,716 462,804 1,390,134 871,411 209,332
--------- --------- --------- --------- --------- ---------
Asia/Pacific
- ------------
Australia (Austar)
MMDS/DTH.............. 1,621,770 1,529,000 103,447 6.8% 97.4% 1,579,604 1,489,246 100,757
Australia (XYZ)
Programming........... N/A N/A 340,000 N/A 24.4% N/A N/A 82,960
New Zealand
Cable................. 141,000 14,280 1,697 11.9% 97.4% 137,334 13,909 1,653
Philippines(2)
Cable................. 575,000 113,402 40,129 35.4% 40.0% 230,000 45,361 16,052
Tahiti
MMDS.................. 31,000 19,584 5,187 26.5% 87.7% 27,187 17,175 4,549
China (HITV)(3)
Microwave Relay....... N/A N/A N/A N/A 49.0% N/A N/A N/A
--------- --------- --------- --------- --------- ---------
Total............ 2,368,770 1,676,266 490,460 1,974,125 1,565,691 205,971
--------- --------- --------- --------- --------- ---------
Grand Total...... 9,834,130 6,996,931 3,085,099 4,726,142 3,417,046 1,106,391
========= ========= ========= ========= ========= =========
<CAPTION>
As of December 31, 1995
-------------------------------------------------------------------------
UIH UIH
UIH Equity in Equity in
Homes Basic Basic Paid-in Homes Basic
Passed Subscribers Penetration Ownership Passed Subscribers
--------- ----------- ------------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Latin America
- -------------
Chile (1)
Cable................. 293,772 39,349 13.4% 65.0-100.0% 236,099 70,746
Mexico
Cable................. 166,328 51,728 31.1% 49.0% 81,501 25,307
Brazil, Fortaleza
MMDS.................. 385,000 7,300 1.9% 40.0% 154,000 2,920
Brazil, Jundiai
Cable................. 15,554 3,211 20.6% 46.3% 7,202 1,487
Argentina (Bahia Blanca)
Cable................. -- -- -- -- -- --
Peru (Arequipa & Tacna)
Cable................. 15,000 2,550 17.0% 94.0% 14,100 2,397
--------- --------- --------- -----------
Total............ 875,654 104,138 492,902 102,857
--------- --------- --------- -----------
Asia/Pacific
- ------------
Australia (Austar)
MMDS/DTH.............. 240,658 5,204 2.2% 90.0% 216,592 4,684
Australia (XYZ)
Programming........... N/A 65,000 N/A 25.0% N/A 16,250
New Zealand
Cable................. 6,000 959 16.0% 50.0% 3,000 480
Philippines(2)
Cable................. 62,700 18,996 30.3% 40.0% 25,080 7,598
Tahiti
MMDS.................. 15,029 4,126 27.5% 90.0% 13,526 3,713
China (HITV)(3)
Microwave Relay....... N/A N/A N/A 49.0% N/A N/A
--------- --------- --------- -----------
Total............ 324,387 94,285 258,198 32,725
--------- --------- --------- -----------
Grand Total...... 3,980,710 2,130,762 1,478,105 650,983
========= ========= ========= ===========
</TABLE>
(1) As of December 31, 1995, the Company held a 100% interest in Cablevision
and a 65% interest in STX. The Company acquired the remaining 35%
interest in STX during 1996. In September 1996, the Company contributed
its Chilean assets to the VTR joint venture. The summary operating data
for Chile at December 31, 1996 are those of VTR.
(2) The Company currently has a convertible loan with SCS, which upon
conversion will allow for a 40% ownership interest.
(3) The Company has a 49% interest in HITV, a joint venture that owns a
microwave relay system in the Hunan Province that transmits one
provincial channel to approximately 400,000 cable television homes in the
region.
7
<PAGE>
<TABLE>
<CAPTION>
The data set forth below reflects the programming services in which the Company has an interest:
Programming Ownership Targeted
Country Services Interest Market
- ---------------------- -------------------------------------------------------------------- --------- -------------------------
<S> <C> <C> <C>
Malta . Premium movie Channel 50.0% Malta
. Hit movies of the 60s, 70s and 80s Channel
. General Entertainment/Sports Channel
The Czech Republic . General Entertainment/Documentary Channel 50.0% Czech/Slovak
. Childrens Channel Republics
Spain . Documentary Channel 33.8% Spain/Portugal
. Childrens Channel
. Movie Channel
. Music Video Channel
Australia . Documentary, adventure, history and lifestyle programming 25.0% Australia
. Childrens educational, entertainment and cartoons/family-oriented
drama and entertainment
. Music video with local presenters
. Drama, comedy, general entertainment, programming, library movies
Israel . General Entertainment Channel 3.5% Israel
. Movie Channel
. Childrens Channel
. Sports Channel
Hungary . HBO Hungary 2.0% Hungary
. Documentary, nature, history and travel
</TABLE>
The financial information presented below has been taken from financial
information of the respective operating companies that were providing service as
of December 31, 1996. Certain of the information presented below has been
derived from financial statements prepared in accordance with foreign generally
accepted accounting principles which differ from United States generally
accepted accounting principles. In addition, certain amounts for the year ended
December 31, 1996 have been converted to dollars using December 31, 1996
exchange rates for the convenience translation.
8
<PAGE>
<TABLE>
<CAPTION>
Revenues
----------------------------------------------
Convenience
Translation Functional Currency
------------- -------------------------------
Year Ended Years Ended
December 31, December 31,
------------- -------------------------------
1996 1996 1995 1994
Functional ------------- ---------- --------- --------
Currency (unaudited) (in thousands)
--------
<S> <C> <C> <C> <C>
Europe
Belgium(1)..................Belgian franc("BF") $ 17,750 562,995 363,086 --
Eindhoven(1)..........Netherland guilder("NLG") 10,341 18,003 4,297 --
Austria(1)...............Austrian shilling("S") 90,154 933,941 457,300 --
Amsterdam...................................NLG 51,404 89,495 75,030 --
France(1).....................French franc("F") 92 477 -- --
Israel................New Israeli shekel("NIS") 91,435 296,816 251,348 196,464
Ireland...............Irish pound("(Pounds)Ir") 31,365 18,923 17,315 14,997
Malta........................Maltese lira("Lm") 9,177 3,313 2,351 1,651
Norway(2)...............Norwegian kroner("NKr") 33,372 215,076 216,062 222,751
Hungary(cable)(3)(4)..........................$ 21,095 21,095 24,415 14,902
Czech Republic(1)...........Czech koruna("Kcs") 3,023 82,661 34,424 --
Spain....................Spanish peseta("Ptes") 720 93,384 43 --
Romania.......................Romanian leu("L") 756 3,126,816 -- --
Slovakia...........Slovak Republic koruna("Sk") 241 7,396 -- --
Portugal.................Portugal escudo("Esc") 20 3,099 -- --
Latin America
Jundiai, Brazil(3)............................$ 3,454 3,454 827 114
Forteleza, Brazil(3)..........................$ 5,592 5,592 2,480 --
Mexico.....................Mexican peso("Mex$") 9,506 75,002 75,606 65,357
Chile(VTRH)...................................$ 25,773 25,773 -- --
Peru(Cable Star).........Peruvian new sol("Sl") 830 2,143 -- --
Argentina(Bahia Blanca)...Argentine peso("M$n") 4,384 4,384 -- --
Asia/Pacific
Australia(Austar)(9) Australian dollar("A$") 21,340 26,852 594 --
New Zealand(10) New Zealand dollar("N$") 228 322 226 --
Tahiti(11) $ 3,513 3,513 1,882 --
Philippines(12) Philippino peso("P") 3,882 102,095 2,820 --
Australia(XYZ)(13) A$ 7,533 9,479 1,117 --
Australia(United Wireless)(8) ("A$") 110 139 2 --
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Net Income (Loss)
---------------------------------------------
Convenience
Translation Functional Currency
------------ ------------------------------
Year Ended Years Ended
December 31, December 31,
------------ ------------------------------
1996 1996 1995 1994
Functional ------------ --------- -------- -------
Currency (unaudited) (in thousands)
--------
<S> <S> <C> <C> <C>
Europe
Belgium(1).........................BF $ (1,760) (55,824) (46,720) --
Eindhoven(1)......................NLG (1,621) (2,822) (49) --
Austria(1)..........................S (210) (2,292) (15,800) --
Amsterdam.........................NLG (11,572) (20,147) (6,252) --
France(1)...........................F (2,784) (14,449) (1,879) --
Israel............................NIS 15,074 49,064 28,123 23,456
Ireland....................(Pounds)Ir (4,705) (2,838) (6,640) (7,446)
Malta..............................Lm (3,751) (1,354) (1,176) (969)
Norway(2).........................NKr (15,851) (102,157) (63,931) (4,344)
Hungary(cable)(3)(4)................$ 3,041 501,552 (7,542) (2,655)
Czech Republic(1).................Kcs (6,487) (177,381) (190,066) --
Spain............................Ptes (1,099) (142,540) (117) --
Romania.............................L 175 723,800 -- --
Slovakia...........................Sk (295) (9,053) -- --
Portugal..........................Esc (3,325) (515,275) -- --
Latin America
Jundiai, Brazil(3)..................$ (884) (884) (979) (325)
Fortaleza, Brazil(3)................$ (2,112) (2,112) (2,819) --
Mexico...........................Mex$ (875) (6,904) 10,594 (197)
Chile(VTRH).........................$ (5,132) (5,132) -- --
Peru(Cable Star)...................Sl (1,188) (3,067) -- --
Argentina(Bahia Blanca)...........M$n (886) (885) -- --
Asia/Pacific
Australia(Austar)(9)...............A$ (57,298) (72,098) (9,149) --
New Zealand(10)....................N$ (5,589) (7,909) (4,052) (1,974)
Tahiti(11)..........................$ (4,344) (4,344) (4,208) --
Philippines(12).....................P (501) (13,178) (8,278) --
Australia(XYZ)(13).................A$ (14,045) (17,673) (38,842) --
Australia (United Wireless)(8).....A$ (3,169) (3,988) (837) --
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Adjusted EBITDA(14)
-----------------------------------------------
Convenience
Translation Functional Currency
------------- --------------------------------
Year Ended Years Ended
December 31, December 31,
------------- --------------------------------
1996 1996 1995 1994
Functional ------------- ----------- --------- --------
Currency (unaudited) (in thousands)
--------
<S> <C> <C> <C> <C>
Europe
Belgium(1)..........................BF $ 8,769 278,135 168,101 --
Eindhoven(1).......................NLG 6,328 11,017 1,975 --
Austria(1)...........................S 46,783 510,590 217,900 --
Amsterdam..........................NLG 28,132 48,978 34,841 --
France(1)............................F (2,513) (13,042) (1,689) --
Israel.............................NIS 49,524 160,765 118,616 102,065
Ireland.....................(Pounds)Ir 11,874 7,164 5,161 3,579
Malta...............................Lm 2,594 936 238 174
Norway(2)..........................NKr 14,007 90,272 62.939 96,879
Hungary(cable)(3)(4).................$ 8,447 8,447 7,184 2,962
Czech Republic(1)..................Kcs (2,794) (76,399) (116,069) --
Spain.............................Ptes (1,099) (142,540) (223) --
Romania..............................L 307 (1,269,752) -- --
Slovakia............................Sk (288) (8,838) -- --
Portugal...........................Esc (3,045) (471,884) -- --
Latin America
Jundiai, Brazil(3)...................$ 269 269 (833) (401)
Fortaleza, Brazil(3).................$ (583) (583) (1,566) --
Mexico............................Mex$ (1,149) (9,066) 22,005 16,728
Chile(VTRH)..........................$ 6,608 6,608 -- --
Peru(Cable Star)....................Sl (751) (1,939) -- --
Argentina(Bahia Blanca)............M$n (48) (48) -- --
Asia/Pacific
Australia(Austar)(9)................A$ (26,337) (33,140) (9,390) --
New Zealand(10).....................N$ (4,648) (6,578) (3,364) (1,516)
Tahiti(11)...........................$ (1,191) (1,191) (3,142) --
Philippines(12)......................P (1,040) (27,352) (3,573) --
Australia(XYZ)(13)..................A$ (10,967) (13,800) (35,443) --
Australia(United Wireless)(8).......A$ (2,336) (2,939) (785) --
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Long-term Debt
----------------------------------
Convenience
Translation Functional Currency
------------- -------------------
Year Ended Years Ended
December 31, December 31,
------------- -------------------
Functional 1996 1996 1995
Currency ------------- ---------- -------
-------- (unaudited) (in thousands)
<S> <C> <C> <C> <C>
Europe (15)
Belgium(1).....................BF $ 696 22,080 --
Eindhoven(1)(12)..............NLG 12,941 22,530 22,107
Austria(1)......................S -- -- --
Amsterdam.....................NLG 210,224 366,000 229,500
France(1).......................F -- -- --
Israel........................NIS 8,424 27,346 85,273
Ireland................(Pounds)Ir 78,205 47,181 12,619
Malta(13).................... .Lm 16,620 6,000 4,633
Norway(2)(14)............... .NKr 310,167 1,998,964 510,592
Hungary (cable)(3)(4)......... .$ -- -- 34,207
Czech Republic (1)............Kcs -- -- 8,274
Spain........................Ptes -- -- --
Romania.........................L -- -- --
Slovakia.......................Sk -- -- --
Portugal......................Esc -- -- --
Latin America
Jundiai, Brazil(3)..............$ 97 97 135
Fortaleza, Brazil(3)............$ 792 792 1,192
Mexico.......................Mex$ 274 2,161 3,739
Chile (VTRH)....................$ 2,880 2,880 --
Peru (Cable Star)..............Sl 194 501 --
Argentina (Bahia Blanca)......M$n 243 243 --
Programming.....................$ 1,459 1,459 --
Asia/Pacific
Australia (Austar)(9)..........A$ 4,954 6,234 999
New Zealand(10)................N$ -- -- --
Tahiti(11)......................$ 1,257 1,257 --
Philippines(12).................P 5,627 147,987 --
Australia (XYZ)(13)............A$ -- -- --
Australia (United Wireless)(8).A$ -- -- --
</TABLE>
(1) These systems were contributed to UPC in July 1995 at which time a new
basis of accounting was adopted. Thus, the income statement information
disclosed is for the six months ended December 31, 1995 and there is no
comparable prior year information. In addition to the debt noted above,
Austria has an intercompany loan, which eliminates upon consolidation, of
S1.3 billion ($132.0 million) and UPC has a subordinated convertible loan
payable to Philips totaling NLG 213.8 million ($133.0 million).
(2) In addition to the long-term debt noted above, Norkabel had NKr 687,926 and
NKr 689,302 ($109,084), as of December 31, 1994 and 1995, respectively, of
loans payable to UCI.
(3) The above information is unaudited.
(4) The forint is the functional currency for the Hungary systems, however, the
systems report in U.S. dollars to the Company.
(5) The Company acquired its ownership in United Wireless in September 1995
and, as such, the amounts shown are for the four months ended December 31,
1995 using the new basis of accounting with no comparable history.
(6) In addition to the loans noted above, Austar has loans payable to the
Company of $1.1 million and $5.4 million as of December 31, 1996 and 1995,
respectively.
(7) Saturn had a loan payable to the Company totaling $18.8 million and $2.0
million as of December 31, 1996 and 1995, respectively.
(8) The French Polynesia franc (CFPF) is the functional currency for the Tahiti
systems; however, the statements are prepared in U.S. dollars. Telefenua
has loans payable to the Company of $13.3 million as of December 31, 1996
and $4.5 million and an equipment lease payable to the Company of $2.3
million as of December 31, 1995.
(9) The Philippine system has a convertible loan payable to the Company of P
249.1 million ($9.5 million) as of December 31, 1996 and P 151.2 million
($5.8 million) as of December 31, 1995.
(10) XYZ shows all capital contributions by shareholders as loans which totaled
$21.6 million as of December 31, 1995.
(11) Adjusted EBITDA represents net income (loss) as determined using generally
accepted accounting principles which differ from those used in the United
States for Israel, Ireland, Chile, New Zealand, Spain, Mexico,
Philippines, Belgium, France, Austria and the Netherlands, 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 entitys operating performance.
(12) KTE entered into a NLG 65,000 credit facility granted by Cooperative
Central Raiffersen-Boereneebank B.A. on February 7, 1997.
(13) Melita entered into a Lm 9,000 facility agreement with ING Bank N.V. on
September 30, 1996, which it used to refinance its debt with OPIC and
Creditaustalt.
(14) Norkabelgruppen entered into a NKr 540,000 bridge finance facility
agreement with ING Bank N.V. on March 5, 1997.
12
<PAGE>
(15) UPC entered into a US$150,000 bridge loan facility agreement with ABN Amro
Bank N.V. and others on April 15, 1996 (the term of which was recently
extended) and entered into a US$150,000 revolver with ABN Amro on January
29, 1996 (the term of which was also recently extended).
Certain Accounting Conventions
The foregoing financial information was derived from each operating company's
financial statements which report in local currency and have been translated to
dollars using a convenience translation (except for Kabelkom, Monor
Communications, STX, Cablevision, Net Sao Paulo, Jundiai, Fortaleza and Tahiti,
which report in U.S. dollars). The convenience translation is based upon the
audited and unaudited annual financial statements of the respective company.
Therefore, the dollar results derived from using the convenience translation and
local country generally accepted accounting principles present results which are
not in accordance with U.S. generally accepted accounting principles, including
the conversion principles set forth in Statement of Financial Accounting
Standards No. 52, Foreign Currency Translation. Additionally, exchange rates
used may not be representative of rates which have existed historically or which
may exist in the future.
Opportunities in Foreign Markets
Europe and Israel
- -----------------
Multi-channel television in most European markets has developed later than in
the United States largely because of historical regulatory controls over
broadcast media and communications, as well as the practical problems and
restrictions associated with the development of transitional programming
services. Historically, the European television marketplace was dominated by
national broadcast television channels, many of which were government owned and
operated. These channels were limited in number and of varying quality. During
the last 10 years, the regulatory framework for television in most Western
European countries has changed to accommodate the private ownership of
television services and to increase competition in the media and
telecommunications markets. The Companys initial international activities
focused on Europe and today include operations in 14 different countries in
Europe (including Israel).
A description of significant operating projects follows:
United and Philips Communications B.V.
Overview
In July 1995, the Company and Philips contributed their respective ownership
interests in European and Israeli multi-channel television systems to UPC. The
Company believes that UPC is the largest private multi-channel television system
operator in Europe, with ownership interests in operating systems and early
stage projects that as of December 31, 1996, had approximately 2.1 million
subscribers and passed 3.0 million of the 4.8 million homes in their combined
franchise areas. The Company and Philips each own a 50% economic and voting
interest in UPC, except for ratable dilution caused by UPCs incentive stock
option plan.
The Company anticipates that UPC will expand its operations both by building
out certain unserved regions in its existing franchise areas and by investing in
its numerous development and acquisition opportunities, as well as by launching
upgraded services to existing markets, including enhanced video programming,
data communications and telephony services among others. The Company believes
that UPC is well positioned to capitalize on the development of the European
multi-channel television industry.
Philips contributed to UPC its 95% interest in cable television systems in
Austria, its 100% interest in cable television systems in Belgium and its
minority interests in multi-channel television systems in Germany, the
Netherlands (Eindhoven) and France. The Company contributed its interests in
multi-channel television systems in Israel, Ireland, the Czech Republic, Malta,
Norway, Hungary, Sweden and Spain.
In July 1995, A2000, a Dutch company at that time owned 50% by each of
Philips and U S WEST, acquired a 100% interest in existing cable television
systems with non-exclusive licenses in Amsterdam, the Netherlands and four
surrounding municipalities. Philips then transferred its 50% interest in A2000
to UPC. In September 1995, UPC acquired the remaining 96.2% interest in KTE, the
Netherlands system formerly owned by the city of Eindhoven and certain local
housing authorities.
13
<PAGE>
The affairs of UPC are under the supervision of a supervisory board which
currently consists of six members, three nominated by each of the Company and
Philips. Day-to-day operations of UPC are managed from a central office in
Amsterdam by the management board. In February 1997, the Company and Philips
signed a letter of intent for the Company and/or UPC to acquire Philips 50%
interest in UPC, except for ratable dilution caused by UPCs incentive option
plan.
UPC has a first right of refusal to pursue any European subscription cable
television investment opportunity and related engineering and consulting
services that are identified by the Company or Philips. UPCs supervisory board
will decide which of these opportunities to pursue. Development opportunities
originated by the Company or Philips but which are declined by UPC may be
pursued separately by the party having originated the development opportunity.
On September 27, 1996, UPC acquired UCI, which holds interest in Norkabel and
Kabelkom. UCIs interest in Swedish Cable and Dish (SCD) was subsequently sold
in the fourth quarter of 1996.
In February 1997, the Company and Philips entered into a letter of intent
whereby the Company and/or UPC would acquire from Philips its 50% equity
interest in UPC, except for ratable dilution caused by UPCs incentive option
plan, along with 3.17 million of the Companys Class A Common Shares currently
held by Philips. The purchase price for the acquisition of these two assets is
$275 million. In addition, UPC as part of the transaction would agree to redeem
certain debt securities owed to Philips in the approximate amount of $155
million, and issue to Philips a stock appreciation right on UPC common stock.
The parties are currently working on definitive documentation for the
transaction, failing which the ownership of UPC will remain as currently
structured. Closing for the transaction, assuming the successful execution of
definitive documentation, is expected to occur by late summer 1997.
Brussels - Belgium
Radio Public has operated cable television systems since 1968 and serves
128,000 subscribers in seven municipalities in greater Brussels and three
communities in Louvain with 96% penetration in its service area. Of the 34
television channels currently comprising the basic packages in Brussels and
Louvain, 14 are exclusive to cable.
During 1996, Radio Public introduced tiered packages accessed through the
set-top decoder. These offer nine additional channels, as well as the 34
television channels including ethnic and family oriented programming. The
competitive market for telecommunications services in Belgium will begin in
1998.
Radio Public faces limited competition. The most significant competition
comes from DTH service. Generally, DTH subscribers in Belgium are from ethnic
groups who select DTH service to receive local language programming. Radio
Public competes primarily on the basis of the quality of its programming package
as well as its pricing. There are six off-air broadcasting channels available
throughout Belgium.
Czech Republic
In May 1993, Kabel Net, a Czech company formed by the Company and contributed
to UPC, was awarded the first MMDS license for Prague. In March 1994, Kabel Net
was awarded the first MMDS license for the second largest city in the Czech
Republic, Brno. These non-exclusive licenses allow for the transmission of up to
16 channels. Included in Prague is a municipal district, Jizni Mesto, for which
UPC has entered into an exclusive cable television franchise agreement. Several
non-exclusive cable television licenses have been granted to competitors in
portions of Kabel Nets Prague MMDS franchise area.
The Czech Republic is one of the most attractive markets in the former Warsaw
Pact nations with a relatively stable economy and political institutions. Kabel
Net, has MMDS licenses and serves 40,000 subscribers in Prague and Brno,
accounting for 33% of homes passed in the Republics largest cities.
UPC is actively involved in developing programming for its franchises in the
Czech Republic as demonstrated by its participation in Max 1, a documentary
channel, SuperMax, a childrens channel, and a partnership with HBO movie
channels.
14
<PAGE>
Norway
Norways geography and population distribution has favored the development of
cable television systems and the Norwegian market has approximately 70% cable
penetration. During the year, UPC raised its stake in Norkabel, which covers
almost 222,000 homes, from a small equity position to full ownership. After
year end, UPC acquired 70.2% of Janco, which serves the city of Oslo and passes
225,000 homes with 160,000 subscribers. UPC has the right to acquire the
remaining interest in Janco in 2000. Plans for Norway are to merge the two
companies into a single unit which will be able to deliver full
telecommunications services when legislation allows.
Eindhoven
Upon its formation, UPC owned a 3.8% interest in KTE. In September 1995, UPC
acquired the remaining 96.2% interest in KTE, an entity formed in 1984 to
construct and operate a cable television system in the city of Eindhoven. UPC
acquired the remaining interest in KTE from the other shareholders of KTE (the
City of Eindhoven, four local housing corporations and a local homeowners
association).
During 1996, KTE began upgrading its system infrastructure by replacing its
co-axial main lines with fiber optic cable. The Network upgrade is expected to
be completed by September 1997 and will provide KTE with increased channel
capacity and two-way cable service.
The Company believes that KTEs growth opportunities will come from increasing
the range of programming available to its subscribers and introducing value-
added services. KTE launched an extended basic tier in November 1996 and plans
to launch pay-per-view in 1997. UPC expects to be granted a non-exclusive
license commencing in 1998 to provide local-loop telephony services in its
existing service region. The Eindhoven system is the only cable television
system in its franchise area and currently faces only minimal competition from
off-air television signals, DTH and other multi-channel television services.
During 1996, UPC signed a letter of intent to purchase the cable network
assets serving Combivisie. The purchase will create a cluster, including KTE,
of over 220,000 subscribers in the region.
Austria
In 1978, Telekabel Wien, the largest of UPCs Austrian multi-channel
television companies, entered into a 30-year cooperation agreement with the city
of Vienna, which granted Telekabel Wien exclusive rights to provide cable
television services in the city. In 1979 and 1980, other Telekabel Group
companies entered into similar exclusive agreements with the cities of
Klagenfurt, Graz, Baden and Wr. Neustadt.
In early 1992, the Telekabel Group initiated the rebuild and upgrade of its
existing cable network in the city of Vienna, including the replacement of all
UHF amplifiers and the overlay of trunk line with fiber optic technology. By
the end of 1998, Telekabel expects to have completed the program of upgrading
its network to full interactive capability, for all homes passed. The Viennese
network conducted UPCs field trials of cable modems, networking equipment and
servers during the year and its success confirms that UPCs approach to high
speed Internet access is viable. The Internet service is scheduled to be
introduced commercially in 1997, as are expanded basic tier and pay per view
video services. The Vienna franchise area is substantially built out, and any
new build is expected to be limited primarily to areas outside of the city that
are lower in density.
The off-air Austrian television market is currently limited to two broadcast
channels (ORF 1 and 2) and foreign off-air channels that are only available in
certain parts of the country. The Telekabel Groups cable systems compete with a
DTH service that is available throughout Austria that offers the same number of
channels of programming as the Telekabel Group. The majority of the DTH
subscribers select that service to receive programming in their native language.
Currently, the overall DTH penetration of the Austrian market is approximately
7%. Telekabel Group competes with DTH service on the basis of quality of
service and product/programming selection.
15
<PAGE>
Amsterdam
UPC owns a 50% interest in the Amsterdam systems through A2000, a partnership
between U S WEST and UPC. The Company believes that there are significant
opportunities to increase the revenue and cash flow of the Amsterdam systems by
introducing new programming options, including an expanded basic tier and pay
per view which were launched in late 1996 and early 1997, respectively. In
addition, the Company has been granted a non-exclusive license to provide local-
loop telephony services in the Amsterdam municipal areas effective July 1, 1997.
A2000 is continuing to upgrade its telecommunications infrastructure. The
company will begin marketing voice telephony services to the residential market
in the third quarter of 1997 and the business market shortly thereafter.
During 1996, A2000 acquired the Hilversum network, adding 35,000 subscribers
to the network for a total of 524,000, as of December 31, 1996. Hilversum is a
strategic franchise which contains affluent residential customers and many blue-
chip businesses as well as all the major TV stations and a number of audio-
visual production facilities.
A2000 plans to continue to increase the range of television programming
available to its subscribers and introduce value-added services. Planned
television programming additions in the near term include enhancements to the
extended basic tier and introduction of a movie channel.
The Amsterdam systems are the only cable television systems in their
franchise areas and, as demonstrated by the stable penetration rates in the mid
to high 90% range, currently face limited competition from off-air television
signals, DTH and local SMATV systems.
Israel
The Company's investment in Israel was motivated by the opportunity to
acquire attractive franchises in an unserved multi-channel television market.
The Company, together with its strategic partners Discount Investment
Corporation Limited (DIC), and PEC Israel Economic Corporation (PEC), two
publicly-traded companies with extensive operations and investments in Israel
and TCI, has cost-effectively constructed three state-of-the-art cable
television systems that have achieved steadily increasing basic penetration
rates.
Tevel, the Israeli corporation in which UPC indirectly owns a minority
interest, has attractive franchises in densely populated areas. Tevel holds
exclusive cable television broadcasting franchises through 2002 for the entire
Tel Aviv metropolitan area, the region of Ashdod-Ashkelon (30 miles south of Tel
Aviv) and the Jezreel Valley (80 miles northeast of Tel Aviv).
Tevels growth strategy is to increase its subscriber base by completing line
extensions within existing franchise areas and increasing penetration by
offering a wider variety of cable-exclusive programming. Future growth in
revenues will depend upon increased penetration in built and unbuilt franchise
areas, acquisition and distribution of additional programming that will justify
increases in service rates and the sale of additional services. The Company
believes that the quantity and quality of Tevels programming is a key factor to
achieving and maintaining high penetration ratios in its franchise areas. Tevel
continues to seek additional programming to fill specific viewer niches. Tevels
franchise agreements are exclusive. The Company does not believe that present
DTH services compete with Tevels systems because Israel is not in the general
transmission path of existing European programming satellites and equipment
capable of receiving these distant signals is relatively expensive.
Ireland
The Company entered the Irish market in June 1992 in order to capitalize on
recently awarded exclusive franchise rights in areas not served by multi-channel
television systems. The Company, through UII, acquired an indirect 20%
ownership interest in PHL which was contributed to UPC. PHL, through two
wholly-owned and one majority-owned subsidiaries (collectively, the PHL
Operating Companies), owns interests in established cable television systems and
has exclusive franchises through 2001 to construct MMDS systems for areas
covering 265,000 homes in Ireland. Given the strong demand for more programming
options, as evidenced by high subscription rates in existing cable television
systems in Ireland, the Company believes that the expansion of multi-channel
television services into newly opened franchise areas presents an opportunity
for significant growth in number of subscribers.
16
<PAGE>
The PHL Operating Companies operate a total of nine cable television systems
in Cork, Limerick, Shannon and six smaller communities. The cable systems are
substantially built and further construction or upgrading is expected to be
minimal. Currently, all 18 of the PHL Operating Companies MMDS cells are
operational. PHLs objective is to expand marketing efforts in the new franchise
areas to increase the number of subscribers and reduce operational costs through
economies of scale. PHLs cable television systems are generally well
established in the geographic areas in which they operate and face relatively
little competition from other multi-channel television operators. While PHLs
MMDS systems compete with DTH service in rural areas of Ireland, PHLs MMDS
systems offer popular UK terrestrial channels not provided by DTH.
Malta
The Company's investment in Malta was motivated by the opportunity to acquire
an exclusive franchise to deliver multi-channel television service programming
in a cost-effective manner to a densely populated area with limited programming
alternatives. Malta, a group of islands located in the Mediterranean Sea between
Italy and North Africa, is an English-speaking nation. At present, with the
exception of a small number of home satellite receivers and a few hotel SMATV
installations, television in Malta is limited to off-air reception of broadcast
signals. Program availability is limited to one national channel that broadcasts
only six to seven hours a day with extended hours on the weekend and
approximately 15 foreign (Italian and Sicilian) broadcast channels. Although
English is one of the two official languages of Malta and is spoken by
approximately 90% of the population, availability of English-language
programming is currently limited. Television reception varies throughout the
Maltese terrain, depending on location, atmospheric conditions and antenna
equipment.
The Company and its local partners were awarded an exclusive 15-year
franchise in 1991 to construct and operate a cable television system in Malta.
In the fall of 1994, the Company itself launched three channels for the Malta
system, a premium movie channel, a hit movies of the 60s, 70s and 80s channel
and a general entertainment/sports channel.
Construction of the system began in early 1992 and cable television services
were launched in July of that year. With system construction substantially
completed, UPCs growth strategy is to aggressively market its services to homes
in its franchise area. UPC also has focused on acquiring and developing an
increased amount of programming for the system to increase its appeal to
subscribers.
Other UPC Properties
The Company, through UPC, also has interests in multi-channel television
operating systems in Slovakia, Hungary, Spain, France, Portugal and Romania.
Other UIH European Projects
Monor, Hungary
In the fall of 1994, the Company acquired a 47.6% (which was subsequently
increased to 48.4%) economic interest and a 50% voting interest in Monor
Communications, a Delaware corporation that indirectly controls the exclusive,
local-loop telephony concession for the region of Monor, Hungary. Monor
Communications owns 89.47% of Monor Telefon Targasag Rt. (Monor Telefon), a
Hungarian company holding the telephony concession. Monor Telefons concession
was awarded in March 1994 and extends 25 years, with the exclusive right during
the first eight years to provide local public telephone services in its area.
Monor Telefon has constructed a fiber-optic telecommunications infrastructure
that enables it to provide multi-channel television services to areas
representing 85,000 homes.
Spain (Programming)
The Company completed the formation of a joint venture with three partners
that provides programming to cable television operations in Spain and Portugal.
The joint venture launched four channels in April 1996, a documentary channel, a
childrens channel, a movie channel and a music video channel.
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Latin America
UIH Latin America, Inc. (UIH LA) owns and operates intermediate holding
companies in six Latin American countries: Argentina, Brazil, Chile, Mexico,
Peru and Venezuela. The Companys goal is to be a significant player in the
multi-channel television business primarily in the Southern Cone (Brazil,
Argentina and Chile) of Latin America and to ultimately expand into underserved
telecommunications markets. As of December 31, 1996, UIH LAs cable operations
passed a total of 2,189,716 homes serving a total of 462,804 subscribers
translating into 871,411 equity homes passed and 209,332 equity subscribers.
UIH LAs Operating Strategy. Latin America is in a much earlier stage of
development of multi-channel television than other parts of the world. Multi-
channel penetration of 11% in Latin America compares to 62% in America. Latin
American markets have recently demonstrated increasingly stronger economic
growth, political stability and declining inflation. As of December 31, 1996,
cable, MMDS and DBS subscribers were estimated to be approximately 10.7 million,
an increase of approximately 30% from the previous year. UIH LA has assembled
properties in a number of Latin American markets to form a major Multiple System
Operator (MSO). UIH LAs strategy is to acquire licenses and existing systems in
the region, with a concentration of focus on the Southern Cone. To facilitate
this strategy, the Company has forged solid business relations with strong local
partners. To further their strategy, UIH LA is considering potential sales of
non-core assets in areas outside of the Southern Cone. In anticipation of new
telecommunications legislation that will permit cross-ownership between cable
and telephony providers, UIH LA intends to participate in the telephony business
in the region.
By acquiring and developing systems in the Southern Cone, UIH LA will realize
operating efficiencies through the consolidation of many managerial,
administrative and technical functions. Further, UIH LA believes it will be
able to lower programming costs and equipment purchases. UIH LA currently has
offices in Argentina, Chile, Brazil, Mexico, Peru and Venezuela.
Technological Developments. UIH LA has made a substantial commitment to the
technological development of its systems and has actively sought to upgrade the
capabilities of its cable plant in order to increase channel capacity for the
delivery of additional programming and new services. UIH LAs systems have a
minimum of 40-channel capacity. Further, many systems are either currently at
or slated to be upgraded to 750 MHz hybrid fiber/coaxial cable to provide
subscribers with a wider range of telecommunications services. The hybrid fiber
coaxial architecture can be adapted to provide telephone services with the
installation of digital telephone switching and phone equipment.
Argentina
Economic and Political Overview. The Argentine economy in the late 1980s was
plagued with large external debts and recurring bouts of hyperinflation.
However, in 1991, a comprehensive economic restructuring plan was implemented
that set Argentina on a path of stable, sustainable growth. The currency has
traded at par with the U.S. dollar since April 1991, and inflation has fallen to
its lowest level in 20 years. Unfortunately, as a result of the devaluation of
the Mexican peso in mid 1995, the country suffered a severe recession. Still,
fundamentals for economic expansion, including foreign investment, strong
domestic consumption spending, and political stability, bode well for the
future.
To sustain the countrys economic recovery, current policies consist of (i)
privatization, (ii) decentralization, (iii) deregulation and (iv) the
Convertibility Program. Under the privatization plan nearly every public
enterprise controlled by the national government has been sold to the private
sector. Decentralization refers to the governments economic reform policy which
has transferred the primary responsibility for education, health and social
welfare to the provincial governments. The Argentine government has also
adopted a policy of deregulation which fosters domestic competition as well as
encouraging foreign investment by eradicating laws protecting sovereign
businesses. Argentinas commitment to this policy is evidenced by the signing of
the Bilateral Investment Treaty between Argentina and the U.S., which provides
significant protection of U.S. investments and prohibits either country from
discriminating between foreign and domestic investments. Additionally, in April
1991, the country passed the Convertibility Law requiring that Argentinas
monetary base be 100% backed by the Central Banks reserves. This law eliminates
price indexing and legally binds foreign currency denominated contracts,
effectively removing currency risk related issues and offering investors the
certainty of obtaining necessary foreign currency to meet their obligations.
Cable Industry Overview. The Argentinean CATV market resembles the U.S.
market. The cable industry is well-developed and is currently undergoing
consolidation as the larger operators purchase smaller operators around the
country due
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to the investment required for technical upgrading to state-of-the-art
technology. Approximately 98% of Argentinean households have television, and
almost 40% of all households own a VCR and have a phone. As of December 31,
1996, the country had an estimated 4.4 million cable subscribers, amounting to
roughly half of all households with televisions for an approximate 50% cable
penetration rate, the highest in Latin America. Argentina is also Latin Americas
largest cable revenue generator. Basic service rates run over $30/month in the
urban areas.
Existing Properties. In November, 1996, UIH LA closed on its 100% acquisition
of two cable systems and 80% of a third system, serving the cities of Bahia
Blanca and Punta Alta, Argentina. UIH LAs properties in Bahia Blanca pass
approximately 98,900 homes and serve approximately 60,000 subscribers for a
penetration of 60.1% as of December 31, 1996. The Company plans to rebuild the
systems over the next three years with the expectation that current
telecommunications legislation will allow cable companies to offer telephony and
other value-added services in the year 2000. The existing plant is primarily
450 MHz and all the systems will be rebuilt over time to 750 MHz hybrid fiber
coaxial cable design (HFC). Currently, the systems carry 40-60 channels in a
single basic tier.
In April 1997, UIH LA closed the acquisition of 100% of cable systems in
Comodoro and Trelew, Argentina. These two systems, which serve approximately
32,000 subscribers, were acquired for a total purchase price of $27,900, of
which $13,900 was paid at closing and the remaining $14,000 due in 18 monthly
installments beginning in May 1997.
In April 1997, UIH LA also agreed to acquire up to an 80% equity interest in
the cable systems located in Santa Fe, Parana and Galvez, Argentina which serve
approximately 83,000 subscribers for a total purchase price of $59,000. In
April 1997, UIH LA closed the acquisition of the first 31% equity interest for a
total price of $23,300 and paid a $2,500 deposit to acquire the additional 49%
equity interest by July 15, 1997. Both acquisitions provide for the total
purchase price to be paid 50% at closing and the balance paid in installments
through June 2000.
Competition. Operators predict that the Cable/MMDS industry will grow at an
average 5% per year over the next 10 years to reach an estimated 7.4 million
subscribers or 67% penetration of 11 million TV households. However, a
successful launch of DBS technology may somewhat dampen the growth prospects of
cable. Through 2006, it is projected that DBS will garner an estimated 770,000
subscribers and acquire an approximate 10% share of the cable/MMDS market.
Competition has caused CATV overbuilds, particularly in Buenos Aires, where four
MSOs provide service to 1.85 million subscribers, constituting 43% of the
countrys total. However, Buenos Aires is not a target market of UIH LA. UIH LA
experiences little multichannel competition in Bahia Blanca, competes with one
other operator in Comodoro and Trelew where UIH LA has 70% market share, and
competes with one other operator in Santa Fe where UIH LA has 95% market share.
Chile
Economic and Political Overview. Chile is one of the fastest growing and
most politically stable countries in Latin America. The countrys population,
industry and arable land are concentrated in the central valley region.
Santiago is the nations capital and largest city (5.6 million people). Chiles
population, estimated to be in excess of 14.2 million, is highly urbanized with
83.5% of the population living in cities. In the early 1980s, Chiles economic
performance suffered as the result of an external debt crisis, exchange rate
policies and global recession. However, the government acted quickly to restore
investor confidence and foreign and domestic investments recovered. Currently,
Chiles long-term sovereign debt is investment-grade rated. Since 1986, Gross
Domestic Product (GDP) has grown by a real average annual rate of 7.2% and the
economy has expanded for 13 straight years since 1983. Inflation has stabilized
and is predicted to decrease from 6.6% in 1996 to 5.5% in 1997. Continued
growth and moderate inflation are likely to result in greater consumer
purchasing power, which in turn will lead to continued growth in the pay TV and
telephony industries.
Beginning in 1973, under General Augusto Pinochet, the governments economic
policies have been built around an export driven, free enterprise model. Chile
was the first Latin American country to create a free market environment and
eliminate restrictions on foreign ownership. Chile privatized the local
exchange carrier and long distance markets in 1990 and 1994, respectively. The
current democratically-elected government of President Eduardo Frei continues to
support regulatory freedoms for foreign investors and lower import duties to
provide incentives for long-term foreign investments. In addition, poverty
decreased by one million people between 1991 and 1994.
Cable Industry Overview. Cable television was first introduced to Chile in
1989. Subsequently, industry growth has exceeded 550,000 subscribers in just
over eight years, representing 10% of all households as of December 31, 1996.
The majority of cable subscribers are based in Santiago where 40% of the
population resides. A total of 67 cable systems are
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currently in operation and cable operators have been upgrading their systems to
fiber/coaxial networks. Further, Chilean cable operators plan to undertake steps
to set up a platform for interactive television. Average rates for basic cable
service are approximately $24 per month. Predictions for subscriber growth vary
but most estimates predict over 1.2 million pay TV customers by the year 2000,
with an annual growth rate of 18.1% until the year 2003. At that time, it is
estimated that there will be 1.9 million pay TV subscribers in Chile.
Existing Properties. The Company initially purchased a 50% ownership
interest in Cablevision S.A. (Cablevision) in January 1994 and in January 1996
completed the acquisition of the remaining 50%. Cablevision operated cable
television systems in Vina del Mar and Valparaiso, Chile. Vina del Mar is a
popular South American resort, and Valparaiso is Chiles principal port.
Together, these two communities represent the second largest metropolitan area
in Chile. Cablevision also owns a 100% interest in Cablevision Norte S.A. which
is building cable television systems in La Serena and Coquimbo, located in the
central part of the country. In October 1994, Cablevision acquired a 50%
interest in Pacifico TV which is building cable television systems in Quilpue
and Vila Alemena, two cities located immediately adjacent to Vina del Mar.
Cablevision completed the acquisition of the remaining 50% interest in Pacifico
TV in May 1996.
In June 1995, the Company purchased a 65% ownership interest in STX and in
June 1996, acquired the remaining 35% interest in STX. STX owns and operates a
multi-channel television system in the northern part of Chile.
In September 1996, UIH LA merged its cable operations in Chile with those of
VTR S.A. (VTR), a telecommunications holding company owned by the Luksic Group
and Southwestern Bell Communications International (SBC) to create a new company
called VTR Hipercable S.A. (VTRH). Currently, UIH LA owns 34% of VTRH with SBC
and the Luksic Group owning 66% of UIH LAs shares. The relative values of
assets contributed to the joint venture by UIH LA and those contributed by VTR
S.A. will be redetermined as of December 31, 1997, and the parties equity
interests in the joint venture will be readjusted to reflect those relative
values. If the Companys interest as so adjusted is less than 34%, the Company
will be obligated to contribute cash and increase its ownership to 34%. The
Company will also have the right, in any event, to contribute cash and increase
its ownership to 50%. The price for these contributions will be based on the
relative appraised values of the assets contributed by the parties, subject to a
maximum and minimum.
VTRH is the largest pay TV company in Chile, with a market share of
approximately 58%. As of December 31, 1996, VTRH passed a total of 1,482,000
(UIH LA proportionate homes passed of 503,880) and estimated total pay TV
subscribers of 321,730 (UIH LA proportionate subscribers of 109,388). VTRH
distributes television signals through the use of wireline and wireless cable,
and rolled out DBS in the beginning of April 1997. The company is in the
process of upgrading its network to 750 MHz hybrid fiber coaxial architecture
which can be adapted to provide telephone services with the installation of
digital telephone switching and telephone equipment. VTRH has made significant
investment in hybrid fiber coaxial cable as the amount of homes passed by 750
MHz cable increased from 25.1% to 65.4%, since August 1996. Presently, 63% of
its network is now 750 MHz architecture with the complete upgrade to be
substantially completed by December 1997. Also, as of April 1997, VTRH is
offering customers in the San Miguel area of Santiago telephony services (VTRH
installed its first Nortel switch in the fourth quarter of 1996 on a test
basis). Further, the company plans on offering telephony services to
approximately 90% of its homes passed by the year 2000. VTRH is utilizing
Siamese Cable (twisted pair and coaxial cable drops).
Compania de Telecommunicaciones de Chile S.A. (CTC), the national local
exchange carrier in Chile, recently announced that its Board of Directors
discussed the possibility of a merger transaction between CTC and VTR without
arriving at any final determination regarding such a transaction. The CTC board
authorized CTCs management to continue discussions with VTR. A merger of CTC
and VTR could involve a restructuring of VTRH. There is no assurance that such
a transaction will occur and, if it does, what form it will ultimately take.
UIH LAs total investment in its Chilean properties represents approximately
49.3% of its total investments to date.
Competition. Two companies, VTR and Metropolis-Intercom, have substantial
combined market share in the wireline cable market in Chile.
Metropolis/Intercom S.A. was created in February 1996 through the merger of the
second and third largest cable operators in Chile. VTR and Metropolis/Intercom
compete in a number of markets, but primarily in the Santiago area.
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Brazil
Economic and Political Overview. Hyperinflation defined the Brazilian market
for 15 years in the 1980s and early 1990s. In 1994, the then finance minister,
Fernando Henrique Cardoso, launched his stability plan, Plano Real, calling for
a new currency. Inflation subsequently decreased from 30% per month to
negligible levels in less than two years. The newly elected president Cardoso
implemented a sweeping market-oriented reform targeting the public sector and
fiscal reform, privatization, deregulation and elimination of barriers to
increase foreign investment.
Cable Industry Overview. As the largest country in Latin America with nearly
160 million people and an area of 8.5 million square kilometers, Brazil has
approximately 2 million multi-channel television subscribers, or 3% of all
households as of December 31, 1996. With a population representing over half of
the entire South American continent, the Brazilian market has the greatest
potential demand for cable and satellite services in the region. Further, other
multi-channel technologies such as MMDS have made significant progress in Brazil
compared with other Latin American countries.
Existing Properties. UIH LA initially entered Brazil in 1993 by acquiring an
ownership interest in Net Sao Paulo. In 1994, UIH LA acquired an interest in
Rio TV Cabo in Rio de Janeiro. In January 1996 and July 1996, UIH LA sold its
interests in Rio TV Cabo and Net Sao Paulo, respectively, for a combined total
of $91.6 million, compared to its investment of approximately $22 million, and
recognized a gain of $77 million.
Also, in 1994, UIH LA acquired a 46.3% indirect interest in TV Cabo e
Communicacoes de Jundiai, S.A., a holder of non-exclusive cable television
licenses for the city of Jundiai. With no off-air broadcast stations available
to the population in Jundiai, the city represents an attractive market for
multi-channel television. The plant being constructed is capable of voice and
data services and UIH LA plans to pursue these revenue streams. As of December
31, 1996, this system passed a total of 41,889 total homes and had a total of
11,126 subscribers. This translates into proportionate homes passed and
proportionate subscribers of 19,395 and 5,151, respectively. Completion of
system construction is expected by calendar year end 1997.
In the city of Fortaleza, UIH LA owns a 40% interest in TV Show Brasil
(TVSB), owner and operator of a 31 channel MMDS system with an exclusive MMDS
license. The system passes a total of 387,000 homes and services 12,011 total
subscribers as of December 31, 1996, translating into proportionate homes passed
and subscribers of 154,800 and 4,804, respectively. The system currently
provides 16 channels and has received approval for increased frequency band to
carry an additional 15 channels. UIH LAs investment in the Brazilian
properties totals $10.5 million representing approximately 7% of UIH LAs total
investments to date.
Competition. The Brazilian Cable TV industry is dominated by large MSOs such
as Multi-Canal, Telecap and Net Brazil. During 1997, the government will
auction additional licenses covering approximately 30 million TV homes to multi-
channel television operators. UIH LA intends to actively participate in this
licensing process. UIH LA experiences little competition in Jundiai and
competes with one operator in Fortaleza where UIH LA has 90% market share.
Mexico
Economic and Political Overview. Under the guidance of new President Zedillo,
Mexico has taken measures to combat inflationary pressures in the economy.
Zedillo has implemented economic programs that include federal budget cuts and
plans for more privatization to restore investor confidence in the wake of the
December 1994 Peso devaluation. Consequently, UIH LA believes that economic
conditions are favorable for Mexicos long-term outlook including prospects for
solid growth and low inflation.
Cable Properties. UIH LA owns 49% interests in four operating systems in
Mexico (collectively known as Megapo). As of December 31, 1996, Megapo owns and
operates cable television systems in Mexico with approximately 350,000 homes
under franchise and passing a total of 166,117 (proportionate homes of 81,397).
Additionally, the systems have a total of 54,446 subscribers (proportionate
subscribers of 26,679) in Acapulco, Chilpancingo, Cuatla, Cuernavaca, and
Oaxaca. The total investment in the companys Mexican properties to date
represents 18.4% of UIH LAs total investment in the region.
UIH LAs strategy in Mexico is to expand the existing systems. Management
intends to gradually rebuild existing plant and to construct new plant with 750
MHz, closed ring, fiber-to-feeder technology.
Competition. Cable operators face competition from MMDS operators, and DBS,
which was introduced in 1997.
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Strong demand for high-capacity satellite services, frustration with
monopolistic cable service and competition between platforms should contribute
to DBS growth, however, DBS higher tariff relative to cable and MMDS should
temper such growth. In general, total multi-channel growth should progress well
albeit with new competition. Industry experts forecast that by 2006, Mexico will
have an estimated 10 million subscribers for a 59% penetration of TV households,
close to Argentinas current penetration. Mexicos largest MSOs are Cablevision,
Megacable and MVS Multivision. UIH LA experiences little competition in the
Megapo systems.
Peru
Cable Industry Overview. To date, the cable market in Peru has been
primarily concentrated in the capital city of Lima where two major cable
operators, Telecable S.A. and Cable Magico, are based. There are approximately
45,000 subscribers as of December 31, 1996, representing 1% of total households.
Cable companies in this market are positioning themselves to enter the telephony
market, particularly in the populous Lima area. UIH LA currently does not plan
to enter the Lima market.
Existing Properties. In February 1996, UIH LA made its first investment in
Peru by acquiring a 94% interest in Cable Star, S.A. UIH LA is the leading
provider of multi-channel services in Arequipa, Perus second largest city with
132,000 homes. UIH LA is also constructing a system in Tacna, Peru, a city
located 50 kilometers from Arequipa with 30,000 homes. As of December 31, 1996,
both cable systems served a total of 13,720 subscribers (proportionate
subscribers of 12,949). The existing plant is being upgraded into a 750 MHz
hybrid/coaxial cable system capable of providing a full range of
telecommunications services. UIH LAs strategy is to (i) complete construction
of the new plant, (ii) offer an attractive multi-channel television service and
a competitive telephone service and (iii) market their services aggressively to
secure subscribers and increase penetration. Investments in Peruvian properties
total $4.2 million and represent approximately 2.4% of total investments to
date.
Venezuela
Cable Industry Overview. Privatization of the Venezuelan telecommunications
industry began in 1991. Since then, four cable operators have dominated the
market, and competition is intense as overbuilds are legal and prevalent,
particularly in the capital city of Caracas. Certain operators entered the
market employing wireless systems because it allowed them quicker entry.
Cable TV in Venezuela is largely centered in Caracas. While TV penetration
is very high at 97% of total households, cable penetration rates remain low.
The official number of cable television households is about 280,000 or 7% of
total households as of year-end 1995. The actual number of homes receiving
multi-channel television is much higher as many televisions are connected to
satellite master antenna television systems, many of which remain unauthorized.
Existing Properties. In June 1996, UIH LA entered the Venezuelan market
through its 100% investment in Margarita Television Multicanal, C.A.
(Margarita), a cable TV startup with 18,800 homes passed and zero subscribers as
of December 31, 1996. Located in the northeastern part of the country,
Margarita has licenses in the communities of Margarita, Puerto Ordaz, Maturin
and Cumana with a potential of approximately 392,000 franchise homes. The
Company expects to pass approximately 75.5% or 296,000 homes over a five year
period. UIH LA formally launched operations in those markets in February 1997.
The total investment in the Margarita properties represents approximately 4.2%
of UIH LAs investment in Latin America.
UIH Asia/Pacific Communications, Inc. (UAP)
- -------------------------------------------
UAP holds interests in Australia, New Zealand and Tahiti through UIH A/P and
holds directly its interests in the Philippines system, the China network and
other development opportunities. UAP has agreed to exchange 2% of its common
stock for the remaining 2.6% interest in UIH A/P not held by UAP.
Compared to the United States and Europe, multi-channel television in Asia
today is relatively underdeveloped. UAP believes that multi-channel television
in Asia will experience rapid growth in the future, primarily as a result of (i)
the prolonged economic development experienced by most Asian countries
throughout the last 10 years, (ii) the continued liberalization of historical
regulatory controls over the ownership and content of television services
already experienced in a growing number of countries and (iii) the introduction
of additional satellite-delivered programming services which first began
broadcasting in 1987.
