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 November 30, 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 January
8, 1999 was:
Class A Common Stock -- 30,699,381 shares
Class B Common Stock -- 9,915,880 shares
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UNITED INTERNATIONAL HOLDINGS, INC.
TABLE OF CONTENTS
Page
Number
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PART I - FINANCIAL INFORMATION
------------------------------
Item 1 - Financial Statements
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Condensed Consolidated Balance Sheets as of November 30, 1998 and February 28, 1998 (Unaudited) ............. 2
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended November 30, 1998
and 1997 (Unaudited)..................................................................................... 3
Condensed Consolidated Statement of Stockholders' Deficit for the Nine Months Ended November 30, 1998
(Unaudited).............................................................................................. 4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 30, 1998 and 1997
(Unaudited).............................................................................................. 5
Notes to Condensed Consolidated Financial Statements (Unaudited)............................................. 7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 18
- ------
PART II - OTHER INFORMATION
---------------------------
Item 6 - Exhibits and Reports on Form 8-K......................................................................... 35
- ------
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UNITED INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except share and per share amounts)
(Unaudited)
As of As of
November 30, February 28,
1998 1998
------------ ------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents....................................................................... $ 67,200 $ 303,441
Restricted cash................................................................................. 10,378 20,950
Short-term liquid investments................................................................... 35,370 33,731
Subscriber receivables, net..................................................................... 11,784 7,311
Costs to be reimbursed by affiliated companies, net............................................. 19,013 15,157
Other related party receivables................................................................. 5,257 4,167
Other receivables............................................................................... 11,230 5,474
Other current assets, net....................................................................... 30,342 20,768
---------- ----------
Total current assets....................................................................... 190,574 410,999
Investments in and advances to affiliated companies, accounted for under the equity method, net... 348,629 341,252
Property, plant and equipment, net of accumulated depreciation of $168,680 and
$84,633, respectively............................................................................ 457,181 440,735
Goodwill and other intangible assets, net of accumulated amortization of $38,782 and $14,532,
respectively..................................................................................... 409,438 409,190
Deferred financing costs, net of accumulated amortization of $7,908 and $1,634, respectively...... 41,773 44,943
Non-current restricted cash and other assets, net................................................. 31,455 32,716
---------- ----------
Total assets............................................................................... $1,479,050 $1,679,835
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable, including related party payables of $2,314 and $86, respectively.............. $ 64,952 $ 55,741
Accrued liabilities............................................................................. 42,937 46,419
Subscriber prepayments and deposits............................................................. 32,598 12,145
Short-term debt................................................................................. 23,683 --
Current portion of senior discount notes........................................................ 408 --
Current portion of other long-term debt......................................................... 71,175 163,325
Other current liabilities....................................................................... 4,181 13,760
---------- ----------
Total current liabilities.................................................................. 239,934 291,390
Senior discount notes............................................................................. 1,229,240 1,127,763
Other long-term debt.............................................................................. 633,457 575,008
Deferred taxes and other long-term liabilities.................................................... 35,230 30,204
---------- ----------
Total liabilities.......................................................................... 2,137,861 2,024,365
---------- ----------
Minority interest in subsidiaries................................................................. 30,012 15,186
---------- ----------
Preferred stock, $0.01 par value, 3,000,000 shares authorized, stated at liquidation value
Series A Convertible Preferred Stock, 132,144 and 170,513 shares issued and outstanding,
respectively................................................................................... 26,001 32,564
---------- ----------
Series B Convertible Preferred Stock, 139,031 and 0 shares issued and outstanding,
respectively................................................................................... 30,038 --
---------- ----------
Stockholders' deficit
Class A Common Stock, $0.01 par value, 60,000,000 shares authorized, 30,522,202 and
26,381,093 shares issued, respectively......................................................... 305 264
Class B Common Stock, $0.01 par value, 30,000,000 shares authorized 9,915,880 and
12,863,323 shares issued and outstanding, respectively......................................... 99 128
Additional paid-in capital...................................................................... 370,195 352,253
Deferred compensation........................................................................... (735) (42)
Treasury stock, at cost, 3,169,151 shares of Class A Common Stock............................... (33,074) (33,074)
Accumulated deficit............................................................................. (981,128) (646,085)
Other cumulative comprehensive loss............................................................. (100,524) (65,724)
---------- ----------
Total stockholders' deficit................................................................ (744,862) (392,280)
---------- ----------
Total liabilities and stockholders' deficit................................................ $1,479,050 $1,679,835
========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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2
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UNITED INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands, except share and per share amounts)
(Unaudited)
For the Three Months Ended For the Nine Months Ended
November 30, November 30,
-------------------------- -------------------------
1998 1997 1998 1997
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Service and other revenue.......................................... $ 72,749 $ 23,360 $ 207,288 $ 67,719
Management fee income from related parties......................... 6,024 114 9,723 852
---------- ---------- ---------- ----------
Total revenue............................................... 78,773 23,474 217,011 68,571
System operating expense........................................... (40,590) (17,324) (104,650) (45,220)
System selling, general and administrative expense................. (50,428) (16,099) (106,042) (45,022)
Corporate general and administrative expense....................... (5,186) (3,529) (20,172) (14,444)
Depreciation and amortization...................................... (44,841) (23,202) (144,964) (61,953)
---------- ---------- ---------- ----------
Net operating loss.......................................... (62,272) (36,680) (158,817) (98,068)
Interest income, including related party income of $931, $17,
$3,174 and $1,326, respectively.................................. 4,035 1,455 11,894 6,215
Interest expense, including related party expense of
$270, $88, $825 and $724, respectively........................... (49,677) (32,781) (144,947) (90,559)
Provision for losses on investment related costs................... -- (1,694) -- (8,148)
Gain on sale of investment in affiliated company................... -- 91,600 -- 91,600
Other income (expense), net........................................ 3,407 (4,226) (5,248) (6,174)
---------- ---------- ---------- ----------
Net (loss) income before other items........................ (104,507) 17,674 (297,118) (105,134)
Equity in losses of affiliated companies, net...................... (13,816) (15,979) (40,382) (53,521)
Minority interest in subsidiaries.................................. 117 358 2,457 596
---------- ---------- ---------- -----------
Net (loss) income........................................... $ (118,206) $ 2,053 $ (335,043) $ (158,059)
========== ========== ========== ==========
Basic and diluted net (loss) income per common share............... $ (2.94) $ 0.04 $ (8.44) $ (4.06)
========== ========== ========== ==========
Weighted-average number of common shares outstanding............... 40,429,400 39,225,184 39,855,215 39,202,740
========== ========== ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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3
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<CAPTION> UNITED INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(Stated in thousands, except share amounts)
(Unaudited) Other
Class A Class B Cumulative
Common Stock Common Stock Additional Deferred Treasury Stock Components of
------------------ ------------------- Paid-In Compen- ------------------- Accumulated Comprehensive
Shares Amount Shares Amount Capital sation Shares Amount Deficit Loss Total
---------- ------ ---------- ------ ---------- -------- --------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
March 1,
1998.......... 26,381,093 $264 12,863,323 $128 $352,253 $(42) 3,169,151 $(33,074) $(646,085) $ (65,724) $(392,280)
Exchange of
Class B
Common Stock
for Class A
Common Stock.. 2,947,443 29 (2,947,443) (29) -- -- -- -- -- -- --
Issuance of
Class A
Common Stock
in connection
with public
offering, net
of offering
expense....... 450,000 5 -- -- 7,399 -- -- -- -- -- 7,404
Issuance of
Class A Common
Stock in
connection with
Company's stock
option plans.. 303,346 3 -- -- 2,897 -- -- -- -- -- 2,900
Issuance of
Class A Common
Stock in
connection with
with Company's
401(k) plan... 14,863 -- -- -- 202 -- -- -- -- -- 202
Exchange of
Series A
Convertible
Preferred
Stock for
Class A
Common Stock.. 425,457 4 -- -- 7,441 -- -- -- -- -- 7,445
Accrual of
dividends on
convertible
preferred
stock......... -- -- -- -- (1,377) -- -- -- -- -- (1,377)
Repricing
of stock
options....... -- -- -- -- 1,380 (1,380) -- -- -- -- --
Amortization
of deferred
compensation.. -- -- -- -- -- 687 -- -- -- -- 687
Change in
unrealized
gain on
investment.... -- -- -- -- -- -- -- -- -- (300) (300)
Change in
cumulative
translation
adjustments... -- -- -- -- -- -- -- -- -- (34,500) (34,500)
Net loss...... -- -- -- -- -- -- -- -- (335,043) -- (335,043)
---------- ---- --------- ---- -------- ----- --------- -------- --------- --------- ---------
Balances,
November 30,
1998......... 30,522,202 $305 9,915,880 $ 99 $370,195 $(735) 3,169,151 $(33,074) $(981,128) $(100,524) $(744,862)
========== ==== ========= ==== ======== ===== ========= ======== ========= ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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4
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UNITED INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands)
(Unaudited)
For the Nine Months Ended
November 30,
--------------------------
1998 1997
-------- --------
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................................. $(335,043) $(158,059)
Adjustments to reconcile net loss to net cash flows from operating activities:
Equity in losses of affiliated companies, net.......................................... 40,901 54,322
Gain on sale of investment in affiliated company....................................... -- (91,600)
Minority interest share of losses...................................................... (2,457) (596)
Depreciation and amortization.......................................................... 144,964 61,953
Compensation expense related to stock options.......................................... 20,105 854
Accretion of interest on senior notes and amortization of deferred financing costs..... 108,363 80,562
Provision for loss on marketable equity securities and investment related costs........ -- 8,148
Increase in receivables and other assets............................................... (25,291) (334)
Increase (decrease) in accounts payable, accrued liabilities and other................. 17,203 (11)
--------- ---------
Net cash flows from operating activities................................................. (31,255) (44,761)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term liquid investments................................................ (137,763) (66,926)
Proceeds from sale of short-term liquid investments...................................... 136,124 109,049
Restricted cash released (deposited)..................................................... 10,827 (13,571)
Investments in and advances to affiliated companies and acquisition of assets............ (131,680) (56,539)
Proceeds from sale of investments in affiliated companies................................ -- 211,125
Distribution received from affiliated company............................................ -- 1,248
Additions to property, plant and equipment............................................... (146,347) (74,504)
Proceeds from sale of property, plant and equipment...................................... -- 5,332
Decrease in construction payables........................................................ (1,123) (29,385)
Repayments on notes receivable........................................................... 3,179 12,214
Other, net............................................................................... (353) (3,963)
--------- ---------
Net cash flows from investing activities................................................. (267,136) 94,080
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash contributed from minority interest partner.......................................... 6,407 19,566
Proceeds from offering of senior notes................................................... -- 29,925
Deferred financing costs................................................................. (4,373) (11,000)
Issuance of common stock in connection with public offerings, net of financing costs..... 7,404 --
Issuance of common stock in connection with Company's stock option plans................. 2,900 715
Payment of sellers notes................................................................. -- (46,351)
Borrowings of other debt................................................................. 182,064 213,971
Payment of capital leases and other debt................................................. (133,689) (113,527)
--------- ---------
Net cash flows from financing activities................................................. 60,713 93,299
--------- ---------
EFFECT OF EXCHANGE RATES ON CASH......................................................... 1,437 (596)
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS......................................... (236,241) 142,022
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................................... 303,441 68,784
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................................. $ 67,200 $ 210,806
========= =========
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UNITED INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Stated in thousands)
(Unaudited)
For the Nine Months Ended
November 30,
--------------------------
1998 1997
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NON-CASH INVESTING AND FINANCING ACTIVITIES:
Contribution of net assets of Dutch cable systems to new joint venture................... $129,577 $ --
======== ========
Issuance of preferred stock utilized in purchase of Australian investments............... $ 29,544 $ --
======== ========
Purchase money note payable to seller for purchase of system in Hungary.................. $ 18,000 $ --
======== ========
Note issued upon purchase of remaining interest in Brazilian investment.................. $ 5,683 $ --
======== ========
Purchase money notes payable to sellers for purchase of systems in Argentina............. $ -- $ 52,061
======== ========
Accrual for put option to purchase additional interest in Argentina...................... $ -- $ 4,407
======== ========
Note issued upon sale of investment in Venezuela......................................... $ -- $ 6,500
======== ========
Gain on issuance of shares by affiliated company in New Zealand.......................... $ -- $ 5,985
======== ========
Conversion of note receivable to equity.................................................. $ -- $ 1,909
======== ========
Change in unrealized gain/loss on investments............................................ $ (300) $ (730)
======== ========
Assets acquired with capital leases...................................................... $ 621 $ 535
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest................................................................... $ 34,910 $ 6,658
======== ========
Cash received for interest............................................................... $ 6,710 $ 5,737
======== ========
ACQUISITION OF DUTCH ASSETS:
Property, plant and equipment and other long-term assets................................. $(51,632) $ --
Goodwill and other intangible assets..................................................... (36,416) --
-------- --------
Total cash paid..................................................................... $(88,048) $ --
======== ========
SALE OF ARGENTINE SYSTEMS:
Working capital, net of cash relinquished of $2,133...................................... $ -- $ (4,899)
Investments in affiliated companies...................................................... -- 83,535
Property, plant and equipment and other long-term assets................................. -- 4,560
Goodwill and other intangible assets..................................................... -- 60,727
Purchase money notes (assumed by the buyers)............................................. -- (24,398)
Gain on sale............................................................................. -- 91,600
-------- --------
Cash received from sale............................................................. $ -- $211,125
======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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6
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<CAPTION> UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF NOVEMBER 30, 1998
(Monetary amounts stated in thousands, except per share amounts)
(Unaudited)
1. ORGANIZATION AND NATURE OF OPERATIONS
United International Holdings, Inc. (together with its majority-owned subsidiaries, the "Company" or "UIH") was formed
as a Delaware corporation in May 1989, for the purpose of developing, acquiring and managing foreign multi-channel television,
programming and telephony operations outside the United States.
The following chart presents a summary of the Company's significant investments in multi-channel television and telephony operations
as of November 30, 1998.
