UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended August 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to_________
Commission File No. 0-21974
United International Holdings, Inc.
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1116217
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4643 South Ulster Street, #1300
Denver, Colorado 80237
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (303) 770-4001
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
The number of shares outstanding of the Registrant's common stock as of
October 9, 1998 was:
Class A Common Stock -- 30,512,202 shares
Class B Common Stock -- 9,915,880 shares
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UNITED INTERNATIONAL HOLDINGS, INC.
TABLE OF CONTENTS
Page
Number
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PART I - FINANCIAL INFORMATION
------------------------------
Item 1 - Financial Statements
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Condensed Consolidated Balance Sheets as of August 31, 1998 and February 28, 1998 (Unaudited) ............... 2
Condensed Consolidated Statements of Operations for the Three and Six Months Ended August 31, 1998 and
1997 (Unaudited)........................................................................................... 3
Condensed Consolidated Statement of Stockholders' Deficit for the Six Months Ended August 31, 1998
(Unaudited)................................................................................................ 4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended August 31, 1998 and 1997
(Unaudited)................................................................................................ 5
Notes to Condensed Consolidated Financial Statements (Unaudited)............................................. 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 16
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PART II - OTHER INFORMATION
---------------------------
Item 5 - Other Information...................................................................................... 28
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Item 6 - Exhibits and Reports on Form 8-K....................................................................... 33
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UNITED INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except share and per share amounts)
(Unaudited)
As of As of
August 31, February 28,
1998 1998
---------- ------------
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ASSETS
Current assets
Cash and cash equivalents............................................................ $ 121,634 $ 303,441
Restricted cash...................................................................... 18,788 20,950
Short-term investments............................................................... 34,557 33,731
Subscriber receivables, net.......................................................... 13,591 7,311
Costs to be reimbursed by affiliated companies, net.................................. 15,035 15,157
Other related party receivables ..................................................... 4,814 4,167
Other current assets, net............................................................ 38,303 26,242
---------- ----------
Total current assets............................................................. 246,722 410,999
Investments in and advances to affiliated companies, accounted for under the
equity method, net................................................................... 286,416 341,252
Property, plant and equipment, net of accumulated depreciation of $146,541 and $84,633,
respectively......................................................................... 500,268 440,735
Goodwill and other intangible assets, net of accumulated amortization of $34,555 and
$14,532, respectively................................................................ 465,242 409,190
Deferred financing costs, net of accumulated amortization of $5,819 and $1,634,
respectively......................................................................... 42,338 44,943
Non-current restricted cash and other assets, net....................................... 29,345 32,716
---------- ----------
Total assets..................................................................... $1,570,331 $1,679,835
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable, including related party payables of $798 and $86, respectively..... $ 64,410 $ 55,741
Accrued liabilities.................................................................. 41,554 46,419
Subscriber prepayments and deposits.................................................. 39,126 12,145
Short-term debt...................................................................... 18,225 --
Current portion of long-term debt.................................................... 72,374 163,325
Other current liabilities............................................................ 1,630 13,760
---------- ----------
Total current liabilities........................................................ 237,319 291,390
Senior secured notes and other debt..................................................... 1,857,187 1,702,771
Deferred taxes and other long-term liabilities.......................................... 29,863 30,204
---------- ----------
Total liabilities................................................................ 2,124,369 2,024,365
---------- ----------
Minority interest in subsidiaries....................................................... 30,229 15,186
---------- ----------
Preferred stock, $0.01 par value, 3,000,000 shares authorized, 132,144 and 170,513
shares of Convertible Preferred Stock, Series A issued and outstanding, respectively,
stated at liquidation value.......................................................... 25,773 32,564
---------- ----------
Stockholders' deficit
Class A Common Stock, $0.01 par value, 60,000,000 shares authorized, 30,506,040 and
26,381,093 shares issued, respectively............................................. 305 264
Class B Common Stock, $0.01 par value, 30,000,000 shares authorized, 9,915,880 and
12,863,323 shares issued and outstanding, respectively............................. 99 128
Additional paid-in capital........................................................... 370,769 352,253
Deferred compensation................................................................ (905) (42)
Other cumulative comprehensive income (loss)
Unrealized (loss) gain on investment in marketable equity securities............... (309) 351
Cumulative translation adjustments................................................. (84,003) (66,075)
---------- ----------
Other cumulative comprehensive loss.............................................. (84,312) (65,724)
---------- ----------
Accumulated deficit.................................................................. (862,922) (646,085)
Treasury stock, at cost, 3,169,151 shares of Class A Common Stock.................... (33,074) (33,074)
---------- ----------
Total stockholders' deficit...................................................... (610,040) (392,280)
---------- ----------
Total liabilities and stockholders' deficit...................................... $1,570,331 $1,679,835
========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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2
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UNITED INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands, except share and per share amounts)
(Unaudited)
For the Three For the Six
Months Ended Months Ended
August 31, August 31,
------------------------ -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
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Service and other revenue..................................... $ 68,506 $ 23,277 $ 134,539 $ 44,359
Management fee income from related parties.................... 2,012 457 3,699 738
--------- -------- --------- ---------
Total revenue.......................................... 70,518 23,734 138,238 45,097
System operating expense...................................... (35,049) (15,107) (64,060) (27,896)
System selling, general and administrative expense............ (29,067) (15,605) (55,614) (28,923)
Corporate general and administrative expense.................. (8,515) (5,187) (14,986) (10,915)
Depreciation and amortization................................. (47,011) (19,293) (100,123) (38,751)
--------- -------- --------- ---------
Net operating loss..................................... (49,124) (31,458) (96,545) (61,388)
Interest income, including related party income of $713,
$1,107, $2,243 and $1,309, respectively.................... 3,059 2,800 7,859 4,760
Interest expense, including related party expense of $274,
$574, $555 and $636, respectively.......................... (48,173) (31,861) (95,270) (57,778)
Provision for losses on investment related costs.............. -- (2,018) -- (6,454)
Other expense, net............................................ (5,694) (328) (8,655) (1,948)
--------- -------- --------- ---------
Net loss before other items............................ (99,932) (62,865) (192,611) (122,808)
Equity in losses of affiliated companies, net................. (14,011) (18,225) (26,566) (37,542)
Minority interest in subsidiaries............................. 1,402 7 2,340 238
--------- -------- --------- ---------
Net loss............................................... $(112,541) $(81,083) $(216,837) $(160,112)
========= ======== ========= =========
Basic and diluted loss per common share....................... $ (2.84) $ (2.08) $ (5.50) $ (4.10)
========= ======== ========= =========
Weighted-average number of common shares outstanding.......... 39,810,456 39,208,962 39,571,244 39,191,640
========== ========== ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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3
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UNITED INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(Stated in thousands, except share amounts)
(Unaudited)
Other Cumulative
Components of
Comprehensive
Income (Loss)
----------------------
Class A Class B Unrealized
Common Stock Common Stock Additional Deferred Gain (Loss) Cumulative Treasury Stock
--------------- --------------- Paid-In Compen- on Invest- Translation Accumulated ------------------
Shares Amount Shares Amount Capital sation ment Adjustments Deficit Shares Amount Total
------ ------ ------ ------ --------- -------- ---------- ----------- ---------- -------- -------- ----------
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Balances,
March 1,
1998..........26,381,093 $264 12,863,323 $128 $352,253 $ (42) $ 351 $(66,075) $(646,085) 3,169,151 $(33,074) $(392,280)
Exchange of
Class B
Common
Stock for
Class A
Common Stock.. 2,947,443 29 (2,947,443) (29) -- -- -- -- -- -- -- --
Issuance of
Class A
Common Stock
in connection
with public
offering, net
of offering
expense....... 450,000 5 -- -- 7,405 -- -- -- -- -- -- 7,410
Issuance of
Class A
Common
Stock in
connection
with Company's
stock option
plans......... 293,346 3 -- -- 2,802 -- -- -- -- -- -- 2,805
Issuance of
Class A
Common
Stock in
connection
with Company's
401(k) plan... 8,701 -- -- -- 142 -- -- -- -- -- -- 142
Exchange of
Convertible
Preferred
Stock,
Series A
for Class A
Common
Stock......... 425,457 4 -- -- 7,441 -- -- -- -- -- -- 7,445
Accrual of
dividends
on convertible
preferred
stock......... -- -- -- -- (654) -- -- -- -- -- -- (654)
Repricing of
stock
options....... -- -- -- -- 1,380 (1,380) -- -- -- -- -- --
Amortization
of deferred
compensation.. -- -- -- -- -- 517 -- -- -- -- -- 517
Change in
unrealized
gain on
investment.... -- -- -- -- -- -- (660) -- -- -- -- (660)
Change in
cumulative
translation
adjustments... -- -- -- -- -- -- -- (17,928) -- -- -- (17,928)
Net loss....... -- -- -- -- -- -- -- -- (216,837) -- -- (216,837)
---------- ---- --------- ---- -------- ----- ----- -------- --------- --------- -------- ---------
Balances,
August 31,
1998..........30,506,040 $305 9,915,880 $ 99 $370,769 $(905) $(309) $(84,003) $(862,922) 3,169,151 $(33,074) $(610,040)
========== ==== ========= ==== ======== ===== ===== ======== ========= ========= ======== =========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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4
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UNITED INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands)
(Unaudited)
For the Six Months Ended
August 31,
-------------------------
1998 1997
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Cash flows from operating activities:
Net loss..................................................................................... $(216,837) $(160,112)
Adjustments to reconcile net loss to net cash flows from operating activities:
Equity in losses of affiliated companies, net............................................. 26,899 37,620
Minority interest share of losses......................................................... (2,340) (238)
Depreciation and amortization............................................................. 100,123 38,751
Compensation expense related to stock options............................................. 517 672
Accretion of interest on senior notes and amortization of deferred financing costs........ 68,931 51,099
Issuance of common stock in connection with Company's 401(k) plan......................... 142 196
Provision for loss on marketable equity securities and investment related costs........... -- 6,454
Increase in receivables and other assets.................................................. (19,588) (4,629)
Increase in accounts payable, accrued liabilities and other............................... 32,665 5,909
--------- ---------
Net cash flows from operating activities..................................................... (9,488) (24,278)
--------- ---------
Cash flows from investing activities:
Purchase of short-term investments........................................................... (107,264) (47,433)
Proceeds from sale of short-term investments................................................. 106,438 79,748
Restricted cash released (deposited)......................................................... 2,017 (8,920)
Investments in and advances to affiliated companies and acquisition of assets................ (103,558) (39,873)
Additions to property, plant and equipment................................................... (88,618) (47,098)
Proceeds from sale of property, plant and equipment.......................................... -- 5,332
Decrease in construction payables............................................................ (3,912) (28,163)
Repayments on notes receivable............................................................... 1,053 4,593
Other, net................................................................................... (702) (3,763)
--------- ---------
Net cash flows from investing activities..................................................... (194,546) (85,577)
--------- ---------
Cash flows from financing activities:
Cash contributed from minority interest partners............................................. 4,436 --
Deferred financing costs..................................................................... (1,902) (7,045)
Issuance of common stock in connection with public offerings, net of financing costs......... 7,410 --
Issuance of common stock in connection with Company's stock option plans..................... 2,805 641
Payment of sellers notes..................................................................... -- (34,922)
Borrowings of other debt..................................................................... 136,985 149,286
Payment on capital leases and other debt..................................................... (127,765) (2,963)
--------- ---------
Net cash flows from financing activities..................................................... 21,969 104,997
--------- ---------
Effect of exchange rates on cash............................................................. 258 49
--------- ---------
Decrease in cash and cash equivalents........................................................ (181,807) (4,809)
Cash and cash equivalents, beginning of period............................................... 303,441 68,784
--------- ---------
Cash and cash equivalents, end of period..................................................... $ 121,634 $ 63,975
========= =========
Non-cash investing and financing activities:
Purchase money notes payable to sellers................................................... $ 18,000 $ 52,061
========= =========
Note issued upon sale of investment in affiliated company................................. $ -- $ 6,500
========= =========
Conversion of note receivable to equity................................................... $ -- $ 1,909
========= =========
Change in unrealized gain/loss on investments............................................. $ (660) $ 1,947
========= =========
Assets acquired with capital leases....................................................... $ 194 $ 454
========= =========
Supplemental cash flow disclosures:
Cash paid for interest.................................................................... $ 20,252 $ 2,170
========= =========
Cash received for interest................................................................ $ 3,796 $ 4,070
========= =========
Acquisition of Netherlands assets:
Property, plant and equipment and other long-term assets.................................. $ (51,632) $ --
Goodwill and other intangible assets...................................................... (36,416) --
--------- ---------
Total cash paid....................................................................... $ (88,048) $ --
========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AUGUST 31, 1998
(Monetary amounts stated in thousands, except per share amounts)
(Unaudited)
1. ORGANIZATION AND NATURE OF OPERATIONS
United International Holdings, Inc. (together with its majority-owned
subsidiaries, the "Company" or "UIH") was formed as a Delaware corporation in
May 1989, for the purpose of developing, acquiring and managing foreign
multi-channel television, programming and telephony operations outside the
United States.
The following chart presents a summary of the Company's significant
investments in multi-channel television and telephony operations as of August
31, 1998.