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UAP is actively engaged in the origination and development of new multi-
channel television systems, satellite programming services and related
telecommunications opportunities in the Asia/Pacific region. UAP has secured
ownership interests in and provides management services to multi-channel
television systems and related communication and programming services existing
or under construction in Australia, New Zealand, Tahiti, the Philippines, and
China. These systems are generally in the early stages of construction, and UAP
expects these systems to substantially increase their subscribers, revenues and
cash flows as construction is completed and the services are marketed. UAP is
also pursuing development opportunities in several other Asia/Pacific markets.
UIH Australia/Pacific, Inc. (UIH A/P)
Overview
UIH A/P, a majority-owned subsidiary of UAP, is a leading provider of
multi-channel television services in Australia, New Zealand and Tahiti. Through
its Australian operating company Austar, UIH A/P is the largest provider of
multi-channel television services in regional Australia, where it operates MMDS
systems and markets a DTH service in franchise areas encompassing approximately
1.6 million television homes, or 25% of the total Australian market. In
addition, UIH A/P, through its New Zealand operating company Saturn, is
constructing a wireline cable and telephony system in Wellington, New Zealand, a
market representing approximately 135,000 television homes. UIH A/Ps other
assets include a 25% interest in XYZ, a programming company that provides four
channels to the Australian multi-channel television market as part of the Galaxy
Package, the most widely distributed programming package in Australia and the
core component of Austar's programming offering, a 90% economic interest in
Telefenua, the only provider of multi-channel television services in Tahiti,
with an MMDS system in a market with 31,000 television homes, and a 100%
interest in United Wireless, an Australian company providing mobile data
services primarily in Sydney and Melbourne.
UIH A/P believes that it is well-positioned to capitalize on the rapidly
increasing demand for multi-channel television and telephony services in
Australia, New Zealand and Tahiti. As of February 28, 1997, UIH A/P had invested
over $275 million in its networks and operating infrastructure and had launched
service in each of its markets. As of February 28, 1997 UIH A/Ps multi-channel
television operating systems had an aggregate of approximately 1.8 million
television homes serviceable and approximately 131,000 subscribers, compared to
approximately 296,200 television homes serviceable and approximately 29,300
subscribers as of December 31, 1995 (with a substantial majority of such growth
resulting from Austar's expansion). During this same period, programming
subscribers of XYZ increased from approximately 65,000 to approximately 380,000.
While UIH A/P expects that a substantial portion of its growth will come from
the continued development of Austar, UIH A/P is also anticipating significant
growth by its other operating companies, each of which it believes has
attractive growth prospects.
UIH A/P files annual and quarterly reports on Forms 10-K and 10-Q with the
Securities and Exchange Commission. A more detailed discussion on UIH A/Ps
operations is included in the UIH A/Ps Annual Report on Form 10-K for the year
ended December 31, 1996.
The following table sets forth certain unaudited operating statistics of
the operating companies as of February 28, 1997:
<TABLE>
<CAPTION>
Television Homes in
Operating System Technology Service Area Homes Serviceable Subscribers
- ------------------ --------------- ------------------- ----------------- -----------
<S> <C> <C> <C> <C>
Austar MMDS/DTH 1,622,000 1,528,730 123,689
Saturn Cable/Telephony 141,000 15,975 1,903
Telefenua MMDS 31,000 19,584 5,472
XYZ Programming N/A N/A 380,000
--------- --------- -------
1,794,000 1,564,289 511,064
========= ========= =======
</TABLE>
Australia (Austar)
Austar is the largest provider of multi-channel television services in
regional Australia (areas outside Australia's six largest cities). In early
1996, Austar initiated widespread deployment of its services and, as of February
28, 1997, had launched MMDS service in 38 metropolitan markets containing
approximately 782,000 homes and had initiated the marketing of DTH services in
non-metropolitan markets containing approximately 747,000 homes. These markets
represent over 97% of Austar's 1.6 million franchise television homes, the
remaining 40,000 of which will be serviceable by mid-1997.
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Austar has entered into franchise agreements with Australis Media Limited
(Australis) that grant it the right to provide the Galaxy programming package
within its franchise areas through 2009 (extendible at Austars option through
2019). The Galaxy programming package (the Galaxy Package) is the most widely
distributed programming package in Australia and includes Showtime (movies),
Encore (movies), Fox Sports, TV-1 (general entertainment), Discovery,
Nickelodeon/Nick at Nite, Arena (general entertainment) and Channel [V] (music
video).
Operating and Growth Strategy. Due to the relatively small size and low
housing densities which characterize the markets in its franchise areas, Austar
is primarily utilizing MMDS and DTH wireless technologies to deliver its
service. In its metropolitan markets, Austar constructs and owns the
transmission facilities and installs and retains ownership of the in-home
subscriber equipment. In its non-metropolitan markets, Austar is marketing a DTH
service (consisting primarily of the Galaxy Package) and installs and retains
ownership of the in-home subscriber equipment. Approximately 800,000 of the
television homes in Austar's service area are in metropolitan markets with
sufficient size and densities to justify the construction of MMDS networks.
Austar owns virtually all of the licenses in the MMDS spectrum currently
available in these markets for the provision of MMDS services. Because MMDS
service is less expensive to install than DTH, Austar services customers in
these metropolitan markets with its MMDS service whenever possible. A small
number (approximately 20%) of homes in these metropolitan markets, however, are
out of the line of sight of Austar's MMDS networks. Austar services these homes
with its DTH service. Austar markets its programming services via DTH in its
non-metropolitan franchise areas representing 747,000 television homes. These
are less densely populated areas outside its metropolitan markets that are more
effectively serviced by DTH technology. In addition, Austar is constructing a
wireline cable network in Darwin, a market containing approximately 26,200
serviceable homes where dense vegetation makes an MMDS system impractical.
Programming. The Company believes that programming is an important
component in building successful multi-channel television systems. Accordingly,
Austar has secured the right to distribute the Galaxy Package of programming in
its service areas pursuant to franchise agreements with Australis with initial
terms through 2009 (extendible at the option of Austar through 2019). Austar
believes that the terms of its franchise agreements with Australis are favorable
to Austar and that these terms provide Austar with a programming cost advantage
over potential competitors.
Austar is currently providing the eight-channel Galaxy Package, plus three
to five additional channels of programming as its basic package. Austar also
integrates all available off-air channels into its basic channel line up at no
additional charge. In March 1996, Austar began offering its first premium
channel, World Movies, which consists primarily of foreign movies, art films and
features. As of February 28, 1997, Austar had 17,025 subscribers for its World
Movies premium channel.
Marketing; Customer Support. Austar has developed a comprehensive marketing
and sales organization consisting of a 180 person direct sales force and over
200 national customer service and telemarketing personnel. Austar has
established the National Customer Operations Center (NCOC), a state-of-the-art
fully-integrated subscriber management system featuring a sophisticated digital
wide-area network, Cable Data's Intelecable platform, an automated response unit
and predictive dialer technology. The NCOC currently services all of Austar's
MMDS and DTH subscribers and has the capacity to service all future customers in
its existing markets. NCOC employees process installation orders, handle
customer inquiries, including programming and technical questions, and implement
the customer retention program, which includes telephone contact with customers
following a cancellation request, as well as making unprompted contact with
customers immediately following installation in an effort to ensure customer
satisfaction.
Competition. The substantial majority of Austar's metropolitan markets are
either small (i.e., approximately 20,000 homes), and/or have relatively low
household densities (generally 25 to 75 homes per square kilometer as compared
to 100 to 130 homes per square kilometer in Australia's largest capital cities).
As a result, Austar believes that its metropolitan markets generally do not have
sufficient density to justify the construction of competitive wireline cable
systems. While UAP believes household densities could potentially support
wireline cable construction in areas representing approximately 20% of Austar's
total franchise homes, the relatively small size of these markets reduces the
attractiveness of constructing a competitive cable network. In addition, Austar,
as a licensed subscription television provider, is authorized to build wireline
cable systems in its markets and where appropriate could construct wireline
cable systems. With the exception of the Foxtel cable television system
currently extending into Austar's 116,000-home Gold Coast metropolitan market,
Austar does not currently have any operational subscription television
competitors in its franchise areas.
24
<PAGE>
Saturn (New Zealand)
UAP owns 100% of Saturn, which recently launched service on the initial
portions of its hybrid fiber co-axial cable (HFC) network that will allow it to
provide multi-channel television services as well as business and residential
telecommunications services in the Wellington area, encompassing 135,000 homes.
Wellington is New Zealand's capital and second largest city. UAP launched
service in portions of this system in September 1996 and expects construction to
be completed by mid-1998. Saturn also operates an existing cable system, which
passes approximately 6,000 homes, on the Kapiti Coast north of Wellington. As of
February 28, 1997, Saturn's activated networks passed approximately 16,000 homes
and serviced approximately 1,900 subscribers. In addition, Saturn has secured
additional rights to use existing poles to attach its network cable in markets
representing 200,000 homes, subject to local planning approval, and is exploring
the possibility of expanding its networks and services to these markets.
Operating and Growth Strategy. Saturn is constructing a 750 MHz HFC network
designed to allow the integrated delivery of pay television, telephony, Internet
access, high speed data and future interactive services. The majority of
Saturn's approximately 1,600 kilometers of plant will be constructed on aerial
utility poles which will allow for quicker and more cost-effective network
construction than underground wireline. Because the only significant multi-
channel television competitor in the Wellington market offers a UHF-delivered
service that is limited to only five channels, management believes it will be
able to build a significant customer base by offering an attractive basic
programming line-up of over 30 channels at competitive prices, as well as pay-
per-view, data and telephony services. Saturn is currently negotiating for an
interconnect agreement that will allow it to provide local residential and
business telephone services. By bundling both subscription television and
telephony services, Saturn will be able to offer pricing discounts across both
services, which management believes will provide an advantage over competitors
that offer only one service. Saturn is currently in negotiations with an
international provider concerning potential strategic partnership arrangements.
There can be no assurances, however, that Saturn will be able to conclude
successfully any such arrangements.
Programming. Saturn is currently offering a single tier of service
consisting of 21 channels and is currently negotiating with a number of
programming services to expand its channel offering. In addition, Saturn
negotiated pay-per-view licensing agreements with Columbia TriStar, Fox and
Universal Pictures and expects to have agreements with several other studios in
order to launch its pay-per-view services in the second quarter of 1997.
Competition. There are currently three broadcast networks in New Zealand,
with plans for a fourth network announced. The largest provider of subscription
television services in New Zealand is Sky TV (Sky), which operates a five
channel scrambled UHF subscription television service. Although Sky offers a
popular sports channel on an exclusive basis, Sky does not currently offer the
programming diversity or television/telephony bundling that Saturn plans to
offer, services Saturn believes will drive its penetration. Sky has recently
announced, however, that it intends to offer a satellite service primarily
targeted to rural areas of New Zealand that currently are unable to receive
Sky's UHF signal and which may enable it to provide up to an additional five
channels. In addition, Telecom New Zealand (Telecom), New Zealand's largest
telecommunications service provider with nearly a 100% share of local loop
revenues, 75% of national and international toll revenues and 90% of cellular
revenues, has announced its intention to rebuild certain of its existing
networks using HFC technology, which will allow it to offer video and data
services to a total of approximately 70,000 homes in various parts of New
Zealand, and that further expansion of its network will depend on results of the
initial roll-out. Telecom recently activated the initial portion of its network
in the Wellington area, which passes approximately 2,000 homes. Telecom is also
expected to be the primary competition to Saturn's planned local loop telephony
service.
XYZ (Australian Programming)
Through its 25% interest in XYZ, UAP provides four channels (the XYZ
Channels) of the eight channels which are distributed as the Galaxy Package. The
XYZ Channels consist of the Discovery Channel, Nickelodeon/Nick at Nite, Channel
[V] and Arena.
XYZ is an independently managed venture which purchases, edits, packages
and transmits programming for the XYZ Channels in exchange for a monthly fee per
subscriber. UIH A/P and Century jointly manage Arena; UIH A/P, Century and
Foxtel manage Channel [V]; and UIH A/P and Century, together with Nickelodeon
Australia, Inc. (Nickelodeon), manage the Nickelodeon/Nick at Nite channel. Each
of these three channels reports to a board comprised of UIH A/P, Century and
Foxtel executives. The Discovery Channel is managed by Discovery Asia and
distributed by XYZ.
25
<PAGE>
XYZ is focusing its marketing efforts on creating, building and supporting
channel identification and brand awareness. XYZ's goal is to acquire quality
programming that will engender viewer loyalty. In addition, when restrictions on
multi-channel television advertising expire in mid-1997, XYZ plans to offer
advertising on each of the XYZ Channels. XYZ also plans to create and distribute
two additional channels in 1997.
Telefenua (Tahiti)
UIH A/P has an up to 90% economic interest in Telefenua which operates a 15
channel MMDS service in a service area that, as of February 28, 1997, included
approximately 19,600 television homes. Telefenua is currently expanding its
network by selectively adding beam benders and repeaters that will allow its
signal to reach substantially all of the approximately 31,000 serviceable homes
in its franchise areas. Telefenua had 5,472 subscribers as of February 28, 1997,
representing a 28% penetration rate. UIH A/P is in the early stages of
negotiating the sale of all or a portion of Telefenua to a local strategic
investor although there can be no assurance that UIH A/P will conclude such a
transaction.
Telefenua offers a combination of French and English language services.
Telefenua's current channel line-up consists of 15 channels segregated into two
tiers of servicea basic service with 12 channels and an expanded tier with an
additional three channels. Management is actively seeking to expand its
programming offering including the planned introduction of premium movie
services.
Telefenua's only subscription television competitor is Canal Plus, which
offers a single channel UHF service offering a combination of sports, movies and
general entertainment programming. UIH A/P estimates that Canal Plus had
approximately 3,800 subscribers, of which an estimated 1,000 are also customers
of Telefenua. The monthly subscription fee for Canal Plus' service is
approximately equal to the subscription fee for Telefenua's 15-channel expanded
tier service. There is no existing competition in Tahiti from DTH services due
to limited satellite coverage in the region and lack of available satellite
delivered French language programming.
United Wireless (Australian Mobile Data)
UIH A/P owns a 100% economic interest in United Wireless, a provider of
two-way wireless mobile data services in Australia. Wireless data networks
provide for the two-way transmission of packet switched data between a
customer's terminal and a host computer. The transmission of wireless data
occurs over a network, similar in configuration to a cellular telephone network,
which is constructed and maintained by a local network carrier, such as United
Wireless.
United Wireless is aggressively expanding its network coverage areas to
encompass the metropolitan markets of Adelaide, Brisbane, Canberra, the Gold
Coast, Melbourne, Perth and Sydney. UIH A/P plans on spending approximately $3.7
million for network construction and working capital needs through 1998. United
Wireless' target market includes large companies with significant potential
installed bases, such as utilities, security alarm firms, commercial banks,
transport companies, and courier and delivery companies.
Other UAP Projects
SCS (Philippines)
UAP has extended a loan to SCS, which, upon certain events, is convertible
into a 40% equity interest in SCS, the third largest cable television operator
in the Philippines with wireline cable television systems in 16 markets that
have a total of approximately 600,000 television homes. SCS is dedicating
significant resources to the construction and build-out of these franchise
areas. Multi-channel television in the Philippines is experiencing rapid growth
due in part to the country's recent economic growth, widespread proficiency of
English and the high demand for television and alternative entertainment
services SCS is also exploring the provision of telephony services over its
networks, many of which are HFC. At three lines per 100 persons, the
Philippines telephone penetration rate is currently one of the lowest in the
world. As of February 28, 1997, SCSs systems passed approximately 160,000 homes
and had 53,652 subscribers, representing a penetration rate of 34%. Due to
limitations on foreign ownership under existing Philippine law, UAP is currently
not permitted to hold an equity common stock interest in SCS. UAP believes the
law will change within the next few years to allow up to 40% foreign ownership
in Philippine multi-channel television companies.
26
<PAGE>
SCS has initiated or is planning to initiate a rebuild and expansion
program in each of its markets involving, where feasible, the construction of
HFC networks that will allow the systems to offer telephony services. SCS is
also expanding its existing networks and pursuing additional licenses and
existing cable television systems in selected markets. SCS is pursuing a $20
million credit facility to fund its system construction, although there can be
no assurance it will be successful in obtaining such a facility.
HITV (Hunan Province, China)
The Company has formed a joint venture, HITV, with Hunan Goods and Services
Company (HGSC), a wholly-owned subsidiary of the Broadcast Bureau of Hunan.
HGSC has contributed to the joint venture Hunan Provinces microwave relay
network. The network serves 14 cities in Hunan Province and currently transmits
one provincial channel. The Company holds a 49% interest in HITV. The joint
venture plans to deliver additional television programming services to cable
systems in the Hunan Province in exchange for an agreed upon yearly fee per
cable system subscriber. The joint venture plans to use the network for the
provision of additional data and voice services as and when government
regulations allow such services.
System Development Strategy
The Company systematically reviews opportunities for development of multi-
channel television systems outside the United States. Such opportunities
typically are initiated by the Company or are introduced to the Company by
persons who believe that the Company's expertise would be helpful in developing
such systems. When considering whether to develop a multi-channel television
system, the Company initially assesses, among other factors, the (i) potential
for multi-channel television services and the availability of competitive
services, (ii) strength of local strategic partners, (iii) disposable income of
households in the relevant service area, (iv) availability and quality of
programming services, (v) cost of providing the service, including the cost of
constructing a new system or acquiring and rebuilding an existing system, (vi)
availability of sufficient financing in the appropriate currency, (vii)
potential for development of related communications services such as telephony
and (viii) the environment for foreign investment in the country where the
operation will be located, including governmental stability, economic prospects,
tax and regulatory considerations, the ability to repatriate earnings and
related factors. If the Company determines that a cable or other system of
television programming distribution would be viable, it then initiates
negotiations with local strategic partners to establish the terms of their
participation in the operating company that will own the system. In selecting
strategic partners suitable for a specific project, the Company considers, where
appropriate, the potential partner's local business expertise and relationships,
access to desirable infrastructure and financial resources. Such strategic
partners may also contract to provide services to the local company, such as
assisting in the construction or management aspects of the system's business.
Multi-channel television system development typically consists of three
phases: franchise or license acquisition, system construction and system
operations. The Company's management subsidiaries or affiliates contract with
the operating companies to provide management services during all three phases.
As required, the management companies typically provide system design and
engineering, financial feasibility analysis, construction supervision,
purchasing, marketing, programming and information systems services.
At present, the Company is involved in operations which span all of the
three phases described above. For example, in UPCs more developed operations in
Europe such as Vienna and Belgium, UPC is focused on adding additional video,
data and telephony services to its existing base of cable television service. In
other projects the Company has already obtained licenses to operate, and
therefore, resources are being utilized to continue to construct cable
television and/or telephony systems. Examples of these types of operations would
be New Zealand and France. Finally, the Company is selectively pursuing
licensing opportunities in areas which currently have no services, such as in
Brazil. As of February 28, 1997, the majority of the Company's systems are in
projects which are already in operation, and therefore the majority of the
Company's resources are being utilized to operate existing systems as opposed to
the construction and/or licensing phases.
Licenses typically impose various standards for operation of the system
(for example, technical performance standards, channel capacity and programming
that must be carried), specify construction standards (whether aerial or
underground, and minimum safety requirements), and establish a schedule for
construction that includes a specified time in which to begin construction of
the system and various construction benchmarks that the Company must meet during
construction of the system. Licenses usually specify the extent of local control
and ownership over multi-channel television systems and specify constraints on
programming and pricing to a greater extent than is typical in the United
States. Depending on local practice and regulation, the license may not grant
exclusive distribution rights.
27
<PAGE>
Prior to and during the construction of the system, the Company arranges
for suitable programming services and establishes a marketing program directed
toward potential subscribers. During the operation phase, the Company's
management entities continue to offer training and support as needed. Operating
companies are initially staffed with a combination of U.S. citizens with
experience in various aspects of the cable television business and local
citizens. Through training, the Company seeks to phase down direct management
participation by U.S. citizens as local residents gain experience in
construction, maintenance and operation of the system.
Programming
Multi-channel television systems offer various types of programming,
usually marketed as basic service, tier services (expanded basic service),
premium services, pay-per-view programs and packages including several of the
services at combined rates. Basic service usually consists of signals of
broadcast channels and certain signals received from satellites. Basic service
also usually includes programs originated locally by the system, which may
consist of music, information and live or taped programs of a public service or
entertainment nature.
Multi-channel television systems also may offer premium services to their
subscribers, which consist of feature films, sporting events and other special
features that are presented without commercial interruption. The operator buys
the premium services from suppliers at a cost usually based on the number of
subscribers receiving the services from the cable operator or develops and
furnishes programming itself. Premium service programming is significantly more
expensive than the basic service programming and consequently is priced
separately when sold to subscribers.
New multi-channel television services have been developed and introduced
over time since the inception of the cable television industry. One relatively
new service currently being marketed by some cable television operators in the
United States is pay-per-view, a service that allows subscribers to receive
single programs, frequently consisting of motion pictures that have recently
completed their theatrical exhibitions and major sporting events, and to pay for
such service on a program-by-program basis.
Programming is typically licensed from various companies that produce
original programming or have the distribution rights to existing programming.
Programming is generally transmitted to a system's headend facility via
satellite although it may also be supplied by pre-recorded tape.
The Company's primary programming objective is to procure appropriate
programming that will enhance the value of the multi-channel television systems
in which the Company has an ownership interest. Based on industry experience in
the United States, the Company believes that development of attractive
programming available only on a multi-channel television service will stimulate
subscription rates and revenues for its multi-channel television systems.
Programming license agreements typically have terms of three to five years.
Currently, a majority of the basic service programming is supplied to the
operating companies at no cost. The remainder is licensed under a variety of fee
arrangements, ranging from an annual flat fee to a variable fee based upon the
number of subscribers in an operating company's system that receive the
programming service. Most suppliers that in the past have not charged for the
use of their basic service programming have indicated that they will seek some
type of fee arrangement upon renegotiation of the licenses. Unlike the United
States where multi-channel television operators purchase premium services from
programmers and then set the rate charged to its subscribers for such services,
in the European markets premium service suppliers set the subscription rate
charged and pay the multi-channel television operator a commission, typically
40%, for carrying the premium service. Accordingly, multi-channel television
system's profit margins on such premium services are generally smaller than in
the United States.
Sources of Revenue
Multi-channel television system revenues are derived primarily from
subscriber fees and installation charges and, to a lesser extent, from
advertising sales.
Subscriber Fees
A subscriber to a multi-channel television system generally pays an initial
connection charge and a fixed monthly fee for basic service. The amount of the
monthly basic service fee varies from one area to another and is a function, in
part, of the
28
<PAGE>
number of channels and services included in the basic service package and the
cost of such services to the multi-channel system operator. In most instances, a
separate monthly fee for each premium service and certain other specific
programming, such as pay-per-view services, is charged to subscribers. In some
cases, operators will develop specific programming packages. Generally this
means that a system will offer several programming packages that include basic
service and one or more premium services for a monthly fee that is greater than
the fee charged for basic service, but less than the fee that would be charged
for basic service and the premium services if purchased separately. The number
and selection of premium services offered by a system as part of a programming
package will vary.
Installation Charges
Monthly service fees for basic, tier and premium services generally
constitute the major source of revenue for systems. However, unlike the
experience in the United States, installation charges are a significant source
of operating cash flow for the systems in which the Company has invested and are
particularly important during the construction phase of development. Reconnect
charges for subscribers who previously disconnected are also included in a
system's revenues, but generally are not a major component of revenues.
Advertising Sales
U.S. multi-channel television system operators have been able to generate
additional revenue through the sale of commercial spots and channel space to
advertisers. As with other forms of advertising, the operator receives a fee
from the advertisers which is based on the volume of advertising and the time of
the day at which it is broadcast. However, most of the countries in which the
Company's existing operating systems are located currently limit or prohibit
system operators from offering advertising services.
Competition
Multi-channel television systems compete with broadcast television, which
consists of television signals that the viewer is able to receive directly on
his set using his own antenna (off-air). The extent of such competition is
dependent in part upon the quality and quantity of the signals available by such
off-air reception as compared to the services provided by the available multi-
channel television systems. Accordingly, it has generally been less difficult to
obtain higher penetration rates in areas where there is off-air signal
interference, where such signals are weak, or where signals available off-air
are limited, than in areas where high quality off-air signals are available
without the aid of multi-channel television systems. Thus, the construction of
more powerful transmission facilities near a system or the increase in the
number of television signals in such areas could have an adverse effect on
revenues.
Multi-channel television systems also compete to varying degrees with other
communications and entertainment media, including motion pictures and home video
cassette recorders, and depend upon the continued popularity of television
itself.
Some types of multi-channel television systems described above may compete
in a particular market with the type of multi-channel television system in which
the Company has an ownership interest. However, in deciding to acquire or
develop a system, the Company considers the competitive forms of multi-channel
technology available and endeavors to select the type or types most appropriate
for that particular market. Where possible, the Company tries to obtain
exclusive rights to provide multi-channel television services using any form of
technology or to reach agreements with operators of competing types of multi-
channel television systems to complement each other's available programming.
Other
As of February 28, 1993, all of the Company's outstanding common shares
were held by United International Holdings, a Colorado general partnership (the
Partnership). The Company completed an initial public offering of 8,050,000
shares of Class A Common Stock at $9.50 per share in July 1993. Immediately
prior to the Company's initial public offering, the Partnership distributed to
its partners all shares of the Company's Class B Common Stock. An agreement with
Apollo Cable Partners, L.P. (Apollo) for the investment of $30.0 million in the
Company in exchange for 4,261,364 shares of Class B Common Stock (Apollo
Transaction) was completed immediately prior to the closing of the initial
public offering on July 29, 1993.
29
<PAGE>
The Company received an order from the SEC declaring that it is primarily
engaged in a business other than that of an investment company and, therefore,
is not an investment company within the meaning of the Investment Company Act of
1940. In light of such order, the Company has determined that its business
holdings should continue to be concentrated in operating companies that it
controls or over which it exerts significant influence.
Compliance with federal, state and local provisions which have been enacted
or adopted regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment has had no effect upon
the capital expenditures, earnings or competitive position of the Company.
As of February 28, 1997, the Company had 159 employees. None of the
Company's employees are subject to collective bargaining agreements. The Company
believes that its relations with its employees are good.
(d) Financial Information about Foreign and Domestic Operations and Export Sales
- --------------------------------------------------------------------------------
The Company holds interests in foreign operating entities. As is typical
during the development, construction and early operation stages of multi-channel
television systems, the operating companies in which the Company holds ownership
interests generally have not paid dividends or other distributions to the
Company. Since its inception, the Company's primary source of operating revenue
has been the management fees it received from operating companies. The Company
currently earns management fees from individual operating companies. For more
information on the Company's affiliates, and a breakdown of management fees
earned see General Development of Business--Summary Operating Data and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Item 2. Properties
- --------------------
The Company leases its executive offices in Denver, Colorado, as well as
its regional operating offices. The Company's facilities and the facilities of
its subsidiaries, are in the opinion of management, suitable and adequate.
Item 3. Legal Proceedings
- ---------------------------
Other than as described below, the Company is not a party to any material
legal proceedings, nor is it currently aware of any other threatened material
legal proceedings. From time to time, the Company may become involved in
litigation relating to claims arising out of its operations in the normal course
of its business.
The territorial government of Tahiti has legally challenged the French
government Decree pursuant to which subscription television licenses are granted
and authority of the Conseil, Superieur de Audiovisuel (CSA) to award Telefenua
the authorizations to operate an MMDS system in French Polynesia. The French
Polynesian's challenge to France's authority to award Telefenua an MMDS license
in Tahiti was upheld by the Conseil d'Etat, the supreme administrative court of
France. The territorial government of Tahiti has brought an action in French
court seeking cancellation of the MMDS licenses awarded by the CSA to Telefenua,
although no such cancellation has yet taken place. A law recently enacted by the
French Parliament may give Telefenua a statutory basis for seeking a new
authorization from the communications agency, should the existing authorization
be nullified. The Company believes that if the existing authorization is
nullified and Telefenua is unable to obtain a new authorization, Telefenua may
petition for restitution for the taking of such authorization. There can be no
assurance, however, that if the existing authorization is nullified a new
authorization will be obtained. If Telefenua does not obtain a new
authorization, however, there is no assurance that Telefenua will receive any
restitution. In addition, any available restitution could be limited and could
take years to obtain.
Carl M. Johnson, an individual who claimed to have worked with UIH in
connection with the acquisition by Austar of certain of its licenses, has
claimed that UIH owes him a 12.5% equity interest in unspecified subsidiaries of
UIH. This complaint, which was filed on April 24, 1996 and served on UIH in
October 1996, is pending in a civil court in Melbourne, Australia, and seeks an
unspecified amount of damages. UIH intends to vigorously defend these claims.
On November 6, 1996, Austar filed a complaint in the Supreme Court of New
South Wales, Commercial Division, seeking injunctive relief to prevent (i)
Australis from transferring its satellite delivery systems and associated
infrastructure to its joint venture with Optus Vision and (ii) Optus Vision from
using such infrastructure to deliver DTH services in Austar's franchise area.
Austar believes that the use of the infrastructure by any entity other than
Austar for the provision of DTH services within Austar's franchise areas
violates the terms of Austar's franchise agreement with Australis which granted
Austar an exclusive license and franchise to use the infrastructure within its
franchise areas. Austar is seeking
30
<PAGE>
injunctive relief or, in the alternative, damages associated with this violation
of its franchise agreements. On December 6, 1996, Australis filed counterclaims
against Austar and the Company alleging generally that Austar and the Company
breached implied terms of the Australis Arrangement by seeking such injunctive
relief. In addition, Optus Vision claims that the exclusive nature of Austar's
franchise agreements violates Australia's Trade Practices Act. On May 9, 1997,
pursuant to the courts permission, Austar amended its complaint to include
claims that the agreement between Australis and Optus Vision violates Australias
Trade Practices Act and that Austar is entitled to damages arising from
interference with its contractual relations with Australis under the Franchise
Agreements. Austars complaint was also amended to add as defendants two
affiliates of Optus Vision: Publishing and Broadcasting Limited and its
subsidiary, Pay TV Optus. The Company intends to vigorously defend its position.
The Company was reviewing an opportunity to acquire an equity interest in
the multi-channel television system being constructed in Hong Kong but stopped
pursuing the opportunity as it was unable to reach satisfactory terms with the
Wharf group of companies (Wharf) under which Wharf would agree to honor its
previous grant to the Company of the opportunity to acquire an equity interest
in the Hong Kong multi-channel system. The Company devoted substantial time and
effort on behalf of Wharf Cable Limited (Wharf Cable), the license holder, and
its affiliates. On November 10, 1994, the Company and UIH Asia, as plaintiffs,
commenced a lawsuit in the U.S. District Court for the District of Colorado
against The Wharf (Holdings) Limited and two of its subsidiaries, Wharf
Communication Investments Limited and Wharf Cable, the license holders of the
Hong Kong system franchise, and its deputy chairman, Stephen Ng. On April 27,
1997, following a nine week trial, the jury returned a verdict in favor of the
Company and against each of the defendants (other than Wharf Cable) in the
amount of $67.0 million. Additionally, the jury awarded exemplary damages
against Wharf Holdings in the amount of $58.5 million. On May 21, 1997,
judgment, including an additional $28 million of prejudgment interest, was
entered on these verdicts; however, there can be no assurance that damages will
be collected.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
On August 29, 1996, the annual meeting of the stockholders of the Company
was held for the purpose of (i) the election of three Directors in Class III to
serve until the 1999 annual meeting of stockholders and (ii) the ratification of
the appointment of Arthur Andersen LLP to serve as independent auditors for the
Company for the fiscal year ending February 28, 1997.
The number of votes cast were as follows for the election of Mr. Gene W.
Schneider as a Class III Director:
<TABLE>
<S> <C>
For............................................................... 19,355,570
Against........................................................... 79,565
Withheld.......................................................... 433,152
Abstentions....................................................... --
Broker non votes.................................................. --
</TABLE>
The number of votes cast were as follows for the election of Mr. Joseph E.
Giovanini as a Class III Director:
<TABLE>
<S> <C>
For............................................................... 19,433,635
Against........................................................... 1,500
Withheld.......................................................... 355,087
Abstentions....................................................... --
Broker non votes.................................................. --
</TABLE>
The number of votes cast were as follows for the election of Mr. Curtis W.
Rochelle as a Class III Director:
<TABLE>
<S> <C>
For............................................................... 19,432,285
Against........................................................... 2,850
Withheld.......................................................... 356,437
Abstentions....................................................... --
Broker non votes.................................................. --
</TABLE>
The terms of Messrs. Albert M. Carollo, Sr., Lawrence J. DeGeorge, William
J. Elsner, Edward G. Jepsen, Antony Ressler, Mark L. Schneider and Bruce Spector
as Directors of the Company continued after the meeting.
31
<PAGE>
The number of votes cast were as follows for the ratification of the
appointment of Arthur Andersen LLP as the Company's independent auditors:
<TABLE>
<S> <C>
For..................................................... 19,144,864
Against................................................. 21,080
Withheld................................................ --
Abstentions............................................. 381,168
Broker non votes........................................ --
</TABLE>
32
<PAGE>
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- -------------------------------------------------------------------------------
The Company's Class A Common Stock is currently reported on the Nasdaq
National Market under the symbol UIHIA. The following table sets forth the range
of high and low sale prices reported on the Nasdaq National Market for the
periods indicated:
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
Fiscal 1996:
First Quarter........................................ 17 1/2 13 3/4
Second Quarter....................................... 20 3/4 14 1/2
Third Quarter........................................ 19 12 3/4
Fourth Quarter....................................... 17 1/8 13
Fiscal 1997:
First Quarter........................................ 16 3/4 13 1/2
Second Quarter....................................... 16 10 1/2
Third Quarter........................................ 13 63/64 12
Fourth Quarter....................................... 14 1/8 10 1/8
</TABLE>
As of May 23, 1997, there were approximately 139 holders of record of Class
A Common Stock and 39 holders of record of Class B Common Stock.
The Company has never paid cash dividends on its common stock and is
currently restricted from paying cash dividends by the terms of the indentures
in connection with the Company's 14% Senior Secured Notes due 1999.
As of February 28, 1997, the Company did not have sufficient net tangible
assets to satisfy that item of the current Nasdaq National Market listing
maintenance criteria for the continued listing of its Class A Common Stock.
Nasdaq has recently proposed new listing criteria that provide for various
alternatives to be satisfied, one of which is having a market capitalization of
$50 million or more. These proposed listing criteria are currently being
reviewed for approval by the Securities and Exchange Commission. The Company
would qualify under the new proposed listing criteria. The Company has begun
discussions with Nasdaq regarding a waiver of the current listing maintenance
criteria, and expects a decision on such a waiver request within approximately
30 days. There can be no assurance as to the timing or the outcome of such a
request.
33
<PAGE>
Item 6. Selected Financial Data
- --------------------------------
The following selected annual consolidated financial data have been derived
from the Company's audited consolidated financial statements. The data set
forth below are qualified by reference to and should be read in conjunction with
the audited consolidated financial statements and notes thereto of the Company
included elsewhere in this report and also with Management's Discussion and
Analysis of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
Year Ended Year Ended Years Ended
February 28, February 29, February 28,
------------- ------------- ----------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------ ------------ ------------
Statement of Operations Data: (in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Service and other revenue........... $ 30,244 $ 2,363 $ 701 $ -- $ --
Management fee income from related
parties............................ 1,311 507 912 746 1,246
System operating expense............ (34,116) (4,224) (1,651) -- --
System selling, general and
administrative expense............. (29,068) (3,524) (2,103) -- --
Corporate general and
administrative expense............. (17,087) (18,959) (16,196) (10,126) (6,181)
Depreciation and amortization....... (38,961) (2,331) (1,701) (182) (102)
----------- ----------- ----------- ----------- -----------
Net operating loss.................. (87,677) (26,168) (20,038) (9,562) (5,037)
Equity in losses of affiliated
companies, net..................... (47,575) (48,635) (6,106) (2,551) (2,709)
Gain on sale of investments in
affiliated companies............... 65,249 16,013 -- 356 --
Interest expense to the
Partnership(1)..................... -- -- -- -- (1,649)
Interest (expense) income, net...... (66,330) (27,628) (2,787) 1,034 (410)
Provision for losses on investment
related costs...................... (5,859) (6,055) (2,865) (2,754) (135)
Other............................... 3,367 1,162 1,182 (407) 21
----------- ----------- ----------- ----------- -----------
Net loss............................ $ (138,825) $ (91,311) $ (30,614) $ (13,884) $ (9,919)
=========== =========== =========== =========== ===========
Net loss per common share........... $(3.56) $(2.68) $(1.10) -- --
Weighted-average number of common
shares outstanding................. 39,035,776 34,017,660 27,802,250 -- --
Unaudited pro forma net loss per
common share(2).................... -- -- -- $(0.68) $(0.70)
Unaudited pro forma
weighted-average number
of common shares outstanding(2).... -- -- -- 20,344,726 14,105,392
<CAPTION>
As of As of As of
February 28, February 29, February 28,
------------ ------------ ---------------------------------------
1997 1996 1995 1994 1993
------------ ----------- ----------- ----------- -----------
Balance Sheet Data: (in thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents
(including restricted
cash and short-term investments)... $ 140,743 $ 161,983 $ 215,955 $ 68,660 $ 160
Investments in and advances to
affiliated companies, including
marketable equity securities....... 256,252 275,478 94,037 24,427 12,995
Property, plant and equipment, net.. 219,342 31,102 13,741 2,989 419
Goodwill, net....................... 122,249 45,629 -- -- --
Total assets........................ 819,936 580,206 370,290 107,312 19,492
Amount due to the Partnership,
including accrued interest(1)...... -- -- -- -- 21,115
Notes payable to related parties.... -- -- -- 1,836 5,027
Senior secured notes and other debt. 687,926 371,227 202,416 4,504 4,293
Total liabilities................... 773,240 384,482 212,946 12,145 35,076
Stockholders' equity (deficit)...... 15,096 151,976 138,870 93,836 (16,059)
</TABLE>
(1) The Company was formed as a wholly owned subsidiary of United International
Holdings (the Partnership). The Company's operations prior to the Apollo
Transaction and the Company's initial public offering were funded primarily
by the Partnership.
(2) As the Company's capital structure prior to fiscal year 1993 was not
indicative of the Company's on-going capital structure, unaudited pro forma
net loss per common share has been presented for the years ended February
28, 1993 and 1994 and historical per share data was not presented. The
unaudited pro forma information was prepared using a weighted average number
of common shares outstanding for the years ended February 28, 1993 and 1994,
plus shares issued subsequent to February 28, 1993 in connection with the
Apollo Transaction and the cancellation of amounts due to the Partnership,
as if they were issued on March 1, 1992.
34
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operations
- ----------------------
The following discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Companys
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
Companys Report on Form 8-K dated September 24, 1996.
The following discussion and analysis of financial condition and results of
operations cover the years ended February 28, 1997 (Fiscal 1997), February 29,
1996 (Fiscal 1996) and February 28, 1995 (Fiscal 1995).
Application of Accounting Principles
The Company's investments in Cablevision, STX and subsequent to August 31,
1996, VTRH, UPC, HITV, SCS, Net Sao Paulo, Jundiai, TVSB, Megapo, XYZ, Monor
Communications, Spain Programming and Teleport St. Petersburg are accounted for
using the equity method. The Company consolidates its interest in Telefenua,
which was acquired in January 1995. In September 1995, the Company acquired a
100% interest in United Wireless at which time it began consolidating its
results of operations. In late December 1995, the Company increased its
economic interest in Austar from 50% to 90% (the Austar Transaction). Prior to
the Austar Transaction, the Company accounted for its investment in Austar on
the equity method of accounting. As a result of the Austar Transaction, the
Company consolidated Austar for Fiscal 1997. The Company acquired a 94% interest
in Cable Star in February 1996 and began consolidating it in the first quarter
of Fiscal 1997. The Company acquired the remaining 50% interest in Saturn in
July 1996 and began consolidating its operations in the second quarter of Fiscal
1997. In October 1996, the Company acquired 100% of two cable systems and 80%
of one system, serving the cities of Bahia Blanca and Punta Alta, for
approximately $52.5 million. The Company paid $26.4 million in cash at the date
of acquisition, with the remaining $26.1 million to be paid over eighteen
months. The Company reflects its share of the income or loss of affiliated
companies or consolidates the affiliated companies based on the affiliated
companies calendar year results. This creates a two-month delay in reporting
the affiliated company results in the Company's consolidated results for its
fiscal year-end. Based on reported historical results and the activities of the
affiliated companies, the Company believes this two-month delay has not had and
will not have a significant impact on reported financial condition or operating
results of the Company.
The cost method of accounting is used for other holdings in which the
Company's voting interest is less than 20% and where the Company does not exert
significant influence except for its holdings of marketable equity securities.
For holdings of marketable equity securities in which the Company's voting
interest is less than 20% and where the Company does not exert significant
influence, the holdings are carried at fair market value in accordance with the
provisions of Statement of Financial Accounting Standards No. 115 Accounting for
Certain Investments in Debt and Equity Securities (SFAS 115). Currently, the
Company accounts for its 2.6% interest in International Broadcasting
Corporation, Limited (IBC), a publicly-traded Thai corporation, at fair market
value as an available for sale security.
In February 1997, the Company and Philips entered into a letter of intent
whereby the Company and/or UPC would acquire from Philips their 50% equity
interest in UPC along with 3.17 million of the Companys Class A Common Shares
currently held by Philips. The purchase price for the acquisition of these two
assets is $275 million. In addition, UPC as part of the transaction would agree
to redeem certain debt securities owed to Philips in the approximate amount of
$155 million, and issue to Philips a stock appreciation right. The parties are
currently working on definitive documentation for the transaction, failing which
the ownership of UPC will remain as currently structured. Closing for the
transaction, assuming the successful execution of definitive documentation, is
expected to occur by late summer 1997.
Impact of the UPC Transaction
UPC manages all of the systems contributed to it by Philips and the Company
effective July 1, 1995. As a result, after closing of the UPC Transaction, the
management fee income from the properties contributed by the Company is no
longer recognized directly by the Company. However, such management fee income
is currently recognized directly by UPC, and as such, it impacts the Company's
net income or loss through the Company's recognition of its 50% equity interest
in the net income or loss of UPC.
Upon formation of UPC, the Company contributed to UPC its equity interest in
UII, UCI, Santander de Cable, UII Management and Kabel Net, its equity interest
in certain programming assets and acquisition and development costs. The
35
<PAGE>
Company also contributed $78.2 million of cash to UPC. In addition, the Company
issued directly to Philips 3,169,151 shares (with a market value at issuance of
approximately $50 million) of its Class A Common Stock, as additional
consideration for the UPC Transaction.
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. In each
case, positive cash flow from operations and profitable operating results of
foreign affiliated companies depend on successful execution of their respective
business plans.
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.
Since its inception in 1989, the Company has financed its operations
primarily through the sale of debt and equity securities. Since 1989, the
Company has raised total cash gross proceeds of approximately $287.3 million
from the sale of its common equity in a series of private transactions and
public offerings. The following table summarizes the total gross cash proceeds
raised by the Company from sales of its common equity:
<TABLE>
<CAPTION>
Gross Proceeds
---------------
(in millions)
<S> <C>
Management and original investors.. $ 28.5
Private equity offerings (April 30.0
and July 1993)....................
Initial public offering (July 1993) 76.5
Public equity offering (August 86.3
1994).............................
Public equity offering (November 66.0
1995)............................. ------
Total....................... $287.3
======
</TABLE>
In addition, in connection with the UPC Transaction, the Company issued to
Philips 3,169,151 shares of its Class A Common Stock, with a market value at
issuance of approximately $50 million. In December 1995, in connection with the
Companys acquisition of an additional 40% economic interest in Austar (the
Austar Transaction), the Company issued 170,513 shares of its Convertible
Preferred Stock, Series A having a liquidation value at issuance of
approximately $29.8 million as partial consideration for the interests it
acquired in Austar. Each share of Convertible Preferred Stock is convertible
into the number of shares of the Companys Class A Common Stock equal to the
liquidation value at the time of conversion divided by $17.50.
In November 1994, the Company raised total gross proceeds of approximately
$200.9 million from the public offering of $394 million aggregate principal
amount of the 14% Senior Secured Discount Notes due 1999 (the 1994 Notes). The
1994 Notes were sold in units consisting of one $1,000 principal amount 14%
Senior Secured Discount Note due 1999 and one warrant to acquire 4,535 shares of
the Companys Class A Common Stock at a price of $15.00 per share, which warrants
are exercisable at any time before November 15, 1999. A total of 394,000
warrants (the Warrants) were issued. Holders of the Warrants had the right, at
any time between January 31, 1996 and March 1, 1996, to require the Company to
repurchase all or any part of such holders Warrants at a purchase price per
Warrant of $28.34 ($6.25 per underlying common share). Holders put 76,070
Warrants to purchase 344,932 shares of common stock back to the Company for a
total cost of $2.2 million, which was paid in March 1996. Accordingly, the
residual cash warrant obligation totaling approximately $9 million was credited
to additional paid-in capital, effective March 1, 1996.
In November 1995, the Company raised total gross proceeds of approximately
$75.9 million from the public offering of $130 million aggregate principal
amount of 14% Senior Secured Discount Notes due 1999 (the 1995 Notes). In
February 1996, the Company raised total gross proceeds of approximately $49.1
million from the offering of $75.4 million aggregate principal amount of the 14%
Senior Secured Discount Notes due 1999 (the 1996 Notes). In November 1995, the
Company paid approximately $7.9 million to holders of the 1994 Notes for their
consent to amend the Indenture governing the 1994 Notes to allow for the
issuance of the 1995 Notes and 1996 Notes.
In January 1996, the Company sold its 25% interest in TV-Cabo Rio, a company
that holds cable television licenses for portions of Rio de Janeiro, Brazil, to
an existing shareholder of TV-Cabo Rio for approximately $13.5 million. The
Company
36
<PAGE>
had a net investment of approximately $1.6 million in connection with its
interest in TV-Cabo Rio. The Company intends to use the proceeds from the sale
of the interest to fund additional development opportunities in Brazil. In
August 1996, the Company sold its 34% interest in Net Sao Paulo for $78.1
million, resulting in a gain of $65.3 million.
In May 1996, UIH A/P, a majority-owned subsidiary of the Company, raised
total gross proceeds of approximately $225.1 million from the private offering
of $443 million aggregate principal amount of its 14% Senior Discount Notes due
2006 (the UIH A/P Notes). The net proceeds of $216.3 million were used to fund
system construction and initial marketing costs and working capital requirements
of Austar, Telefenua, Saturn, XYZ and United Wireless.
In April 1997, Austar received an underwriting commitment from a bank for a
Senior Syndicated Term Debt Facility in the amount of Australian $(A$)200
million (US$155 million) (the Bank Facility). The proceeds of the Bank Facility
will be used to fund Austars construction and subscriber acquisition and working
capital needs. The Bank Facility consists of three sub-facilities: (i) A$50
million revolving working capital facility available at closing (June 1997);
(ii) A$90 million term loan facility, which will be available on the basis of
Austar having achieved minimum subscriber and operating cash flow levels; and
(iii) A$60 million cash advance facility available upon the contribution of
additional equity on a 2:1 debt-to-equity basis. The maximum amount of equity
required would be A$30 million, approximately A$7.5 million of which has already
been contributed during 1997 and the remainder of which will be contributed
either by a third party equity provider or the Company. The cash advance and
term loan facilities will be fully repayable pursuant to an amortization
schedule beginning December 31, 2001 and ending June 30, 2004. The bank has also
provided Austar with an interim financing facility of A$50 million which will be
refinanced from the proceeds of the Bank Facility.
In April 1997, UIH LA entered into a credit agreement with a bank for a loan
of up to $125 million (the UIH LA Credit Facility) for a term of 9 months,
extendible up to a maximum of 18 months at an interest rate of LIBOR plus 6%.
Proceeds from the loan will be 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 9 month term, (ii) cash fees of 1% to
3% each three months if it is extended beyond 9 months and (iii) warrants to
purchase common stock equal to 0.5% of UIH LAs outstanding common stock if it is
extended beyond 9 months, another 2% of UIH LAs outstanding common stock and
2.75% of UIHs outstanding common stock if it is extended beyond 12 months and
another 3% of UIHs 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 million 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.
During Fiscal 1997, the Company incurred a net loss of $138.8 million of
which $47.6 million was from non-cash equity in losses of affiliated companies
and $38.9 million was for depreciation and amortization. The Company also
recorded accretion of non-cash interest expense totaling $73.7 million. The
Company recognized a gain on sale of investments in affiliated companies of
$65.2 million and received proceeds from the sale of $43.1 million due to
the sale of its Net Sao Paulo system. The Company purchased $204.4 million of
property, plant and equipment, the majority of which was from the Company's
majority owned subsidiary in Australia as that system continues to construct its
MMDS and DBS system. Construction payables increased $38.3 million, primarily
due to construction activity at Austar. The Company's notes receivable increased
by $26.4 million due primarily to the purchase of the Company's interest in
Bahia Blanca. Notes receivable decreased by $45.3 million due primarily to the
receipt of cash related to the sale of Net Sao Paulo. The Company invested $65.9
million of cash in its affiliated companies and other investments. The Company
purchased short-term investments of $359.5 million and sold short-term
investments of $324.9 million as part of its cash management activities. The
Company received net proceeds from the sale of the UIH A/P Notes in the amount
of $225.1 million.
As of February 28, 1997, the Company did not have sufficient net tangible
assets to satisfy that item of the current Nasdaq National Market listing
maintenance criteria for the continued listing of its Class A Common Stock.
Nasdaq has recently proposed new listing criteria that provide for various
alternatives to be satisfied, one of which is having a market capitalization of
$50 million or more. These proposed listing criteria are currently being
reviewed for approval by the Securities and Exchange Commission. The Company
would qualify under the new proposed listing criteria. The Company has begun
discussions with Nasdaq regarding a waiver of the current listing maintenance
criteria, and expects a decision on such a waiver request within approximately
30 days. There can be no assurance as to the timing or the outcome of such a
request.
37
<PAGE>
During Fiscal 1995, the Company recognized losses of $30.6 million of which
$6.4 million was from non-cash equity in losses of affiliated companies. The
Company also recorded non-cash accretion of interest on the 1994 Notes totaling
$8 million. The Companys other assets increased by $8.1 million and the Companys
accounts payable and accrued liabilities increased by $5.7 million. The
increase in these accounts is due to the consolidation of the Companys Czech
Republic system which did not initiate MMDS services until October 1994. The
Company purchased $11.2 million of property, plant and equipment, the majority
of which was for the Czech Republic system, as it was still in the process of
building its MMDS system. The Company incurred $10.5 million of acquisition,
transaction and development costs in part due to the work done in connection
with pursuing the formation of UPC and the increase by the Company in its
development activities in the Latin America and the Asia/Pacific regions. The
Companys notes receivable increased by $12.6 million, the majority of which
related to a $12.0 million advance to Megapo upon the signing of a definitive
agreement to acquire a 49% interest in four subsidiaries and a 39.2% interest in
a fifth subsidiary of Megapo. The note receivable was contributed to Megapos
equity upon closing of the acquisition in June 1995. The Companys investments in
and advances to affiliated companies increased by $84.2 million. This increase
is due to additional investments throughout the year in the Companys affiliates
and due to the acquisitions of affiliates in Hungary (Monor Communications),
Latin America (TVSB) and Asia/Pacific (Austar, XYZ, Telefenua and Saturn). The
Companys restricted cash increased by $82.5 million, the majority of which was
due to $75.0 million of restricted cash to be paid to UPC upon its formation.
The Company purchased $196.7 million of short-term investments and sold $119.2
million of short-term investments as part of its cash management activities.
The Company received cash contributions of $7.6 million from its minority
interest partners in the Companys Czech Republic system and repaid $1.8 million
of related party notes.
As of February 28, 1997, the Company had executed guarantees of certain
facilities totaling approximately $12 million. The Company has estimated future
fundings and capital commitments by region, as described in the following
paragraphs. Each such description contains the Companys 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
Companys actual expenditures will equal the currently anticipated amounts.
The following table summarizes the Companys remaining projected funding
requirements for its European projects. The Company plans on funding its
remaining commitments in Europe through existing cash.
<TABLE>
<CAPTION>
Projected Funding
----------------------------------------------
Total Portion Remaining
Expected Funded as of as of
Location Type of Project Fundings February 28, 1997 February 28, 1997
- -------- --------------- -------- ----------------- -----------------
(in thousands)
<S> <C> <C> <C> <C>
UPC Cable systems $171,059 $171,059 $ --
Monor Communications Telephony/programming 26,580 26,580 --
Spain Programming Programming 12,530 10,993 1,537
Irish Programming Programming 9,973 3,493 6,480
-------- -------- ------
$220,142 $212,125 $8,017
======== ======== ======
</TABLE>
38
<PAGE>
The following table summarizes UIH LAs remaining projected funding
requirements for its projects:
<TABLE>
<CAPTION>
Projected Funding
------------------------------------------------------
Total Portion Remaining
Expected Funded as of as of
Location Type of Project Fundings February 28, 1997 February 28, 1997
- -------- --------------- -------- ----------------- -----------------
<S> <C> <C> <C> <C>
(in thousands)
Chile Cable system $ 85,754 $ 77,754 $ 8,000
Bahia Blanca, Argentina Cable system 59,636 38,953 20,683
Mexico Cable systems 32,033 32,033 --
Fortaleza, Brazil MMDS system 8,087 6,087 2,000
Jundiai, Brazil Cable system 5,098 4,676 422
Arequipa, Peru Cable system 12,379 3,169 9,210
Tacna, Peru Cable system 850 550 300
Venezuela Cable system 13,997 8,412 5,585
United Family Communications Programming 21,300 1,300 20,000
-------- -------- --------
$239,134 $172,934 $ 66,200
======== ======== ========
</TABLE>
In April 1997, UIH LA entered into a credit agreement with a major financial
institution which provides for borrowings of up to $125 million, with $62.5
million available as of April 1997 and an additional $62.5 being raised.