<S> <C>
************************************************************************************************************************************
* UIH *
* *
************************************************************************************************************************************
100% * 100% *
*************************************** *******************************************************************************************
* UIH Europe, Inc. * * United International Properties, Inc. *
* ("UIHE") * * ("UIPI") *
*************************************** *******************************************************************************************
* *
* **********************************************
100%(1) * 98% * * 100%
*************************************** ********************************************* *********************************************
*United Pan-Europe Communications N.V.* * UIH Asia/Pacific Communications, Inc. * * UIH Latin America, Inc. *
* ("UPC") * * ("UAP") * * ("ULA") *
*************************************** ********************************************* *********************************************
* * *
* * *
*************************************** ********************************************* *********************************************
*Austria: * *Australia: * *Brazil: *
* Telekabel Group * * CTV Pty Limited and STV Pty * * TV Show Brazil, S.A. ("TVSB") 100.0% *
* ("Telekabel Austria") 95.0% * * Limited (collectively, * * TV Cabo e Comunicacoes de *
*Belgium: * * "Austar") 100.0% (5)* * Jundiai, S.A. ("Jundiai") 46.3% *
* Radio Public N.V./S.A. * * Austar Satellite Pty Limited * *Chile: *
* ("Radio Public") 100.0% * * ("Austar Satellite") 100.0% * * VTR Hipercable S.A. ("VTRH") 34.0% (9)*
*Czech Republic: * * United Wireless Pty Limited * *Mexico: *
* Kabel Net Group * * ("United Wireless") 100.0% * * Tele Cable de Morelos, S.A. *
* ("KabelNet") 100.0% * * XYZ Entertainment Pty Limited * * de C.V. ("Megapo") 49.0% *
* Ceska Programova * * ("XYZ Entertainment") 50.0% * *Peru: *
* Spolecnost SRO * *New Zealand: * * Cable Star S.A. ("Cable Star") 60.0% *
* ("TV Max") 100.0% * * Saturn Communications Limited * *Latin American Programming: *
*France: * * ("Saturn") 65.0% * * MGM Networks Latin America *
* Mediareseaux Marne S.A. * *Tahiti: * * LLC ("MGM Networks LA") 50.0% *
* ("Mediareseaux") 99.6% * * Telefenua S.A. ("Telefenua") 90.0% (6)* *********************************************
*Hungary: * *China: *
* Telekabel Hungary BV * * Hunan International TV *
* ("Telekabel Hungary") 79.3% * * Communications Company Limited *
* Kabelkom Kabeltelevizio * * ("HITV") 49.0% (7)*
* KFT ("HBO Programming") 50.0% * *Philippines: *
* Monor Telefon Tarsasag, * * Pilipino Cable Corporation *
* Rt ("Monor") 37.1% (2)* * ("PCC") 19.6% (8)*
*Ireland: * *********************************************
* Tara Television Limited *
* ("Tara") 80.0% (2)*
*Israel: *
* Tevel Israel International *
* Communications Ltd. *
* ("Tevel") 46.6% (3)*
*Malta: *
* Melita Cable TV PLC *
* ("Melita") 50.0% (3)*
*The Netherlands: *
* United Telekabel Holding *
* N.V. ("UTH") 51.0% *
*Norway: *
* Janco Multicom AS *
* ("Janco") 100.0% (4)*
*Romania: *
* Control Cable Ventures SRL *
* ("Control Cable") 100.0% *
* Multicanal Holdings SRL *
* ("Multicanal") 100.0% *
* Eurosat CA-TV SRL *
* ("Eurosat") 51.0% *
*Slovak Republic: *
* Kabeltel SRO ("Kabeltel") 100.0% *
* Trnavatel SRO *
* ("Trnavatel") 75.0% *
*Spain/Portugal: *
* Ibercom, Inc. ("IPS") 33.5% (2)*
***************************************
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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) The Company transferred its interest in Monor and Tara to UPC in December
1998. The Company intends to transfer its interest in IPS to UPC in January
1999.
(3) In November 1998, UPC acquired Tele-Communications International, Inc.'s
("TINTA") interests in Tevel and Melita and sold UPC's interest in Princes
Holdings Ltd. ("Princes Holdings") to TINTA for a net payment to TINTA of
$68,000 (after closing adjustments). As a result of the transaction, UPC's
interests in Tevel and Melita increased to 46.6% and 50.0%, respectively.
(4) In November 1998, UPC exercised and paid a call obligation for $19,683 to
obtain the remaining 12.7% interest in Janco.
(5) UAP holds an effective 100% economic interest in Austar through a
combination of ordinary shares and convertible debentures.
(6) UAP owns an effective 90.0% economic interest in Telefenua. UAP's economic
interest will decrease to 75.0% and 64.0% once UAP has received a 20.0% and
40.0% internal rate of return on its investment in Tahiti, respectively.
(7) Pursuant to a memorandum of understanding with AmTec, Inc. ("AmTec") to
exchange its interest in HITV for AmTec stock, UAP and AmTec executed an
agreement and plan of merger in December 1998. Closing on the transaction
is expected to occur in early 1999, subject to certain conditions.
(8) UAP currently holds a convertible loan, which upon full conversion would
provide UAP with a 40.0% equity ownership interest in Sun Cable Systems
("Sun Cable"). The Company holds an effective 19.6% interest in PCC, which
is owned 49.0% by Sun Cable and 51.0% by SkyCable.
(9) On October 15, 1998, ULA secured the right to acquire the remaining
ownership interest in VTRH from its current partners which would increase
its ownership interest to 100%. Under the agreement, ULA has the right to
acquire its partners' interests in VTRH for $236,500, adjusted for any
capital transactions at VTRH between October 15, 1998 and closing. Closing
on the transaction is subject to ULA receiving sufficient financing at
terms acceptable to ULA prior to April 30, 1999. ULA expects that such
financing will be secured at the project level. If the transaction does not
close, ULA's ownership interest in VTRH will be increased from its current
34.0% to either 38.0% or 40.0%, depending upon certain factors.
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 1998, the Company had a net working capital deficit of
$49,360. Sources of cash in the next year may include the exercise of existing
warrants to purchase UIH common stock (approximately $21,600, if exercised), the
raising of additional private or public equity and/or the sale of non-strategic
assets by certain subsidiaries. Uses of cash in the next year may include
continued spending in the Company's regions to meet the existing growth plans of
its systems and corporate overhead. Management believes that UIH's existing
capital resources, combined with the planned initial public offering of UPC with
estimated gross proceeds of $650,000 (the "UPC Offering") scheduled for early
1999, will enable UIH to fund the operating and development requirements of its
subsidiaries and to cover corporate overhead for the next year. However, there
can be no assurance that UIH will be successful in obtaining all or any of such
sources of cash. To the extent UIH pursues new acquisitions or development
opportunities, UIH would need to raise additional capital or seek strategic
partners.
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.
8
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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 a controlling financial interest through the ownership of a majority
voting interest. 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 November 30, 1998 and the results of its operations for the three
and nine months ended November 30, 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
less than 50.0%, its investments are held through a combination of voting common
stock, preferred stock, debentures or convertible debt and/or the Company exerts
significant influence through board representation and management authority, or
in which majority control is deemed to be temporary, the equity method of
accounting is used. Under this method, the investment, originally recorded at
cost, is adjusted to recognize the Company's proportionate share of net earnings
or losses of the affiliate, limited to the extent of the Company's investment in
and advances to the affiliate, including any debt guarantees or other
contractual funding commitments. The Company's proportionate share of net
earnings or losses of affiliates includes the amortization of the excess of its
cost over its percentage interest in each affiliate's net assets.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Additions, replacements,
installation costs 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
part of operating costs. MMDS distribution facilities and cable distribution
networks are depreciated using the straight-line method over estimated useful
lives of five to ten years.
With respect to the Company's cable distribution networks, initial subscriber
installation costs are capitalized and depreciated over a period no longer than
the depreciation period used for cable television plant or the term of the
license agreement. All reconnect related costs, including installation fees, are
recognized in the statement of operations 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.
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 fair market value of
those licenses at the date of acquisition, and amortization expense is computed
using the straight-line method over the initial term of the license up to a
maximum of 20 years.
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.
9
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
COMPREHENSIVE LOSS
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which requires an enterprise (i)
to classify items of other comprehensive income by their nature in a financial
statement and (ii) to 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 (see Note 9).
STOCK-BASED COMPENSATION
Stock-based compensation is recognized using the intrinsic value method. In
addition to the Company's stock option plans, UPC, UAP and ULA have also adopted
incentive stock option plans for their employees. With respect to these plans,
the rights conveyed to employees are the substantive equivalents to stock
appreciation rights. Accordingly, compensation expense and deferred compensation
expense is recognized at each financial statement date based on the difference
between the grant price and the estimated fair value of the respective
subsidiary's common stock. With respect to the UPC stock option plans
(collectively, the "UPC Plan"), compensation expense of $16,054 was recognized
during the nine months ended September 30, 1998, and deferred compensation
expense of $5,633 was recognized as of September 30, 1998. UPC's estimate of the
fair value of its common stock as of September 30, 1998 utilized in recording
these amounts was The Netherlands guilders ("NLG")26.35 per share. Because the
Company will account for the UPC Plan as a variable plan until the consummation
date of its UPC Offering, additional compensation expense and deferred
compensation expense will be recognized subsequent to September 30, 1998 through
the UPC Offering date to the extent the ultimate UPC Offering price is greater
than NLG26.35. For each NLG5.00 per share increase in the UPC Offering price
over NLG26.35, additional compensation expense totaling approximately $9,487
would have been recognized in the Company's statement of operations and deferred
compensation expense would have increased by approximately $3,831 as of
September 30, 1998.
BASIC AND DILUTED NET LOSS PER SHARE
"Basic net 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 net loss per share" includes the effects
of potentially issuable common stock, but only if dilutive. Therefore, the
Company's stock option plans and convertible securities are excluded from the
Company's diluted net loss per share for all periods presented because their
effect would be anti-dilutive.
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, included in other comprehensive loss.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses which are
reflected in income as unrealized (based on period-end translations) or realized
upon settlement of the transactions.
Cash flows from the Company's operations in foreign countries are translated
based on their reporting currencies. As a result, amounts related to assets and
liabilities reported on the condensed consolidated statements of cash flows will
not agree to changes in the corresponding balances on the condensed consolidated
balance sheets. The effects of exchange rate changes on cash balances held in
foreign currencies are reported as a separate line below cash flows from
financing activities.
Certain of the Company's foreign operating companies have notes payable and
notes receivable that are denominated in 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
10
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the current
period's presentation.
NEW ACCOUNTING PRINCIPLE
The American Institute of Certified Public Accountants recently issued Statement
of Position 98-1 ("SOP 98-1"), "Accounting For the Costs of Computer Software
Developed or Obtained for Internal Use", which provides guidance on accounting
for the costs of computer software developed or obtained for internal use. SOP
98-1 identifies the characteristics of internal-use software and provides
examples to assist in determining when computer software is for internal use.
SOP 98-1 is effective for financial statements for fiscal years beginning after
December 15, 1998, for projects in progress and prospectively, with earlier
application encouraged. Management believes that the adoption of SOP 98-1 will
not have a material effect on the financial statements.
3. ACQUISITIONS
AUSTAR
In July 1998, Austar acquired certain Australian pay television assets of East
Coast Television Pty Limited ("ECT"), an affiliate of Century Communications
Corporation ("Century"), for $6,155 of the Company's newly-created Series B
Convertible Preferred Stock ("Series B Preferred Stock"). ECT's subscription
television business includes subscribers and certain MMDS licenses and
transmission equipment serving the areas in and around Newcastle, Gossford,
Wollongong and Tasmania.
The Series B Preferred Stock is convertible into shares of UIH's Class A Common
Stock at a conversion price of $21.25 per share. The Series B Preferred Stock
accrues dividends at a rate of 6.5%, which are payable at the redemption date in
2008. The other terms of the Series B Preferred Stock are essentially identical
to the Company's Series A Convertible Preferred Stock.
UTH
In August 1998, UPC merged its Dutch cable television and telecommunications
assets, consisting of its 50.0% interest in A2000 Holding NV ("A2000") and its
wholly-owned subsidiary Cable Network Bradant Holdings BV ("CNBH"), with those
of the Dutch energy company N.V. NUON Energie-Onderneming voor Gelderland,
Friesland en Flevoland ("NUON"), forming a new company, UTH (the "UTH
Transaction"). Following the merger, UPC holds a 51.0% interest in UTH. The
agreement provides UPC with a call option after August 6, 1999 to acquire 50.0%
of NUON's 49.0% ownership interest in UTH for approximately NLG244,000
(approximately $128,964 as of November 30, 1998) plus an interest payment of
5.5% over the call price from January 1, 1998 until the exercise date. If the
exercise date is after August 6, 2000, the interest rate will go up to 9.0%. If
UPC exercises the call option, NUON can exercise the secondary put option,
requiring UPC to purchase its remaining interest in UTH for the same price. The
agreement provides NUON with a put option exercisable after August 6, 1999 to
require UPC to purchase 50.0% of NUON's 49.0% interest in UTH. The price UPC
will have to pay equals approximately NLG166,000 (approximately $87,738 as of
November 30, 1998) plus an interest payment of 4.5% over the put price from
January 1, 1998 until the exercise date. If NUON exercises the put option, UPC
can exercise the secondary call option, requiring NUON to sell its remaining
interest in UTH to UPC for the same price. Although UPC retains a majority
economic and voting interest, UPC accounts for its investment in UTH using the
equity method of accounting because of certain minority shareholder rights of
NUON.
The following pro forma condensed consolidated operating results for the three
and nine months ended November 30, 1998 and 1997 give effect to the UTH
Transaction as if it had occurred at the beginning of the periods presented. In
addition, the following pro forma condensed consolidated operating results for
the three and nine months ended November 30, 1997 give effect to the Company's
December 11, 1997 acquisition of the remaining 50.0% interest in UPC as if it
had occurred as of January 1, 1997. This pro forma condensed consolidated
financial information does not purport to represent what the Company's results
of operations would actually have been if such transactions had in fact occurred
on such dates. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable.