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************************************************************************************************************************************
* UIH *
************************************************************************************************************************************
100% * 100% *
************************************* **********************************************************************************************
* UIH Europe, Inc. ("UIHE") * * United International Properties, Inc. ("UIPI") *
************************************* **********************************************************************************************
* *
* ***************************************************************
100%(1) * 98% * * 100% *
************************************* *************************************** ************************** ***************************
* United Pan-Europe Communications * *UIH Asia/Pacific Communications, Inc.* * UIH Latin America, Inc.* * Other UIPI *
* N.V. ("UPC") * * ("UAP")* * * ("UIH LA") * * *
************************************* *************************************** ************************** *Hungary: *
* * * * Monor Communications *
* 100% * * * Group, Inc. *
************************************* *************************************** ************************** * ("Monor")(13) 48.6%*
*Austria: * * UIH Australia/Pacific, Inc. * *Brazil: * *Ireland: *
* Telekabel Group * * ("UIH/AP") * * TV Cabo e Comunicacoes ** Tara Television *
* ("Telekabel Austria") 95.0%* *************************************** * de Jundiai, S.A. * * Limited ("Tara") *
*Belgium: * * * ("Jundiai") 46.3%* * (13) 75.0%*
* Radio Public S.A. * * * TV Show Brasil, * *Spain/Portugal: *
* ("Radio Public") 100.0%* *************************************** * S.A.("TVSB")(10) 45.0%* * Ibercom, Inc. *
*Czech Republic: * *Australia: * *Chile: * * ("IPS")(13) 33.5%*
* Kabel Net Group * * CTV Pty Limited ("CTV") and * * VTR Hipercable S.A. * ***************************
* ("Kabel Net") 100.0%* * STV Pty Limited ("STV") * * ("VTRH")(11) 34.0%*
* Ceska Programova * * (collectively, "Austar")(7) 100.0%* *Mexico: *
* Spolecnost SRO ("TV Max") 100.0%* * Austar Satellite Pty Limited * * Tele Cable de Morelos, *
*France: * * ("Austar Satellite") 100.0%* * S.A. de C.V. * ***************************
* Mediareseaux Marne S.A. * * United Wireless Pty Limited * * ("Megapo") 49.0%* * * Other UAP *
* ("Mediareseaux") 99.6%* * ("United Wireless") 100.0%* *Peru: * * *
*Hungary: * * XYZ Entertainment Pty Limited * * Cable Star S.A. * *China: *
* Telekabel Hungary BV * * ("XYZ Entertainment")(8) 25.0%* * ("Cable Star") * * Hunan International TV *
* ("Telekabel Hungary")(2) 79.3%* *New Zealand: * * (12) 100.0%* * Communications Company *
* Kabelkom Kabeltelevizio KFT * * Saturn Communications Limited * * TV Cable, S.A. * * Limited ("HITV") *
* ("HBO Programming")(3) 50.0%* * ("Saturn") 65.0%* * ("Tacna")(12) 100.0%* * (14) 49.0%*
*Ireland: (through UII (4)) * *Tahiti: * *Latin America * *Philippines: *
* Princes Holdings Ltd. * * Telefenua S.A. * *Programming: * * Pilipino Cable *
* ("Princes Holdings") 20.0%* * ("Telefenua")(9) 90.0%* * MGM Networks Latin * * Corporation *
*Israel: (through UII(4)) * * * * America LLC ("MGM * * ("PCC")(15) 19.6%*
* Tevel Israel International * *************************************** * Networks LA") 50.0%* ***************************
* Communications Ltd. * **************************
* ("Tevel") 23.3%*
*Malta:(through UII(4)) *
* Melita Cable TV PLC *
* ("Melita") 25.0%*
*Netherlands: *
* United Telekabel Holding *
* N.V. ("UTH")(5) 51.0%*
*Norway: *
* Janco Multicom AS *
* ("Janco")(6) 100.0%*
*Romania: *
* Control Cable Ventures SRL *
* ("Control Cable") 100.0%*
* Multicanal Holdings SRL *
* ("Multicanal") 90.0%*
* Eurosat CA-TV SRL *
* ("Eurosat") 51.0%*
*Slovak Republic: *
* Slovatel SRO ("Kabel Tel") 100.0%*
* Trnavatel SRO ("Trnavatel") 75.0%*
*************************************
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UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1) UIHE holds effectively all of the voting control of UPC and owns all
of its issued and outstanding shares, other than approximately 8.4% of
such shares, which have been registered in the name of a foundation to
support UPC's employee equity incentive plan.
(2) On June 29, 1998, UPC acquired Time Warner Entertainment Company's
("TWE")'s interest in Kabelkom Holding Company's ("Kabelkom")'s
multi-channel television system for approximately $9,500 in cash and a
non-interest bearing promissory note in the amount of $18,000 (the
"Kabelkom Note"). On June 30, 1998, UPC merged the Kabelkom
multi-channel television systems with Hungary's second largest
multiple system operator ("MSO") to form the new joint venture
Telekabel Hungary. UPC retains a 79.3% ownership interest in the new
entity.
(3) In June 1998, UPC granted TWE an option to acquire UPC's interest in
HBO Programming in consideration of the cancellation of the Kabelkom
Note.
(4) United International Investments ("UII") is a United States general
partnership between UPC and Tele-Communications International, Inc.
("TINTA"). In April and May 1998, UPC signed memoranda of
understanding to acquire TINTA's interests in Tevel and Melita, and to
sell UPC's interest in Princes Holdings to TINTA. The transaction is
expected to close in October 1998.
(5) In August 1998, UPC merged its Dutch cable television and
telecommunications assets, consisting of its 50.0% interest in A2000
Holding NV ("A2000") and its wholly-owned subsidiary Cable Network
Brabant Holding BV ("CNBH"), with those of a Dutch energy company,
N.V. NUON Energie-Onderneming voor Gelderland, Friesland en Flevoland
("NUON"), forming a new company UTH. The agreement provides UPC with a
call option after August 6, 1999 to acquire 50.0% of NUON's 49.0%
ownership interest in UTH for Netherlands guilders ("NLG") 244,000
(approximately $122,000 as of August 6, 1998) plus an interest payment
of 5.5% over the call price from January 1, 1998 until the exercise
date. If the exercise date is more than one year after closing, the
interest rate for the second year will go up to 9.0%. If UPC exercises
the call option, NUON can exercise the secondary put option, requiring
UPC to purchase its remaining interest in UTH for the same price. The
agreement provides NUON with a put option after August 6, 1999 to
require UPC to purchase 50.0% of NUON's 49.0% interest in UTH. The
price UPC will have to pay equals NLG166,000 (approximately $83,000 as
of August 6, 1998) plus an interest payment of 4.5% over the put price
from January 1, 1998 until the exercise date. If NUON exercises the
put option, UPC can exercise the secondary call option, requiring NUON
to sell its remaining interest in UTH to UPC for the same price.
(6) From an economic perspective, UPC has all the rights and obligations
of full ownership of Janco and consolidates 100% of its financial
results although UPC holds a 87.3% interest in Janco. UPC has the
right to acquire, and Janco's other shareholder has the right to put
to UPC, the remaining interest in Janco for a purchase price of
approximately $23,000.
(7) UIH A/P holds an effective 100% economic interest in Austar through a
combination of ordinary shares and convertible debentures.
(8) In September 1998, UAP acquired an additional 25.0% interest in XYZ
Entertainment.
(9) UIH A/P owns an effective 90.0% economic interest in Telefenua. UIH
A/P's economic interest will decrease to 75.0% and 64.0% once UIH A/P
has received a 20.0% and 40.0% internal rate of return on its
investment in Tahiti, respectively.
(10) On October 2, 1998, UIH LA increased its ownership interest in TVSB
from 45.0% to 100%. The purchase price for the remaining interest
was $11,500 in cash, of which 50.0% was paid at closing with the
remainder due one year from the closing date.
(11) On October 15, 1998, UIH LA secured the right to acquire the remaining
ownership interest in VTRH from its current partners which would
increase its ownership interest in VTRH to 100%. Under the agreement,
UIH LA has the right to acquire its partners' interests in VTRH for
$236,500, adjusted for any capital transactions at VTRH between
October 15, 1998 and closing. Closing on the transaction is subject to
UIH LA receiving sufficient financing at terms acceptable to UIH LA
prior to April 13, 1999. UIH LA expects that such financing will be
secured at the project level. If the transaction does not close, UIH
LA's ownership interest in VTRH will be increased from its current
34.0% to either 38.0% or 40.0%, depending upon certain factors.
(12) In July 1998, UIH LA increased its ownership interest in Cable Star to
100% from 99.2% by acquiring the remaining minority owned shares for
$56. In July 1998, UIH LA also entered into an agreement to merge its
Peruvian assets with Arequipa Cable Vision ("ACV"), retaining a 60.0%
interest in the new joint venture, Cable Star, S.A. The transaction is
expected to close in October 1998.
(13) The Company intends to transfer its interests in Monor, Tara and IPS
to UPC prior to the end of calendar 1998.
7
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UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(14) In July 1998, UAP negotiated a memorandum of understanding with AmTec,
Inc. ("AmTec") to exchange its interest in HITV for AmTec stock.
Closing on the transaction is expected to occur in early 1999, subject
to certain conditions.
(15) UAP currently holds a convertible loan, which upon full conversion
would provide UAP with a 40.0% equity ownership interest in Sun Cable
Systems ("Sun Cable"). The Company holds an effective 19.6% interest
in PCC, which is owned 49.0% by Sun Cable and 51.0% by SkyCable.
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 interim condensed consolidated financial statements are
unaudited and include the accounts of the Company and all subsidiaries where it
exercises majority control and owns a majority economic interest, except when
the Company has temporary majority control. All significant intercompany
accounts and transactions have been eliminated in consolidation. All affiliated
companies have calendar year-ends, compared to the Company which has a fiscal
year-end of February 28 (February 29 in leap years). The Company records its
share of equity in income (losses) of affiliated companies or consolidates the
affiliated companies based on the affiliated companies' calendar year-end
results.
In management's opinion, all adjustments (of a normal recurring nature)
have been made which are necessary to present fairly the financial position of
the Company as of August 31, 1998 and the results of its operations for the
three and six months ended August 31, 1998 and 1997. For a more complete
understanding of the Company's financial position and results of operations, see
the consolidated financial statements of the Company included in the Company's
annual report on Form 10-K for the year ended February 28, 1998.
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 20.0% to 50.0%, its investments are held through a combination of
voting common stock, preferred stock, debentures or convertible debt and/or the
Company exerts significant influence through board representation and management
authority, 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 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 the excess of its
cost over its percentage interest in each affiliate's net assets.
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.
With respect to the Company's multi-channel multi-point distribution systems
("MMDS") and direct-to-home ("DTH") operations, all subscriber equipment and
capitalized installation labor are depreciated using the straight-line method
over estimated useful lives of three years. Upon disconnection of a MMDS or DTH
subscriber, the remaining book value of the subscriber equipment, excluding
converters which are recovered upon disconnection, and the capitalized labor are
written off and accounted for as additional depreciation expense. MMDS
distribution facilities and cable distribution networks are depreciated using
the straight-line method over estimated useful lives of five to ten years.
With respect to the Company's cable distribution networks, initial
subscriber installation costs are capitalized and depreciated over a period no
longer than the depreciation period used for cable television plant or the term
of the license agreement. All installation fees and related costs with respect
to reconnects are recognized in the period in which the reconnection occurs.
Office equipment, furniture and fixtures, buildings and leasehold
improvements are depreciated using the straight-line method over estimated
useful lives of three to ten years.
8
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
GOODWILL AND OTHER INTANGIBLE ASSETS
The excess of investments in consolidated subsidiaries over the net
tangible asset value at acquisition is amortized on a straight-line basis over
15 to 20 years. The acquisition of licenses has been recorded at cost, and
amortization expense is computed using the straight-line method over the term of
the license.
SUBSCRIBER PREPAYMENTS AND DEPOSITS
Payments received in advance for cable television service are deferred and
recognized as revenue when the associated services are provided. Deposits are
recorded as a liability upon receipt and refunded to the subscriber upon
disconnection.
COMPREHENSIVE LOSS
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"), which requires that an
enterprise (i) classify items of other comprehensive income by their nature in a
financial statement and (ii) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. The Company
adopted SFAS 130 effective March 1, 1998 (see Note 8).
BASIC AND DILUTED LOSS PER SHARE
"Basic loss per share" is determined by dividing net loss available to
common shareholders by the weighted-average number of common shares outstanding
during each period. Net loss available to common shareholders includes the
accrual of dividends on convertible preferred stock which are charged directly
to additional paid-in capital. "Diluted earnings per share" includes the effects
of potentially issuable common stock, but only if dilutive. Because of reported
losses, there are no differences between basic and diluted loss per share
amounts for the Company for any of the periods presented.
FOREIGN OPERATIONS AND FOREIGN EXCHANGE RATE RISK
The functional currency for the Company's foreign operations is the
applicable local currency for each affiliate company, except for countries which
have experienced hyper-inflationary economies. For countries which have
hyper-inflationary economies, the financial statements are prepared in U.S.
dollars. Assets and liabilities of foreign subsidiaries for which the functional
currency is the local currency are translated at exchange rates in effect at
period-end, and the statements of operations are translated at the average
exchange rates during the period. Exchange rate fluctuations on translating
foreign currency financial statements into U.S. dollars that result in
unrealized gains or losses are referred to as translation adjustments.
Cumulative translation adjustments are recorded as a separate component of
stockholders' deficit.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses which are
reflected in income as unrealized (based on period-end translations) or realized
upon settlement of the transactions.