Assuming the full $125 million is raised, UIH LA will fund the majority of its
remaining commitments with proceeds from this facility. In addition, UIH LA is
considering the sale of certain non-core assets as a source of funding. Based
upon these assumptions, the Company will have no further fundings to UIH LA.
The following table summarizes UAPs remaining projected funding requirements
for its projects:
<TABLE>
<CAPTION>
Projected Funding
------------------------------------------------------
Total Portion Remaining
Expected Funded as of as of
Location Type of Project Fundings February 28, 1997(1) February 28, 1997
- -------- --------------- -------- ----------------- -----------------
<S> <C> <C> <C> <C>
Australia/Pacific:
Australia (Austar) MMDS/DTH systems $369,800 $203,938(2) $165,862(3)
New Zealand Cable system 109,700 25,214(4) 84,486
Australia (XYZ) Programming 14,000 10,846 3,154
Tahiti MMDS 17,400 16,737 663
United Wireless Mobile data services 8,200 5,036 3,164
Other:
Hunan Province, China Microwave relay network 6,600 5,980 620
Philippines Cable system 17,400 12,438 4,962
-------- -------- --------
$543,100 $280,189 $262,911
======== ======== ========
</TABLE>
(1) Certain amounts contributed by the Company's partners were contributed in
currencies other than U.S. dollars. Such amounts have been translated to
U.S. dollars using a convenience translation. Also, includes amounts
contributed to Austar (approximately $11,100) and Saturn (approximately
$2,900) by such shareholders prior to the acquisition of their respective
interests by the Company.
(2) Does not include the $58,600 paid by the Company to increase its economic
interest in Austar to approximately 100%.
(3) Includes an underwriting commitment from a bank for a debt facility of
A$200,000 (US$155,000) (the Bank Facility), which reduces the Company's
portion of the additional funding requirements. See Note 13 of the
Company's Consolidated Financial Statements for information regarding the
Bank Facility.
(4) Does not include the value of shares of common stock exchanged for shares
of the Company to increase the Company's interest in Saturn to 100%.
The majority of UAPs future funding resides in two projects, Australia and
New Zealand. Funding for Australia is projected to come from two sources: the
Bank Facility in the amount of $155 million and equity from the Company of
approximately $18 million. Funding for New Zealand is projected to come from
two sources: a strategic partner equity contribution and equity from UAP and/or
the Company in amounts to be determined. In addition, UAP is in the early
stages of negotiating the sale of all or a portion of its system in Tahiti.
Based upon the successful completion of the arrangements described above, the
Company may invest up to an additional $25 million in UAP.
In addition, the Company had total expected fundings of $4.6 million related
to Teleport St. Petersburg. As of February 28, 1997, the Company had remaining
projected fundings of $2 million.
39
<PAGE>
The Company currently does not expect to contribute additional capital to
UPC, 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.
Because the Company and UIH A/P do not currently have any operating 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.
UIH A/P is currently negotiating the sale of a minority interest in Saturn to
strategic partners to provide a substantial portion of the capital required to
complete the build-out of Saturn's currently planned system. The Company is also
negotiating to sell all or a portion of its interest in Telefenua, the proceeds
of which would be used to fund its capital requirements with respect to Saturn
and its other businesses. There can be no assurance that the Company will be
successful in completing either sale.
Results of Operations
Many of the operating companies in which the Company holds interests are in
the early stages of constructing and marketing their multi-channel television
systems. With respect to those operating companies that currently are not
generating net income on a continuing basis, the Company does not currently
anticipate that such operating companies will generate net income in the
foreseeable future. Similarly, the Company currently does not anticipate it
will generate net income in the foreseeable future.
Years Ended February 28, 1997, February 29, 1996 and February 28, 1995
Service and Other Revenue. Service and other revenue increased $27.9 million
during Fiscal 1997 and $1.7 million during Fiscal 1996, the detail of which is
as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
----------- ----------- -----------
<S> <C> <C> <C>
Europe(1)........................... $ -- $ 480 $ 701
Latin America....................... 5,267 -- --
Asia/Pacific........................ 24,977 1,883 --
------- ------ ----
Total service and other revenue... $30,244 $2,363 $ 701
======= ====== =======
</TABLE>
(1) The Company's previously owned 66.7% subsidiary, Kabel Net, initiated MMDS
operations during the fall of 1994. Through the second quarter of Fiscal
1996, Kabel Net and certain of the programming assets were recorded as
equity pick-ups for the Company. Subsequently, the Company has recorded
this activity through its 50% equity pick-up from UPC.
Asia/Pacific
Austar
Service revenues at Austar were $21.2 million in 1996. Revenues consisted
primarily of service and installation fees from basic subscribers of $14 million
and $7 million, respectively, with other revenue totaling $0.2 million. The
Company began consolidating the results of Austar on January 1, 1996. As a
result, the Company reported no service revenues from Austar in 1995. Austar's
actual service revenues in 1995 were $0.4 million. The increase in service
revenues in 1996 was primarily attributable to an increase in subscribers (5,204
at December 31, 1995 compared to 103,410 at December 31, 1996). Such increase
was the result of the continued roll-out of Austar's services initially launched
in August 1995.
Telefenua
Telefenua's service revenues increased to $3.5 million from $1.9 million in
1995, primarily attributable to an increase in subscribers (4,126 at December
31, 1995 compared to 5,187 at December 31, 1996).
40
<PAGE>
Saturn
The Company began consolidating the results of Saturn effective July 1, 1996.
Saturn's actual service revenues for the years ended December 31, 1996 and 1995
were $0.2 million and $0.1 million, respectively. The increase is attributable
to an increase in subscribers from 959 in 1995 to 1,697 in 1996.
Management Fee Income from Related Parties. Management fee income increased
$0.8 million during Fiscal 1997 and decreased $0.4 million during Fiscal 1996.
The increase during Fiscal 1997 is primarily due to revenues recognized from
Megapo and VTRH, and the decrease during Fiscal 1996 is primarily attributable
to the contribution of properties to UPC. The detail of management fee income is
as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
----------- ----------- -----------
<S> <C> <C> <C>
Europe................................................................. $ 158 $ 167 $ 912
Latin America.......................................................... 910 251 --
Asia/Pacific........................................................... 243 89 --
------ ---- ----
Total management fee income from related parties..................... $1,311 $ 507 $ 912
====== ====== ======
</TABLE>
System Operating Expense. The Company experienced an increase of $29.9
million and $2.6 million in system operating expense during Fiscal 1997 and
Fiscal 1996, respectively, the detail of which is as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
----------- ----------- -----------
<S> <C> <C> <C>
Europe(1).............................................................. $ -- $1,078 $1,651
Latin America.......................................................... 2,819 -- --
Asia/Pacific........................................................... 30,223 3,146 --
Other.................................................................. 1,074 -- --
------- ------ ------
Total system operating expense....................................... $34,116 $4,224 $1,651
======= ====== ======
</TABLE>
(1) The Company's previously owned 66.7% subsidiary, Kabel Net, initiated MMDS
operations during the fall of 1994. Through the second quarter of Fiscal
1996, Kabel Net and certain of the programming assets were recorded as
equity pick-ups for the Company. Subsequently, the Company has recorded
this activity through its 50% equity pick-up from UPC.
Asia/Pacific
Austar
The Company reported operating expenses from Austar of $26.3 million in 1996,
consisting primarily of salary and benefits ($11 million), satellite programming
fees ($5.5 million) and annual MMDS spectrum license fees ($2 million), with the
remainder consisting primarily of office-related expenses, system travel and
recruitment and the NCOC and field office start-up costs. The Company began
consolidating the results of Austar on January 1, 1996. As a result, the Company
reported no operating expenses from Austar in the Company's consolidated
statements of operations for 1994 or 1995. Austar's operating expenses for 1995
were approximately $4.3 million. The increase in operating expenses in 1996 was
primarily attributable to the continued roll-out of Austar's services initially
launched in August 1995 and the corresponding increase in subscribers. Austar is
experiencing high operating expenses relative to service revenues due to certain
fixed operating expenses (such as management overhead, license fees and certain
marketing costs) as well as non-recurring start up costs (such as initial market
research, NCOC establishment costs and additional one-time expenses due to the
name change to Austar) associated with the launch of its service. Austar expects
operating expenses as a percent of service revenues to decline as start-up costs
are reduced and as certain fixed operating expenses are spread over expected
increases in service revenues.
Telefenua
Operating expenses consolidated by the Company from Telefenua decreased to
$2.1 million in 1996 from $2.8 million in 1995, primarily due to a decrease in
technical-related repairs and maintenance and tape production costs, partially
offset by an increase in the subscribers in 1996. Telefenua's operating
expenses in 1996 consisted primarily of programming related expenses ($1.2
million) with the remainder consisting of payroll-related costs and technical-
related costs.
41
<PAGE>
Saturn
The Company began consolidating Saturn on July 1, 1996. Accordingly, while
the Company reported operating expenses of $0.9 million for Saturn in its
consolidated statement of operations for 1996, Saturn's actual operating
expenses were approximately $2.3 million for 1996 consisting primarily of
payroll and office expenses related to the start-up activities, including system
design and engineering work, for expansion of Saturn's Wellington system in
1996. Saturn's system operating expenses in 1995 were $1.1 million.
System Selling, General and Administrative Expenses. System selling, general
and administrative expense increased $25.5 million during Fiscal 1997 and $1.4
million during Fiscal 1996, the detail of which is as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
----------- ----------- -----------
<S> <C> <C> <C>
Europe(1).................................................... $ -- $1,042 $2,103
Latin America................................................ 1,795 -- --
Asia/Pacific................................................. 24,800 2,482 --
Other........................................................ 2,473 -- --
------- ------ ------
Total system selling, general and administrative expense... $29,068 $3,524 $2,103
======= ====== ======
</TABLE>
(1) The Company's previously owned 66.7% subsidiary, Kabel Net, initiated MMDS
operations during the fall of 1994. Through the second quarter of Fiscal
1996, Kabel Net and certain of the programming assets were recorded as
equity pick-ups for the Company. Subsequently, the Company has recorded
this activity through its 50% equity pick-up from UPC.
Asia/Pacific
Austar
System selling, general and administrative expenses consolidated by the
Company from Austar were $18.6 million for the year ended December 31, 1996 and
consisted primarily of $5.5 million in marketing costs related to print, radio
and television advertisements utilized in the launch of Austar's services
throughout its service areas during 1996, direct sales commissions ($4.1
million) and for general and administrative expenses at Austar's Sydney
corporate headquarters ($9 million). The Company began consolidating the results
of Austar on January 1, 1996. Accordingly, the Company reported no system
selling, general and administrative expenses for Austar in 1995 or 1994.
Austar's actual system selling, general and administrative expenses were
approximately $3.1 million in 1995 compared to $0.4 million in 1994. The
increase relates to marketing efforts associated with Austar's 1995 service
launch. The increase in system selling, general and administrative expenses was
primarily attributable to an increase in marketing related to the increased
roll-out of MMDS operating systems and the initiation of DTH service in 1996.
Telefenua
System selling, general and administrative expenses consolidated by the
Company from Telefenua increased to $2.6 million in 1996 compared to $2.3
million in 1995 and $0 in 1994. This increase was primarily attributable to
increased marketing efforts associated with Telefenua's March 1995 service
launch.
Saturn
The Company reported system selling, general and administrative expenses from
Saturn of $2.5 million for 1996. The Company began consolidating the results of
Saturn effective July 1, 1996. Accordingly, no system selling, general and
administrative expenses for 1995 and 1994 were reported. Saturn's actual
selling, general and administrative costs increased to $2.8 million in 1996 from
$1.2 million in 1995 and $0.4 million in 1994. The increase is attributable to
increased marketing efforts to expand the subscriber base as Saturn's system
expanded.
Corporate General and Administrative Expense. Corporate general and
administrative expense decreased $1.9 million in Fiscal 1997 and increased $2.8
million in Fiscal 1996, the detail of which is as follows (in thousands):
42
<PAGE>
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
----------- ----------- -----------
<S> <C> <C> <C>
Europe (1)....................................................... $ -- $ 2,221 $ 3,402
Latin America.................................................... 3,657 3,255 1,851
Asia/Pacific(3).................................................. 1,376 920 659
Non-recurring charges(2)......................................... -- 3,706 --
All other........................................................ 12,054 8,857 10,284
------- ------- -------
Total corporate general and administrative expense............. $17,087 $18,959 $16,196
======= ======= =======
</TABLE>
(1) The Company's previously owned 66.7% subsidiary, Kabel Net, initiated MMDS
operations during the fall of 1994. Through the second quarter of Fiscal
1996, Kabel Net and certain of the programming assets were recorded as
equity pick-ups for the Company. Subsequently, the Company has recorded
this activity through its 50% equity pick-up from UPC.
(2) Included in non-recurring charges are amounts related to employee severance
agreements and costs which in the future will be incurred by UPC.
Depreciation and Amortization Expense. Depreciation and amortization expense
increased approximately $36.6 during Fiscal 1997 and $630 during Fiscal 1996.
The increase of $30.3 in Fiscal 1997 was attributable to the significant
deployment of operating assets at Austar beginning in early 1996 and continuing
throughout the year as Austar launched service and began serving subscribers in
a number of new markets. Depreciation expense is expected to increase
substantially in future periods as capital expenditures for the build-out of
Austar's MMDS sites and the launch of Saturn's wireline cable plant and related
increases in capital necessary for subscriber equipment continue for the next
several months. The Company began consolidating the results of Austar on January
1, 1996. As a result, the Company reported no depreciation and amortization from
Austar in its consolidated statements of operations for the years ended December
31, 1995 and 1994. The increase in Fiscal 1996 is due to the consolidation of
Telefenua during Fiscal 1996.
Interest (Expense) Income, Net. The Company's interest expense increased
$43.6 million during Fiscal 1997 and $26.8 million during Fiscal 1996 due to the
sale of the 1995 Notes in November 1995 and the 1996 Notes in February 1996. In
addition, UIH A/P issued the UIH A/P Notes in May 1996. This increase is
partially offset due to the increase in interest income on the funds received
from the equity offerings and the senior notes offerings.
Provision for Losses on Investment Related Costs. The provision for losses
on investment related costs totaled $5.9 million, $6.1 million and $2.9 million
in Fiscal 1997, Fiscal 1996 and Fiscal 1995, respectively. The increase during
Fiscal 1996 is due to the reserve of $4.1 million related to a receivable from
the Sweden operating system, of which approximately $2.1 million was
subsequently collected in December 1996 resulting in a $2 million reduction of
the provision for losses on investment related costs. Approximately $8 million
was provided for certain of the Company's investments in affiliated companies,
costs to be reimbursed and acquisition, transaction and development costs. 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.
Gain on Sale of Investments in Affiliated Companies. In September 1995, the
Company sold 50% of its interest in XYZ, thereby diluting the Company's interest
to 25%, and recognized a gain of approximately $4.1 million. In January 1996,
the Company sold its 25% interest in TV-Cabo Rio resulting in a gain of
approximately $11.9 million. In August 1996, the Company sold its 34% interest
in Net Sao Paulo for $78.1 million, resulting in a gain of $65.3 million.
Equity in Losses of Affiliated Companies, Net. The Company recognized net
equity in losses of affiliated companies of $47.6 million, $48.6 million and
$6.1 million for Fiscal 1997, Fiscal 1996 and Fiscal 1995, respectively, as
follows:
43
<PAGE>
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
---------------------------------- --------------------------------- -------------------------------
Equity in Equity in Equity in
Company Income (Losses) Company Income (Losses) Company Income (Losses)
Ownership of Affiliated Ownership of Affiliated Ownership of Affiliated
Interest Companies Interest Companies Interest Companies
---------- ---------------------- ---------- --------------------- ---------- -------------------
(in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Europe
UPC........................ 50.0% $(24,665) 50.0% $ (15,559)(1) -- $ --
UCI(2):
Norkabel................ -- -- 8.3% 651 (3) 8.3 % 475
Swedish Cable.......... -- -- 2.2% (61)(3) 2.2 % (438)
Kabelkom............... -- -- 3.9% 64 (3) 3.9 % (134)
UCI.................... -- -- 8.3% (6)(3) 8.3 % (53)
--------- -------
648 (150)
Suspended loss(4)....... -- -- (648) 85
--------- -------
Loss recognized...... -- -- -- (65)
--------- -------
UII:
Melita (5).............. -- -- 42.5% (598)(3) 41.2% (979)
Tevel................... -- -- 23.3% 1,054 (3) 23.3% 657
PHL(5).................. -- -- 20.0% (925)(3) 20.0% (2,005)
UII..................... -- -- 50.0% 274 (3) 50.0% 544
--------- -------
Loss recognized...... -- -- (195) (1,783)
--------- -------
UII Management............. -- -- 50.0% 468 (3) 50.0% 620
Santander.................. -- -- 25.0% (213)(3) -- --
Kabel Net.................. -- -- 66.7% (1,217)(6) -- --
Programming assets......... -- -- 100.0% (247)(6) -- --
Monor Communications....... 48.6% (2,648) 48.4% (4,825) 47.6% (686)
Teleport St.
Petersburg............... 30.0% -- 30.0% -- 30.0% (126)
Latin America
VTRH....................... 34.0% (2,130) -- -- -- --
Cablevision................ 100.0% (4,066) 100.0% (988) 50.0% (48)
STX........................ 100.0% 775 65.0% 204 -- --
Net Sao Paulo.............. 34.0% (1,649) 34.0% (5,837) 35.0% (2,446)
Megapo..................... 49.0% (678) 49.0% (47) -- --
TVSB....................... 40.0% (1,277)
Asia/Pacific
Austar..................... 100.0% -- 100.0% (3,036)(7) 50.0% (748)
Saturn..................... 100.0% (930)(8) 100.0% (1,434) 50.0% (365)
XYZ........................ 25.0% (4,484) 25.0% (11,638) 50.0% (99)
SCS........................ 40.0% (218) 40.0% (148) -- --
HITV....................... 49.0% (6) 49.0% (10) 49.0% --
Other
ITN........................ 76.9% (609) 33.3% (1,032) -- --
Other...................... 33.8-50.0% (4,990) 33.8-50.0% (2,881) 25.0-56.3% (360)
-------- --------- -------
Total equity in losses of
affiliated companies,
net.................... $(47,575) $ (48,635) $(6,106)
======== ========= =======
</TABLE>
(1) For the period from July 1, 1995 through December 31, 1995.
(2) The Company's ownership interest with respect to equity in losses from UCI
was calculated based on the Company's average ownership interest in UCI
throughout the fiscal year.
(3) For the period from January 1, 1995 through June 30, 1995.
(4) Represents losses in affiliated companies in excess of the Company's equity
advances (including contractual funding commitments).
(5) The Company's ownership interest with respect to equity in losses from
Melita Cable and PHL is calculated net of minority interest.
(6) For the period from April 1, 1995 through June 30, 1995.
(7) The Company consolidated Austar's balance sheet effective December 31, 1996
and Austar's income statement effective January 1, 1997.
(8) For the period from January 1, 1996 through June 30, 1996.
Inflation and Foreign Currency Exchange Rate Risks
The Company's foreign subsidiaries monetary assets and liabilities are
subject to foreign currency exchange risk as certain equipment purchases and
payments for certain operating expenses, such as programming expenses, are
denominated in currencies other than their functional currencies. In addition,
certain of the Company's foreign subsidiaries have notes payable and notes
receivable which are denominated in a currency other than their functional
currency or loans payable linked to the U.S. dollar. In addition, the Company's
entire equity investment portfolio is indirectly impacted by foreign exchange
risk.
44
<PAGE>
Certain of the Company's operating companies operate in countries where the
rate of inflation is extremely high relative to that in the United States. While
the Company's affiliated companies attempt to increase their subscription rates
to offset increases in operating costs, there is no assurance that they will be
able to do so. Therefore, operating costs may rise faster than associated
revenue, resulting in a material negative impact on reported earnings. The
Company itself is impacted by inflationary increases in salaries, wages,
benefits and other administrative costs, the effects of which to date have not
been material to the Company.
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 year-end, and the statements of operations are
translated at the average exchange rates during the period. Exchange rate
fluctuations on translating foreign currency financial statements into U.S.
dollars result in unrealized gains or losses referred to as translation
adjustments. Cumulative translation adjustments are recorded as a separate
component of stockholders equity.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in income as unrealized (based on period-end translations)
or realized upon settlement of the transactions.
In accordance with Statement of Financial Accounting Standards No. 95,
Statement of Cash Flows, cash flows from the Company's operations in foreign
countries are 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 Consolidated
Statements of Cash Flows will not agree to changes in the corresponding balances
on the Consolidated Balance Sheets. The effects of exchange rate changes on
cash balances held in foreign currencies are reported as a separate line below
cash flows from financing activities.
Foreign Investment Risk
The Company's foreign operating companies are all directly affected by their
respective countries' government, economic, fiscal and monetary policies and
other political factors. The Company believes that its operating companies'
financial conditions or results of income (loss) from operations have not
historically been materially adversely affected by these factors.
Item 8. Financial Statements and Supplementary Data
- ------------------------------------------------------
The consolidated financial statements of the Company are filed under this
Item beginning on Page ___. The financial statement schedules required by
Regulation S-X are filed under Item 14 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -------------------------------------------------------------------------
Financial Disclosure
- ---------------------
None.
45
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To United International Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of United
International Holdings, Inc. (a Delaware Corporation) and subsidiaries as of
February 28, 1997 and February 29, 1996 and the related consolidated statements
of operations, stockholders equity and cash flows for the years ended February
28, 1997, February 29, 1996 and February 28, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. With
respect to the year ended February 28, 1997, we did not audit the financial
statements of Megapo Communicaciones de Mexico, S.A. de C.V. (Megapo) as of and
for the year ended December 31, 1996, an investment which is reflected in the
accompanying financial statements using the equity method of accounting. With
respect to the year ended February 29, 1996, we did not audit the financial
statements of XYZ Entertainment Pty Ltd (XYZ), Megapo Communicaciones de Mexico,
S.A. de C.V. (Megapo), Monor Communications Group, Inc. (Monor), Cabodinamica TV
Cabo Sao Paulo S.A. (Net Sao Paulo), or Telefenua S.A. (Telefenua) as of and for
the year ended December 31, 1995, investments which are reflected in the
accompanying consolidated financial statements using the equity method of
accounting (with respect to XYZ, Megapo, Monor and Net Sao Paulo) or
consolidated (with respect to Telefenua). United International Holdings, Inc's
consolidated statement of operations for the year ended February 28, 1997
reflects equity in income (losses) related to Megapo of $(678,000) and for the
year ended February 29, 1996 reflects equity in income (losses) related to XYZ,
Megapo, Monor and Net Sao Paulo of ($11,638,000), $841,000, ($4,448,000) and
($4,837,000), respectively. United International Holdings, Inc.s consolidated
financial statements for the year ended February 29, 1996 reflects assets,
liabilities, revenues, expenses and a net loss related to Telefenua of
$10,989,000, $9,710,000, $1,882,000, $5,438,000 and $3,556,000, respectively.
With respect to the year ended February 28, 1995, we did not audit the financial
statements of United International Investments (UII) or Net Sao Paulo as of and
for the year ended December 31, 1994, investments which are reflected in the
accompanying financial statements using the equity method of accounting. United
International Holdings, Inc.s consolidated statement of operations for the year
ended February 28, 1995 reflects equity in losses related to UII and Net Sao
Paulo of $1,783,000 and $2,446,000, respectively. The financial statements of
XYZ, Megapo, Monor, Net Sao Paulo, UII and Telefenua were audited by other
auditors whose reports have been furnished to us and our opinion, insofar as it
relates to the amounts included in the accompanying consolidated financial
statements and related footnotes for such entities, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of United International Holdings, Inc. and subsidiaries
as of February 28, 1997 and February 29, 1996, and the results of their
operations and their cash flows for the years ended February 28, 1997, February
29, 1996 and February 28, 1995 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Denver, Colorado
May 26, 1997.
46
<PAGE>
XYZ ENTERTAINMENT PTY LTD
INDEPENDENT AUDITORS' REPORT
The Board of Directors
We have audited the accompanying consolidated balance sheet of XYZ Entertainment
Pty Ltd as of December 31, 1995 and 1994 and the related consolidated statements
of operations, stockholders' deficiency and cash flows for the year ended
December 31, 1995 and the period from October 17, 1994 (date of inception) to
December 31, 1994, which are expressed in Australian dollars. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Australia which do not differ in any material respect from auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance as to whether the financial
statements are free of material misstatement. An audit includes examining, on a
text basis, evidence supporting the amounts of disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of XYZ
Entertainment Pty Ltd as of December 31, 1995 and the results of its operations
and its cash flows for the year ended December 31, 1995 and the period from
October 17, 1994 (date of inception) to December 31, 1994, in conformity with
accounting principles generally accepted in Australia.
Generally accepted accounting principles in Australia vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected amounts reported as stockholders' deficiency and net
loss as at and for the year ended December 31, 1995 and from the period from
October 17, 1994 (date of inception) to December 31, 1994 to the extent
summarized in Note 12 to the financial statements.
Sydney, Australia Deloitte Touche Tohmatsu
March 15, 1996 Chartered Accountants
47
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Boards of Directors and Stockholders of:
Tele Cable de Morelos, S. A. de C. V.
Tele Cable Mexicano, S. A. de C. V.
Vision por Cable de Oaxaca, S. A. de C. V.
Tele Cable de Chilpancingo, S. A. de C. V.
Mega-Com-M Servicios, S. A. de C. V.
Cuernamu, S. A. de C. V.
We have audited the accompanying combined balance sheets of Tele Cable de
Morelos, S. A. de C. V. and related companies (all of which are subsidiaries of
Megapo Comunicaciones de Mexico, S. A. de C. V.) as of December 31, 1995 and
1996, and the related combined statements of operations, stockholders' equity
and changes in financial position for the years then ended, all expressed in
thousands of Mexican pesos. The combined financial statements include the
accounts of Tele Cable de Morelos, S. A. de C. V. and five related Companies,
Tele Cable Mexicano, S. A. de C. V., Vision por Cable de Oaxaca, S. A. de C. V.,
Tele Cable de Chilpancingo, S. A. de C. V., Mega-Com-M Servicios, S. A. de C. V.
and Cuernamu, S. A. de C.V.. These Companies are under common ownership and
common management. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Mexico, which are substantially the same as those followed in the United
States of America. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement and that they are prepared in accordance with
accounting principles generally accepted in Mexico. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of Tele Cable de Morelos, S. A. de C.
V. and related companies as of December 31, 1995 and 1996, and the combined
results of their operations, changes in their stockholders' equity and changes
in their financial position for the years then ended in conformity with
accounting principles generally accepted in Mexico.
48
<PAGE>
Accounting principles generally accepted in Mexico vary in certain significant
respects from accounting principles generally accepted in the United States.
The application of the latter would have affected determination of combined net
income (loss) for each of the two years in the period
ended December 31, 1996 and determination of combined stockholders' equity and
combined total assets at December 31, 1995 and 1996, to the extent summarized in
Note 13.
The accompanying combined financial statements have been translated into English
for the convenience of readers in the United States of America.
Galaz, Gomez Morfin, Chavero, Yamazaki
Raymundo Diaz Gonzalez
March 31, 1997
49
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Stockholders and Board of Directors of
Monor Communications Group, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Monor
Communications Group, Inc. and Subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of loss, shareholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Monor
Communications Group, Inc. and Subsidiaries as of December 31, 1995 and 1994,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
COOPERS & LYBRAND LLP
Lincoln, Nebraska
March 15, 1996
50
<PAGE>
Report of Independent Accountants
March 8, 1996
To the Board of Directors and Stockholders
Cabodinamica TV Cabo Sao Paulo S.A.
1. We have audited the balance sheet of Cabodinamic TV Cabo Sao Paulo S.A. as
of December 31, 1995 and 1994 and the related statements of income, of
movement in stockholders' equity and of cash flows for the years then
ended, expressed in U.S. dollars. Such audits were made in conjunction
with our audits of the financial statements expressed in local currency on
which we issued an unqualified opinion dated January 30, 1995. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
2. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
3. As stated in Note 2, United International Holdings, Inc. has prescribed
that accounting principles generally accepted in the United States of
America be applied in the preparation of the financial statements of
Cabodinamica TV Cabo Sao Paulo S.A. to be included in United International
Holding's consolidated financial statements. Brazil has a highly
inflationary economy. Accounting principles generally accepted in the
United States of America require that financial statements of a company
denominated in the currency of a country with a highly inflationary economy
be remeasured into a more stable currency unit for purposes of
consolidation. Accordingly, the accounts of Cabodinamica TV Cabo Sao Paulo
S.A., which are maintained in reais, were remeasured and adjusted into U.S.
dollars for the financial statements prepared in accordance with accounting
principles generally accepted in the United States of America on the bases
stated in Note 2.
51
<PAGE>
March 8, 1996
Cabodinamica TV Cabo Sao Paulo S.A.
4. In our opinion, the financial statements expressed in U.S. dollars audited
by us are presented fairly, in all material respects, on the bases states
in Note 2 and discussed in the preceding paragraph.
5. The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred losses from operations and
has an excess of current liabilities over current assets, and its ability
to continue as a going concern is dependent on further capital from the
stockholders and/or continued guarantees. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Price Waterhouse
Auditores-Independentes
CRC-SP-160
Carlos Roberto Asciutti
Partner
Contador CRC-SP-145.670
52
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the shareholders of TELEFENUA SA.
We have audited the accompanying balance sheet of TELEFENUA SA as of december
31, 1993, 1994 and 1995 and the related statement of income and changes in
financial position for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards
in France, which do not differ substantially from generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of TELEFENUA SA as of december 31,
1993, 1994 and 1995 and the results of its operations and changes in its
financial position for the year then ended, in conformity with generally
accepted accounting principles in the united states of america.
The accounting practices of the Company used in preparing the accompanying
financial statements conform with generally accepted accounting principles in
the united states of america, but do not fully conform with accounting
principles generally accepted in France. As a consequence those financial
statements differ from statutory financial statements that will be submitted to
the approval of the company's shareholders in conformity with local corporate
laws.
A description of the significant differences between such principles and those
accounting principles generally accepted in the United States, and the effect of
those differences on net income, total assets and shareholder's equity are set
forth in Note 2.a of the notes to the financial statements.
Papeete, february 16, 1996
COOPERS & LYBRAND
Jean-Pierre GOSSE
53
<PAGE>
[LETTERHEAD OF PRICE WATERHOUSE LLP APPEARS HERE]
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Partners of
United International Investments
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of partners' capital and of cash flows
present fairly, in all material respects, the financial position of United
International Investments and its subsidiaries (the "Partnership") at December
31, 1994, and the results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Denver, CO
April 21, 1995
53-A
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
February 28, February 29,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........... $ 68,784 $ 112,218
Restricted cash and short-term
investments......................... 1,600 14,073
Short-term investments............... 70,359 35,692
Subscriber receivables, net......... 2,939 138
Management fee receivables from
related parties..................... 664 498
Notes receivable.................... 9,324 15,785
Costs to be reimbursed by affiliated
companies, net...................... 4,884 7,972
Other current assets, net........... 14,899 8,068
--------- ---------
Total current assets......... 173,453 194,444
Investments in and advances to
affiliated companies, accounted for
under the equity method, net........... 251,959 272,205
Other investments in affiliated
companies, including marketable equity
securities............................. 4,293 3,273
Property, plant and equipment, net of
accumulated depreciation of $29,378
and $2,097,
respectively......................... 219,342 31,102
Goodwill, net of accumulated
amortization of $3,835 and $1,612,
respectively........................... 122,249 45,629
Acquisition, transaction and
development costs, net................. 6,249 4,541
Other non-current assets, net........... 42,391 29,012
--------- ---------
Total assets.................. $ 819,936 $ 580,206
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable..................... $ 23,173 $ 7,822
Construction payables........... 38,331 --
Accrued liabilities............. 12,571 3,123
Purchase money note payable to
seller, current.................... 5,722 --
Accrued funding obligations,
current........................ 3,309 2,163
Other current liabilities....... 2,208 147
--------- ---------
Total current liabilities.... 85,314 13,255
Purchase money note payable to
seller............................ 12,966 --
Senior secured notes and other debt.. 674,960 371,227
--------- ---------
Total liabilities............ 773,240 384,482
--------- ---------
Minority interest in subsidiaries....... 307 2,509
Warrants to purchase Class A Common
Stock.................................. -- 11,167
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................. 31,293 30,072
Commitments (Note 6)
Stockholders' Equity:
Class A Common Stock, $0.01 par
value, 60,000,000 shares
authorized, 26,097,263
and 25,732,154 shares issued
and outstanding, respectively.. 261 257
Class B Common Stock, $0.01 par
value, 30,000,000 shares
authorized, 12,971,775
and 13,274,685 shares issued
and outstanding, respectively.. 129 133
Additional paid-in capital........... 340,753 325,716
Deferred compensation................ (624) (842)
Unrealized loss on investments in
marketable equity securities........ (6,069) (1,189)
Cumulative translation adjustments.. (15,801) (7,371)
Accumulated deficit.................. (303,553) (164,728)
--------- ---------
Total stockholders' equity.... 15,096 151,976
--------- ---------
Total liabilities and
stockholders' equity......... $ 819,936 $ 580,206
</TABLE> ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
54
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
For the Years Ended
-------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Service and other revenue......... $ 30,244 $ 2,363 $ 701
Management fee income from
related parties.................. 1,311 507 912
----------- ----------- -----------
Total revenue................ 31,555 2,870 1,613
System operating expense.......... (34,116) (4,224) (1,651)
System selling, general and
administrative expense........... (29,068) (3,524) (2,103)
Corporate general and
administrative expense........... (17,087) (18,959) (16,196)
Depreciation and amortization..... (38,961) (2,331) (1,701)
----------- ----------- -----------
Net operating loss........... (87,677) (26,168) (20,038)
Equity in losses of affiliated
companies, net................... (47,575) (48,635) (6,106)
Gain on sale of investments in
affiliated companies............. 65,249 16,013 --
Interest income................... 13,132 8,043 6,242
Interest expense.................. (79,659) (36,045) (9,266)
Interest income, related parties,
net.............................. 197 374 237
Provision for losses on
investment related costs......... (5,859) (6,055) (2,865)
Other (expense) income, net....... (991) 81 107
----------- ----------- -----------
Net loss before minority
interest................... (143,183) (92,392) (31,689)
Minority interest in subsidiaries. 4,358 1,081 1,075
----------- ----------- -----------
Net loss.................... $ (138,825) $ (91,311) $ (30,614)
=========== =========== ===========
Net loss per common share......... $(3.56) $(2.68) $(1.10)
=========== =========== ===========
Weighted-average number of common
shares outstanding............... 39,035,776 34,017,660 27,802,250
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
55
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Stated in thousands, except share amounts)
<TABLE>
<CAPTION>
Class A Class B Additional
Common Stock Common Stock Paid-In
------------------ --------------------
Shares Amount Shares Amount Capital
---------- ------ ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
Balances, February 28, 1994 9,284,812 $ 93 14,390,188 $144 $130,409
Issuance of Class A Common
Stock in connection with
public offering, net
offering expenses.......... 6,900,000 69 -- -- 81,132
Issuance of Class A Common
Stock in connection with
Companys 401(k) Plan...... 11,989 -- -- -- 180
Issuance of Class A Common
Stock in connection
with 2,000 -- -- -- 19
Companys Stock Option
Plan...................
Cumulative translation
adjustments............... -- -- -- -- --
Amortization of deferred
compensation........... -- -- -- -- --
Exchange of Class B Common
Stock for Class A Common
Stock.................. 318,847 3 (318,847) (3) --
Unrealized loss on
investment.............. -- -- -- -- --
Net loss................... -- -- -- -- --
---------- ---- ---------- ------ --------
Balances, February 28, 1995 16,517,648 165 14,071,341 141 211,740
Issuance of Class A Common
Stock in connection with
public offering, net of
offering expense.......... 5,175,000 52 -- -- 61,883
Issuance of Class A Common
Stock in connection with
Companys 401(k) Plan...... 15,832 -- -- -- 260
Issuance of Class A Common
Stock in connection
with Companys
Stock Option
Plan.................... 59,991 -- (2,124) -- 522
Issuance of Class A Common
Stock in connection with
UPC Transaction......... 3,169,151 32 -- -- 49,968
Compensation expense
related to the
acceleration of the
vesting of options........ -- -- -- -- 1,575
Accretion of dividends on
convertible preferred
stock................... -- -- -- -- (232)
Change in cumulative
translation adjustments.
Amortization of deferred
compensation.......... -- -- -- -- --
Exchange of Class B Common
Stock for Class A Common
Stock................. 794,532 8 (794,532) (8) --
Unrealized loss on
investment............. -- -- -- -- --
Net loss................... -- -- -- -- --
---------- ---- ---------- ------ --------
Balances, February 29, 1996 25,732,154 257 13,274,685 133 325,716
</TABLE>
<TABLE>
<CAPTION>
Unrealized Cumulative
Deferred Gain (Loss) on Translation Accumulated
Compensation Investments Adjustments Deficit Total
------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Balances, February 28, 1994 $(2,184) $ 8,177 $ -- $ (42,803) $ 93,836
Issuance of Class A Common
Stock in connection with
public offering, net
offering expenses.......... -- -- -- -- 81,201
Issuance of Class A Common
Stock in connection with
Companys 401(k) Plan...... -- -- -- -- 180
Issuance of Class A Common
Stock in connection
with
Companys Stock Option
Plan................... -- -- -- -- 19
Cumulative translation
adjustments............... -- -- 195 -- 195
Amortization of deferred
compensation........... 664 -- -- -- 664
Exchange of Class B Common
Stock for Class A Common
Stock.................. -- -- -- -- --
Unrealized loss on
investment.............. -- (6,611) -- -- (6,611)
Net loss................... -- -- -- (30,614) (30,614)
------------ ----------- ----------- ----------- --------
Balances, February 28, 1995 (1,520) 1,566 195 (73,417) 138,870
Issuance of Class A Common
Stock in connection with
public offering, net of
offering expense.......... -- -- -- -- 61,935
Issuance of Class A Common
Stock in connection with
Companys 401(k) Plan...... -- -- -- -- 260
Issuance of Class A Common
Stock in connection
with Companys
Stock Option
Plan.................... -- -- -- -- 522
Issuance of Class A Common
Stock in connection with
UPC Transaction......... -- -- -- -- 50,000
Compensation expense
related to the
acceleration of the
vesting of options........ -- -- -- -- 1,575
Accretion of dividends on
convertible preferred
stock................... -- -- -- -- (232)
Change in cumulative
translation adjustments. -- -- (7,566) -- (7,566)
Amortization of deferred
compensation.......... 678 -- -- -- 678
Exchange of Class B Common
Stock for Class A Common
Stock................. -- -- -- -- --
Unrealized loss on
investment............. -- (2,755) -- -- (2,755)
Net loss................... -- -- -- (91,311) (91,311)
----------- ----------- ----------- ----------- --------
Balances, February 29, 1996 (842) (1,189) (7,371) (164,728) 151,976
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
56
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Stated in thousands, except share amounts)
<TABLE>
<CAPTION>
Class A Class B Additional
Common Stock Common Stock Paid-In
------------------ --------------------
Shares Amount shares Amount Capital
---------- ------ ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
Balances, February 29, 1996 25,732,154 $257 13,274,685 $133 $325,716
Issuance of Class A Common
Stock in connection with
Companys Stock 39,750 -- -- -- 349
Option Plan...........
Issuance of Class A Common
Stock in connection 22,449 -- -- -- 309
with
Companys 401(k) Plan..
Exchange of Class B Common
Stock for Class A 302,910 4 (302,910) (4) --
Common
Stock................. -- -- -- -- (1,221)
Accretion of dividends on
convertible preferred
stock..................
Expiration of put option of
warrants not tendered -- -- -- -- 9,011
to
the Company............
Gain on sale of stock by
-- -- -- -- 5,898
subsidiary.............
Change in cumulative
translation adjustments
Repricing of stock options. -- -- -- -- 691
Amortization of deferred
compensation........... -- -- -- -- --
Unrealized loss on
-- -- -- -- --
investments............
Net loss................... -- -- -- --
---------- ------ ---------- ------ --------
Balance, February 28, 1997. 26,097,263 $261 12,971,775 $129 $340,753
========== ====== ========== ====== ========
<CAPTION>
Unrealized Cumulative
Deferred Gain (Loss) Translation Accumulated
on
Compensation Investments Adjustments Deficit Total
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances, February 29, 1996 $(842) $(1,189) $ (7,371) $(164,728) $ 151,976
Issuance of Class A Common
Stock in connection with
Companys Stock
Option Plan........... -- -- -- -- 349
Issuance of Class A Common
Stock in connection
with
Companys 401(k) Plan.. -- -- -- -- 309
Exchange of Class B Common
Stock for Class A
Common
Stock................. -- -- -- -- --
Accretion of dividends on
convertible preferred
stock.................. -- -- -- -- (1,221)
Expiration of put option of
warrants not tendered
to
the Company............ -- -- -- -- 9,011
Gain on sale of stock by
subsidiary............. -- -- -- -- 5,898
Change in cumulative
translation adjustments -- -- (8,430) -- (8,430)
Repricing of stock options. (691) -- -- -- --
Amortization of deferred
compensation........... 909 -- -- -- 909
Unrealized loss on
investments............ -- (4,880) -- -- (4,880)
Net loss................... -- -- -- (138,825) (138,825)
------------ ----------- ----------- ----------- ---------
Balance, February 28, 1997. $(624) $(6,069) $(15,801) $(303,553) $ 15,096
============ =========== =========== =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
57
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands)
<TABLE>
<CAPTION>
For the Years Ended
-------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss.......................... $(138,825) $ (91,311) $ (30,614)
Adjustments to reconcile net loss
to net cash flows from operating
activities:
Equity in losses of
affiliated companies, net.... 47,575 48,920 6,379
Gain on sale of investments
in affiliated companies...... (65,249) (16,013) --
Minority interest share of
losses....................... (4,358) (1,081) (1,075)
Depreciation and amortization. 38,961 2,331 1,701
Amortization of deferred
compensation................. 909 678 664
Accretion of interest on
senior secured notes......... 73,695 35,158 7,994
Issuance of common stock in
connection with Companys
401(k) Plan.................. 309 260 180
Compensation expense
recognized due to
acceleration of vesting of
stock options................ -- 1,575 --
Provision for losses on
investment related costs..... 5,859 6,055 2,865
(Increase) decrease in
management fee receivables... (166) (689) 11
Increase in other assets...... (16,210) (6,439) (8,093)
Increase in accounts payable
and accrued liabilities...... 20,860 499 5,708
Increase in accrued
funding obligation........... 1,146 -- --
--------- --------- ---------
Net cash flows from operating
activities....................... (35,494) (20,057) (14,280)
--------- --------- ---------
Cash flows from investing
activities:
Purchase of short-term investments (359,534) (122,424) (196,619)
Proceeds from sale of short-term
investments...................... 324,867 186,117 119,172
Restricted cash (deposited)
released......................... 12,473 71,780 (82,453)
Investments in and advances to
affiliated companies and other
investments...................... (65,945) (204,725) (84,064)
Proceeds from sale of investments
in affiliated companies.......... 43,098 12,823 --
Purchase of additional interests
in Austar........................ (7,920) -- --
Purchase of interest in Bahia
Blanca........................... (26,382) -- --
Distribution from affiliated
company.......................... -- -- 1,733
Reimbursement of advance to
affiliate........................ -- 364 660
Advances to related parties....... -- -- (134)
(Increase) decrease in costs to
be reimbursed by affiliated
companies, net................... 3,088 (1,594) (2,363)
Increase in notes receivable...... (5,557) (7,126) (12,587)
Repayments on notes receivable.... 45,264 -- --
Acquisition, transaction and
development costs incurred....... (7,154) (6,155) (10,464)
Purchase of property, plant and
equipment........................ (204,407) (10,168) (11,194)
Increase in construction payables. 38,331 -- --
--------- --------- ---------
Net cash flows from investing
activities....................... (209,778) (81,108) (278,313)
--------- --------- ---------
Cash flows from financing
activities:
Issuance of common stock in
connection with public
offerings, net of offering
expenses......................... -- 61,935 81,201
Issuance of common stock in
connection with Companys Stock
Option Plan...................... 349 522 19
Proceeds from offerings of senior
secured notes and units.......... 225,115 125,000 200,893
Deferred debt offering costs...... (10,670) (13,753) (8,122)
Payment of sellers note........... (11,856) -- --
Cash contributions from minority
interest partners................ -- -- 7,593
Purchase of Warrants (2,156) -- --
Borrowing of other debt........... -- 9,820 768
Repayment of other debt........... -- (1,000) (448)
Repayments of note payable to
related party.................... -- -- (1,836)
--------- --------- ---------
Net cash flows from financing
activities....................... 200,782 182,524 280,068
--------- --------- ---------
Effect of exchange rates on cash.. 1,056 142 (80)
--------- --------- ---------
Increase (decrease) in cash and
cash equivalents................. (43,434) 81,501 (12,605)
Cash and cash equivalents,
beginning of period.............. 112,218 30,717 43,322
Cash and cash equivalents, end of --------- --------- ---------
period........................... $ 68,784 $ 112,218 $ 30,717
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
58
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
1. Organization and Background
United International Holdings, Inc. (together with its majority-owned
subsidiaries, the "Company") 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. As of February 28, 1993, all
of the Company's outstanding common shares were held by United International
Holdings, a Colorado general partnership (the "Partnership").
The Partnership was formed in September 1989, for the purpose of investing
in communication and entertainment related assets in the United States and
internationally. Since its inception, the Partnership had no employees and all
of its foreign business development related activities were conducted through
the Company. Subsequent to the formation of the Partnership, the Company
continued its foreign business development activities. Upon identification of a
potential opportunity, the Company would offer the opportunity to the
Partnership. Accordingly, substantially all of the original acquisitions of
affiliated companies were made through the Partnership.
In contemplation of obtaining additional equity and debt financing for the
Company in fiscal 1994, the Partnership began transferring its ownership
interests in its various foreign multi-channel television interests to the
Company. The accompanying financial statements have been prepared on a basis of
reorganization accounting as though the Company had performed all foreign
development activities and made all acquisitions of the foreign multi-channel
television interests since inception.
The following chart presents a summary of the Company's significant
investments in multi-channel television and telephony operations as of
February 28, 1997.
[CHART APPEARS HERE]
(1) In September 1996, UPC acquired 100% of UCI, a partnership which held
interests in Norkabel, Kabelkom and Swedish Cable. UPC sold Swedish Cable
in October 1996.
(2) During the third quarter of 1997, UIH A/P acquired the remaining 6% interest
in Austar (see Note 3).
(3) In July 1996, UIH A/P increased its ownership interest in Saturn to 100%.
In exchange for acquiring the additional 50% interest, UIH A/P gave Saturn's
other shareholder a 2.6% interest in UIH A/P.
(4) 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.
(5) UAP currently holds a convertible loan, which upon full conversion would
provide UAP with a 40% equity ownership interest in the Philippines
operating company.
59
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
(6) In September 1996, UIH LA completed an agreement with VTR S.A. ("VTR"),
under which the parties formed the joint venture VTR Hipercable S.A.
("VTRH"). UIH LA and VTR contributed its respective Chilean multi-channel
television assets to VTRH of which UIH LA owns 34%.
(7) UIH LA owns 100% of two subsidiaries and 80% of a third subsidiary that
serve the Bahia Blanca and Punta Alta areas and, has agreed, subject to
certain conditions, to acquire the remaining 20% of the subsidiary in 1998
(see Note 3).
(8) In February 1997, the Company and Philips Media B.V. ("Philips") signed a
letter of intent which agreed for the Company and/or UPC to acquire Philips
50% interest in UPC, except for ratable dilution caused by UPC's incentive
option plan.
(9) In January 1997, UPC acquired a 70.2% interest in Janco, which serves the
City of Oslo. UPC has the right to acquire the remaining interest in Janco
in 2000.
(10) In August 1996 and January 1996, the Company completed the sales of its 34%
interest in Net Sao Paulo and its 25% interest in TV Cabo Rio,
respectively. The Company recognized a gain of $65,249 on the sale of Net
Sao Paulo in the year ended February 28, 1997. The Company recognized a
gain of $11,880 on the sale of TV Cabo Rio in the year ended February 29,
1996.
In July 1995, the Company and Philips Electronics B.V. ("Philips")
contributed their respective ownership interests in European and Israeli multi-
channel television systems to United and Philips Communications B.V. ("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. Philips contributed to UPC its 95% interest in cable
television systems in Austria, its 100% interest in cable television systems in
Belgium and its minority interests in multi-channel television systems in
Germany, the Netherlands (Eindhoven) and France. The Company contributed its
interests in multi-channel television systems in Israel, Ireland, the Czech
Republic, Malta, Norway, Hungary, Sweden and Spain. In July 1995, A2000, a
Dutch company at that time owned 50% by each of Philips and U S WEST, acquired a
100% interest in existing cable television systems with non-exclusive licenses
in Amsterdam, the Netherlands and four surrounding municipalities. Philips then
transferred its 50% interest in A2000 to UPC. In September 1995, UPC acquired
the remaining 96.2% interest in Kabeltelevisie Eindhoven N.V. ("KTE"), the
Netherlands system formerly owned by the city of Eindhoven and certain local
housing authorities.
In February 1997, the Company and Philips entered into a letter of intent
whereby the Company and/or UPC would acquire from Philips their 50% equity
interest in UPC along with 3.17 million of the Company's Class A Common Shares
currently held by Philips. The purchase price for the acquisition of these two
assets is $275 million. In addition, UPC as part of the transaction would agree
to redeem certain debt securities owed to Philips in the approximate amount of
$155 million, and issue to Philips a stock appreciation right. The parties are
currently working on definitive documentation for the transaction, failing which
the ownership of UPC will remain as currently structured. Closing for the
transaction, assuming the successful execution of definitive documentation, is
expected to occur by late summer 1997.
In June 1995, UIH LA completed an acquisition of 65% of Red de Television y
Servicios por Cable S.A. ("STX"), a Chilean company which owns and operates
eight cable television systems in Northern Chile. The purchase price was
$25,918. In June 1996, UIH LA acquired the remaining 35% of STX for $24,000. The
Company acquired an initial 50% interest in Cablevision S.A ("Cablevision") in
January 1994 for $3,900. In January 1996, UIH LA increased its ownership in
Cablevision S.A. to 100% for approximately $22,100. UIH LA contributed its
interests in STX and Cablevision in exchange for a 34% interest in VTRH in
September 1996. In December 1997, UIH LA will have the option to increase its
interest to 50% after a revaluation of the properties (and corresponding
reallocation of interests) subject to minimum and maximum values. Prior to
formation of the joint venture, UIH LA held 100% interests in Cablevision and
STX.
In 1994, the Company acquired, through directly and indirectly held
interests, an effective 50% economic interest in the two companies that form
Austar Entertainment Pty Limited ("Austar") in 1994. In December 1995, the
Company increased its effective economic interest in Austar to 90%. In May
1996, the Entertainment Pty Limited ("Austar") Company increased its economic
interest to 94% which was subsequently increased to 96% and in October 1996,
acquired the remaining 4% economic interest in Austar for $7,920. The companies
that comprise Austar (CTV Pty Limited ("CTV") and STV Pty Limited ("STV")) have
acquired multi-point microwave distribution systems ("MMDS") licenses to supply
subscription television services to television households in the northern,
northeastern and southern regions of Australia outside of the country's largest
cities and are currently constructing multi-channel television systems to
service many of the television homes in their license areas. Those homes that
cannot be served by MMDS will be serviceable by a direct-to-home ("DTH")
satellite service marketed by Austar. The Company's ownership interests are
comprised of direct and indirect holdings of convertible debentures and ordinary
shares of CTV and STV. Ownership of the debentures entitles the Company to vote
for directors on the same basis as ordinary shares. The Company is party to
various security holder agreements which enable it to designate all of the six
voting directors of both CTV and STV. The Company has
60
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
consolidated Austar for balance sheet purposes effective December 31, 1995 and
for income statement purposes effective January 1, 1996. Prior to these dates,
the Company accounted for its investments in CTV and STV under the equity
method.
2. Summary of Significant Accounting Policies
Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and all subsidiaries where it exercises majority control and owns a
majority economic interest, except Cablevision S.A. and STX as of and for the
years ended February 29, 1996 and 1997, due to an expected joint venture in
Chile with VTR wherein UIH LA subsequently contributed these interests to VTRH
in September 1996. Accordingly, due to temporary majority control, such
investments have been accounted for under the equity method. 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. Exchange rates used are as of February
28, 1997, unless otherwise noted.
Cash and Cash Equivalents, Restricted Cash and Short-Term Investments, and
Short-Term Investments
Cash and cash equivalents include cash and investments with original
maturities of less than three months. Restricted cash and short-term investments
of $1,600 at February 28, 1997 is comprised of collateral for a bank letter of
credit related to the office lease of an operating company and $14,073 at
February 29, 1996 is comprised of collateral for notes payable to banks (Note
5). The portion of short-term investments which is classified as available for
sale in accordance with the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"), is accounted for at fair market value and includes
those investments with original maturities of more than three months. As of
February 28, 1997 and February 29, 1996, the Company had approximately $0 and
$23,171, respectively, of short-term investments classified as held to maturity
securities which are stated at amortized cost under the provisions of SFAS 115.
