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 May 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
July 10, 1998 was:
Class A Common Stock - 26,625,762 shares
Class B Common Stock - 12,778,943 shares
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UNITED INTERNATIONAL HOLDINGS, INC.
TABLE OF CONTENTS
Page
Number
PART I - FINANCIAL INFORMATION ------
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Item 1 - Financial Statements
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Condensed Consolidated Balance Sheets as of May 31, 1998 and February 28, 1998 (Unaudited)...................... 2
Condensed Consolidated Statements of Operations for the Three Months Ended May 31, 1998 and 1997
(Unaudited)................................................................................................... 3
Condensed Consolidated Statement of Stockholders' Deficit for the Three Months Ended May 31, 1998
(Unaudited)................................................................................................... 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended May 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........................... 15
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PART II - OTHER INFORMATION
---------------------------
Item 5 - Other Information............................................................................................... 24
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Item 6 - Exhibits and Reports on Form 8-K................................................................................ 30
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UNITED INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except per share amounts)
(Unaudited)
As of As of
May 31, February 28,
1998 1998
---------- ------------
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ASSETS
Current assets
Cash and cash equivalents............................................................ $ 97,477 $ 303,441
Restricted cash and short-term investments........................................... 24,447 20,950
Short-term investments............................................................... 92,475 33,731
Subscriber receivables, net.......................................................... 12,385 7,311
Management fee receivables from related parties...................................... 2,491 2,439
Notes receivable..................................................................... 2,068 2,575
Costs to be reimbursed by affiliated companies, net.................................. 16,272 15,157
Other current assets, net, including $2,840 and $1,728 of related party receivables,
respectively....................................................................... 25,135 25,395
---------- ----------
Total current assets............................................................. 272,750 410,999
Investments in and advances to affiliated companies, accounted for under the
equity method, net.................................................................... 291,239 318,437
Property, plant and equipment, net of accumulated depreciation of $124,473 and $84,633,
respectively.......................................................................... 479,171 440,735
Goodwill and other intangible assets, net of accumulated amortization of $24,989
and $14,532, respectively............................................................. 453,109 432,005
Deferred financing costs, net of accumulated amortization of $3,215 and $1,634,
respectively.......................................................................... 43,498 44,943
Non-current restricted cash and other assets, net....................................... 29,944 32,716
---------- ----------
Total assets..................................................................... $1,569,711 $1,679,835
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable, including $224 and $86 of related party payables, respectively..... $ 35,480 $ 49,733
Construction payables................................................................ 4,635 6,008
Accrued liabilities.................................................................. 44,447 46,419
Subscriber prepayments and deposits.................................................. 50,865 12,145
Current portion of long-term debt.................................................... 74,150 163,325
Other current liabilities............................................................ 16,881 13,760
---------- ----------
Total current liabilities........................................................ 226,458 291,390
Senior secured notes and other debt..................................................... 1,780,496 1,702,771
Deferred taxes and other long-term liabilities.......................................... 28,919 30,204
---------- ----------
Total liabilities................................................................ 2,035,873 2,024,365
---------- ----------
Minority interest in subsidiaries....................................................... 13,676 15,186
---------- ----------
Preferred stock, $0.01 par value, 3,000,000 shares authorized, 170,513 and 170,513
shares of Convertible Preferred Stock, Series A issued and outstanding, respectively,
stated at liquidation value.......................................................... 32,889 32,564
---------- ----------
Stockholders' deficit
Class A Common Stock, $0.01 par value, 60,000,000 shares authorized, 26,581,949 and
26,381,093 shares issued and outstanding, respectively............................. 266 264
Class B Common Stock, $0.01 par value, 30,000,000 shares authorized, 12,778,943
and 12,863,323 shares issued and outstanding, respectively......................... 128 128
Additional paid-in capital........................................................... 354,360 352,253
Deferred compensation................................................................ (1,092) (42)
Other comprehensive income (loss)
Unrealized gain on investments in marketable equity securities..................... 29 351
Cumulative translation adjustments................................................. (82,963) (66,075)
---------- ----------
Other comprehensive loss......................................................... (82,934) (65,724)
Accumulated deficit.................................................................. (750,381) (646,085)
Treasury stock, at cost, 3,169,151 shares of Class A Common Stock.................... (33,074) (33,074)
---------- ----------
Total stockholders' deficit...................................................... (512,727) (392,280)
---------- ----------
Total liabilities and stockholders' deficit...................................... $1,569,711 $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 per share amounts)
(Unaudited)
For the Three Months Ended
May 31,
----------------------------
1998 1997
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Service and other revenue............................................................... $ 66,033 $ 21,082
Management fee income from related parties.............................................. 1,687 281
---------- ----------
Total revenue.................................................................... 67,720 21,363
System operating expense................................................................ (29,011) (12,789)
System selling, general and administrative expense...................................... (26,547) (13,318)
Corporate general and administrative expense............................................ (6,471) (5,728)
Depreciation and amortization........................................................... (53,112) (19,458)
---------- ----------
Net operating loss............................................................... (47,421) (29,930)
Equity in losses of affiliated companies, net........................................... (12,555) (19,317)
Interest income, including related party income of $1,530 and $202, respectively........ 4,800 1,961
Interest expense, including related party expense of $281 and $62, respectively......... (47,097) (25,918)
Provision for loss on investment related costs.......................................... -- (4,436)
Other expense, net...................................................................... (2,961) (1,620)
---------- ----------
Net loss before minority interest................................................ (105,234) (79,260)
Minority interest in subsidiaries....................................................... 938 231
---------- ----------
Net loss......................................................................... $ (104,296) $ (79,029)
========== ==========
Basic and diluted loss per common share................................................. $ (2.66) $ (2.03)
========== ==========
Weighted-average number of common shares outstanding.................................... 39,332,032 39,174,318
========== ==========
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)
Class A Class B
Common Stock Common Stock Additional Deferred Unrealized Cumulative
--------------- -------------- Paid-In Compen- Gain on Translation Accumulated Treasury
Shares Amount Shares Amount Capital sation Investments Adjustments Deficit Stock Total
------ ------ ------ ------ ---------- -------- ----------- ----------- ----------- -------- ----------
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Balances,
February 28, 1998.... 26,381,093 $264 12,863,323 $128 $352,253 $ (42) $ 351 $(66,075) $(646,085) $(33,074) $(392,280)
Issuance of
Class A Common
Stock in connection
with Company's stock
option plans......... 112,297 2 -- -- 982 -- -- -- -- -- 984
Issuance of
Class A Common
Stock in connection
with Company's 401(k)
plan................. 4,179 -- -- -- 70 -- -- -- -- -- 70
Exchange of
Class B Common
Stock for Class A
Common Stock......... 84,380 -- (84,380) -- -- -- -- -- -- -- --
Accrual of dividends
on convertible
preferred stock...... -- -- -- -- (325) -- -- -- -- -- (325)
Repricing of stock
options.............. -- -- -- -- 1,380 (1,380) -- -- -- -- --
Amortization of
deferred
compensation......... -- -- -- -- -- 330 -- -- -- -- 330
Change in unrealized
gain on investments.. -- -- -- -- -- -- (322) -- -- -- (322)
Change in cumulative
translation
adjustments......... -- -- -- -- -- -- -- (16,888) -- -- (16,888)
Net loss.............. -- -- -- -- -- -- -- -- (104,296) -- (104,296)
---------- ---- ---------- ---- -------- ------- ----- -------- --------- -------- ---------
Balances, May 31,
1998................. 26,581,949 $266 12,778,943 $128 $354,360 $(1,092) $ 29 $(82,963) $(750,381) $(33,074) $(512,727)
========== ==== ========== ==== ======== ======= ===== ======== ========= ======== =========
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 STATEMENT OF CASH FLOWS
(Stated in thousands, except share amounts)