Cash flows from the Company's operations in foreign countries are
translated based on their reporting currencies. As a result, amounts related to
assets and liabilities reported on the condensed consolidated statements of cash
flows will not agree to changes in the corresponding balances on the condensed
consolidated balance sheets. The effects of exchange rate changes on cash
balances held in foreign currencies are reported as a separate line below cash
flows from financing activities.
Certain of the Company's foreign operating companies have notes payable and
notes receivable that are denominated in, and loans payable that are linked to,
a currency other than their own functional currency. In general, the Company and
the operating companies do not execute hedge transactions to reduce the
Company's exposure to foreign currency exchange rate risks. Accordingly, the
Company may experience economic loss and a negative impact on earnings and
equity with respect to its holdings solely as a result of foreign currency
exchange rate fluctuations, which include foreign currency devaluations against
the dollar.
9
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NEW ACCOUNTING PRINCIPLE
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. The Company is currently assessing the
effect of this new standard.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
3. ACQUISITION
KABELKOM
On June 29, 1998, UPC acquired TWE's interest in Kabelkom's multi-channel
television system for approximately $9,500 in cash and the Kabelkom Note of
$18,000. UPC and TWE retained their respective percentage interests in HBO
Programming. On June 30, 1998, UPC merged the Kabelkom multi-channel television
systems with Hungary's second largest MSO, to form the new joint venture
Telekabel Hungary. UPC retains a 79.3% ownership interest in the new entity. In
addition, UPC granted TWE an option to acquire UPC's interest in HBO Programming
in consideration of the cancellation of the Kabelkom Note.
4. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD
<TABLE>
<CAPTION>
As of August 31, 1998
--------------------------------------------------------------------------------
Investments in Cumulative Equity Cumulative
and Advances to in Income (Losses) of Translation
Affiliated Companies Affiliated Companies Adjustments Total
-------------------- --------------------- ----------- --------
<S> <C> <C> <C> <C>
EUROPE
- ------
A2000(1)..................... $108,300 $(11,645) $ 2 $ 96,657
UII.......................... 45,708 390 -- 46,098
Monor........................ 27,682 (14,201) (11,496) 1,985
IPS.......................... 14,016 (7,477) (98) 6,441
HBO Programming.............. 12,382 (2,678) (4) 9,700
Other, net................... 1,426 (496) (5) 925
ASIA/PACIFIC
- ------------
XYZ Entertainment............ 18,140 (18,250) 110 --
PCC.......................... 12,878 (1,361) (2,652) 8,865
HITV......................... 6,073 (558) 14 5,529
Other........................ 350 -- -- 350
LATIN AMERICA
- -------------
VTRH......................... 97,343 (14,373) (3,431) 79,539
Megapo....................... 31,248 (1,342) (11,187) 18,719
MGM Networks LA(2)........... 14,726 (14,726) -- --
TVSB......................... 10,576 (3,817) (866) 5,893
Jundiai...................... 6,797 (623) (459) 5,715
-------- -------- -------- --------
$407,645 $(91,157) $(30,072) $286,416
======== ======== ======== ========
</TABLE>
10
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION> As of February 28, 1998
--------------------------------------------------------------------------------
Investments in Cumulative Equity Cumulative
and Advances to in Income (Losses) of Translation
Affiliated Companies Affiliated Companies Adjustments Total
-------------------- --------------------- ----------- --------
<S> <C> <C> <C> <C>
EUROPE
- ------
A2000(1)..................... $109,373 $ (287) $ 4 $109,090
UII.......................... 51,005 (32) -- 50,973
Kabelkom..................... 28,605 124 (1) 28,728
Monor........................ 27,682 (13,161) (6,256) 8,265
IPS......................... 13,920 (7,261) (95) 6,564
Other, net................... 1,774 -- -- 1,774
ASIA/PACIFIC
- ------------
XYZ Entertainment(3)......... 18,610 (18,720) 110 --
Sun Cable.................... 12,336 (1,023) (2,783) 8,530
HITV......................... 6,073 (236) 7 5,844
Other........................ 182 -- -- 182
LATIN AMERICA
- -------------
VTRH......................... 92,754 (10,327) (4,262) 78,165
Megapo....................... 31,248 (1,313) (1,604) 28,331
UFC.......................... 12,099 (7,487) -- 4,612
TVSB......................... 8,100 (3,770) -- 4,330
Jundiai...................... 6,652 (788) -- 5,864
-------- -------- -------- --------
$420,413 $(64,281) $(14,880) $341,252
======== ======== ======== ========
</TABLE>
(1) The investment in A2000 includes the costs of license rights related to a
subsidiary of A2000 which are owned directly by UPC.
(2) Includes an accrued funding obligation of $982 at June 30, 1998. The
Company would face significant and punitive dilution if it did not make the
requested fundings.
(3) Includes an accrued funding obligation of $406 at December 31, 1997. The
Company does not have a contractual funding obligation to XYZ
Entertainment; however, the Company would face significant and punitive
dilution if it did not make the requested fundings.
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION> As of As of
August 31, February 28,
1998 1998
---------- -----------
<S> <C> <C>
Cable distribution networks........................................................ $296,002 $203,015
Subscriber premises equipment and converters....................................... 216,722 200,990
MMDS distribution facilities....................................................... 60,547 61,509
Office equipment, furniture and fixtures........................................... 27,932 19,622
Buildings and leasehold improvements............................................... 15,079 9,070
Other.............................................................................. 30,527 31,162
-------- --------
646,809 525,368
Accumulated depreciation....................................................... (146,541) (84,633)
-------- --------
Net property, plant and equipment.............................................. $500,268 $440,735
======== ========
</TABLE>
6. GOODWILL AND OTHER INTANGIBLE ASSETS
<TABLE>
<CAPTION> As of As of
August 31, February 28,
1998 1998
---------- -----------
<S> <C> <C>
Telekabel Austria.................................................................. $191,390 $192,828
Janco.............................................................................. 94,890 94,200
CNBH............................................................................... 77,010 39,847
Austar............................................................................. 52,312 51,552
Telekabel Hungary.................................................................. 40,965 --
Radio Public....................................................................... 21,277 20,903
Saturn............................................................................. 6,006 6,100
Other.............................................................................. 15,947 18,292
-------- --------
499,797 423,722
Accumulated amortization....................................................... (34,555) (14,532)
-------- --------
Net goodwill and other intangible assets....................................... $465,242 $409,190
======== ========
</TABLE> 11
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. SENIOR SECURED NOTES AND OTHER DEBT
<TABLE>
<CAPTION>
As of As of
August 31, February 28,
1998 1998
---------- -----------
<S> <C> <C>
1998 Notes (as defined below)........................................................ $ 862,249 $ 818,272
Old Notes (as defined below)......................................................... 394 368
UPC Tranche A Facility (as defined below)............................................ 464,821 437,598
UPC Tranche B Facility (as defined below)............................................ 60,063 125,000
Bank and other loans at UPC.......................................................... 123,975 60,888
1996 UIH A/P Notes (as defined below)................................................ 299,652 278,662
1997 UIH A/P Notes (as defined below)................................................ 32,257 30,461
Austar Bank Facility (as defined below).............................................. 68,132 71,531
UIH LA Revolving Credit Facility (as defined below).................................. 8,000 33,000
Vendor financed equipment at Saturn.................................................. 5,881 3,730
Capitalized lease obligations........................................................ 3,140 3,635
Other notes payable ................................................................. 997 2,951
---------- ----------
1,929,561 1,866,096
Less current portion............................................................. (72,374) (163,325)
---------- ----------
Total senior secured notes and other debt........................................ $1,857,187 $1,702,771
========== ==========
</TABLE>
1998 NOTES
The Company's 10.75% senior secured notes that were issued in February 1998
at a discount from their principal amount of $1,375,000 (the "1998 Notes") had
an accreted value of $862,249 as of August 31, 1998. On and after February 15,
2003, cash interest will accrue and will be payable semi-annually until maturity
on each February 15 and August 15, commencing August 15, 2003. The 1998 Notes
will mature on February 15, 2008 and will be redeemable at the option of the
Company on or after February 15, 2003.
OLD NOTES
The Company's 14.0% senior secured notes that were issued at a discount
from their original principal amount at maturity (the "Old Notes") had an
accreted value of $394 as of August 31, 1998. On February 5, 1998, all but $465
principal amount at maturity was redeemed in connection with the issuance of the
1998 Notes. No cash interest payments will be made prior to maturity on November
15, 1999.
UPC TRANCHE A FACILITY
As of June 30, 1998, UPC had drawn $464,821 on the NLG1,100,000 ($539,216
at June 30, 1998) multi-currency revolving credit facility (the "UPC Tranche A
Facility"). Amounts advanced under the UPC Tranche A Facility are generally
available for a term of one, two, three or six months through September 30, 2006
and bear interest at the London interbank offered rate ("LIBOR") on the
respective currencies borrowed plus a margin ranging from 0.5% to 2.0% per
annum. The aggregate amount available for borrowing under the facility is
reduced automatically by 5.0% per quarter beginning December 31, 2001. The UPC
Tranche A Facility also limits total borrowings by UPC and certain of its
subsidiaries, which together before September 30, 2001, may not exceed
NLG1,100,000 (after September 30, 2001, the limit is based on a debt to cash
flow financial ratio), and generally limits UPC's investments in, loans to and
guarantees for its subsidiaries and downstream affiliates to NLG80,000 ($39,216
at June 30, 1998), which had been reached as of June 30, 1998.
UPC TRANCHE B FACILITY
As of June 30, 1998, UPC had outstanding $60,063 on a $125,000 (U.S.
dollar-denominated) facility (the "UPC Tranche B Facility") which matures on
December 5, 1998 and bears interest at LIBOR plus a margin ranging from 4.5% to
6.0% per annum. UPC must maintain on deposit with the bank a compensating
balance, restricted as to use, of $6,475 until the facility matures.
12
<PAGE>
BANK AND OTHER LOANS AT UPC
On February 20, 1998, CNBH secured a NLG250,000 ($122,549 at June 30, 1998)
ten-year term facility (the "CNBH Facility"). The CNBH Facility bears interest
at the applicable Amsterdam interbank offered rate ("AIBOR") plus a margin
ranging from 0.6% to 1.6% per annum. The CNBH Facility was used to refinance an
existing debt facility, to complete the acquisition of Stichting Combivisie
Regio ("Combivisie") and for the development and exploitation of enhanced cable
television services, data services and telephony services. As of June 30, 1998,
an amount of NLG195,000 ($95,588) was outstanding under the CNBH Facility. In
August 1998, the CNBH Facility was amended to a total amount of NLG266,000
($130,392 at June 30, 1998).
Bank loans and other loans includes a payable of $18,874 to the minority
shareholder of Janco, which accretes interest at 5.0% per annum. The payable
relates to the contemplated exercise price of the call option for the remaining
12.7% of Janco not owned by UPC. The amount, including accrued interest, will be
payable in 2001.
1996 UIH A/P NOTES
UIH A/P's 14.0% senior notes that were issued in May 1996 at a discount
from their principal amount of $443,000 (the "1996 UIH A/P Notes") had an
accreted value of $299,652 as of June 30, 1998. On and after May 15, 2001, cash
interest will accrue and will be payable semi-annually on each May 15 and
November 15, commencing November 15, 2001. The 1996 UIH A/P Notes are due May
15, 2006. Effective May 16, 1997, the interest rate on these notes increased by
an additional 0.75% per annum to 14.75%. On October 14, 1998, UIH A/P
consummated an issuance of its capital stock resulting in gross proceeds to UIH
A/P of $70,000 (an "Equity Sale"), reducing the interest rate from 14.75% to
14.0% per annum. Due to the increase in the interest rate effective May 16, 1997
until consummation of the Equity Sale, the 1996 UIH A/P Notes will accrete to a
principal amount of $447,418 on May 15, 2001, the date cash interest begins to
accrue.
1997 UIH A/P NOTES
UIH A/P's 14.0% senior notes that were issued in September 1997 at a
discount from their principal amount of $45,000 (the "1997 UIH A/P Notes") had
an accreted value of $32,257 as of June 30, 1998. On and after May 15, 2001,
cash interest will accrue and will be payable semi-annually on each May 15 and
November 15, commencing November 15, 2001. The 1997 UIH A/P Notes are due May
15, 2006. Effective September 23, 1997, the interest rate on these notes
increased by an additional 0.75% per annum to 14.75%. On October 14, 1998, UIH
A/P consummated an Equity Sale, reducing the interest rate from 14.75% to 14.0%
per annum. Due to the increase in the interest rate effective September 23, 1997
until consummation of the Equity Sale, the 1997 UIH A/P Notes will accrete to a
principal amount of $45,448 on May 15, 2001, the date cash interest begins to
accrue.
AUSTAR BANK FACILITY
In July 1997, Austar secured a senior syndicated term debt facility in the
amount of Austrailan $("A$")200,000 ($123,877 as of June 30, 1998) (the "Austar
Bank Facility") to fund Austar's subscriber acquisition and working capital
needs. The Austar Bank Facility consists of three sub-facilities: (i) A$50,000
revolving working capital facility, (ii) A$60,000 cash advance facility and
(iii) A$90,000 term loan facility. All of Austar's assets are pledged as
collateral for the Austar Bank Facility. In addition, pursuant to the Austar
Bank Facility, Austar cannot pay any dividends, interest or fees under its
technical assistance agreements prior to December 31, 2000. Subsequent to
December 31, 2000, Austar will be permitted to make these types of payments,
subject to certain debt to cash flow ratios. As of June 30, 1998, Austar had
drawn the entire amount of the working capital facility and the cash advance
facility totaling A$110,000 ($68,132 converted using the June 30, 1998 exchange
rate). The working capital facility is fully repayable on June 30, 2000. The
cash advance facility is fully repayable pursuant to an amortization schedule
beginning December 31, 2000 and ending June 30, 2004. In September 1998, Austar
received a supplemental amendment to the existing Austar Bank Facility which
allows Austar to draw up to A$60,000 under the A$90,000 term loan facility.