The majority of the Company's short-term investments in commercial paper,
corporate bonds and government securities have an average maturity of less than
12 months.
61
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
Cash and cash equivalents, restricted cash and short-term investments are as
follows:
<TABLE>
<CAPTION>
As of February 28, 1997
---------------------------------------------------
Restricted
Cash and Cash and
Cash Short-Term Short-Term
Equivalents Investments Investments Total
------------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
Cash.................... $ 13,860 $ -- $ -- $ 13,860
Commercial paper........ 43,365 -- 2,000 45,365
Corporate bonds......... 5,151 -- 40,080 45,231
Government securities... 6,408 1,600 28,279 36,287
-------- ------- ------- --------
$ 68,784 $ 1,600 $70,359 $140,743
======== ======= ======= ========
<CAPTION>
As of February 29, 1996
-------------------------------------------------
Restricted
Cash and Cash and
Cash Short-Term Short-Term
Equivalents Investments Investments Total
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Cash.................... $ 83,792 $12,493 $ -- $ 96,285
Commercial paper........ 23,434 -- -- 23,434
Corporate bonds......... 4,992 211 30,692 35,895
Government securities... -- 1,369 5,000 6,369
-------- ------- ------- --------
$112,218 $14,073 $35,692 $161,983
======== ======= ======= ========
</TABLE>
Generally, the Company's short-term investments mature within twelve months
from the date of purchase except for certain short-term investments which are
repriced periodically to reduce interest rate risk.
Costs to be Reimbursed by Affiliated Companies
The Company incurs costs on behalf of affiliated companies, such as
expatriate salaries and benefits, travel and professional services. These costs
are reimbursed by the affiliated companies. Such reimbursable costs were as
follows:
<TABLE>
<CAPTION>
As of As of
February 28, February 29,
1997 1996
------------- -------------
<S> <C> <C>
Europe
- ------
UPC.................................. $ 1,772 $ 5,903
Latin America
- -------------
Net Sao Paulo........................ -- 728
Cablevision S.A...................... -- 338
Asia/South Pacific
- ------------------
SCS.................................. 902 232
Other
- -----
Teleport-St. Petersburg.............. 1,661 1,386
Other................................ 2,210 771
------- -------
6,545 9,358
Allowance for doubtful accounts...... (1,661) (1,386)
------- -------
$ 4,884 $ 7,972
======= =======
</TABLE>
Investments in and Advances to Affiliated Companies, Accounted for under the
Equity Method
For those investments in companies in which the Company's ownership
interest is 20% to 50%, its investments are held through a combination of voting
common stock, preferred stock, debentures or convertible debt and the Company
exerts significant influence through board representation and management
authority, or in which majority control is deemed to be temporary, the equity
method of accounting is used. Under this method, the investment, originally
recorded at cost, is adjusted
62
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
to recognize the Company's proportionate share of net earnings or losses of the
affiliates, limited to the extent of the Company's investment in and advances to
the affiliates, including any debt guarantees or other contractual funding
commitments. The Company's share of net earnings or losses of affiliates
includes the amortization of excess of cost over net tangible assets acquired.
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). Investments in
and advances to affiliated companies are as follows:
<TABLE>
<CAPTION>
As of February 28, 1997
-------------------------------------------------------------------------------------------------
Investments in Cumulative Equity
and Advances to in Income (Losses) of Cumulative Translation Valuation
Affiliated Companies Affiliated Companies(1) Adjustment Allowance Total
----------------------- ------------------------ ------------------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Europe
- ------
UPC...................... $150,442 $(40,224) $(11,044) $ -- $ 99,174
Monor Communications..... 27,182 (8,221) (4,575) -- 14,386
Iberian Programming
Services............... 11,187 (4,734) -- -- 6,453
Latin America
- -------------
VTRH(2).................. 82,010 (2,122) (1,502) -- 78,386
Megapo................... 32,491 (727) (1,420) -- 30,344
TVSB..................... 6,132 (2,860) -- -- 3,272
Jundiai.................. 4,984 (1,214) -- -- 3,770
United Family
Communications......... 1,739 (10) -- -- 1,729
Asia/Pacific
- ------------
XYZ...................... 16,202(3) (16,312) 110 -- --
SCS...................... 8,599 (366) 155 -- 8,388
HITV..................... 6,073 (16) -- -- 6,057
Other
- -----
Teleport St. Petersburg.. 3,119 (1,051) -- (2,068) --
-------- -------- -------- --------- --------
$350,160 $(77,857) $(18,276) $(2,068) $251,959
======== ======== ======== ========= ========
</TABLE>
(1) Does not include cumulative equity in losses of Net Sao Paulo of $9,979 as
the Company sold its investment in August 1996. Also, does not include
cumulative equity in income of STX of $613 and cumulative equity in losses
of Cablevision of $5,198 as these assets were exchanged for a 34% interest
in VTRH on August 31, 1996.
(2) On August 31, 1996, the Company's investments in STX and Cablevision were
carried at $52,474 and $27,873, respectively. The Company exchanged its
investments in STX and Cablevision for a 34% interest in VTRH. Accordingly,
such amounts are reflected as investment in VTRH as of February 28, 1997.
(3) Includes an accrued funding obligation of $1,270 at December 31, 1996.
63
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
<TABLE>
<CAPTION>
As of February 29, 1996
------------------------------------------------------------------------------------
Investments in Cumulative Equity Cumulative
and Advances to in Income (Losses) of Translation Valuation
Affiliated Companies Affiliated Companies(1) Adjustment Allowance Total
-------------------- ----------------------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Europe
- ------
UPC(2)........................ $150,442 $(15,559) $(3,758) $ -- $131,125
Monor Communications.......... 24,632 (5,573) (2,654) -- 16,405
Iberian Programming Services.. 4,377 (413) -- -- 3,964
Latin America
- -------------
STX/Cablevision............... 60,362 (832) (796) -- 58,734
Net Sao Paulo................. 16,054 (8,290) -- -- 7,764
TVSB.......................... 6,118 (1,582) -- -- 4,536
Megapo........................ 32,491(3) (48) (1,257) -- 31,186
Jundiai....................... 2,673 (756) -- -- 1,917
Asia/Pacific
- ------------
Saturn........................ 6,014 (1,802) 112 -- 4,324
XYZ........................... 11,718(4) (11,737) 111 -- 92
SCS........................... 6,346 (148) 183 -- 6,381
HITV.......................... 2,153 (10) -- -- 2,143
Other
- -----
Teleport St. Petersburg....... 2,961 (1,051) -- (1,910) --
ITN........................... 3,862 (1,032) -- -- 2,830
Other......................... 805 (1) -- -- 804
-------- -------- ------- --------- --------
$331,008 $(48,834) $(8,059) $(1,910) $272,205
======== ======== ======= ========= ========
</TABLE>
(1) Does not include cumulative equity in losses of Austar of $3,788 as Austar's
balance sheet is consolidated as of December 31, 1995. Also, does not
include cumulative equity in losses of TV Cabo Rio of $381 as the Company
sold its investment in December 1995 for a gain of $11,881.
(2) The assets contributed to UPC were contributed at net book value which was
net of $17,260 in cumulative equity losses. Also includes cash contributed
to UPC of $78,200 and common stock issued to Philips valued at $50,000 on
the date of issuance.
(3) Of this amount, $12,000 was advanced as a note receivable as of February 28,
1995, and was contributed to equity at closing in June 1995.
(4) Includes $4,132 of investment prior to the receipt of $4,132 of proceeds
received from the sale of 50% of the Company's interest. As the Company had
recorded equity in losses from XYZ in an amount equal to its invested
capital, the Company recognized a gain of $4,132 on this transaction. In
addition, the Company accrued an additional funding obligation of $1,834 as
of December 31, 1995.
As of February 28, 1997 and February 29, 1996, the Company had the following
differences related to the excess of cost over the net tangible assets acquired
included in the above table. Such differences are being amortized over 15
years.
<TABLE>
<CAPTION>
As of February 28, 1997 As of February 29, 1996
------------------------- -------------------------
Basis Accumulated Basis Accumulated
Difference Amortization Difference Amortization
Europe ---------- ------------- ---------- -------------
- ------
<S> <C> <C> <C> <C>
UPC................... $25,588 $(3,218) $29,636 $(1,287)
Monor Communications.. 3,959 (837) 2,707 (631)
Latin America
- -------------
VTRH.................. 17,505 (363) -- --
STX/Cablevision(1).... -- -- 19,241 (866)
Net Sao Paulo(2)...... -- -- 3,529 (927)
TVSB.................. 2,953 (680) 3,757 (250)
Megapo................ 23,661 (2,583) 25,369 (865)
Jundiai............... 393 (87) 393 (39)
Asia/Pacific
- ------------
Saturn(3)............. -- -- 2,220 (107)
</TABLE>
(1) The Company exchanged its 100% interest in Cablevision and STX for a 34%
interest in VTRH in 1996.
(2) Net Sao Paulo was sold in August 1996.
(3) Effective July 1, 1996, the Company began consolidating Saturn.
64
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
Other Investments in Affiliated Companies, including Marketable Equity
Securities
The cost method of accounting is used for the Company's other investments in
affiliated companies in which the Company's ownership interest is less than 20%
and where the Company does not exert significant influence, except for those
investments in marketable equity securities. The Company classifies its
investments in marketable equity securities in which its interest is less than
20% and where the Company does not exert significant influence as available for
sale under SFAS 115 and, accordingly, accounts for such investments at fair
market value.
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 3
years. Upon disconnection of an 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
February 28, February 29, Average
1997 1996 Life
------------- ------------- -------
<S> <C> <C> <C>
MMDS distribution facilities............ $ 57,074 $15,417 5-10
Cable distribution networks............. 22,795 891 5-10
Subscriber premises equipment and
converters............................. 126,007 7,728 3
Furniture and fixtures.................. 3,418 860 5-10
Leasehold improvements.................. 3,593 1,678 6-10
Other................................... 35,833 6,625 3-5
-------- -------
248,720 33,199
Accumulated depreciation........ (29,378) (2,097)
-------- -------
Net property, plant and $219,342 $31,102
equipment...................... ======== =======
</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.
Acquisition, Transaction and Development Costs
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 affiliated company or capitalized as part of
the cost basis of the Company's investment. If the potential investment is
abandoned, these costs are expensed. The Company had deferred acquisition,
transaction and development costs as follows:
<TABLE>
<CAPTION>
As of As of
February 28, February 29,
1997 1996
------------- -------------
<S> <C> <C>
Europe.............................. $ 361 $ 783
Asia/Pacific........................ 2,954 2,073
Latin America....................... 3,448 2,494
Other............................... 486 191
------- -------
7,249 5,541
Reserve......................... (1,000) (1,000)
------- -------
$ 6,249 $ 4,541
======= =======
</TABLE>
65
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
In connection with the UPC transaction, the Company contributed its
development costs in Europe to UPC and received equity credit for $3,391 and was
reimbursed for $1,107.
The Company expensed acquisition, transaction and development costs of
$3,970, $1,217 and $2,334 related to the abandonment of projects during the
years ended February 28, 1997, February 29, 1996 and February 28, 1995,
respectively.
Goodwill
The Company's acquisition of an additional 40% economic interest in Austar
was recorded as a step acquisition. The majority of the purchase price of
$45,081 was recorded as goodwill as the underlying net book value of all
tangible and intangible assets approximated their respective fair values at that
date. Accordingly, goodwill of $44,790 is being amortized over 15 years
beginning January 1, 1996. In July 1996, the Company acquired the remaining 50%
interest in Saturn, resulting in an additional $8,773 of goodwill which is being
amortized over 15 years. In November 1996, the Company acquired its interest in
Bahia Blanca (see Note 3). The majority of the purchase price was recorded as
goodwill.
Recoverable Amounts of Tangible and Intangible Assets
The carrying amount of all tangible and intangible assets are reviewed
periodically whenever events and circumstances indicate the carrying value of
the assets may exceed their recoverable amount. The recoverable amounts of all
tangible and intangible assets have been determined using net cash flows which
have not been discounted to their present values.
Other Non-Current Assets
Other non-current assets are comprised of the following:
<TABLE>
<CAPTION>
As of As of
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C>
Deferred debt offering costs, net....... $22,384 $17,611
License fees, net....................... 10,387 10,693
Receivables from related parties........ 841 --
Other, net of reserve................... 8,779 708
------- -------
$42,391 $29,012
======= =======
</TABLE>
An affiliate of Tele-Communications, Inc. ("TCI") made certain advances to
the subsidiaries of Swedish Cable and Dish ("SCD") prior to the Company's
acquisition of SCD in 1989. In connection with the acquisition, the Company
agreed to cause those subsidiaries to repay the advances at closing and the
minimum amount agreed by all parties to be outstanding was repaid at that time.
During February 1996, the Company paid the remainder of $4,100 (including
accrued interest) to TCI and recorded a receivable from SCD for such amount.
The Company also recorded a reserve for the full amount as of February 29, 1996.
In December 1996, the Company received $2,198 from SCD pursuant to these
agreements. The Company recorded such amount as a reduction of its provision
for losses on investment related costs.
The acquisition of MMDS licenses has been recorded at cost. The cost to
acquire these licenses ($10,520), acquired for a 5-year period for Australia,
will be amortized over the remaining license period upon commencement of
operations. The licenses are renewable every 5 years. In Tahiti, the license
rights, totaling $2,387, are amortized over a 10-year period.
Revenue Recognition
Monthly service revenues are recognized as revenue in the period the related
services are provided to the subscribers. Installation fees are recognized as
revenue in the period in which the installation occurs, to the extent
installation fees are equal to or less than direct selling costs. To the extent
installation fees exceed direct selling costs, the excess would be deferred and
amortized over the average contract period.
66
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of subscriber receivables. Concentrations of
credit risk with respect to subscriber receivables are limited due to the large
number of customers comprising the Company's customer base.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected
future income tax consequences of transactions which have been included in the
financial statements or tax returns. Deferred tax assets and liabilities are
determined based on the difference between the financial statement and income
tax bases of assets and liabilities and carryforwards using enacted tax rates in
effect for the year in which the differences are expected to reverse. Net
deferred tax assets are then reduced by a valuation allowance for amounts which
are not expected to be realized.
SAB 51 Accounting Policy
Under Staff Accounting Bulletin Number 51 ("SAB 51"), the "gain" ($5,898)
recognized by the Company upon the issuance by UIH A/P of a 2.6% interest in UIH
A/P for a 50% interest in Saturn was credited directly to equity as the UIH A/P
shares were in effect sold subject to repurchase due to the conversion feature
granted to the holder. The Company has adopted a SAB 51 policy to record all
gains as a result of stock sales by its subsidiaries in the statement of
operations except for any transactions which must be credited directly to equity
in accordance with the provisions of SAB 51.
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 year-end, and the statements of operations are
translated at the average exchange rates during the period. Exchange rate
fluctuations on translating foreign currency financial statements into U.S.
dollars result in unrealized gains or losses referred to as translation
adjustments. Cumulative translation adjustments are recorded as a separate
component of stockholders' equity.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in income as unrealized (based on period-end translations)
or realized upon settlement of the transactions.
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement of Cash Flows," cash flows from the Company's operations in foreign
countries are 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 Consolidated
Statements of Cash Flows will not agree to changes in the corresponding balances
on the Consolidated Balance Sheets. The effects of exchange rate changes on
cash balances held in foreign currencies are reported as a separate line below
cash flows from financing activities.
Supplemental Cash Flow Disclosures
Cash paid for interest was $870, $1,018 and $454 and cash received for
interest was $3,255, $9,278 and $5,496 for fiscal 1997, 1996 and 1995,
respectively. In connection with the Company's acquisition of an additional 40%
economic interest in CTV and STV, the Company issued preferred stock having an
initial liquidation value of $29,840. See Notes 3 and 8. In July 1996, the
Company acquired the remaining 50% interest in Saturn by issuing 13 shares of
UIH A/P common stock valued at $7,800. The Company's acquisition, transaction
and development costs of approximately $3,800, for which the
67
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
Company received equity credit, were capitalized by Kabel Net as property and
equipment and deferred charges during February 28, 1995. The Company acquired
$3,632 of assets with capital leases for the year ended February 28, 1997.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
3. Acquisitions
Austar
In December 1995, the Company acquired an additional 40% effective economic
interest in Austar from other shareholders increasing its effective economic
interest to 90%. The Company paid $15,240 in cash and issued 170,513 shares of
its convertible preferred stock having an initial liquidation value of $29,840
for the additional 40% effective economic interest. Details of the net assets
acquired, which were denominated in Australian dollars and translated to U.S.
dollars using the exchange rate on the day of the acquisition, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Tangible assets.................................... 18,267
Intangible assets.................................. 8,643
Receivables, prepaids and other.................... 2,704
Cash............................................... 7,222
Accounts payable and accrued liabilities........... (6,140)
Other debt......................................... (890)
Minority shareholders' interest.................... (2,363)
Net investment prior to acquisition of 40%......... (27,153)
Net assets......................................... 290
Goodwill........................................... 44,790
--------
Total consideration........................... $ 45,080
========
</TABLE>
The Company's cumulative investment in Austar as of February 29, 1996
includes cash invested of $19,903, bridge loans of $17,400, the purchase of a
10% interest from another shareholder for $5,613 and the purchase of the 40%
interest from another shareholder for $45,080. The Company's equity in losses
from Austar for the years ended February 29, 1996 and February 28, 1995 were
$3,036 and $748, respectively. The Company invested an additional $149,076 in
Austar during fiscal 1997, and acquired the remaining minority interest in
October 1996 for $7,920.
Telefenua
In January 1995, the Company acquired an initial 90% economic interest in
Telefenua in exchange for a cash contribution into Telefenua of $6,060, the
contribution of a note and accrued interest due UIH of $817 and equipment leased
to Telefenua totaling $2,039. Details of the net assets acquired, which were
dominated in French Pacific francs and translated to U.S. dollars using the
exchange rate on the day of acquisition, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Tangible assets...................................... $ 4,213
Intangible assets.................................... 1,835
Other................................................ 107
Cash................................................. 6,181
Accounts payable and accrued liabilities............. (783)
Due to affiliate..................................... (2,110)
Minority shareholders' interest...................... (527)
-------
Total consideration............................. $ 8,916
=======
</TABLE>
68
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
The purchase price was allocated to the net assets acquired based on relative
fair market values.
The Company's cumulative investment in Telefenua at February 29, 1996
includes the cash and notes contributed of $6,877, an equipment lease of $2,285
and bridge loans in the amount of $4,527, plus additional cash investment during
1996 totaling $3,048. The Company's consolidated assets, liabilities, revenues,
expenses and net loss after intercompany eliminations related to Telefenua for
the year ended December 31, 1995 totaled $10,989, $9,710, $1,882, $5,438 and
$3,556, respectively.
In response to a legal challenge by the President of Tahiti, the Conseil
d'Etat of France recently cancelled a decree authorizing the issuance of MMDS
licenses by the French communications agency in French Polynesia and similar
French territories. The cancellation could provide a legal basis to cancel a
required authorization already granted to Telefenua by the French communications
agency. The territorial government in Tahiti has brought an action in French
court seeking such cancellation, although such cancellation has not yet taken
place. A law recently enacted by the French Parliament gives Telefenua a legal
basis to ask for a new authorization from the communications agency, should the
existing authorization be nullified. There can be no assurance, however, that
if the existing authorization is nullified a new authorization will be obtained,
or if a new authorization is obtained, that it would not differ from the
existing authorization.
Saturn
In 1994, the Company acquired a 50% interest in Saturn. In July 1996, the
Company acquired the remaining 50% of Saturn by issuing 13 shares of UIH A/P's
common stock valued at $7,800. Details of the net assets acquired, which were
determined in New Zealand dollars and translated to U.S. dollars using the
exchange rate on the day of the acquisition, are as follows:
<TABLE>
<S> <C>
Tangible assets....................................... $ 8,509
Receivables, prepaids and other....................... 373
Cash.................................................. 708
Accounts payable and accrued liabilities.............. (1,430)
Net investment prior to acquisition of 40%............ (9,133)
-------
(973)
Goodwill.............................................. 8,773
-------
Total consideration.............................. $ 7,800
=======
</TABLE>
The Company's cumulative investment in Saturn as of December 31, 1996 was
$18,561.
Bahia Blanca
In October 1996, the Company acquired 100% of two cable systems and 80% of a
third system, serving the cities of Bahia Blanca and Punta Alta, for
approximately $52,520. Under the terms of the agreements, the Company may
acquire, or be required to purchase the remaining 20% of one system between
April 24, 1998 and October 31, 1998. The Company has accrued $4,406 related to
this option. The Company paid $26,382 in cash at the date of acquisition, with
the remaining $26,138 to be paid over eighteen months. Details of the net
assets acquired, based on a preliminary allocation of the purchase price, which
were denominated in Argentine pesos and translated to U.S. dollars using the
exchange rate on the date of acquisition, are as follows:
69
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
<TABLE>
<S> <C>
Tangible assets....................................... $ 4,051
Goodwill.............................................. 63,464
Cash.................................................. 97
Other................................................. 5,958
Accounts payable and accrued liabilities.............. (20,807)
Notes payable......................................... (243)
--------
52,520
Less purchase money notes........................... (26,138)
--------
Total cash consideration at closing................. $ 26,382
========
</TABLE>
4. Investments in and Advances to Affiliated Companies, Accounted for Under the
Equity Method
Investments in and advances to affiliated companies accounted for under the
equity method amounted to $251,959 and $272,205 at February 28, 1997 and
February 29, 1996, respectively.
Condensed financial information for the Company's significant equity
investees is presented below:
UPC
On July 13, 1995, the Company completed the transaction with Philips
resulting in the formation of UPC. The Company and Philips each own 50% of UPC
and contributed to UPC their interests in their respective European and Israeli
multi-channel television systems, related programming services and their
European multi-channel television and programming development opportunities.
The Company also contributed $78,200 in cash to UPC and issued to Philips
3,169,151 shares of its Class A Common Stock having a value of $50,000 (at date
of closing). In addition, UPC issued to Philips $133,600 of convertible
subordinated pay-in-kind notes. Condensed financial information for UPC, stated
in U.S. dollars, is as follows:
<TABLE>
<CAPTION>
As of
December 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Condensed Consolidated Balance Sheet Data
Cash............................................ $ 24,487 $ 77,049
Property, plant and equipment, net.............. 238,179 172,752
Intangible assets, net.......................... 267,029 292,932
Other assets.................................... 123,261 146,597
-------- --------
Total assets................................ $652,956 $689,330
======== ========
Accounts payable and accrued liabilities........ $356,421 $350,569
Notes payable................................... 147,234 132,955
Minority interest............................... 2,616 871
Shareholders' equity............................ 146,685 204,935
-------- --------
Total liabilities and shareholders' equity... $652,956 $689,330
======== ========
</TABLE>
70
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
<TABLE>
<CAPTION>
For the From Inception
Year Ended (July 13, 1995) through
December 31, 1996 December 31, 1995
------------------ ------------------------
<S> <C> <C>
Condensed Consolidated Income
Statement Data
Revenue.......................... $140,827 $ 62,300
Operating, selling, general and (91,501) (41,308)
administrative expenses.........
Depreciation and amortization.... (53,211) (26,259)
-------- --------
Net operating loss.......... (3,885) (5,267)
Interest, net.................... (32,655) (10,476)
Equity in losses of investee (5,458) (10,062)
companies, net..................
Other............................ (1,560) (23)
-------- --------
Net loss.................... $(43,558) $(25,828)
======== ========
</TABLE>
Monor Communications
In September 1994, the Company acquired a 47.6% (which was later increased to
48.4%) net equity interest in Monor Communications Group, Inc. ("Monor
Communications") which indirectly owns a controlling interest in a local-loop
telephony concession for the region of Monor, Hungary. Condensed financial
information, derived from audited consolidated financial statements for Monor
Communications and its subsidiaries which were audited by Coopers & Lybrand LLP,
stated in U.S dollars, is as follows:
<TABLE>
<CAPTION>
As of
December 31,
1995
------------
<S> <C>
Condensed Consolidated Balance Sheet
Data
Cash.................................... $ 431
Property, plant and equipment, net...... 54,532
Intangible assets, net.................. 3,619
Other assets............................ 4,720
-------
Total assets....................... $63,302
=======
Accounts payable and accrued liabilities $ 7,758
Notes payable........................... 34,566
Deferred revenue........................ 1,361
Minority interest....................... 1,706
Shareholders' equity.................... 17,911
-------
Total liabilities and $63,302
shareholders' equity.............. =======
<CAPTION>
For the Years Ended
December 31,
-----------------------
1995 1994(1)
--------- ----------
<S> <C> <C>
Condensed Consolidated Income Statement
Data
Revenue................................. $ 5,508 $ 347
Operating, selling, general and (6,179) (1,872)
administrative expenses................
Depreciation and amortization........... (2,851) (477)
------- -------
Net operating loss................ (3,522) (2,002)
Interest, net........................... (835) (220)
Foreign currency (loss) gain............ (5,408) 19
Other................................... 463 489
------- -------
Net loss.......................... $(9,302) $(1,714)
======= =======
</TABLE>
(1) Monor Communications began operations in late 1993.
71
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
Megapo
In June 1995, UIH LA completed its acquisition of Megapo Communicaciones de
Mexico, S.A. de C.V. ("Megapo"). UIH LA had advanced Megapo $12,000 as of
February 28, 1995, which was converted to equity at closing and paid an
additional $19,600 (for a total purchase price of $31,600) for a 49% interest in
four operating subsidiaries and a 39.2% interest in a fifth operating
subsidiary of Megapo. Condensed combined financial information, derived from
audited financial statements for Megapo which were audited by Galaz, Gomez,
Morfin, Chavero, Yamazaki, stated in U.S dollars, is as follows:
<TABLE>
<CAPTION>
As of
December 31,
1995
------------
<S> <C>
Condensed Combined Balance Sheet Data
Cash.................................... $ 9,609
Property, plant and equipment, net...... 2,428
Other assets............................ 3,545
-------
Total assets....................... $15,582
=======
Accounts payable and accrued liabilities $ 1,770
Notes payable........................... 589
Deferred revenue........................ 491
Shareholders' equity.................... 12,732
-------
Total liabilities and $15,582
shareholders' equity.............. =======
<CAPTION>
For the Years Ended
December 31,
-------------------
1995 1994
------- --------
<S> <C> <C>
Condensed Combined Income Statement Data
Revenue................................. $11,672 $ 18,927
Operating, selling, general and (6,814) (13,816)
administrative expenses................
Depreciation and amortization........... (1,558) (1,884)
------- --------
Net operating income.............. 3,300 3,227
Interest, net........................... 243 (368)
Foreign currency gain................... 1,848 --
Other................................... (1,809) (2,182)
------- --------
Net income........................ $ 3,582 $ 677
======= ========
</TABLE>
CTV
In September 1994, the Company began to fund its 40% economic interest in
CTV, an Australian company that currently holds MMDS licenses in Australia. The
Company then acquired an additional 10% economic interest in CTV from another
shareholder for $5,613. As noted above, in December 1995, the Company purchased
an additional 40% economic interest in CTV which increased its economic interest
to 90%, and accordingly, the Company consolidated the balance sheet of CTV
effective December 31, 1995.
Condensed financial information for CTV, stated in U.S. dollars, is as
follows:
72
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-----------------------
1995 1994(1)
----------- ----------
<S> <C> <C>
Condensed Consolidated Income Statement
Data
Revenue................................. $ 433 $ --
Operating, selling, general and (4,804) (243)
administrative expenses................
Depreciation and amortization........... (1,113) (3)
------- -----
Net operating loss................. (5,484) (246)
Interest, net........................... 914 246
Other................................... 245 --
------- -----
Net loss........................... $(4,325) $ --
======= =====
</TABLE>
(1) CTV began operations during 1994.
Net Sao Paulo
During fiscal 1994, the Company acquired a 20% interest in Net Sao Paulo.
During fiscal 1995, through a series of transactions, the Company increased its
ownership to 34%. Condensed financial information for Net Sao Paulo derived
from audited financial statements which were audited by Price Waterhouse stated
in U.S dollars, is as follows (the report of other auditors referred to above
with respect to Net Sao Paulo indicates there is substantial doubt about Net Sao
Paulo's ability to continue as a going concern):
<TABLE>
<CAPTION>
As of
December 31,
1995
---------------
<S> <C>
Condensed Consolidated Balance Sheet Data
Cash.................................... $ 211
Property, plant and equipment, net...... 40,365
Other assets............................ 965
-------
Total assets........................ $41,541
=======
Accounts payable and accrued liabilities $16,218
Notes payable........................... 15,281
Deferred revenue........................ 8,852
Shareholders' equity.................... 1,190
-------
Total liabilities and shareholders' equity $41,541
=======
<CAPTION>
For the Years Ended
December 31,
--------------------------
1995 1994(1)
-------- ----------
<S> <C> <C>
Condensed Consolidated Income Statement
Data
Revenue................................. $ 12,016 $ 1,144
Operating expenses...................... (10,786) (1,630)
Selling, general and administrative (9,753) (5,227)
expenses...............................
Depreciation and amortization........... (2,957) (287)
-------- -------
Net operating loss................... (11,480) (6,000)
Interest, net........................... (2,625) (1,725)
Foreign currency (loss) gain............ (6) 949
-------- -------
Net loss............................ $(14,111) $(6,776)
======== =======
</TABLE>
(1) Net Sao Paulo began operations in late 1993.
The Company sold its interest in Net Sao Paulo in August 1996 for $43,098 in
cash and a $35,000 note receivable. The Company recognized a gain of $65,249 on
the transaction.
73
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
XYZ
Century United Programming Ventures Pty Limited, an Australian corporation,
owned equally by UIH A/P and Century Communications Corp., holds a 50% interest
in XYZ Entertainment Pty Limited ("XYZ"). In October 1994, UIH A/P acquired an
initial 50% interest in XYZ. In September 1995, a third party purchased a 50%
interest in XYZ, thereby diluting UIH A/P's indirect interest in XYZ to 25%.
UIH A/P recognized a gain on sale of investment of approximately $4,132 as a
result of the sale.
Condensed financial information for XYZ stated in U.S. dollars, which is
derived from financial statements audited by Deloitte Touche Tohmatsu, is as
follows:
<TABLE>
<CAPTION>
As of
December 31,
1995
---------------
<S> <C>
Condensed Consolidated Balance Sheet Data
Cash.................................... $ 2,309
Property, plant and equipment, net...... 2,499
Intangible assets, net.................. 1,871
Other assets............................ 1,933
--------
Total assets........................ $ 8,612
========
Accounts payable and accrued liabilities $ 16,068
Shareholder loans....................... 21,597
Shareholders' equity.................... (29,053)
--------
Total liabilities and shareholders' equity $ 8,612
========
<CAPTION>
For the Years Ended
December 31,
-------------------------
1995 1994(1)
-------- -----------
<S> <C> <C>
Condensed Consolidated Income Statement
Data
Revenue................................. $ 1,266 $ --
Operating, selling, general and (27,511) (183)
administrative expenses................
Depreciation and amortization........... (2,662) --
-------- --------
Net operating loss.................. (28,907) (183)
Interest, net........................... 145 2
-------- --------
Net loss............................ $(28,762) $ (181)
======== ========
</TABLE>
(1) XYZ began operations in late 1994.
74
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
5. Senior Secured Notes and Other Debt
Debt consists of the following:
<TABLE>
<CAPTION>
As of As of
February 28, February 29,
1997 1996
------------- -------------
<S> <C> <C>
November 1994 14% senior secured
discount notes, net of unamortized
discount............................... $264,985 $228,828
November 1995 14% senior secured
discount notes, net of unamortized
discount............................... 90,161 78,745
February 1996 14% senior secured
discount notes, net of unamortized
discount............................... 55,193 49,140
May 1996 14% UIH A/P senior notes, net
of unamortized discount................ 245,182 --
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......... 5,447 --
Note payable to a bank, paid in July
1996................................... -- 9,820
Note payable to a bank, paid in August
1996................................... -- 3,828
Capitalized lease obligations........... 4,959 890
Mortgage note, interest at 7.885%, 7
year term.............................. 1,252 --
Other................................... 9,114 123
-------- --------
676,293 371,374
Less current portion.................... (1,333) (147)
-------- --------
Total senior secured notes and
other debt........................ $674,960 $371,227
</TABLE> ======== ========
In November 1994, the Company sold 394,000 units consisting of $394,000 14%
senior secured discount notes due November 15, 1999 (the "1994 Notes") and
394,000 Warrants, including related put rights (the "Warrants") to purchase a
total of 1,786,699 shares of Class A Common Stock at a price of $15 per share
(collectively, the "Offering") for net proceeds of $192,771. At any time
between January 31, 1996 and March 1, 1996, the warrant holders had the right to
require the Company to repurchase all or a part of the warrants for $28.34 per
warrant. Holders of the Warrants required the Company to purchase 76,070
warrants to purchase 344,932 shares of Class A Common Stock for a cost of $2,156
on March 1, 1996. The remaining value assigned to the warrants of $9,011 was
reclassified to additional paid-in capital on March 1, 1996. The remaining
outstanding warrants are exercisable at any time before November 15, 1999. The
1994 Notes are deemed, for accounting purposes, to accrete interest at a rate of
15.24% compounded semi-annually and no cash interest payments will be made prior
to maturity on November 15, 1999, at which time $394,000 will be payable.
In November 1995, the Company sold 130,000 14% senior secured notes (the
"1995 Notes"). The 1995 Notes were issued at a discount from their principal
amount of $130,000 resulting in net proceeds to the Company of $63,886 and
accrete interest at a rate of 14.0% compounded semi-annually. No cash interest
payments will be made prior to maturity on November 15, 1999, at which time
$130,000 will be payable.
In February 1996, the Company sold 75,350 14% senior secured notes (the "1996
Notes"). The 1996 Notes were issued at a discount from their principal amount
of $75,350 resulting in net proceeds to the Company of $47,356 and are deemed,
for accounting purposes, to 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, at which time $75,350 will be payable.
On May 14, 1996, UIH A/P raised total gross proceeds of approximately
$225,115 from the private placement of $443,000 aggregate principal amount of
senior notes (the "UIH A/P Notes"). No cash interest payments are required
until May 15, 2001, at which time cash interest payments will be payable semi-
annually on each May 15 and November 15. The UIH A/P Notes are due May 15, 2006.
In September 1996, the UIH A/P Notes were exchanged for 14% Senior Discount
Notes due 2006, Series B. Effective May 16, 1997, the interest rate on the UIH
A/P Notes increased by an additional 0.75% per annum. The UIH A/P Indenture
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.
75
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
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% 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 UAP. UIH A/P plans to pursue additional sources of funding
that may constitute an Equity Sale although there can be no assurance that UIH
A/P will be successful in concluding an Equity Sale prior to November 16, 1997.
The market value, based on trades were as follows:
<TABLE>
<CAPTION>
Book Value Market Value
---------- ------------
<S> <C> <C>
As of February 28, 1997:
1994 Notes............. $264,985 $289,590
1995 Notes............. $ 90,161 $ 95,550
1996 Notes............. $ 55,193 $ 55,382
UIH A/P Notes (1)........ $245,182 $230,360
As of February 29, 1996:
1994 Notes............. $228,828 $256,100
1995 Notes............. $ 78,745 $ 84,500
1996 Notes............. $ 49,140 $ 48,978
</TABLE>
(1) Amounts for UIH A/P Notes are as of December 31, 1996.
The 1994 Notes, 1995 Notes and 1996 Notes (together the "Senior Notes") are
secured by a first priority security interest in (i) all of the equity interests
of United International Properties, Inc. ("UIPI"), a wholly-owned subsidiary
formed to hold all of the Company's future investments in new properties and
substantially all of its existing assets other than those that were contributed
to UPC, and (ii) intercompany notes of UIPI held by the Company. The Senior
Notes Indenture prohibits the Company from incurring any lien against its other
assets, including its 50% ownership interest in UPC, except for ratable dilution
caused by UPC's incentive option plan. The Indenture also prohibits certain
subsidiaries from incurring any lien against their assets other than liens
securing certain permitted project financings. The Indenture generally
prohibits making investments in entities that are not "restricted" by the terms
of the Indenture. The Company has the option to invest in "unrestricted
entities" in an aggregate amount equal to the sum of $50,000 plus the aggregate
amount of net cash proceeds from sales of equity and subordinated indebtedness
by the Company after the date of the Indenture.
The Senior Notes are senior secured obligations of the Company. The Senior
Notes rank paripassu in right of payment with all future senior obligations of
the Company and senior in right of payment to all future subordinated
indebtedness of the Company. The Indenture will prohibit the Company from
incurring additional senior indebtedness with a certain limited exception for
$15,000 of guarantees.
The Company's maturities of its debt is as follows:
<TABLE>
<S> <C>
1998 $ --
1999.......................................... 14,561
2000.......................................... 410,339
2001.......................................... --
2002 and thereafter........................... 246,434
--------
671,334
Capitalized lease obligations........... 4,959
========
Total Senior notes and other debt....... $676,293
========
</TABLE>
76
<PAGE>
6. Commitments
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
The Company has entered into various operating lease agreements for office
space, office furniture and office equipment. Rental expense under these lease
agreements totaled $3,481, $794 and $679 for the years ended February 28, 1997,
February 29, 1996 and February 28, 1995, respectively.
The Company has operating lease obligations and other non-cancelable
commitments as follows:
<TABLE>
<S> <C>
1998.................................................... $ 4,539
1999.................................................... 4,170
2000.................................................... 2,533
2001.................................................... 2,017
2002 and thereafter..................................... 3,522
-------
$16,781
=======
</TABLE>
The Company has license fees payable annually as follows:
<TABLE>
<S> <C>
1998.................................................... $ 2,629
1999.................................................... 2,629
2000.................................................... 2,629
2001.................................................... 2,338
2002 and thereafter..................................... 1,021
-------
$11,246
=======
</TABLE>
The Company has capital lease obligations as follows:
<TABLE>
<S> <C>
1998.................................................... $ 1,764
1999.................................................... 1,753
2000.................................................... 2,151
2001.................................................... 113
2002 and thereafter..................................... 47
-------
5,828
Future finance charges................................ (869)
-------
$ 4,959
=======
</TABLE>
During 1994, CTV and STV entered into franchise agreements with Australis.
The agreements carry 15-year terms and may be extended for an additional 10
years. The agreements provide for an exclusive license and franchise for MMDS
and satellite services and a non-exclusive license and franchise for cable
services for all franchisor services including uplink and programming including
Channel [V] (a 24-hour music video channel), Arena, Showtime, Nickelodeon, TVI,
Encore, Discovery and Fox Sports (the "Galaxy Package"). Under the agreements,
minimum payments are due, which include service fees based on varying
percentages of net revenues as defined in the agreement, and subscription levies
which are dependent on the number of subscribers.
For a five year period beginning July 1997, Austar has secured a 54 MHz
transponder capable of broadcasting between 10 and 15 digital channels on the
Optus Vision Pty Limited ("Optus Vision") satellite. Optus Vision currently
transmits the Galaxy Package and, pursuant to an agreement with Australis, has
the right to deliver such programming to its customers through the Galaxy
system. The Company will pay approximately $480 per month in satellite service
fees under its agreement with Optus Vision. Satellite fees payable are as
follows:
<TABLE>
<S> <C>
1998.................................................... $ 2,880
1999.................................................... 5,760
2000.................................................... 5,760
2001.................................................... 5,760
2002.................................................... 5,760
2003.................................................... 2,880
-------
$28,800
=======
</TABLE>
77
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
Although Austar's franchise agreements were formerly exclusive for all multi-
channel television including MMDS and cable television operations, the Company
and Austar have recently agreed to allow Foxtel Management Pty Limited
("Foxtel") to carry the Galaxy Package on Foxtel's wireline cable television
systems throughout Australia. This agreement provides that Austar will be
compensated for any Foxtel subscriber in its franchise area in an amount equal
to the profit margin Austar would have received if it had sublicensed such
programming to Foxtel (the "Australis Arrangement"). As of February 28, 1997,
the Company had executed guarantees of certain facilities totaling $12,031.
7. Contingencies
In October 1996, a complaint was served on UIH by an individual who claimed
to have worked with UIH in connection with the acquisition by Austar of certain
of its licenses claiming that UIH owes him a 12.5% equity interest in
unspecified subsidiaries of UIH in consideration of services purportedly
provided. This complaint, seeking an unspecified amount of damages, is pending
in a civil court in Melbourne, Australia. UIH intends to vigorously defend
these claims, which UIH believes are without merit.
On November 6 ,1996, Austar filed a complaint in the Supreme Court of New
South Wales, Commercial Division, seeking a injunction to prevent (i) Australis
from transferring its satellite delivery systems and associated infrastructure
to its joint venture with Optus Vision and (ii) Optus Vision from using such
infrastructure by any entity other than Austar for the provision of DTH services
within Austar's franchise areas violates the terms of Austar's franchise
agreement with Australis which granted Austar an exclusive license and franchise
to use the infrastructure within its franchise areas. Austar is seeking
injunction relief or, in the alternative, damages associated with this violation
of its franchise agreements. On December 6, 1996, Australis filed counterclaims
against Austar and UIH A/P alleging generally that Austar and UIH A/P breached
implied terms of the Australis Arrangement by seeking such injunction relief.
In addition, Optus Vision claims that the exclusive nature of Austar's franchise
agreements violates Australia's Trade Practices Act. On May 9, 1997, pursuant
to the court's permission, Austar amended its complaint to include claims that
the agreement between Australis and Optus Vision violates Australia's Trade
Practices Act and that Austar is entitled to damages arising from interference
with its contractual relations with Australis under the Franchise Agreements.
Austar's complaint was also amended to add as defendants two affiliates of Optus
Vision: Publishing and Broadcasting Ltd. and its subsidiary, Pay TV Optus. UIH
A/P intends to vigorously defend its position.
Australis, Austar's primary supplier of programming, is engaged in a rapid
roll-out of service that has required a significant amount of capital and has
strained its liquidity. Australis has recently closed private offerings of debt
and equity securities that Australis announced would enable it to carry its
business through to cash flow positive. If such financing is not sufficient to
satisfy Australis' long-term capital needs, Australis may have difficulty
meeting contractual obligations with respect to the four Galaxy channels
distributed directly by Australis. UIH A/P believes that if Austar is no longer
able to obtain the four Galaxy channels provided by Australis on an exclusive
basis and it were required to seek replacement programming, it would have access
to the same programming directly from the suppliers of the four Galaxy channels
or sufficient alternative programming on competitive terms. There can be no
assurance, however, that this would be the case and the inability of Austar to
procure the same or suitable alternative programming at competitive rates and on
an exclusive basis in its service areas could have a material adverse effect on
UIH A/P.
8. Convertible Preferred Stock
In connection with the Company's acquisition of an additional 40% economic
interest in CTV and STV, the Company designated a new series of Convertible
Preferred Stock, Series A, par value $0.01 per share ("Convertible Preferred
Stock"), and issued 170,513 shares of Convertible Preferred Stock to one of the
sellers from whom it purchased the CTV and STV interests. The Convertible
Preferred Stock had an initial liquidation value of $175 per share and accrues
dividends at a rate of 4% per annum, compounded quarterly. Each share of
Convertible Preferred Stock is convertible into the number of shares of the
Company's Class A Common Stock equal to the liquidation value at the time of
conversion divided by $17.50. The
78
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
Company is required to redeem the Convertible Preferred Stock on June 19, 2000
at a redemption price equal to its then liquidation value plus accrued
dividends. The Company has granted certain rights to holders of the Convertible
Preferred Stock to register under the Securities Act of 1933 the sale of shares
of Class A Common Stock into which the Convertible Preferred Stock may be
converted.
9. Stockholders' Equity
Common Stock
In April 1993, the Company adopted a Restated Certificate of Incorporation
pursuant to which the Company authorized the issuance of two classes of common
stock, Class A Common Stock and Class B Common Stock and one class of preferred
stock (the ''Recapitalization''). In connection with the Recapitalization, each
share of the Company's then outstanding common stock was exchanged for
approximately 69,716 shares of Class B Common Stock. Each share of Class B
Common Stock is entitled to ten votes per share, while each share of Class A
Common Stock is entitled to one vote per share. Each share of Class B Common
Stock is convertible at any time at the option of the holder into one share of
Class A Common Stock. The two classes of common stock are identical in all other
respects.
As of February 28, 1997, the Company did not have sufficient net tangible
assets to satisfy that item of the current Nasdaq National Market listing
maintenance criteria for the continued listing of its Class A Common Stock.
Nasdaq has recently proposed new listing criteria that provide for various
alternatives to be satisfied, one of which is having a market capitalization of
$50 million or more. These proposed listing criteria are currently being
reviewed for approval by the Securities and Exchange Commission. The Company
would qualify under the new proposed listing criteria. The Company has begun
discussions with Nasdaq regarding a waiver of the current listing maintenance
criteria, and expects a decision on such a waiver request within approximately
30 days. There can be no assurance as to the timing or the outcome of such a
request.
1993 Stock Option Plan
The Company adopted the 1993 Stock Option Plan (the "Employee Plan") in May
1993. The Employee Plan is construed, interpreted and administered by the
compensation committee consisting of members of the board of directors who are
not employees of the Company (the "Committee"). The Committee has the discretion
to determine the employees and consultants to whom options are granted, the
number of shares subject to the options, the exercise price of the options
(which may be below fair market value of the Company's common stock on the date
of grant), the period over which the options become exercisable, the term of the
options (including the period after termination of employment during which an
option may be exercised) and certain other provisions relating to the option.
The Employee Plan is authorized to grant options to purchase 3,300,000 shares of
Class A Common Stock, of which 426,899 are available for grant as of February
28, 1997.
Under the Employee Plan, options to purchase shares of the Company's Class A
Common Stock may be granted to employees and consultants. Members of the
Company's board of directors who are not employees are not eligible to receive
option grants under the Employee Plan. The maximum term of options granted under
the Employee Plan is ten years. The options vest over four years. Under the
terms of the Employee Plan, all options outstanding become exercisable upon a
change of control in the Company, as defined.
The Company recorded deferred compensation of $2,463 for the year ended
February 28, 1994, for options granted with an exercise price less than the fair
market value of the common stock at the date of grant. Such deferred
compensation is being amortized to expense over the period the required
employment services are expected to be provided to the Company.
During the year ended February 29, 1996, the Company recognized compensation
expense of $1,575 related to the acceleration of the vesting provisions of
options and the extension of the period in which such options may be exercised,
granted to two officers who resigned during fiscal 1996.
79
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
Non-Employee Director Stock Option Plan
The Company adopted a stock option plan for non-employee directors (the
"Director Plan") effective June 1, 1993. The Director Plan provides for the
grant of an option (a "Director's Option") to acquire 40,000 shares of Class A
Common Stock to each member of the board of directors who was not also an
employee of the Company (a "non-employee director") on June 1, 1993, and to each
person who is newly elected to the board of directors as a non-employee director
after June 1, 1993, on the date of their election. The Director's Options vest
over a four year period. Vesting is accelerated upon a change of control of the
Company as defined in the Director Plan.
Statement of Financial Accounting Standards No. 123 ("SFAS 123")
SFAS 123, Accounting for Stock-Based Compensation, encourages, but does not
require, companies to recognize compensation expense for grants of stock, stock
options and other equity instruments based on a fair value method of
accounting. SFAS 123 allows companies to continue measuring compensation
expense for such plans using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), provided that pro forma disclosures are made of net loss and net
loss per share, assuming the fair value method of SFAS 123 had been applied.
The Company has elected to continue accounting for both of its stock-based
compensation plans under APB 25; accordingly, for purposes of the pro forma
disclosures presented below, the Company has computed the fair values of all
options granted during fiscal 1997 and 1996 using the Black-Scholes single-
option pricing model and the following weighted-average assumptions:
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
February 28, 1997 February 29, 1996
------------------- -------------------
<S> <C> <C>
Risk-free interest rate........... 6.38% 6.05%
Expected lives.................... 7 years 7 years
Expected volatility............... 54.72% 57.05%
Expected dividend yield........... 0% 0%
</TABLE>
All options initially vest 25% on the first anniversary of the date of grant
and on a pro rata basis monthly thereafter. Cumulative compensation expense
recognized in pro forma net income, with respect to options that are forfeited
prior to vesting, is adjusted as a reduction of pro forma compensation expense
in the period of forfeiture.
The total fair value of options granted was approximately $5,376 and $6,821
for the years ended February 28, 1997 and February 29, 1996, respectively.
These amounts are amortized using the straight-line method over the vesting
period of the options. Pro forma stock-based compensation, net of the effect of
the forfeitures, was $2,002 and $1,556, respectively.
If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's pro forma net loss and loss per share
would have been the following:
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
February 28, 1997 February 29, 1996
------------------------ ------------------------
Net Net Loss Net Net Loss
Loss Per Share Loss Per Share
---- --------- ---- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
As reported............................ $(138,825) $(3.56) $(91,311) $(2.68)
Pro forma.............................. $(140,827) $(3.61) $(92,867) $(2.73)
</TABLE>
The fair value method of accounting for stock-based compensation plans under
SFAS 123 recognizes the value of options granted as compensation expense over
the option's vesting period and has not been applied to options granted prior to
80
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
March 1, 1995. Accordingly, the resulting pro forma compensation expense is not
necessarily representative of what compensation expense will be in future years.
A summary of stock option activity for the Employee Plan for the years
ended February 28, 1997 and February 29, 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- ------------------------
Weighted- Weighted-
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning 2,315,122 $11.5673 1,735,834 $10.1347
of year...................
Granted during the year.... 655,000 13.0011 658,500 15.4171
Cancelled during the year.. (136,521) 15.6011 (41,712) 14.7934
Exercised during the year.. (39,750) 8.7925 (37,500) 9.2666
--------- -------- --------- --------
Outstanding at end of year. 2,793,851 $11.7458 2,315,122 $11.5673
========= ======== ========= ========
Exercisable at end of year. 1,661,936 1,161,748
========= =========
</TABLE>
A summary of stock option activity for the Director Plan for the years
ended February 28, 1997 and February 29, 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ----------------------
Weighted- Weighted-
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning 280,000 $12.5358 280,000 $11.8575
of year...................
Granted during the year.... -- $ -- 40,000 $14.2497
Cancelled during the year.. -- $ -- (17,509) $ 9.4999
Exercised during the year.. -- $ -- (22,491) $ 9.4999
------- -------- ------- --------
Outstanding at end of year. 280,000 $12.5358 280,000 $12.5358
======= ======== ======= ========
Exercisable at end of year. 219,445 150,000
======= =======
</TABLE>
81
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
The combined weighted-average fair values and weighted-average exercise
prices of options granted during fiscal 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
Number Fair Exercise Number Fair Exercise
of Options Value Price of Options Value Price
---------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Exercise price less than market price... 5,000 $10.2382 $ 5.0000 25,000 $11.6065 $ 9.5000
Exercise price equal to market price.... 550,000 $ 8.2285 $13.0968 673,500 $ 9.7651 $15.5674
Exercise price greater than market price 100,000 $ 7.9957 $12.8750 -- $ -- $ --
------- -------
655,000 698,500
======= =======
</TABLE>
The following table summarizes information about employee and director
stock options outstanding and exercisable at February 28, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- --------------------------
Weighted-Average Weighted-
Number of Remaining Weighted-Average Number Average
Options Contractual Life Exercise of Options Exercise
Exercise Price Range Outstanding (Years) Price Exercisable Price
- --------------------------- ----------- ---------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 4.50 - $ 5.00....... 257,000 6.11 $ 4.7432 223,625 $ 4.7515
$ 9.50 - $14.25........ 1,924,604 7.19 10.8102 1,125,711 9.6387
$15.50 - $17.75........ 892,247 7.42 16.0289 532,045 16.1133
--------- ---- -------- --------- --------
Total........... 3,073,851 7.17 $11.8178 1,881,381 $10.8888
========= ==== ======== ========= ========
</TABLE>
10. Income Taxes
In general, a United States corporation may claim a foreign tax credit
against its federal income tax expense for foreign income taxes paid or accrued.
Because the Company must calculate its foreign tax credit separately for
dividends received from each foreign corporation in which the Company owns 10%
to 50% of the voting stock, and because of certain other limitations, the
Company's ability to claim a foreign tax credit may be limited, particularly
with respect to dividends paid out of earnings subject to a high rate of foreign
income tax. Generally, the Company's ability to claim a foreign tax credit is
limited to the amount of U.S. taxes the Company pays with respect to its foreign
source income. In calculating its foreign source income, the Company is
required to allocate interest expense and overhead incurred in the United States
between its U.S. and foreign activities. Accordingly, to the extent U.S.
borrowings are used to finance equity contributions to its foreign subsidiaries,
the Company's ability to claim a foreign tax credit may be significantly
reduced. These limitations and the inability of the Company to offset losses in
one foreign jurisdiction against income earned in another foreign jurisdiction
could result in a high effective tax rate on the Company's earnings. The
Company has an ownership interest in Telefenua, Cable Star and Bahia Blanca
which are located in Tahiti, Peru and Argentina, with which the United States
does not have income tax treaties. As a result, the Company may be subject to
increased withholding taxes on dividend distributions and other payments from
those entities and also may be subject to double taxation with respect to income
generated by those entities.