(Unaudited)
For the Three Months Ended
May 31,
--------------------------
1998 1997
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Cash flows from operating activities:
Net loss..................................................................................... $(104,296) $(79,029)
Adjustments to reconcile net loss to net cash flows from operating activities:
Equity in losses of affiliated companies, net............................................. 12,763 19,445
Minority interest share of losses......................................................... (938) (231)
Depreciation and amortization............................................................. 53,112 19,458
Gain on sale of property, plant and equipment............................................. -- (691)
Compensation expense related to stock options............................................. 330 450
Accretion of interest on senior notes and amortization of deferred financing costs........ 34,666 25,190
Issuance of common stock in connection with Company's 401(k) plan......................... 96 98
Provision for loss on marketable equity securities and investment related costs........... -- 4,436
Increase in subscriber receivables, net................................................... (5,033) (1,126)
Increase in management fee receivables from related parties............................... (52) (507)
Decrease (increase) in other assets....................................................... 4,452 (2,803)
Increase in accounts payable, accrued liabilities and other............................... 24,737 11,334
--------- --------
Net cash flows from operating activities..................................................... 19,837 (3,976)
--------- --------
Cash flows from investing activities:
Purchase of short-term investments........................................................... (92,142) (37,820)
Proceeds from sale of short-term investments................................................. 33,398 49,996
Restricted cash deposited.................................................................... (3,497) (5,023)
Investments in and advances to affiliated companies and acquisition of assets................ (92,533) (32,746)
Additions to property, plant and equipment................................................... (36,317) (16,502)
Proceeds from sale of property, plant and equipment.......................................... -- 2,332
Decrease in construction payables............................................................ (1,389) (20,888)
Increase in costs to be reimbursed by affiliated companies, net.............................. (860) (2,643)
Repayments on notes receivable............................................................... 508 4,594
Other, net................................................................................... (441) (849)
--------- --------
Net cash flows from investing activities..................................................... (193,273) (59,549)
--------- --------
Cash flows from financing activities:
Deferred financing costs..................................................................... (421) (1,909)
Issuance of common stock in connection with Company's stock option plans..................... 956 643
Payment of sellers notes..................................................................... -- (8,016)
Borrowings of other debt..................................................................... 93,396 50,000
Payment on capital leases and other debt..................................................... (126,290) (1,108)
--------- --------
Net cash flows from financing activities..................................................... (32,359) 39,610
--------- --------
Effect of exchange rates on cash............................................................. (169) (1,028)
--------- --------
Decrease in cash and cash equivalents........................................................ (205,964) (24,943)
Cash and cash equivalents, beginning of period............................................... 303,441 68,784
--------- --------
Cash and cash equivalents, end of period..................................................... $ 97,477 $ 43,841
========= ========
Non-cash investing and financing activities:
Purchase money notes payable to sellers................................................... $ -- $ 52,144
========= ========
Change in unrealized (gain) loss on investment............................................ $ (322) $ 2,923
========= ========
Assets acquired with capital leases....................................................... $ 77 $ --
========= ========
Supplemental cash flow disclosures:
Cash paid for interest.................................................................... $ 4,695 $ 514
========= ========
Cash received for interest................................................................ $ 348 $ 2,136
========= ========
Acquisition of Combivisie 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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5
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UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MAY 31, 1998
(Monetary amounts stated in thousands)
(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 May 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") 48.6%*
*Austria: * * UIH Australia/Pacific, Inc. * *Brazil: * *Ireland: *
* Telekabel Group * * ("UIH/AP") * * TV Cabo e Comunicacoes ** Tara Television *
* ("Telekabel") 95.0%* *************************************** * de Jundiai, S.A. * * Limited ("Tara") 75.0%*
*Belgium: * * * ("Jundiai") 46.3%* *Spain/Portugal: *
* Radio Public S.A. * * * TV Show Brasil, * * Ibercom, Inc. *
* ("Radio Public") 100.0%* *************************************** * S.A. ("TVSB")(8) 45.0%* * ("IPS") 33.5%*
*Czech Republic: * *Australia: * *Chile: * ***************************
* Kabel Net Group * * CTV Pty Limited ("CTV") and * * VTR Hipercable S.A. *
* ("Kabel Net") 100.0%* * STV Pty Limited ("STV") * * ("VTRH")(9) 34.0%*
* Ceska Programova * * (collectively, "Austar")(5) 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 * * TV Cable, S.A. * *China: *
* Kabelkom Holding Company * * ("XYZ Entertainment")(6) 25.0%* * ("Tacna") 100.0%* * Hunan International TV *
* ("Kabelkom")(2) 50.0%* *New Zealand: * * Cable Star S.A. * * Communications Company *
*Ireland:(through UII * * Saturn Communications Limited * * "Cable Star") 99.2%* * Limited ("HITV") 49.0%*
*partnership(3)) * * ("Saturn") 65.0%* *Latin America * *Philippines: *
* Princes Holdings Ltd. * *Tahiti: * *Programming: * * Sun Cable Systems/ *
* ("Princes Holdings") 20.0%* * Telefenua S.A. * * MGM Networks Latin * * SkyCable joint *
*Israel:(through UII * * ("Telefenua")(7) 90.0%* * America LLC * * venture (the "Sun *
*partnership(3)) * * * * ("MGM Networks * * Cable JV")(11) 19.6%*
* Tevel Israel International * *************************************** * LA")(10) 50.0%* ***************************
* Communications Ltd. * **************************
* ("Tevel") 23.3%*
*Malta:(through UII *
*partnership(3)) *
* Melita Cable TV PLC *
* ("Melita") 25.0%*
*Netherlands: *
* A2000 Holding NV (Amsterdam) *
* ("A2000")(4) 50.0%*
* Cable Network Brabant *
* Holding BV (Eindhoven) *
* ("CNBH")(4) 100.0%*
*Norway: *
* Janco Multicom AS *
* ("Janco") 87.3%*
*Romania: *
* Multicanal Holdings SRL *
* ("Multicanal") 90.0%*
* Control Cable Ventures SRL *
* ("Control Cable") 100.0%*
*Slovak Republic: *
* Trnavatel SRO ("Trnavatel") 75.0%*
* Slovatel SRO ("Kabel Tel") 100.0%*
*************************************
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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) UPC has a 50% legal ownership in Kabelkom, which is reduced by a
preferential claim by Time Warner Entertainment Company ("TWE") to an
economic ownership of 47.2%. On June 29, 1998, UPC acquired TWE's interest
in Kabelkom's multi-channel television system assets for approximately
$9,500 in cash and a non-interest bearing promissory note in the amount of
$18,000 (the "Kabelkom Note"). UPC and TWE retained their respective
percentage interests in the programming assets of Kabelkom. UPC has granted
TWE an option to acquire UPC's interest in such programming assets in
consideration of the cancellation of the Kabelkom Note. On July 1, 1998,
UPC merged its 100%-owned Kabelkom multi-channel television systems,
Hungary's largest multiple system operator ("MSO"), with Kabeltel,
Hungary's second largest MSO, to form the new joint venture Telekabel
Hungary BV. UPC retains a 79.25% ownership interest in the new entity.
(3) 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 memorandums of understanding
to acquire TINTA's interests in Tevel and Melita, and sell UPC's interest
in Princes Holdings to TINTA.
(4) On April 2, 1998, UPC and N.V. NUON Energie-Onderneming voor Gelderland
("NUON"), a Netherlands energy company, signed a definitive agreement to
merge all of their Netherlands broadband cable television and
telecommunication companies and activities into a newly-formed company,
United Telekabel Holding N.V. ("UTH"). UPC will retain a 51% interest in
UTH. Closing of the transaction is subject to certain conditions precedent
including third party consents and shareholder approval. The closing
agreements provide UPC with a call option to acquire 50% of NUON's
ownership in UTH and provide NUON with a put option to sell 50% of its
ownership interests in UTH. The call and put options are in effect for a
two-year period starting one year after the closing of the transaction,
which is expected to occur before September 1, 1998. The put/call price
will be fixed as of closing.
(5) UIH A/P holds an effective 100% economic interest in Austar through a
combination of ordinary shares and convertible debentures.
(6) On July 9, 1998, UAP executed a purchase agreement to acquire an additional
25% interest in XYZ Entertainment.
(7) UIH A/P owns an effective 90% economic interest in Telefenua. UIH A/P's
economic interest will decrease to 75% and 64% once UIH A/P has received a
20% and 40% internal rate of return on its investment in Tahiti,
respectively.
(8) On April 15, 1998, UIH exercised its option to purchase the remaining 55%
interest in TVSB for approximately $12,000, subject to receipt of required
regulatory approvals.
(9) UIH LA and its partner are currently involved in a revaluation of their
respective properties contributed to VTRH, which may result in a
reallocation of interests. Management believes UIH LA's interest in VTRH
will increase as a result of the revaluation process.
(10) In May 1998, UIH LA acquired the remaining 50% ownership interest in United
Family Communications LLC ("UFC") and subsequently contributed this
interest to MGM Networks LA, UIH LA's 50/50 joint venture with a division
of Metro-Goldwyn-Mayer, Inc. ("MGM").