Austar also received a new bank underwriting commitment for an A$400,000 senior
secured debt facility (the "New Austar Bank Facility"), which is intended to
refinance the Austar Bank Facility before the end of calendar 1998 (see Note 9).
UIH LA REVOLVING CREDIT FACILITY
In November 1997, UIH LA entered into an amended and restated credit
agreement with a bank for a revolving credit facility of up to $40,000 (the "UIH
LA Revolving Credit Facility"). Borrowings under this facility must be repaid
within 12 months and bear interest at a rate of LIBOR plus 3.5%. The facility is
extendable up to 18 months with (i) an increase in the interest rate of 50 basis
points for each three-month period it is extended beyond the initial 12-month
term and (ii) cash fees of 0.75% and 1.50% if it is extended to 15 and 18
months, respectively. As of August 31, 1998, UIH LA had an outstanding balance
13
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of $8,000 under this facility due November 1998 and a related compensating
balance, restricted as to use, of $3,691. Under the terms of the UIH LA
Revolving Credit Facility, UIH LA must use any proceeds from the sale of Latin
American assets to repay this note.
8. COMPREHENSIVE LOSS
The components of total comprehensive loss are as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
August 31, August 31,
---------------------------- ----------------------------
1998 1997 1998 1997
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss........................................ $(112,541) $(81,083) $(216,837) $(160,112)
Other comprehensive loss:
Change in cumulative translation adjustments.. (1,040) (3,174) (17,928) (11,184)
Change in unrealized gain/loss on
investments................................ (338) (976) (660) 1,947
--------- -------- --------- ---------
Total comprehensive loss.................. $(113,919) $(85,233) $(235,425) $(169,349)
========= ======== ========= =========
</TABLE>
9. SUBSEQUENT EVENTS
CABLE STAR
In July 1998, UIH LA increased its ownership interest in Cable Star to 100%
from 99.2% by acquiring the remaining minority owned shares for $56. In July
1998, UIH LA also entered into an agreement to merge its Peruvian assets with
ACV, retaining a 60.0% interest in the new joint venture, Cable Star, S.A. The
transaction is expected to close in October 1998.
UTH
In August 1998, UPC merged its Dutch cable television and
telecommunications assets, consisting of its 50.0% interest in A2000 and its
wholly-owned subsidiary CNBH, with those of the Dutch energy company NUON
forming a new company UTH. The agreement provides UPC with a call option after
August 6, 1999 to acquire 50.0% of NUON's 49.0% ownership interest in UTH for
NLG244,000 (approximately $122,000 as of August 6, 1998) plus an interest
payment of 5.5% over the call price from January 1, 1998 until the exercise
date. If the exercise date is more than one year after closing, the interest
rate for the second year will go up to 9.0%. If UPC exercises the call option,
NUON can exercise the secondary put option, requiring UPC to purchase its
remaining interest in UTH for the same price. The agreement provides NUON with a
put option after August 6, 1999 to require UPC to purchase 50.0% of NUON's 49.0%
interest in UTH. The price UPC will have to pay equals NLG166,000 (approximately
$83,000 as of August 6, 1998) plus an interest payment of 4.5% over the put
price from January 1, 1998 until the exercise date. If NUON exercises the put
option, UPC can exercise the secondary call option, requiring NUON to sell its
remaining interest in UTH to UPC for the same price.
HITV
In July 1998, UAP negotiated a memorandum of understanding with AmTec to
exchange its 49.0% interest in HITV for AmTec stock valued at $12,000. Upon
consummation of the agreement, the Company will become AmTec's largest
shareholder with preferred stock that is convertible into approximately 9.6
million shares of AmTec's common stock. As AmTec's largest shareholder, the
Company will have the right to nominate two members to AmTec's Board of
Directors. In addition, the Company will receive co-investment rights with AmTec
in China and an option to purchase additional AmTec common stock at a price of
$3 per share to increase its stake in AmTec to 25.0% on a fully diluted basis.
Closing on the transaction is expected to occur in early 1999, subject to
certain conditions.
14
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
AUSTAR
In July 1998, Austar acquired certain Australian pay television assets of
East Coast Television Pty Limited ("ECT"), an affiliate of Century
Communications Corp. ("Century"), for approximately $6,100 of the Company's
newly-created Series B Convertible Preferred Stock ("Series B Preferred Stock").
ECT's subscription television business includes subscribers and certain MMDS
licenses and transmission equipment serving the areas in and around Newcastle,
Gossford, Wollongong and Tasmania.
The Series B Preferred Stock is convertible into shares of UIH's Class A
Common Stock at a conversion price of $21.25 per share. The Series B Preferred
Stock accrues dividends at a rate of 6.5%, which are payable at the redemption
date in 2008. The other terms of the Series B Preferred Stock are essentially
identical to the Company's Series A Convertible Preferred Stock.
XYZ ENTERTAINMENT
In September 1998, UAP acquired the Australian programming assets held by
Century, consisting of Century's 25.0% interest in XYZ Entertainment, a
programming company that owns and/or distributes five channels to the Australian
multi-channel marketplace. Following the acquisition, UAP owns 50.0% of XYZ
Entertainment. The purchase price consisted of $1,231 in cash and $23,400 of the
Company's Series B Convertible Preferred Stock.
NEW AUSTAR BANK FACILITY
In September 1998, Austar received a new bank underwriting commitment for
an A$400,000 senior secured debt facility, of which the first A$170,000 is
intended to refinance the Austar Bank Facility before the end of calendar 1998
and the remaining A$230,000 is available upon the contribution of additional
equity on a 2:1 debt-to-equity basis. In the interim, Austar has received a
supplemental amendment to the existing Austar Bank Facility which allows Austar
to draw up to A$60,000 under the A$90,000 term loan facility for a maximum term
of six months from the initial cash draw down at an increased interest rate of
2.25% above the professional market rate in Australia. All other terms and
conditions of the Austar Bank Facility remain unchanged. As of October 15, 1998,
Austar had drawn A$30,000 on the term loan facility.
TVSB
On October 2, 1998, UIH LA increased its ownership interest in TVSB from
45.0% to 100%. The purchase price for the remaining interest was $11,500 in
cash, of which 50.0% was paid at closing with the remainder due one year from
the closing date.
UIH A/P NOTES
On October 14, 1998, UIH A/P consummated an Equity Sale, reducing the
interest rate on the 1996 UIH A/P Notes and the 1997 UIH A/P Notes
(collectively, the "UIH A/P Notes") from 14.75% to 14.0% per annum.
VTRH
On October 15, 1998, UIH LA secured the right to acquire the remaining
ownership interest in VTRH from its current partners which would increase its
ownership interest in VTRH to 100%. Under the agreement, UIH LA has the right to
acquire its partners' interests in VTRH for $236,500, adjusted for any capital
transactions at VTRH between October 15, 1998 and closing. Closing on the
transaction is subject to UIH LA receiving sufficient financing at terms
acceptable to UIH LA prior to April 13, 1999. UIH LA expects that such financing
will be secured at the project level. If the transaction does not close, UIH
LA's ownership interest in VTRH will be increased from its current 34.0% to
either 38.0% or 40.0%, depending upon certain factors.
15
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
condensed consolidated financial statements and related notes thereto included
elsewhere herein. Such condensed consolidated financial statements provide
additional information regarding the Company's financial activities and
condition.
Certain statements in this Report may constitute "forward-looking
statements" within the meaning of the federal securities laws. Such
forward-looking statements may include, among other things, statements
concerning the Company's plans, objectives and future economic prospects,
expectations, beliefs, future plans and strategies, anticipated events or trends
and similar expressions concerning matters that are not historical facts. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, changes in
television viewing preferences and habits by subscribers and potential
subscribers, their acceptance of new technology, programming alternatives and
new services offered by the Company, the Company's ability to secure adequate
capital to fund system growth and development, risks inherent in investment and
operations in foreign countries, changes in government regulation, and other
factors referenced in this Report.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $156.2 million of unrestricted cash, cash equivalents and
short-term investments on hand as of August 31, 1998. The Company believes that
this cash balance, combined with internally generated cash flow, the sale of
non-strategic assets and amounts available under the existing credit facilities
of its subsidiaries, will provide it with sufficient capital to meet the
existing growth plans of its subsidiaries and affiliates. If the Company
completes the sale of non-strategic assets, it intends to use the proceeds from
such sales to reduce debt and finance the growth of its existing operations. To
the extent the Company pursues new acquisition or development opportunities, the
Company would need to raise additional capital, either through issuances of its
debt or equity securities or through operating company borrowings.
In conjunction with the issuance of the Old Notes, the Company issued
394,000 warrants to purchase a total of 1,786,699 shares of Class A Common Stock
at a price of $15 per share. Holders of the warrants required the Company to
purchase a total of 76,070 warrants during a put option period in February 1996.
The remaining 317,930 outstanding warrants (representing 1,441,739 shares of
Class A Common Stock) are exercisable at any time before November 15, 1999, and
would result in proceeds to the Company of approximately $21.6 million, if
exercised.
On November 17, 1997, pursuant to the terms of the indentures governing the
UIH A/P Notes, UIH A/P issued warrants to purchase a total of 488,000 shares of
its common stock, which represented 3.4% of its common stock. The warrants are
exercisable at a price of $10.45 per share which would result in gross proceeds
of approximately $5.1 million, if exercised. The warrants are exercisable
through May 15, 2006.
The Company's ability to repay its obligations on the 1998 Notes at
maturity in 2008 as well as any other obligations that become due before such
time will be dependent on increasing its already positive operating cash flow
from its European operations through the addition of new revenue-generating
services and continuing to focus on subscriber growth at Austar to generate
positive cash flow, as well as developing one or more additional sources of
cash. 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 whom are restricted due to existing loan agreements.
The Company will continue to obtain controlling ownership of systems whose cash
flows it will be able to access, subject to existing credit facility
restrictions.
16
<PAGE>
Through August 31, 1998, the Company had funded its investments as follows:
EUROPE:
Through
Operating System August 31, 1998
---------------- ---------------
(In thousands)
UPC................................................... $264,947(1)
Monor................................................. 27,682
IPS................................................... 14,016
Tara.................................................. 7,601
--------
$314,246
========
(1) Does not include the value of 3.17 million shares of UIH Class A
Common Stock ($50.0 million) issued to Philips at the formation of UPC
in July 1995 or the $79.0 million note payable to UIH.
The Company does not expect to contribute additional capital to UPC for its
on-going operating or development requirements, as UPC will finance its
operating systems and development opportunities with its operating cash flow,
asset sales, and possible equity and debt financings, including additional
amounts available under the UPC Tranche A Facility.
The Company expects that the aggregate future funding requirements to
Monor, IPS and Tara will be less than $5.0 million over the next year.
ASIA/PACIFIC:
Through
Operating System August 31, 1998
---------------- ---------------
(In thousands)
Austar................................................ $392,706(1)(2)
Saturn................................................ 38,605(1)(3)
Telefenua............................................. 16,738
XYZ Entertainment..................................... 14,433
PCC................................................... 12,878
United Wireless....................................... 9,190
HITV.................................................. 6,073
--------
$490,623
========
(1) Does not include amounts contributed to Austar (approximately $11.0
million) and Saturn (approximately $2.9 million) by shareholders other
than the Company, which amounts were contributed by such shareholders
prior to the acquisition of their respective interests by the Company.
(2) Includes A$110.0 million ($83.9 million converted using the exchange
rate on each funding date) of amounts borrowed under the Austar Bank
Facility and $28.8 million paid by the Company to increase its
economic interest in Austar to approximately 100%. Does not include
the $29.8 million of non-cash issuance of preferred stock by the
Company to increase its economic interest in Austar to 90.0% in
December 1995.
(3) Does not include the $7.8 million of common stock exchanged for shares
of UIH A/P to increase UIH A/P's interest in Saturn to 100% effective
July 1996 or the $19.6 million invested by another shareholder for its
35.0% interest in Saturn in July 1997.
AUSTAR
The Company expects the need for additional funding for Austar in the
future. The amount of capital needed is dependent primarily upon three factors:
(i) the number of new subscribers added; (ii) the level of churn, that is, the
level of existing subscribers who disconnect from Austar's service; and (iii)
the mix of DTH satellite compared to MMDS installations. Substantially all fixed
costs required to operate Austar's service have already been incurred. The
average cost to install a subscriber includes variables such as equipment,
marketing and sales costs, and installation fees. The average cost of a
subscriber who disconnects is reduced by the recovery of certain equipment
(principally converters), and is further reduced if a new subscriber is
installed in a previously disconnected home. Austar plans to continue to expand
and add subscribers; however, the timing of such expansion and the funds
required for such expansion are largely variable. Based upon current plans and
budgeted churn, Austar will require approximately $45.0 million to continue on
its current expansion path for the period from September 1, 1998 to December 31,
1998 which will be funded substantially by the Austar Bank Facility, as amended.