11
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
November 30, 1998 November 30, 1997
-------------------------- ---------------------------
Historical Pro Forma Historical Pro Forma
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Total revenue.............................................. $ 78,773 $ 76,451 $ 23,474 $ 61,590
========== ========== ========== ==========
Net (loss) income.......................................... $ (118,206) $ (116,596) $ 2,053 $ (7,319)
========== ========== ========== ==========
Basic and diluted net (loss) income per common share....... $ (2.94) $ (2.90) $ 0.04 $ (0.19)
========== ========== ========== ==========
Weighted-average number of common shares
outstanding.............................................. 40,429,400 40,429,400 39,225,184 39,225,184
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended For the Nine Months Ended
November 30, 1998 November 30, 1997
-------------------------- ---------------------------
Historical Pro Forma Historical Pro Forma
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Total revenue.............................................. $ 217,011 $ 201,623 $ 68,571 $ 190,708
========== ========== ========== ==========
Net loss................................................... $ (335,043) $ (332,055) $ (158,059) $ (198,823)
========== ========== ========== ==========
Basic and diluted net loss per common share................ $ (8.44) $ (8.37) $ (4.06) $ (5.10)
========== ========== ========== ==========
Weighted-average number of common shares
outstanding.............................................. 39,855,215 39,855,215 39,202,740 39,202,740
========== ========== ========== ==========
</TABLE>
XYZ ENTERTAINMENT
In September 1998, UAP acquired the Australian programming assets held by
Century, consisting of Century's 25.0% interest in XYZ Entertainment, a
programming company that owns and/or distributes five channels to the Australian
multi-channel marketplace. Following the acquisition, UAP owns 50.0% of XYZ
Entertainment, of which 25.0% is owned by UIH Australia Pacific, Inc. ("UIH
A/P"), a wholly-owned subsidiary of UAP. The purchase price consisted of $1,231
in cash and $23,389 of the Company's Series B Preferred Stock.
TVSB
On October 2, 1998, UIH LA increased its ownership interest in TVSB from 45.0%
to 100%. The purchase price for the remaining interest was $11,500 in cash, of
which 50.0% was paid at closing with the remainder due one year from the closing
date.
CABLE STAR
In October 1998, ULA and Arequipa Cable Vision ("ACV") each contributed their
Peruvian assets to Cable Star through a merger. Upon completion of the merger,
ULA received 60.0% of the outstanding shares of Cable Star and the former
shareholders of ACV received the other 40.0%.
12
<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 November 30, 1998
---------------------------------------------------------------------------------------
Investments in Cumulative Equity Cumulative
and Advances to Dividends in Income (Losses) of Translation
Affiliated Companies Received Affiliated Companies Adjustments Total
-------------------- --------- --------------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
EUROPE
UTH.................................. $136,040 $ -- $ (3,818) $ (587) $131,635
Melita, Princes Holdings and Tevel... 53,412 (6,461) 1,686 (3,660) 44,977
Monor................................ 27,682 -- (15,201) (11,481) 1,000
IPS.................................. 14,065 -- (7,531) (174) 6,360
HBO Programming...................... 12,866 -- (3,315) (772) 8,779
Other................................ 10,046 -- (1,835) (97) 8,114
ASIA/PACIFIC
XYZ Entertainment.................... 43,687 -- (18,930) 110 24,867
PCC.................................. 11,497 -- (1,823) (2,896) 6,778
HITV................................. 6,073 -- (2,095) 15 3,993
Other................................ 350 -- -- -- 350
LATIN AMERICA
VTRH................................. 99,043 -- (15,447) (9,850) 73,746
Megapo............................... 32,496 (1,248) (1,137) (14,290) 15,821
TVSB................................. 22,019 -- (4,290) (1,211) 16,518
MGM Networks LA (1).................. 17,282 -- (17,282) -- --
Jundiai.............................. 6,797 -- (509) (597) 5,691
-------- ------- -------- -------- --------
$493,355 $(7,709) $(91,527) $(45,490) $348,629
======== ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of February 28, 1998
---------------------------------------------------------------------------------------
Investments in Cumulative Equity Cumulative
and Advances to Dividends in Income (Losses) of Translation
Affiliated Companies Received Affiliated Companies Adjustments Total
-------------------- --------- --------------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
EUROPE
A2000................................ $109,373 $ -- $ (287) $ 4 $109,090
Melita, Princes Holdings and Tevel... 51,005 -- (32) -- 50,973
Monor................................ 27,682 -- (13,161) (6,256) 8,265
IPS.................................. 13,920 -- (7,261) (95) 6,564
Kabelkom Holding Company
("Kabelkom")........................ 28,605 -- 124 (1) 28,728
Other................................ 1,774 -- -- -- 1,774
ASIA/PACIFIC
XYZ Entertainment (2)................ 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............................... 32,496 (1,248) (1,313) (1,604) 28,331
TVSB................................. 8,100 -- (3,770) -- 4,330
United Family Communications ("UFC"). 12,099 -- (7,487) -- 4,612
Jundiai.............................. 6,652 -- (788) -- 5,864
-------- ------- -------- -------- --------
$421,661 $(1,248) $(64,281) $(14,880) $341,252
======== ======= ======== ======== ========
</TABLE>
(1) Includes an accrued funding obligation of $2,100 at September 30,
1998. The Company would face significant and punitive dilution if it
did not make the requested fundings.
(2) 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.
13
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
As of As of
November 30, February 28,
1998 1998
------------ ------------
<S> <C> <C>
Cable distribution networks..................................................... $258,083 $203,015
Subscriber premises equipment and converters.................................... 230,139 200,990
MMDS distribution facilities.................................................... 62,345 61,509
Office equipment, furniture and fixtures........................................ 30,045 19,622
Buildings and leasehold improvements............................................ 16,365 9,070
Other........................................................................... 28,884 31,162
-------- --------
625,861 525,368
Accumulated depreciation................................................... (168,680) (84,633)
-------- --------
Net property, plant and equipment.......................................... $457,181 $440,735
======== ========
</TABLE>
6. GOODWILL AND OTHER INTANGIBLE ASSETS
<TABLE>
<CAPTION>
As of As of
November 30, February 28,
1998 1998
------------ ------------
<S> <C> <C>
Telekabel Austria............................................................... $206,782 $192,828
Janco........................................................................... 89,854 94,200
CNBH (1)........................................................................ -- 39,847
Austar.......................................................................... 55,601 51,552
Telekabel Hungary............................................................... 43,236 --
Radio Public.................................................................... 23,133 20,903
Saturn.......................................................................... 5,716 6,100
Other........................................................................... 23,898 18,292
-------- --------
448,220 423,722
Accumulated amortization................................................... (38,782) (14,532)
-------- --------
Net goodwill and other intangibles......................................... $409,438 $409,190
======== ========
(1) Effective August 6, 1998, CNBH was contributed to UTH as part of the UTH Transaction.
</TABLE>
7. SENIOR DISCOUNT NOTES
<TABLE>
<CAPTION>
As of As of
November 30, February 28,
1998 1998
------------ ------------
<S> <C> <C>
1998 Notes (as defined below)................................................... $ 885,314 $ 818,272
Old Notes (as defined below).................................................... 408 368
1996 UIH A/P Notes (as defined below)........................................... 310,711 278,662
1997 UIH A/P Notes (as defined below)........................................... 33,215 30,461
---------- ----------
1,229,648 1,127,763
Less current portion....................................................... (408) --
---------- ----------
Total senior discount notes................................................ $1,229,240 $1,127,763
=========== ==========
</TABLE>
14
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1998 NOTES
The 10.75% senior secured notes, which the Company issued in February 1998 at a
discount from their principal amount of $1,375,000 (the "1998 Notes"), had an
accreted value of $885,314 as of November 30, 1998. On and after February 15,
2003, cash interest will accrue and will be payable semi-annually until maturity
on each February 15 and August 15, commencing August 15, 2003. The 1998 Notes
will mature on February 15, 2008 and will be redeemable at the option of the
Company on or after February 15, 2003.
OLD NOTES
The 14.0% senior secured notes, which the Company issued at a discount from
their original principal amount at maturity (the "Old Notes"), had an accreted
value of $408 as of November 30, 1998. On February 5, 1998, the Company redeemed
all but $465 principal amount at maturity in connection with the issuance of the
1998 Notes. No cash interest payments will be made prior to maturity on November
15, 1999.
1996 UIH A/P NOTES
The 14.0% senior notes, which UIH A/P issued in May 1996 at a discount from
their principal amount of $443,000 (the "1996 UIH A/P Notes"), had an accreted
value of $310,711 as of September 30, 1998. On and after May 15, 2001, cash
interest will accrue and will be payable semi-annually on each May 15 and
November 15, commencing November 15, 2001. The 1996 UIH A/P Notes are due May
15, 2006. Effective May 16, 1997, the interest rate on these notes increased by
an additional 0.75% per annum to 14.75%. On October 14, 1998, UIH A/P
consummated an issuance of its capital stock resulting in gross proceeds to UIH
A/P of $70,000 (an "Equity Sale"), reducing the interest rate from 14.75% to
14.0% per annum. Due to the increase in the interest rate effective May 16, 1997
until consummation of the Equity Sale, the 1996 UIH A/P Notes will accrete to a
principal amount of $447,418 on May 15, 2001, the date cash interest begins to
accrue.
1997 UIH A/P NOTES
The 14.0% senior notes, which UIH A/P issued in September 1997 at a discount
from their principal amount of $45,000 (the "1997 UIH A/P Notes"), had an
accreted value of $33,215 as of September 30, 1998. On and after May 15, 2001,
cash interest will accrue and will be payable semi-annually on each May 15 and
November 15, commencing November 15, 2001. The 1997 UIH A/P Notes are due May
15, 2006. Effective September 23, 1997, the interest rate on these notes
increased by an additional 0.75% per annum to 14.75%. On October 14, 1998, UIH
A/P consummated an Equity Sale, reducing the interest rate from 14.75% to 14.0%
per annum. Due to the increase in the interest rate effective September 23, 1997
until consummation of the Equity Sale, the 1997 UIH A/P Notes will accrete to a
principal amount of $45,448 on May 15, 2001, the date cash interest begins to
accrue.
8. OTHER LONG-TERM DEBT
<TABLE>
<CAPTION>
As of As of
November 30, February 28,
1998 1998
------------ ------------
<S> <C> <C>
UPC Tranche A Facility (as defined below)....................................... $514,274 $437,598
UPC Tranche B Facility (as defined below)....................................... 60,063 125,000
Bank and other loans at UPC..................................................... 35,805 60,888
Austar Bank Facility (as defined below)......................................... 74,162 71,531
ULA Revolving Credit Facility (as defined below)................................ 8,000 33,000
Vendor financed equipment at Saturn............................................. 8,515 3,730
Other........................................................................... 3,813 6,586
-------- ---------
704,632 738,333
Less current portion....................................................... (71,175) (163,325)
-------- --------
Total other long-term debt................................................. $633,457 $575,008
======== ========
</TABLE>
15
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UPC TRANCHE A FACILITY
As of September 30, 1998, UPC had drawn $514,274 on the NLG1,100,000 ($582,011
as of September 30, 1998) multi-currency revolving credit facility (the "UPC
Tranche A Facility"). Amounts advanced under the UPC Tranche A Facility are due
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.
UPC TRANCHE B FACILITY
As of September 30, 1998, UPC had outstanding $60,063 on a $125,000 (U.S.
dollar-denominated) facility (the "UPC Tranche B Facility"), which had an
original maturity on December 5, 1998 and bears interest at LIBOR plus a margin
ranging from 4.5% to 6.0% per annum. UPC must maintain on deposit with the bank
a compensating balance, restricted as to use, of $4,902 until the facility
matures. In November 1998, the lenders granted an extension of the maturity date
to June 5, 1999.
BANK AND OTHER LOANS AT UPC
Bank loans and other loans includes a payable of $19,912 to the minority
shareholder of Janco, which accretes interest at 5.0% per annum. The payable
relates to the exercise price of a call option for the remaining 12.7% of Janco,
which the Company exercised and paid in November 1998 (see Note 10).
AUSTAR BANK FACILITY
In July 1997, Austar secured a senior syndicated term debt facility in the
amount of Australian $("A$")200,000 ($118,659 as of September 30, 1998) (the
"Austar Bank Facility") to fund Austar's subscriber acquisition and working
capital needs. The Austar Bank Facility consists of three sub-facilities: (i)
A$50,000 revolving working capital facility, (ii) A$60,000 cash advance facility
and (iii) A$90,000 term loan facility. As of September 30, 1998, Austar had
drawn the entire amount of the working capital facility and the cash advance
facility totaling A$110,000 ($65,263 converted using the September 30, 1998
exchange rate). The working capital facility is fully repayable on June 30,
2000. The cash advance facility is fully repayable pursuant to an amortization
schedule beginning December 31, 2000 and ending June 30, 2004.
In September 1998, Austar secured a new bank underwriting commitment for an
A$400,000 senior secured debt facility (the "New Austar Bank Facility"), of
which the first A$170,000 is intended to refinance the Austar Bank Facility by
early 1999 and the remaining A$230,000 is available upon the contribution of
additional equity on a 2:1 debt-to-equity basis. In the interim, Austar has
received a supplemental amendment to the existing Austar Bank Facility which
allows Austar to draw up to A$60,000 under the A$90,000 term loan facility for a
maximum term of six months from the initial cash draw down at an increased
interest rate of 2.25% above the professional market rate in Australia. All
other terms and conditions of the Austar Bank Facility remain unchanged. As of
September 30, 1998, Austar had drawn A$15,000 ($8,899 converted using the
September 30, 1998 exchange rate) on the term loan facility for a total
outstanding balance of A$125,000 ($74,162 as of September 30, 1998) on the
Austar Bank Facility.
ULA REVOLVING CREDIT FACILITy
In November 1997, ULA entered into an amended and restated credit agreement with
a bank for a revolving credit facility of up to $40,000 (the "ULA 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. In November 1998, ULA exercised its option to extend the
maturity date for the first three-month period increasing the interest rate to
LIBOR plus 4.0%. The agreement was also amended to reduce the facility from
$40,000 to $8,000 effective November 20, 1998, which decreased the cash
collateral requirement to $750. As of November 30, 1998, ULA had an outstanding
balance of $8,000 under this facility due February 1999 and a related
compensating balance, restricted as to use, of $750. Under the terms of the ULA
Revolving Credit Facility, ULA must use any proceeds from the sale of Latin
American assets to repay this note.
16
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. COMPREHENSIVE LOSS
The components of total comprehensive loss are as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
November 30, November 30,
-------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net (loss) income.......................................... $(118,206) $ 2,053 $(335,043) $(158,059)
Other comprehensive loss:
Change in cumulative translation adjustments............. (16,572) (11,797) (34,500) (22,981)
Change in unrealized gain/loss on investments............ 360 939 (300) 2,886
--------- -------- ---------- ----------
Total comprehensive loss............................ $(134,418) $ (8,805) $(369,843) $(178,154)
========= ======== ========== ==========
</TABLE>
10. SUBSEQUENT EVENTS
SATURN BANK FACILITY
In November 1998, Saturn secured a syndicated senior debt facility in the amount
of New Zealand $("NZ$")125,000 ($65,689 as of November 30, 1998) (the "Saturn
Bank Facility") to fund the completion of Saturn's network. Of this amount,
NZ$83,335 has been subscribed for by financial institutions. Until Saturn
obtains irrevocable commitments in the form of equity funding or additional
underwriting commitments for the balance of NZ$41,665, the maximum that may be
drawn down is NZ$73,000 ($38,362 as of November 30, 1998). If Saturn is
successful in obtaining the necessary commitments from other financing sources,
Saturn may borrow an additional NZ$10,335 from the initial syndicate of banks.