(11) UAP currently holds a convertible loan, which upon full conversion would
provide UAP with a 40% equity ownership interest in Sun Cable Systems ("Sun
Cable"). In April 1998, Sun Cable and SkyCable ("Sky") formed a joint
venture, which has become the second largest MSO in the Philippines and the
largest MSO outside Manila. Accordingly, the Company holds an effective
19.6% interest in the Sun Cable JV, which is owned 49% by Sun Cable and 51%
by Sky.
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.
7
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UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 May 31, 1998 and the results of its operations for the three
months ended May 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% to 50%, 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 tangible 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 and/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.
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.
8
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UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
COMPREHENSIVE LOSS
The Financial Accounting Standards Board recently issued 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. For
the three months ended May 31, 1998 and 1997, the Company's only components of
other comprehensive income were the changes in cumulative translation
adjustments and unrealized gain/loss on investment (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 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.
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.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
3. ACQUISITIONS
COMBIVISIE AND CNBH
Effective January 1, 1998, UPC acquired certain assets, including the cable
systems of Combivisie for $88,048. Combivisie administered the cable television
systems on behalf of 18 municipalities in the region surrounding Eindhoven, The
Netherlands. The purchase was funded with a NLG60,000 ($29,226) draw on the
NLG1,100,000 ($528,846 at March 31, 1998) multi-currency revolving credit
facility (the "UPC Tranche A Facility") and NLG120,762 ($58,822) from a credit
facility with a bank which was subsequently refinanced. Subsequent to the
transaction, the assets and liabilities of both Kabeltelevisie Group ("KTE") and
Combivisie were merged, forming CNBH.
9
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD
<TABLE>
<CAPTION>
As of May 31, 1998
--------------------------------------------------------------------------------
Investments in Cumulative Equity Cumulative
and Advances to in Income (Losses) of Translation
Affiliated Companies Affiliated Companies Adjustments Total
-------------------- --------------------- ----------- --------
EUROPE
- ------
<S> <C> <C> <C> <C>
A2000........................ $ 83,429 $ (5,146) $ 64 $ 78,347
UII.......................... 48,834 (231) 3 48,606
Kabelkom..................... 28,605 (320) 7 28,292
Other, net................... 1,519 (322) 4 1,201
-------- -------- -------- --------
Total UPC affiliates... 162,387 (6,019) 78 156,446
Monor........................ 27,682 (13,460) (11,496) 2,726
IPS.......................... 13,968 (7,348) (118) 6,502
ASIA/PACIFIC
- ------------
XYZ Entertainment(1)......... 19,095 (19,205) 110 --
Sun Cable.................... 12,727 (1,414) (2,059) 9,254
HITV......................... 6,073 (397) 14 5,690
Other........................ 350 -- -- 350
LATIN AMERICA
- -------------
VTRH......................... 92,754 (12,337) (4,475) 75,942
Megapo....................... 31,248 (1,266) (9,896) 20,086
UFC.......................... 13,744 (11,332) -- 2,412
TVSB......................... 10,138 (3,543) (827) 5,768
Jundiai...................... 6,797 (709) (25) 6,063
-------- -------- -------- --------
$396,963 $(77,030) $(28,694) $291,239
======== ======== ======== ========
</TABLE>
(1) Includes an accrued funding obligation of $841 at March 31, 1998. 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.
<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
-------------------- ----------------------- ----------- --------
EUROPE
- ------
<S> <C> <C> <C> <C>
A2000........................ $ 85,898 $ (287) $ -- $ 85,611
UII.......................... 50,069 (32) -- 50,037
Kabelkom..................... 30,221 124 -- 30,345
Other, net................... 1,757 -- -- 1,757
-------- -------- -------- --------
Total UPC affiliates... 167,945 (195) -- 167,750
Monor........................ 27,682 (13,161) (6,256) 8,265
IPS.......................... 13,920 (7,261) (95) 6,564
ASIA/PACIFIC
- ------------
XYZ Entertainment(1)......... 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
-------- -------- -------- --------
$397,601 $(64,281) $(14,883) $318,437
======== ======== ======== ========
</TABLE>
(1) 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.
10
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
As of As of
May 31, February 28,
1998 1998
---------- -----------
<S> <C> <C>
Subscriber premises equipment and converters....................................... $ 209,229 $200,990
MMDS distribution facilities....................................................... 63,269 61,509
Cable distribution networks........................................................ 269,971 203,015
Office equipment, furniture and fixtures........................................... 21,982 19,622
Buildings and leasehold improvements............................................... 8,944 9,070
Other.............................................................................. 30,249 31,162
-------- --------
603,644 525,368
Accumulated depreciation....................................................... (124,473) (84,633)
-------- --------
Net property, plant and equipment.............................................. $479,171 $440,735
======== ========
</TABLE>
6. GOODWILL AND OTHER INTANGIBLE ASSETS
<TABLE>
<CAPTION>
As of As of
May 31, February 28,
1998 1998
--------- ------------
<S> <C> <C>
UPC................................................................................ $414,353 $384,387
Austar............................................................................. 52,645 51,552
Saturn............................................................................. 6,561 6,100
Other.............................................................................. 4,539 4,498
-------- --------
478,098 446,537
Accumulated amortization.................................................... (24,989) (14,532)
-------- --------
Net goodwill and other intangible assets.................................... $453,109 $432,005
======== ========
</TABLE>
7. SENIOR SECURED NOTES AND OTHER DEBT
<TABLE>
<CAPTION>
As of As of
May 31, February 28,
1998 1998
---------- ------------
<S> <C> <C>
February 1998 10.75% senior secured discount notes, net of unamortized discount...... $ 840,162 $ 818,272
Old Notes (as defined below)......................................................... 380 368
UPC Tranche A Facility............................................................... 419,012 437,598
UPC Tranche B Facility (as defined below)............................................ 62,000 125,000
Bank and other loans at UPC.......................................................... 122,565 60,888
May 1996 14% UIH A/P senior discount notes, net of unamortized discount.............. 288,969 278,662
September 1997 14% UIH A/P senior discount notes, net of unamortized discount........ 31,339 30,461
Austar Bank Facility (as defined below).............................................. 72,809 71,531
UIH LA Revolving Credit Facility (as defined below).................................. 8,000 33,000
Vendor financed equipment at Saturn.................................................. 4,122 3,730
Note payable to a company, interest at 1.5% above the rate published by a certain
Chilean bank, principal and interest due quarterly until June 1998, secured by
shares of STX...................................................................... 910 1,857
Mortgage note, interest at 7.548%, 7-year term....................................... 1,017 1,094
Capitalized lease obligations........................................................ 3,361 3,635
---------- ----------
1,854,646 1,866,096
Less current portion............................................................. (74,150) (163,325)
---------- ----------
Total senior secured notes and other debt........................................ $1,780,496 $1,702,771
========== ==========
</TABLE>
11
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FEBRUARY 1998 10.75% SENIOR SECURED DISCOUNT NOTES
The $840,162 of 10.75% senior secured notes were issued in February 1998 at
a discount from their principal amount of $1,375,000 and accrete interest at a
rate of 10.75% compounded semi-annually (the "1998 Notes"). 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 $380 of senior secured notes (the "Old Notes") were issued at a
discount from their original principal amount at maturity. 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 March 31, 1998, UPC had drawn $419,012 on 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 ($528,846
at March 31, 1998) (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 Belmarken Holdings B.V. ("Belmarken"), a wholly-owned
subsidiary of UPC, and its subsidiaries and downstream affiliates to NLG80,000
($38,462 at March 31, 1998).
UPC TRANCHE B FACILITY
Through March 31, 1998, UPC had drawn $125,000 and paid down $63,000 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 5.5% per annum. UPC must maintain on deposit with the bank a
compensating balance, restricted as to use, of $7,876 until the facility
matures.
BANK AND OTHER LOANS AT UPC
On February 20, 1998, CNBH secured a NLG250,000 ($120,048 at March 31,
1998) nine-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 Combivisie acquisition and
for the development and exploitation of enhanced cable television services, data
services and telephony services. As of March 31, 1998, an amount of NLG187,012
($89,910) was outstanding under the CNBH Facility.
Bank loans and other loans includes a payable of $19,859 to the minority
shareholder of Janco, which accretes interest at 5% 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.