17
<PAGE>
Austar will also require approximately $110.0 million for similar expansion
plans for 1999 which will be funded substantially by the New Austar Bank
Facility (assuming that the Austar Bank Facility will be refinanced by the New
Austar Bank Facility by the end of calendar year 1998). The remaining sources of
funds for such expansion may include the raising of private or public equity,
continued investment by the Company or the sale of non-strategic assets. UAP may
or may not be successful in completing all or any of such financings. UAP
believes, however, that committed financial support from UIH combined with, if
necessary, reductions in UAP's planned capital expenditures, are sufficient to
sustain its operations through at least mid-1999.
SATURN
The Company anticipates the need for additional funding for Saturn in the
future. Saturn's capital needs include capital for the completion of the network
required by Saturn to offer cable television and telephony services and the
capital required to install customers. Management currently estimates that UAP's
portion of the total funding required for Saturn is approximately $37.0 million
for the period from September 1, 1998 until Saturn has sufficient cash flows
from operations to cover such needs, although there can be no assurances that
further additional capital will not be required. The sources of funds for such
expansion may include the raising of private or public equity, continued
investment by UIH, the raising of equipment financing or the sale of
non-strategic assets. In addition, UAP has commenced negotiations with potential
lenders and expects to close on a project-level long-term loan facility of up to
New Zealand $125.0 million ($62.5million) with funds available in the calendar
fourth quarter 1998. UAP may or may not be successful in completing all or any
of such financings. UAP believes, however, that committed financial support from
UIH combined with, if necessary, reductions in UAP's planned capital
expenditures, are sufficient to sustain its operations through at least
mid-1999.
OTHER
The Company expects that the aggregate future funding requirements for
Telefenua, XYZ Entertainment, PCC, United Wireless and HITV are less than $5.0
million.
LATIN AMERICA:
Through
Operating System August 31, 1998
---------------- ---------------
(In thousands)
VTRH................................................ $ 97,343
Megapo.............................................. 31,248
MGM Networks LA..................................... 13,744
Cable Star.......................................... 12,547
TVSB................................................ 10,576
Jundiai............................................. 6,797
Tacna............................................... 927
--------
$173,182
========
As of August 31, 1998, the Company had loaned $52.2 million to UIH LA to
reduce the UIH LA Revolving Credit Facility by $25.0 million and for general
corporate use. In May 1998, UIH LA acquired the remaining 50.0% ownership
interest in United Family Communications LLC and subsequently contributed this
interest to MGM Networks LA, UIH LA's 50/50 joint veture with a division of MGM.
Under the formation agreements, UIH LA committed to fund MGM Networks LA up to
$14.1 million or face punitive dilution. On October 2, 1998, UIH LA increased
its ownership interest in TVSB from 45.0% to 100%. The purchase price for the
remaining interest was $11.5 million in cash, of which 50.0% was paid at closing
with the remainder due one year from the closing date. On October 15, 1998, UIH
LA secured the right to acquire the remaining ownership interest in VTRH from
its current partners which would increase its ownership interest in VTRH to
100%. Under the agreement, UIH LA has the right to acquire its partners'
interests in VTRH for $236.5 million, adjusted for any capital transactions at
VTRH between October 15, 1998 and closing. Closing on the transaction is subject
to UIH LA receiving sufficient financing at terms acceptable to UIH LA prior to
April 13, 1999. UIH LA expects that such financing will be secured at the
project level. If the transaction does not close, UIH LA's ownership interest in
VTRH will be increased from its current 34.0% to either 38.0% or 40.0%,
depending upon certain factors.
The Company expects that the aggregate future funding requirements for
Megapo, Jundiai, Cable Star and Tacna will be less than $2.0 million over the
next year. UIH LA plans to fund the majority of its remaining project
requirements through proceeds from the sale of certain non-core assets,
including its interest in Megapo; proceeds from new credit facilities; and/or
proceeds from further investments by UIH or other financial or strategic
partners.
18
<PAGE>
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED AUGUST 31, 1998
The Company incurred a net loss during the six months ended August 31, 1998
of $216.8 million, which included non-cash items such as depreciation and
amortization expense totaling $100.1 million, accretion of interest on the UIH
and UIH A/P senior notes and amortization of deferred financing costs totaling
$68.9 million and equity in net losses of affiliated companies of $26.9 million.
Cash and cash equivalents decreased $181.8 million from $303.4 million as
of February 28, 1998 to $121.6 million as of August 31, 1998. Principal sources
of cash during the six months ended August 31, 1998 included $137.0 million of
borrowings on subsidiary credit facilities, $10.2 million from the issuance of
common stock, $4.4 million of cash contributed from minority interest partners,
$2.0 million from the release of restricted cash and $1.3 million of repayments
on notes receivable and other sources during the period.
During the six months ended August 31, 1998, cash was used principally for
payment on subsidiary credit facilities of $127.8 million, investments in the
Company's affiliated companies totaling $103.6 million (including $88.0 million
for UPC's purchase of the assets of Combivisie, additions to property, plant and
equipment totaling $88.6 million, $9.5 million to fund operating activities,
$3.9 million in decreases in construction payables, $1.9 million of deferred
financing costs and $1.4 million for other investing and financing uses during
the period.
FOR THE SIX MONTHS ENDED AUGUST 31, 1997
The Company incurred a net loss during the six months ended August 31, 1997
of $160.1 million, which included non-cash items such as accretion of interest
on the UIH and UIH A/P senior notes and amortization of deferred financing costs
totaling $51.1 million, depreciation and amortization expense totaling $38.8
million and equity in net losses of affiliated companies of $37.6 million.
Cash and cash equivalents decreased $4.8 million from $68.8 million as of
February 28, 1997 to $64.0 million as of August 31, 1997. Principal sources of
cash during this period included $110.0 million of borrowings under the UIH LA
credit agreement, $39.3 million of borrowings under the Austar Bank Facility,
$32.3 million of net proceeds from the net change in short-term investments,
$5.3 million proceeds from the sale of property, plant and equipment, $4.6
million of repayments on notes receivable and $0.7 million from other sources.
During the six months ended August 31, 1997 principal uses of cash included
$47.1 million of purchases of property, plant and equipment, $34.9 million in
payment of seller's notes, $28.2 million of payments on construction payables,
$26.1 million of purchases of initial interests in operating systems in
Argentina, the funding of operating activities of $24.3 million during the
period, $13.8 million of investments in affiliated companies, $8.9 million of
restricted cash deposited, $7.0 million of deferred financing costs and $6.7
million of other investing and financing uses.
CURRENCY FLUCTUATIONS
In accordance with U.S. generally accepted accounting principles, the
Company translates assets and liabilities from its foreign subsidiaries using
the spot rate as of the balance sheet date. Due to the minimal change in the
spot rates between December 31, 1997 and June 30, 1998 in the countries in which
the Company operates, currency fluctuations have had an insignificant impact on
the Company's business during 1998. The spot rates for the currencies used by
the Company's significant consolidated subsidiaries are shown below per one U.S.
dollar.
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997 June 30, 1997
------------- ----------------- -------------
<S> <C> <C> <C>
Europe:
Netherland guilder............ 2.0400 2.0200 1.9400
UAP:
Australian dollar............. 1.6145 1.5378 1.3266
</TABLE>
19
<PAGE>
RESULTS OF OPERATIONS
SERVICE AND OTHER REVENUE. The Company's service and other revenue increased
$45.2 million and $90.2 million for the three and six months ended August 31,
1998 compared to the amounts for the corresponding periods in the prior year as
follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
August 31, August 31,
-------------------------- ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Europe............................................ $47,481 $ -- $ 92,431 $ --
Asia/Pacific...................................... 20,570 16,219 41,178 30,711
Latin America..................................... 455 7,058 930 13,648
------- ------- -------- -------
Total service and other revenue............... $68,506 $23,277 $134,539 $44,359
======= ======= ======== =======
</TABLE>
EUROPE
------
UPC
The Company began consolidating the results of UPC effective December
11, 1997. During the six months ended June 30, 1998 as compared to June 30,
1997, UPC's service and other revenue increased $5.5 million from $86.6
million to $92.1 million, a 6.4% increase. On a functional currency basis,
UPC's service and other revenue increased NLG24.9 million from NLG163.2
million to NLG188.1 million, a 15.3% increase. A substantial portion of
this increase was directly attributable to the acquisition of Combivisie
effective January 1, 1998. The remaining increase in service and other
revenue was comprised of subscriber growth and the tiering of services in
Austria and subscriber growth in UPC's developing systems in France, the
Slovak Republic and Romania. UPC's service and other revenue was negatively
impacted by $7.6 million due to fluctuation in exchange rates between the
six months ended June 30, 1998 and 1997.
ASIA/PACIFIC
------------
AUSTAR
Service and other revenue for Austar increased $4.0 million, or 26.5%,
from $15.1 million for the three months ended June 30, 1997 to $19.1
million for the three months ended June 30, 1998. Service and other revenue
for Austar increased $9.8 million, or 34.4%, from $28.5 million for the six
months ended June 30, 1997 to $38.3 million for the six months ended June
30, 1998. On a functional currency basis, Austar's service and other
revenue increased A$22.4 million, from A$36.9 million for the six months
ended June 30, 1997 to A$59.3 million for the six months ended June 30,
1998, a 60.7% increase. Austar's service and other revenue increased A$10.9
million, from A$19.6 million for the three months ended June 30, 1997 to
A$30.5 million for three months ended June 30, 1998, a 55.6% increase.
These increases were primarily due to subscriber growth (215,275 at June
30, 1998 compared to 149,495 at June 30, 1997) as Austar continues to
roll-out its services. These increases were negatively impacted by $4.3
million due to fluctuation in exchange rates between the three months
ended June 30, 1998 and 1997 and $7.5 million due to fluctuation in
exchange rates between the six months ended June 30, 1998 and 1997.
LATIN AMERICA
-------------
For the three and six months ended August 31, 1997, the Company
consolidated the results of its operating system in Bahia Blanca,
Argentina. In October 1997, the Company sold its Argentine assets;
therefore, the service and other revenue from the Latin American region for
the three and six months ended August 31, 1998 represents only Cable Star
and Tacna.
MANAGEMENT FEE INCOME FROM RELATED PARTIES. Management fee income increased $1.6
million and $3.0 million during the three and six months ended August 31, 1998,
respectively, compared to the amounts for the corresponding periods in the prior
year, primarily as a result of consolidating UPC.
20
<PAGE>
SYSTEM OPERATING EXPENSE. System operating expense increased $19.9 million and
$36.2 million during the three and six months ended August 31, 1998,
respectively, compared to the amounts for the corresponding periods in the prior
year as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
August 31, August 31,
-------------------------- ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Europe............................................ $16,749 $ 1,178 $32,391 $ 1,450
Asia/Pacific...................................... 18,086 11,087 30,722 21,064
Latin America..................................... 214 2,842 947 5,382
------- ------- ------- -------
Total system operating expense................ $35,049 $15,107 $64,060 $27,896
======= ======= ======= =======
</TABLE>
EUROPE
------
UPC
The Company began consolidating the results of UPC effective December
11, 1997. During the six months ended June 30, 1998 as compared to June 30,
1997, UPC's operating expense decreased $0.3 million, from $31.1 million to
$30.8 million, a 1.0% decrease. On a functional currency basis, UPC's
operating expense increased NLG4.2 million from NLG58.7 million to NLG62.9
million, a 7.2% increase. The most significant portion of this increase was
attributable to the acquisition of Combivisie effective January 1, 1998,
with the remaining increase comprised of direct costs related to subscriber
growth and increased operating costs related to the introduction of UPC's
Internet/data services. The amounts reported in U.S. dollars were
positively impacted by $2.6 million due to fluctuation in exchange rates
between the six months ended June 30, 1998 and 1997. As a percentage of
service and other revenue, operating expense declined to 33.5% from 35.9%
for the comparable six-month period in 1997 due primarily to the low
operating costs in the Combivisie system. The Company expects operating
costs as a percentage of service and other revenue to increase as new
video, telephony and Internet/data services are introduced.
ASIA/PACIFIC
------------
AUSTAR
Operating expense for Austar increased $5.5 million, or 55.0%, from
$10.0 million for the three months ended June 30, 1997 to $15.5 million for
the three months ended June 30, 1998. Operating expense for Austar
increased $7.1 million, or 38.4%, from $18.5 million for the six months
ended June 30, 1997 to $25.6 million for the six months ended June 30,
1998. On a functional currency basis, Austar's operating expense increased
A$16.1 million, from A$23.9 million for the six months ended June 30, 1997
to A$40.0 million for the six months ended June 30, 1998, a 67.4% increase.
Austar's operating expense increased A$11.7 million, from A$13.0 million
for the three months ended June 30, 1997 to A$24.7 million for the three
months ended June 30, 1998, a 90.0% increase. These increases were
primarily due to an increase in satellite programming costs resulting from
an increase in subscribers and from the May 1998 agreements with Foxtel
Management Pty Limited and Optus Vision Pty Limited ("Optus") to obtain
additional programming rights in connection with the receivership of
Australis Media Limited ("Australis") as well as additional satellite
platform costs associated with the May 1998 joint venture with Optus. The
Company expects that the restructuring of programming costs for certain
channels will result in somewhat higher costs in the next year for these
channels which will be offset by lower costs in the long-term when compared
to Austar's previous agreements with Australis. The remainder of the
increase between periods was due to an increase in salaries and benefits
related to the additional personnel necessary to support Austar's
establishment of local and state offices in its markets and an increase in
customer subscriber management expenses related to volume increases in
telephone, billing and collection costs. These increases were positively
impacted by $3.6 million due to fluctuation in exchange rates between the
three months ended June 30, 1998 and 1997 and positively impacted by $5.3
million due to fluctuation in exchange rates between the six months ended
June 30, 1998 and 1997.