If Saturn is not successful in obtaining the necessary commitments, the
outstanding balance will be due May 31, 1999. The eight-year debt facility has
an interest rate of 3.0% over the current base rate upon draw down.
JANCO
In November 1998, UPC exercised and paid a call obligation for $19,683 to obtain
the remaining 12.7% interest in Janco. The transaction was funded from UPC's
restricted cash established as collateral for the purchase. Remaining funds in
the account were released from restriction.
MELITA, PRINCES HOLDINGS AND TEVEL
In November 1998, UPC (i) acquired from TINTA, its indirect 23.3% and 25.0%
interests in the Tevel and Melita systems, respectively, for $91,500, doubling
UPC's respective ownership in these systems to 46.6% and 50.0%, respectively,
(ii) purchased an additional 5.0% interest in Princes Holdings and 5.0% of Tara
in consideration for 384,531 shares of the Company held by UPC, and (iii) sold
the 5.0% interest in Princes Holdings, together with its existing 20.0% interest
to TINTA for $20,500. The net payment of $71,000 to TINTA ($68,000 after closing
adjustments) was funded with the proceeds of a $90,000 promissory note made by a
subsidiary of UPC to its primary partners in the Tevel system. The promissory
note is due in November 2000, bears interest at an effective rate of 11.0%,
including a note premium, and is secured by a floating charge and pledge on the
assets of UPC's subsidiary which holds UPC's interest in Tevel. In connection
with this promissory note, UPC granted the holder an option to acquire $90,000
of ordinary shares of UPC at a price equal to 90.0% of the price of UPC shares
realized in a UPC Offering. The exercise price of this option, which expires
upon the UPC Offering, is payable in cash or delivery of the promissory note.
HITV
In December 1998, UAP and AmTec executed an agreement and plan of merger which
provides for the merger of UIH Hunan, Inc., which owns the interest in HITV,
into a subsidiary of AmTec in exchange for Series F Convertible Preferred Stock
valued at $12,000 upon closing. This agreement was pursuant to a July 1998
memorandum of understanding between UAP and AmTec to exchange UAP's 49.0%
interest in HITV for AmTec stock. Upon consummation of the agreement, the
Company will become AmTec's largest shareholder with preferred stock that is
convertible into shares of AmTec's common stock. As AmTec's largest shareholder,
the Company will have the right to nominate two members to AmTec's board of
directors. In addition, the Company will receive co-investment rights with AmTec
in China and an option to purchase additional AmTec common stock at a price of
$3 per share to increase its stake in AmTec to 25.0% on a fully diluted basis.
Closing on the transaction is expected to occur in early 1999, subject to
certain conditions.
17
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the Company's condensed
consolidated financial statements and related notes thereto included elsewhere
herein. Such condensed consolidated financial statements provide additional
information regarding the Company's financial activities and condition.
Certain statements in this Report may constitute "forward-looking statements"
within the meaning of the federal securities laws. Such forward-looking
statements may include, among other things, statements concerning the Company's
plans, objectives and future economic prospects, expectations, beliefs, future
plans and strategies, anticipated events or trends and similar expressions
concerning matters that are not historical facts. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
(or entities in which the Company has interests), 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 the change over to the Year 2000 (including the Company's projected
state of readiness and expected contingency plans for possible worst case
scenarios), risks inherent in investment and operations in foreign countries,
changes in government regulation, changes in the nature of key strategic
relationships with partners and joint venturers, and other factors referenced in
this Report. These forward-looking statements speak only as of the date of this
Report, and the Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein, to reflect any change in the Company's expectations with regard thereto,
or any other change in events, conditions or circumstances on which any such
statement is based. Any statements contained in Management's Discussion and
Analysis of Financial Condition and Results of Operations in this Report related
to Year 2000 are hereby denominated as "Year 2000 Statements" within the meaning
of the Year 2000 Information and Readiness Disclosure Act.
SUMMARY OPERATING DATA
The following comparative operating data reflects multi-channel TV subscribers,
telephony lines, programming and data subscribers as well as selected financial
statistics of the operating systems in which the Company had an ownership
interest as of September 30, 1998.
In addition, the following proportionate data represents certain operating and
financial results for the Company, multiplied by the Company's applicable
ownership percentages:
18
<PAGE>
<TABLE>
<CAPTION>
As of and for the Nine Months Ended September 30, 1998
-----------------------------------------------------------------------------------------------
Homes in Basic Net Long-
GROSS DATA Service Homes Subscribers/ Basic Income Adjusted Term
Area Passed Lines Penetration Revenue (Loss) EBITDA(1) Debt (2)
-------- --------- ------------ ----------- | -------- -------- --------- --------
| (In thousands)(3)
<S> <C> <C> <C> <C> | <C> <C> <C> <C>
EUROPE |
- ------ |
Multi-channel TV Subscribers: |
The Netherlands (UTH).......... 1,510,132 1,476,537 1,372,006 92.9% | $126,526 $(27,497) $ 60,344 $375,793
Austria........................ 1,070,640 897,938 442,596 49.3% | $ 69,273 $ (2,410) $ 33,369 $123,661
Hungary (Telekabel Hungary).... 901,500 490,966 413,119 84.1% | $ 6,646 $ 1,103 $ 2,624 $ --
Israel......................... 600,000 568,999 395,680 69.5% | $ 79,555 $ 7,447 $ 41,838 $250,000
Norway......................... 529,924 461,759 319,769 69.3% | $ 35,034 $(24,344) $ 13,022 $ 73,493
Ireland (Princes Holdings)..... 380,000 377,206 145,251 38.5% | $ 30,854 $ 6 $ 11,872 $ 56,528
Belgium........................ 133,000 133,000 127,574 95.9% | $ 14,538 $ (6,951) $ 5,144 $ --
Malta.......................... 179,000 161,310 68,149 42.2% | $ 11,365 $ 983 $ 4,784 $ 20,915
Romania........................ 180,000 95,674 58,900 61.6% | $ 1,292 $ 197 $ 646 $ --
Czech Republic................. 229,531 148,963 52,268 35.1% | $ 3,570 $ (2,874) $ (981) $ --
Hungary (Monor)................ 85,000 67,361 29,165 43.3% | $ 13,151 $ (3,531) $ 8,207 $ 52,782
France......................... 86,000 60,712 20,955 34.5% | $ 2,757 $ (4,419) $ (1,574) $ --
Slovak Republic................ 67,959 26,966 14,636 54.3% | $ 578 $ (1,177) $ (485) $ --
---------- --------- --------- |
Total........................ 5,952,686 4,967,391 3,460,068 |
---------- --------- --------- |
Telephony Lines: |
Hungary (Monor)(4)............. 85,000 84,037 66,895 79.6% |
The Netherlands (UTH).......... 575,000 359,496 16,007 4.5% | $ 3,942 $ (5,903) $ (5,494) $ --
---------- --------- --------- |
Total........................ 660,000 443,533 82,902 |
---------- --------- --------- |
Programming Subscribers: |
Spain/Portugal (IPS)........... N/A N/A 616,000 N/A | $ 11,952 $ (641) $ 2,041 $ --
Ireland (Tara)................. N/A N/A 395,610 N/A | $ 518 $ (3,999) $ (3,676) $ --
Czech Republic................. N/A N/A 346,009 N/A | $ 5,259 $ (745) $ (215) $ --
---------- --------- --------- |
Total........................ N/A N/A 1,357,619 |
---------- --------- --------- |
Data Subscribers: |
Internet....................... N/A N/A 12,736 N/A | $ -- $ (4,130) $ (3,368) $ --
---------- --------- --------- |
ASIA/PACIFIC |
- ------------ |
Multi-channel Subscriber TV: |
Australia (Austar)............. 2,085,000 2,072,706 251,255 12.1% | $ 55,705 $(93,465) $(15,303) $ 74,838
Philippines.................... 600,000 360,969 145,303 40.3% | $ 9,928 $ (2,107) $ 1,721 $ --
Tahiti......................... 31,000 20,128 6,125 30.4% | $ 3,743 $ (2,158) $ 136 $ 853
New Zealand.................... 141,000 42,712 4,651 10.9% | $ 754 $ (7,268) $ (7,154) $ 7,697
---------- --------- --------- |
Total........................ 2,857,000 2,496,515 407,334 |
---------- --------- --------- |
Telephony Lines (4): |
New Zealand.................... 141,000 26,974 4,190 15.5% |
---------- --------- --------- |
Programming Subscribers: |
Australia (XYZ Entertainment).. N/A N/A 647,255 N/A | $ 10,088 $ 257 $ 3,582 $ --
---------- --------- --------- |
LATIN AMERICA |
- ------------- |
Multi-channel Subscribers TV: |
Chile.......................... 2,321,000 1,563,872 387,670 24.8% | $ 83,931 $(13,277) $ 21,488 $104,389
Mexico......................... 341,600 222,871 56,106 25.2% | $ 7,074 $ 2,671 $ 2,224 $ --
Brazil (Jundiai)............... 70,000 67,510 19,766 29.3% | $ 7,050 $ 716 $ 2,060 $ 39
Brazil (TVSB).................. 387,000 306,000 12,443 4.1% | $ 4,284 $ (1,803) $ (539) $ --
Peru........................... 140,000 50,504 8,104 16.0% | $ 1,435 $ (1,950) $ (335) $ --
---------- --------- --------- |
Total........................ 3,259,600 2,210,757 484,089 |
---------- --------- --------- |
Telephony Lines (4): |
Chile.......................... 2,321,000 113,300 13,428 11.9% |
---------- --------- --------- |
Programming Subscribers: |
Latin American................. N/A N/A 3,151,160 N/A | $ 2,771 $(13,801) $(13,378) $ --
---------- --------- --------- |
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
As of and for the Nine Months Ended September 30, 1998 (Cont.)
-----------------------------------------------------------------------------------------------
Homes in Basic Net Long-
GROSS DATA Service Homes Subscribers/ Basic Income Adjusted Term
Area Passed Lines Penetration Revenue (Loss) EBITDA(1) Debt (2)
-------- --------- ------------ ----------- | -------- -------- --------- --------
| (In thousands)(3)
<S> <C> <C> <C> <C> | <C> <C> <C> <C>
TOTAL COMPANY |
- ------------- |
Multi-channel TV Subscribers... 12,069,286 9,674,663 4,351,491 |
========== ========= ========= |
Telephony Lines................ 3,122,000 583,807 100,520 |
========== ========= ========= |
Programming Subscribers........ N/A N/A 5,156,034 |
========== ========= ========= |
Data Subscribers............... N/A N/A 12,736 |
========== ========= ========= |
</TABLE>
<TABLE>
<CAPTION>
As of and for the Nine Months Ended September 30, 1997
-----------------------------------------------------------------------------------------------
Homes in Basic Net Long-
GROSS DATA Service Homes Subscribers/ Basic Income Adjusted Term
Area Passed Lines Penetration Revenue (Loss) EBITDA(1) Debt (2)
-------- --------- ------------ ----------- | -------- -------- --------- --------
| (In thousands)(3)
<S> <C> <C> <C> <C> | <C> <C> <C> <C>
EUROPE |
- ------ |
Multi-channel TV Subscribers: |
The Netherlands (A2000)........ 569,000 562,433 519,848 92.4% | $38,419 $(10,656) $ 12,992 $194,515
The Netherlands (KTE).......... 98,358 95,407 90,638 95.0% | $ 8,033 $ (1,006) $ 4,868 $ 45,153
Austria........................ 844,200 630,549 434,066 68.8% | $64,495 $ 20 $ 32,526 $ --
Hungary (Kabelkom)............. 300,000 287,347 259,157 90.2% | $18,817 $ 1,615 $ 6,253 $ --
Israel......................... 360,000 346,561 237,343 68.5% | $68,578 $ 10,787 $ 34,192 $ 3,826
Norway......................... 529,924 456,441 318,327 69.7% | $34,510 $(12,783) $ 12,326 $ 73,138
Ireland (Princes Holdings)..... 355,000 349,609 128,594 36.8% | $26,373 $ (2,561) $ 8,338 $ 47,876
Belgium........................ 133,000 133,000 126,438 95.1% | $15,941 $ (684) $ 6,035 $ --
Malta.......................... 179,000 151,189 56,999 37.7% | $ 8,792 $ (1,064) $ 3,325 $ 18,301
Romania........................ 150,000 69,620 39,253 56.4% | $ 593 $ 168 $ 387 $ --
Czech Republic................. 271,100 143,833 49,953 34.7% | $ 2,880 $ (9,020) $ (3,007) $ --
Hungary (Monor)................ 85,000 55,636 21,682 39.0% | $10,676 $ (6,266) $ 6,155 $ 30,000
France......................... 86,000 23,105 4,613 20.0% | $ 848 $ (2,838) $ (1,948) $ --
Slovak Republic................ 21,839 19,683 14,927 75.8% | $ 360 $ (353) $ (137) $ --
--------- --------- --------- |
Total........................ 3,982,421 3,324,413 2,301,838 |
--------- --------- --------- |
Telephony Lines (4): |
Hungary (Monor)................ 85,000 84,037 60,632 72.1% |
The Netherlands (A2000)........ 569,000 60,598 3,255 5.4% |
--------- --------- --------- |
Total........................ 654,000 144,635 63,887 |
--------- --------- --------- |
Programming Subscribers: |
Spain/Portugal (IPS)........... N/A N/A 315,000 N/A | $ 6,223 $ (6,778) $ (3,965) $ 3,500
Ireland (Tara)................. N/A N/A 148,403 N/A | $ 20 $ (4,133) $ (3,973) $ --
--------- --------- --------- |
Total........................ N/A N/A 463,403 |
--------- --------- --------- |
ASIA/PACIFIC |
- ------------ |
Multi-channel TV Subscribers: |
Australia (Austar)............. 1,622,000 1,589,000 178,832 11.3% | $35,581 $(54,354) $(11,379) $ 53,960
Philippines.................... 600,000 174,650 64,790 37.1% | $ 3,860 $ (432) $ 1,118 $ --
Tahiti......................... 31,000 20,128 6,257 31.1% | $ 1,875 $ (1,441) $ 677 $ 975
New Zealand.................... 141,000 20,124 2,829 14.1% | $ 233 $ (4,031) $ (2,847) $ 17
--------- --------- --------- |
Total........................ 2,394,000 1,803,902 252,708 |
--------- --------- --------- |
Programming Subscribers: |
Australia (XYZ Entertainment).. N/A N/A 524,000 N/A | $ 8,222 $ (5,877) $ (3,486) $ --
--------- --------- --------- |
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
As of and for the Nine Months Ended September 30, 1997 (Cont.)