MAY 1996 14% UIH A/P SENIOR DISCOUNT NOTES
The $288,969 of 14% UIH A/P senior notes were issued in May 1996 at a
discount from their principal amount of $443,000 (the "UIH A/P 1996 Notes"). 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
UIH A/P 1996 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%, until
such time as UIH A/P consummates an issuance of its capital stock resulting in
gross proceeds to UIH A/P of at least $70,000 (an "Equity Sale"). Due to this
increase in the interest rates, the UIH A/P 1996 Notes will accrete to a
principal amount of $455,574 if an Equity Sale is not consummated prior to May
15, 2001, the date cash interest begins to accrue.
12
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 1997 14% UIH A/P SENIOR DISCOUNT NOTES
The $31,339 of 14% UIH A/P senior notes were issued in September 1997 at a
discount from their principal amount of $45,000 (the "UIH A/P 1997 Notes"). 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
UIH A/P 1997 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%, until such time as UIH A/P consummates an Equity Sale. Due to this
increase in interest rates, the September 1997 Notes will accrete to a principal
amount of $46,277 if an Equity Sale is not consummated prior to May 15, 2001,
the date cash interest begins to accrue.
AUSTAR BANK FACILITY
In July 1997, Austar secured a financing facility from a bank for a senior
syndicated term debt facility in the amount of Australian $("A$")200,000
($132,380 as of March 31, 1998) (the "Austar Bank Facility"). The proceeds of
the Austar Bank Facility have been and will be used 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. This term
loan facility will be available to the extent that any drawdown, if added to the
existing aggregate outstanding balance under sub-facilities (i) and (ii), would
not exceed five times annualized cash flows (as defined), and upon Austar having
achieved and maintained total subscribers of at least 200,000. 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. 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. As of March 31, 1998, Austar had drawn the entire amount
of the working capital facility and the cash advance facility totaling A$110,000
($72,809 as of March 31, 1998). Although management does not expect to meet the
requirements for drawing down the term loan facility during 1998, they have
engaged the lender under the Austar Bank Facility in a discussion regarding an
amendment to the Austar Bank Facility. If approved, such an amendment would
allow Austar to draw all or a portion of the A$90,000 term loan facility in
advance of the time period currently envisioned. There can be no assurance,
however, that such an amendment will ultimately be approved.
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 May 31, 1998, UIH LA had an outstanding balance of
$8,000 under this facility and a related compensating balance, restricted as to
use, of $3,641. 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
May 31,
---------------------------
1998 1997
-------- --------
<S> <C> <C>
Net loss........................................................................... $(104,296) $(79,029)
Other comprehensive loss:
Change in cumulative translation adjustments..................................... (16,888) (8,010)
Change in unrealized (gain) loss on investment................................... (322) 2,923
--------- --------
Total comprehensive loss..................................................... $(121,506) $(84,116)
========= ========
</TABLE>
13
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. SUBSEQUENT EVENTS
UIH EQUITY SALE
In June 1998, the Company filed a registration statement for the secondary
sale of (a) 3,000,000 shares of UIH Class A Common Stock held by a number of
non-management, non-employee individuals and (b) 450,000 shares of Class A
Common Stock by the Company pursuant to the over-allotment option granted to the
underwriters.
KABELKOM
On June 29, 1998, UPC acquired TWE's interest in Kabelkom's multi-channel
television system assets for approximately $9,500 in cash and the Kabelkom Note
of $18,000. UPC and TWE retained their respective percentage interests in the
programming assets of Kabelkom. UPC has granted TWE an option to acquire UPC's
interest in such programming assets in consideration of the cancellation of the
Kabelkom Note. On July 1, 1998, UPC merged its 100%-owned Kabelkom multi-channel
television systems, Hungary's largest MSO, with Kabeltel, Hungary's second
largest MSO, to form the new joint venture Telekabel Hungary BV. UPC retains a
79.25% ownership interest in the new entity.
XYZ ENTERTAINMENT
On July 9, 1998, UAP executed a purchase agreement to acquire the
Australian programming assets held by Century Communications Corp. ("Century"),
consisting of Century's 25% interest in XYZ Entertainment, a programming company
that owns and/or distributes five channels to the Australian multi-channel
marketplace. Following the acquisition, which is subject to governmental
approval, UAP will own 50% of XYZ Entertainment. The purchase price will be
$1,200 in cash and $23,400 of the Company's newly-created Series B Convertible
Preferred Stock ("Series B Preferred Stock").
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.
AUSTAR
On July 9, 1998, in a separate transaction, Austar, UAP's Australian
operating company, executed an agreement to acquire certain Australian pay
television assets of East Coast Television Pty Limited ("ECT"), an affiliate of
Century, for approximately $6,100 of 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.
14
<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.
The Company conducts no operations other than through its operating
companies in which it holds varying interests. Because the operating companies
have, since inception, been engaged primarily in organizational, start-up and
construction activities and have not achieved the expected subscriber
penetration levels expected from mature systems, the Company believes that its
historical results of operations discussed herein are not indicative of future
results of operations.
FORWARD-LOOKING STATEMENTS
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 $190.0 million of unrestricted cash, cash equivalents and
short-term investments on hand as of May 31, 1998. The Company believes that
this cash balance, combined with internally generated cash flow and amounts
available under the existing credit facilities of its subsidiaries, will provide
it with sufficient capital to meet the growth plans of its existing subsidiaries
and affiliates. In addition, UIH is considering the sale of a number of its
operations. If the Company completes any such sales, 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
1996 UIH A/P Notes and the 1997 UIH A/P Notes (collectively, 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 continuing to generate positive operating cash flow
and 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 plans to
develop additional cash flow through the addition of revenue generating services
to many of its systems, as well as by obtaining controlling ownership of systems
whose cash flows it will be able to access, subject to existing credit facility
restrictions.
15
<PAGE>
FUNDINGS
EUROPE:
Through
Operating System May 31, 1998
---------------- --------------
(In thousands)
UPC................................................. $327,947(1)
Monor............................................... 27,682
IPS................................................. 13,968
Tara................................................ 7,601
--------
$377,198
========
(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.
On March 23, 1998, the Company loaned $63.0 million to UPC which UPC used
to repay a portion of the UPC Tranche B Facility. 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 May 31, 1998
---------------- --------------
(In thousands)
Austar............................................. $355,612(1)(2)
Saturn............................................. 28,376(1)(3)
Telefenua.......................................... 16,738
XYZ Entertainment.................................. 14,140
Sun Cable.......................................... 12,727
United Wireless.................................... 8,020
HITV............................................... 6,073
--------
$441,686
========
(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%.
(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% interest in Saturn in July 1997.
AUSTAR
The Company anticipates 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 direct-to-home ("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 $50-$75 million to continue on
its current expansion path for the period from April 1, 1998 to December 31,
1998 and approximately $50-$75 million for similar expansion plans for 1999. The
16
<PAGE>
sources of funds for such expansion may include the raising of private or public
equity, continued investment by UIH, the drawdown of the remaining amount ($59.6
million converted using the March 31, 1998 exchange rate) under the Austar Bank
Facility (assuming that certain financial ratios are met, which ratios are not
currently being met) or the sale of non-strategic assets. The Company may or may
not be successful in completing all or any of such financings. The Company
believes, however, that committed financial support from UIH combined with, if
necessary, reductions in the Company's planned capital expenditures, are
sufficient to sustain its operations through at least early 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 the
Company's portion of the total funding required for Saturn is approximately
$50-$55 million for the period from April 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. Of this amount,
approximately $35 million is required as a fixed cost to complete the
construction of the network, and the remainder is required as a result of the
installation of customers. The sources of funds for such expansion may include
the raising of private or public equity, continued investment by UIH, the
raising of equipment and/or bank financing (where the Company has already
commenced discussions with several potential lenders) or the sale of
non-strategic assets. The Company may or may not be successful in completing all
or any of such financings. The Company believes, however, that committed
financial support from UIH combined with, if necessary, reductions in the
Company's planned capital expenditures, are sufficient to sustain its operations
through at least early 1999.
OTHER
The Company expects that the aggregate future funding requirements for
Telefenua, XYZ Entertainment and United Wireless are less than $5.0 million.