The Company accounts for income taxes in accordance with SFAS 109. The
primary differences between taxable income (loss) and net income (loss) for
financial reporting purposes relate to accounting for equity in income (losses)
of affiliated companies, the accrual of certain liabilities, the non-
consolidation of its consolidated foreign subsidiaries for U.S. tax purposes and
the current non-deductibility of interest expense on the Company's senior notes
issued in May 1996. In addition, for financial reporting purposes, the Company
expenses certain costs, including salaries and benefits, related to its
acquisition, transaction and development activities which are capitalized for
income tax purposes. Since the Company holds the majority of its foreign
investments through affiliates which hold investments accounted for under the
equity method in foreign corporations, taxable income (loss) generated by these
affiliated companies does not flow through to the Company for United States
federal and state tax purposes, even though the Company records its allocable
share of affiliate income (losses) for financial reporting purposes.
Accordingly, due to the indefinite reversal of such amounts in future periods,
no deferred tax asset has been established for tax basis in excess of the
Company's book basis (approximately $38,300 and $22,600 at February 28,
82
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
1997 and February 29, 1996, respectively) in investments in affiliated
companies who in turn have investments in foreign corporations.
The Company's United States tax net operating losses, totaling
approximately $76,100 at February 28, 1997, expire beginning in 2004 through
2012. The significant components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
As of As of
February 28, February 29,
1997 Change 1996
------------- --------- -------------
<S> <C> <C> <C>
Deferred Tax Assets
- -------------------
Company's United States tax net
operating loss carryforward......... $ 29,693 $ 6,113 $ 23,580
Tax net operating loss carryforward
of consolidated foreign
subsidiaries(1)..................... 25,539 21,374 4,165
Acquisition, transaction and
development costs................... 2,766 (297) 3,063
Investment valuation allowance and
other............................... 3,027 42 2,985
Unrealized loss on
investments........................ 2,367 1,903 464
Accrued interest expense on the
UIH A/P Notes..................... 7,826 7,826 --
Deferred compensation and severance.. 1,548 302 1,246
Other liabilities.................... 271 (232) 503
-------- -------- --------
Deferred tax assets.................. 73,037 37,031 36,006
Deferred Tax Liabilities
- ------------------------
Other................................ (60) 414 (474)
-------- -------- --------
Deferred tax liability............... (60) 414 (474)
-------- -------- --------
Deferred tax assets, net............. 72,977 37,445 35,532
Valuation reserve.................... (72,977) (37,445) (35,532)
-------- -------- --------
Deferred tax assets, net............. $ -- $ -- $ --
======== ======== ========
</TABLE>
(1) For Australian income tax purposes, the net operating loss carryforward may
be limited in the event of a change in the business.
Of the consolidated net loss, $55,708 is derived from the Company's foreign
operations. The difference between income tax expense provided in the financial
statements and the expected income tax expense (benefit) at statutory rates is
reconciled as follows:
<TABLE>
<CAPTION>
For the Years Ended
-------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Expected income tax expense $( 54,142) $(35,611) $(11,939)
(benefit) at statutory rates.....
Tax effect of permanent and other
differences:
Book/tax basis differences
associated with foreign
equity investments.............. 18,554 18,968 2,381
Non-deductible entertainment..... 167 250 16
Amortization of licenses......... 625 214 6
Other............................ 1,324 -- --
Valuation allowance.............. 33,472 16,179 9,536
--------- -------- --------
Total income tax expense (benefit) $ -- $ -- $ --
========= ======== ========
</TABLE>
83
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
11. Revenues by Geographic Areas
The following table sets forth the Company's service and other revenue by
geographic area:
<TABLE>
<CAPTION>
For the Years Ended
----------------------------------------
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Europe.......... $ -- $ 480 $ 701
Latin America:
Argentina.... 4,385 -- --
Peru......... 882 -- --
Asia/Pacific:
Australia.... 21,354 1 --
New Zealand.. 110 -- --
Tahiti....... 3,513 1,882 --
------- ------ -----
$30,244 $2,363 $ 701
======= ====== =====
</TABLE>
12. Pro Forma Information
The following unaudited pro forma information for the year ended February
28, 1997 gives effect to the disposition of the 34% interest in Net Sao
Paulo, as if the disposition had occurred on January 1, 1996. The following
unaudited pro forma information for the year ended February 29, 1995
gives effect to the acquisition of the additional 40% economic interests in
Austar, the disposition of the 25% interest in XYZ, the acquisition of its 65%
interest in STX, the acquisition of its 49% interest in Megapo and the formation
of UPC and UPC's acquisitions of interests in systems in Amsterdam and Eindhoven
as if each had occurred on January 1, 1995. The pro forma financial information
does not purport to represent what the Company's results of operations would
actually have been if such transactions had in fact occurred on such date. The
pro forma results presented below are based upon currently available information
and upon certain assumptions that management believes are reasonable under
current circumstances.
<TABLE>
<CAPTION>
For the Years Ended
----------------------------
February 28, February 29,
1997 1996
------------- -------------
<S> <C> <C>
Revenues.............................. $ 31,555 $ 2,770
========= =========
Net loss.............................. $(202,285) $(104,338)
========= =========
Net loss per share.................... $ (5.18) $ (2.97)
========= =========
</TABLE>
13. Subsequent Events
In April 1997, UIH Latin America, Inc. ("UIH LA") closed the 100%
acquisition of multi-channel television systems in Comodoro and Trelew,
Argentina for a total purchase price of $27,900, of which $13,900 was paid at
closing and the remaining $14,000 is due in 18 monthly installments beginning in
May 1997.
In April 1997, UIH LA agreed to acquire up to an 80% equity interest in the
multi-channel television systems located in Santa Fe, Parana and Galvez,
Argentina for a total purchase price of $59,000. In April 1997, UIH LA closed
the acquisition of the first 31% equity interest for a total purchase price of
$23,300 and paid a $2,000 deposit to acquire the additional 49% equity interest
by July 15, 1997. The total purchase price will be paid 50% at closing and the
balance paid in installments through June 2000.
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 9 months, extendible up to a maximum of 18
months at an interest rate of LIBOR plus 6%. Proceeds from the loan will be
used to fund acquisitions and provide for capital expenditures for existing
properties. The loan is extendible up to 18
84
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
months with (i) an increase in the interest rate of 50 basis points for each
three months it is extended beyond the initial 9 month term, (ii) cash fees of
1% to 3% each three months if it is extended beyond 9 months and (iii) warrants
to purchase common stock equal to 0.5% of UIH LA's outstanding common stock if
it is extended beyond 9 months, another 2.0% 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 3.0% 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.
In April 1997, Austar received an underwriting commitment from a bank for a
Senior Syndicated Term Debt Facility in the amount of Australian $("A$")200,000
(US$155,000) (the "Bank Facility"). The proceeds of the Bank Facility will be
used to fund Austar's construction and subscriber acquisition and working
capital needs. The Bank Facility consists of three sub-facilities: (i)
A$50,000 revolving working capital facility available at closing (June 1997);
(ii) A$90,000 term loan facility, which will be available on the basis of Austar
having achieved minimum subscriber and operating cash flow levels; and (iii)
A$60,000 cash advance facility available upon the contribution of additional
equity on a 2:1 debt-to-equity basis. The maximum amount of equity required
would be A$30,000, approximately A$7,500 of which has already been contributed
during 1997 and the remainder of which will be contributed by a third party
equity provider or the Company. The cash advance and term loan facilities will
be fully repayable pursuant to an amortization schedule beginning December 31,
2001 and ending June 30, 2004. The bank has also provided Austar with an
interim financing facility of A$50,000 which will be refinanced from the
proceeds of the Bank Facility.
The Company was reviewing an opportunity to acquire an equity interest in
the multi-channel television system being constructed in Hong Kong but stopped
pursuing the opportunity as it was unable to reach satisfactory terms with the
Wharf group of companies ("Wharf") under which Wharf would agree to honor its
previous grant to the Company of the opportunity to acquire an equity interest
in the Hong Kong multi-channel system. The Company devoted substantial time and
effort on behalf of Wharf Cable Limited ("Wharf Cable"), the license holder, and
its affiliates. On November 10, 1994, the Company and UIH Asia, as plaintiffs,
commenced a lawsuit in the U.S. District Court for the District of Colorado
against the Wharf (Holdings) Limited and two of its subsidiaries, Wharf
Communication Investments Limited and Wharf Cable, the license holders of the
Hong Kong system franchise, and its deputy chairman, Stephen Ng. On April 27,
1997, following a nine week trial, the jury returned a verdict in favor of the
Company and against each of the defendants (other than Wharf Cable) in the
amount of $67 million. In addition, the jury awarded exemplary damages against
Wharf Holdings in the amount of $58.5 million. On May 21, 1997, judgment,
including an additional $28,000 of prejudgement interest, was entered on these
verdicts; however, there can be no assurance that damages will be collected.
85
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The directors and executive officers of the Company and their ages and
positions with the Company are set forth below.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Gene W. Schneider............... 70 Chairman of the Board of Directors, Chief Executive Officer and Director
J. Timothy Bryan................ 36 Chief Financial Officer
Mark L. Schneider............... 41 President, UIH Europe/Middle East Communications, Inc. and Director
Michael T. Fries................ 34 President, UIH Asia/Pacific Communications, Inc.
Nimrod J. Kovacs................ 47 President, UIH Programming, Inc.
David L. Leonard................ 44 President, UIH Latin America, Inc.
Albert M. Carollo............... 83 Director
Lawrence J. DeGeorge............ 81 Director
William J. Elsner............... 45 Director
Joseph E. Giovanini............. 64 Director
Antony P. Ressler............... 36 Director
Curtis Rochelle................. 81 Director
Bruce H. Spector................ 54 Director
</TABLE>
The number of members of the Company's Board of Directors is currently
fixed at ten. The Company's Restated Certificate of Incorporation provides for a
classified Board of Directors, which may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company. For
purposes of determining their terms, directors are divided into three classes.
The Class I directors, whose terms expire at the 1997 annual stockholders'
meeting, include Messrs. Carollo, DeGeorge, Ressler and Mark L. Schneider. The
Class II directors, whose terms expire at the 1998 annual stockholders' meeting,
include Messrs. Elsner and Spector. The Class III directors, whose terms expire
at the 1999 annual stockholders' meeting, include Messrs. Giovanini, Rochelle
and Gene W. Schneider. Each director elected at each such meeting will serve for
a term ending on the date of the third annual stockholders' meeting after his
election or until his earlier death, resignation or removal. There is currently
a vacancy of one Class II director, which the remaining directors plan to fill
at the next meeting of the Board of Directors.
The Company, Apollo Cable Partners, L.P. ("Apollo") and certain
stockholders of the Company (the "Founders") have entered into a Stockholders'
Agreement that, among other things, entitles Apollo to nominate three directors
and the Founders to nominate nine directors. Apollo and the Founders are
obligated to vote to elect as directors those persons so nominated. The number
of persons Apollo and the Founders are entitled to nominate for election as
directors is subject to reduction for each group if the percentage of the
Company's voting securities beneficially owned by it is reduced below certain
levels determined without regard to shares issued after the closing of Apollo's
investment in the Company. These director nomination rights expire on April 12,
2003, unless earlier terminated by agreement of Apollo and the Founders. Messrs.
Ressler and Spector were nominated by Apollo and the other directors were
nominated by the Founders. Each of Apollo and the Founders has the right to
nominate one and two additional directors, respectively. See "Certain
Relationships and Related Transactions-The Apollo Transaction."
The Board of Directors has established an Audit Committee composed of
independent directors who are not affiliates or present or former employees of
the Company and a Compensation Committee composed of members of the Board who
are not employees of the Company.
Gene W. Schneider has served as Chairman of the Board of Directors of the
Company since May 1989 and was a director of United International Holdings, a
Colorado general partnership (the "Partnership") from September 1989 until its
dissolution in December 1993. On October 1, 1995, Mr. Schneider became the
Company's Chief Executive Officer. Mr. Schneider was, until November 1991,
Chairman of United Artists Entertainment Company ("United Artists"), the third-
largest cable television company, and the largest theater owner, in the world.
He was a founder of United Cable Television Corporation ("United Cable") in the
early 1950s and, as its Chairman and Chief Executive Officer, built United Cable
into the eighth-largest multiple system operator prior to merging with United
Artists. He has been active in cable television affairs and has served on
numerous National Cable Television Association ("NCTA") committees and special
projects since NCTA's inception in the early 1950s. He also has served on the
boards of directors of several other companies, including Turner Broadcasting
Corporation.
86
<PAGE>
J. Timothy Bryan became the Chief Financial Officer, Treasurer and
Assistant Secretary of the Company and a Director of both UIH A/P and UAP,
positions he has held since January 1, 1997. Prior to joining UIH in December
1996, Mr. Bryan served as Vice President of Finance and Treasurer of Jones
Financial Group, Inc., an affiliate of Jones International, Limited and Jones
Intercable, Inc. from 1993 to January 1996, and as Treasurer of Jones
Intercable, Inc. from 1990 to 1993. From 1988 through 1990, he served in the
Communications Division of the Corporate Banking Department of NationsBank of
North Carolina and from 1983 to 1988, worked at Mellon Bank Corporation in the
Corporate and International Banking Departments.
Mark L. Schneider has been Executive Vice President of the Company and
President and Chief Executive Officer, UIH Europe/Middle East Communications,
Inc. since December 1996. In May 1996, Mr. Schneider became Chief of Strategic
Planning and Operational Oversight of UIH. He served as President of UIH from
July 1992 until March 1995 and was Senior Vice President of UIH from May 1989
until July 1992. During these periods Mr. Schneider was responsible for all of
its international multi-channel television system and programming activities.
Prior to joining UIH, he served as Vice President of Corporate Development at
United Cable from March 1987 until May 1989. In that position, he was
responsible for United Cable's acquisition and development of international
cable television systems and other businesses.
Michael T. Fries has served as President of UAP, a wholly-owned subsidiary
of the Company, since June 1995 in which he is responsible for all operating and
development activities, and all other business in the Asia/Pacific region. Prior
to assuming that position, Mr. Fries served as Senior Vice President,
Development in which capacity he was responsible for managing the Company's
acquisitions and new business development activities since March 1990, including
UIH's expansion into the Asia/Pacific markets. In this capacity, he established
and implemented development strategies for the Company, managed the
identification and evaluation of investment opportunities and negotiated and
finalized transactions. From 1985 to 1990, Mr. Fries was employed by PaineWebber
incorporated (New York), where he spent approximately one year in the firm's
venture capital group and four years in the investment banking division,
specializing in domestic and international transactions for companies in the
media and telecommunications industry.
Nimrod J. Kovacs was appointed President, UIH Programming, Inc. in December
1996. Prior to that, Mr. Kovacs served as President, Eastern Europe Electronic
Distribution & Global Programming Group since January 1, 1996. Prior to that
time he served as Senior Vice President Central/Eastern Europe and was
responsible for development and management of the Company's investments in
Hungary and the Czech Republic and the development opportunities in Romania and
Bulgaria. Mr. Kovacs has served in this capacity since joining the Company in
March 1991. From October 1989 until joining the Company, Mr. Kovacs was the
president of NJK International, a multi-channel television consulting firm.
David J. Leonard became President, UIH LA for the Company in June 1995. Mr.
Leonard is responsible for the organization and management of the Company's
operating and development activities in Latin America. Prior to holding this
position, Mr. Leonard was Regional Vice President, Latin America. Prior to
holding this position, Mr. Leonard was the Managing Director for the Company's
cable project in Sweden from 1990 to 1992, where he had full responsibility for
development and operations.
Albert M. Carollo has been a director of the Company since April 1993 and
was a director of the Partnership from December 1990 until its dissolution in
December 1993. He served as a director of United Artists from December 1988 to
November 1991 and has been President of Sweetwater Television Company since
1955. Mr. Carollo was a director of United Cable from 1974 until 1989.
Lawrence J. DeGeorge has been a director of the Company since April 1993
and was a director of the Partnership from September 1989 until its dissolution
in December 1993. He has also been Chairman of the Board and Chief Executive
Officer of Amphenol Corporation ("Amphenol"), a major international manufacturer
of electrical, electronic and fiber-optic connectors, cable and cable
assemblies, since May 1987 until its sale in May 1997. From 1985 until the sale
of Amphenol, Mr. DeGeorge has been the Chief Executive Officer of Amphenol's
subsidiary, Times Fiber Communications, Inc. ("Times Fiber"), a major U.S.
manufacturer of coaxial cable for the cable television industry.
William J. Elsner has served as a director of the Company since 1989 and
the Company's Chief Executive Officer from July 1992 through October 1995. From
May 1989 to July 1992, Mr. Elsner served as President of the Company. He was a
director of the Partnership from September 1989 until its dissolution in
December 1993. Mr. Elsner has 17 years of experience in the cable television
industry. Mr. Elsner was also a director of United Artists from 1989 until 1991.
87
<PAGE>
Joseph E. Giovanini has been a director of the Company since April 1993 and
was a director of the Partnership from September 1989 until its dissolution in
December 1993. Mr. Giovanini is General Partner of Giovanini Investments, Ltd.,
Jackson, Wyoming and manages personal investments. He was a director of United
Artists from December 1988 to November 1991 and a director of United Cable from
1974 to 1989.
Antony P. Ressler has been a director of the Company since October 1993.
Since its inception in 1990, Mr. Ressler has been a partner of Apollo Advisors,
L.P. and Lion Advisors, L.P., which through several funds represent
institutional investors with respect to corporate acquisitions and securities
investments. From 1988 to 1990, he was a Senior Vice President in the High Yield
Bond Department of Drexel Burnham Lambert Incorporated, a firm he joined in
1985. Mr. Ressler is also a director of Dominck's Supermarkets, Inc., Family
Restaurants, Inc., Forum Group, Inc., Gillett Holdings, Inc. and Packaging
Resources, Inc.
Curtis W. Rochelle has been a director of the Company since April 1993 and
was a director of the Partnership from September 1989 until its dissolution in
December 1993. He is a rancher in Rawlins, Wyoming, and the owner of Rochelle
Livestock. Mr. Rochelle also is a director and Vice President of Lander Energy
Company, a real estate developer in Fort Collins, Colorado, and was a director
of United Artists from December 1988 to November 1991. Mr. Rochelle also was a
director of United Cable from 1974 to 1989.
Bruce H. Spector has been a director of the Company since October 1993.
Since October 1992, Mr. Spector has served as a consultant to Apollo Advisors,
L.P. Prior to joining Apollo, Mr. Spector was a senior member of the Los Angeles
law firm of Stutman, Treister & Glatt Professional Corporation for nearly 25
years. Mr. Spector is also a director of Vail Holdings, Inc.
On May 24, 1996, the Company formed an Office of the Chairman. Members of
the Office of the Chairman are Gene W. Schneider, J. Timothy Bryan and Mark L.
Schneider. Simultaneous with the formation of the Office of the Chairman, the
Company established an Investment and Operations Committee that will review the
various development opportunities and operations of the Company. The Investment
and Operations Committee is comprised of Messrs. Gene W. Schneider, Fries,
Leonard, Kovacs, Mark L. Schneider and Bryan.
Gene W. Schneider and Mark L. Schneider are father and son. No other family
relationships exist between any other executive officers or directors of the
Company.
Other Management
Ellen P. Spangler, Vice President, Business and Legal Affairs, 48. Ms.
Spangler is responsible for assisting in the management of development projects.
Prior to joining the Company in January 1991, she spent seven years with Tele-
Communications, Inc. ("TCI"), most recently as Managing Director of a news
subsidiary. Also during her employment at TCI, she served as Director of
Business Affairs, Programming and Acquisitions Counsel.
Valerie L. Cover, Vice President and Controller, 40. Ms. Cover is the
Controller for the Company, a position she has held since October 1990. She is
responsible for all accounting and financial reporting functions of the Company.
Prior to joining the Company, she was the Director of Corporate Accounting at
United Artists for one and one-half years.
During the past five years, none of the above named persons have had any
involvement in such legal proceedings as would be material to an evaluation of
ability or integrity.
Under Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company's directors and certain of its officers, and
persons holding more than ten percent of the Company's Class A Common Stock are
required to file forms reporting their beneficial ownership of the Company's
Class A Common Stock and subsequent changes in that ownership with the
Securities and Exchange Commission. Such persons are also required to furnish
the Company with copies of forms so filed.
Based solely upon a review of copies of such forms filed with the Company,
the Company believes that, during the year ended February 28, 1997, all Section
16(a) filing requirements were complied with, except that one Form 3 covering
initial holdings was filed late by J. Timothy Bryan and one Form 4 covering a
disposition of securities was filed late by David J. Leonard.
88
<PAGE>
Item 11. Executive Compensation
- --------------------------------
The following table sets forth the aggregate annual compensation for the
Company's chief executive officer and four other most highly compensated
executive officers for services rendered during Fiscal 1997, 1996 and 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
----------------------- ------------
Securities
Name and Underlying All Other
Principal Position Year Salary($) Bonus($) Options (#) Compensation ($)
------------------ ---- --------- -------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Gene W. Schneider 1997 $352,212 $ -- 100,000 $4,833
Chairman of the Board, Chief Executive 1996 $332,539 -- 40,000 $4,691
Officer 1995 $301,154 -- -- $4,620
Nimrod J. Kovacs 1997 $239,442 $1,698,747(1) 55,000 $4,771
President, UIH Programming, Inc. 1996 $236,808 -- 10,000 $4,680
1995 $216,208 $ 50,287 -- $4,308
Michael T. Fries 1997 $233,962 -- 10,000 $4,837
President, UIH Asia/Pacific 1996 $221,692 -- 35,000 $4,778
Communications, Inc. 1995 $180,692 -- -- $4,617
Bernard G. Dvorak 1997 $223,683 -- -- $4,066
Chief Financial Officer(2) 1996 $201,539 -- 35,000 $4,797
1995 $160,615 -- -- $4,616
David J. Leonard
President, UIH Latin America, Inc. 1997 $219,038 -- 40,000 $4,457
1996 $201,539 -- 25,000 $4,419
1995 $151,039 -- -- $4,475
</TABLE>
(1) Mr. Kovacs received a bonus of $1,698,747 from Kabelkom, a Hungarian
company, in which the Company owns an approximate 23.5% proportionate
interest at February 28, 1997. Mr. Kovacs currently serves as a director of
Kabelkom.
(2) Effective December 31, 1996, Bernard G. Dvorak resigned as Chief Financial
Officer of the Company. On January 1, 1997, J. Timothy Bryan became the
Company's Chief Financial Officer.
The following table sets forth information concerning options which were
granted by the Company to the officers named in the Summary Compensation Table
above during the fiscal year ended February 28, 1997.
Option Grants in Last Fiscal Year(1)
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed
Annual Rates of Stock Price
Individual Grants Appreciation for Option term
--------------------------------------------------------- -------------------------------------------
Percentage
Number of of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Granted (#) Fiscal Year ($/SH) Date % ($) 5% ($) 10% ($)
----------- ------------ ------ ---- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Gene W. Schneider.......... 100,000 15.3% $12.75 12/20/06 $-- $801,841 $2,032,022
Nimrod J. Kovacs........... 25,000 3.8% $13.75 6/28/06 $-- $216,183 $ 547,849
30,000 4.6% $12.75 12/20/06 $-- $240,552 $ 609,606
Michael T. Fries........... 10,000 1.5% $12.75 12/20/06 $-- $ 80,184 $ 203,202
Bernard G. Dvorak(2)....... -- -- $ -- -- $-- $ -- $ --
David J. Leonard........... 30,000 4.6% $15.75 3/22/06 $-- $297,153 $ 753,043
10,000 1.5% $12.75 12/20/06 $-- $ 80,184 $ 203,202
</TABLE>
(1) The stock options granted during Fiscal 1996 become exercisable with
respect to 25% of the shares covered thereby after the first anniversary of
the effective date of the grant and with respect to the remaining 75% in
equal monthly increments over the three-year period thereafter. Vesting of
the options granted accelerate upon a change of control of the Company as
defined in the Employee Plan.
(2) Effective December 31, 1996, Bernard G. Dvorak resigned as Chief Financial
Officer of the Company. On January 1, 1997, J. Timothy Bryan became the
Company's Chief Financial Officer.
89
<PAGE>
The following table sets forth information concerning unexercised options
held by officers named in the Summary Compensation Table above as of the end of
Fiscal 1997.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at FY-End (#) Options at FY-End ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- -------------------------- ------------------------- -------------------------
<S> <C> <C>
Gene W. Schneider......... 151,042/138,958 $100,781/$11,719
Nimrod J. Kovacs.......... 85,000/80,000 $ 45,709/$9,941
Michael T. Fries.......... 122,083/42,917 $170,208/$19,792
Bernard G. Dvorak(1)...... 135,000/0 $ 75,000/$0
David J. Leonard.......... 72,709/72,291 $ 40,028/$20,402
</TABLE>
(1) As of December 31, 1996, upon resignation as the Company's Chief Financial
Officer, Mr. Dvorak's unexercisable options vested.
Consulting Agreements
On June 1, 1995, the Company entered into a Consulting Agreement with Mark
Schneider who until that time had served as the Company's President. Mr.
Schneider's Consulting Agreement, which is for a term ending on May 31, 2000,
contains the following primary terms. Mr. Schneider will be available for up to
90 days each calendar year to serve as a consultant to undertake tasks as
assigned by the Chief Executive Officer of the Company. Mr. Schneider will
receive an annual fee of $300,000, together with insurance and other perquisites
that were available to him in his capacity as President of the Company or that
are otherwise made available to top executives of the Company.
In addition, the Company will pay or reimburse Mr. Schneider for reasonable
office expenses, including secretarial help, during the consulting period. All
of Mr. Schneider's unvested stock options vested as of the date of the
agreement. He will be entitled to receive additional stock options during the
consulting period, in an amount to be determined by the Board of Directors on
the recommendation of the Chairman of the Company, but shall be entitled to
receive at least options to purchase a number of shares of the Company equal to
90 percent of the average number of shares provided in options granted to the
Chairman, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer and Executive Vice President.
The agreement is terminable by the Company or by Mr. Schneider. If the
agreement is terminated by the Company, Mr. Schneider will be entitled to the
benefits provided in the agreement. If it is terminated by Mr. Schneider,
benefits will terminate as of the date of termination.
Mr. Schneider has agreed that he will not enter into certain businesses
that would be competitive with the Company. This Consulting Agreement provides
for indemnification of Mr. Schneider by the Company to the full extent permitted
by its Certificate of Incorporation or bylaws, any standard indemnity agreement
between the Company and its officers and directors or by applicable law. Mr.
Schneider and the Company have executed mutual releases.
Stock Option Plan
The Company adopted the 1993 Stock Option Plan (the "Employee Plan") in May
1993. The Employee Plan is construed, interpreted and administered by the
Compensation Committee of the Board of Directors (the "Committee"). The
Committee has the discretion to determine the employees and consultants to whom
options are granted, the number of shares subject to the options, the exercise
price of the options (which may be below fair market value of the common stock
on the date of grant), the period over which the options become exercisable, the
term of the options (including the period after termination of employment during
which an option may be exercised) and certain other provisions relating to the
options.
Under the Employee Plan, options to purchase up to 3,300,000 shares of the
Company's Class A Common Stock may be granted to employees and consultants by
the Committee. Members of the Company's Board of Directors who are not employees
are not eligible to receive option grants under the Employee Plan. The maximum
term of options granted under the Employee Plan is ten years. Options granted
may be either incentive stock options under the Internal Revenue Code of 1986,
as amended (the "Code"), or non-qualified stock options. Vesting of options is
accelerated upon a change of control of the Company as defined in the Employee
Plan.
90
<PAGE>
The Committee granted to the Company's executive officers and other
employees options under the Employee Plan to purchase a total of 2,793,851
shares of Class A Common Stock at exercise prices ranging from $4.50 to $17.75
per share. The options vest with respect to 25% of the shares covered thereby
after the first anniversary of the effective date of the grant and with respect
to the remaining 75% in equal monthly increments over the three-year period
thereafter.
Non-Employee Director Stock Option Plan
The Company adopted a Stock Option Plan for Non-Employee Directors (the
"Director Plan") effective June 1, 1993. The Director Plan provides for the
grant of an option (a "Director's Option") to acquire 40,000 shares of Class A
Common Stock to each member of the Board who was not also an employee of the
Company (a "non-employee director") on June 1, 1993, and to each person who is
newly elected to the Board as a non-employee director after June 1, 1993, on the
date of his election. The total number of shares of Class A Common Stock as to
which options may be granted under the Director Plan is 480,000 in the
aggregate. Options to acquire a total of 280,000 shares have been granted under
the Director Plan at exercise prices from $9.50 to $17.75.The exercise price for
options granted under the Director Plan after the Company's initial public
offering is the fair market value of the shares on the date of grant determined
by reference to the last reported sale price of the Class A Common Stock on the
NASDAQ National Market. The Director's Options become exercisable with respect
to 25% of the shares covered thereby after the first anniversary of the
effective date of the grant and with respect to the remaining 75% in equal
monthly increments over the three-year period thereafter. Vesting is accelerated
upon a "change of control" of the Company. For purposes of the Director Plan, a
change of control is generally deemed to occur if (a) a person acquires
beneficial ownership of shares of the Company having 30% or more of the total
number of votes that may be cast for the election of directors of the Company
without the prior approval of a majority of the directors of the Company
unaffiliated with such person, or (b) individuals who constitute the directors
of the Company at the beginning of a 24-month period cease to constitute at
least 2/3 of all directors at any time during such period, unless the election
of any new replacement directors was approved by a vote of at least a majority
of the members of the board in office immediately prior to such period and of
the new and replacement directors so approved.
401(k) Plan
The Company adopted a defined contribution 401(k) plan (the "401(k)
Plan"), effective February 1, 1994. The 401(k) Plan is intended to qualify
under Section 401(a) of the Code and will provide for employee pre-tax
contributions pursuant to Section 401(k) of the Code and matching Company
contributions. It is expected that substantially all of the Company's employees
who have satisfied the 401(k) Plan's age and service requirements will be
eligible to participate in the 401(k) Plan. Eligible participants may
contribute, on a pre-tax basis through payroll deduction, between 1% and 15% of
their total pay each payroll period. The Company will match up to the first 6%
of a participant's contributions each year at the rate of 50%. The Company's
contribution may be made either in cash or in shares of the Company's Class A
Common Stock, as determined by the Company in its sole discretion. Company
contributions will vest at the rate of 25% per year, beginning upon the
completion of one year of service with the Company. Participants in the 401(k)
Plan will be permitted to withdraw funds during employment for certain specified
hardship purposes. The Company has reserved the right to amend or terminate the
401(k) Plan at any time.
Compensation Committee Interlocks and Insider Participation
The Company's Board of Directors in April 1993 established a Compensation
Committee composed of members of the Board who are not employees of the Company.
During Fiscal 1996 and at present, the compensation Committee consists of
Messrs. Carollo, DeGeorge and Giovanini. None of the executive officers of the
Company have served as a director or member of a compensation committee of
another company that had any executive officer that was also a director or
member of the Compensation Committee of the Company.
Limitation of Liability and Indemnification
The Company's Restated Certificate of Incorporation eliminates the personal
liability of its directors to the Company and its stockholders for monetary
damages for breach of the directors' fiduciary duties in certain circumstances.
The Company's Restated Certificate of Incorporation and Bylaws provide that the
Company shall indemnify its officers and directors to the fullest extent
permitted by law. The Company believes that such indemnification covers at least
negligence and gross negligence on the part of indemnified parties.
91
<PAGE>
The Company has entered into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Company's
Restated Certificate of Incorporation and Bylaws. These agreements require the
Company, among other things, to indemnify the Company's directors and officers
for certain expenses (including attorneys' fees), judgments, fines, penalties
and settlement amounts incurred by any such person in certain actions or
proceedings, including actions by or in the right of the Company, arising out of
such person's services as a director or officer of the Company, any subsidiary
of the Company or any other company or enterprise to which the person provides
services at the request of the Company. The Company believes that these
agreements are necessary to attract and retain qualified persons as directors
and officers.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The following table sets forth certain information concerning the ownership
of Common Stock of all classes as of May __, 1997, by (i) each stockholder who
is known by the Company to own beneficially more than 5% of the outstanding
Class A Common Stock or Class B Common Stock at such date, (ii) each director of
the Company, (iii) each executive officer of the Company and (iv) all directors
and officers of the Company as a group. Shares of Class B Common Stock are
convertible immediately into shares of Class A Common Stock on a one-for-one
basis, and accordingly, holders of Class B Common Stock are deemed to own the
same number of shares of Class A Common Stock. The table below also reflects
deemed beneficial ownership of Class A Common Stock or Class B Common Stock
resulting from the voting provisions of the Stockholders' Agreement. See
"Certain Relationships and Related Transactions-The Apollo Transaction."
<TABLE>
<CAPTION>
Beneficial Ownership Other Beneficial Ownership, including Deemed
Than Deemed Beneficial Beneficial Ownership as a
Ownership as a Result of the UIH Result of the UIH
Stockholders' Agreement Stockholders' Agreement
------------------------------------- ---------------------------------------------------------------
Class A Common Stock Percentage of All
and Class A Class B Outstanding
Beneficial Owner Class B Common Stock Common Stock Common Stock Common Stock
---------------- ------------------------------------- -------------------- -------------------- -------------------
Percent of
Number Percent Total Vote Number Percent Number Percent Number Vote
--------- -------- ---------- ---------- -------- ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gene W. Schneider (1)(2)... 2,771,366 7.1% 16.8% 13,606,479 35.3% 12,278,634 94.9% 34.7% 79.8%
J. Timothy Bryan(3)........ 5,000 * * 5,000 * -- * * *
Michael T. Fries (4)....... 197,927 * * 197,927 * 61,956 * * *
Nimrod J. Kovacs(5)........ 162,033 * * 162,033 * 46,402 * * *
David J. Leonard(6)........ 89,021 * * 89,021 * -- -- * *
Albert M. Carollo(1)(7).... 149,543 * * 13,606,479 35.3% 12,278,634 94.9% 34.7% 79.8%
Lawrence J. DeGeorge(1)(8). 726,637 1.9% 4.3% 13,606,479 35.3% 12,278,634 94.9% 34.7% 79.8%
William J. Elsner(1)(9).... 1,027,839 2.6% 5.5% 13,606,479 35.3% 12,278,634 94.9% 34.7% 79.8%
Joseph E. Giovanini(1)(10). 1,820,473 4.6% 11.5% 13,606,479 35.3% 12,278,634 94.9% 34.7% 79.8%
Antony P. Ressler(11)...... 35,139 * * 35,139 * -- -- * *
Curtis Rochelle(1)(12)..... 1,162,987 3.0% 7.2% 13,606,479 35.3% 12,278,634 94.9% 34.7% 79.8%
Mark L. Schneider(1)(13)... 457,618 1.2% 2.0% 13,606,479 35.3% 12,278,634 94.9% 34.7% 79.8%
Bruce Spector(14).......... 35,139 * * 35,139 * -- -- * *
All directors and
executive officers 8,676,816 22.1% 49.1% 14,271,512 37.4% 12,609,158 95.1% 36.6% 80.7%
as a group (15 persons).
Apollo Cable Partners, 4,261,364 10.9% 27.4% 13,606,479 35.3% 12,278,634 94.9% 34.7% 79.8%
L.P.(15)..................
Janet Schneider(16)........ 322,621 * 1.4% 13,606,479 35.3% 12,278,634 94.9% 34.7% 79.8%
Philips Media Networks 3,169,151 8.1% 2.0% 3,169,151 12.3% -- -- 8.1% 2.0%
B.V. (17).................
Everest Capital Limited(18) 1,968,000 5.0% 1.3% 1,968,000 5.1% -- -- 5.0% 1.3%
Media International
Holdings 1,663,960 4.2% 1.1% 1,663,960 6.5% -- -- 4.3% 1.1%
Limited(19)..............
</TABLE>
* Less than 1%.
(1) The address of Messrs. G. Schneider, Carollo, DeGeorge, Elsner, Giovanini,
Rochelle and M. Schneider is c/o United International Holdings, Inc., 4643
South Ulster Street, Suite 1300, Denver, Colorado 80237.
(2) Includes 162,917 shares of Class A Common Stock that are subject to
presently exercisable options. Also includes 1,531,756 shares of Class B
Common Stock owned by G. Schneider Holdings Co. (c/o United International
Holdings, Inc., 4643 South Ulster Street, Suite 1300, Denver, CO 80237).
The fourth through ninth columns also include 9,675,270 shares of Class B
Common Stock and 1,159,843 shares of Class A Common Stock owned by other
parties to the Stockholders' Agreement, as to which Mr. Schneider disclaims
beneficial ownership.
(3) Includes 5,000 shares of Class A Common Stock that are subject to presently
exercisable options.
(4) Includes 131,771 shares of Class A Common Stock that are subject to
presently exercisable options.
(5) Includes 91,875 shares of Class A Common Stock that are subject to
presently exercisable options.
(6) Includes 88,021 shares of Class A Common Stock that are subject to
presently exercisable options.
92
<PAGE>
(7) Includes 38,333 shares of Class A Common Stock that are subject to
presently exercisable options. The fourth through ninth columns also
include 111,206 shares of Class B Common Stock owned by Albert & Carolyn
Company, 111,206 shares of Class B Common Stock owned by the James R.
Carollo Living Trust, 111,204 shares of Class B Common Stock owned by John
B. Carollo Living Trust, and 11,833,812 shares of Class B Common Stock and
1,289,512 shares of Class A Common Stock owned by other parties to the
Stockholders' Agreement, as to which Mr. Carollo disclaims beneficial
ownership. The address of Albert & Carolyn Company, the James R. Carollo
Living Trust and the John B. Carollo Living Trust is c/o Sweetwater
Television Co., P.O. Box 8, 602 Broadway, Rock Springs, WY 82901.
(8) Includes 38,333 shares of Class A Common Stock that are subject to
presently exercisable options and 668,304 shares of Class B Common Stock
owned by Amphenol Corporation (358 Hall Avenue, Wallington, CT 06492), of
which Mr. DeGeorge is Chairman of the Board. The fourth through ninth
columns also include 11,610,330 shares of Class B Common Stock and
1,269,512 shares of Class A Common Stock owned by other parties to the
Stockholders' Agreement, as to which Mr. DeGeorge disclaims beneficial
ownership.
(9) Includes 190,000 shares of Class A Common Stock that are subject to
presently exercisable options. The fourth through ninth columns also
include 11,445,880 shares of Class B Common Stock and 1,132,760 shares of
Class A Common Stock owned by other parties to the Stockholders' Agreement,
as to which Mr. Elsner disclaims beneficial ownership.
(10) Includes 38,333 shares of Class A Common Stock that are subject to
presently exercisable options, 398,568 shares of Class B Common Stock owned
by Giovanini Partners (3745 West Esther Way, Box 607, Teton Village, WY
83025) and 1,383,572 shares of Class B Common Stock owned by Giovanini
Investments. The fourth through ninth columns also include 10,496,494
shares of Class B Common Stock and 1,289,512 shares of Class A Common Stock
owned by other parties to the Stockholders' Agreement, as to which Mr.
Giovanini disclaims beneficial ownership.
(11) Includes 35,139 shares of Class A Common Stock that are subject to
presently exercisable options.
(12) Includes 38,333 shares of Class A Common Stock that are subject to
presently exercisable options. Also includes 111,184 shares of Class B
Common Stock owned by Marian Rochelle (Box 996, Rawlins, WY 82301) and
998,470 shares of Class B Common Stock owned by the Curtis Rochelle Trust.
The fourth through ninth columns also include 38,456 shares of Class B
Common Stock owned by Kathleen Jaure (Box 321, Rawlins, WY 82301), 38,456
shares of Class B Common Stock owned by Jim Rochelle (Box 967, Gillette, WY
82717), 11,092,068 shares of Class B Common Stock and 1,274,512 shares of
Class A Common Stock owned by other parties to the Stockholders' Agreement,
as to which Mr. Rochelle disclaims beneficial ownership.
(13) Includes 167,250 shares of Class A Common Stock that are subject to
presently exercisable options. The fourth through ninth columns also
include 11,988,266 shares of Class B Common Stock and 1,160,595 shares of
Class A Common Stock owned by other parties to the Stockholders' Agreement,
as to which Mr. Schneider disclaims beneficial ownership.
(14) Includes 35,139 shares of Class A Common Stock that are subject to
presently exercisable options.
(15) Represents 4,261,364 shares of Class B Common Stock owned by Apollo Cable
Partners, L.P. The fourth through ninth columns also include 8,017,270
shares of Class B Common Stock and 1,327,845 of shares of Class A Common
Stock owned by other parties to the Stockholders' Agreement, as to which
Apollo disclaims beneficial ownership. The address of Apollo Cable
Partners, L.P. is c/o Apollo Advisors, L.P., Two Manhattanville Road,
Purchase, New York 10577. Apollo Advisors, L.P. is the managing general
partner of AIF II, L.P., the general partner of Apollo Cable Partners, L.P.
Antony Ressler and Bruce Spector, directors of the Company, are also
officers of Apollo Advisors, L.P. Each of Messrs. Ressler and Spector
expressly disclaims beneficial ownership of the shares held by Apollo Cable
Partners, L.P.
(16) Includes 113,673 shares of Class A Common Stock and 16,174 shares of Class
B Common Stock owned by family members and 192,774 shares of Class B Common
Stock owned by The Janet Schneider Revocable Trust. The address for the
family members and The Janet Schneider Revocable Trust is 3500 Alpine
Drive, Casper, WY 82601. The fourth through ninth columns also include
12,069,686 shares of Class B Common Stock and 1,214,172 shares of Class A
Common Stock owned by other parties to the Stockholders' Agreement, as to
which Ms. Schneider disclaims beneficial ownership.
(17) The address of Philips Media Networks B.V. is P.O. Box 218, 5600 Md
Eindhoven, The Netherlands.
(18) The address of Everest Capital Limited is Corner House, 20 Parliament
Street, Hamilton HM12, Bermuda.
(19) Represents shares of Class A Common Stock exercisable upon conversion of
166,396 shares of the Company's Convertible Preferred Stock, Series A. The
address of Media International Holdings Limited is c/o ITC, Amsteldijk 166,
1079 LH, Amsterdam, The Netherlands.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The Apollo Transaction
The Company reached agreement with Apollo in February 1993 for the investment
by Apollo of $30.0 million (before offering costs of $1.8 million) in the
Company in exchange for 4,261,364 shares of Class B Common Stock. The initial
closing occurred on April 15, 1993, at which time Apollo purchased 1,633,522
shares of Class B Common Stock for $11.5 million. Apollo purchased the remaining
2,627,842 shares of Class B Common Stock for $18.5 million immediately prior to
closing of the initial public offering.
Apollo entered into a Standstill Agreement with the Company (the "Standstill
Agreement") whereby it agreed for a period ending seven years after the date of
the Company's initial public offering not to purchase additional equity
securities of the Company that, when aggregated with equity securities then held
by Apollo, would exceed 32.27% of the outstanding equity securities of the
Company unless such acquisition is approved by a majority of the disinterested
members of the Board of Directors of the Company. Apollo has also agreed not to
engage in the solicitation of proxies with respect to the Company during such
seven-year period. A person purchasing Class B Common Stock from Apollo must
become a party to the Standstill Agreement unless the transfer is made (i) in a
tender offer approved by the Company's Board of Directors or (ii) in the open
market or in an underwritten public offering, in either case where the
transferor does not know the identity of the ultimate purchaser and has no
reason to believe that a person would acquire more than 10% of the outstanding
shares or voting power of the Company's equity securities. A person purchasing
Class A Common Stock from Apollo must become a party to the
93
<PAGE>
Standstill Agreement unless the transferor has no reason to believe that the
ultimate purchaser would acquire more than the 10% of the outstanding shares or
voting power of the Company's equity securities.
Apollo, the Company and the Founders are parties to a Stockholders'
Agreement (the "Stockholders' Agreement") that provides for the election as
directors by Apollo and the Founders of three persons nominated to be directors
by Apollo and nine persons nominated to be directors by the Founders. The number
of persons Apollo and the Founders are entitled to nominate for election as
directors is subject to reduction for each group if the percentage of the
Company's voting securities beneficially owned by it is reduced below certain
levels determined without regard to shares issued after the Apollo Transaction
is consummated. These director nomination rights expire on April 12, 2003,
unless earlier terminated by the agreement of Apollo and the Founders. Apollo
and the Founders each has the right to nominate one additional director under
the terms of the Stockholders' Agreement.
The Stockholders' Agreement provides that shares of Class B Common Stock
held by the Founders and Apollo will be converted to shares of Class A Common
Stock upon any transfer of the Class B Common Stock unless the transferee
becomes a party to the Stockholders' Agreement or unless the transfer is one of
a type that would not require the purchaser to become a party to the Standstill
Agreement if the transfer had been made by Apollo.
The Stockholders' Agreement also provides that Apollo and the Founders are
obligated to offer any of the Company's equity securities or their equivalents
to the Company prior to their transfer to persons other than Apollo, the
Founders and their affiliates and that the Founders are obligated to permit
Apollo to participate on a pro-rata basis in any sale of Class B Common Stock by
the Founders that would result in a change of control of the Company. Apollo and
partners of the Partnership who are affiliates of the Company have been granted
registration rights for the Company's common stock held by them.
The Recapitalization
The Company was formed as a wholly owned subsidiary of the Partnership and
initially conducted its operations in conjunction with the Partnership. The
Partnership was issued 100 shares of the Company's common stock upon formation
and, prior to the Apollo Transaction, made substantial loans to the Company to
fund the Company's operations. The Partnership transferred its ownership
interest in UCI to the Company on December 31, 1992, in exchange for 26 shares
of the Company's common stock and contributed to the Company's capital,
effective March 1, 1993, total indebtedness of $18,478,000 (including principal
and accrued interest) owed by the Company to the Partnership in exchange for 37
shares of common stock. The Company adopted a Restated Certificate of
Incorporation on April 14, 1993, pursuant to which two classes of common stock,
Class A Common Stock and Class B Common Stock were authorized, and the 163
shares of the Company's common stock previously issued to the Partnership were
converted into 11,363,636 shares of Class B Common Stock. On July 22, 1993, the
Partnership distributed to its partners all shares of Class B Common Stock held
by it. The Partnership was dissolved effective December 31, 1993.
94
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- ---------------------------------------------------------------------------
(a)(1) Financial Statements
Included in PART II of the Report:
<TABLE>
<CAPTION>
Page
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<S> <C>
UNITED INTERNATIONAL HOLDINGS, INC.
Report of Independent Public Accountants.......................................................... 46
Consolidated Balance Sheets as of February 28, 1997 and February 29, 1996........................ 54
Consolidated Statements of Operations for the Years Ended February 28, 1997, February 29, 1996
and February 28, 1995............................................................... 55
Consolidated Statements of Stockholders' Equity for the Years Ended February 28, 1997,
February 29, 1996 and February 28, 1995............................................. 56
Consolidated Statements of Cash Flows for the Years Ended February 28, 1997, February 29, 1996
and February 28, 1995............................................................... 58
Notes To Consolidated Financial Statements........................................................ 59
(a)(2) Financial Statement Schedules
Included in PART IV of the Report:
(i) Financial Statement Schedule required to be filed:
UNITED INTERNATIONAL HOLDINGS, INC.
Report of Independent Public Accountants on Schedule.............................................. 98
Schedule I-Condensed Financial Information of Registrant (Parent only)............................ 99
(ii) Separate Financial Statements and Related Schedules
UNITED INTERNATIONAL PROPERTIES, INC.
Report of Independent Public Accountants.......................................................... 102
Consolidated Balance Sheets as of February 28, 1997 and February 29, 1996......................... 110
Consolidated Statements of Operations for the Years Ended February 28, 1997, February 29, 1996
and February 28, 1995.......................................................................... 111
Consolidated Statements of Parent's Equity (Deficit) for the Years Ended February 28, 1997,
February 29, 1996 and February 28, 1995.............................................. 112
Consolidated Statements of Cash Flows for the Years Ended February 28, 1997, February 29, 1996
and February 28, 1995................................................................ 113
Notes To Consolidated Financial Statements............................................... 114
UNITED AND PHILIPS COMMUNICATIONS B.V.
Independent Auditors' Report........................................................... 137
Consolidated Balance Sheet at December 31, 1995......................................... 145
Consolidated Statement of Operations for the Year Ended December 31, 1995............... 147
Consolidated Statement of Cash Flow for the Year Ended December 31, 1995................ 148
Notes to Consolidated Financial Statements.................................................... 149
(a)(3) Exhibits
3.1 Second Restated Certificate of Incorporation of the Company filed June 4, 1993. (1)
3.2 Restated By-laws of the Company amended and restated as of May 25, 1993. (1)
3.3 Certificate of Amendment to the Certificate of Incorporation dated February 7, 1994. (5)
</TABLE>
95
<PAGE>
<TABLE>
<C> <S>
3.4 Certificate of Designations with respect to Convertible Preferred Stock, Series A of the Company. (10)
4.1 Specimen of Class A Common Stock certificate of the Company. (1)
4.2 The Second Restated Certificate of Incorporation and Restated By-laws of the Company are included as Exhibits
3.1 and 3.2.
4.3 Indenture dated as of November 23, 1994, between United International Holdings, Inc. and American Bank National
Association ("ABNA"), as Trustee (the "1994 Indenture"). (8)
4.4 Warrant Agreement dated as of November 23, 1994, between United International Holdings, Inc. and ABNA, as Warrant
Agent. (8)
4.5 Indenture dated as of November 22, 1995, between the Company and ABNA, as Trustee (the "Trustee"). (9)
4.6 Supplemental Indenture dated as of November 15, 1995, between the Company and ABNA as implementing certain amendments
to the Indenture to permit additional incurrence of indebtedness. (9)
4.7 Supplemental Indenture dated as of November 15, 1995, between the Company and ABNA as regarding the definition of
"accreted value" in the 1994 Indenture. (9)
4.8 Amendment No. 1 to Warrant Agreement dated as of November 14, 1995, between the Company and ABNA, as Warrant Agent.(9)
4.9 Indenture dated as of February 27, 1996, between the Company and ABNA, as Trustee. (11)
10.3 Registration Rights Agreement dated as of April 13, 1993, between the Company and Apollo. (2)
10.4 Termination Agreement dated as of April 1, 1996, with respect to the Executives Agreement dated as of April 13, 1993,
among the Company, the Partnership, certain senior executives of the Company and Apollo. (12)
10.5 Standstill Agreement dated as of April 13, 1993, between the Company and Apollo. (2)
10.6 Stockholders' Agreement dated as of April 13, 1993, among the Company, the Partnership, certain partners of the
Partnership and Apollo. (2)
10.7 Letter Agreement dated April 15, 1993 between the Company and Apollo. (2)
10.8 UIH Registration Rights Agreement dated as of April 13, 1993, between the Company and the Partnership. (1)
10.9 1993 Stock Option Plan of the Company. (1)
10.10 Stock Option Plan for Non-Employee Directors. (3)
10.11 Form of Indemnification Agreement between the Company and its directors. (1)
10.16 Pledge Agreement dated as of November 23, 1994, by the Company in favor of Morgan Stanley & Co., as Collateral
Agent. (8)
10.19 Security Purchase Agreement dated December 21, 1995, between Media International Holdings Limited ("MIHL") and UIH
Australia, Inc. (10)
10.20 Security Purchase Agreement dated December 21, 1995, between MIHL and UIH Australia II, Inc. (10)
</TABLE>
96
<PAGE>
<TABLE>
<C> <S>
10.21 Share Purchase Agreement dated December 21, 1995, between Wayne Burt ("Burt") and Salstel Media Holdings PTY Limited
("Salstel"). (CTV shares) (10)
10.22 Share Purchase Agreement dated December 21, 1995, between Burt and Salstel. (STV shares) (10)
10.23 Registration Rights Agreement dated December 21, 1995, between the Company and MIHL. (10)
10.24 Consulting Agreement dated June 1, 1995 between the Company and Mark L. Schneider.
10.25 Indenture dated as of May 14, 1996 between UIH Australia/Pacific, Inc. and ABNA, as Trustee.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Public Accountants.
24.1 Powers of Attorney.
</TABLE>
- ---------------------
* Management compensation plan.
(1) Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 33-61376) filed with the
Commission on June 23, 1993.
(2) Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-61376) filed with the Commission on April 21, 1993.
(3) Incorporated by reference from Amendment No. 2 to the Company's
Registration Statement on Form S-1 (File No. 33-61376) filed with the
Commission on July 19, 1993.
(4) Incorporated by reference from Form 8-K dated February 23, 1994 (File No.
0-21974).
(5) Incorporated by reference from initial Form 10-K dated May 27, 1994 (File
No. 0-21974).
(6) Incorporated by reference from Form 8-K dated October 13, 1994 (File No.
0-21974).
(7) Incorporated by reference from Form 8-K dated November 4, 1994 (File No.
0-21974).
(8) Incorporated by reference from initial Form 10-K dated May 26, 1995 (File
No. 0-21974).
(9) Incorporated by reference from the November 30, 1995 Form 10-Q/A dated
January 26, 1996 (File No. 0-21974).
(10) Incorporated by reference from the Form 8-K dated December 21, 1995 (File
No. 0-21974).
(11) Incorporated by reference from the Company's Registration Statement on Form
S-3 (File No. 333-00208) filed with the Commission on January 9, 1996 (File
No. 0-21974).
(12) Incorporated by reference from Form 10-K for the year ended February 28,
1996.
(b) Reports on Form 8-K filed during the quarter ended February 28, 1997:
None.
97
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To United International Holdings, Inc.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of United International
Holdings, Inc. included in this Form 10-K and have issued our report thereon
dated May 26, 1997. Our audit was made for the purpose of forming an opinion on
the basic consolidated financial statements taken as a whole. The following
schedule is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements as indicated in our report with respect
thereto and, in our opinion, based on our audit and the reports of other
auditors, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
May 26, 1997.