-----------------------------------------------------------------------------------------------
Homes in Basic Net Long-
GROSS DATA Service Homes Subscribers/ Basic Income Adjusted Term
Area Passed Lines Penetration Revenue (Loss) EBITDA(1) Debt (2)
-------- --------- ------------ ----------- | -------- -------- --------- --------
| (In thousands)(3)
<S> <C> <C> <C> <C> | <C> <C> <C> <C>
LATIN AMERICA |
- ------------- |
Multi-channel TV Subscribers: |
Chile.......................... 2,321,000 1,472,890 359,153 24.4% | $83,505 $(12,580) $ 16,365 $115,470
Mexico......................... 341,600 166,117 53,518 32.2% | $ 7,141 $ 133 $ 1,900 $ 233
Brazil (Jundiai)............... 70,000 52,243 18,947 36.3% | $ 5,471 $ 16 $ 1,602 $ 77
Brazil (TVSB).................. 387,000 306,000 12,018 3.9% | $ 5,106 $ (827) $ 1,120 $ --
Peru........................... 140,000 28,324 6,662 23.5% | $ 1,021 $ (1,056) $ (477) $ 99
--------- --------- --------- |
Total........................ 3,259,600 2,025,574 450,298 |
--------- --------- --------- |
Telephony Lines (4): |
Chile.......................... 25,000 16,676 2,031 12.2% |
--------- --------- --------- |
Programming Subscribers: |
Latin American................. N/A N/A 1,194,000 N/A | $ 26 $ (8,281) $ (8,358) $ 1,459
--------- --------- --------- |
TOTAL COMPANY |
- ------------- |
Multi-channel TV Subscribers... 9,636,021 7,153,889 3,004,844 |
========= ========= ========= |
Telephony Lines................ 679,000 161,311 65,918 |
========= ========= ========= |
Programming Subscribers........ N/A N/A 2,181,403 |
========= ========= ========= |
</TABLE>
<TABLE>
<CAPTION>
As of and for the Nine Months Ended September 30, 1998
-------------------------------------------------------------------------------------------------
Homes in Basic Net Long-
PROPORTIONATE DATA Paid-in Service Homes Subscribers/ Income Adjusted Term
Ownership Area Passed Lines Revenue (Loss) EBITDA(1) Debt (2)
--------- | --------- -------- ------------ | ------- --------- --------- ---------
| | (In thousands) (3)
<S> <C> | <C> <C> <C> | <C> <C> <C> <C>
EUROPE | |
- ------ | |
Multi-channel TV Subscribers: | |
The Netherlands (UTH).......... 25.5-51.0%| 623,542 607,822 567,957 | $53,305 $ (9,210) $ 26,445 $126,197
Austria........................ 95.0% | 1,017,108 853,041 420,466 | $65,809 $ (2,290) $ 31,701 $117,478
Hungary (Telekabel Hungary).... 79.25% | 714,439 389,091 327,397 | $ 5,267 $ 874 $ 2,080 $ --
Israel......................... 23.3% | 139,800 132,577 92,193 | $18,536 $ 1,735 $ 9,748 $ 58,250
Norway......................... 100.0% | 529,924 461,759 319,769 | $35,034 $(24,344) $ 13,022 $ 73,493
Ireland (Princes Holdings)..... 20.0% | 76,000 75,441 29,050 | $ 6,171 $ 1 $ 2,374 $ 11,306
Belgium........................ 100.0% | 133,000 133,000 127,574 | $14,538 $ (6,951) $ 5,144 $ --
Malta.......................... 25.0% | 44,750 40,328 17,037 | $ 2,841 $ 246 $ 1,196 $ 5,229
Romania........................ 51.0-100.0%| 165,300 82,934 49,410 | $ 1,167 $ 187 $ 598 $ --
Czech Republic................. 100.0% | 229,531 148,963 52,268 | $ 3,570 $ (2,874) $ (981) $ --
Hungary (Monor)................ 43.3% | 36,805 29,167 12,628 | $ 5,694 $ (1,529) $ 3,554 $ 22,855
France......................... 99.6% | 85,656 60,469 20,871 | $ 2,746 $ (4,401) $ (1,568) $ --
Slovak Republic................ 75.0-100.0%| 62,499 22,771 11,759 | $ 464 $ (1,121) $ (523) $ --
| --------- --------- --------- |
Total........................ | 3,858,354 3,037,363 2,048,379 |
| --------- --------- --------- |
Telephony Lines: | |
Hungary (Monor)(4)............. 43.3% | 36,805 36,388 28,966 |
The Netherlands (UTH).......... 25.5% | 146,625 91,671 4,082 | $ 1,005 $ (1,505) $ (1,401) $ --
| --------- --------- --------- |
Total........................ | 183,430 128,059 33,048 |
| --------- --------- --------- |
Programming Subscribers: | |
Spain/Portugal (IPS)........... 33.5% | N/A N/A 206,360 | $ 4,004 $ (215) $ 684 $ --
Ireland (Tara)................. 75.0% | N/A N/A 296,708 | $ 388 $ (2,999) $ (2,757) $ --
Czech Republic................. 100.0% | N/A N/A 346,009 | $ 5,259 $ (745) $ (215) $ --
| --------- --------- --------- |
Total........................ | N/A N/A 849,077 |
| --------- --------- --------- |
Data Subscribers: | |
Internet....................... 25.5-100.0%| N/A N/A 8,278 | $ -- $ (2,685) $ (2,189) $ --
| --------- --------- --------- |
</TABLE> 21
<PAGE>
<TABLE><CAPTION>
As of and for the Nine Months Ended September 30, 1998 (Cont.)
-------------------------------------------------------------------------------------------------
Homes in Basic Net Long-
PROPORTIONATE DATA Paid-in Service Homes Subscribers/ Income Adjusted Term
Ownership Area Passed Lines Revenue (Loss) EBITDA(1) Debt (2)
--------- | --------- -------- ------------ | ------- --------- --------- ---------
| | (In thousands) (3)
<S> <C> | <C> <C> <C> | <C> <C> <C> <C>
ASIA/PACIFIC | |
- ------------ | |
Multi-channel TV Subscribers: | |
Australia (Austar)............. 98.0% | 2,043,300 2,031,252 246,230 | $54,591 $(91,596) $(14,997) $ 73,341
Philippines.................... 19.2% | 115,200 69,306 27,898 | $ 1,906 $ (405) $ 330 $ --
Tahiti......................... 88.2% | 27,342 17,753 5,402 | $ 3,301 $ (1,903) $ 120 $ 752
New Zealand.................... 63.7% | 89,817 27,208 2,963 | $ 480 $ (4,630) $ (4,557) $ 4,903
| --------- --------- --------- |
Total........................ | 2,275,659 2,145,519 282,493 |
| --------- --------- --------- |
Telephony Lines (4): | |
New Zealand.................... 63.7% | 89,817 17,182 2,669 |
| --------- --------- --------- |
Programming Subscribers: | |
Australia (XYZ Entertainment).. 49.0% | N/A N/A 317,155 | $ 4,943 $ 126 $ 1,755 $ --
| --------- --------- --------- |
LATIN AMERICA | |
- ------------- | |
Multi-channel TV Subscribers: | |
Chile.......................... 34.0% | 789,140 531,716 131,808 | $28,537 $ (4,514) $ 7,306 $ 35,492
Mexico......................... 49.0% | 167,384 109,207 27,492 | $ 3,466 $ 1,309 $ 1,090 $ --
Brazil (Jundiai)............... 46.3% | 32,410 31,257 9,152 | $ 3,264 $ 332 $ 954 $ 18
Brazil (TVSB).................. 45.0% | 174,150 137,700 5,599 | $ 1,928 $ (811) $ (243) $ --
Peru........................... 100.0% | 140,000 50,504 8,104 | $ 1,435 $ (1,950) $ (335) $ --
| --------- --------- --------- |
Total........................ | 1,303,084 860,384 182,155 |
| --------- --------- --------- |
Telephony Lines (4): | |
Chile.......................... 34.0% | 789,140 38,522 4,566 |
| --------- --------- --------- |
Programming Subscribers: | |
Latin American................. 50.0% | N/A N/A 1,575,580 | $ 1,386 $ (6,901) $ (6,689) $ --
| --------- --------- --------- |
TOTAL COMPANY | |
- ------------- | |
Multi-channel TV Subscribers... | 7,437,097 6,043,266 2,513,027 |
| ========= ========= ========= |
Telephony Lines................ | 1,062,387 183,763 40,283 |
| ========= ========= ========= |
Programming Subscribers........ | N/A N/A 2,741,812 |
| ========= ========= ========= |
Data Subscribers............... | N/A N/A 8,278 |
| ========= ========= ========= |
</TABLE>
<TABLE>
<CAPTION>
As of and for the Nine Months Ended September 30, 1997
-------------------------------------------------------------------------------------------------
Homes in Basic Net Long-
Paid-in Service Homes Subscribers/ Income Adjusted Term
PROPORTIONATE DATA Ownership Area Passed Lines Revenue (Loss) EBITDA(1) Debt (2)
--------- | --------- -------- ------------ | ------- --------- --------- ---------
| | (In thousands) (3)
<S> <C> | <C> <C> <C> | <C> <C> <C> <C>
EUROPE | |
- ------ | |
Multi-channel TV Subscribers: | |
The Netherlands (A2000)........ 25.0% | 142,250 140,608 129,962 | $ 9,605 $ (2,664) $ 3,248 $48,629
The Netherlands (KTE).......... 50.0% | 49,179 47,704 45,319 | $ 4,017 $ (503) $ 2,434 $22,577
Austria........................ 47.5% | 400,995 299,511 206,181 | $30,635 $ 10 $ 15,450 $ --
Hungary (Kabelkom)............. 25.0% | 75,000 71,837 64,789 | $ 4,704 $ 404 $ 1,563 $ --
Israel......................... 11.6% | 41,760 40,201 27,532 | $ 7,955 $ 1,251 $ 3,966 $ 444
Norway......................... 35.1-50.0% | 227,414 194,696 135,183 | $15,500 $ (5,740) $ 5,527 $36,569
Ireland (Princes Holdings)..... 10.0% | 35,500 34,961 12,859 | $ 2,637 $ (256) $ 834 $ 4,788
Belgium........................ 50.0% | 66,500 66,500 63,219 | $ 7,971 $ (342) $ 3,018 $ --
Malta.......................... 12.5% | 22,375 18,899 7,125 | $ 1,099 $ (133) $ 416 $ 2,288
Romania........................ 25.5-45.0% | 51,900 21,891 11,479 | $ 172 $ 49 $ 111 $ --
Czech Republic................. 50.0% | 135,550 71,917 24,977 | $ 1,440 $ (4,510) $ (1,504) $ --
Hungary (Monor)................ 46.3% | 39,355 25,759 10,039 | $ 4,943 $ (2,901) $ 2,850 $13,890
France......................... 49.5% | 42,570 11,437 2,283 | $ 420 $ (1,405) $ 964 $ --
Slovak Republic................ 37.5% | 8,190 7,381 5,598 | $ 135 $ (132) $ (51) $ --
| --------- --------- --------- |
Total........................ | 1,338,538 1,053,302 746,545 |
| --------- --------- --------- |
</TABLE> 22
<PAGE>
<TABLE>
<CAPTION>
As of and for the Nine Months Ended September 30, 1997 (Cont.)
-------------------------------------------------------------------------------------------------
Homes in Basic Net Long-
PROPORTIONATE DATA Paid-in Service Homes Subscribers/ Income Adjusted Term
Ownership Area Passed Lines Revenue (Loss) EBITDA(1) Debt (2)
--------- | --------- -------- ------------ | ------- --------- --------- ---------
| | (In thousands) (3)
<S> <C> | <C> <C> <C> | <C> <C> <C> <C>
EUROPE (Cont.) | |
- -------------- | |
Telephony Lines (4): | |
Hungary (Monor)................ 46.3% | 39,355 38,909 28,073 |
The Netherlands (A2000)........ 25.0% | 142,250 15,150 814 |
| --------- --------- --------- |
Total........................ | 181,605 54,059 28,887 |
| --------- --------- --------- |
Programming Subscribers: | |
Spain/Portugal (IPS)........... 33.5% | N/A N/A 105,525 | $ 2,085 $ (2,271) $ (1,328) $ 1,173
Ireland (Tara)................. 100.0% | N/A N/A 148,403 | $ 20 $ (4,133) $ (3,973) $ --
| --------- --------- --------- |
Total........................ | N/A N/A 253,928 |
| --------- --------- --------- |
ASIA/PACIFIC | |
- ------------ | |
Multi-channel TV Subscribers: | |
Australia (Austar)............. 98.0% | 1,589,560 1,557,220 175,255 | $34,869 $(53,267) $(11,151) $52,881
Philippines.................... 39.2% | 235,200 68,463 25,398 | $ 1,513 $ (169) $ 438 $ --
Tahiti......................... 88.2% | 27,342 17,753 5,519 | $ 1,654 $ (1,271) $ 597 $ 860
New Zealand.................... 63.7% | 89,817 12,819 1,802 | $ 148 $ (2,568) $ (1,814) $ 11
| --------- --------- --------- |
Total........................ | 1,941,919 1,656,255 207,974 |
| --------- --------- --------- |
Programming Subscribers: | |
Australia (XYZ Entertainment).. 24.5% | N/A N/A 128,380 | $ 2,014 $ (1,440) $ (854) $ --
| --------- --------- --------- |
LATIN AMERICA | |
- ------------- | |
Multi-channel TV Subscribers: | |
Chile.......................... 34.0% | 789,140 500,783 122,112 | $28,392 $ (4,277) $ 5,564 $39,260
Mexico......................... 49.0% | 167,384 81,397 26,224 | $ 3,499 $ 65 $ 931 $ 114
Brazil (Jundiai)............... 46.3% | 32,410 24,189 8,772 | $ 2,533 $ 7 $ 742 $ 36
Brazil (TVSB).................. 40.0% | 154,800 122,400 4,807 | $ 2,042 $ (331) $ 448 $ --
Peru........................... 97.7-100.0%| 137,470 27,778 6,533 | $ 1,001 $ (1,035) $ (468) $ 97
| --------- --------- --------- |
Total........................ | 1,281,204 756,547 168,448 |
| --------- --------- --------- |
Telephony Lines (4): | |
Chile.......................... 34.0% | 8,500 5,670 691 |
| --------- --------- --------- |
Programming Subscribers: | |
Latin American................. 50.0% | N/A N/A 597,000 | $ 13 $ (4,141) $ (4,179) $ 730
| --------- --------- --------- |
TOTAL COMPANY | |
Multi-channel TV Subscribers... | 4,561,661 3,466,104 1,122,967 |
| ========= ========= ========= |
Telephony Lines................ | 190,105 59,729 29,578 |
| ========= ========= ========= |
Programming Subscribers........ | N/A N/A 979,308 |
| ========= ========= ========= |
</TABLE>
(1) 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.