LATIN AMERICA:
Through
Operating System May 31, 1998
---------------- --------------
(In thousands)
VTRH.................................................. $ 92,754
Megapo................................................ 31,248
UFC................................................... 13,744
Cable Star............................................ 10,621
TVSB.................................................. 10,138
Jundiai............................................... 6,797
Tacna................................................. 863
--------
$166,165
========
As of May 31, 1998, the Company had loaned $41.7 million to UIH LA to
reduce the UIH LA Revolving Credit Facility by $25.0 million and for general
corporate use. The Company's ownership interest in VTRH may increase based upon
a revaluation of the properties originally contributed to the joint venture. The
Company is presently negotiating to obtain a controlling interest in VTRH. On
April 15, 1998, the Company exercised its option to purchase an additional 55%
interest in TVSB for approximately $12.0 million. The purchase price will be
payable 50% upon approval by the Brazilian National Telecommunications Agency
("ANATEL"), which is expected prior to August 15, 1998, and 50% within one year
of the date ANATEL approval is received. In May 1998, UIH LA acquired the
remaining 50% ownership interest in UFC and subsequently contributed this
interest to MGM Networks LA, UIH LA's 50/50 joint venture 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.
The Company expects that the aggregate future funding requirements for
Megapo, Jundiai, Cable Star and Tacna will be less than $20.0 million over the
next year. UIH LA plans to fund the majority of its remaining project
requirements as well as potentially obtaining a controlling interest in VTRH
and/or new Brazilian cable licenses through proceeds from the sale of certain
non-core assets, including its interest in Megapo; the available balance on the
UIH LA Revolving Credit Facility; proceeds from new credit facilities; and/or
proceeds from further investments by UIH or other financial or strategic
partners.
17
<PAGE>
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MAY 31, 1998
The Company incurred a net loss during the three months ended May 31, 1998
of $104.3 million, which included non-cash items such as depreciation and
amortization expense totaling $53.1 million, accretion of interest on the UIH
and UIH A/P senior notes and amortization of deferred financing costs totaling
$34.7 million and equity in net losses of affiliated companies of $12.8 million.
Cash and cash equivalents decreased $206.0 million from $303.4 million as
of February 28, 1998 to $97.4 million as of May 31, 1998. Principal sources of
cash during the three months ended May 31, 1998 included $93.4 million of
borrowings on subsidiary credit facilities, $19.8 million from operating
activities during the period and $1.4 million of repayments on notes receivable
and other sources.
During the three months ended May 31, 1998, cash was used principally for
payment on subsidiary credit facilities of $126.3 million, investments in the
Company's affiliated companies totaling $92.5 million (including $88.0 million
for the purchase of Combivisie's assets), the net change in short-term
investments of $58.7 million, additions to property, plant and equipment
totaling $36.3 million, $3.5 million deposited in restricted cash and $3.3
million for other investing and financing uses.
FOR THE THREE MONTHS ENDED MAY 31, 1997
The Company incurred a net loss during the three months ended May 31, 1997
of $79.0 million, which included non-cash items such as depreciation and
amortization expense totaling $19.5 million and accretion of interest on the UIH
and UIH A/P senior notes and amortization of deferred financing costs totaling
$25.2 million and equity in net losses of affiliated companies of $19.4 million.
Cash and cash equivalents decreased $25.0 million from $68.8 million as of
February 28, 1997 to $43.8 million as of May 31, 1997. Principal sources of cash
during this period included $50.0 million of borrowings under the UIH LA credit
agreement, $12.2 million of net proceeds from the net change in short-term
investments, $4.6 million of repayments on notes receivable, $2.3 million
proceeds from the sale of property, plant and equipment and $0.6 million from
other sources.
During the three months ended May 31, 1997 principal uses of cash included
$26.1 million of purchases of initial interests in operating systems in
Argentina, $20.9 million of payments on construction payables that existed as of
February 28, 1997, $16.5 million of purchases of property, plant and equipment,
$8.0 million in payment of seller's notes, $6.7 million of investments in
affiliated companies, $5.0 million of restricted cash deposited, $7.5 million of
other investing and financing uses, and the funding of operating activities of
$4.0 million during the period.
RESULTS OF OPERATIONS
SERVICE AND OTHER REVENUE. The Company's service and other revenue increased
$45.0 million for the three months ended May 31, 1998 compared to the amounts
for the corresponding period in the prior year as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
May 31,
--------------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Europe....................................................................... $44,950 $ --
Asia/Pacific................................................................. 20,608 14,492
Latin America................................................................ 475 6,590
------- -------
Total service and other revenue.......................................... $66,033 $21,082
======= =======
</TABLE>
18
<PAGE>
EUROPE
------
UPC
The Company began consolidating the results of UPC effective December
11, 1997. During the period ended March 31, 1998, the Company recorded
$44.8 million (NLG92.0 million) of revenue from UPC. During the period
ended March 31, 1998 as compared to March 31, 1997, UPC's revenues
decreased $0.3 million from $45.1 million to $44.8 million, a 0.7%
decrease. The total amount of this decrease can be attributed to the
negative impact of $5.7 million in exchange rate fluctuations between 1996
and 1997. On a functional currency basis, UPC's revenues increased NLG10.0
million from NLG82.0 million to NLG92.0 million, a 12.2% increase. A
substantial portion of this increase was directly attributable to the
acquisition of Combivisie effective January 1, 1998. The remaining increase
in revenue was comprised of increased revenue in Austria and UPC's
developing systems in France, the Slovak Republic and Romania.
ASIA/PACIFIC
------------
AUSTAR
Service and other revenue for Austar increased $5.7 million, or 42.2%,
from $13.5 million for the three months ended March 31, 1997 to $19.2
million for the three months ended March 31, 1998. This increase was
primarily due to subscriber growth (199,955 at March 31, 1998 compared to
129,516 at March 31, 1997) as Austar continues to roll out its services.
LATIN AMERICA
-------------
For the three months ended May 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 months ended May
31, 1998 represents only Cable Star and Tacna.
MANAGEMENT FEE INCOME FROM RELATED PARTIES. Management fee income increased $1.4
million during the three months ended May 31, 1998 compared to the amount for
the corresponding period in the prior year.
SYSTEM OPERATING EXPENSE. System operating expense increased $16.2 million
during the three months ended May 31, 1998 compared to the amounts for the
corresponding period in the prior year as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
May 31,
--------------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Europe..................................................................... $15,642 $ 272
Asia/Pacific............................................................... 12,636 9,977
Latin America.............................................................. 733 2,540
------- -------
Total system operating expense......................................... $29,011 $12,789
======= =======
</TABLE>
EUROPE
------
UPC
The Company began consolidating the results of UPC effective December
11, 1997. During the period ended March 31, 1998, the Company recorded
$14.9 million (NLG30.6 million) of operating expense from UPC. During the
period ended March 31, 1998 as compared to March 31, 1997, UPC's operating
expense decreased $1.3 million from $16.2 million to $14.9 million, an 8.0%
decrease. The total amount of this decrease can be attributed to the
positive impact of $1.9 million in exchange rate fluctuations between 1996
and 1997. On a functional currency basis, UPC's operating expense increased
NLG1.0 million from NLG29.6 million to NLG30.6 million, a 3.4% increase. A
substantial portion of this increase was directly attributable to the
acquisition of Combivisie effective January 1, 1998. The remaining increase
in operating expense was comprised of increases in UPC's developing systems
in France, the Slovak Republic and Romania.
19
<PAGE>
ASIA/PACIFIC
------------
AUSTAR
Operating expense for Austar increased $1.7 million, or 20.0%, from
$8.5 million for the three months ended March 31, 1997 to $10.2 million for
the three months ended March 31, 1998. This increase was due to an increase
in satellite programming fees and copyright costs, which corresponds to the
increase in subscribers and additional basic programming services; an
increase in salaries and benefits related to additional personnel necessary
to support Austar's launch of local and state offices in its markets; an
increase in customer subscriber management expenses related to volume
increases in telephone, billing and collection costs. The remainder of the
increase related to increases in system travel, maintenance, vehicle costs
and management fees.
Austar has experienced high operating expense relative to service
revenue due to certain fixed operating expenses. 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 those related to programming and subscriber management
expense, will vary in direct proportion to the number of subscribers.
SATURN
For the three months ended March 31, 1998, the Company reported system
operating expense from Saturn of $1.3 million, an increase of $0.6 million,
or 85.7%, compared with system operating expense of $0.7 million for the
corresponding period in 1997. This increase was primarily due to an
increase in personnel expenses in order to support Saturn's build-out of
its hybrid fiber coaxial network in the Wellington area.
LATIN AMERICA
-------------
For the three months ended May 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 months ended
May 31, 1998 represents only Cable Star and Tacna.