21
<PAGE>
During the three months ended June 30, 1998, Austar incurred one-time
charges of $1.4 million as a result of the receivership of Australis and
the subsequent termination of various agreements and incurred additional
programming expense of $2.0 million related to its new programming
agreements and $0.7 million related to the operation of the joint venture
with Optus.
Austar expects operating expense as a percentage of service revenue to
decline in future periods because a significant portion of Austar's
distribution facilities and network costs, such as local and state office
staffing levels, operating costs and wireless license costs, have already
been incurred and are fixed in relation to changes in subscriber volumes.
Other system operating expense, such as certain costs related to
programming and subscriber management expense, will vary in direct
proportion to the number of subscribers.
LATIN AMERICA
-------------
For the three and six months ended August 31, 1997, the Company
consolidated the results of its operating system in Bahia Blanca,
Argentina. In October 1997, the Company sold its Argentine assets;
therefore, the system operating expense from the Latin American region for
the three and six months ended August 31, 1998 represents only Cable Star
and Tacna.
SYSTEM SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. System selling, general
and administrative expense increased $13.5 million and $26.7 million during
the three and six months ended August 31, 1998, respectively, compared to
the amounts for the corresponding periods in the prior year as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
August 31, August 31,
-------------------------- ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Europe............................................ $15,888 $ 981 $30,560 $ 1,201
Asia/Pacific...................................... 12,864 11,771 24,064 22,805
Latin America..................................... 315 2,853 990 4,917
------- ------- ------- -------
Total system selling, general and
administrative expense...................... $29,067 $15,605 $55,614 $28,923
======= ======= ======= =======
</TABLE>
EUROPE
------
UPC
The Company began consolidating the results of UPC effective December
11, 1997. During the six months ended June 30, 1998 compared to June 30,
1997, UPC's selling, general and administrative expense increased $1.1
million, from $28.3 million to $29.4 million, a 3.9% increase. On a
functional currency basis, UPC's selling, general and administrative
expense increased NLG6.7 million, from NLG53.4 million to NLG60.1 million,
a 12.6% increase. A portion of this increase was attributable to the
acquisition of Combivisie effective January 1, 1998, with the remaining
increase comprised of additional selling, general and administrative
expense related to the development of new businesses, including further
development of Internet/data services and preparation for the launch of
telephony in Austria and Norway. UPC's selling, general and administrative
expense was positively impacted by $2.4 million due to fluctuation in
exchange rates between the six months ended June 30, 1998 and 1997. As a
percentage of service and other revenue, selling, general and
administrative expense declined to 31.9% from 32.7% for the comparable
six-month period in 1997, due primarily to the low selling, general and
administrative expense in the Combivisie system. The Company expects
selling, general and administrative expense as a percentage of service and
other revenue to increase as new video, telephony and Internet/data
services are introduced.
LATIN AMERICA
-------------
For the three and six months ended August 31, 1997, the Company
consolidated the results of its operating system in Bahia Blanca,
Argentina. In October 1997, the Company sold its Argentine assets;
therefore, the system selling, general and administrative expense from the
Latin American region for the three and six months ended August 31, 1998
represents only Cable Star and Tacna.
22
<PAGE>
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
increased $27.7 million and $61.4 million during the three and six months ended
August 31, 1998, respectively, compared to the amounts for the corresponding
periods in the prior year as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
August 31, August 31,
-------------------------- ------------------------
1998 1997 1998 1997
--------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Europe............................................ $22,567 $ 100 $ 47,286 $ 119
Asia/Pacific...................................... 23,930 18,431 51,894 35,736
Latin America..................................... 267 513 451 2,375
Corporate......................................... 247 249 492 521
------- ------- -------- -------
Total depreciation and amortization expense... $47,011 $19,293 $100,123 $38,751
======= ======= ======== =======
</TABLE>
EUROPE
------
UPC
The Company began consolidating the results of UPC effective December
11, 1997. During the period ended June 30, 1998 as compared to June 30,
1997, UPC's depreciation and amortization expense increased $12.9 million,
from $34.2 million to $47.1 million, a 37.7% increase. On a functional
currency basis, UPC's depreciation and amortization expense increased
NLG31.7 million, from NLG64.4 million to NLG96.1 million, a 49.2% increase.
This increase was primarily due to the step up in basis associated with the
acquisition of the remaining 50.0% interest in UPC in December 1997 as well
as additional goodwill created by the transaction. Other factors increasing
UPC's depreciation and amortization expense include the acquisition of
Combivisie and capital expenditures to upgrade UPC's core systems and to
continue construction on UPC's developing systems. UPC's depreciation and
amortization expense was positively impacted by $3.9 million due to
fluctuation in exchange rates between the six months ended June 30, 1998
and 1997.
ASIA/PACIFIC
------------
AUSTAR
Depreciation and amortization expense from Austar increased $4.2
million, or 24.4%, from $17.2 million for the three months ended June 30,
1997 to $21.4 million for the three months ended June 30, 1998.
Depreciation and amortization expense from Austar increased $14.5 million,
or 43.0%, from $33.7 million for the six months ended June 30, 1997 to
$48.2 million for the six months ended June 30, 1998. On a functional
currency basis, Austar's depreciation expense increased A$30.0 million,
from A$41.3 million for the six months ended June 30, 1997 to A$71.3
million for the six months ended June 30, 1998, a 72.6% increase. Austar's
depreciation expense increased A$12.1 million, from A$20.3 million for the
three months ended June 30, 1997 to A$32.4 million for three months ended
June 30, 1998, a 59.6% increase. These increases were primarily due to the
larger fixed asset base due to the significant deployment of operating
assets to meet subscriber growth as well as an increase in depreciation
expense related to subscriber disconnects. These increases were positively
impacted by $4.4 million due to fluctuation in the exchange rates between
the three months ended June 30, 1998 and 1997 and positively impacted by
$8.7 million due to fluctuation in exchange rates between the six months
ended June 30, 1998 and 1997.
LATIN AMERICA
-------------
For the three and six months ended August 31, 1997, the Company
consolidated the results of its operating system in Bahia Blanca,
Argentina. In October 1997, the Company sold its Argentine assets;
therefore, the depreciation and amortization expense from the Latin
American region for the three and six months ended August 31, 1998
represents only Cable Star and Tacna.
INTEREST EXPENSE. Interest expense increased $16.3 million and $37.5 million
during the three and six months ended August 31, 1998, respectively, compared to
the amounts for the corresponding periods in the prior year. These increases
were primarily due to the greater accretion of interest on the $1,375.0 million
23
<PAGE>
aggregate principal amount of the 1998 Notes compared to the Old Notes and the
new $45.4 million aggregate principal amount of the UIH A/P 1997 Notes as well
as continued accretion on the $447.4 million aggregate principal amount of the
UIH A/P 1996 Notes.
EQUITY IN LOSSES OF AFFILIATED COMPANIES, NET. The Company recognized net equity
in losses of affiliated companies of $14.0 million and $26.6 million for the
three and six months ended August 31, 1998 compared to $18.2 million and $37.5
million for the same period in the prior year as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
August 31, 1998 August 31, 1997
------------------------------------ -----------------------------------
Company Equity in Company Equity in
Ownership Income (Losses) of Ownership Income (Losses) of
Interest Affiliated Companies Interest Affiliated Companies
--------- -------------------- --------- --------------------
<S> <C> <C> <C> <C>
EUROPE (In thousands)
UII..................................... 50.0% $ 622 -- $ --
Kabelkom................................ 50.0% (2,358) -- --
A2000................................... 50.0% (6,499) -- --
Monor .................................. 48.6% (685) 48.6% (1,063)
IPS..................................... 33.5% (145) 33.5% (791)
Other, net.............................. various (175) -- --
UPC(1).................................. 100.0% -- 50.0% (11,344)
ASIA/PACIFIC(2)
HITV.................................... 49.0% (161) 49.0% (1)
XYZ Entertainment....................... 25.0% 955 25.0% (1,077)
PCC..................................... 19.6% 52 40.0% 4
LATIN AMERICA
MGM Networks LA......................... 50.0% (3,394) 50.0% (1,206)
Megapo.................................. 49.0% (31) 49.0% (340)
Jundiai................................. 46.3% 87 46.3% 3
TVSB.................................... 45.0% (284) 40.0% (138)
VTRH.................................... 34.0% (1,995) 34.0% (1,209)
Argentina systems....................... -- -- various (1,063)
-------- --------
Total equity in losses of affiliated
companies, net..................... $(14,011) $(18,225)
======== ========
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended For the Six Months Ended
August 31, 1998 August 31, 1997
------------------------------------ -----------------------------------
Company Equity in Company Equity in
Ownership Income (Losses) of Ownership Income (Losses) of
Interest Affiliated Companies Interest Affiliated Companies
--------- -------------------- --------- --------------------
<S> <C> <C> <C> <C>
EUROPE (In thousands)
UII..................................... 50.0% $ 422 -- $ --
Kabelkom................................ 50.0% (2,802) -- --
A2000................................... 50.0% (11,358) -- --
Monor .................................. 48.6% (949) 48.6% (2,372)
IPS..................................... 33.5% (184) 33.5% (1,684)
Other, net.............................. various (496) -- --
UPC(1).................................. 100.0% -- 50.0% (25,164)
ASIA/PACIFIC(2)
HITV.................................... 49.0% (322) 49.0% (3)
XYZ Entertainment....................... 25.0% 470 25.0% (1,443)
PCC..................................... 19.6% (339) 40.0% (52)
LATIN AMERICA
MGM Networks LA......................... 50.0% (7,239) 50.0% (1,640)
Megapo.................................. 49.0% 39 49.0% (194)
Jundiai................................. 46.3% 165 46.3% 109
TVSB.................................... 45.0% (8) 40.0% (269)
VTRH.................................... 34.0% (3,965) 34.0% (3,767)
Argentina systems....................... -- -- various (1,063)
-------- --------
Total equity in losses of affiliated
companies, net..................... $(26,566) $(37,542)
======== ========
</TABLE>
24
<PAGE>
(1) The Company began consolidating UPC's balance sheet and statement of
operations effective December 11, 1997.
(2) In May 1997, UIH exchanged a 2.0% interest in UAP for the remaining
2.6% interest in UIH A/P. As a result of this transaction, UAP became
a 98.0%-owned subsidiary of the Company. The ownership percentages
presented for August 31, 1998 for all Asia/Pacific companies reflect
UAP's ownership in each operating company.
INFLATION AND FOREIGN CURRENCY EXCHANGE RATE RISKS
The Company's foreign operating companies' monetary assets and liabilities
are subject to foreign currency exchange risk as certain equipment purchases and
payments for certain operating expenses, such as programming expenses, are
denominated in currencies other than their own functional currency. In addition,
certain of the Company's foreign operating companies have notes payable and
notes receivable that are denominated in and, loans payable that are linked to,
a currency other than their own functional currency. In general, the Company and
the operating companies do not execute hedge transactions to reduce the
Company's exposure to foreign currency exchange rate risks. Accordingly, the
Company may experience economic loss and a negative impact on earnings and
equity with respect to its holdings solely as a result of foreign currency
exchange rate fluctuations, which include foreign currency devaluations against
the dollar.
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 U.S.
dollars. Assets and liabilities of foreign subsidiaries are translated at the
exchange rates in effect at period-end, and the statements of operations are
translated at the average exchange rates during the period. Exchange rate
fluctuations on translating foreign currency financial statements into U.S.
dollars result in unrealized gains or losses referred to as translation
adjustments. Cumulative translation adjustments are recorded as a separate
component of stockholders' deficit.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses which are
reflected in income as unrealized (based on period-end translations) or realized
upon settlement of the transactions.
Cash flows from the Company's operations in foreign countries are
translated based on their reporting currencies. 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.
YEAR 2000 CONVERSION
The Company's multi-channel television, programming and telephony
operations are heavily dependent upon computer systems and other technological
devices with imbedded chips. Such computer systems and other technological
devices may not be capable of accurately recognizing dates beginning on January
1, 2000. This problem could cause miscalculations, resulting in UIH's
multi-channel television and telephony systems or programming services
malfunctioning or failing to operate.
YEAR 2000 PROGRAM. In response to possible Year 2000 problems, the Board of
Directors of UIH established a Task Force to assess the impact that potential
Year 2000 problems may have on company-wide operations and to implement
necessary changes to address such problems. The Task Force reports directly to
the UIH Board. In creating a program to minimize Year 2000 problems, the Task
Force identified certain critical operations of the business of UIH. These
critical operations are service delivery systems, field and headend devices,
customer service and billing systems, and corporate management and
administrative operations (e.g., cash flow, accounts payable and accounts
receivable, payroll and building operations).
25
<PAGE>
The Task Force has established a three-phase program to address potential
Year 2000 problems:
(a) Identification Phase: identify and evaluate computer systems and other
devices (e.g. headend devices, switches and set top boxes) on a system
by system basis for Year 2000 compliance.