23
<PAGE>
(2) Operating systems in the following countries reported consolidated debt for
1998: Austria, Norway, Australia (Austar only), Tahiti and New Zealand.
Operating systems in the following countries reported consolidated debt for
1997: Australia (Austar only), Tahiti, New Zealand and Peru. Consolidated
debt is included in the condensed consolidated financial statements in
Notes 7 and 8.
(3) The financial information presented above has been taken from unaudited
financial information of the respective operating companies that were
providing service as of September 30, 1998. Certain information presented
above has been derived from financial statements prepared in accordance
with foreign generally accepted accounting principles which differ from
U.S. generally accepted accounting principles. In addition, certain amounts
have been converted to U.S. dollars using the September 30, 1998 exchange
rates for the convenience translation. Operating systems in the following
countries reported to the Company in U.S. dollars for 1998: Hungary (Monor
only), Spain/Portugal and Brazil. Operating systems in the following
countries reported to the Company in U.S. dollars for 1997: 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.
(4) Financial information for telephony is included in multi-channel TV
information above.
LIQUIDITY AND CAPITAL RESOURCES
UIH
UIH has financed its acquisitions and funding of its video, voice and data
systems in the three main regions of the world in which UIH operates primarily
through public and private debt and equity as well as dividends received from
the sale of non-strategic assets by certain subsidiaries. These resources have
also been used to refinance certain debt instruments and facilities as well as
to cover corporate overhead. The following table outlines the sources and uses
of cash, cash equivalents, restricted cash and short-term liquid investments
(for purposes of this table only, "cash equivalents") for UIH (parent only) from
inception to date:
<TABLE>
<CAPTION>
For the Nine
Inception to Months Ended
UIH (Parent Only) February 28, 1998 November 30, 1998 Total
- ----------------- ----------------- ----------------- ---------
(In thousands)
<S> <C> <C> <C>
Financing Sources:
Gross bond proceeds............................... $1,138,100 $ -- $1,138,100
Gross equity proceeds (1)......................... 367,100 37,700 404,800
Asset sales, dividends and note payments.......... 216,100 9,700 225,800
Interest income and other......................... 26,300 6,200 32,500
---------- -------- ----------
Total sources................................ 1,747,600 53,600 1,801,200
---------- -------- ----------
Application of Funds:
Investment in:
UPC............................................. (363,100) (80,800) (443,900)
UAP (1)......................................... (160,000) (86,200) (246,200)
ULA............................................. (224,200) (59,800) (284,000)
Other........................................... (25,800) -- (25,800)
---------- -------- ----------
Total........................................ (773,100) (226,800) (999,900)
Repayment of debt (2)............................. (531,800) -- (531,800)
Offering costs.................................... (63,700) (800) (64,500)
Corporate equipment and development............... (25,600) (100) (25,700)
Corporate overhead and other...................... (98,200) (16,900) (115,100)
---------- -------- ----------
Total uses................................... (1,492,400) (244,600) (1,737,000)
---------- -------- ----------
Period change in cash equivalents................. 255,200 (191,000) 64,200
Cash equivalents, beginning of period............. -- 255,200 --
---------- -------- ----------
Cash equivalents, end of period................... $ 255,200 $ 64,200 64,200
========== ========
UIH's Subsidiaries
- ------------------
Cash equivalents, end of period:
UPC............................................... 28,400
UAP............................................... 5,600
ULA............................................... 9,400
Other............................................. 5,348
----------
Total consolidated........................... $ 112,948
==========
</TABLE>
24
<PAGE>
(1) Includes issuance/use of $29.8 million and $29.5 million in convertible
preferred stock in 1995 and 1998, respectively, to acquire interests in
Australia as well as $50.0 million in common stock in 1995 to acquire the
initial interest in UPC.
(2) Includes tender premium of $60.0 million.
Including its consolidated subsidiaries, UIH had $112.9 million of cash, cash
equivalents, restricted cash and short-term liquid investments on hand as of
November 30, 1998. UIH (parent only) had $64.2 million of cash, cash
equivalents, restricted cash and short-term liquid investments on hand as of
November 30, 1998. Sources of cash in the next year may include the exercise of
existing warrants to purchase UIH common stock (approximately $21.6 million, if
exercised), the repayment of up to approximately $84.4 million of inter-company
loans (including interest) to UPC, the raising of additional private or public
equity and/or the receipt of dividends from the sale of non-strategic assets by
certain subsidiaries. Uses of cash in the next year may include continued
funding to the Asia/Pacific and Latin America regions to meet the existing
growth plans of its systems in those regions and corporate overhead. UIH does
not expect to contribute additional capital to UPC for its on-going operating or
development requirements, as UPC will finance its operating systems and
development opportunities with its operating cash flow and proceeds from its UPC
Offering scheduled for early 1999. Management estimates approximately $42.3
million from UIH will be required by systems in the Asia/Pacific region through
December 1999, and approximately $55.4 million from UIH will be required by
systems in the Latin America region. Management believes that UIH's existing
capital resources, combined with the anticipated repayment of certain
inter-company loans and potential debt or equity financings will enable UIH to
assist in satisfying the operating and development requirements of its
subsidiaries and to cover corporate overhead for the next year. However, there
can be no assurance that UIH will be successful in obtaining all or any of such
sources of cash. To the extent UIH pursues new acquisitions or development
opportunities, UIH would need to raise additional capital or seek strategic
partners.
UPC
UPC has financed its operations and acquisitions primarily from cash contributed
by UIH upon the formation of UPC, debt financed at the UPC corporate level,
project debt financed at the operating company level and operating cash flow.
UPC has used these capital resources to fund acquisitions, developing systems
and corporate overhead. UPC has financed its well-established systems and, when
possible, its developing systems with project debt and operating cash flow.
Also, well-established systems generally have stable positive cash flows, to the
extent permitted by applicable credit facilities, may be used to fund other
operations. Developing systems, which are at various stages of construction and
development, will generally depend on UPC for some of the funding for their cash
needs until project financing can be secured.
UPC had approximately $28.4 million of cash, cash equivalents, restricted cash
and short-term liquid investments on hand as of September 30, 1998. UPC is
required to satisfy certain obligations in the near future, including the
repayment of an $18.0 million short-term promissory note, payable on the latter
of 90 days after notice by the note holder or June 30, 1999, and the UPC Tranche
B Facility which has been extended to the earlier of the closing of the UPC
Offering or June 1999. Certain of UPC's minority-owned systems also have debt
facilities that are due in the next year. UPC has additional borrowing capacity
at the corporate and project debt level, and is currently negotiating with the
UPC Tranche A Facility lenders about a potential restructuring of the facility
to reflect future operations. In November 1998, approximately $6.5 million of
unused restricted cash was released to UPC after the exercise of an option to
acquire the remaining interest in Janco. Also in November 1998, UPC received net
proceeds of $22.0 million under a promissory note. Sources of cash in the next
year will primarily include proceeds from the UPC Offering. The proceeds from
the UPC Offering are expected to be used for capital expenditures and to fund
other costs associated with UPC's network upgrade, the build and launch of UPC's
telephony and Internet/data services businesses as well as repayment of the UPC
Tranche B Facility and, to the extent proceeds are large enough for the
repayment, certain inter-company notes to UIH. Management believes that UPC's
existing capital resources, combined with the anticipated refinancing or
extensions of some short-term facilities, the remaining availability on current
facilities and proceeds from the UPC Offering will enable UPC to satisfy its
operating and development requirements for the next year, although there can be
no assurance UPC will be successful in completing all or any of such financings
or the UPC Offering. To the extent UPC pursues new acquisitions or development
opportunities, UPC would need to raise additional capital, either through the
issuance of debt or equity securities or through project level borrowings.
UAP
UAP has financed its operations and acquisitions primarily from cash and UIH
preferred stock contributed by UIH, public bonds at the UIH A/P level and
project debt financed at the operating company level. UAP has used these capital
resources to fund acquisitions, developing systems and corporate overhead.
25
<PAGE>
Developing systems, which are at various stages of construction and development,
will generally depend on both funding from UIH and project financing to meet
their growth needs.
UAP had approximately $5.6 million of cash, cash equivalents, restricted cash
and short-term liquid investments on hand as of September 30, 1998. Although not
required to satisfy any short-term obligations in the next year, Austar secured
the A$400.0 million New Austar Bank Facility, of which the first A$170.0 million
is intended to refinance the Austar Bank Facility by early 1999 and the
remaining A$230.0 million is available upon the contribution of additional
equity on a 2:1 debt-to-equity basis. In the interim, Austar has received a
supplemental amendment to the existing Austar Bank Facility which allows Austar
to draw up to A$60.0 million for a maximum of six months from the initial cash
draw down.
Based upon current plans and budgeted subscriber churn, Austar will require
approximately $118.2 million for expansion plans in 1999, an increase over
previously-disclosed estimates, primarily due to the acquisition of
approximately 500,000 homes related to the acquisition of certain assets of ECT
and due to an increase in satellite programming and transmission costs resulting
from the recent agreements with Foxtel Management Pty Limited ("Foxtel") and
Optus Vision Pty Limited ("Optus"). There can be no assurance, however, that
further additional capital will not be required from UAP or other sources. The
required capital for 1999 will be funded substantially by the New Austar Bank
Facility ($78.8 million), assuming that the New Austar Bank Facility will
refinance the Austar Bank Facility by early 1999, and contributions from UIH of
approximately $39.4 million. The remaining sources of funds for such expansion
may include the raising of private or public equity or the sale of non-strategic
assets. Saturn's capital needs include approximately $42.6 million for
completion of the network in 1999, required by Saturn to offer cable television
and telephony services. This capital will be funded substantially by the Saturn
Bank Facility. The Saturn Bank Facility totals NZ$125.0 million ($65.7 million)
of which NZ$73.0 million ($38.4 million) is available through May 1999. The
maximum facility is subject to Saturn obtaining irrevocable commitments from
other financing sources. There can be no assurance, however, that further
additional capital will not be required from UIH or other sources.
UAP may or may not be successful in completing all or any of the aforementioned
financings. Management of UAP believes that financial support from UIH, proceeds
from borrowings on the New Austar Bank Facility and Saturn Bank Facility
combined with, if necessary, reductions in planned capital expenditures, is
sufficient to sustain its operations through at least the end of 1999.
ULA
ULA has financed its operations and acquisitions primarily from cash contributed
by UIH, asset sales, ULA corporate-level debt and project debt financed at the
operating company level. ULA's systems, which are at various stages of
construction and development, will generally depend on funding from UIH and
project financing to meet their growth needs. ULA anticipates additional funding
for VTRH and other various projects totaling approximately $55.4 million through
1999. ULA had approximately $9.4 million of cash, cash equivalents, restricted
cash and short-term liquid investments on hand as of September 30, 1998. The
primary source of cash in the next year will be provided by UIH. ULA is also
required to satisfy certain obligations in the next year, including the $8.0
million ULA Revolving Credit Facility due February 1999 and the $5.6 million
TVSB promissory note due October 1999. In addition to continued investment by
UIH, other sources of funds for growth for ULA systems may include the raising
of private or public equity or the sale of non-strategic assets. ULA may or may
not be successful in completing all or any of such financings. Management of ULA
believes, however, that financial support from UIH combined with, if necessary,
reductions in planned capital expenditures, is sufficient to sustain its
operations through at least the end of 1999.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED NOVEMBER 30, 1998
The Company incurred a net loss during the nine months ended November 30, 1998
of $335.0 million, which included non-cash items such as depreciation and
amortization expense totaling $145.0 million, accretion of interest on the UIH
and UIH A/P senior notes and amortization of deferred financing costs totaling
$108.4 million, equity in net losses of affiliated companies of $40.9 million
and non-cash compensation expense related to stock options totaling $20.1
million.
Cash and cash equivalents decreased $236.2 million from $303.4 million as of
February 28, 1998 to $67.2 million as of November 30, 1998. Principal sources of
cash during the nine months ended November 30, 1998 included $182.1 million of
borrowings on subsidiary credit facilities, $10.8 million from the release of
restricted cash, $7.4 million from the issuance of common stock, $6.4 million of
cash contributed from minority interest partners and $7.5 million of repayments
on notes receivable and other sources during the period.
26
<PAGE>
During the nine months ended November 30, 1998, cash was used principally for
additions to property, plant and equipment totaling $146.3 million, payment on
subsidiary credit facilities of $133.7 million, investments in the Company's
affiliated companies totaling $131.7 million (including $88.0 million for UPC's
purchase of the assets of Combivisie), $31.3 million to fund operating
activities and $7.4 million of deferred financing costs and other uses during
the period.
FOR THE NINE MONTHS ENDED NOVEMBER 30, 1997
The Company began consolidating the results of UPC effective December 11, 1997.
The Company incurred a net loss during the nine months ended November 30, 1997
of $158.1 million, which included non-cash items such as accretion of interest
on the UIH and UIH A/P senior notes and amortization of deferred financing costs
totaling $80.6 million, depreciation and amortization expense totaling $62.0
million and equity in net losses of affiliated companies of $54.3 million.
Cash and cash equivalents increased $142.0 million from $68.8 million as of
February 28, 1997 to $210.8 million as of November 30, 1997. Principal sources
of cash during this period included $211.1 million from the sale of the
Company's Argentine cable systems, $110.0 million of borrowings under the former
ULA credit agreement, $66.0 million of borrowings under the Austar Bank
Facility, $38.0 million of borrowings from the ULA Revolving Credit Facility,
$42.1 million of net proceeds from the net change in short-term liquid
investments, $29.9 million gross proceeds from the issuance of the 1997 UIH A/P
Notes, $19.6 million from the purchase of a 35.0% interest in Saturn by Sasktel
Holdings (New Zealand), Inc., $12.2 million of repayments on notes receivable
and $7.4 million in proceeds from the sale of property, plant and equipment and
other sources.