SYSTEM SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. System selling, general and
administrative expense increased $13.2 million during the three months ended May
31, 1998 compared to the amount for the corresponding period in the prior year
as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
May 31,
--------------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Europe..................................................................... $13,922 $ 220
Asia/Pacific............................................................... 11,200 11,034
Latin America.............................................................. 1,425 2,064
------- -------
Total system selling, general and administrative expense............... $26,547 $13,318
======= =======
</TABLE>
EUROPE
------
UPC
The Company began consolidating the results of UPC effective December
11, 1997. During the period ended March 31, 1998, the Company recorded
$13.3 million (NLG27.3 million) of selling, general and administrative
expense from UPC. During the period ended March 31, 1998, as compared to
March 31, 1997, UPC's selling, general and administrative expense decreased
$2.1 million from $15.4 million to $13.3 million, a 13.6% decrease. A large
portion of this decrease can be attributed to the positive impact of $1.7
million in exchange rate fluctuations between 1996 and 1997. On a
functional currency basis, UPC's selling, general and administrative
expense decreased NLG0.8 million from NLG28.1 million to NLG27.3 million, a
2.8% decrease. This decrease was attributable to the sale of the Portuguese
system in 1997 and reduced corporate and Czech republic overhead expenses
offset by increased selling, general and administrative expense.
20
<PAGE>
LATIN AMERICA
-------------
For the three months ended May 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 months ended May 31, 1998 represents only Cable Star and Tacna.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE. Corporate general and
administrative expense increased $0.7 million during the three months ended May
31, 1998 compared to the amount for the corresponding period in the prior year.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
increased $33.7 million during the three months ended May 31, 1998 compared to
the amount for the corresponding period in the prior year as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
May 31,
---------------------------
1998 1997
--------- --------
(In thousands)
<S> <C> <C>
Europe..................................................................... $24,719 $ 19
Asia/Pacific............................................................... 27,964 17,305
Latin America.............................................................. 184 1,862
Corporate.................................................................. 245 272
------- -------
Total depreciation and amortization expense............................ $53,112 $19,458
======= =======
</TABLE>
EUROPE
------
UPC
The Company began consolidating the results of UPC effective December
11, 1997. During the period ended March 31, 1998, the Company recorded
$24.7 million (NLG50.7 million) of depreciation and amortization expense
from UPC. During the period ended March 31, 1998 as compared to March 31,
1997, UPC's depreciation and amortization expense increased from $18.9
million to $24.7 million, a 30.7% increase. This increase was primarily due
to the step up in basis associated with the acquisition of the remaining
50% 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 incurred in connection with the upgrade of UPC's
infrastructure.
ASIA/PACIFIC
------------
AUSTAR
Deprecation and amortization expense from Austar increased $10.4
million, or 63.0%, from $16.5 million for the three months ended March 31,
1997 to $26.9 million for the three months ended March 31, 1998. This
increase was 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.
LATIN AMERICA
-------------
For the three months ended May 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
months ended May 31, 1998 represents only Cable Star and Tacna.
21
<PAGE>
EQUITY IN LOSSES OF AFFILIATED COMPANIES, NET. The Company recognized net equity
in losses of affiliated companies of $12.6 million for the three months ended
May 31, 1998 compared to $19.3 million for the same period in the prior year as
follows:
<TABLE>
<CAPTION>
Three Months Ended May 31, 1998 Three Months Ended May 31, 1997
------------------------------------ ----------------------------------
Company Equity in Company Equity in
Ownership Income (Losses) of Ownership Income (Losses) of
Interest Affiliated Companies Interest Affiliated Companies
--------- -------------------- --------- --------------------
EUROPE (In thousands)
<S> <C> <C> <C> <C>
TV Max ................................. 100.0% $ (322) -- $ --
UII..................................... 50.0% (200) -- --
Kabelkom................................ 50.0% (444) -- --
A2000................................... 50.0% (4,859) -- --
Other, net.............................. various (321) -- --
-------- --------
Total UPC affiliates............. (5,824) --
UPC(1)................................. 100.0% -- 50.0% (13,820)
Monor ................................. 48.6% (264) 48.6% (1,309)
IPS.................................... 33.5% (39) 33.5% (893)
ASIA/PACIFIC(2)
HITV.................................... 49.0% (161) 49.0% (2)
Sun Cable............................... 40.0% (391) 40.0% (56)
XYZ Entertainment....................... 25.0% (485) 25.0% (366)
LATIN AMERICA
UFC..................................... 50.0% (3,845) 50.0% (434)
Megapo.................................. 49.0% 70 49.0% 146
Jundiai................................. 46.3% 78 46.3% 106
TVSB.................................... 45.0% 276 40.0% (131)
VTRH.................................... 34.0% (1,970) 34.0% (2,558)
-------- --------
Total equity in losses of
affiliated companies, net........ $(12,555) $(19,317)
======== ========
</TABLE>
(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% interest in UAP for the remaining 2.6%
interest in UIH A/P. As a result of this transaction, UAP became a
98%-owned subsidiary of the Company. The ownership percentages
presented for May 31, 1998 for all Asia/Pacific companies reflect
UAP's ownership in each operating company.
INTEREST INCOME. Interest income increased $2.8 million during the three months
ended May 31, 1998 compared to the amount for the corresponding period in the
prior year. The increase was due to higher average cash balances as a result of
the issuance of the 1998 Notes in February 1998.
INTEREST EXPENSE. Interest expense increased $21.2 million during the three
months ended May 31, 1998 compared to the amount for the corresponding period in
the prior year. This increase was primarily due to the greater accretion of
interest on the $1,375.0 million aggregate principal amount 1998 Notes compared
to the Old Notes and the new $46.3 million aggregate principal amount UIH A/P
1997 Notes as well as continued accretion on the $455.6 million aggregate
principal amount of the UIH A/P 1996 Notes.
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.
22
<PAGE>
Certain of the Company's operating companies operate in countries where the
rate of inflation is extremely high relative to that in the United States. While
the Company's affiliated companies attempt to increase their subscription rates
to offset increases in operating costs, there is no assurance that they will be
able to do so. Therefore, operating costs may rise faster than associated
revenue, resulting in a material negative impact on reported earnings. The
Company itself is impacted by inflationary increases in salaries, wages,
benefits and other administrative costs, the effects of which to date have not
been material to the Company.
The functional currency for the Company's foreign operations is the
applicable local currency for each affiliate company, except for countries which
have experienced hyper-inflationary economies. For countries which have
hyper-inflationary economies, the financial statements are prepared in U.S.
dollars. Assets and liabilities of foreign subsidiaries are translated at the
exchange rates in effect at year-end, and the statements of operations are
translated at the average exchange rates during the period. Exchange rate
fluctuations on translating foreign currency financial statements into U.S.
dollars result in unrealized gains or losses referred to as translation
adjustments. Cumulative translation adjustments are recorded as a separate
component of stockholders' 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 has established a task force to coordinate the identification,
evaluation and implementation of changes to computer systems and applications
necessary to achieve the Company's goal of a Year 2000 date conversion which
would minimize the effect on customers and avoid disruption to business
operations. The highest priority for compliance is being given to service
delivery systems, targeting customer care and field headend devices. The Company
is also focusing on field equipment, hardware and software tools, programming
and outside forces that may affect the Company's operations, including the
Company's vendors, banks and utility companies. The task force's analysis of the
Year 2000 threat is on-going and will be continuously updated throughout 1998
and 1999 as necessary.
To date, the task force has authored and distributed an inventory package
to the Company's regional systems to identify all business and computer
applications, so the task force can identify potential compliance problems. The
task force is currently compiling a database of information based upon these
responses, which is expected to be completed by August 31, 1998. To the extent
problems are identified, the task force will implement corrective procedures
where necessary, then test the applications for Year 2000 compliance. Each
system is responsible for inquiring of their vendors and the other entities with
which they do business as to such entities' Year 2000 compliance status. The
total cost of compliance and its effect on the Company's future results of
operations and liquidity is being studied by the task force. Based on the
preliminary data provided by the systems and at the corporate level, the Company
believes that the known Year 2000 issues can be remedied without a material
financial impact on the Company. There can be no assurance, however, as to the
total cost to the Company for complete compliance until all of the data has been
gathered. The Company expects to complete this project by June 30, 1999.