(b) Implementation Phase: establish a database and evaluate the
information obtained in the Identification Phase, determine
priorities, implement corrective procedures, define costs and ensure
adequate funding.
(c) Testing Phase: test the corrective procedures to verify that all
material compliance problems will operate on and after January 1,
2000, and develop, as necessary, contingency plans for material
operations.
At August 31, 1998, 78.0% of the operating systems within UIH had completed
the Identification Phase and the Task Force is working on the Implementation
Phase for these systems. The Task Force has researched almost 50.0% of the items
identified during the Identification phase as to Year 2000 compliance. Of the
items researched, 83.0% are either compliant or can be easily remediated without
significant cost to UIH. Currently, the Task Force expects to complete its
research on substantially all of the items identified during first quarter 1999.
In addition, the Task Force is supervising the Testing Phase of the computer
systems for UIH corporate operations. Based on current data to date, the
computer systems for all corporate operations are expected to be in compliance
with Year 2000 by mid-1999 and should not require material remediation or
replacement.
The Task Force has targeted mid-1999 for commencement of the Testing Phase.
At this time UIH anticipates that all material aspects of the program will be
completed before January 1, 2000. Currently, UIH is managing the program with
its internal Task Force. During the Implementation Phase, the Task Force will
also be evaluating the need for external resources to complete the
Implementation Phase and implement the Testing Phase.
In addition to its program, UIH is a member of a Year 2000 working group,
which has 12 cable television companies and meets under the auspices of Cable
Labs. The dialogue with the other cable operators has assisted UIH in developing
its Year 2000 program. Part of the agenda of the working group is to develop
text procedures and contingency plans for critical components of operating
systems for the benefit of all its members.
THIRD PARTY DEPENDENCIES. UIH believes its largest Year 2000 risk is its
dependency upon third-party products. Two significant areas on which UIH systems
depend upon third-party products are programming and telephony interconnects.
UIH does not have the ability to control such parties in their assessment and
remediation procedures for potential Year 2000 problems. Should these parties
not be prepared for Year 2000, their systems may fail and UIH would not be able
to provide its services to its customers. UIH is in the process of communicating
with these parties on the status of their Year 2000 compliance programs in an
effort to prevent any possible interruptions or failures. To date, responses to
such communications have been limited and the responses received state only that
the party is working on Year 2000 issues and does not have a definitive position
at this time. As a result, UIH is unable to assess the risk posed by its
dependence upon such third parties' systems. UIH is considering certain limited
contingency plans, including preparing back-up programming and stand-by power
generators. Such contingency plans may not, however, resolve the problem in a
satisfactory manner. With respect to other third-party systems, each UIH
operating system is responsible for inquiring of their vendors and other
entities with which they do business (e.g., utility companies, financial
institutions and facility owners) as to such entities' Year 2000 compliance
programs.
UIH is working closely with the manufacturers of its headend devices to
remedy any Year 2000 problems assessed in the headend equipment. Recent
information from the two primary manufacturers of such equipment indicate that
most of the equipment used in the UIH operating systems are not date sensitive.
Where such equipment needs to be upgraded for Year 2000 issues, such vendors are
upgrading without charge. These upgrades are expected to be completed before
year-end 1999, but such process is not wholly within the control of UIH or its
systems. With respect to billing and customer care systems, UIH uses standard
billing and customer care programs from several vendors. The Task Force is
working with such vendors to achieve Year 2000 compliance for all systems in
UIH.
MINORITY-HELD SYSTEMS. UIH has several minority investments in international
multi-channel television and telephony operations. With respect to these
minority investments, the Task Force is including their systems in the program.
Of these investments, 89.0% have completed their Identification Phase of the
program and the Task Force is in the process of making recommendations to these
entities as to Year 2000 compliance matters. No assurance can be given, however,
that these entities will implement the recommendations or otherwise be Year 2000
26
<PAGE>
compliant. On an overall basis, the Task Force continues to analyze the Year
2000 program and will revise the program as necessary throughout 1998 and 1999,
including procedures it undertakes with respect to third parties to ensure their
Year 2000 compliance.
COSTS OF COMPLIANCE. The Task Force has not yet determined the full cost of its
Year 2000 program and its related impact on the financial condition of UIH. In
the course of its business, UIH has made substantial capital adjustments over
the past few years in improving its systems, primarily for reasons other than
Year 2000. Because these upgrades also resulted in Year 2000 compliance,
replacement and remediation costs have been low. The Task Force has identified
certain replacement and remediation costs currently estimated at $1.4 million.
Although no assurance can be made, UIH believes that the known Year 2000
compliance issues can be remedied without a material financial impact on UIH. No
assurance can be made, however, as to the total cost for the Year 2000 program
until all of the data has been gathered. In addition, UIH can not predict the
financial impact on the Company if Year 2000 problems are caused by third
parties upon which its systems are dependent or experienced by entities in which
it holds investments. The failure of any one of these parties to implement Year
2000 procedures could have a material adverse impact on the operations and
financial condition of UIH.
EUROPEAN ECONOMIC AND MONETARY UNION
On January 1, 1999, eleven of the fifteen member countries of the European
Union ("Participating Countries") are scheduled to establish fixed conversion
rates between their existing sovereign currencies ("Legacy Currencies") and the
euro. The Participating Countries have agreed to adopt the euro as their common
legal currency on that day. The euro will then trade on currency exchanges and
be available for non-cash transactions. The Legacy Currencies are scheduled to
remain legal tender in the Participating Countries as denominations of the euro
between January 1, 1999 and January 1, 2002 (the "Transition Period"). During
the Transition Period, public and private parties may pay for goods and services
using either the euro or the Participating Countries' Legacy Currency on a "no
compulsion, no prohibition" basis.
The recently launched Internet business (Goldmine) was developed from the
very beginning as a European business with a transparent price setting for all
countries concerned. The European telecom business is both regulated and well
controlled by the European government. The effect of the euro will probably be
very limited.
As the banks will convert currency throughout the Transition Period, the
information technology risk will be limited in the first stage. During the
Transition Period all operating companies' billing systems will include the
amounts in euro in addition to the total and details in the countries' Legacy
Currency. All of the Company's European accounting systems are multi-currency
ready.
UPC intends to use the euro as its reporting currency as soon as
practicable.
27
<PAGE>
PART TWO
ITEM 5 - OTHER INFORMATION
The operating data set forth below reflects the aggregate statistics of the
operating systems in which the Company has an ownership interest.
<TABLE>
<CAPTION>
As of June 30, 1998
---------------------------------------------------------------------------------------------------
UIH UIH UIH
Homes in UIH Equity in Equity 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
- ------
MULTI-CHANNEL TV:
Netherlands (A2000).......... 575,000 567,560 518,711 91.4% 50.0% 287,500 283,780 259,356
Austria...................... 1,067,983 895,553 440,128 49.1% 95.0% 1,014,584 850,775 418,122
Hungary (Telekabel
Hungary)................... 778,500 470,804 406,475 86.3% 79.3% 617,351 373,348 322,335
Israel....................... 600,000 564,251 392,204 69.5% 23.3% 139,800 131,470 91,384
Norway....................... 529,924 461,087 320,597 69.5% 100.0% 529,924 461,087 320,597
Netherlands (CNBH)........... 248,421 240,969 231,125 95.9% 100.0% 248,421 240,969 231,125
Ireland (PHL)................ 380,000 374,217 141,067 37.7% 20.0% 76,000 74,843 28,213
Belgium...................... 133,000 133,000 127,736 96.0% 100.0% 133,000 133,000 127,736
Malta........................ 179,000 159,537 65,608 41.1% 25.0% 44,750 39,884 16,402
Romania...................... 176,000 95,654 59,201 61.9% 51.0-100.0% 156,260 80,794 48,956
Czech Republic............... 271,100 147,187 52,150 35.4% 100.0% 271,100 147,187 52,150
Hungary (Monor Telefon)(3)... 85,000 62,775 28,310 45.1% 46.3% 39,355 29,065 13,108
France....................... 86,000 47,494 18,118 38.1% 99.6% 85,656 47,304 18,046
Slovak Republic.............. 67,959 22,647 15,175 67.0% 75.0-100.0% 62,499 18,478 12,036
---------- --------- --------- --------- --------- ---------
Total............... 5,177,887 4,242,735 2,816,605 3,706,200 2,911,984 1,959,566
---------- --------- --------- --------- --------- ---------
TELEPHONY(5):
Hungary (Monor
Telefon)(3)(6)............. 85,000 84,037 65,547 78.0% 46.3% 39,355 38,909 30,348
Netherlands (A2000).......... 575,000 291,490 9,094 3.1% 50.0% 287,500 145,745 4,547
---------- --------- --------- --------- --------- ---------
Total............... 660,000 375,527 74,641 326,855 184,654 34,895
---------- --------- --------- --------- --------- ---------
PROGRAMMING:
Spain/Portugal (IPS)......... N/A N/A 570,000 N/A 33.5% N/A N/A 190,950
Ireland (Tara)............... N/A N/A 456,021 N/A 75.0% N/A N/A 342,016
---------- --------- --------- --------- --------- ---------
Total............... N/A N/A 1,026,021 N/A N/A 532,966
---------- --------- --------- --------- --------- ---------
ASIA/PACIFIC (UAP)
- ------------------
MULTI-CHANNEL TV:
Australia (Austar)........... 1,635,000 1,632,691 215,275 13.2% 98.0% 1,602,300 1,600,037 210,970
Philippines.................. 600,000 353,090 153,616 43.5% 19.2% 115,200 67,793 29,494
Tahiti ...................... 31,000 20,128 6,125 30.4% 88.2% 27,342 17,753 5,402
New Zealand.................. 141,000 36,613 3,635 9.9% 63.7% 89,817 23,322 2,315
---------- --------- --------- --------- --------- ---------
Total............... 2,407,000 2,042,522 378,651 1,834,659 1,708,905 248,181
---------- --------- --------- --------- --------- ---------
TELEPHONY(5):
New Zealand.................. 141,000 7,709 1,023 13.3% 63.7% 89,817 4,911 652
---------- --------- --------- --------- --------- ---------
PROGRAMMING:
Australia (XYZ
Entertainment)............. N/A N/A 543,564 N/A 24.5% N/A N/A 133,173
---------- --------- --------- --------- --------- ---------
OTHER:
Australia (United Wireless)
Wireless Data.............. N/A N/A N/A N/A 98.0% N/A N/A N/A
China
Microwave Relay(4)......... N/A N/A N/A N/A 48.0% N/A N/A N/A
---------- --------- --------- --------- --------- ---------
Total............... N/A N/A N/A N/A N/A N/A
---------- --------- --------- --------- --------- ---------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
As of June 30, 1998
---------------------------------------------------------------------------------------------------
UIH UIH UIH
Homes in UIH Equity in Equity 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>
LATIN AMERICA (UIH LA)
- ----------------------
MULTI-CHANNEL TV:
Chile........................ 2,321,000 1,556,971 380,716 24.5% 34.0% 789,140 529,370 129,443
Mexico....................... 341,600 176,285 55,221 31.3% 49.0% 167,384 86,380 27,058
Brazil (Jundiai)............. 70,000 67,488 20,342 30.1% 46.3% 32,410 31,247 9,418
Brazil (TVSB)................ 387,000 387,000 12,649 3.3% 45.0% 174,150 174,150 5,692
Peru......................... 140,000 46,936 8,647 18.4% 99.2-100.0% 139,120 46,642 8,595
---------- --------- --------- --------- --------- ---------
Total............... 3,259,600 2,234,680 477,575 1,302,204 867,789 180,206
---------- --------- --------- --------- --------- ---------
TELEPHONY(5):
Chile(6)..................... 2,321,000 60,000 7,884 13.1% 34.0% 789,140 20,400 2,681
---------- --------- --------- --------- --------- ---------
PROGRAMMING:
Latin American............... N/A N/A 2,794,800 N/A 50.0% N/A N/A 1,397,400
---------- --------- --------- --------- --------- ---------
TOTAL UIH:
MULTI-CHANNEL TV............. 10,844,487 8,519,937 3,672,831 6,843,063 5,488,678 2,387,953
========== ========= ========= ========= ========= =========
TELEPHONY.................... 3,122,000 443,236 83,548 1,205,812 209,965 38,228
========== ========= ========= ========= ========= =========
PROGRAMMING.................. N/A N/A 4,364,385 N/A N/A 2,063,539
========== ========= ========= ========= ========= =========
</TABLE>
As of and for the Six Months Ended
----------------------------------------
June 30, 1998 (In thousands)(1)
----------------------------------------
Net Long-
Income Adjusted Term
Revenue (Loss) EBITDA(2) Debt
------- --------- --------- -----
EUROPE
- ------
MULTI-CHANNEL TV:
Netherlands (A2000).......... $29,211 $ (9,757) $ 7,539 $234,931
Austria...................... 42,810 2,648 21,067 --
Hungary (Telekabel
Hungary)................... 18,027 643 4,600 --
Israel....................... 65,968 6,753 32,878 250,000
Norway ...................... 22,463 (16,397) 8,303 --
Netherlands (CNBH)........... 13,186 385 8,574 104,846
Ireland (PHL)................ 18,974 185 7,383 52,659
Belgium...................... 8,913 (3,426) 3,146 --
Malta........................ 7,085 713 3,090 20,382
Romania...................... 696 110 364 --
Czech Republic............... 2,131 (1,908) (735) --
Hungary (Monor Telefon)(3)... 8,626 (1,696) 5,330 49,684
France....................... 1,528 (2,211) (902) --
Slovak Republic.............. 378 (432) (223) --
TELEPHONY(5):
Hungary (Monor
Telefon)(3)(6).............