98
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
PARENT ONLY
SCHEDULE I
Condensed Financial Information of Registrant
(Stated in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
February 28, February 29,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................................................... $ 47,904 $ 89,595
Restricted cash and short-term investments......................................... 1,600 4,253
Short-term investments............................................................. 51,720 35,692
Costs to be reimbursed by affiliated companies, net................................ 4,884 10,444
Other current assets............................................................... 720 3,065
---------- ---------
Total current assets......................................................... 106,828 143,049
Note receivable including accrued interest from wholly-owned subsidiary............ 31,291 30,639
Investments in and advances to affiliated companies, accounted for under the
equity method.................................................................... (14,516) 88,409
Acquisition, transaction and development costs..................................... 352 --
Other non-current assets........................................................... 5,148 1,260
---------- ---------
Total non-current assets.................................................... $ 129,103 $ 263,357
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities........................................... $ 3,893 $ 3,605
Accrued funding obligations........................................................ 2,039 2,031
Due to affiliate................................................................... 76,782 64,506
---------- ---------
Total current liabilities.................................................. 82,714 70,142
Warrants to purchase Class A Common Stock............................................. -- 11,167
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........................................... 31,293 30,072
Stockholders' Equity:
Class A Common Stock, $0.01 par value, 60,000,000 shares authorized, 26,097,263
and 25,732,154 shares issued and outstanding, respectively..................... 261 257
Class B Common Stock, $0.01 par value, 30,000,000 shares authorized, 12,971,775
and 13,274,685 shares issued and outstanding, respectively..................... 129 133
Additional paid-in capital......................................................... 340,753 325,716
Deferred compensation.............................................................. (624) (842)
Unrealized loss on investment...................................................... (6,069) (1,189)
Cumulative translation adjustments................................................. (15,801) (7,371)
Accumulated deficit................................................................ (303,553) (164,728)
---------- ---------
Total stockholders' equity................................................. 15,096 151,976
---------- ---------
Total liabilities and stockholders' equity................................. $ 129,103 $ 263,357
========== =========
</TABLE>
99
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
PARENT ONLY
SCHEDULE I
Condensed Information as to the Operations of the Registrant
(Stated in thousands)
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Management fee income from related parties.............................. $ 802 $ 373 $ 500
Corporate general and administrative expense............................ (4,607) (1,425) (4,116)
Depreciation and amortization........................................... (395) (287) (284)
---------- ---------- ----------
Net operating loss................................................. (4,201) (1,339) (3,900)
Equity in losses of affiliated companies, net........................... (146,266) (88,807) (28,081)
Interest income......................................................... 6,652 7,109 6,126
Interest expense........................................................ (27) (4,027) (4,132)
Interest income, related parties, net................................... 5,227 834 229
Provision for losses on investment related costs........................ (35) (4,684) (562)
Other expense, net...................................................... (175) (397) (294)
---------- ---------- ----------
Net loss........................................................... $ (138,825) $ (91,311) $ (30,614)
========== ========== ==========
</TABLE>
100
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UNITED INTERNATIONAL HOLDINGS, INC.
PARENT ONLY
SCHEDULE I
Condensed Information as to the Cash Flows of the Registrant
(Stated in thousands)
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................................... (138,825) $ (91,311) $(30,614)
Adjustments to reconcile net loss to net cash flows from operating activities:
Equity in losses of affiliated companies, net............................ 146,266 88,945 28,355
Expenses paid by parent on behalf of subsidiary.......................... -- (14,121) (7,614)
Depreciation and amortization............................................ 395 287 284
Amortization of deferred compensation.................................... 909 678 664
Accretion of interest on senior secured notes............................ -- 3,982 3,160
Issuance of common stock in connection with Company's 401(k) Plan........ 309 260 180
Compensation expense recognized due to acceleration of vesting of stock
options................................................................ -- 1,575 --
Provision for losses on investment related costs......................... 35 4,684 561
Increase in management fee receivables................................... 43 (545) (210)
Increase in note receivable than affiliate............................... 652 -- --
Increase in other assets................................................. 1,543 (5,417) (3,307)
Increase (decrease) in accounts payable and accrued liabilities.......... 288 (140) 2,454
--------- ----------- --------
Net cash flows from operating activities.................................... 11,615 (11,123) (6,087)
--------- ----------- --------
Cash flows from investing activities:
Purchase of short-term investments.......................................... (160,290) (122,424) (196,619)
Proceeds from sale of short-term investments................................ 144,262 186,117 119,172
Restricted cash and short-term investments (deposited) released............. 2,653 75,000 (75,853)
Investments in and advances to affiliated companies and other investments... (50,934) (88,229) (32,413)
Increase in note receivable from affiliates................................. -- -- (154)
Distribution from affiliated company........................................ -- 1,733
Increase in costs to be reimbursed by affiliated companies, net............. 5,560 (782) (2,392)
Acquisition, transaction and development costs incurred..................... (352) (2,281) (7,247)
Purchase of property and equipment.......................................... (127) (42) (3,422)
--------- ----------- --------
Net cash flows from investing activities.................................... (59,228) 47,359 (197,195)
--------- ----------- --------
Cash flows from financing activities:
Issuance of common stock in connection with public offerings,
net of offering expenses................................................. -- 61,935 81,201
Issuance of common stock in connection with Company's Stock Option Plan..... 349 522 19
Proceeds from offerings of senior secured notes and units................... -- 125,000 200,893
Cash paid for warrants...................................................... (2,156) -- --
Deferred debt offering costs................................................ -- -- (3,192)
Repayment of other debt..................................................... -- (1,000) --
Payments made on payable to affiliate, net.................................. 7,729 (160,748) (89,471)
Repayments of related party debt............................................ -- -- (1,836)
--------- ----------- --------
Net cash flows from financing activities.................................... 5,922 25,709 187,614
--------- ----------- --------
Increase (decrease) in cash and cash equivalents............................ (41,691) 61,945 (15,668)
Cash and cash equivalents, beginning of period.............................. 89,595 27,650 43,318
--------- ----------- --------
Cash and cash equivalents, end of period.................................... $ 47,904 $ 89,595 $ 27,650
========= =========== ========
</TABLE>
101
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To United International Holdings, Inc. :
We have audited the accompanying consolidated balance sheets of United
International Properties, Inc. (a Colorado corporation) and subsidiaries as of
February 28, 1997 and February 29, 1996, and the related consolidated statements
of operations, parent's equity (deficit) and cash flows for the years ended
February 28, 1997, February 29, 1996 and February 28, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. With respect to the year ended February 29, 1997, we did not audit
the financial statements of Megapo Communicaciones de Mexico, S.A. de C.V.
("Megapo") as of and for the year ended December 31, 1996, an investment which
is reflected in the accompanying financial statements using the equity method of
accounting. With respect to the year ended February 29,1996, we did not audit
the financial statements of XYZ Entertainment Pty Ltd ("XYZ"), Megapo
Communicaciones de Mexico, S.A. de C.V. ("Megapo"), Monor Communications Group,
Inc. ("Monor"), Cabodinamica TV Cabo Sao Paulo S.A. ("Net Sao Paulo") or
Telefenua S.A. ("Telefenua") as of and for the year ended December 31, 1995,
investments which are reflected in the accompanying consolidated financial
statements using the equity method of accounting (with respect to XYZ, Megapo,
Monor and Net Sao Paulo) or consolidated (with respect to Telefenua). United
International Properties, Inc.'s consolidated statement of operations for the
year ended February 28, 1997 reflects equity in income (losses) related to
Megapo of ($678,000) and for the year ended February 29, 1996 reflects equity in
income (losses) related to XYZ, Megapo, Monor and Net Sao Paulo of
($11,638,000), $841,000, ($4,448,000) and ($4,837,000), respectively. United
International Properties, Inc.'s consolidated financial statements for the year
ended February 29, 1996 reflects assets, liabilities, revenues, expenses and a
net loss related to Telefenua of $10,989,000, $9,710,000, $1,882,000, $5,438,000
and $3,556,000, respectively. United International Properties, Inc.'s
consolidated statement of operations for the year ended February 28, 1995
reflects equity in losses related to Net Sao Paulo of $2,446,000. The financial
statements of XYZ, Megapo, Monor, Net Sao Paulo and Telefenua, were audited by
other auditors whose reports have been furnished to us and our opinion, insofar
as it relates to the amounts included in the accompanying consolidated financial
statements and related footnotes is based solely on the reports of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of United International Properties, Inc. and subsidiaries
as of February 28, 1997 and February 29, 1996, and the results of their
operations and their cash flows for the years ended February 28, 1997, February
29, 1996 and February 28, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
May 26, 1997.
102
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XYZ ENTERTAINMENT PTY LTD
INDEPENDENT AUDITORS' REPORT
The Board of Directors
We have audited the accompanying consolidated balance sheet of XYZ Entertainment
Pty Ltd as of December 31, 1995 and 1994 and the related consolidated statements
of operations, stockholders' deficiency and cash flows for the year ended
December 31, 1995 and the period from October 17, 1994 (date of inception) to
December 31, 1994, which are expressed in Australian dollars. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Australia which do not differ in any material respect from auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance as to whether the financial
statements are free of material misstatement. An audit includes examining, on a
text basis, evidence supporting the amounts of disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of XYZ
Entertainment Pty Ltd as of December 31, 1995 and the results of its operations
and its cash flows for the year ended December 31, 1995 and the period from
October 17, 1994 (date of inception) to December 31, 1994, in conformity with
accounting principles generally accepted in Australia.
Generally accepted accounting principles in Australia vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected amounts reported as stockholders' deficiency and net
loss as at and for the year ended December 31, 1995 and from the period from
October 17, 1994 (date of inception) to December 31, 1994 to the extent
summarized in Note 12 to the financial statements.
Sydney, Australia Deloitte Touche Tohmatsu
March 15, 1996 Chartered Accountants
103
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Boards of Directors and Stockholders of:
Tele Cable de Morelos, S. A. de C. V.
Tele Cable Mexicano, S. A. de C. V.
Vision por Cable de Oaxaca, S. A. de C. V.
Tele Cable de Chilpancingo, S. A. de C. V.
Mega-Com-M Servicios, S. A. de C. V.
Cuernamu, S. A. de C. V.
We have audited the accompanying combined balance sheets of Tele Cable de
Morelos, S. A. de C. V. and related companies (all of which are subsidiaries of
Megapo Comunicaciones de Mexico, S. A. de C. V.) as of December 31, 1995 and
1996, and the related combined statements of operations, stockholders' equity
and changes in financial position for the years then ended, all expressed in
thousands of Mexican pesos. The combined financial statements include the
accounts of Tele Cable de Morelos, S. A. de C. V. and five related Companies,
Tele Cable Mexicano, S. A. de C. V., Vision por Cable de Oaxaca, S. A. de C. V.,
Tele Cable de Chilpancingo, S. A. de C. V., Mega-Com-M Servicios, S. A. de C. V.
and Cuernamu, S. A. de C.V.. These Companies are under common ownership and
common management. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Mexico, which are substantially the same as those followed in the United
States of America. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement and that they are prepared in accordance with
accounting principles generally accepted in Mexico. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of Tele Cable de Morelos, S. A. de C.
V. and related companies as of December 31, 1995 and 1996, and the combined
results of their operations, changes in their stockholders' equity and changes
in their financial position for the years then ended in conformity with
accounting principles generally accepted in Mexico.
104
<PAGE>
Accounting principles generally accepted in Mexico vary in certain significant
respects from accounting principles generally accepted in the United States.
The application of the latter would have affected determination of combined net
income (loss) for each of the two years in the period
ended December 31, 1996 and determination of combined stockholders' equity and
combined total assets at December 31, 1995 and 1996, to the extent summarized in
Note 13.
The accompanying combined financial statements have been translated into English
for the convenience of readers in the United States of America.
Galaz, Gomez Morfin, Chavero, Yamazaki
Raymundo Diaz Gonzalez
March 31, 1997
105
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Stockholders and Board of Directors of
Monor Communications Group, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Monor
Communications Group, Inc. and Subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of loss, shareholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Monor
Communications Group, Inc. and Subsidiaries as of December 31, 1995 and 1994,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
COOPERS & LYBRAND LLP
Lincoln, Nebraska
March 15, 1996
106
<PAGE>
Report of Independent Accountants
March 8, 1996
To the Board of Directors and Stockholders
Cabodinamica TV Cabo Sao Paulo S.A.
1. We have audited the balance sheet of Cabodinamic TV Cabo Sao Paulo S.A. as
of December 31, 1995 and 1994 and the related statements of income, of
movement in stockholders' equity and of cash flows for the years then
ended, expressed in U.S. dollars. Such audits were made in conjunction
with our audits of the financial statements expressed in local currency on
which we issued an unqualified opinion dated January 30, 1995. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
2. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
3. As stated in Note 2, United International Holdings, Inc. has prescribed
that accounting principles generally accepted in the United States of
America be applied in the preparation of the financial statements of
Cabodinamica TV Cabo Sao Paulo S.A. to be included in United International
Holding's consolidated financial statements. Brazil has a highly
inflationary economy. Accounting principles generally accepted in the
United States of America require that financial statements of a company
denominated in the currency of a country with a highly inflationary economy
be remeasured into a more stable currency unit for purposes of
consolidation. Accordingly, the accounts of Cabodinamica TV Cabo Sao Paulo
S.A., which are maintained in reais, were remeasured and adjusted into U.S.
dollars for the financial statements prepared in accordance with accounting
principles generally accepted in the United States of America on the bases
stated in Note 2.
107
<PAGE>
March 8, 1996
Cabodinamica TV Cabo Sao Paulo S.A.
4. In our opinion, the financial statements expressed in U.S. dollars audited
by us are presented fairly, in all material respects, on the bases states
in Note 2 and discussed in the preceding paragraph.
5. The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred losses from operations and
has an excess of current liabilities over current assets, and its ability
to continue as a going concern is dependent on further capital from the
stockholders and/or continued guarantees. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Price Waterhouse
Auditores-Independentes
CRC-SP-160
Carlos Roberto Asciutti
Partner
Contador CRC-SP-145.670
108
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the shareholders of TELEFENUA SA.
We have audited the accompanying balance sheet of TELEFENUA SA as of december
31, 1993, 1994 and 1995 and the related statement of income and changes in
financial position for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards
in France, which do not differ substantially from generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of TELEFENUA SA as of december 31,
1993, 1994 and 1995 and the results of its operations and changes in its
financial position for the year then ended, in conformity with generally
accepted accounting principles in the united states of america.
The accounting practices of the Company used in preparing the accompanying
financial statements conform with generally accepted accounting principles in
the united states of america, but do not fully conform with accounting
principles generally accepted in France. As a consequence those financial
statements differ from statutory financial statements that will be submitted to
the approval of the company's shareholders in conformity with local corporate
laws.
A description of the significant differences between such principles and those
accounting principles generally accepted in the United States, and the effect of
those differences on net income, total assets and shareholder's equity are set
forth in Note 2.a of the notes to the financial statements.
Papeete, february 16, 1996
COOPERS & LYBRAND
Jean-Pierre GOSSE
109
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
February 28, February 29,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents....................................................... $ 20,880 $ 22,623
Restricted cash................................................................. -- 9,820
Short-term investments.......................................................... 18,640 --
Subscriber receivables, net..................................................... 2,939 138
Notes receivable, current....................................................... 10,342 14,623
Receivable from parent.......................................................... 76,782 64,506
Other current assets, net including related party receivable of $2,931 and $0,
respectively.................................................................. 13,471 5,588
---------- --------
Total current assets..................................................... 143,054 117,298
Investments in and advances to affiliated companies accounted for under the
equity method, net............................................................ 152,786 141,080
Other investments in affiliated companies, including marketable equity
securities.................................................................... 4,293 3,273
Property, plant and equipment, net of accumulated depreciation of $28,554 and
$1,579, respectively.......................................................... 218,210 29,843
Goodwill, net of accumulated amortization of $3,835 and $1,612 respectively..... 122,249 45,629
Acquisition, transaction and development costs, net............................. 5,896 4,541
Other non-current assets, net................................................... 34,432 30,221
---------- --------
Total assets.............................................................. $ 680,920 $371,885
========== ========
LIABILITIES AND PARENT'S EQUITY (DEFICIT)
Current liabilities
Accounts payable................................................................ $ 21,543 $ 5,995
Construction payables........................................................... 38,331 --
Accrued liabilities............................................................. 9,689 1,322
Note payable from seller, current............................................... 5,722 --
Accrued liabilities related parties............................................. 9,155 --
Accrued funding obligations, current............................................ 1,270 133
Other current liabilities....................................................... 2,210 147
---------- --------
Total current liabilities................................................ 87,920 7,597
Note payable from seller........................................................ 12,966 --
Note payable to parent ......................................................... 72,723 33,295
Senior secured notes and other debt............................................. 674,960 371,227
---------- --------
Total liabilities........................................................ 848,569 412,119
---------- --------
Minority interest in subsidiary..................................................... 307 2,509
Commitments (Note 6)
Parent's Equity (Deficit):
Common Stock, $0.01 par value, 1,000 shares authorized, 100 and 100 shares issued
and outstanding, respectively................................................... -- --
Contributed capital............................................................. 65,488 61,669
Unrealized loss on investments.................................................. (6,069) (1,189)
Cumulative translation adjustments.............................................. (5,436) (4,295)
Accumulated deficit............................................................. (221,939) (98,928)
---------- --------
Total Parent's equity (deficit).......................................... (167,956) (42,743)
---------- --------
Total liabilities and Parent's equity (deficit).......................... $ 680,920 $371,885
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
110
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands)
<TABLE>
<CAPTION>
For the
Years Ended
------------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
(as restated-Note 2)
<S> <C> <C> <C>
Service and other revenue.................................................. $ 30,771 $ 1,883 $ --
System operating expense................................................... (34,664) (3,230) --
System selling, general and administrative................................. (25,790) (2,482) --
Corporate general and administrative expense............................... (16,258) (15,913) (9,108)
Depreciation and amortization.............................................. (38,566) (1,117) (141)
--------- ----------- ----------
Net operating loss..................................................... (84,507) (20,859) (9,249)
Equity in losses of affiliated companies, net.............................. (23,273) (30,056) (3,887)
Gain on sale of affiliated companies....................................... 65,249 16,013 --
Interest income............................................................ 6,480 934 102
Interest expense........................................................... (79,632) (31,997) (5,034)
Interest (expense) income, related party, net ............................. (5,029) (459) 32
Provision for losses on investment related costs........................... (5,824) (1,370) (2,303)
Other (expense) income, net................................................ (833) 367 58
--------- ----------- ----------
Net loss before minority interest...................................... (127,369) (67,427) (20,281)
Minority interest in subsidiaries.......................................... 4,358 421 136
--------- ----------- ----------
Net loss............................................................... $(123,011) $ (67,006) $ (20,145)
========= =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
111
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF PARENT'S EQUITY (DEFICIT)
(Stated in thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Cumulative Unrealized
--------------- Contributed Translation Gain (Loss) on Accumulated
Shares Amount Capital Adjustments Investment Deficit Total
------ ------ ----------- ----------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, February 28, 1994..... 100 $ -- $ 22,867 $ -- $ 7,335 $ (11,777) $ 18,425
Capital contribution from
parent (as restated-Note 2)... -- -- 7,614 -- -- -- 7,614
Unrealized loss on investment... -- -- -- -- (5,769) -- (5,769)
Cumulative translation
adjustments................... -- -- -- 410 -- -- 410
Net loss (as restated-Note 2)... -- -- -- -- -- (20,145) (20,145)
--- ---- -------- ------- ------- --------- ---------
Balances, February 28, 1995... 100 -- 30,481 410 1,566 (31,922) 535
Capital contribution from
parent...................... -- -- 31,188 -- -- -- 31,188
Unrealized loss on investment. -- -- -- -- (2,755) -- (2,755)
Change in cumulative translation
adjustments................ -- -- -- (4,705) -- -- (4,705)
Net loss...................... -- -- -- -- -- (67,006) (67,006)
--- ---- -------- ------- ------- --------- ---------
Balances, February 29, 1996... 100 -- 61,669 (4,295) (1,189) (98,928) (42,743)
Gain on sale of stock
by subsidiary.............. -- -- 5,898 -- -- -- 5,898
Capital distribution to
parent...................... -- -- (2,079) -- -- -- (2,079)
Unrealized loss on investment. -- -- -- -- (4,880) -- (4,880)
Change in cumulative translation
adjustments................ -- -- -- (1,141) -- -- (1,141)
Net loss...................... -- -- -- -- -- (123,011) (123,011)
--- ---- -------- ------- ------- --------- ---------
Balances, February 28, 1997... 100 $ -- $ 65,488 $(5,436) $(6,069) $(221,939) $(167,956)
=== ==== ======== ======= ======= ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
112
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands)
<TABLE>
<CAPTION>
For the Years Ended
--------------------------------------------
February 28, February 29, February 28,
--------------------------------------------
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
(as restated-Note 2)
Cash flows from operating activities:
Net loss...................................................................... $(123,011) $ (67,006) $(20,145)
Adjustments to reconcile net loss to net cash flows from operating activities:
Equity in losses of affiliate companies, net............................... 23,273 30,056 3,887
Expenses paid by parent on behalf of the Company........................... -- 14,121 7,614
Gain on sale of investments in affiliated companies........................ (65,249) (16,013) --
Minority interest share of losses.......................................... (4,358) (421) (136)
Depreciation and amortization.............................................. 38,566 1,117 141
Accretion of interest on senior secured notes.............................. 73,695 31,175 4,834
Provision for losses on investment related costs........................... 5,824 1,370 2,303
Increase in subscriber receivables......................................... (991) -- --
Decrease (increase) in other assets........................................ (8,263) (2,085) 35
Increase (decrease) in accounts payable, accrued liabilities and other..... 25,595 5,150 (3,275)
-------- ------- --------
Net cash flows from operating activities...................................... (34,919) (2,536) (4,742)
-------- ------- --------
Cash flows from investing activities:
Purchase of short-term investments............................................ (199,242) -- --
Proceeds from sale of short-term investments.................................. 180,602 -- --
Investments in and advances to affiliated companies and other investments..... (65,945) (122,207) (60,900)
Proceeds from sale of investments in affiliated companies..................... 43,098 12,823 --
Purchase of additional interests in Austar.................................... (7,920) -- --
Purchase of interest in Bahia Blanca.......................................... (26,382) -- --
Payment of seller's note...................................................... (11,856) -- --
Reimbursement of advance to affiliate......................................... (698) 264 660
Restricted cash (deposited) released.......................................... 9,820 (3,220) (6,600)
Increase in note receivable of................................................ (5,557) (7,000) (12,000)
Repayment on notes payable.................................................... 45,264 -- --
Acquisition, transaction and development costs incurred....................... (6,802) (4,621) (4,462)
Purchase of property, plant and equipment..................................... (204,187) (7,658) (2,336)
Increase in construction payables............................................. 38,331 -- --
-------- ------- --------
Net cash flows from investing activities...................................... (211,474) (131,619) (85,638)
-------- ------- --------
Cash flows from financing activities:
Capital distribution to parent................................................ (2,079) -- --
Payments received on receivable from parent, net.............................. -- 160,748 89,471
Proceeds from note payable to parent.......................................... 39,428 -- --
Proceeds from offerings of senior notes....................................... 225,115 -- --
Cash contributions from minority interest partner............................. -- -- 692
Deferred debt costs........................................................... (10,670) (13,753) --
Borrowing on other debt....................................................... 7,263 9,820 768
Payments on other debt ....................................................... (15,463) -- (448)
-------- ------- --------
Net cash flows from financing activities...................................... 243,594 156,815 90,483
-------- ------- --------
Effect of exchange rates on cash.............................................. 1,056 (140) --
-------- ------- --------
Increase in cash and cash equivalents......................................... (1,743) 22,520 103
Cash and cash equivalents, beginning of period................................ 22,623 103 --
-------- ------- --------
Cash and cash equivalents, end of period...................................... $ 20,880 $ 22,623 $ 103
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
113
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
1. Organization and Background
United International Properties, Inc. ("UIPI" or the "Company"), a
wholly-owned subsidiary of United International Holdings, Inc. ("UIH") was
formed on September 21, 1994 in connection with the transaction contemplated by
UIH's offering of 14% Senior Secured Discount Notes.
Under UIH's offering of Senior Secured Discount Notes (the "Senior
Notes"), UIH contributed to UIPI, UIH's interests in certain operating
properties and early stage projects in Latin America and Asia/Pacific. UIPI will
hold all of UIH's future investments and development projects in Latin America
and Asia/Pacific. The accompanying financial statements have been prepared on a
basis of reorganization accounting as though UIPI had performed all foreign
development activities and made all acquisitions of the foreign multi-channel
television interests in Latin America, Asia and the South Pacific since
inception. UIPI reflected all of the transfers from UIH as a capital
contribution from parent in the accompanying consolidated financial statements.
In connection with the Senior Notes offering, UIH pledged UIPI's stock
and intercompany receivables from UIPI as collateral to noteholders under the
Senior Notes Indenture. Accordingly, UIH "pushed down" the Senior Notes
indebtedness to UIPI for purposes of its standalone financial statements.
Initially, UIPI recorded the push down of the Senior Notes as a receivable from
UIH, as a significant portion of the cash proceeds from the offerings of Senior
Notes was initially retained at the parent company level. Subsequent cash
contributions to UIPI by UIH, whether contributed for additional equity
investments or for the funding of normal operations, will be accounted for as a
reduction of the intercompany receivable balance. The receivable from parent
totaled $76,782 and $64,506 as of February 28, 1997 and February 29, 1996,
respectively.
A summary representation of the organizational structure of the Company
as of February 28, 1997 is as follows. The accompanying consolidated financial
statements have been prepared as though UIPI made investments in the following
entities on the original date UIH made the investment:
[GRAPHIC OMITTED]
114
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
(1) UIH LA owns 100% of two subsidiaries and 80% of a third subsidiary that
serve the Bahia Blanca and Punta Alta areas and has agreed, subject to
certain conditions, to acquire the remaining 20% of the subsidiary in 1998.
(2) In September 1996, UIH LA completed an agreement with VTR S.A. ("VTR"), a
leading Chilean conglomerate with interests in telecommunications and
natural resources, under which the parties formed the joint venture VTR
Hipercable S.A. ("VTRH"). UIH LA and VTR contributed their respective
Chilean multi-channel television assets to VTRH of which UIH LA owns 34%.
In December 1997, UIH LA will have the option to increase its interest to
50% after a revaluation of the properties (and corresponding reallocation
of interest) subject to minimum and maximum values. Prior to formation of
the joint venture, UIH LA held 100% interest in Cablevision and STX, both
of which are Chilean multi-channel television operators.
(3) During the third quarter of 1997, UIH A/P acquired the remaining 6%
interest in Austar.
(4) In July 1996, UIH A/P increased its ownership interest in Saturn to 100%.
In exchange for acquiring the additional 50% interest, UIH A/P gave
Saturn's other shareholder a 2.6% interest in UIH A/P.
(5) 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) UAP currently holds a convertible loan, which upon full conversion would
provide UAP with a 40% equity ownership interest in the Philippines
operating company
In June 1995, UIH LA completed its acquisition of Megapo Communicaciones de
Mexico, S.A. de C.V. ("Megapo"). UIH LA had advanced Megapo $12,000 as of
February 28, 1995, which was converted to equity at closing and paid an
additional $19,600, (for a total purchase price of $31,600) for a 49% interest
in four operating subsidiaries and a 39.2% interest in a fifth operating
subsidiary of Megapo.
In June 1995, UIH LA completed an acquisition of 65% of Red de Television y
Servicios por Cable S.A. ("STX"), a Chilean company which owns and operates
eight cable television systems in Northern Chile. The purchase price was
$25,918. In January 1996, UIH LA increased its ownership in Cablevision S.A. to
100% for approximately $22,100.
In January 1996, UIH LA completed the sale for approximately $13,500 of its
25% interest in a company that held multi-channel television licenses for Rio de
Janeiro, Brazil. UIH LA had invested a total of approximately $1,620 million in
this company prior to the sale, resulting in a gain on sale of approximately
$11,880. In August 1996, UIH LA sold its interest in Net Sao Paulo for $78,098
and recognized a gain of $65,249. The purchase price was satisfied with a cash
payment of $43,098 and a note receivable of $35,000 which was paid in full in
November 1996.
Century United Programming Ventures Pty Limited, an Australian corporation,
owned equally UIH A/P and Century Communications Corp., holds a 50% interest in
XYZ Entertainment Pty Limited ("XYZ"). In October 1994, UIH A/P acquired an
initial 50% interest in XYZ. In September 1995, a third party purchased a 50%
interest in XYZ, thereby diluting UIH A/P's indirect interest in XYZ to 25%. UIH
A/P recognized a gain on sale of investment of approximately $4,132 as a result
of the sale.
2. Summary of Significant Accounting Policies
Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and all subsidiaries where it exercises majority control and owns a
majority economic interest, except Cablevision S.A. and STX as of and for the
year ended February 29, 1996, as UIH LA subsequently contributed these interests
to VTRH in September 1996. Accordingly, such investments have been accounted for
under the equity method. All significant intercompany
115
<PAGE>
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. Exchange rates used are as of February 28,
1997, unless otherwise noted.
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash and investments with original
maturities of less than three months. Restricted cash of $9,820 at February 29,
1996 is comprised of collateral for a note payable to a bank (Note 5).
Investments in and Advances to Affiliated Companies, Accounted for under the
Equity Method
For those investments in companies in which the Company's ownership
interest is 20% to 50%, its investments are held through a combination of voting
common stock, preferred stock, debentures or convertible debt and the Company
exerts significant influence through board representation and management
authority, the equity method of accounting is used. Under this method, the
investment, originally recorded at cost, is adjusted to recognize the Company's
proportionate share of net earnings or losses of the affiliates, limited to the
extent of the Company's investment in and advances to the affiliates, including
any debt guarantees or other contractual funding commitments. The Company's
proportionate share of net earnings or losses of affiliates includes the
amortization of excess of cost over net tangible assets acquired. Investments in
and advances to affiliated companies are as follows:
<TABLE>
<CAPTION>
As of February 28, 1997
-------------------------------------------------------------------------------
Investments in Cumulative Equity Cumulative
and Advances to in Income (Losses) of Translation Valuation
Affiliated Companies Affiliated Companies(1) Adjustments Allowance Total
-------------------- ----------------------- ----------- --------- -----
<S> <C> <C> <C> <C> <C>
Europe
- ------
Monor Communications......... $ 27,182 $ (8,221) $(4,575) $ -- $ 14,386
Iberian Programming Services. 11,187 (4,734) -- -- 6,453
Latin America
- -------------
VTRH(2)...................... 82,010 (2,122) (1,502) -- 78,386
Megapo....................... 32,491 (727) (1,420) -- 30,344
TVSB......................... 6,132 (2,859) -- -- 3,273
Jundiai...................... 4,984 (1,214) -- -- 3,770
United Family Communication.. 1,739 (10) -- -- 1,729
Asia/Pacific
- ------------
XYZ.......................... 16,202(3) (16,312) 110 -- --
SCS.......................... 8,599 (366) 155 -- 8,388
HITV......................... 6,073 (16) -- -- 6,057
Other
- -----
Teleport St. Petersburg...... 3,119 (1,051) -- (2,068) --
-------- --------- -------- -------- --------
$199,718 $(37,632) $(7,232) $(2,068) $152,786
======== ========= ======== ======== ========
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include cumulative equity in losses of Net Sao Paulo of $9,979
as the Company sold its investment in August, 1996. Also, does not
include cumulative equity in income of STX of $613 and cumulative equity
in losses of Cablevision of $5,198 as these assets were exchanged for a
34% interest in VTRH on August 31, 1996.
(2) On August 31, 1996, the Company's investments in STX and Cablevision were
carried at $52,474 and $27,873, respectively. The Company exchanged its
investments in STX and Cablevision for a 34% interest in VTRH.
Accordingly, such amounts are reflected as investment in VTRH as of
February 28, 1997.
(3) Includes an accrued funding obligation of $1,270 at December 31, 1996.
116
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
<TABLE>
<CAPTION>
As of February 29, 1996
----------------------------------------------------------------------------------------
Investments in Cumulative Equity Cumulative
and Advances to in Income (Losses) of Translation Valuation
Affiliated Companies Affiliated Companies(1) Adjustments Allowance Total
-------------------- ----------------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Europe
- ------
Monor Communications............. $ 24,632 $ (5,573) $(2,654) $ -- $ 16,405
Iberian Programming Services..... 4,377 (413) -- -- 3,964
Latin America
- -------------
STX/Cablevision.................. 60,362 (832) (796) -- 58,734
Net Sao Paulo.................... 16,054 (8,290) -- -- 7,764
TVSB............................. 6,118 (1,582) -- -- 4,536
Megapo........................... 32,491(2) (48) (1,257) -- 31,186
Jundiai.......................... 2,673 (756) -- -- 1,917
Asia/Pacific
- ------------
Saturn........................... 6,014 (1,802) 112 -- 4,324
XYZ.............................. 11,718 (11,737) 111 -- 92
SCS.............................. 6,346 (148) 183 -- 6,381
HITV............................. 2,153 (10) -- -- 2,143
Other
- -----
Teleport St. Petersburg.......... 2,961 (1,051) -- (1,910) --
ITN.............................. 3,862 (1,032) -- -- 2,830
Other............................ 805 (1) -- -- 804
------- --------- -------- -------- --------
$180,566 $(33,275) $(4,301) $ (1,910) $141,080
======== ========= ======= ======== ========
</TABLE>
(1) Does not include cumulative equity in losses of Austar of $3,788 as
Austar's balance sheet is consolidated as of December 31, 1995. Also, does
not include cumulative equity in losses of TV Cabo Rio of $381 as the
Company sold its investment in December 1995.
(2) Of this amount, $12,000 was advanced as a note receivable as of February
28, 1995 and was contributed to equity at closing in June 1995.
(3) Includes $4,132 of investment prior to the receipt of $4,132 of proceeds
received from the sale of 50% of the Company's interest. As the Company
had recorded equity in losses from XYZ in an amount equal to its invested
capital, the Company recognized a gain of $4,132 on this transaction. In
addition, the Company accrued an additional funding obligation of $1,834
as of December 31, 1995.
As of February 28, 1997 and February 29, 1996, the Company had the
following differences related to the excess of cost over the net tangible assets
acquired included in the above table. Such differences are being amortized over
15 years.
<TABLE>
<CAPTION>
As of February 28, 1997 As of February 29, 1996
--------------------------- ----------------------------
Basis Accumulated Basis Accumulated
Europe Difference Amortization Difference Amortization
- ------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Monor Communications.............. $3,959 $(837) $ 2,707 $ (631)
Latin America
- -------------
VTRH.............................. 17,505 (363) -- --
STX Cablevision (1)............... -- -- 19,241 (866)
Net Sao Paulo (2)................. -- -- 3,529 (927)
TVSB.............................. 2,953 (680) 3,757 (250)
Megapo............................ 23,661 (2,583) 25,369 (865)
Jundiai........................... 393 (87) 393 (39)
Asia/Pacific
- ------------
Saturn (3)........................ -- -- 2,220 (107)
</TABLE>
(1) The Company contributed its 100% interest in Cablevision and STX for a
34% interest in VTRH in 1996.
(2) Net Sao Paulo was sold August 1996.
(3) Effective July 1, 1996 the Company began consolidating Saturn.
Other Investments in Affiliated Companies , including Marketable Equity
Securities
The cost method of accounting is used for the Company's other investments
in affiliated companies in which the Company's ownership interest is less than
20% and where the Company does not exert significant influence, except for
117
<PAGE>
those investments in marketable equity securities. The Company classifies its
investments in marketable equity securities in which its interest is less than
20% and where the Company does not exert significant influence as available for
sale under Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" and, accordingly, accounts
for such investments at fair market value.
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
3 years. Upon disconnection of a subscriber, the remaining book value of the
subscriber equipment, excluding converters which are recovered upon
disconnection, and the capitalized labor are written off. Depreciation expense
is computed using the straight-line method over the asset's estimated useful
life shown below. Detail of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
As of As of
February 28, February 29, Average
1997 1996 Life
------------ ------------ -------
<S> <C> <C> <C>
MMDS distribution facilities......................... $ 57,074 $15,417 5-10
Cable distribution networks.......................... 22,795 891 5-10
Subscriber premises equipment and converters......... 126,007 7,728 3
Furniture and fixtures............................... 2,703 259 5-10
Leasehold improvements............................... 3,545 1,582 6-10
Other................................................ 34,640 5,545 3-5
---------- -------
246,764 31,422
Accumulated depreciation and amortization...... (28,554) (1,579)
Net property, plant and equipment.............. $218,210 $ 29,843
======== ========
</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.
Acquisition, Transaction and Development Costs
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 affiliated company or capitalized as part of
the cost basis of the Company's investment. If the potential investment is
abandoned, these costs are expensed. The Company had deferred acquisition,
transaction and development costs as follows:
<TABLE>
<CAPTION>
As of As of
February 28, February 29,
1997 1996
--------------- ---------------
<S> <C> <C>
Europe............................................................ $ 361 $ 783
Asia/Pacific................................................... 2,954 2,073
Latin America.................................................. 3,448 2,494
Other.......................................................... 133 191
--------- --------
6,896 5,541
Reserve........................................................ (1,000) (1,000)
--------- --------
$ 5,896 $ 4,541
========= ========
</TABLE>
The Company expensed acquisition, transaction and development costs of
$2,624, $1,217 and $2,276 related to the abandonment of projects during the
years ended February 28, 1997, February 29, 1996 and February 28, 1995,
respectively.
118
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
Goodwill
The Company's acquisition of an additional 40% economic interest in
Austar was recorded as a step acquisition. The majority of the purchase price of
$45,081 was recorded as goodwill as the underlying net book value of all
tangible and intangible assets approximated their respective fair values at that
date. Accordingly, goodwill of $44,790 is being amortized over 15 years
beginning January 1, 1996. In July 1996, the Company acquired the remaining 50%
interest in Saturn, resulting in an additional $8,773 of goodwill which is being
amortized over 15 years. In November 1996, the Company acquired its interest in
Bahia Blanca. The majority of the purchase price was recorded as goodwill as the
underlying net book value of all tangible and intangible assets acquired
approximated their fair values at that date.
Recoverable Amounts of Tangible and Intangible Assets
The carrying amount of all tangible and intangible assets are reviewed
periodically whenever events and circumstances indicate the carrying value of
the assets may exceed their recoverable amount. The recoverable amounts of all
tangible and intangible assets have been determined using net cash flows which
have not been discounted to their present values.
Other Non-Current Assets
Other non-current assets are comprised of the following:
<TABLE>
<CAPTION>
As of As of
February 28, 1997 February 29, 1996
----------------- -----------------
<S> <C> <C>
Deferred debt offering costs, net................................ $22,384 $17,655
License fee, net................................................. 10,387 10,693
Other, net of reserve............................................ 7,559 1,873
------- -------
$40,330 $30,221
======= =======
</TABLE>
An affiliate of Tele-Communications, Inc. ("TCI") made certain advances
to the subsidiaries of Swedish Cable and Dish ("SCD") prior to the Company's
acquisition of SCD in 1989. In connection with the acquisition, the Company
agreed to cause those subsidiaries to repay the advances at closing and the
minimum amount agreed by all parties to be outstanding was repaid at that time.
During February 1996, the Company paid the remainder of $4,100 (including
accrued interest) to TCI and recorded a receivable from SCD for such an amount.
The Company also recorded a reserve for the full amount as of February 29, 1996.
In December 1996, the Company received $2,198 from SCD pursuant to these
agreements. The Company recorded such amount as a reduction of its provision for
losses on investment related costs.
The acquisition of MMDS licenses has been recorded at cost. The cost to
acquire these licenses ($10,520), acquired for a 5-year period for Australia,
will be amortized over the remaining license period upon commencement of
operations. The licenses are renewable every 5 years. In Tahiti, the license
rights, totaling $2,387, are amortized over a 10-year period.
Revenue Recognition
Monthly service and installation fees are recognized as revenue in the
period the related services are provided to the subscribers. Installation fees
are recognized as revenue in the period in which the installation occurs, to the
extent installation fees are equal to or less than direct selling costs. To the
extent installation fees exceed direct selling costs, the excess would be
deferred and amortized over the average contract period.
119
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of subscriber receivables.
Concentrations of credit risk with respect to subscriber receivables are limited
due to the large number of customers comprising the Company's customer base.
Income Taxes
The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of transactions which have been included
in the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statement and income tax bases of assets and liabilities and
carryforwards using enacted tax rates in effect for the year in which the
differences are expected to reverse. Net deferred tax assets are then reduced by
a valuation allowance for amounts which do not satisfy the realization criteria
of SFAS 109.
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 presented in United States
dollars. Assets and liabilities of foreign subsidiaries are translated at the
exchange rates in effect at year-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 parent's 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 Consolidated
Statements of Cash Flows will not agree to changes in the corresponding balances
on the Consolidated Balance Sheets. The effects of exchange rate changes on cash
balances held in foreign currencies is reported as a separate line below cash
flows from financing activities.
Supplemental Cash Flow Disclosures
Cash paid for interest was $870, $677 and $0 for fiscal 1997, 1996 and
1995, respectively. In connection with the Company's acquisition of an
additional 40% economic interest in CTV and STV, the Company issued preferred
stock having an initial liquidation value of $29,840. Notes 3 and 8. In July
1996, the Company acquired the remaining 50% interest in Saturn by issuing 13
shares of UIH A/P common stock valued at $7,800.
The Company acquired $3,632 of assets with capital leases for the year ended
February 28, 1997.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
120
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
3. Acquisitions
Austar
In December 1995, the Company acquired an additional 40% effective
economic interest in Austar from other shareholders increasing its effective
economic interest to 90%. The Company paid $15,240 in cash and UIH contributed
170,513 shares of its convertible preferred stock having an initial liquidation
value of $29,840 for the additional 40% effective economic interest. Details of
the net assets acquired, which were denominated in Australian dollars and
translated to U.S. dollars using the exchange rate on the day of the
acquisition, are as follows:
<TABLE>
<S> <C>
Tangible assets................................................................ $ 18,267
Intangible assets.............................................................. 8,643
Receivables, prepaids and other................................................ 2,704
Cash........................................................................... 7,222
Accounts payable and accrued liabilities....................................... (6,140)
Other debt..................................................................... (890)
Minority shareholders' interest................................................ (2,363)
Net investment prior to acquisition of 40%..................................... (27,153)
---------
Net assets................................................................. 290
Goodwill....................................................................... 44,790
---------
Total consideration........................................................ $ 45,080
========
</TABLE>
The Company's cumulative investment in Austar as of February 29, 1996
includes cash invested of $19,903, bridge loans of $17,400, the purchase of a
10% interest from another shareholder for $5,613 and the purchase of the 40%
interest from another shareholder for $45,080. The Company's equity in losses
from Austar for the years ended February 29, 1996 and February 28, 1995 were
$3,036 and $748, respectively. The Company invested an additional $149,076 in
Austar during fiscal 1997 and acquired the remaining minority interest in
October 1996 for $7,920.
Telefenua
In January 1995, the Company acquired an initial 90% economic interest in
Telefenua in exchange for a cash contribution into Telefenua of $6,060, the
contribution of a note and accrued interest due UIH of $817 and equipment leased
to Telefenua totaling $2,039. Details of the net assets acquired, which were
denominated in French Pacific francs and translated into U.S. dollars using the
exchange rate on the day of acquisition are as follows:
<TABLE>
<S> <C>
Tangible assets................................................................ $ 4,213
Intangible assets.............................................................. 1,835
Other.......................................................................... 107
Cash........................................................................... 6,181
Accounts payable and accrued liabilities....................................... (783)
Due to affiliate............................................................... (2,110)
Minority shareholders' interest................................................ (527)
--------
Total consideration........................................................ $ 8,916
========
</TABLE>
The purchase price was allocated to the net assets acquired based on
relative fair market values.
The Company's cumulative investment in Telefenua at February 29, 1996
includes the cash and notes contributed of $6,877, an equipment lease of $2,285
and bridge loans in the amount of $4,527, plus an additional cash investment
during 1996 totaling $3,048. The Company's consolidated assets, liabilities,
revenues, expenses and net loss after intercompany eliminations related to
Telefenua for the year ended December 31, 1995 totaled $10,989, $9,710, $1,882,
$5,438 and $3,556, respectively.
121
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
122
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
In response to a legal challenge by the President of Tahiti, the Conseil
d'Etat of France recently cancelled a decree authorizing MMDS licenses by the
French communications agency in French Polynesia and similar French territories.
The cancellation could provide a legal basis to cancel a required authorization
already granted to Telefenua by the French communications agency. The
territorial government in Tahiti has brought an action in French court seeking
such cancellation although such cancellation has not yet taken place. A law
recently enacted by the French Parliament gives Telefenua a legal basis to ask
for a new authorization from the communications agency, should the existing
authorization be nullified. There can be no assurance, however, that if the
existing authorization is nullified a new authorization will be obtained, or if
a new authorization is obtained, that it would not differ from the existing
authorization.
Saturn
In 1994, the Company acquired a 50% interest in Saturn. In July 1996, the
Company acquired the remaining 50% of Saturn by issuing 13 shares of its common
stock valued at $7,800. Details of the net assets acquired, which were
determined in New Zealand dollars and translated to U.S. dollars using the
exchange rate on the day of the acquisition, are as follows:
<TABLE>
<S> <C>
Tangible assets....................................................................... $ 8,509
Receivables, prepaids and other....................................................... 373
Cash.................................................................................. 708
Accounts payable and accrued liabilities.............................................. (1,430)
Net investment prior to acquisition of 50%............................................ (9,133)
-------
(973)
Goodwill.............................................................................. 8,773
-------
Total consideration.............................................................. $ 7,800
=======
</TABLE>
The Company's cumulative investment in Saturn as of December 31, 1996 was
$18,561.
Bahia Blanca
In October 1996, the Company acquired 100% of two cable systems and 80%
of one system, serving the cities of Bahia Blanca and Punta Alta for
approximately $52,520. The Company paid $26,382 in cash at the date of
acquisition, with the remaining $26,138 to be paid over eighteen months. Details
of the net assets acquired, are as denominated in Argentine pesos and translated
to U.S. dollars using the exchange rate on the date of acquisition, are as
follows:
<TABLE>
<S> <C>
Tangible assets....................................................................... $ 4,051
Goodwill ............................................................................. 59,058
Cash.................................................................................. 97
Other 5,958
Accounts payable and accrued liabilities.............................................. (16,401)
Notes payable.........................................................................
(243)
$ 52,520
Less seller notes..................................................................... 26,138
--------
Total consideration $ 26,382
========
</TABLE>
4. Investments in and Advances to Affiliated Companies, Accounted for Under
the Equity Method
Investments in and advances to affiliated companies accounted for under
the equity method amounted to $152,786 and $141,080 at February 28, 1997 and
February 29, 1996, respectively.
123
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
Condensed financial information for the Company's significant equity
investees is presented below:
Monor Communications
In September 1994, UIH acquired a 47.6% (which was later increased to
48.4%) net equity interest in Monor Communications Group, Inc. ("Monor
Communications") which indirectly owns a controlling interest in a local-loop
telephony concession for the region of Monor, Hungary. During the year ended
February 29, 1996, UIH contributed its interest in Monor Communications to the
Company at its net book value of $17,067. Condensed financial information,
derived from audited consolidated financial statements for Monor Communications
and its subsidiaries which were audited by Coopers & Lybrand LLP, stated in U.S
dollars, is as follows:
<TABLE>
<CAPTION>
As of
December 31,
1995
------------
<S> <C>
Condensed Consolidated Balance Sheet Data
Cash..................................................................... $ 431
Property, plant and equipment, net....................................... 54,532
Intangible assets, net................................................... 3,619
Other assets............................................................. 4,720
-------
Total assets........................................................ $63,302
=======
Accounts payable and accrued liabilities................................. $ 7,758
Notes payable............................................................ 34,566
Deferred revenue......................................................... 1,361
Minority interest........................................................ 1,706
Shareholders' equity..................................................... 17,911
-------
Total liabilities and shareholders' equity.......................... $63,302
=======
For the Years Ended
December 31,
----------------------------
1995 1994(1)
-------------- ---------
Condensed Consolidated Income Statement Data
Revenue................................................................... $ 5,508 $ 347
Operating, selling, general and administrative expenses................... (6,179) (1,872)
Depreciation and amortization............................................. (2,851) (477)
------- -------
Net operating loss.................................................. (3,522) (2,002)
Interest, net............................................................. (835) (220)
Foreign currency (loss) gain.............................................. (5,408) 19
Other..................................................................... 463 489
------- -------
Net loss............................................................ $(9,302) $(1,714)
======= =======
</TABLE>
(1) Monor Communications began operations in late 1993.
Megapo
In June 1995, the Company acquired a 49% net equity interest in Megapo.
Condensed combined financial information, derived from audited financial
statements for Megapo which were audited by Galaz, Gomez, Morfin, Chavero,
Yamazaki, stated in U.S dollars, is as follows:
124
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
<TABLE>
<CAPTION>
As of
December 31,
1995
-----------
<S> <C>
Condensed Combined Balance Sheet Data
Cash...................................................................... $ 9,609
Property, plant and equipment, net........................................ 2,428
Other assets ............................................................. 3,545
---------
Total assets......................................................... $15,582
=========
Accounts payable and accrued liabilities.................................. $ 1,770
Notes payable............................................................. 589
Deferred revenue.......................................................... 491
Shareholders' equity...................................................... 12,732
---------
Total liabilities and shareholders' equity........................... $ 15,582
=========
For the Years Ended
December 31,
------------------------------
Condensed Combined Income Statement Data 1995 1994
--------- ---------
Revenue...................................................................... $11,672 $ 18,927
Operating, selling, general and administrative expenses...................
(6,814) (13,816)
Depreciation and amortization.............................................
(1,558) (1,884)
Net operating income................................................ 3,300
3,227
Interest, net............................................................. 243
(368)
Foreign currency gain..................................................... 1,848
Other.....................................................................
(1,809) (2,182)
Net income.......................................................... $ 3,582 $ 677
======= ==========
</TABLE>
CTV
In September 1994, the Company began to fund its 40% economic interest in
CTV, an Australian company that currently holds MMDS licenses in Australia. The
Company then acquired an additional 10% economic interest in CTV from another
shareholder for $5,613. As noted above, in December 1995, the Company purchased
an additional 40% economic interest in CTV which increased its economic interest
to 90% and, accordingly, the Company consolidated the balance sheet of CTV
effective December 31, 1995.
Condensed financial information for CTV, stated in U.S. dollars, is as
follows:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1995 1994(1)
----- -------
<S> <C>
Condensed Consolidated Income Statement Data
Revenue $ 433 $ --
Operating, selling, general and administrative expenses.....................
(4,804) (243)
Depreciation and amortization...............................................
(1,113) (3)
------ -------
Net operating loss..................................................... (5,484) (246)
Interest, net............................................................... 914 246
Other....................................................................... 245 --
------- -------
Net loss............................................................... $(4,325) $ --
======= =======
</TABLE>
(1) CTV began operations during 1994.
STV
125
<PAGE>
In October 1994, the Company began to fund its 50% economic interest in
STV, an Australian company that holds MMDS licenses in Australia. In December
1995, the Company purchased an additional 40% economic interest in STV which
increased its economic interest to 90%, and, accordingly, the Company has
consolidated the balance sheet of STV effective December 31, 1995 (see Note 1).
Condensed financial information for STV, stated in U.S. dollars, is as
follows:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1995 1994(1)
---- -------
<S> <C> <C>
Condensed Consolidated Income Statement Data
Revenue $ $ --
10
Operating, selling, general and administrative expenses..................... (2,670) (197)
Depreciation and amortization............................................... (158) (3)
---- ---- ------ ---
Net operating loss..................................................... (2,818) (200)
Interest, net............................................................... 315 107
-------
Net loss............................................................... $(2,503) $ (93)
======= ======
</TABLE>
(1) STV began operations during 1994.
Net Sao Paulo
During fiscal 1994, the Company acquired a 20% interest in Net Sao Paulo.
During fiscal 1995, through a series of transactions, the Company increased its
ownership to 34%. Condensed financial information for Net Sao Paulo derived from
audited financial statements which were audited by Price Waterhouse stated in
U.S dollars, is as follows (the report of other auditors referred to above with
respect to Net Sao Paulo indicates there is substantial doubt about Net Sao
Paulo's ability to continue as a going concern):
<TABLE>
<CAPTION>
As of
December 31,
1995
-----------
<S> <C>
Condensed Consolidated Balance Sheet Data
Cash........................................................................ $ 211
Property, plant and equipment, net.......................................... 40,365
Other assets................................................................ 965
------- ---
Total assets............................................................ $41,541
=======
Accounts payable and accrued liabilities.................................... $16,218
Notes payable............................................................... 15,281
Deferred revenue............................................................ 8,852
Shareholders' equity........................................................ 1,190
---- -----
Total liabilities and shareholders' equity.............................. $41,541
=======
</TABLE>
126
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended
December
31,
--------------------------
1995 1994 (1)
----- ----- ----- --------
<S> <C> <C>
Condensed Consolidated Income Statement Data
Revenue..................................................................... $ 12,016 $ 1,144
Operating expenses.......................................................... (10,786) (1,630)
Selling, general and administrative expenses................................ (9,753) (5,227)
Depreciation and amortization............................................... (2,957) (287)
---- ------- ---- -----
Net operating loss....................................................... (11,480) (6,000)
Interest, net............................................................... (2,625) (1,725)
Foreign currency (loss) gain................................................ (6) 949
-- ---------
Net loss................................................................ $(14,111) $(6,776)
======== =======
</TABLE>
(1) Net Sao Paulo began operations in late 1993 and was sold in August 1996.