23
<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 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
--------- ------ ----------- ------------ --------- ------------ ---------- -----------
EUROPE
- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UPC SYSTEMS:
Netherlands (A2000)
Cable.................. 566,782 566,782 519,548 91.7% 50.0% 283,391 283,391 259,774
Austria
Cable.................. 1,065,327 893,301 439,100 49.2% 95.0% 1,012,061 848,636 417,145
Norway
Cable.................. 529,924 460,242 317,947 69.1% 87.3% 462,624 401,791 277,568
Hungary
Cable.................. 300,000 300,000 266,311 88.8% 50.0% 150,000 150,000 133,155
Israel
Cable.................. 360,000 354,308 244,697 69.1% 23.3% 83,880 82,554 57,014
Netherlands (CNBH)
Cable.................. 246,853 239,448 229,740 95.9% 100.0% 246,853 239,448 229,740
Ireland (PHL)
Cable/MMDS............. 380,000 371,529 138,626 37.3% 20.0% 76,000 74,306 27,725
Belgium
Cable.................. 133,000 133,000 127,366 95.8% 100.0% 133,000 133,000 127,366
Malta
Cable.................. 179,000 155,493 61,153 39.3% 25.0% 44,750 38,873 15,288
Czech Republic
Cable/MMDS/MATV........ 271,100 146,448 52,140 35.6% 100.0% 271,100 146,448 52,140
Romania
Cable.................. 150,000 69,654 40,006 57.4% 90.0-100.0% 143,000 67,534 39,253
Slovak Republic
Cable.................. 67,959 22,603 16,309 72.2% 75.0-100.0% 62,499 18,438 12,929
France
Cable.................. 86,000 35,212 14,829 42.1% 99.6% 85,656 35,071 14,770
---------- --------- --------- --------- --------- ---------
Total UPC............ 4,335,945 3,748,020 2,467,772 3,054,814 2,519,490 1,663,867
---------- --------- --------- --------- --------- ---------
OTHER UIH SYSTEMS:
Hungary (Monor Telefon)
Cable/Telephony(3)..... 85,000 144,571 91,034 63.0% 46.3% 39,355 66,936 42,149
Spain/Portugal (IPS)
Programming............ N/A N/A 539,000 N/A 33.5% N/A N/A 180,565
Ireland (Tara)
Programming............ N/A N/A 414,749 N/A 75.0% N/A N/A 311,062
---------- --------- --------- --------- -------- ---------
Total Europe......... 4,420,945 3,892,591 3,512,555 3,094,169 2,586,426 2,197,643
---------- --------- --------- --------- --------- ---------
ASIA/PACIFIC (UAP)
- ------------------
Australia (Austar)
MMDS/DTH............... 1,635,000 1,589,000 199,955 12.6% 98.0% 1,602,300 1,557,220 195,956
Philippines
Cable.................. 600,000 175,414 65,953 37.6% 39.2% 235,200 68,762 25,854
Tahiti
MMDS................... 31,000 20,128 6,104 30.3% 88.2% 27,342 17,753 5,384
New Zealand
Cable ................ 141,000 23,780 3,245 13.6% 63.7% 89,817 15,148 2,067
Australia (XYZ
Entertainment)
Programming............ N/A N/A 577,476 N/A 24.5% N/A N/A 141,482
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 UAP......... 2,407,000 1,808,322 852,733 1,954,659 1,658,883 370,743
--------- --------- ---------- --------- --------- ---------
</TABLE>
24
<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
--------- ------ ----------- ------------ --------- ------------ ---------- -----------
LATIN AMERICA (UIH LA)
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chile
Cable/Telephony........ 2,321,000 1,495,527 371,681 24.9% 34.0% 789,140 508,479 126,372
Mexico
Cable ................ 341,600 176,125 53,439 30.3% 49.0% 167,384 86,301 26,185
Brazil (Jundiai)
Cable ................ 70,000 66,590 20,959 31.5% 46.3% 32,410 30,831 9,704
Brazil (TVSB)
MMDS ................. 387,000 387,000 12,593 3.3% 45.0% 174,150 174,150 5,667
Peru
Cable ................ 140,000 42,747 6,706 15.7% 99.2-100.0% 139,120 42,462 6,665
Latin America
Programming............ N/A N/A 1,810,000 N/A 50.0% N/A N/A 905,000
---------- --------- --------- --------- --------- ----------
Total UIH LA......... 3,259,600 2,167,989 2,275,378 1,302,204 842,223 1,079,593
---------- --------- --------- --------- --------- ---------
Total UIH............ 10,087,545 7,868,902 6,640,666 6,351,032 5,087,532 3,647,979
========== ========= ========= ========= ========= =========
</TABLE>
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
- ------
UPC SYSTEMS:
Netherlands (A2000)
Cable.................. $ 14,123 $ (6,637) $ 3,687 $ --
Austria
Cable.................. 20,701 1,562 10,922 13,464
Norway
Cable.................. 11,045 (7,189) 4,416 71,142
Hungary
Cable.................. 7,362 239 2,263 --
Israel
Cable.................. 25,133 4,160 14,049 2,040
Netherlands (CNBH)
Cable.................. 6,374 316 4,199 101,629
Ireland (PHL)
Cable/MMDS............. 9,390 392 3,891 51,375
Belgium
Cable.................. 4,374 (1,844) 1,305 --
Malta
Cable.................. 3,375 321 1,511 20,075
Czech Republic
Cable/MMDS/MATV........ 990 (563) (455) --
Romania
Cable.................. 334 68 187 --
Slovak Republic
Cable.................. 193 (148) (116) --
France
Cable.................. 629 (961) (394) --
-------- -------- ------- --------
Total UPC............ 104,023 (10,284) 45,465 259,725
-------- -------- ------- --------
OTHER UIH SYSTEMS:
Hungary (Monor Telefon)
Cable/Telephony(3)..... 4,222 (464) 2,577 48,728
Spain/Portugal (IPS)
Programming............ 3,707 (205) 746 --
Ireland (Tara)
Programming............ 103 (1,392) (1,330) 2,264
-------- -------- ------- --------
Total Europe......... 112,055 (12,345) 47,458 310,717
-------- -------- ------- --------
25
<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
--------- ---------- --------- -----
ASIA/PACIFIC (UAP)
- ------------------
Australia (Austar)
MMDS/DTH............... $ 19,057 $(27,990) $ 342 $ 74,590
Philippines
Cable.................. 1,626 (880) 307 --
Tahiti
MMDS................... 1,137 (598) 116 841
New Zealand
Cable ................ 147 (1,638) (1,774) 3,823
Australia (XYZ
Entertainment)
Programming............ 4,131 (1,320) 203 --
Australia (United
Wireless)
Wireless Data.......... 116 (663) (516) --
China
Microwave Relay(4)..... -- (200) (203) 3,638
-------- -------- ------- --------
Total UAP......... 26,214 (33,289) (1,525) 82,892
-------- -------- ------- --------
LATIN AMERICA (UIH LA)
- ----------------------
Chile
Cable/Telephony........ 28,139 (5,268) 7,890 127,621
Mexico
Cable ................ 3,074 991 1,133 158
Brazil (Jundiai)
Cable ................ 2,355 207 819 58
Brazil (TVSB)
MMDS ................. 1,381 (564) (47) --
Peru
Cable ................ 475 (232) (35) --
Latin America
Programming............ 588 (3,862) (3,810) --
-------- -------- ------- --------
Total UIH LA...... 36,012 (8,728) 5,950 127,837
-------- -------- ------- --------
Total UIH......... $174,281 $(54,362) $51,883 $521,446
======== ======== ======= ========
26
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1997
-----------------------------------------------------------------------------------------------------
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
--------- ------ ----------- ------------ --------- ------------ ---------- -----------
EUROPE
- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UPC SYSTEMS:
Netherlands (A2000)
Cable.................. 572,000 565,740 518,160 91.6% 50.0% 286,000 282,870 259,080
Austria
Cable.................. 1,064,000 890,305 435,859 49.0% 95.0% 1,010,800 845,790 414,066
Norway
Cable.................. 529,924 457,551 319,654 69.9% 87.3% 462,624 399,442 279,058
Hungary
Cable.................. 300,000 290,690 266,775 91.8% 50.0% 150,000 145,345 133,388
Israel
Cable.................. 360,000 350,392 241,874 69.0% 23.3% 83,880 81,641 56,357
Netherlands (KTE)
Cable.................. 98,393 95,442 90,671 95.0% 100.0% 98,393 95,442 90,671
Ireland
Cable/MMDS............. 355,000 350,989 136,160 38.8% 20.0% 71,000 70,198 27,232
Belgium
Cable.................. 133,000 133,000 127,529 95.9% 100.0% 133,000 133,000 127,529
Malta
Cable.................. 179,000 153,917 58,033 37.7% 25.0% 44,750 38,479 14,508
Czech Republic