During the nine months ended November 30, 1997, principal uses of cash included
$113.5 million of payments on capital leases and other debt, primarily the
former ULA credit agreement, $74.5 million of additions to property, plant and
equipment to continue the build-out of existing projects, primarily Austar,
$56.5 million of investments in affiliated companies and acquisition of assets,
$46.4 million in payment of sellers notes, the funding of operating activities
of $44.8 million, a decrease of $29.4 million in construction payables, $13.6
million of restricted cash deposited, $11.0 million of deferred financing costs
and $4.6 million of other investing and financing uses during the period.
RESULTS OF OPERATIONS
The Company translates revenue and expense from its foreign subsidiaries using
the weighted-average exchange rates during the period. However, for ease of
presentation, the spot rates for the Company's significant consolidated
subsidiaries (The Netherlands guilder for UPC and the Australian dollar for
Austar) are presented below per one U.S. dollar.
The Netherlands Australian
Guilder Dollar
--------------- -----------
September 30, 1998................ 1.8900 1.6855
December 31, 1997................. 2.0200 1.5378
September 30, 1997................ 1.9400 1.3778
December 31, 1996................. 1.7410 1.2583
27
<PAGE>
The following tables display consolidated system operating data by region for
the Company's fiscal periods ended November 30, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
September 30, 1998 September 30, 1997
-------------------------------------------- ------------------------------------------
Asia/ Latin Asia/ Latin
Europe Pacific America Total Europe Pacific America Total
---------- ----------- --------- ----------- ------------------------------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service and other revenue....... $ 50,234 $ 22,180 $ 335 $ 72,749 $ 19 $ 18,341 $ 5,000 $ 23,360
System operating expense ....... $(17,687) $(22,382) $(521) $(40,590) $ (932) $(12,996) $(3,396) $(17,324)
System selling, general and
administrative expense........ $(36,099) $(13,965) $(364) $(50,428) $ (411) $(14,220) $(1,468) $(16,099)
Adjusted EBITDA (1)(2).......... $ 17,885 $(14,167) $(331) $ 3,387 $(1,324) $ (8,875) $ 136 $(10,063)
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended For the Nine Months Ended
September 30, 1998 September 30, 1997
-------------------------------------------- ------------------------------------------
Asia/ Latin Asia/ Latin
Europe Pacific America Total Europe Pacific America Total
---------------------- --------- ----------- ------------------------------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service and other revenue....... $142,665 $ 63,358 $ 1,265 $ 207,288 $ 19 $ 49,052 $18,648 $ 67,719
System operating expense ....... $(50,078) $(53,104) $(1,468) $(104,650) $(2,382) $(34,060) $(8,778) $(45,220)
System selling, general and
administrative expense........ $(66,659) $(38,029) $(1,354) $(106,042) $(1,612) $(37,025) $(6,385) $(45,022)
Adjusted EBITDA (1)(2).......... $ 50,607 $(27,775) $ 1,807 $ 24,639 $(3,975) $(22,033) $ 3,485 $(22,523)
</TABLE>
(1) Adjusted EBITDA represents net loss, as determined using United States
generally accepted accounting principles, 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 principle measure
of performance or liquidity as an indicator of an entity's operating
performance.
(2) For the three months ended September 30, 1998, the adjusted EBITDA
excludes $16,054 and $219 for Europe and Latin America, respectively,
for certain non-cash compensation expense charges related to stock
options. For the nine months ended September 30, 1998, the adjusted
EBITDA excludes $16,054 and $3,364 for Europe and Latin America,
respectively, for certain non-cash compensation expense charges related
to stock options. For the three and nine-months ended September 30,
1998 adjusted EBITDA includes $5,383 and $8,625 of management fee
revenue for Europe, respectively.
SERVICE AND OTHER REVENUE. The Company's service and other revenue increased
$49.4 million and $139.6 million for the three and nine months ended November
30, 1998 compared to the amounts for the corresponding periods in the prior
year.
EUROPE
------
UPC
The Company began consolidating the results of UPC effective December 11,
1997. During the nine months ended September 30, 1998 as compared to
September 30, 1997, UPC's service and other revenue increased $15.4 million
from $126.8 million to $142.2 million, an 12.1% increase. On a functional
currency basis, UPC's service and other revenue increased NLG41.9 million
from NLG245.9 million to NLG287.8 million, a 17.0% increase. A substantial
portion of this increase was directly attributable to the acquisitions of
Combivisie effective January 1, 1998 and Telekabel Hungary effective July
1, 1998. The remaining increase in service and other revenue was comprised
of subscriber growth and the tiering of services in Austria and subscriber
growth in UPC's developing systems in France, the Slovak Republic and
28
<PAGE>
Romania. UPC's service and other revenue was negatively impacted by $6.2
million due to fluctuation in exchange rates between the nine months ended
September 30, 1998 and 1997.
ASIA/PACIFIC
------------
AUSTAR
Service and other revenue for Austar increased $3.6 million, or 21.2%, from
$17.0 million for the three months ended September 30, 1997 to $20.6
million for the three months ended September 30, 1998. Service and other
revenue for Austar increased $13.4 million, or 29.5%, from $45.5 million
for the nine months ended September 30, 1997 to $58.9 million for the nine
months ended September 30, 1998. On a functional currency basis, Austar's
service and other revenue increased A$11.5 million, from A$23.1 million for
the three months ended September 30, 1997 to A$34.6 million for three
months ended September 30, 1998, a 49.8% increase. Austar's service and
other revenue increased A$33.9 million, from A$60.0 million for the nine
months ended September 30, 1997 to A$93.9 million for the nine months ended
September 30, 1998, a 56.5% increase. These increases were primarily due to
subscriber growth in existing franchise areas (251,255 at September 30,
1998 compared to 178,832 at September 30, 1997) as Austar continues to
roll-out its services. These increases were negatively impacted by $4.9
million due to fluctuation in exchange rates between the three months ended
September 30, 1998 and 1997 and $12.3 million due to fluctuation in
exchange rates between the nine months ended September 30, 1998 and 1997.
LATIN AMERICA
-------------
For the three and nine months ended November 30, 1997, the Company
consolidated the results of its operating system in Bahia Blanca,
Argentina. In October 1997, the Company sold its Argentine assets;
therefore, the service and other revenue from the Latin American region for
the three and nine months ended November 30, 1998 represents only Cable
Star.
SYSTEM OPERATING EXPENSE. System operating expense increased $23.3 million and
$59.4 million during the three and nine months ended November 30, 1998,
respectively, compared to the amounts for the corresponding periods in the prior
year.
EUROPE
------
UPC
The Company began consolidating the results of UPC effective December 11,
1997. During the nine months ended September 30, 1998 as compared to
September 30, 1997, UPC's operating expense increased $3.2 million, from
$45.0 million to $48.2 million, a 7.1% increase. On a functional currency
basis, UPC's operating expense increased NLG10.3 million from NLG87.2
million to NLG97.5 million, an 11.8% increase. The most significant portion
of this increase was attributable to the acquisitions of Combivisie
effective January 1, 1998 and Telekabel Hungary effective July 1, 1998,
with the remaining increase comprised of direct costs related to subscriber
growth and increased operating costs related to the introduction of UPC's
Internet/data services. The amounts reported in U.S. dollars were
positively impacted by $2.1 million due to fluctuation in exchange rates
between the nine months ended September 30, 1998 and 1997. As a percentage
of service and other revenue, operating expense declined from 35.5% for the
nine months ended September 30, 1997 to 33.9% for the comparable nine-month
period in 1998 due primarily to the lower operating costs in the Combivisie
system. The Company expects operating costs as a percentage of service and
other revenue to increase as new video, telephony and Internet/data
services are introduced.
ASIA/PACIFIC
------------
AUSTAR
Operating expense for Austar increased $8.5 million, or 74.6%, from $11.4
million for the three months ended September 30, 1997 to $19.9 million for
the three months ended September 30, 1998. Operating expense for Austar
increased $15.7 million, or 52.7%, from $29.8 million for the nine months
ended September 30, 1997 to $45.5 million for the nine months ended
September 30, 1998. On a functional currency basis, Austar's operating
expense increased A$17.9 million, from A$15.5 million for the three months
ended September 30, 1997 to A$33.4 million for the three months ended
September 30, 1998, a 115.5% increase. Austar's operating expense increased
A$34.0 million, from A$39.4 million for the nine months ended September 30,
1997 to A$73.4 million for the nine months ended September 30, 1998, an
29
<PAGE>
86.3% increase. These increases were primarily due to an increase in
satellite programming costs resulting from an increase in subscribers and
from the May 1998 agreements with Foxtel and Optus to obtain additional
programming rights in connection with the receivership of Australis Media
Limited ("Australis") as well as additional satellite platform costs
associated with the May 1998 joint venture with Optus. The Company expects
that the restructuring of programming costs for certain channels will
result in somewhat higher costs in the next year for these channels which
will be offset by lower costs in the long-term when compared to Austar's
previous agreements with Australis. The remainder of the increase between
periods was due to an increase in salaries and benefits related to the
additional personnel necessary to support Austar's establishment of local
and state offices in its markets and an increase in customer subscriber
management expenses related to volume increases in telephone, billing and
collection costs. These increases were positively impacted by $4.7 million
due to fluctuation in exchange rates between the three months ended
September 30, 1998 and 1997 and positively impacted by $10.2 million due to
fluctuation in exchange rates between the nine months ended September 30,
1998 and 1997.
During the three months ended June 30, 1998, Austar incurred one-time
charges of $1.4 million as a result of the receivership of Australis and
the subsequent termination of various agreements and incurred additional
programming expense of $2.0 million related to its new programming
agreements and $0.7 million related to the operation of the joint venture
with Optus.
Austar expects operating expense as a percentage of service revenue to
decline in future periods because a significant portion of Austar's
distribution facilities and network costs, such as local and state office
staffing levels, operating costs and wireless license costs, have already
been incurred and are fixed in relation to changes in subscriber volumes.
Other system operating expense, such as certain costs related to
programming and subscriber management expense, will vary in direct
proportion to the number of subscribers.
LATIN AMERICA
-------------
For the three and nine months ended November 30, 1997, the Company
consolidated the results of its operating system in Bahia Blanca,
Argentina. In October 1997, the Company sold its Argentine assets;
therefore, the system operating expense from the Latin American region for
the three and nine months ended November 30, 1998 represents only Cable
Star.
SYSTEM SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. System selling, general and
administrative expense increased $34.3 million and $61.0 million during the
three and nine months ended November 30, 1998, respectively, compared to the
amounts for the corresponding periods in the prior year.
EUROPE
------
UPC
The Company began consolidating the results of UPC effective December 11,
1997. During the nine months ended September 30, 1998 compared to September
30, 1997, UPC's selling, general and administrative expense increased $24.1
million, from $41.3 million to $65.4 million, a 58.4% increase. On a
functional currency basis, UPC's selling, general and administrative
expense increased NLG52.4 million, from NLG80.1 million to NLG132.5
million, a 65.4% increase. A substantial portion of this increase resulted
from a stock-based compensation charge of NLG32.5 million attributable to
UPC's stock option plans for the nine months ended September 30, 1998. This
increase was also attributable to the acquisitions of Combivisie and
Telekabel Hungary, with the remaining increase comprised of additional
selling, general and administrative expense related to the development of
new businesses, including further development of Internet/data services and
preparation for the launch of telephony in Austria, The Netherlands (CNBH),
France and Norway. UPC's selling, general and administrative expense was
positively impacted by $2.8 million due to fluctuation in exchange rates
between the nine months ended September 30, 1998 and 1997. As a percentage
of service and other revenue, selling, general and administrative expense
increased from 32.6% for the nine months ended September 30, 1997 to 46.0%
for the comparable nine-month period in 1998. The Company expects selling,
general and administrative expense as a percentage of service and other
revenue to increase as new video, telephony and Internet/data services are
introduced and due to increased stock based compensation expense.
30
<PAGE>
LATIN AMERICA
-------------
For the three and nine months ended November 30, 1997, the Company
consolidated the results of its operating system in Bahia Blanca,
Argentina. In October 1997, the Company sold its Argentine assets;
therefore, the system selling, general and administrative expense from the
Latin American region for the three and nine months ended November 30, 1998
represents only Cable Star.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
increased $21.6 million and $83.0 million during the three and nine months ended
November 30, 1998, respectively, compared to the amounts for the corresponding
periods in the prior year as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
November 30, November 30,
-------------------------- -------------------------
1998 1997 1998 1997
---------- ----------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Europe................................................... $20,817 $ 66 $ 68,103 $ 185
Asia/Pacific............................................. 23,287 22,061 75,181 57,797
Latin America............................................ 494 828 945 3,203
Corporate................................................ 243 247 735 768
------- ------- -------- -------
Total depreciation and amortization expense......... $44,841 $23,202 $144,964 $61,953
======= ======= ======== =======
</TABLE>
EUROPE
------
UPC
The Company began consolidating the results of UPC effective December 11,
1997. During the period ended September 30, 1998 as compared to September
30, 1997, UPC's depreciation and amortization expense increased $16.3
million, from $51.5 million to $67.8 million, a 31.7% increase. On a
functional currency basis, UPC's depreciation and amortization expense
increased NLG37.3 million, from NLG99.9 million to NLG137.2 million, a
37.3% increase. This increase was primarily due to the step up in basis
associated with the acquisition of the remaining 50.0% interest in UPC in
December 1997 as well as additional goodwill created by the transaction.
Other factors increasing UPC's depreciation and amortization expense
include the acquisitions of Combivisie and Telekabel Hungary and capital
expenditures to upgrade UPC's core systems and to continue construction on
UPC's developing systems. UPC's depreciation and amortization expense was
positively impacted by $2.9 million due to fluctuation in exchange rates
between the nine months ended September 30, 1998 and 1997.
ASIA/PACIFIC
------------
AUSTAR
Depreciation and amortization expense from Austar increased $0.9 million,
or 4.3%, from $20.9 million for the three months ended September 30, 1997
to $21.8 million for the three months ended September 30, 1998.