127
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
XYZ
Condensed financial information for XYZ stated in U.S. dollars, which is
derived from financial statements audited by Deloitte Touche Tohmatsu, is as
follows:
<TABLE>
<CAPTION>
As of
December 31, 1995
-----------------
<S> <C>
Condensed Consolidated Balance Sheet Data
Cash........................................................................... $ 2,309
Property, plant and equipment, net............................................. 2,499
Intangible assets, net......................................................... 1,871
Other assets................................................................... 1,933
-----
Total assets............................................................... $ 8,612
==========
Accounts payable and accrued liabilities....................................... $ 16,068
Shareholder loans.............................................................. 21,597
Shareholders' equity...........................................................
(29,053)
Total liabilities and shareholders' equity................................. $ 8,612
==========
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------
1995 1994
------- ------
<S> <C> <C>
Condensed Consolidated Income Statement Data
Revenue....................................................................... $ 1,266 (183)
Operating, selling, general and administrative expenses....................... (27,511) --
Depreciation and amortization................................................. (2,662) --
(183)
Net operating loss........................................................ (28,907) 2
Interest, net................................................................. 145 -
Net loss.................................................................. $(28,762) $ (181)
======== ======
</TABLE>
(1) XYZ began operations in late 1994.
128
<PAGE>
5. Debt
Debt consists of the following:
<TABLE>
<CAPTION>
As of As of
February 28, February 29,
1997 1996
------- ----- ------- ----
<S> <C> <C>
November 1994 14% senior secured discount notes, net of unamortized discount $264,985 $228,828
November 1995 14% senior secured discount notes, net of unamortized 90,161 78,745
discount
February 1996 14% senior secured discount notes, net of unamortized discount 55,193 49,140
May 1996 14% UIH A/P senior discount notes, net of unamortized discount..... 245,182 --
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, 5,447 --
secured by shares of STX........................................................
Note payable to a bank, interest at 7.5%, paid in July 1996................. 9,820 --
Note payable to a bank, interest at LIBOR plus 1.75%, paid in August 1996.. -- 3,828
Capitalized lease obligations............................................... 4,959
890
Mortgage note, interest at 7.885%, 7 year term.............................. 1,252 --
Foreign taxes payable....................................................... 7,771 --
Other....................................................................... 1,343
------ -----
123
676,293 371,374
Less current portion................................................... (1,333) (147)
--- ------ ------- ----
Total senior secured notes and other debt.............................. $674,960 $371,227
======== ========
</TABLE>
In November 1994, UIH sold 394,000 units consisting of $394,000 14% senior
secured discount notes due November 15, 1999 (the "1994 Notes") and 394,000
Warrants to purchase UIH Class A Common Stock. The 1994 Notes were issued at a
discount from their principal amount of $394,000 resulting in net proceeds of
$192,771. The 1994 Notes are deemed, for accounting purposes, to accrete
interest at a rate of 15.24% compounded semi-annually and no cash interest
payments will be made prior to maturity on November 15, 1999, at which time
$394,000 will be payable.
In November 1995, UIH sold 130,000 14% senior secured notes (the "1995
Notes"). The 1995 Notes were issued at a discount from their principal amount of
$130,000 resulting in net proceeds of $63,886 and accrete interest at a rate of
14.0% compounded semi-annually. No cash interest payments will be made prior to
maturity on November 15, 1999, at which time $130,000 will be payable.
In February 1996, UIH sold 75,350 14% senior secured notes (the "1996
Notes"). The 1996 Notes were issued at a discount from their principal amount of
$75,350 resulting in net proceeds to UIH of $47,356 and are deemed, for
accounting purposes, to 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, at which time $75,350 will be payable.
On May 14, 1996, UIH A/P raised total gross proceeds of approximately
$225,115 from the private placement of $443,000 aggregate principal amount of
Senior Notes (the "UIH A/P Notes"). No cash interest payments are required until
May 15, 2001, at which time cash interest payments will be payable semi-annually
on each May 15 and November 15. The UIH A/P Notes are due May 15, 2006. In
September 1996, the UIH A/P Notes were exchanged for 14% Senior Discount Notes
due 2006, Series B. Effective May 16, 1997, the interest rate on the UIH A/P
Notes increased by an additional 0.75% per annum.
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 interest rate on the UIH A/P Notes will be increased by
an additional 0.75% per annum, until such time as the Equity Sale is effected.
In addition, if UIH A/P does not consummate an Equity Sale prior to November 16,
1997, the then holders of the Notes will be entitled to receive warrants to
purchase common stock of UIH A/P or, in certain circumstances, UIH A/P. UIH A/P
plans to
129
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
pursue additional sources of funding that may constitute an Equity Sale although
there can be no assurance that UIH A/P will be successful in concluding an
Equity Sale prior to November 16, 1997.
130
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
The market value, based on trades were as follows:
<TABLE>
<CAPTION>
As of February 29, 1997: Accreted Value Market Value
-------------- ------------
<S> <C> <C>
1994 Notes........................................... $264,985 $289,590
1995 Notes........................................... $ 90,161 $ 95,550
1996 Notes........................................... $ 55,193 $ 55,382
UIH A/P Notes (1).................................... $245,182 $230,360
<CAPTION>
As of February 28, 1996: Accreted Value Market Value
-------------- ------------
<S> <C> <C>
1994 Notes........................................... $228,828 $256,100
1995 Notes........................................... $ 78,745 $ 84,500
1996 Notes........................................... $ 49,140 $ 48,978
</TABLE>
(1) Amounts for UIH A/P Notes are as of December 31, 1996.
The 1994 Notes, 1995 Notes and 1996 Notes (together the "Senior Notes")
are secured by a first priority security interest in (i) all of the equity
interests of the Company and (ii) intercompany notes of the Company held by UIH.
The Senior Notes Indenture prohibits UIH from incurring any lien against its
other assets. The Indenture also prohibits certain subsidiaries from incurring
any lien against their assets other than liens securing certain permitted
project financings. The Indenture generally prohibits making investments in
entities that are not "restricted" by the terms of the Indenture. UIH has the
option to invest in "unrestricted entities" in an aggregate amount equal to the
sum of $50,000 plus the aggregate amount of net cash proceeds from sales of
equity and subordinated indebtedness by the Company after the date of the
Indenture.
The Senior Notes are senior secured obligations of the Company. The
Senior Notes rank paripassu in right of payment with all future senior
obligations of the Company and senior in right of payment to all future
subordinated indebtedness of the Company. The Indenture will prohibit the
Company from incurring additional senior indebtedness with a certain limited
exception for $15,000 of guarantees.
In connection with the Company's acquisition of the additional 40%
effective economic interest in Austar, UIH issued 170,513 shares of its
convertible preferred stock to the Company in exchange for a promissory note in
the principal amount of $29,838. The note accrues interest at a rate of 14% per
annum and is due and payable on demand.
The Company's maturities of its debt is as follows:
<TABLE>
<CAPTION>
<S> <C>
1998................................................................................ $ --
1999................................................................................ 14,561
2000................................................................................ 410,339
2001................................................................................ --
2002 and thereafter................................................................. 246,434
--------
671,334
Capitalized lease obligations.................................................. 4,959
--------
Total Senior notes and other debt.............................................. $676,293
========
</TABLE>
6. Commitments
The Company has entered into various operating lease agreements for
office space, office furniture and office equipment. Rental expense under these
lease agreements totaled $2,342, $0 and $0 for the years ended February 28,
1997, February 29, 1996 and February 28, 1995, respectively.
The Company has operating lease obligations and other non-cancelable
commitments as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998................................................................................ $ 3,634
1999................................................................................ 3,455
2000................................................................................ 1,983
2001................................................................................ 1,707
2002 and thereafter................................................................. 3,466
---- -----
$14,245
</TABLE>
131
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
The Company has licenses fees payable annually as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 ............................................................................... $ 2,629
1999 ............................................................................... 2,629
2000 ............................................................................... 2.629
2001 ............................................................................... 2,338
2002 and thereafter.................................................................
1,021
$11,246
</TABLE>
The Company has capital lease obligations as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 ............................................................................... $ 1,764
1999 ............................................................................... 1,753
2000 ............................................................................... 2,151
2001 ............................................................................... 113
2002 and thereafter................................................................. 47
------- --
5,828
Future finance charges................................................... (869)
---- ----
$4,959
</TABLE>
During 1994, CTV Pty Limited ("CTV") and STV Pty Limited ("STV"), the
companies that comprise Austar Entertainment Pty Limited ("Austar"), entered
into franchise agreements with Australis. The agreements carry 15-year terms and
may be extended for an additional 10 years. The agreements provide for an
exclusive license and franchise for MMDS and satellite services and a non-
exclusive license and franchise for cable services for all franchisor services
including uplink and programming including Channel [V] (a 24-hour music video
channel), Arena, Showtime, Nickelodeon, TVI, Encore, Discovery and Fox Sports
(the "Galaxy Package"). Under the agreements, minimum payments are due, which
include service fees based on varying percentages of net revenues as defined in
the agreement, and subscription levies which are dependent on the number of
subscribers.
For a five year period beginning July 1997, Austar has secured a 54 MHz
transponder capable of broadcasting between 10 and 15 digital channels on the
Optus Vision Pty Limited ("Optus Vision") satellite. Optus Vision currently
transmits the Galaxy Package and, pursuant to an agreement with Australis, has
the right to deliver such programming to its customers through the Galaxy
system. The Company will pay approximately $480 per month in satellite service
fees under its agreement with Optus Vision. Satellite fees payable are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 ............................................................................... $ 2,880
1999 ............................................................................... 5,760
2000 ............................................................................... 5,760
2001 ............................................................................... 5,760
2002 ............................................................................... 5,760
2003 ............................................................................... 2,880
---- -----
$28,800
</TABLE>
Although Austar's franchise agreements were formerly exclusive for all
multi-channel television including MMDS and cable television operations, the
Company and Austar have recently agreed to allow Foxtel Management Pty Limited
("Foxtel") to carry the Galaxy Package on Foxtel's wireline cable television
systems throughout Australia. This agreement provides that Austar will be
compensated for any Foxtel subscriber in its franchise area in an amount equal
to the profit margin Austar would have received if it had sublicensed such
programming to Foxtel (the "Australis Arrangement").
As of February 28, 1997, the Company had executed guarantees of certain
facilities totaling $12,031.
132
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
7. Contingencies
In October 1996, a complaint was served on UIH by an individual who
claimed to have worked with UIH in connection with the acquisition by Austar of
certain of its licenses, claiming that UIH owes him a 12.5% equity interest in
unspecified subsidiaries of UIH in consideration of services purportedly
provided. This complaint, seeking an unspecified amount of damages, is pending
in a civil court in Melbourne, Australia. UIH intends to vigorously defend these
claims, which UIH believes are without merit.
On November 6, 1996, Austar filed a complaint in the Supreme Court of New
South Wales, Commercial Division, seeking an injunction to prevent (i) Australis
from transferring its satellite delivery systems and associated infrastructure
to its joint venture with Optus Vision and (ii) Optus Vision from using such
infrastructure to deliver DTH services in Austar's franchise area. Austar
believes that using the infrastructure by any entity other than Austar for the
provision of DTH services within Austar's franchise areas violates the terms of
Austar's franchise agreement with Australis which granted Austar an exclusive
license and franchise to use the infrastructure within its franchise areas.
Austar is seeking injunctive relief or, in the alternative, damages associated
with this violation of its franchise agreement. On December 6, 1996, Australis
filed counterclaims against Austar and UIH A/P alleging generally that Austar
and UIH A/P breached implied terms of the Australis Arrangement by seeking such
injunctive relief. In addition, Optus Vision claims that the exclusive nature of
Austar's franchise agreements violates Australia's Trade Practices Act. On May
9, 1997, pursuant to the court's permission, Austar amended its complaint to
include claims that the agreement between Australis and Optus Vision violates
Australia's Trade Practices Act and that Austar is entitled to damages arising
from interference with its contractual relations with Australis under the
Franchise Agreements. Austar's complaint was also amended to add as defendants
two affiliates of Optus Vision: Publishing and Broadcasting Ltd. and its
subsidiary, Pay TV Optus. UIH A/P intends to vigorously defend its position.
Australis, Austar's primary supplier of programming, is engaged in a
rapid roll-out of service that has required a significant amount of capital and
has strained its liquidity. Australis has recently closed private offerings of
debt and equity securities that Australis announced would enable it to carry its
business through to cash flow positive. If such financing is not sufficient to
satisfy Australis' long-term capital needs, Australis may have difficulty
meeting contractual obligations with respect to the four Galaxy channels
distributed directly by Australia. UIH A/P believes that if Austar is no longer
able to obtain the four Galaxy channels provided by Australis on an exclusive
bases and it were required to seek replacement programming, it would have access
to the same programming directly from the suppliers of the four Galaxy channels
or sufficient alternative programming on competitive terms. There can be no
assurance, however that this would be the case and the inability of Austar to
procure the same or suitable alternative programming at competitive rates and on
an exclusive basis in its service areas could have a material adverse effect on
UIH A/P.
8. Income Taxes
In general, a United States corporation may claim a foreign tax credit
against its federal income tax expense for foreign income taxes paid or accrued.
Because the Company must calculate its foreign tax credit separately for
dividends received from each foreign corporation in which the Company owns 10%
to 50% of the voting stock, and because of certain other limitations, the
Company's ability to claim a foreign tax credit may be limited, particularly
with respect to dividends paid out of earnings subject to a high rate of foreign
income tax. Generally, the Company's ability to claim a foreign tax credit is
limited to the amount of U.S. taxes the Company pays with respect to its foreign
source income. In calculating its foreign source income, the Company is required
to allocate interest expense and overhead incurred in the United States between
its U.S. and foreign activities. Accordingly, to the extent U.S. borrowings are
used to finance equity contributions to its foreign subsidiaries, the Company's
ability to claim a foreign tax credit may be significantly reduced. These
limitations and the inability of the Company to offset losses in one foreign
jurisdiction against income earned in another foreign jurisdiction could result
in a high effective tax rate on the Company's earnings. The Company has an
ownership interest in Telefenua, Cable Star and
133
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
Bahia Blanca which are located in Tahiti, Peru and Argentina with which the
United States does not have income tax treaties. As a result, the Company may be
subject to increased withholdings taxes on dividend distributions and other
payments from those entities and also may be subject to double taxation with
respect to income generated by those entities.
The Company accounts for income taxes on a separate company basis in
accordance with SFAS 109. The primary differences between taxable income (loss)
and net income (loss) for financial reporting purposes relate to accounting for
equity in income (losses) of affiliated companies, accrual of certain
liabilities, the non-consolidation of its consolidated foreign subsidiaries for
U.S. tax purposes and the current non-deductibility of interest expense on the
Company's senior notes issued in May 1996. In addition, for financial reporting
purposes, the Company expenses certain costs, including salaries and benefits,
related to its acquisition, transaction and development activities which are
capitalized for income tax purposes. Since the Company holds the majority of its
foreign investments through affiliates which hold investments accounted for
under the equity method in foreign corporations, taxable income (loss) generated
by these affiliated companies does not flow through to the Company for United
States federal and state tax purposes, even though the Company records its
allocable share of affiliate income (losses) for financial reporting purposes.
Accordingly, due to the indefinite reversal of such amounts in future periods,
no deferred tax asset has been established for tax basis in excess of the
Company's book basis (approximately $18,300 and $14,400 at February 28, 1997 and
February 29, 1996, respectively) in investments in affiliated companies who in
turn have investments in foreign corporations.
The Company's United States tax net operating losses, totaling
approximately $76,400 at February 28, 1997, expire beginning in 2004 through
2012. The significant components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
As of As of
February 28, February 29,
1997 Change 1996
----------- ---------- -------------
<S> <C> <C> <C>
Deferred Tax Assets
Company's United States tax net operating loss
carryforwards.................................... $29,803 $ 9,860 $19,943
Tax net operating loss carryforwards of
consolidated foreign subsidiaries (1)............ 25,539 21,374 4,165
Acquisition, transaction and development costs..... 1,044 (2,019) 3,063
Investment valuation allowance and other........... (47) 230 (277)
Unrealized loss on investments..................... 2,367 1,903 464
Accrued interest expense on UIH A/P Notes.......... 7,826 7,826 --
Deferred compensation and severance................ 614 -- 614
Other liabilities.................................. 469 (41) 510
------- ------- -------
67,615 39,133 28,482
Valuation reserve.................................. (67,615) (39,133) (28,482)
------- ------- -------
Deferred tax asset, net............................ $ -- $ -- $ --
======= ======= =======
</TABLE>
(1) For Australian income tax purposes, the net operating less carryforwards may
be limited in the event of a change in business.
The difference between income tax expense provided in the financial
statements and the expected income tax expense (benefit) at statutory rates us
reconciled as follows:
<TABLE>
<CAPTION>
For the Years Ended
------------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
------------ ------------- ------------
<S> <C> <C> <C>
Expected income tax expense (benefit) at statutory
rates............................................ $(47,974) $(26,132) $(7,857)
Tax effect of permanent and other differences:
Book/tax basis differences associated with foreign
equity investments............................... 9,076 11,722 1,516
Non-deductible entertainment....................... 151 226 16
Amortization of licenses........................... 625 214 6
Amortization of outside basis differences.......... 1,324 -- --
Other.............................................. (655) 39 (53)
Effect of net book operating losses not
recognized....................................... 37,453 13,931 6,372
-------- ------- ------
Total income tax expense (benefit)................. $ $ $ --
======== ======= =======
</TABLE>
134
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
9. Revenues by Geographic Area
The following table sets forth the Company's service and other revenue
by geographic area:
<TABLE>
<CAPTION>
For the Years Ended
---------------------------------------------------------
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Latin America:
Argentina..................................... $ 4,385 $ -- $ --
Peru.......................................... 882 -- --
Asia/Pacific:
Australia.................................... 21,354 1 --
New Zealand.................................. 110 -- --
Tahiti....................................... 3,513 1,882 --
Other............................................ 527 -- --
---------- -------- -----
$ 30,771 $ 1,883 $ --
========== ======= =====
</TABLE>
10. Pro Forma Information
The following unaudited pro forma information for the year ended February
28, 1997 gives effect to the disposition of the 34% interest in Net Sao Paulo,
as if the disposition had occurred on January 1, 1996.
The following unaudited pro forma information for the year ended February
29, 1996 gives effect to the acquisition of the additional 40% economic
interests in Austar, the disposition of the 25% interest in XYZ, the acquisition
of its 65% interest in STX and the acquisition of its 49% interest in Megapo as
if each had occurred on January 1, 1995. The pro forma financial information
does not purport to represent what the Company's results of operations would
actually have been if such transactions had in fact occurred on such date. The
pro forma results presented below are based upon currently available information
and upon certain assumptions that management believes are reasonable under
current circumstances.
<TABLE>
<CAPTION>
For the Years Ended
---------------------------------
February 28, February 29,
1997 1996
------------ ------------
<S> <C> <C>
Revenues................................... $ 30,771 $ 2,326
=========== ==========
Net loss................................... $(186,571) $(73,737)
========== ========
</TABLE>
11. Subsequent Events
In April 1997 UIH Latin America, Inc. ("UIH LA") closed the 100%
acquisition of multi-channel television systems in Comodoro and Trelew,
Argentina for a total purchase price of $27,900, of which $13,900 was paid at
closing and the remaining $14,000 is due in 18 monthly installments beginning in
May 1997.
In April 1997 UIH LA agreed to acquire up to an 80% equity interest in
the multi-channel television systems located in Santa Fe, Parana and Galvez,
Argentina for a total purchase price of $59,000. In April 1997, UIH LA closed
the acquisition of the first 31% equity interest for a total purchase price of
$23,300 and paid a $2,000 deposit to acquire the additional 49% equity interest
by July 15, 1997. The total purchase price will be paid 50% at closing and the
balance paid in installments through June 2000.
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 9 months, extendible up to a maximum of 18
months at an interest rate of LIBOR plus 6%. Proceeds from the loan will be used
to fund acquisitions and provide for capital expenditures to build out 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 9 month term, (ii) cash fees of 1% to 3% each three months if it is
extended beyond 9
135
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
(Monetary amounts stated in thousands)
months, another 2.0% 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 3.0% 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.
In April 1997, Austar received an underwriting commitment from a bank for a
Senior Syndicated Term Debt Facility in the amount of Australian $("A$")200,000
(US$155,000) (the "Bank Facility"). The proceeds of the Bank Facility will be
used to fund Austar's construction and subscriber acquisition and working
capital needs. The Bank Facility consists of three sub-facilities: (i) A$50,000
revolving working capital facility available at closing (June 1997); (ii)
A$90,000 term loan facility, which will be available on the basis of Austar
having achieved minimum subscriber and operating cash flow levels; and (iii)
A$60,000 cash advance facility available upon the contribution of additional
equity on a 2:1 debt-to-equity basis. The maximum amount of equity required
would be A$30,000, approximately A$7,500 of which has already been contributed
during 1997. The cash advance and term loan facilities will be fully repayable
pursuant to an amortization schedule beginning December 31, 2001 and ending June
30, 2004. The bank has also provided Austar with an interim financing facility
of A$50,000 which will be refinanced from the proceeds of the Bank Facility.
The Company was reviewing an opportunity to acquire an equity interest in
the multi-channel television system being constructed in Hong Kong but stopped
pursuing the opportunity as it was unable to reach satisfactory terms with the
Wharf group of companies ("Wharf") under which Wharf would agree to honor its
previous grant to the Company of the opportunity to acquire an equity interest
in the Hong Kong multi-channel system. The Company devoted substantial time and
effort on behalf of Wharf Cable Limited ("Wharf Cable"), the license holder, and
its affiliates. On November 10, 1994, the Company and UIH Asia, as plaintiffs,
commenced a lawsuit in the U.S. District Court for the District of Colorado
against The Wharf (Holdings) Limited and two of it subsidiaries, Wharf
Communication Investments Limited and Wharf Cable, the license holders of the
Hong Kong system franchise, and its deputy chairman, Stephen Ng. On April 27,
1997, following a nine week trial, the jury returned a verdict in favor of the
Company and against each of the defendants (other than Wharf Cable) in the
amount of $67 million. Additionally, the jury awarded exemplary damages against
Wharf Holdings in the amount of $58.5 million. On May 21, 1997, judgement,
including an additional $28,000 of prejudgment interest, was entered on these
verdicts; however, there can be no assurance that damages will be collected.
The Company was reviewing an opportunity to acquire an equity interest in
the multi-channel television system being constructed in Hong Kong but stopped
pursuing the opportunity as it was unable to reach satisfactory terms with the
Wharf group of companies ("Wharf") under which Wharf would agree to honor its
previous grant to the Company of the opportunity to acquire an equity interest
in the Hong Kong multi-channel system. The Company devoted substantial time and
effort on behalf of Wharf Cable Limited ("Wharf Cable"), the license holder, and
its affiliates. On November 10, 1994, the Company and UIH Asia, as plaintiffs,
commenced a lawsuit in the U.S. District Court for the District of Colorado
against the Wharf (Holdings) Limited and two of its subsidiaries, Wharf
Communication Investments Limited and Wharf Cable, the license holders of the
Hong Kong system franchise, and its deputy chairman, Stephen Ng. On April 27,
1997, following a nine week trial, the jury returned a verdict in favor of the
Company and against each of the defendants (other than Wharf Cable) in the
amount of $67 million. In addition, the jury awarded exemplary damages against
Wharf Holdings in the amount of $58.5 million. On May 21, 1997, judgment,
including an additional $28,000 of prejudgement interest, was entered on these
verdicts; however, there can be no assurance that damages will be collected.
136
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Supervisory Directors and the Shareholders of
United and Philips Communications B.V.
We have audited the annual accounts for the year 1996 of United and Philips
Communications B.V. The annual accounts are the responsibility of the company's
management. Our responsibility is to express an opinion on these annual accounts
based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in The Netherlands, which are substantially the same as those generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the annual
accounts are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the annual
accounts. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the annual accounts. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, these annual accounts give a true and fair view of the
consolidated financial position of the Company as of December 31, 1996 and of
the result for the year then ended in accordance with accounting principles
generally accepted in The Netherlands and comply with the financial reporting
requirements included in Part 9, Book 2 of the Netherlands Civil Code.
Generally accepted accounting principles in The Netherlands vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected total assets, results of operations and shareholders'
equity as at and for the year ended December 31, 1996 to the extent summarised
in Note 17, to the consolidated financial statements.
Amstelveen, The Netherlands,
May 7 , 1997.
137
<PAGE>
UNITED AND PHILIPS COMMUNICATIONS B.V.
--------------------------------------
ACCOUNTING POLICIES
-------------------
General
-------
United and Philips Communications B.V. ("UPC"), having its legal seat in
Eindhoven, The Netherlands, is a joint venture between Philips Electronics
N.V. Eindhoven, The Netherlands ("Philips") and United International Holdings
Inc. ("UIH") a Delaware, United States of America corporation.
Comparative figures
-------------------
The figures in the annual report for the year ended December 31, 1995 covered
the period from the inception of UPC on July 13, 1995 until December 31,
1995. The figures in these annual accounts cover the full year 1996 and may
not therefore be comparable with 1995. In addition the 1996 results of UPC
include the consolidation of Norkabelgruppen AS with effect from October 1,
1996, and the consolidation of various companies, which were in the
development stage in 1995, including France, Portugal, Slovakia and Romania,
with effect from January 1, 1996. Furthermore the Company changed its
presentation of the excess values of cost over net assets acquired of
affiliated companies and includes these in 'Affiliated companies'.
Policies of Consolidation
-------------------------
These consolidated financial statements include the accounts of UPC and its
group companies (the "UPC Group"). Group companies are companies or other
legal entities in which UPC has an ownership interest of more than 50% of the
issued share capital or that UPC otherwise controls. The accounts of these
companies or other legal entities are included in full in the consolidated
financial statements; any minority interests are disclosed separately. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
138
<PAGE>
The consolidated financial statements include the financial statements of
United and Philips Communications B.V. and the following subsidiaries,
directly or indirectly held by UPC:
<TABLE>
<CAPTION>
NAME COUNTRY PERCENTAGE OWNERSHIP
<S> <C> <C>
Radio Public SA Belgium 100
Telekabel Group Austria 95
Kabeltelevisie Eindhoven NV The Netherlands 100
Kabel Net Holding AS Czech Republic 100
Kabel Net Brno AS Czech Republic 100
Ceska Programova Spolecnost SRO Czech Republic 100
Slovatel SRO Slovak Republic 100
Trnavatel SRO Slovak Republic 75
Multicanal Holdings SRL Romania 90
Control Cable Ventures SRL Romania 51
Mediareseaux SA France 100
Mediareseaux Marne SA France 100
Intercabo Televisao por Cabo SGPS Lda Portugal 100
Norkabelgruppen AS Norway 100
</TABLE>
On September 27, 1996, the Company acquired all of the partnership interest
held by the Telewest Europe Group in United Communications International
("UCI"), a US general partnership, for USD 30 million. The purchase increased
the Company's ownership in UCI from approximately 8.3% to 100%. UCI's primary
assets consist of participations in companies that own multi-channel
television systems in Norway, Sweden and Hungary. The purchase increased
UPC's participation in Norway from 8.3% to 100%, in Sweden from 2.1% to 25.3%
and in Hungary from 3.9% to 50%. During October 1996, the Company sold its
interest in Sweden for approximately NLG 830,000.
Policies Followed in Valuation and Income Determination.
--------------------------------------------------------
Foreign Currencies.
-------------------
The financial information of foreign companies and other legal entities is
prepared in local currencies. All foreign currency amounts in the balance
sheet have been translated into Netherlands guilders at the official exchange
rates on the respective balance sheet dates. Exchange differences due to
transactions in foreign currencies are reflected in the consolidated
statements of income. Exchange differences resulting from the translation of
the net investments in foreign subsidiaries into Netherlands guilders are
accounted for under Shareholders' equity.
In the consolidated statements of income the translation into Netherlands
guilders is based on the average rates of exchange for the periods involved.
The resulting difference between the application of these average rates and
the balance sheet exchange rates is accounted for directly in Shareholders'
equity.
Cash flows from the Company's operations in foreign countries are translated
based upon 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 Consolidated statements of Cash Flow
will not agree to the changes in the corresponding balances on the
Consolidated Balance Sheets. The effect of exchange rate changes on cash
balances held in foreign currencies is reported as a separate line below cash
flows from financing activities.
139
<PAGE>
Exchange rates of major currencies in Netherlands guilders :
<TABLE>
<CAPTION>
Balance Balance
Sheet Rate Average Sheet Rate Average
per Dec 31 Rate 1996 per Dec 31 Rate 1995
1996 1995
-----------------------------------------------
<S> <C> <C> <C> <C>
Belgian Franc per 100 5.45 5.44 5.45 5.44
Austrian Schilling per 100 15.95 15.93 15.91 15.92
Czech Koruna per 100 6.37 6.26 6.03 6.06
US Dollar per unit 1.74 1.69 1.60 1.61
Norwegian Crown per 100 27.11 26.45 - -
Portuguese Escudo per 100 1.12 1.09 - -
French Franc per 100 33.30 32.95 - -
</TABLE>
Balance Sheet
(a) General
-------
Assets and liabilities are stated at historical cost unless
indicated otherwise.
(b) Fixed assets
------------
Intangible Fixed Assets
-----------------------
Intangible fixed assets include the value of licences and
goodwill.
Licences in newly acquired companies are recognised at the fair
market value of those licences at the date of acquisition and
include the development costs incurred prior to or after the date a
new licence was acquired. The licence value is amortised on a
straight line basis over the licence period, but with a maximum of
20 years.
Goodwill represents the difference between acquisition price paid
for a participation and the fair value of the identifiable net
assets, including the value of any licences of such a participation.
Amortisation is on a straight line basis based on the useful lives
over a maximum period of 15 years.
When assets are fully amortised, the costs and accumulated
amortisation are removed from the accounts.
140
<PAGE>
Tangible fixed assets
---------------------
Tangible fixed assets are presented at purchase price or cost to construct
less accumulated straight line depreciation. Assets constructed within the
UPC group incorporate overheads and interest charges incurred during the
period of construction; investment subsidies are deducted.
For newly acquired participations the cost of tangible fixed assets is
determined at fair value at the date such participations are acquired.
Depreciation is calculated using the straight line method over the economic
life of the asset, taking into account the residual value. The economic lives
are:
Land and buildings 20-33 years
Networks 7-20 years
Machinery & Other 3-10 years
Affiliated companies
--------------------
Companies in which UPC exerts significant influence over the business and
financial policies are recorded using the equity method. Under this method
the investment, originally recorded at cost, is adjusted to recognize UPC's
share of net earnings or losses of the affiliates, including the
amortization of basic differences related to the excess of cost over net
tangible assets acquired.
When no significant influence is exercised the investment is stated at cost
or in case of permanent impairment, at the lower net realisable value.
Non-current financial assets
----------------------------
Valuation is at the lower of cost or net realisable value.
In March 1995, the Financial Accounting Standards Board ("FASB") issued a
Statement of Financial Accounting Standards No. 121, "Accounting for the
impairment of long-lived assets and for long-lived assets to be disposed
of ".
This statement establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable assets to be disposed of. The Company has adopted the
principles of this statement in the accompanying financial statements. The
provisions of SFAS 121 did not have a material effect on the Company's
reported result of operations or financial condition.
(c) Receivables
-----------
Receivables are stated at face value less an allowance for doubtful
accounts.
(d) Cash and cash equivalents
-------------------------
Cash and cash equivalents are stated at face value and include all cash and
bank balances.
(e) Provisions
----------
Deferred tax liabilities arising from temporary differences between the
financial and tax bases of assets and liabilities are included in the
provisions. The principal difference arises in connection with valuation
differences of intangible and tangible fixed assets.
In calculating the provision, current tax rates are applied.
141
<PAGE>
(f) Stock option plan
-----------------
The FASB issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation". This statement defines a fair
value based method of accounting for employee stock options or similar
equity instruments. The Company has adopted the disclosure requirements of
this statement in the accompanying financial statements, as the Company
complies with the provisions of APB No. 25 in its primary financial
statements.
(g) Income Taxes
------------
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of transactions which have been
included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based upon the
difference between the financial and tax bases of assets and liabilities
and carryforwards using enacted tax rates in effect for the year in which
the differences are expected to reverse. UPC has adopted the principles of
this statement in its financial statements.
(h) Fair Value of Financial Instruments
-----------------------------------
SFAS Statement No. 107, "Disclosures about Fair Values of Financial
Instruments" requires the disclosure of estimated fair values for all
financial instruments, both on- and off-balance sheet, for which it is
practicable to estimate fair value.
For certain instruments, including cash and cash equivalents, receivables,
current liabilities and certain provisions, it was assumed that the
carrying amount approximated fair value due to the short maturity of those
instruments. For short and long term debt, the carrying value approximates
the fair value since all debt instruments carry a variable interest rate
component except for the convertible loans which carry a fixed interest
rate.
The fair value of the subordinated convertible loans approximates its face
value.
For investments in affiliated companies carried at cost, quoted market
prices for the same or similar financial instruments were used to estimate
the fair values. UPC has adopted the principles of this statement in its
financial statements. UPC did not have any material off-balance-sheet
financial instruments as of December 31, 1996.
Income Statement
Revenue is derived from the sale of cable television services to subscribers and
from the construction and management of cable television systems. The cable
television service revenues are recognized as revenue in the period in which the
related services are provided to the subscriber.
Initial installation fees ("first connection") are recognized as revenue in the
period in which the installation occurs, to the extent of direct selling costs,
with the remainder deferred. Deferred installation revenue is amortized over the
average subscriber period in the respective companies.
Initial subscriber installation expenditures are capitalized and depreciated
over a period no longer than the depreciation period used for cable television
plant and/or licence agreement.
All installation fees and related costs with respect to reconnections are
recognized in the period in which the reconnection occurs.
142
<PAGE>
Expenses and other revenues are recorded in the period in which they originate.
Income taxes are accounted for in the income statement in the same period as the
income and expenses to which they relate.Withholding taxes are taken into
consideration in situations where the income of subsidiaries is to be paid out
as dividends in the near future. Such withholding taxes are generally charged to
income in the year in which the income is generated.
143
<PAGE>
UNITED AND PHILIPS COMMUNICATIONS B.V.
--------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
AS OF DECEMBER 31, 1996 AND 1995
--------------------------------
144
<PAGE>
UNITED AND PHILIPS COMMUNICATIONS B.V.
--------------------------------------
CONSOLIDATED BALANCE SHEETS OF THE UPC GROUP
--------------------------------------------
(Currency -- Thousands of Netherlands guilders)
A S S E T S
-----------
As at December 31,
<TABLE>
<CAPTION>
Notes 1996 1995
--------- ---------
<S> <C> <C> <C>
FIXED ASSETS:
Intangible fixed assets 1 639,092 657,158
Tangible fixed assets 2 434,736 299,760
Affiliated companies 3 112,916 62,250
Other non-current financial assets 1,154 789
--------- ---------
Total fixed assets 1,187,898 1,019,957
--------- ---------
CURRENT ASSETS:
Inventories 12,057 6,956
Receivables 4 88,470 165,731
Cash and cash equivalents 5 42,631 123,895
--------- ---------
Total current assets 143,158 296,582
--------- ---------
Total assets 1,331,056 1,316,539
========= =========
</TABLE>
The accompanying notes form an integral part of these Consolidated
Financial Statements
145
<PAGE>
SHAREHOLDERS' EQUITY AND LIABILITIES
------------------------------------
<TABLE>
<CAPTION>
As at December 31,
Notes 1996 1995
--------- --------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY 449,639 537,633
MINORITY INTEREST 4,554 1,400
SUBORDINATED CONVERTIBLE LOAN 6 256,335 213,792
--------- --------
710,528 752,825
--------- --------
PROVISIONS 7 14,895 5,391
LONG-TERM LIABILITIES 8 19,467 22,348
CURRENT LIABILITIES 9 586,166 535,975
--------- --------
Total shareholders' equity and liabilities 1,331,056 1,316,539
========= =========
</TABLE>
The accompanying notes form an integral part of these Consolidated Financial
Statements
146
<PAGE>
UNITED AND PHILIPS COMMUNICATIONS B.V.
--------------------------------------
CONSOLIDATED STATEMENTS OF INCOME OF THE UPC GROUP
--------------------------------------------------
(Currency -- Thousands of Netherlands guilders)
<TABLE>
<CAPTION>
For the year ended December 31,
Notes 1996 1995
-------- --------
<S> <C> <C> <C>
TOTAL REVENUE 10 245,179 100,179
-------- --------
Direct operating expenses (80,479) (32,806)
Selling, general and administrative expenses (78,823) (33,617)
Depreciation and amortisation (105,072) (48,406)
Total operating expenses 11 (264,374) (114,829)
-------- --------
Operating loss (19,195) (14,650)
Financial income and expenses 12 (36,309) (13,372)
Exchange rate loss on convertible loans 12 (20,544) (3,474)
-------- --------
Loss before income taxes (76,048) (31,496)
Income taxes 13 (3,697) 1,624
-------- --------
Loss after taxes (79,745) (29,872)
Equity in result of affiliated companies (9,503) (16,179)
-------- --------
Group loss (89,248) (46,051)
Minority interests (2,208) (191)
-------- --------
Net loss (91,456) (46,242)
======== ========
</TABLE>
The accompanying notes form an integral part of these Consolidated Financial
Statements
147
<PAGE>
UNITED AND PHILIPS COMMUNICATIONS B.V.
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW OF THE UPC GROUP
-----------------------------------------------------
(Currency -- Thousands of Netherlands guilders)
<TABLE>
<CAPTION>
For the year ended December 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities :
Net loss (91,456) (46,242)
Adjustments to reconcile net loss to cash provided
by operating activities:
Depreciation and amortisation 105,072 48,406
Share in results of affiliated companies 9,503 16,179
Minority interests 2,208 191
Exchange differences in convertible loan 20,544 3,474
Other 1,173 1,444
Changes in assets and liabilities, net of contributed amounts:
Increase ininventories (2,091) (6,956)
Increase in inventories (309) (789)
Decrease (increase) in receivables 82,201 (50,955)
(Decrease) increase in provisions 3,932 (1,530)
Increase in other currenet liabilities 25,541 75,271
-------- --------
Net cash provided by operating activities 156,318 38,493
-------- --------
Cash flows from investing activities:
Capital expenditures (106,647) (312,241)New
acquisitions, net of cash acquired (46,473) (187,865)
Capital contributions affiliated companies (13,000) -
Capital repayment 44,950 -
-------- --------
Net cash used by investing activities (121,170) (500,106)
-------- --------
Cash flows from financing activities:
Proceeds from borrowings long term 23,113 -
Proceeds from borrowings long term 302,959 465,699
Repayments long and short term borrowings (440,440) -
Dividends paid to minority shareholders (2,388) (191)
-------- --------
Net cash (used) provided by financing activities (116,756) 465,508
-------- --------
Net (decrease) increase in cash and cash equivalents (81,608) 3,895
Cash and cash equivalents at beginning of period 123,895 -
Cash contributed upon foundation of UPC - 118,050
Exchange differences on cash and cash equivalents 344 1,950
-------- --------
Cash and cash equivalent at end of period 42,631 123,895
======== ========
</TABLE>
148
<PAGE>
UNITED AND PHILIPS COMMUNICATIONS B.V.
--------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
AT DECEMBER 31, 1996
--------------------
(Currency -- Thousands of Netherlands guilders)
1. Intangible Fixed Assets
-----------------------
Balance as of January 1, 1996:
<TABLE>
<CAPTION>
Total Licences Goodwill
------------------------------
<S> <C> <C> <C>
Gross Value 676,365 609,931 66,434
Amortisation
& provisions (19,207) (16,993) (2,214)
------- ------- -------
Book value as of
January 1, 1996 657,158 592,938 64,220
======= ======= =======
Changes :
Investments 6,605 6,605 -
Reallocation of
goodwill to investments
in affiliated companies (54,463) - (54,463)
Val. adj. licences - (8,779) 8,779
Amortisation (39,844) (38,411) (1,433)
New consolidations 66,441 69,559 (3,118)
Translation differences
and sundry movements 3,195 3,195 -
Book value as of ------- ------- -------
December 31, 1996 639,092 625,107 13,985
======= ======= =======
</TABLE>
Balance as of December 31, 1996:
<TABLE>
<CAPTION>
Total Licences Goodwill
-----------------------------
<S> <C> <C> <C>
Gross Value 698,855 682,861 15,994
Amortisation
& provisions (59,763) (57,754) (2,009)
------- ------- ------
Book value as of
December 31, 1996 639,092 625,107 13,985
======= ======= ======
</TABLE>
149
<PAGE>
During 1996 the Company reallocated part of goodwill paid on assets contributed
upon formation to its investments in UII (12,754) based upon its share in its
net equity value. The Company has changed its presentation of the excess value
of cost over net assets acquired of affiliated companies. As a result an amount
of 41,709 was transferred to Investments in Affiliated companies. The value of
the licences of KTE and Kabelnet Prague was per the end of 1995 overstated with
8,779, which amount was adjusted to Goodwill.
The amortisation of the licence values is based on the lifetime of the licence
with a maximum of 20 years. Goodwill is amortised over a period of 15 years in
conformity with the average lifetime of the licences. This amortisation period
reflects the presently expected average lifetime of the licences in the group
and affiliated companies.
2. Tangible Fixed Assets
---------------------
Balance as of January 1, 1996:
<TABLE>
<CAPTION>
Total Land and Network Machinery
Buildings & Other
-----------------------------------------------
<S> <C> <C> <C> <C>
Cost 328,959 1,135 316,878 10,946
Depreciation & write downs (29,199) (47) (27,670) (1,482)
------- ----- ------- ------
Book value as of
January 1, 1996 299,760 1,088 289,208 9,464
======= ===== ======= ======
Changes :
Additions 100,042 3,226 86,974 9,842
New consolidations 95,867 1,193 83,971 10,703
Depreciation (65,228) (510) (59,392) (5,326)
Translation differences
and sundry movements 4,295 485 4,679 (869)
------- ----- ------- ------
Book value as of
December 31, 1996 434,736 5,482 405,440 23,814
======= ===== ======= ======
<CAPTION>
Balance as of December 31, 1996:
Total Land and Network Machinery
Buildings & Other
-----------------------------------------------
<S> <C> <C> <C> <C>
Cost 529,416 6,080 492,398 30,938
Depreciation & write downs (94,680) (598) (86,958) (7,124)
------- ----- ------- ------
Book value as of
December 31, 1996 434,736 5,482 405,440 23,814
======= ===== ======= ======
</TABLE>
Depreciation is calculated on a straight line basis, taking into account the
expected working life of the asset and the residual value. The Company has no
reason to believe that the current value of tangible fixed assets differs
significantly from its stated value
150
<PAGE>
<TABLE>
<CAPTION>
3. Affiliated Companies
--------------------
Total Investments Advances
<S> <C> <C>
Balance as of January 1, 1996 : 62,250 62,050 200
======= ======= =======
Changes:
New consolidations 325 325 -
To Consolidated companies (3,090) (2,898) (192)
Reallocation of Goodwill to
investment affiliated companies 54,463 54,463 -
Acquisitions/additions 42,250 42,250 -
Capital contributions 13,000 13,000 -
Capital repayment (44,950) (44,950) -
Equity in result (9,503) (9,503) -
Translation differences and
sundry movements (1,829) (1,909) 80
------- ------- -------
Balance as of December 31, 1996 112,916 112,828 88
======= ======= =======
</TABLE>
During 1996 the Company reallocated part of goodwill paid upon assets
contributed upon formation to its investment in United International
Investments based upon its share in its net equity value, and changed the
presentation of the excess values of cost over net assets acquired.
The acquisitions / additions represent the increase in the participation in
Kabelkom.
The investments in affiliated companies as of December 31, 1996 are:
<TABLE>
<CAPTION>
% Ownership Total Investments Loans Valuation Share in
Allowance result 1996
<S> <C> <C> <C> <C> <C> <C>
A2000 50 1,325 1,325 - - (7,965)
United International Investments 50 61,528 61,528 - - (1,796)
Kabelkom 50 41,623 41,623 - - (262)
Spain - 3,197 - (3,197) 1,070
Germany 7,993 7,993 - - (585)
Other (net) 447 359 1,077 (989) 35
------ ------ ------- ------ ------
Total 112,916 116,025 1,077 (4,186) (9,503)
======= ======= ======= ====== ======
</TABLE>
The companies included under Spain and Germany are listed in the pages...
The excess values of cost over net assets acquired included in the amounts
stated above, are as follows:
<TABLE>
<CAPTION>
UII Kabelkom
<S> <C> <C>
gross 42,069 33,353
amortisation (4,683) (556)
------ -----
bookvalue 37,386 32,797
</TABLE>
The amortisation charge (UII 2,805, Kabelkom 556 ) is included in Share in
result 1996.
151
<PAGE>
United International Investments ("UII") is a partnership through which UPC
holds a 20% interest in Princes Holdings (Ireland), a 23.3% interest in
Tevel (Israel) and a 42.5% interest in Melita (Malta).
For summary financial information about A2000 reference is made to note 18.
4. Receivables
-----------
Receivables as presented under current assets mature within one year.
<TABLE>
<CAPTION>
1996 1995
------ -------
<S> <C> <C>
Trade accounts receivable 9,581 7,764
Receivables from affiliated companies 14,351 123,645
Prepaid expenses and accrued income 2,903 4,856
Other receivables 61,635 29,466
------ -------
TOTAL 88,470 165,731
====== =======
</TABLE>
Receivables from affiliated companies represent amounts receivable due to
funding of local cash needs, and to expenses charged for UPC personnel.
Included in the Receivables per December 31, 1995 was 114,776, which were
collected in connection with the funding of KTA by A2000. The amount
receivable from affiliated companies is after deduction of a provision of
4,620 (1995: 5,303). Major items under 'Other receivables' are current
reclaimable VAT 7,979 (1995: 15,307), and loans to personnel in connection
with exercised stock options 18,774 (1995 : nil). These loans are repayable
upon sale of the shares concerned or five years after the date of the
grant, which ever date comes first.
5. Cash and cash equivalents
-------------------------
Cash and cash equivalents include all demand accounts and short term
investments held in a bank with a maturity of less than three months.
Included are short term deposits of 18,959 (1995: 112,191), which deposits
are renewed on a daily basis. The cash and cash equivalents are freely
available.
6. Subordinated convertible loan
-----------------------------
Included are the convertible loans notes, payable to Philips, who has the
right to convert these notes into common stock of UPC at USD 8.33 (1995:
USD 2,250) per share before the repayment date (January 1, 2005). The
conversion price was adjusted due to the issuance of new shares. The notes
are subordinated to other financing instruments that UPC has or will have,
and bear an average rate of 10.00%. UIH was granted an option to acquire
50% of the notes anytime prior to conversion.
7. Provisions
----------
Provisions relate mainly to deferred taxation.
152
<PAGE>
8. Long-term liabilities
---------------------
<TABLE>
<CAPTION>
Range of Average Amount Amount
Interest Rate of Outstanding Outstanding
Interest Dec. 31, 1996 Dec. 31, '95
<S> <C> <C> <C> <C>
Bank loans 5.4 % - 6.6 % 6.2 % 8,950 10,300
Capital leases 2.8 % - 25 % 12.0 % 723 499
Other loans 7.5 % - 7.625 % 7.5 % 13,157 16,602
--------- ---------
TOTAL 22,830 27,401
========= =========
</TABLE>
Long-term liabilities at December 31, 1996 will be payable as follows:
<TABLE>
<CAPTION>
Bank Capital Other Total
Loans Leases Loans
<S> <C> <C> <C> <C>
1997 1,350 338 1,675 3,363
1998 1,350 133 1,708 3,191
1999 1,350 86 1,743 3,179
2000 350 86 1,781 2,217
2001 350 80 1,250 1,680
Thereafter 4,200 - 5,000 9,200
------- ------- ------ ------
TOTAL 8,950 723 13,157 22,830
======= ======= ====== ======
</TABLE>
Bank loans and other loans are guaranteed by the local Eindhoven
municipality. The capital leases are in the books of group companies in
Prague and Eindhoven.
9. Current Liabilities
-------------------
The current liabilities relate to short term debt and other liabilities
which are specified below.
<TABLE>
<CAPTION>
a) Short term debt 1996 1995
--------------- -------- --------
<S> <C> <C>
Long term debt repayable within one year 3,363 5,053
Short term bank loans 424,449 345,575
Short term loans Philips 22,080 92,773
-------- --------
TOTAL 449,892 443,401
======== ========
</TABLE>
153
<PAGE>
During 1996 UPC secured an USD 150 million revolving credit facility
for general working capital and also an USD 150 million syndicated
acquisition facility for acquisitions of new cable TV licenses or
businesses. The revolving credit facility and acquisition facility
mature on January 29, 1997 and April 17, 1997 respectively, both
facilities are extendible and unsecured (see note 21). UPC must comply
with certain covenant restrictions in order to utilize the facilities.
The facilities can be drawn in US dollars or Netherlands guilders. As
per December 31, 1996 an amount of NLG 286,028 was drawn on the
revolving credit facility and the acquisition facility.The short term
debt of Norkabel (138,421) is being refinanced as part of the Janco
merger with Norkabel.
Of the short term loans from Philips per December 31,1995 an amount of
87,656 was for the acquisition of the cable network in Eindhoven which
was fully repaid in 1996. Per December 31, 1996 the debt represents
short term financing in Brussels.
(b) Other Liabilities
-----------------
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accounts payable to trade creditors 31,408 12,876
Accounts payable to affiliated companies 2,140 1,788
Deposits by customers 8,537 2,848
Other short term liabilities 46,149 55,829
Deferred income and accrued expenses 48,040 19,233
-------- --------
TOTAL 136,274 92,574
======== ========
</TABLE>
Included under Other short term liabilities are amounts payable to the
parent companies of 12,319 (1995: 35,459), relating to services supplied
and to interest payable.
10. Information per geographical area
---------------------------------
<TABLE>
<CAPTION>
Revenue Operating Total assets
income (loss)
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Netherlands - corporate 4,433 1,242 (12,872) (6,631) 339,803 548,781
- operating companies 21,633 4,297 4,828 282 120,626 120,094
Austria 156,964 72,802 16,430 7,117 528,409 510,903
Belgium 37,704 19,752 (4,287) (4,646) 100,762 96,951
Czech Republic 7,746 2,086 (12,307) (10,772) 35,149 39,810
Norway (three months period) 14,541 - (767) - 168,574 -
Other 2,158 - (10,220) - 37,733 -
---------- --------- ---------- ---------- ---------- ----------
TOTAL 245,179 100,179 (19,195) (14,650) 1,331,056 1,316,539
========== ========= ========== ========== ========== ==========
</TABLE>
The Total assets of Netherlands - corporate include UPC's share in the
licence of KTA and the investments, advances and current accounts with
Affiliated companies. The main reason for the reduction in Corporate assets
were the collection of 114,776 in connection with the funding of KTA by
A2000, and the decrease in the Cash and Cash equivalents.
154
<PAGE>
11. Personnel
---------
Labour cost is specified as follows :
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Salaries and wages 39,022 13,565
Pension costs 1,050 1,311
Social securities 10,135 3,435
---------- ----------
TOTAL 50,207 18,311
========== ==========
</TABLE>
The information about employees by category is as follows:
<TABLE>
<CAPTION>
As of Dec. 31 As of Dec. 31 Average Average
1996 1995 1996 1995
------------- ------------- ------- -------
<S> <C> <C> <C> <C>
Network 365 270 311 263
General & Admin. 339 137 266 117
-------- -------- -------- --------
TOTAL 704 407 577 380
======== ======== ======== ========
</TABLE>
12. Financial Income and Expenses
-----------------------------
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Interest income 2,757 6,403
Interest expense (38,475) (19,873)
Exchange loss & other (21,135) (3,376)
------- -------
TOTAL (56,853) (16,846)
======= =======
</TABLE>
13. Income taxes
------------
The consolidated financial statements have been prepared assuming full tax
basis for licence fees capitalized relating to certain acquisitions and no
deferred taxes relating to these acquisitions have been provided for.
The difference between the income tax benefit and the actual income tax
benefit are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
"Expected" income tax benefit (26,616) (11,023)
Expenses and write downs not deductible 3,872 4,000
Differences in foreign tax rates 1,105 797
Temporary differences for which no deferred
tax benefits has been provided for 26,019 3,471
Other (683) 1,131
------- -------
Income tax loss (benefit) 3,697 (1,624)
------- -------
</TABLE>
The net deferred tax liability of UPC consists of the following:
155
<PAGE>
<TABLE>
<CAPTION>
1996 1995
--------------- ----
<S> <C> <C>
Intangible fixed assets 31,688 5,552
Tangible fixed assets 8,453 3,096
Other (3,746) -
---------------- -------
Total deferred tax liabilities 36,395 8,648
---------------- -------
</TABLE>
156
<PAGE>
<TABLE>
<CAPTION>
Deferred tax assets:
<S> <C> <C>
Tax loss carry forwards 103,635 2,476
Other - 331
Tax loss carry forwards not recognized (75,630) (1,913)
--------- ------
Net deferred tax assets 28,005 894
--------- ------
Net deferred tax liabilities 8,390 7,754
========= ======
</TABLE>
Tax loss carry forwards arise primarily in Norway, The Netherlands,
Belgium, Czech Republic and Austria. The tax loss carry forwards of Norway,
aggegrating to 249,818, will expire during the years 1999 - 2006. The tax
loss carry forwards of The Netherlands, Belgium and Austria of 77,855
(1995: 7,922) have no expiration date. The tax loss carry forwards of the
Czech Republic of 15,688 (1995: 14,489) will expire in the year 2003.