Cable/MMDS/MATV........ 271,100 145,650 51,571 35.4% 100.0% 271,100 145,650 51,571
Romania
Cable.................. 150,000 69,620 40,188 57.7% 90.0-100.0% 143,000 67,498 39,428
Slovak Republic
Cable.................. 36,239 22,193 18,476 83.3% 75.0-100.0% 30,779 18,030 14,987
France
Cable.................. 86,000 28,267 6,758 23.9% 99.6% 85,656 28,154 6,731
--------- --------- --------- --------- --------- ---------
Total UPC............ 4,134,656 3,553,756 2,311,708 2,870,982 2,351,539 1,514,606
--------- --------- --------- --------- --------- ---------
OTHER UIH SYSTEMS:
Hungary (Monor Telefon)
Cable/Telephony(3)..... 85,000 144,571 88,455 61.2% 46.3% 39,355 66,936 40,955
Spain/Portugal (IPS)
Programming............ N/A N/A 485,000 N/A 33.5% N/A N/A 162,475
Ireland (Tara)
Programming............ N/A N/A 361,984 N/A 75.0% N/A N/A 271,488
--------- --------- --------- --------- --------- ---------
Total Europe......... 4,219,656 3,698,327 3,247,147 2,910,337 2,418,475 1,989,524
--------- --------- --------- --------- --------- ---------
ASIA/PACIFIC (UAP)
- ------------------
Australia (Austar)
MMDS/DTH............... 1,635,000 1,589,000 196,205 12.3% 98.0% 1,602,300 1,557,220 192,281
Philippines
Cable.................. 600,000 175,414 66,112 37.7% 39.2% 235,200 68,762 25,916
Tahiti
MMDS................... 31,000 20,128 6,304 31.3% 88.2% 27,342 17,753 5,560
New Zealand
Cable.................. 141,000 23,518 3,059 13.0% 63.7% 89,817 14,981 1,949
Australia (XYZ
Entertainment)
Programming............ N/A N/A 577,205 N/A 24.5% N/A N/A 141,415
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 UAP............ 2,407,000 1,808,060 848,885 1,954,659 1,658,716 367,121
--------- --------- --------- --------- --------- ---------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1997
----------------------------------------------------------------------------------------------------
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)
- ----------------------
Chile
Cable/Telephony........ 2,321,000 1,495,527 372,673 24.9% 34.0% 789,140 508,479 126,709
Mexico
Cable.................. 341,600 173,309 54,349 31.4% 49.0% 167,384 84,921 26,631
Brazil (Jundiai)
Cable.................. 70,000 55,270 20,278 36.7% 46.3% 32,410 25,590 9,389
Brazil (TVSB)
MMDS................... 387,000 387,000 11,232 2.9% 40.0% 154,800 154,800 4,493
Peru
Cable.................. 140,000 33,179 6,644 20.0% 99.2-100.0% 139,120 32,962 6,602
Latin America
Programming............ N/A N/A 1,614,650 N/A 50.0% N/A N/A 807,325
--------- --------- --------- --------- --------- ---------
Total UIH LA......... 3,259,600 2,144,285 2,079,826 1,282,854 806,752 981,149
--------- --------- --------- --------- --------- ---------
Total UIH............ 9,886,256 7,650,672 6,175,858 6,147,850 4,883,943 3,337,794
========= ========= ========= ========= ========= =========
</TABLE>
As of and for the Year Ended
---------------------------------------------
December 31, 1997 (In thousands)(1)
---------------------------------------------
Net Long-
Income Adjusted Term
Revenue (Loss) EBITDA(2) Debt
--------- ---------- --------- -----
EUROPE
- ------
UPC SYSTEMS:
Netherlands (A2000)
Cable.................. $ 48,690 $ (16,237) $ 16,205 $204,454
Austria
Cable.................. 78,327 (5,157) 38,738 117,807
Norway
Cable.................. 43,553 (35,521) 17,571 71,139
Hungary
Cable.................. 25,706 1,389 7,987 --
Israel
Cable.................. 96,607 15,643 49,960 6,444
Netherlands (KTE)
Cable.................. 9,920 (743) 6,104 39,244
Ireland
Cable/MMDS............. 32,700 (2,290) 12,010 51,300
Belgium
Cable.................. 18,634 (5,515) 7,282 --
Malta
Cable.................. 11,812 379 4,954 18,821
Czech Republic
Cable/MMDS/MATV........ 3,571 (10,290) (3,207) --
Romania
Cable.................. 942 256 597 --
Slovak Republic
Cable.................. 752 (664) (392) --
France
Cable.................. 1,220 (3,441) (2,238) --
-------- --------- -------- --------
Total UPC............ 372,434 (62,191) 155,571 509,209
-------- --------- -------- --------
OTHER UIH SYSTEMS:
Hungary (Monor Telefon)
Cable/Telephony(3)..... 14,403 (9,594) 7,903 43,614
Spain/Portugal (IPS)
Programming............ 9,958 (7,473) (3,347) 1,098
Ireland (Tara)
Programming............ 51 (5,864) (5,657) 1,691
-------- --------- -------- --------
Total Europe......... 396,846 (85,122) 154,470 555,612
-------- --------- -------- --------
28
<PAGE>
As of and for the Year Ended
---------------------------------------------
December 31, 1997 (In thousands)(1)
---------------------------------------------
Net Long-
Income Adjusted Term
Revenue (Loss) EBITDA(2) Debt
--------- ---------- --------- -----
ASIA/PACIFIC (UAP)
- ------------------
Australia (Austar)
MMDS/DTH............... $ 57,235 $ (88,727) $(17,227) $ 74,951
Philippines
Cable.................. 5,874 (1,382) 1,282 --
Tahiti
MMDS................... 4,118 (4,266) 229 913
New Zealand
Cable.................. 400 (5,486) (5,701) 3,245
Australia (XYZ
Entertainment)
Programming............ 13,075 (8,100) (4,450) --
Australia (United
Wireless)
Wireless Data.......... 479 (3,397) (2,471) --
China
Microwave Relay(4)..... -- (439) (342) --
-------- --------- -------- --------
Total UAP............ 81,181 (111,797) (28,680) 79,109
-------- --------- -------- --------
LATIN AMERICA (UIH LA)
- ----------------------
Chile
Cable/Telephony........ 114,318 (20,611) 21,348 122,065
Mexico
Cable.................. 10,483 1,844 2,965 206
Brazil (Jundiai)
Cable ................ 8,571 1,072 2,815 58
Brazil (TVSB)
MMDS................... 6,469 (1,753) 307 --
Peru
Cable.................. 1,462 (1,738) (1,154) --
Latin America
Programming............ 369 (12,490) (12,580) --
-------- --------- -------- --------
Total UIH LA......... 141,672 (33,676) 13,701 122,329
-------- --------- -------- --------
Total UIH............ $619,699 $(230,595) $139,491 $757,050
======== ========= ======== ========
29
<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 March 31, 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 March 31, 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 a 95.27%
interest in the operating company Monor Telefon. The number of homes passed
and basic subscribers includes the sum of cable and telephony statistics in
Monor Telefon's service area; however, the number of homes in service area
does not include any duplication of homes.
(4) The Company has a 49% interest in HITV, a joint venture that owns a
microwave relay system in the Hunan Province that transmits two provincial
channels to approximately 400,000 cable television homes in the region.
HITV launched service in July 1997.
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
-------------- ------------- --------------------------
March 10, 1998 Issuance of Senior Notes Joint Venture, Inc. (now known
as UIH Europe, Inc.)
30
<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: July 15, 1998
---------------------------
By: /S/ J. Timothy Bryan
---------------------------
J. Timothy Bryan
Chief Financial Officer
(A Duly Authorized Officer and Principal Financial Officer)
<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 MAY 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> MAY-31-1998
<CASH> 97,477
<SECURITIES> 0
<RECEIVABLES> 12,385
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 272,750
<PP&E> 603,644
<DEPRECIATION> 124,473
<TOTAL-ASSETS> 1,569,711
<CURRENT-LIABILITIES> 226,458
<BONDS> 1,780,496
32,889
0
<COMMON> 394
<OTHER-SE> (396,021)
<TOTAL-LIABILITY-AND-EQUITY> 1,569,711
<SALES> 0
<TOTAL-REVENUES> 67,720
<CGS> 0
<TOTAL-COSTS> 29,011
<OTHER-EXPENSES> 53,112
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,097
<INCOME-PRETAX> (104,296)
<INCOME-TAX> 0
<INCOME-CONTINUING> (104,296)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (104,296)
<EPS-PRIMARY> (2.66)
<EPS-DILUTED> (2.66)
</TABLE>