Depreciation and amortization expense from Austar increased $15.4 million,
or 28.2%, from $54.6 million for the nine months ended September 30, 1997
to $70.0 million for the nine months ended September 30, 1998. On a
functional currency basis, Austar's depreciation and amortization expense
increased A$8.0 million, from A$27.1 million for the three months ended
September 30, 1997 to A$35.1 million for three months ended September 30,
1998, a 29.5% increase. Austar's depreciation and amortization expense
increased A$38.0 million, from A$68.4 million for the nine months ended
September 30, 1997 to A$106.4 million for the nine months ended September
30, 1998, a 55.6% increase. These increases were primarily due to the
larger fixed asset base due to the significant deployment of operating
assets to meet subscriber growth as well as an increase in depreciation
expense related to subscriber disconnects. These increases were positively
impacted by $5.0 million due to fluctuation in the exchange rates between
the three months ended September 30, 1998 and 1997 and positively impacted
by $13.3 million due to fluctuation in exchange rates between the nine
months ended September 30, 1998 and 1997.
31
<PAGE>
LATIN AMERICA
-------------
For the three and nine months ended November 30, 1997, the Company
consolidated the results of its operating system in Bahia Blanca,
Argentina. In October 1997, the Company sold its Argentine assets;
therefore, the depreciation and amortization expense from the Latin
American region for the three and nine months ended November 30, 1998
represents only Cable Star.
INTEREST EXPENSE. Interest expense increased $16.9 million and $54.4 million
during the three and nine months ended November 30, 1998, respectively, compared
to the amounts for the corresponding periods in the prior year. These increases
were primarily due to the greater accretion of interest on the $1,375.0 million
aggregate principal amount of the 1998 Notes compared to the Old Notes and the
new $45.4 million aggregate principal amount of the UIH A/P 1997 Notes as well
as continued accretion on the $447.4 million aggregate principal amount of the
UIH A/P 1996 Notes.
EQUITY IN LOSSES OF AFFILIATED COMPANIES, NET. The Company recognized net equity
in losses of affiliated companies of $13.8 million and $40.4 million for the
three and nine months ended November 30, 1998 compared to $16.0 million and
$53.5 million for the same period in the prior year as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
November 30, November 30,
-------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Europe................................................... $ (7,586) $(10,936) $(22,953) $(40,156)
Asia/Pacific............................................. (2,677) (781) (2,868) (2,279)
Latin America............................................ (3,553) (4,262) (14,561) (11,086)
-------- -------- -------- --------
Total equity in losses of affiliated companies,
net............................................... $(13,816) $(15,979) $(40,382) $(53,521)
======== ======== ========= ========
</TABLE>
EUROPE
------
UPC
The Company began consolidating the results of UPC effective December 11,
1997. Therefore, the equity in losses of affiliated companies from the
European region for the three and nine months ended November 30, 1998
represents primarily the results of UPC's unconsolidated affiliates.
INFLATION AND FOREIGN CURRENCY EXCHANGE RATE RISKS
The Company's foreign operating companies' monetary assets and liabilities are
subject to foreign currency exchange risk as certain equipment purchases and
payments for certain operating expenses, such as programming expenses, are
denominated in currencies other than their own functional currency. In addition,
certain of the Company's foreign operating companies have notes payable and
notes receivable that are denominated in and, loans payable that are linked to,
a currency other than their own functional currency. In general, the Company and
the operating companies do not execute hedge transactions to reduce the
Company's exposure to foreign currency exchange rate risks. Accordingly, the
Company may experience economic loss and a negative impact on earnings and
equity with respect to its holdings solely as a result of foreign currency
exchange rate fluctuations, which include foreign currency devaluations against
the dollar.
Certain of the Company's operating companies operate in countries where the rate
of inflation is extremely high relative to that in the United States. While the
Company's affiliated companies attempt to increase their subscription rates to
offset increases in operating costs, there is no assurance that they will be
able to do so. Therefore, operating costs may rise faster than associated
revenue, resulting in a material negative impact on reported earnings. The
Company itself is impacted by inflationary increases in salaries, wages,
benefits and other administrative costs, the effects of which to date have not
been material to the Company.
The functional currency for the Company's foreign operations is the applicable
local currency for each affiliate company, except for countries which have
experienced hyper-inflationary economies. For countries which have
hyper-inflationary economies, the financial statements are prepared in U.S.
dollars. Assets and liabilities of foreign subsidiaries are translated at the
exchange rates in effect at period-end, and the statements of operations are
translated at the average exchange rates during the period. Exchange rate
32
<PAGE>
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. For the nine months ended November 30, 1998,
the Company recorded a negative change in cumulative translation adjustments of
$34.5 million primarily due to the strengthening of the U.S. dollar compared to
the local currencies in Mexico, Chile, Hungary and Australia.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses which are
reflected in income as unrealized (based on period-end translations) or realized
upon settlement of the transactions.
Cash flows from the Company's operations in foreign countries are translated
based on their reporting currencies. As a result, amounts related to assets and
liabilities reported on the consolidated statements of cash flows will not agree
to changes in the corresponding balances on the consolidated balance sheets. The
effects of exchange rate changes on cash balances held in foreign currencies are
reported as a separate line below cash flows from financing activities.
YEAR 2000 CONVERSION
The Company's multi-channel television, programming and telephony operations are
heavily dependent upon computer systems and other technological devices with
imbedded chips. Such computer systems and other technological devices may not be
capable of accurately recognizing dates beginning on January 1, 2000. This
problem could cause miscalculations, resulting in UIH's multi-channel television
and telephony systems or programming services malfunctioning or failing to
operate.
YEAR 2000 PROGRAM. In response to possible Year 2000 problems, the Board of
Directors of the Company established a Task Force to assess the impact that
potential Year 2000 problems may have on company-wide operations and to
implement necessary changes to address such problems. The Task Force reports
directly to the UIH Board. In creating a program to minimize Year 2000 problems,
the Task Force identified certain critical operations of the business of the
Company. These critical operations are service delivery systems, field and
headend devices, customer service and billing systems, and corporate management
and administrative operations (e.g., cash flow, accounts payable and accounts
receivable, payroll and building operations).
The Task Force has established a three-phase program to address potential Year
2000 problems:
(a) Identification Phase: identify and evaluate computer systems and other
devices (e.g. headend devices, switches and set top boxes) on a system
by system basis for Year 2000 compliance.
(b) Implementation Phase: establish a database and evaluate the
information obtained in the Identification Phase, determine
priorities, implement corrective procedures, define costs and ensure
adequate funding.
(c) Testing Phase: test the corrective procedures to verify that all
material compliance problems will operate on and after January 1,
2000, and develop, as necessary, contingency plans for material
operations.
At November 30, 1998, 89.0% of the operating systems within the Company had
completed the Identification Phase and the Task Force is working on the
Implementation Phase for these systems. The Task Force has researched almost
80.0% of the items identified during the Identification Phase as to Year 2000
compliance. Of the items researched, 69.0% are compliant and 9.0% are not
compliant but can be easily remediated without significant cost to the Company.
The remaining items require further research or additional testing. Currently,
the Task Force expects to complete its research on substantially all of the
items identified during first quarter 1999. In addition, the Task Force is
supervising the Testing Phase of the computer systems for the Company's
corporate operations. Based on current data to date, the computer systems for
all corporate operations are expected to be in compliance with Year 2000 by
mid-1999 and should not require material remediation or replacement.
The Task Force has targeted mid-1999 for commencement of the Testing Phase but
such testing could commence in March 1999. At this time, the Company anticipates
that all material aspects of the program will be completed before January 1,
2000. In general, the Company manages the program with its internal Task Force.
In addition, the Company has retained two independent consultants to assist with
the Year 2000 Program for the Company's operations in Europe. During the
Implementation Phase, the Task Force will continue to evaluate the need for
external resources to complete the Implementation Phase and implement the
Testing Phase. In the event the Task Force elects to use additional external
resources, such resources may not, however, be available.
33
<PAGE>
In addition to its program, the Company is a member of a Year 2000 working
group, which has 12 cable television companies and meets under the auspices of
Cable Labs. The dialogue with the other cable operators has assisted the Company
in developing its Year 2000 program. Part of the agenda of the working group is
to develop test procedures and contingency plans for critical components of
operating systems for the benefit of all its members. The test procedures are
expected to be available to members, including the Company, during first quarter
1999.
THIRD PARTY DEPENDENCIES. The Company believes its largest Year 2000 risk is its
dependency upon third-party products. Two significant areas on which the
Company's systems depend upon third-party products are programming and telephony
interconnects. The Company does not have the ability to control such parties in
their assessment and remediation procedures for potential Year 2000 problems.
Should these parties not be prepared for Year 2000, their systems may fail and
the Company would not be able to provide its services to its customers.
Notwithstanding these limitations, the Task Force monitors the websites for all
vendors used by the Company, to the extent available, for information on such
vendors' Year 2000 programs. To the extent applicable, the Task Force uses such
information to verify Year 2000 compliance and to implement remediation
procedures. The Company also has requested information from various third
parties on the status of their Year 2000 compliance programs in an effort to
prevent any possible interruptions or failures. To date, responses by
programming vendors to such communications have been limited. The responses
received state only that the party is working on Year 2000 issues and does not
have a definitive position at this time. As a result, the Company is unable to
assess the risk posed by its dependence upon such third parties' systems.
Vendors for critical equipment components, such as the headend controllers
mentioned below, have been more responsive and the Company believes
substantially all of its equipment will be Year 2000 compliant. The Company can
not, however, give any assurances concerning compliance of equipment because
such belief is based on information provided by vendors which can not be
independently verified and because of the uncertainties inherent in Year 2000
remediation.
The Company is considering certain limited contingency plans, including
preparing back-up programming and stand-by power generators. Such contingency
plans may not, however, resolve the problem in a satisfactory manner. With
respect to other third-party systems, each UIH operating system is responsible
for inquiring of their vendors and other entities with which they do business
(e.g., utility companies, financial institutions and facility owners) as to such
entities' Year 2000 compliance programs.
The Task Force is working closely with the manufacturers of the Company's
headend devices to remedy any Year 2000 problems assessed in the headend
equipment. Recent information from the two primary manufacturers of such
equipment indicate that most of the equipment used in the UIH operating systems
are not date sensitive. Where such equipment needs to be upgraded for Year 2000
issues, such vendors are upgrading without charge. These upgrades are expected
to be completed before year-end 1999, but such process is not wholly within the
control of the Company or its systems. Approximately 85.0% of the headend
controllers, which are considered the most critical component of the headend
devices, have been upgraded. With respect to billing and customer care systems,
the Company uses standard billing and customer care programs from several
vendors. The Task Force is working with such vendors to achieve Year 2000
compliance for all systems in UIH.
MINORITY-HELD SYSTEMS. The Company has several minority investments in
international multi-channel television and telephony operations. With respect to
these minority investments, the Task Force is including their systems in the
program. Of these investments, 89.0% have completed their Identification Phase
of the program and the Task Force is in the process of making recommendations to
these entities as to Year 2000 compliance matters. No assurance can be given,
however, that these entities will implement the recommendations or otherwise be
Year 2000 compliant. On an overall basis, the Task Force continues to analyze
the Year 2000 program and will revise the program as necessary throughout 1998
and 1999, including procedures it undertakes with respect to third parties to
ensure their Year 2000 compliance.
COSTS OF COMPLIANCE. The Task Force has not yet determined the full cost of its
Year 2000 program and its related impact on the financial condition of the
Company. In the course of its business, the Company has made substantial capital
adjustments over the past few years in improving its systems, primarily for
reasons other than Year 2000. Because these upgrades also resulted in Year 2000
compliance, replacement and remediation costs have been low. The Task Force
currently estimates the cost for the Year 2000 program at $1.65 million which
includes certain identified replacement and remediation procedures and external
consultants. Such estimate does not, however, include internal costs because the
Company does not separately track the internal costs incurred for the Year 2000
program. Although no assurance can be made, the Company believes that the known
Year 2000 compliance issues can be remedied without a material financial impact
on the Company. No assurance can be made, however, as to the total cost
(excluding internal costs) for the Year 2000 program until all of the data has
been gathered. In addition, the Company can not predict the financial impact on
34
<PAGE>
the Company if Year 2000 problems are caused by third parties upon which its
systems are dependent or experienced by entities in which it holds investments.
The failure of any one of these parties to implement Year 2000 procedures could
have a material adverse impact on the Company's operations and financial
condition.
EUROPEAN ECONOMIC AND MONETARY UNION
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and the euro. The participating countries adopted the euro as their common legal
currency on that day. The euro trades on currency exchanges and is available for
non-cash transactions during the transition period between January 1, 1999 and
January 1, 2002. During this transition period, the existing currencies are
scheduled to remain legal tender in the participating countries as denominations
of the euro and public and private parties may pay for goods and services using
either the euro or the participating countries' existing currencies.
During the transition period, all of the Company's European operating companies'
billing systems will include amounts in euro as well as the respective country's
existing currency. All of the Company's European accounting and management
reporting systems currently are multi-currency.
UPC and the Company's other European operating systems intend to use the euro as
their reporting currency by the end of 2000 and do not expect the introduction
of the euro to materially affect their cable television and other operations.
The Company has not yet taken steps to confirm if the financial institutions and
other third parties with whom it has financial relationships are prepared for
the use of the euro. To date, the Company has not experienced any material
problem with third parties as a result of the introduction of the euro. The
Company believes the introduction of the euro will not require it to amend any
of its financial instruments or loan facilities. The Company believes the
introduction of the euro will reduce its exposure to risk from foreign currency
and interest rate fluctuations.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter.
None.
35
<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: January 14, 1999
-------------------------
By: /S/ Valerie L. Cover
-------------------------
Valerie L. Cover
Vice President and Controller
(A Duly Authorized Officer and Principal Financial Officer)
36
<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 NOVEMBER 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> NOV-30-1998
<CASH> 67,200
<SECURITIES> 0
<RECEIVABLES> 11,784
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 190,574
<PP&E> 625,861
<DEPRECIATION> 168,680
<TOTAL-ASSETS> 1,479,050
<CURRENT-LIABILITIES> 239,934
<BONDS> 1,862,697
56,039
0
<COMMON> 404
<OTHER-SE> (610,933)
<TOTAL-LIABILITY-AND-EQUITY> 1,479,050
<SALES> 0
<TOTAL-REVENUES> 217,011
<CGS> 0
<TOTAL-COSTS> 104,650
<OTHER-EXPENSES> 144,964
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144,947
<INCOME-PRETAX> (335,043)
<INCOME-TAX> 0
<INCOME-CONTINUING> (335,043)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (335,043)
<EPS-PRIMARY> (8.44)
<EPS-DILUTED> 0
</TABLE>