14. Parent companies related transactions
-------------------------------------
The Company is charged by the parent companies for services supplied and
for interest. In 1996 UIH charged an amount of 9,004 for salaries and
related costs for employees seconded to UPC group and affiliated companies.
The charges from Philips relate to interest on the convertible notes
(24,212) and reimbursement of expenses (620). These figures do not include
the purchase of equipment from Philips companies, which purchase is done at
normal commercial conditions.
15. Commitments and Guarantees
--------------------------
The UPC Group has entered into various rent and lease agreements for office
space, cars etc. The terms of the agreements call for future minimum
payments as follows:
1997 10,643
1998 9,829
1999 7,652
2000 5,948
The Company has guaranteed affiliated company debt in the amount of 6,161
with respect to Princes Holdings Ltd. in Ireland (1995: 7,040 with respect
to Melita Cable, Malta).
16. Foreign exchange risk exposure
------------------------------
The Company did not enter into foreign forward exchange contracts, or use
other financial instruments, to hedge against foreign exchange exposure.
The currency risk is primarily applicable to the US dollar, in total for
approximately USD 185 million (1995: USD 145 million). The main item of
this exposure relates to the convertible loans. The risk exposures for
other foreign currencies are not material.
157
<PAGE>
17. US GAAP Reconciliation
----------------------
The accounting policies followed in the preparation for the consolidated
financial statements differ in some respects to those generally accepted in
the United States of America (US GAAP).
The differences which have a material effect on net loss and/or
shareholders' equity and/or total assets are as follows:
- The fair market value of licences, goodwill, land and buildings and
networks for US GAAP purposes is limited to a partial step-up of the fair
market value of the assets contributed by Philips. No step-up in asset
value is allowed for the difference between historical cost and the fair
market value of the assets contributed by UIH. Related amortisation and
depreciation has been adjusted accordingly.
- Deferred taxes have been established for the difference between book and
tax basis of contributed assets.
The calculation of net loss, shareholders' equity and total assets,
substantially in accordance with US GAAP, is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net loss as per Consolidated statements of income (91,456) (46,242)
-------------------------------------------------
Adjustments to reported income (loss):
Amortisation of licences 6,487 3,244
Amortisation of goodwill 345 1,985
Depreciation of fixed assets 1,908 953
Amortisation goodwill Affiliated Companies 3,692 --
Tax effect of US GAAP adjustments 3,188 (1,469)
-------- -------
Approximate net loss in accordance with US GAAP (75,836) (41,529)
======== =======
Shareholders' equity as per Consolidated balance sheets 449,639 537,633
-------------------------------------------------------
Adjustments to reported equity:
Licences (120,012) (126,499)
Goodwill (3,411) (59,623)
Tangible fixed assets (20,067) (21,975)
Goodwill Affiliated Companies (50,771) --
Deferred taxes 3,188 --
------- --------
Approximate shareholders' equity in accordance 258,566 329,536
with US GAAP ======= =======
Total assets as per Consolidated balance sheets 1,331,056 1,316,539
-----------------------------------------------
Adjustments to reported assets:
Licences (120,012) (126,499)
Goodwill (3,411) (59,623)
Tangible fixed assets (20,067) (21,975)
Goodwill Affiliated Companies (50,771) --
--------- ---------
Approximate total assets in accordance
with US GAAP 1,136,795 1,108,442
========= =========
</TABLE>
158
<PAGE>
18. Summary financial information about A2000 Holding N.V., based on Dutch
----------------------------------------------------------------------
generally accepted accounting principles
----------------------------------------
<TABLE>
<CAPTION>
Balance sheet per December 31, 1996
- -----------------------------------
<S> <C>
Intangible fixed assets 132,018
Tangible fixed assets 230,304
Financial fixed assets 543
Liquid assets 33,389
Other current assets 24,997
-------
Total assets 421,251
=======
Provisions 11,693
Long term debt 366,000
Current liabilities 40,908
-------
Total liabilities 418,601
=======
Total shareholders' value 2,650
=====
<CAPTION>
Statement of income 1996
- ------------------------
<S> <C>
Revenue 89,893
Costs (49,064)
Depreciation and amortisation (43,789)
Financial income/charges (12,969)
--------
net loss (15,929)
========
</TABLE>
19. Use of estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that effect amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reported
period. Actual results may differ from the estimates.
159
<PAGE>
20. Proforma information (unaudited)
--------------------------------
The acquisition of the additional 91.7% interest in Norkabelgruppen AS, and
the subsequent consolidation, has a material effect on the figures reported
in the statement of income. Based upon currently available information and
upon certain assumptions that management believes reasonable under current
circumstances, the proforma consolidated financial information for the UPC
Group for the reported periods, assuming the operations of Norkabelgruppen
AS were included, is :
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenue 287,962 125,262
Net Loss (108,856) (53,664)
</TABLE>
21. Subsequent Events
-----------------
Janco Acquisition
-----------------
On January 8, 1997 UPC acquired 70.2% of the shares of Janco, a Norwegian
Cable system for a price of NLG 88 million. Financing was from the
acquisition facility for the full amount. Janco passes 225,000 homes and
has 160,000 subscribers as per December 31, 1996.
Sale RKS Hamburg
----------------
In February 1997 UPC sold its 29% investment in both RKS Hamburg L.P. and
Kabel - Fernsehen Hamburg Service GmbH for 5,906. The transaction gain of
2,611 will be accounted for in 1997.
Sale AGFB
---------
During March and April 1997 UPC sold its shares in AGFB (Germany). The
transaction gain of 204 will be accounted for in 1997.
Refinancing UPC Borrowing Facilities
------------------------------------
Subsequent to year end, UPC extended the USD 150 million revolving credit
facility and the USD 150 million acquisition facility until July 11, 1997
and October 11, 1997 respectively. UPC is currently in discussions to
refinance both facilities.
Letter of Intent
----------------
During March 1997, UIH and Philips announced that they had signed a letter
of intent whereby UIH (or the Company) would acquire Philips' 50% ownership
interest in the Company and Philips' 3.17 million shares of UIH Class A
Common Stock for USD 275 million. In addition, UPC at closing will redeem
the Subordinated Convertible Loans held by Philips. In connection with
financing the transaction, Philips has agreed to receive USD 162.5 million
of new preferred securities issued by UPC. An additional USD 275 million of
new debt or equity financing will be required by UIH or the Company.
160
<PAGE>
UNITED AND PHILIPS COMMUNICATIONS B.V.
--------------------------------------
FINANCIAL STATEMENTS DECEMBER 31, 1996
--------------------------------------
161
<PAGE>
UNITED AND PHILIPS COMMUNICATIONS B.V.
--------------------------------------
BALANCE SHEETS
--------------
(Currency -- Thousands of Dutch guilders)
A S S E T S
-----------
<TABLE>
<CAPTION>
As at December 31,
Notes 1996 1995
---- -----------
<S> <C> <C> <C>
FIXED ASSETS:
Intangible fixed assets A 162,012 238,233
Tangible fixed assets B 1,279 432
Investments and Advances C 801,635 744,222
Other 84 57
------- -----------
Total fixed assets 965,010 982,944
CURRENT ASSETS:
Receivables D 69,071 155,380
Cash and cash equivalents 20,949 112,292
--------- -----------
Total current assets 90,020 267,672
--------- -----------
Total assets 1,055,030 1,250,616
========= ===========
</TABLE>
SHAREHOLDERS' EQUITY AND LIABILITIES
<TABLE>
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY E 449,639 537,633
SUBORDINATED CONVERTIBLE LOAN 256,335 213,792
--------- ---------
705,974 751,425
LONG-TERM LIABILITIES F 17,578 14,319
CURRENT LIABILITIES G 331,478 484,872
--------- ---------
Total shareholders' equity and liabilities 1,055,030 1,250,616
========= =========
</TABLE>
The accompanying notes form an integral part of these Financial Statements
162
<PAGE>
UNITED AND PHILIPS COMMUNICATIONS B.V.
--------------------------------------
STATEMENTS OF INCOME
--------------------
(Currency -- Thousands of Dutch guilders)
<TABLE>
<CAPTION>
For the year ended December 31,
1996 1995
---- -----------
<S> <C> <C>
NET LOSS FROM GROUP AND AFFILIATED COMPANIES (56,893) (25,791)
OTHER NET LOSS (34,563) (20,451)
------- -----------
Net income (loss) after taxes (91,456) (46,242)
======= ===========
</TABLE>
The accompanying notes form an integral part of these Financial Statements
163
<PAGE>
UNITED AND PHILIPS COMMUNICATIONS B.V.
--------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
AT DECEMBER 31, 1996
--------------------
(Currency -- Thousands of Dutch guilders)
1. General
-------
The policies with regard to valuation and income determination as described
in the notes to the consolidated financial statements also apply to these
Company-only financial statements.
In accordance with article 402 book 2 of the Netherlands Civil Code, the
statement of income is presented in abbreviated form.
A. Intangible Fixed Assets
-----------------------
The investment relates to licences and goodwill.
<TABLE>
<CAPTION>
Total Licences Goodwill
-------- -------- --------
<S> <C> <C> <C>
Balance as of January 1, 1996 238,233 174,013 64,220
Investments 1,101 1,101 --
Reallocation of goodwill to investments
in affiliated companies (54,463) -- (54,463)
in group companies (9,757) -- (9,757)
Amortisation (13,102) (13,102) --
-------- -------- -------
Book value as of December 31, 1996 162,012 162,012 --
======== ======== =======
Original cost 180,013 180,013 --
Accumulated amortisation (18,001) (18,001) --
-------- -------- -------
Book value as of December 31, 1996 162,012 162,012 --
======== ======== =======
</TABLE>
The Company has changed its presentation of the excess amounts of cost
over net assets acquired, and includes these in Investments and
Advances.
164
<PAGE>
B. Tangible Fixed Assets 1996 1995
---------------------
Balance as of January 1 432 --
Investments 1,148 432
Depreciation (335) --
Sundry movements 34 --
------ ----
Book value as of December 31, 1996 1,279 432
====== ====
Original cost 1,612 432
Accumulated depreciation (333) --
------ ----
Book value as of December 31, 1996 1,279 432
====== ====
The investments represent expenditure on building improvements and the
acquisition of equipment.
C. Investments and Advances 1996 1995
------------------------
Balance as of January 1 744,222 --
Contribution in kind -- 623,443
Acquisitions/additions 91,986 145,075
Reallocation of goodwill 64,220 --
Net loss from investments (56,893) (25,791)
Dividends received (2,231) --
Capital repayment (44,950) --
Translation differences and
sundry movements 5,281 1,495
-------- --------
Balance as of December 31 801,635 744,222
======== ========
The investments are included in the balance sheet based on their net
asset value in conformity with the aforementioned policies of the
consolidated financial statements. The outstanding loans to these
companies, amounting to 341,727 (1995: 231,249) are also included. The
bookvalue of the excess amounts of cost over net assets acquired
amounts to 83,584. The amortisation charge for 1996 of 4,752 is
included in Net loss from investments. The major bookvalues relate to
UII (37,386), Kabelkom (32,797) and the group companies in the Czech
Republic (10,015) and Eindhoven (2,983). A list of group and affiliated
companies, prepared in accordance with the relevant legal requirements,
will be lodged with the Chamber of Commerce in Eindhoven. An
abbreviated list of these companies is disclosed on page... of these
financial statements.
D. Receivables 1996 1995
-----------
Group companies 38,983 19,860
Affiliated companies 9,048 120,185
Other receivables 18,986 15,278
Advances and prepaid expenses 2,054 57
------ -------
Total 69,071 155,380
====== =======
The receivables from affiliated companies is after deducting a
provision for doubtful debts of 4,620 (1995: 5,303).
165
<PAGE>
E. Shareholders' Equity
<TABLE>
<CAPTION>
Share Capital Other
Capital Reserves Reserves
---------- ----------- -----------
<S> <C> <C> <C>
Balance as of January 1, 1996 200 582,180 (44,747)
Issuance of new shares 53,800 (53,800) --
Net group loss -- -- (91,456)
Translation differences -- -- 3,462
------ -------- --------
Balance as of December 31, 1996 54,000 528,380 (132,741)
====== ======== ========
</TABLE>
On June 18, 1996, the general meeting of shareholders of UPC has
decided to issue 53,800,000 shares, which issuance of shares has been
embodied in a notarial deed dated July 26, 1996.
On June 18, 1996, UPC adopted a stock option plan for certain of its
employees and those of its subsidiaries. The shareholders have
transferred 4 million ordinary shares of UPC into the "Stichting
Administratiekantoor UPC" (the "Foundation"), which administers the
stock option plan. Until such time as the shares of UPC have been
listed at a stock exchange, the Foundation will issue under certain
circumstances certificates convertible into the shares of UPC owned by
the Foundation. The options are granted at fair market value to be
determined by the Supervisory Board. The maximum term that the options
can be exercised is five years from the date of the grant. The options
vest over a three year period. During the year ended December 31, 1996,
no compensation expense was recognized in connection with the plan.
<TABLE>
<CAPTION>
Data concerning the stock option plan is as follows :
<S> <C>
Outstanding at the beginning of the year --
Granted during the year 2,660,000
Exercised during the year (1,120,000)
(vested portion : 520,278)
Cancelled during the year (6,389)
Outstanding at the end of the year (vested portion : 670,987) 1,533,611
Option price per share NLG 15.74
</TABLE>
Upon termination of an employee any unvested value associated with the
difference between the exercise price and the fair market value of the
certificates must be repaid to the Foundation.
<TABLE>
<CAPTION>
F. Long-Term Liabilities
---------------------
<S> <C> <C>
Loans from Consolidated Companies 1996 1995
Range of interest 3.31 - 3.50% 4.30%
Average rate of interest 3.33% 4.30%
Amount outstanding 20,910 23,865
Due within one year 3,332 9,546
Due after more than five years -- --
</TABLE>
The loans are from various group companies, the main one being
Telekabel Wien GmbH: 17,578 (1995: 23,865).
166
<PAGE>
G. Current Liabilities
-------------------
Short-term debt 1996 1995
Long-term debt repayable within one year 3,332 9,546
Short-term loan from Philips -- 87,656
Short-term bank loan 286,028 345,575
------- -------
Total 289,360 442,777
Both short-term loans per December 31, 1995 relate to the acquisition
of new companies in the second half year of 1995 and were repaid in
1996.
<TABLE>
<CAPTION>
Other Liabilities 1996 1995
<S> <C> <C>
Amounts owed to group companies 2,635 --
Amounts owed to affiliated companies 2,140
Amounts owed to parent companies 12,319
Current account with Stichting
Administratiekantoor UPC 17,616 --
Deferred income and accrued expenses 7,408 5,455
------- ------
Total 42,118 42,095
======= =======
</TABLE>
The amounts owed to parent companies (UIH 376; Philips 11,943) relate
to services supplied and interest payable (1995: UIH 7,238; Philips
27,614).
H. Remuneration of Directors and Supervisory Board
-----------------------------------------------
The directors received a remuneration of 1,593 (1995: 700).
The Supervisory Board did not receive any remuneration during the year.
167
<PAGE>
<TABLE>
<CAPTION>
Summary of major group and affiliated companies
-----------------------------------------------
<S> <C>
AUSTRIA
Telekabel Wien GmbH 95%
Telekabel Graz GmbH 95%
Telekabel Klagenfurt GmbH 95%
Telekabel - Fernsehnetz Region Baden
Betriebsgesellschaft mbH 95%
Telekabel - Fernsehnetz Wr. Neustadt / Neunkirchen
Betriebsgesellschaft mbH 95%
BELGIUM
Radio Public SA 100%
CZECH REPUBLIC
Kabel Net Holding AS 100%
Kabel Net Brno AS 100%
Ceska Programova Spolecnost SRO 100%
FRANCE
Mediareseaux S.A 100%
Mediareseaux Marne SA 99.6%
Citecable SA 30%
GERMANY (Sold in 1997)
RKS Hamburg L.P. 29%
Kabel - Fernsehen Hamburg Service GmbH 29%
AGFB 7.1%
HUNGARY
Kabelkom Holding Company (1) 50%
IRELAND
Through UII partnership (2):
Princes Holdings Ltd 20%
ISRAEL
Through UII partnership (2):
Tevel Israel International Communications Ltd 23.3%
MALTA
Through UII partnership (2):
Melita Cable TV Ltd 42.5%
NETHERLANDS
A2000 Holding NV (Amsterdam) 50%
Kabeltelevisie Eindhoven NV 100%
</TABLE>
168
<PAGE>
<TABLE>
<S> <C>
NORWAY
NorkabelGruppen AS 100%
PORTUGAL
Intercabo Televisao por Cabo SGPS Lda 100%
ROMANIA
Multicanal Holdings SRL 90%
Control Cable Ventures SRL 51%
SLOVAK REPUBLIC
Trnavatel SRO 75%
Slovatel SRO 100%
SPAIN
Santander de Cable SA 25%
</TABLE>
(1) UPC BV has a 50% legal ownership in Kabelkom Holding Company.,
which is reduced by a preferential claim by Time Warner to an
economic ownership of 47.2 %.
(2) UII (United International Investments) is a US general partnership
between UPC BV and TeleCommunications, Inc.With respect to the
Israel system, UPC BV's interest in UII is 50 % (corresponding with
a 23.3 % beneficial interest in Tevel Israel International
Communications Ltd).With respect to the Irish system, UPC BV's
interest in UII is 44.4 % (corresponding with a 20 % beneficial
interest of UPC BV in Princes Holding Ltd). With respect to the
Malta system, UPC BV's interest in UII is effectively 56.2 %
(corresponding with a 42.5 % beneficial interest of UPC BV in
Melita Cable TV Ltd). UPC BV provides the management services to
UII Management, a US general partnership between UPC BV (50 %) and
TeleCommunications, Inc (50 %) which provides management and
consulting services to UII's Israel (Tevel) and Malta (Melita)
cable television interests.
169
<PAGE>
EXHIBIT 10.24
CONSULTING AGREEMENT
Consulting Agreement dated June 1, 1995, between United International
Holdings, Inc., a Delaware corporation, (the "Company") and Mark L. Schneider
("Consultant") who resides in Arapahoe County, Colorado.
Recitals
Consultant has resigned as president of the Company and has agreed to
serve as a consultant to the Company on the terms of this Agreement. He will
continue to serve as a director. This Agreement is intended to describe the
entire relationship between Consultant and the Company with respect to his
former employment, his future consulting services to the Company and his
services as the Company's representative with other entities.
Consultant has significant experience in international cable
television franchise development, television programming and related businesses,
and the Company intends to call upon that experience as it considers advisable
in its absolute discretion in connection with its international cable television
business.
Agreement
For good and valuable consideration, the receipt and sufficiency of
which are acknowledged, the Company and Consultant agree as follows.
<PAGE>
1. Term. The Company agrees to retain Consultant and Consultant
----
agrees to serve the Company for a period beginning on the date of this Agreement
and ending on May 31, 2000 (the "Consulting Period").
2. Duties; Supervision. For up to 90 days, including travel days,
-------------------
each calendar year, Consultant will provide consulting services to the Company
only as assigned by the Chief Executive Officer of the Company or such other
officer of the Company as the Board of Directors shall from time-to-time
designate as the officer responsible for the supervision of Consultant's
services hereunder ("Executive Officer"). Consultant's services shall be
scheduled to accommodate Consultant's other business activities to the extent
reasonably possible. Consultant shall report to the Executive Officer with
respect to Consultant's services hereunder and shall be subject to the Executive
Officer's sole supervision. Consultant's assignments will be made by the Chief
Executive Officer, will be commensurate in status to the services provided by
Consultant as President of the Company and, it is anticipated, will relate to
technology, telephony and programming services and franchise business, new
business in foreign countries, and acting as the Company's liaison with, and as
a board member of, Interactive Television Network. The Executive Officer shall
provide reports of Consultant's services hereunder to the Chairman of the Board
of Directors of the Company (the "Chairman") from time to time and, as
requested, to the Board of Directors or to the committee of the Board described
in Section 12.
-2-
<PAGE>
3. Compensation; Reimbursements. (a) Cash, Benefits. The Company
---------------------------- ------ --------
shall pay Consultant an annual fee of $300,000 during the Consulting Period in
equal semi-monthly installments on its normal payroll days. Consultant shall be
entitled to health and dental insurance, disability insurance and similar
benefits that are provided to executive officers of the Company, and shall have
all other incidental perquisites available to Consultant in his previous
capacity as President of the Company or made available to the top executives of
the Company. The Company shall not, however, be required to adopt or to
maintain in existence any benefit plan or modify the terms of eligibility under
any plan to accommodate Consultant, but shall, if Consultant is ineligible under
any such plan, provide comparable benefits purchased separately.
(b) Office Expenses. The Company shall pay or shall reimburse
---------------
Consultant for reasonable office expenses incurred by him during the Consulting
Period, including actual rent incurred for up to 1,500 square feet of office
space plus parking for Consultant and a secretary, salary of a secretary,
expenses for office equipment and supplies, accounting services, and startup
costs for establishing an office in a Class A building outside the Company's
offices, such that Consultant will have an office and working space for a
secretary and other functions equivalent to the office space provided to
Consultant by the Company during his tenure as President.
-3-
<PAGE>
(c) Stock Options. All options to purchase stock in the Company
-------------
that are held by Consultant as of the date of this Agreement and that are not
vested shall vest on the date of this Agreement. All unexercised options held by
Consultant shall expire in accordance with the applicable plan or agreement
governing such options. Consultant shall be entitled to receive additional
options to acquire stock of the Company during the Consulting Period in an
amount to be determined by the Board of Directors on the recommendation of the
Chairman, but shall receive at least options to purchase a number of shares of
the Company equal to 90 per cent of the average number of shares provided in
options granted to the Chairman, Chief Executive Officer, Chief Operating
Officer, Chief Financial Officer and Executive Vice President. The calculation
of such shares shall be equitably adjusted for unusual circumstances including,
without limitation, (i) any initial extraordinary grant to a newly hired officer
to fill a vacancy in any of those positions shall be excluded from the
calculation, but subsequent grants in the ordinary course to such new officer
shall be included, and (ii) if any such office is not filled and option grants
are not made with respect to such position, appropriate adjustments shall be
made to reflect that circumstance in determining the average number of options
granted, the intent being that, over the term of this Agreement, Consultant
shall receive options to purchase a number of shares not less than 90 percent of
the number of shares in options granted to the top five officers of the Company.
Any such options granted during the Consulting Period shall be at prices
(including any favorable repricing), and with vesting
-4-
<PAGE>
provisions and other terms (to the extent permitted under applicable law)
substantially equivalent (but no less favorable) to those granted to the other
executive officers of the Company. To the extent that other compensation
programs for the executives listed above are instituted in lieu of stock
options, Consultant shall participate in those programs such that the change in
the form of compensation to such executives is not detrimental to his rights
under this Paragraph 3(c).
(d) Expenses. The Company shall pay directly or reimburse Consultant
--------
for the reasonable amount of hotel, travel, entertainment and other expenses
necessarily incurred by Consultant in the discharge of his duties hereunder upon
submission and approval of written statements and bills in accordance with the
then regular procedures and standards of the Company for reimbursement of
expenses incurred by the Chairman and the Chief Executive Officer of the
Company.
(e) No Director's Fees. During the Consulting Period, Consultant will
------------------
not be separately compensated for his services as a director of the Company, and
will be entitled to reimbursement of expenses incurred in performing his duties
as a director on the same basis as employees of the Company are reimbursed for
expenses they incur as a director of the Company.
(f) Attorney' Fees. The Company shall reimburse Consultant for the
--------------
reasonable fees and expenses of his attorneys
-5-
<PAGE>
incurred in connection with the preparation of this Agreement and related
matters.
4. Termination. If during the Consulting Period
-----------
(a) either
(i)(A) the Board of Directors of the Company shall determine
that it is desirable to terminate this Agreement or (B) the Company shall breach
any material term of this Agreement and, if such breach is curable, shall fail
to correct such breach within 20 days after notice by Consultant to the Company
of its commission of the same; or
(ii)(A) Consultant shall be convicted by a final, non-
appealable judgment of a felony involving moral turpitude, or (B) Consultant
shall desire to terminate this Agreement other than pursuant to Subparagraph
4(a)(i)(B) above, then, and in each such case, either the Company or the
Consultant (whichever is applicable) shall have the right to give notice of
termination of Consultant's services hereunder. This Agreement and Consultant's
services hereunder shall terminate on the date specified in such notice, which
shall not be sooner than 10 days after the date such notice is given (except in
the case of a termination pursuant to Subparagraph 4(a)(i)(B) or Subparagraphs
4(a)(ii)(A) or (B), which may be effective immediately).
-6-
<PAGE>
(b) If Consultant shall die during the Consulting Period, then this
Agreement shall terminate on the date of Consultant's death.
(c) In the case of a termination pursuant to Subparagraph 4(a)(ii),
Consultant shall be entitled to receive his compensation benefits and
reimbursements at the rates and at the times provided in Section 3 only to the
date on which such termination shall take effect and shall thereafter be
entitled to no further compensation, benefits or reimbursements under this
Agreement. The termination of this Agreement shall not, of itself, affect any
benefit otherwise available to Consultant from the Company in accordance with
its terms after termination of employment.
(d) In the case of a termination pursuant to Subparagraph 4(a)(i) or
Paragraph 4(b), (i) Consultant or his personal representative shall be entitled
to receive Consultant's compensation, including all benefits and payments under
Paragraphs 3(a), 3(b) and 3(c), after the date of termination at the rate and at
the times provided in Section 3 to the end of the Consulting Period (except in
the case of termination pursuant to Paragraph 4(b) options to which Consultant
would be entitled under Paragraph 3(c) shall be granted in the calendar year of
death in proportion to the number of months (or part thereof) elapsed in the
year, and none shall be granted thereafter), (ii) all stock options held by
Consultant that are not vested as of the date of such termination shall
immediately vest, and (iii)
-7-
<PAGE>
all stock options held by Consultant shall expire in accordance with the
applicable plan, if any, or stock option agreement governing such options;
provided Consultant shall receive reimbursement for expenses pursuant to
Paragraph 3(d) only for expenses incurred through the date of termination.
5. Noncompetition and Noninterference. (a) In view of the unique
----------------------------------
and important services that Consultant has been retained to render to the
Company, Consultant's knowledge of proprietary information relating to the
business of the Company, and entities in which it owns, directly or indirectly,
an equity interest ("Related Companies"), and similar knowledge regarding the
Company and Related Companies that Consultant currently has and that it is
expected that Consultant will obtain, and in consideration of the compensation
to be received hereunder, Consultant agrees, subject to Paragraph 5(b), that
during the Consulting Period, he will not without the consent of the Company
Participate In (as hereinafter defined in this Paragraph 5(a)) any business that
competes with the Company or any Related Company in any material respect in the
subscription television, telephony and related business in the respective
specific geographic areas in which the Company or such Related Company conducts
business. For purposes of this Section 5, the term "Participate In" shall mean:
"directly or indirectly, for his own benefit or for, with or through any other
person, firm or corporation, own, manage, operate, control, or participate in
the ownership, or control of, or be connected with as a director, officer,
employee, partner." Notwithstanding the foregoing,
-8-
<PAGE>
Consultant shall not be deemed to Participate In a business merely because he
owns not more than 5% of the outstanding common stock of a corporation, if, at
the time of its acquisition by Consultant, such stock is listed on a national
securities exchange, is reported on Nasdaq or is regularly traded in the over-
the-counter market by a member of a national securities exchange. Consultant
also agrees that until the earliest of (i) one year after the termination of
this Agreement pursuant to Subparagraph 4(a)(ii)(B), and (ii) the expiration of
the Consulting Period or earlier termination of this Agreement pursuant to
Subparagraph 4(a)(i), he will not (i) Participate In any business or
organization (a "Competitor") in a capacity that directly assists such
Competitor in competing with the Company or any Related Company in any material
respect in the subscription television, telephony and related businesses in the
respective specific geographic areas where the Company or any Related Company
conducted such businesses at the time this Agreement terminated, (ii) own a
controlling interest in a business or organization that competes in a material
respect in the subscription television, telephony and related businesses in the
respective specific geographic areas where the Company or any Related Company
conducted such businesses at the time this Agreement terminated, or (iii)
solicit or interfere with, or endeavor to entice away from the Company or any
Related Company, any of their respective employees, consultants or partners. The
employment by Consultant or a business that Consultant Participates In of a
person employed or formerly employed by the Company shall not be prohibited by
this Paragraph if such person
-9-
<PAGE>
sought out such employment on his own initiative. Consultant agrees that the
provisions of this Section 5 are necessary and reasonable to protect the Company
and each Related Company in the conduct of their respective businesses. If any
restriction contained in this Section 5 shall be deemed to be invalid, illegal
or unenforceable by reason of the extent, duration or geographical scope hereof,
or otherwise, then the court making such determination shall have the right to
reduce such extent, duration, geographical scope or other provisions hereof, and
in its reduced form such restriction shall then be enforceable in the manner
contemplated hereby.
(b) Notwithstanding Paragraph 5(a), Consultant shall not be
limited in his ability to Participate In or otherwise conduct any business or
pursue any business opportunity specifically declined by the Company that
Consultant has first offered to the Company on terms substantially equivalent to
the terms on which Consultant has the opportunity to participate individually or
with others and as to which Consultant has provided the Company with all
information available to him. If the Company does not accept Consultant's offer
within 20 business days and thereafter diligently and in good faith pursue the
negotiation of a definitive agreement as to its participation in such business
or business opportunity, the matter will be deemed to have been declined.
6. Confidentiality. Consultant agrees that during the Consulting
---------------
Period (otherwise than in the performance of his
-10-
<PAGE>
duties hereunder) and thereafter, he shall use his reasonable efforts to prevent
the public disclosure of any confidential or proprietary information concerning
the business, accounts or finances of the Company or any Related Company that
have come to his knowledge during his employment with the Company or any of it
Related Company, and which have not previously been publicly disclosed.
7. Delivery of Materials. Consultant agrees that at the request of
---------------------
the Company upon the termination of the Consulting Period he will deliver to the
Company all documents, papers, materials and other property of the Company or
any Related Company relating to their affairs, which may then be in his
possession or under his control. Consultant may, however, retain all
memorabilia and personal papers that have been acquired during the course of his
engagement.
8. Remedies. (a) Upon any material breach by Consultant of the
--------
terms of this Agreement, the Company and any Related Company shall be entitled,
in addition to any other remedies available to it if it so elects, to institute
and prosecute proceedings at law or in equity to obtain damages with respect to
such breach or to enjoin Consultant from engaging in any activity in violation
hereof. Consultant agrees that any breach or threatened breach by Consultant of
any of Sections 5, 6, or 7 hereof may cause immediate, irreparable injury to the
Company and any affected Related Company and that money damages may not provide
an adequate remedy for any such breach or threatened breach. Accordingly,
Consultant hereby agrees that upon any such breach or
-11-
<PAGE>
threatened breach by him of such Sections the Company or any affected Related
Company shall be entitled, in addition to any other lawful remedies that may be
available to it, to seek injunctive relief.
(b) The Company may, in addition to the remedies described in
Paragraph 8(a), sue for damages for breach of this Agreement by Consultant upon
authorization of its Board of Directors.
(c) Consultant agrees that his sole and exclusive remedy for any
breach of this Agreement by the Company shall be the termination of this
Agreement and, upon such termination, the receipt by him of any amounts due him
hereunder as provided in Section 4. Nothing contained in this Subparagraph 8(c)
shall limit Consultant's remedies for any act or omission of the Company, except
with respect to the Company's breach of this Agreement.
9. Indemnification. The Company will indemnify and hold harmless
---------------
Consultant in respect of any liability, damage, amount paid in settlement, cost
or expense (including reasonable counsel fees) incurred in connection with any
threatened, pending or completed claim, action, suit, proceeding or
investigation (whether civil, criminal or administrative) by any person other
than the Company to which he is or was a party, or threatened to be made a
party, by reason of his being or having been an
-12-
<PAGE>
officer, director, employee or consultant of the Company or serving at the
request of the Company as a director, officer, employee or agent of a Related
Company to the full extent permitted by the Certificate of Incorporation or
Bylaws of the Company, any standard indemnity agreement between the Company and
its officers and directors, or by applicable law.
10. Release by Consultant. (a) In consideration of the rights and
---------------------
obligations created by this Agreement, Consultant for himself, his heirs,
personal representatives, successors and assigns, hereby fully and forever
releases and discharges the Company, its affiliates, Related Companies and each
of them, as well as their officers, directors, shareholders, employees, agents,
attorneys and the successors and assigns of each of them, from any and all
claims, demands, obligations, actions, liabilities and damages of every kind and
nature whatsoever, at law or in equity, known or unknown, suspected or
unsuspected, that Consultant may now have or claim at any future time to have,
based in whole or in part upon any act or omission through the date of this
Agreement, including without limitation those claims, demands, obligations,
actions, liabilities and damages arising from, relating to or based upon
Consultant's employment with the Company or separation from employment with the
Company, except as provided herein.
(b) Consultant agrees that the release in Paragraph 10(a) includes
but is not limited to an express waiver of rights and claims under federal and
state statutes that
-13-
<PAGE>
prohibit employment discrimination on the basis of sex, race, national origin,
religion, disability and age, as well as all common law rights and claims, such
as breach of contract, express or implied, tort, whether negligent or
intentional, constructive discharge, and wrongful discharge. Consultant agrees
that the benefits under this Agreement, which he accepts by signing this
Agreement and to which he would not otherwise be entitled to the extent provided
herein, have value to him that exceeds the value of compensation only for his
services as a consultant to the Company.
(c) It is intended that this release be construed in the broadest
possible manner, to further the intention of the parties that all potential
disputes between them arising out of or connected to Consultant's employment
with the Company and any Related Company be forever resolved, subject only to
the exceptions in Paragraph 10(d) below.
(d) Consultant's release in Paragraph 10(a) does not include (i)
the indemnity obligations described in Section 9 of this Agreement, (ii) any
indemnity obligations under any indemnity agreement between Consultant and the
Company or any Related Company, (iii) any reimbursement due Consultant as of the
date hereof for expenses that are reimbursable under current Company policies,
or (iv) claims arising after the date hereof.
11. Release by the Company. (a) In consideration of the rights and
----------------------
obligations created by this Agreement, the
-14-
<PAGE>
Company, for itself, as well as (to the extent that the Company may legally do
so) its officers, directors, shareholders, employees, agents, attorneys,
successors and assigns, hereby fully and forever releases and discharges
Consultant, his heirs, personal representatives, successors and assigns, from
any and all claims, demands, obligations, actions, liabilities and damages of
every kind and nature whatsoever, at law or in equity, known or unknown,
suspected or unsuspected that the Company may now have or claim at any future
time to have, based in whole or in part upon any act or omission through the
date of Consultant's separation from employment with the Company, including
without limitation those claims, demands, obligations, actions, liabilities and
damages arising from, relating to or based upon Consultant's employment with the
Company or separation from employment with the Company.
(b) It is intended that this release be construed in the broadest
possible manner, to further the intention of the parties that all potential
disputes between them arising out of or connected to Consultant's employment
with the Company and any Related Company be forever resolved.
12. Dispute Resolution. Any dispute or disagreement between
------------------
Consultant and the Executive Officer arising under Sections 2, 13 or 14 of this
Agreement shall initially be referred to the Executive Officer and the Chairman
who shall meet together with Consultant in one or more meetings initiated at the
request of any of them. If they are unable to resolve any
-15-
<PAGE>
dispute within a reasonable time, the dispute shall be referred at the request
of any of them to a committee of the Board of Directors to resolve such
disputes. The committee shall consist initially of the Chairman, Lawrence Flinn,
Jr. and Bruce Spector, or in his absence, Antony Ressler. If any of them shall
no longer be a member of the Board of Directors of the Company, the Board of
Directors shall select a replacement member of the committee. The decision of
the majority of the committee with respect to any dispute referred to them shall
be binding on Consultant and the Company, subject always to the authority of the
Board of Directors of the Company. No provision in Sections 2, 13 or 14 of this
Agreement and no decision of the committee or the Board of Directors may be the
basis for claim of breach of the Company's obligations hereunder.
13. Resignation from other Boards. Consultant shall resign promptly
-----------------------------
from the boards of directors or other governing bodies of each Related Company
and as an officer of each of them upon request of the committee of the board of
directors of the Company described in Section 12 of this Agreement. The
committee shall give due consideration to Consultant's duties hereunder as they
may relate to the offices held in Related Companies and to appropriate
transitions to other personnel; however, it may exercise its discretion
absolutely with respect to any such decision. The decision of the majority of
the committee, however, shall be binding on Consultant and the Company as
provided in Paragraph 12 above. No severance or other compensation shall be
payable to Consultant by virtue of his
-16-
<PAGE>
service with a Related Company or his resignation at the request of the
committee.
14. Publicity. The Company and Consultant shall mutually agree upon
---------
a press release and a letter to employees of the Company and similar public
relations matters with respect to Consultant's resignation from the Company and
the terms of this Agreement. Any dispute as to the content of any such release,
letter or other publicity shall be resolved by the Chairman and Executive
Officer, or, if they cannot agree, by the committee described in Section 12.
The Company may, however, make any release or securities law filing that its
counsel advises is necessary or advisable without Consultant's consent.
15. Survival. The covenants, agreements, representations and
--------
warranties contained in or made pursuant to this Agreement shall survive
termination of this Agreement as provided herein.
16. Notices. All notices to be given hereunder shall be deemed duly
-------
given when delivered personally in writing, sent by fax to the numbers provided
below, or five days after mailed, certified mail, return receipt requested,
postage prepaid and addressed as follows:
-17-
<PAGE>
If to be given to the Company:
United International Holdings, Inc.
4643 South Ulster Street
Suite 1300
Denver, Colorado 80237
Fax: (303) 770-8464
Attn: Chairman
and
Attn: Chief Executive Officer
If to be given to Consultant:
Mark L. Schneider
4828 South Albion Street
Littleton, Colorado 80121
or to any such address or fax number as either of the parties may furnish to the
other in writing in accordance with this Section 16 except that notices of
change of address or fax number shall not be deemed given until received.
17. Miscellaneous. This Agreement may not be amended nor may any
-------------
provision hereof be waived, except by an instrument in writing duly signed by
the party sought to be charged with such amendment or waiver, and constitutes
the entire agreement between the Company and Consultant with respect to the
subject matter hereof. This Agreement shall be interpreted, governed and
controlled by the internal laws of the State of Colorado, without reference to
principles of conflict of laws. In any proceeding under this Agreement, the
prevailing party shall be entitled to receive reasonable attorney's fees.
-18-
<PAGE>
18. Approval. This Agreement has been negotiated between Consultant
--------
and disinterested members of the Board of Directors of the Company and was
approved by the disinterested members of the Board of Directors of the Company.
United International Holdings, Inc.
By: /s/ Bruce H. Spector
------------------------
Bruce H. Spector
Director
and
By: /s/ Lawrence Flinn, Jr.
---------------------------
Lawrence Flinn, Jr.
Director
/s/ Mark L. Schneider
-------------------------
Mark L. Schneider
-19-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF
UNITED INTERNATIONAL HOLDINGS, INC.
A. Subsidiaries Other than Subsidiaries Held through United and Philips
Communications B.V.
NAME OF SUBSIDIARY JURISDICTION
- ------------------ ------------
Antena Comunitaria Trelew S.A. Argentina
Antena Television Comuntaria S.A. Argentina
Atelco S.A. Argentina
Cable Total S.A. Argentina
Cable Star S.A. Peru
Cablevideo S.A. Argentina
Cablevision S.A. Chile
Cablevision Du-Ke S.A. Argentina
Cablevision Galvez S.A. Argentina
Century United Programming Venture Australia
Pty. Ltd.
Cerri Video Cable S.A. Argentina
Compania Teleinversora S.A. Argentina
Compania Cableinversora S.A. Argentina
CTV Pty Ltd. Australia
Cuernamu, S.A. DE C.V. Mexico
CV American Holdings, LLC Delaware
CV Inversiones S.A. Argentina
Grupa Telecable de Mexico, S.A. de Mexico
C.V.
Hunan International China
Telecommunications Company Limited
Ibercom, Inc. Delaware
Interactive Television Network, Inc. Colorado
International Broadcasting Corporation Thailand
Inversiones UIH Latin America Limitada Chile
Inversora Multivision S.A. Argentina
Inversora T.V. Cable S.A. Argentina
Inversora Atelco Comodora S.A. Argentina
Inversora Antena Comunitaria S.A. Argentina
Joint Venture, Inc. Delaware
Margarita Television Multicanal, C.A. Venezuela
MCG Management, Inc. Nebraska
Megacomm M. Servicios, S.A. de C.V. Mexico
Monor Telefon Tarasag Rt. Hungary
Monor Communications Group, Inc. Delaware
Multicanal TPS, S.A. Spain
Multivision S.A. Argentina
Nidlo B.V. Netherlands
<PAGE>
NAME OF SUBSIDIARY JURISDICTION
- ------------------ ------------
Plator Holding, B.V. Netherlands
Radio Satel S.A. Argentina
Red de Television y Servicios Por Chile
Cable S.A.
Research Enterprises, Inc. Colorado
RPA Leasing, Inc. Colorado
RTS Telecommunications Services, Ltd. Cyprus
RTS (US), Inc. Colorado
Sacsa, S.A. Argentina
Salstel Media Holdings Pty Limited Australia
Satellite Telecommunications and Russia
Information Systems
Saturn Communications Limited New Zealand
Sistemas UIH de Venezuela, C. A. Venezuela
Societe Francaise des Communications France
et du Cable S.A.
Spanish Program Services, C.V. Netherlands
STV Pty Limited South Australia
T.V. Cable, S.R. Ltda. Peru
Tara Television Limited Irish
Tara Television Global Ltd. England
Tara Television (UK) Limited England
Telecable Mexicano, S.A. de C.V. Mexico
Telecable de Morelos, S.A. de C.V. Mexico
Telecable de Chilpancingo, S.A. de Mexico
C.V.
Telefenua S.A. French Polynesia
Television Universidad de Talcia S.A. Chile
TV Max Constitucion Limitada Chile
TV Show Brasil, S/A Brazil
TV Cabo e Comunicacoes de Jundiai, S A Brazil
TV Cable S.A. Argentina
U.D.P. Management Limited Cyprus
UIH Asia Investment Co. Colorado
UIH Asia, Ltd. Colorado
UIH Asia/Pacific Communications, Inc. Delaware
UIH Austar, Inc. Colorado
UIH Australia Holdings, Inc. Colorado
UIH Australia/Pacific, Inc. Colorado
UIH Brazil, Inc. Colorado
UIH Brazil SP, Inc. Colorado
UIH Canada, Inc. Canada
UIH Chile, Inc. Colorado
UIH China Holdings, Inc. Colorado
UIH Communications, Inc. Colorado
UIH do Brasil Tecnologia Ltda. Brazil
UIH El Salvador, Inc. Colorado
UIH - GTS, Inc. Colorado
UIH Hunan, Inc. Colorado
-2-
<PAGE>
NAME OF SUBSIDIARY JURISDICTION
- ------------------ ------------
UIH Hungary, Inc. Colorado
UIH Iberian Programming, Inc. Colorado
UIH Latin America, Inc. Colorado
UIH Latin America Programming, Inc. Colorado
UIH Management, Inc. Colorado
UIH Mexico, Inc. Colorado
UIH Mexico Resources, Inc. Colorado
UIH Mexico Ventures, Inc. Colorado
UIH Middle East, Inc. Colorado
UIH New Zealand Holdings, Inc. Colorado
UIH Peru, Inc. Colorado
UIH Peru, S. A. Peru
UIH Philippines Holdings, Inc. Colorado
UIH Programming, Inc. Colorado
UIH Programming - Malta Ltd. England
UIH - SFCC Holdings, L.P. Colorado
UIH - SFCC II, Inc. Colorado
UIH - SFCC L.P. Colorado
UIH Taiwan Holdings, Inc. Colorado
UIH U.K. Programming, Inc. Colorado
UIH UK, Inc. Colorado
UIH Venezuela, Inc. Colorado
UIH XYZ Holdings, Inc. Colorado
UIH Argentina, Inc. Colorado
UIH AML, Inc. Colorado
UIHLA, Management, Inc. Colorado
UIHLA Holdings, Inc. Colorado
UIM Aircraft, Inc. Colorado
United International Holdings Argentina
Argentina S.A.
United International Properties, Inc. Colorado
United Wireless, Inc. Colorado
United Wireless Pty Limited Auatralia
United Family Communications LLC Delaware
United and Philips Communications B.V. Netherlands
Valle De Tulum S.A. Argentina
Vencom, C.A. Venezuela
Vision por Cable de Oaxaca, S.A. de Mexico
C.V.
VTR Galaxy de Chile S.A. Chile
VTR Hipercable, S. A. Chile
VTR Telefonica S.A. Chile
VTR Cable Express S.A. Chile
VTR Cable Express (Chile) S.A. Chile
-3-
<PAGE>
NAME OF SUBSIDIARY JURISDICTION
- ------------------ ------------
XYZ Entertainment Pty Limited Australia
B. Subsidiaries Held through United and Philips Communications B.V.
NAME OF SUBSIDIARY JURISDICTION
- ------------------ ------------
A2000 Holding NV Netherlands
AB Finvision Sweden
AB SCD Finans Sweden
Akersberga Vision AB Sweden
Anfel-Kabelkom Cable Communications Hungary
Kft.
Ballinasloe Electronic Services Audio Ireland
Vision Ltd.
Bragatel Portugal
Burgos Sistemas de Cable, S.A. Spain
Cable Networks Austria Holdings B.V. Netherlands
Ceska Programova Spolecnost, s.r.o. Czech Republic
Citecable Est SA France
Citecable Goussainville SA France
Citecable Haute Saone SA France
Citecable Jurassienne SA France
Citecable Regions SA France
Citecable Rhone Alpes SA France
Citecable SA France
Citecable Saintagne SA France
Citecable Caladois SA France
Citecable Auvergne SA France
Citecable Essonne SA France
Citecable Centre Bretagne SA France
Citeservices SA France
Cork Communications Ltd. Ireland
Culross Investments Limited Ireland
EBS Musorszolgaltato Es Keszito Kft. Hungary
Hajdu-Kabelkom Cable Communications Hungary
Kft.
Halmstads Kabelvision AB Sweden
Horizon T.V. Distribution Limited Ireland
Independent Wireless Cable Limited Ireland
Intercable Sul-Televisao por Cabo, Portugal
S.A.
Intercabo Atlantico-Comunisacoes por Portugal
Cabo, S.A.
Intercabo Centro-Comunicacoes por Portugal
Cabo, S.A.
Intercabo Capital-Televisao por Cabo, Portugal
S.A.
Intercabo Norte - Comunicacoes por Portugal
Cabo, S.A.
-4-
<PAGE>
NAME OF SUBSIDIARY JURISDICTION
- ------------------ ------------
Intercabo-Televisao par Cabo, SGPS, Portugal
LDA
Israel Cable Programming, Ltd. Israel
Kabel Net Brno, a.s. Czech Republic
Kabel Net Holding, a.s. Czech Republic
Kabel-Fernsehen Hamburg Service Germany
Beteiligungs-GmbH
Kabelkom Kabeltelevizio Kft. Hungary
Kabelkom Holding Co. Delaware
Kabelkom Management Co. Delaware
Kabelkom-Dunaujvaros Cable Hungary
Communications Ltd.
Kabelkom-Nyiregyhaza Hungary
Kabelkommunikacios Kft.
Kabelkom-Pecsi Cable Television Ltd. Hungary
Kabelkom-Szekesfehervar Cable Hungary
Kabelkommunikacios Kft.
Kabelkom-Szolnok Kabelkommunikacios Hungary
Kft.
Kabelkom-Veszprem Kabelkommunikacios
Kft. Hungary
Kabelrep Hirdetesszervezo Kft. Hungary
Kabeltelevisie Eindhoven N.V. Netherlands
Kabeltelevisie Amsterdam B.V. Netherlands
Kabelvision KB Sweden
Kanal 2 A/S Norway
Kenniv Securities Ireland
Mediareseaux Marne SA France
Melita Partnership Colorado
Melita Cable TV Limited Malta
Melita Cable Holdings Limited Malta
Multicanal Norte-Televisao por Cabo, Portugal
S.A.
Multicanal Holdings, S.R.L. Romania
Multicanal Atlantico-Televisao por Portugal
Cabo, S.A.
Multicanal-Televisao por Cabo, LDA Portugal
Norkabel AS Norway
Norkabelgruppen A/S Norway
Oslo Kabelanlegg A/S Norway
Pluricanal Leiria Portugal
Pluricanal Aveiro Portugal
Princes Holdings Limited Ireland
Radio Public N.V./S.A. Belgium
RKS Kabel-Fernsehen Hamburg Service Germany
Gmbh & Co. KG
S.H.E. Service - Heset Elektronic AB Sweden
Santander de Cable S.A. Spain
SCD Invest AB Sweden
SCD Holding AB Sweden
Slovatel s.r.o. Slovakia
Swedish Cable & Dish Aktiebolag Sweden
T.V. Sparts Limited Ireland
-5-
<PAGE>
NAME OF SUBSIDIARY JURISDICTION
- ------------------ ------------
Telekabel Fernsehnetz Wiener Austria
Neustadt/Neukirchen
Betriebsgesellschaft mbh
Telekabel Fernsehnetz Region Baden Austria
Betriebsgesellschaft mbh
Telekabel Fernsehnetz Klagenfurt Austria
Betriebsgesellschaft mbh
Telekabel Fernsehnetz Graz Austria
Betriebsgesellschaft mbh
Telekabel Wien Aktiengesellschaft Austria
Telestar-Kabelkom Cable Hungary
Communications Ltd.
Tevel Israel International Israel
Communications, Ltd.
Tishdoret Achzakot, Ltd. Israel
Trnavatel s.r.o. Slovakia
UCI Enterprises, Inc. Colorado
UCT Netherlands, B.V. Netherlands
UIH Slovakia, Inc. Colorado
UIH Spain, Inc. Colorado
UIH Turkey, Inc. Colorado
UIH Romania, Inc. Colorado
UIH Portugal, Inc. Colorado
UIH Iberia S.L. Spain
UIH Central and East European Hungary
Investments, Ltd.
UIH Bulgaria, Inc. Colorado
UIH Romania Ventures, Inc. Delaware
UII Management Colorado
UII-Ireland Ltd. Colorado
UII-Ireland Limited Liability Company Utah
United Communications International Colorado
United International Investments Colorado
United and Phillips Communication B.V. Netherlands
Urbecable S.A. Spain
Westward Horizon Limited Ireland
Westward Cables Limited Ireland
-6-
<PAGE>
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into the Company's previously filed
Form S-8 Registration Statement (File No. 33-00226) filed on January 9, 1996
and Form S-3 Registration Statement (File No. 33-87326).
/s/Arthur Andersen LLP
Arthur Andersen LLP
Denver Colorado
May 26, 1997
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gene W. Schneider and J. Timothy Bryan, and each
of them, his or her attorneys-in-fact, with full power of substitution, for him
or her in any and all capacities, to sign the fiscal year 1997 annual report on
Form 10-K of United International Holdings, Inc., a Delaware corporation (the
"Company"), to be filed with the Securities and Exchange Commission (the
"Commission"), and all amendments thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Commission; granting unto said attorneys-in-fact full power and authority to
perform any other act on behalf of the undersigned required to be done in the
premises, hereby ratifying and confirming all that said attorneys-in-fact may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<S> <C>
Date: May 28, 1997 /s/ Gene W. Schneider
-----------------------------------------------------------------
Gene W. Schneider
Date: May 27, 1997 /s/ Albert M. Carollo
-------------------------------------------------------------------
Albert M. Carollo
Date: May __, 1997 ________________________________________
Lawrence J. DeGeorge
Date: May __, 1997 ________________________________________
William J. Elsner
Date: May 28, 1997 /s/ Joseph E. Giovanini
------------------------------------------------------------------
Joseph E. Giovanini
Date: May 28, 1997 /s/ Antony P. Ressler
-------------------------------------------------------------------
Antony P. Ressler
Date: May 28, 1997 /s/ Curtis Rochelle
--------------------------------------------------------------------
Curtis Rochelle
Date: May 28, 1997 /s/ Mark L. Schneider
-----------------------------------------------------------------
Mark L. Schneider
Date: May 28, 1997 /s/ Bruce Spector
--------------------------------------------------------------------
Bruce Spector
Date: May 28, 1997 /s/ J. Timothy Bryan
-----------------------------------------------------------------
J. Timothy Bryan
Date: May 28, 1997 /s/ Valerie L. Cover
------------------------------------------------------------------
Valerie L. Cover
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMAITON EXTRACTED FROM UNITED
INTERNATIONAL HOLDING INC.'S FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 28,
1997 AND IS QUALIFIED IN IT'S ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 68,784
<SECURITIES> 4,293
<RECEIVABLES> 2,939
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 173,453
<PP&E> 248,720
<DEPRECIATION> 29,378
<TOTAL-ASSETS> 819,936
<CURRENT-LIABILITIES> 85,314
<BONDS> 674,960
31,293
0
<COMMON> 390
<OTHER-SE> 37,200
<TOTAL-LIABILITY-AND-EQUITY> 819,936
<SALES> 0
<TOTAL-REVENUES> 31,555
<CGS> 0
<TOTAL-COSTS> 34,116
<OTHER-EXPENSES> 38,961
<LOSS-PROVISION> 5,859
<INTEREST-EXPENSE> 79,659
<INCOME-PRETAX> (138,825)
<INCOME-TAX> 0
<INCOME-CONTINUING> (138,825)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (138,825)
<EPS-PRIMARY> (3.56)
<EPS-DILUTED> 0
</TABLE>