Netherlands (A2000)..........
PROGRAMMING:
Spain/Portugal (IPS)......... 7,646 (535) 1,294 --
Ireland (Tara)............... 290 (2,577) (2,402) --
29
<PAGE>
As of and for the Six Months Ended
----------------------------------------
June 30, 1998 (In thousands)(1)
----------------------------------------
Net Long-
Income Adjusted Term
Revenue (Loss) EBITDA(2) Debt
------- --------- --------- -----
ASIA/PACIFIC (UAP)
- ------------------
MULTI-CHANNEL TV:
Australia (Austar)........... $36,711 $(56,193) $(5,847) $ 69,265
Philippines.................. 6,098 (280) 1,611 --
Tahiti....................... 2,259 (1,253) 129 816
New Zealand.................. 377 (3,484) (3,879) 5,325
TELEPHONY(5):
New Zealand..................
PROGRAMMING:
Australia (XYZ
Entertainment)............. 5,911 2,653 4,847 --
OTHER:
Australia (United Wireless)
Wireless Data.............. 148 (1,314) (983) --
China
Microwave Relay(4)......... -- (398) (366) 3,638
LATIN AMERICA (UIH LA)
- ----------------------
MULTI-CHANNEL TV:
Chile........................ 56,657 (10,613) 15,514 119,225
Mexico....................... 5,965 1,655 2,036 172
Brazil (Jundiai)............. 4,706 432 1,349 39
Brazil (TVSB)................ 2,849 (1,131) (197) --
Peru......................... 930 (980) (449) --
TELEPHONY(5):
Chile(6).....................
PROGRAMMING:
Latin American............... 1,397 (8,436) (8,338) --
<TABLE>
<CAPTION>
As of March 31, 1998
---------------------------------------------------------------------------------------------------
UIH UIH UIH
Homes in UIH Equity in Equity 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
- ------
CABLE:
Netherlands (A2000).......... 566,782 566,782 519,548 91.7% 50.0% 283,391 283,391 259,774
Austria...................... 1,065,327 893,301 439,100 49.2% 95.0% 1,012,061 848,636 417,145
Hungary (Kabelkom)........... 300,000 300,000 266,311 88.8% 50.0% 150,000 150,000 133,155
Norway....................... 529,924 460,242 317,947 69.1% 100.0% 529,924 460,242 317,947
Israel....................... 360,000 354,308 244,697 69.1% 23.3% 83,880 82,554 57,014
Netherlands (CNBH)........... 246,853 239,448 229,740 95.9% 100.0% 246,853 239,448 229,740
Ireland (PHL)................ 380,000 371,529 138,626 37.3% 20.0% 76,000 74,306 27,725
Belgium...................... 133,000 133,000 127,366 95.8% 100.0% 133,000 133,000 127,366
Malta........................ 179,000 155,493 61,153 39.3% 25.0% 44,750 38,873 15,288
Romania...................... 150,000 69,654 40,006 57.4% 90.0-100.0% 143,000 67,534 39,253
Czech Republic............... 271,100 146,448 52,140 35.6% 100.0% 271,100 146,448 52,140
Hungary (Monor Telefon)(3)... 85,000 60,534 27,120 44.8% 46.3% 39,355 28,027 12,557
France....................... 86,000 35,212 14,829 42.1% 99.6% 85,656 35,071 14,770
Slovak Republic.............. 67,959 22,603 16,309 72.2% 75.0-100.0% 62,499 18,438 12,929
---------- --------- --------- --------- --------- ---------
Total............... 4,420,945 3,808,554 2,494,892 3,161,469 2,605,968 1,716,803
---------- --------- --------- --------- --------- ---------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
As of March 31, 1998
---------------------------------------------------------------------------------------------------
UIH UIH UIH
Homes in UIH Equity in Equity 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>
TELEPHONY(5):
Hungary(Monor Telefon)(3)
(6)......................... 85,000 84,037 63,914 76.1% 46.3% 39,355 38,909 29,592
Netherlands(A2000)........... 566,782 165,272 5,519 3.3% 50.0% 283,391 82,636 2,760
---------- --------- --------- --------- --------- ---------
Total................. 651,782 249,309 69,433 322,746 121,545 32,352
---------- --------- --------- --------- --------- ---------
PROGRAMMING:
Spain/Portugal (IPS)
Programming................ N/A N/A 539,000 N/A 33.5% N/A N/A 180,565
Ireland (Tara)............... N/A N/A 414,749 N/A 75.0% N/A N/A 311,062
---------- --------- --------- --------- --------- ---------
Total............... N/A N/A 953,749 N/A N/A 491,627
---------- --------- --------- --------- --------- ---------
ASIA/PACIFIC (UAP)
- ------------------
MULTI-CHANNEL TV:
Australia (Austar)........... 1,635,000 1,589,000 199,955 12.6% 98.0% 1,602,300 1,557,220 195,956
Philippines.................. 600,000 175,414 65,953 37.6% 39.2% 235,200 68,762 25,854
Tahiti....................... 31,000 20,128 6,104 30.3% 88.2% 27,342 17,753 5,384
New Zealand.................. 141,000 23,780 3,245 13.6% 63.7% 89,817 15,148 2,067
---------- --------- --------- --------- --------- ---------
Total............... 2,407,000 1,808,322 275,257 1,954,659 1,658,883 229,261
---------- --------- --------- --------- --------- ---------
PROGRAMMING:
Australia (XYZ
Entertainment).............. N/A N/A 577,476 N/A 24.5% N/A N/A 141,482
---------- --------- --------- --------- --------- ---------
OTHER:
Australia (United Wireless)
Wireless Data.............. N/A N/A N/A N/A 98.0% N/A N/A N/A
China
Microwave Relay(4)......... N/A N/A N/A N/A 48.0% N/A N/A N/A
---------- --------- --------- --------- --------- ---------
Total............... N/A N/A N/A N/A N/A N/A
---------- --------- --------- --------- --------- ---------
LATIN AMERICA (UIH LA)
- ----------------------
MULTI-CHANNEL TV:
Chile........................ 2,321,000 1,478,851 366,345 24.8% 34.0% 789,140 502,809 124,557
Mexico....................... 341,600 176,125 53,439 30.3% 49.0% 167,384 86,301 26,185
Brazil (Jundiai)............. 70,000 66,590 20,959 31.5% 46.3% 32,410 30,831 9,704
Brazil (TVSB)................ 387,000 387,000 12,593 3.3% 45.0% 174,150 174,150 5,667
Peru......................... 140,000 42,747 6,706 15.7% 99.2-100.0% 139,120 42,462 6,665
---------- ---------- --------- --------- --------- ---------
Total................... 3,259,600 2,151,313 460,042 1,302,204 836,553 172,778
---------- --------- --------- --------- --------- ---------
TELEPHONY(5):
Chile(6)..................... 2,321,000 16,676 5,336 32.0% 34.0% 789,140 5,670 1,814
---------- --------- --------- --------- --------- ---------
PROGRAMMING:
Latin American............... N/A N/A 1,810,000 N/A 50.0% N/A N/A 905,000
---------- --------- --------- --------- --------- ---------
TOTAL UIH:
MULTI-CHANNEL TV............... 10,087,545 7,768,189 3,230,191 6,418,332 5,101,404 2,118,842
========== ========= ========= ========= ========= =========
TELEPHONY...................... 2,972,782 265,985 74,769 1,111,886 127,215 34,166
========== ========= ========= ========= ========= =========
PROGRAMMING.................... N/A N/A 3,341,225 N/A N/A 1,538,109
========== ========= ========= ========= ========= =========
</TABLE>
31
<PAGE>
As of and for the Three Months Ended
----------------------------------------
March 31, 1998 (In thousands)(1)
----------------------------------------
Net Long-
Income Adjusted Term
Revenue (Loss) EBITDA(2) Debt
------- --------- --------- -----
EUROPE
- ------
CABLE:
Netherlands (A2000).......... $14,433 $(6,782) $ 3,768 $ --
Austria...................... 21,203 1,600 11,187 --
Hungary (Kabelkom)........... 7,362 239 2,263 --
Norway....................... 10,993 (7,156) 4,395 --
Israel....................... 24,631 4,077 13,769 1,999
Netherlands (CNBH)........... 6,513 323 4,291 103,857
Ireland (PHL)................ 9,625 401 3,989 52,663
Belgium...................... 4,484 (1,890) 1,338 --
Malta........................ 3,427 326 1,534 20,382
Romania...................... 322 65 180 --
Czech Republic............... 1,017 (578) (467) --
Hungary (Monor Telefon)(3)... 4,222 (464) 2,577 48,728
France....................... 643 (982) (402) --
Slovak Republic.............. 195 (150) (117) --
TELEPHONY(5):
Hungary(Monor Telefon)(3)
(6).........................
Netherlands(A2000)...........
PROGRAMMING:
Spain/Portugal (IPS)
Programming................ 3,707 (205) 746 --
Ireland (Tara)............... 103 (1,392) (1,330) --
ASIA/PACIFIC (UAP)
- ------------------
MULTI-CHANNEL TV:
Australia (Austar)........... 17,833 (26,193) 320 69,799
Philippines.................. 1,472 (797) 278 --
Tahiti....................... 1,137 (598) 116 841
New Zealand.................. 138 (1,538) (1,665) 3,587
PROGRAMMING:
Australia (XYZ
Entertainment).............. 3,866 (1,236) 190 --
OTHER:
Australia (United Wireless)
Wireless Data.............. 109 (620) (483) --
China
Microwave Relay(4)......... -- (200) (203) 3,637
LATIN AMERICA (UIH LA)
- ----------------------
MULTI-CHANNEL TV:
Chile........................ $28,139 $(5,268) $7,890 $127,621
Mexico....................... 3,074 991 1,133 158
Brazil (Jundiai)............. 2,355 207 819 58
Brazil (TVSB)................ 1,381 (564) (47) --
Peru......................... 475 (232) (35) --
TELEPHONY(5):
Chile(6).....................
PROGRAMMING:
Latin American............... 588 (3,862) (3,810) --
32
<PAGE>
(1) The financial information presented above has been taken from unaudited
financial information of the respective operating companies that were
providing service as of June 30, 1998. Certain information presented above
has been derived from financial statements prepared in accordance with
foreign generally accepted accounting principles which differ from U.S.
generally accepted accounting principles. In addition, certain amounts have
been converted to U.S. dollars using the June 30, 1998 exchange rates for
the convenience translation. Operating systems in the following countries
reported to the Company in U.S. dollars: Ireland (Tara only), Hungary,
Spain/Portugal, Brazil, Mexico, Chile, Peru and Tahiti. Therefore, the
financial information presented above for these countries was not affected
by the convenience translation.
(2) Adjusted EBITDA represents net income (loss), as determined using generally
accepted accounting principles which may differ from those used in the
United States, plus net interest expense, income tax expense, depreciation,
amortization, minority interest, management fee expense, currency exchange
gains (losses) and other non-operating income (expense) items. Industry
analysts generally consider adjusted EBITDA to be an appropriate measure of
the performance of multi-channel television operations. Adjusted EBITDA
should not be considered as an alternative to net income or to cash flows
or to any other generally accepted accounting principles measure of
performance or liquidity as an indicator of an entity's operating
performance.
(3) The subscriber information presented is for the operating company Monor
Telefon, and the financial information presented is for its parent company
Monor. The Company owns a 48.6% interest in Monor, which holds an 95.27%
interest in the operating company Monor Telefon.
(4) UAP has a 49% interest in HITV, a joint venture that owns a microwave relay
system in the Hunan Province that transmits two provincial channels to
approximately 255,000 cable television homes in the region.
(5) Financial information for telephony is included in cable information above.
(6) For VTRH and Monor, the number of access lines are presented rather than
the number of telephony subscribers.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter.
Date of Report Item Reported Financial Statements Filed
-------------- ------------- --------------------------
July 9, 1998 XYZ/ECT transactions none
August 6, 1998 NUON agreement none
33
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED INTERNATIONAL HOLDINGS, INC.
Date: October 15, 1998
---------------------------
By: /S/ Valerie L. Cover
----------------------------
Valerie L. Cover
Vice President and Controller
(A Duly Authorized Officer and Principal Financial Officer)
34
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITED
INTERNATIONAL HOLDINGS, INC.'S FORM 10-Q FOR THE QUARTER ENDED AUGUST 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> AUG-31-1998
<CASH> 121,634
<SECURITIES> 0
<RECEIVABLES> 13,591
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 246,722
<PP&E> 646,809
<DEPRECIATION> 146,541
<TOTAL-ASSETS> 1,570,331
<CURRENT-LIABILITIES> 237,319
<BONDS> 1,857,187
25,773
0
<COMMON> 404
<OTHER-SE> (492,153)
<TOTAL-LIABILITY-AND-EQUITY> 1,570,331
<SALES> 0
<TOTAL-REVENUES> 138,238
<CGS> 0
<TOTAL-COSTS> 64,060
<OTHER-EXPENSES> 100,123
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95,270
<INCOME-PRETAX> (216,837)
<INCOME-TAX> 0
<INCOME-CONTINUING> (216,837)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (216,837)
<EPS-PRIMARY> (5.50)
<EPS-DILUTED> 0
</TABLE>
