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 March 31, 1999
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 May 3,
1999 was:
Class A Common Stock -- 33,351,410 shares
Class B Common Stock -- 9,733,540 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 March 31, 1999 and December 31, 1998 (Unaudited) ............... 3
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 1999
and 1998 (Unaudited)..................................................................................... 4
Condensed Consolidated Statement of Stockholders' Deficit for the Three Months Ended March 31, 1999
(Unaudited).............................................................................................. 5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998
(Unaudited).............................................................................................. 6
Notes to Condensed Consolidated Financial Statements (Unaudited)............................................. 8
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 23
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Item 3 - Quantitative and Qualitative Disclosures about Market Risk............................................... 46
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PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings.................................................................................... 50
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Item 5 - Other Information.................................................................................... 50
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Item 6 - Exhibits and Reports on Form 8-K....................................................................... 50
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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
March 31, December 31,
1999 1998
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ASSETS
Current assets
Cash and cash equivalents............................................................................... $ 607,490 $ 35,608
Restricted cash......................................................................................... 41,450 17,215
Short-term liquid investments........................................................................... 47,141 41,498
Subscriber receivables, net of allowance for doubtful accounts of $4,341 and $5,482, respectively....... 28,007 13,788
Costs to be reimbursed by affiliated companies.......................................................... 20,915 21,232
Other related party receivables......................................................................... 3,528 2,064
Other receivables....................................................................................... 25,700 15,380
Inventory............................................................................................... 19,701 12,762
Other current assets, net............................................................................... 23,189 16,363
---------- ----------
Total current assets.............................................................................. 817,121 175,910
Investments in and advances to affiliated companies, accounted for under the equity method, net........... 358,808 429,490
Property, plant and equipment, net of accumulated depreciation of $248,492 and $201,183, respectively..... 898,251 464,059
Goodwill and other intangible assets, net of accumulated amortization of $49,325 and $39,683,
respectively............................................................................................ 768,371 424,934
Deferred financing costs, net of accumulated amortization of $7,289 and $9,923, respectively.............. 46,255 41,270
Non-current restricted cash and other assets, net......................................................... 5,618 6,432
---------- ----------
Total assets...................................................................................... $2,894,424 $1,542,095
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable, including related party payables of $875 and $247, respectively....................... $ 75,057 $ 76,696
Accrued liabilities..................................................................................... 85,889 66,079
Subscriber prepayments and deposits..................................................................... 72,894 24,210
Short-term debt......................................................................................... 96,131 93,379
Current portion of senior discount notes................................................................ 155 412
Current portion of other long-term debt................................................................. 2,015 62,252
Other current liabilities............................................................................... 4,129 3,524
---------- ----------
Total current liabilities......................................................................... 336,270 326,552
Senior discount notes..................................................................................... 1,285,506 1,249,643
Other long-term debt...................................................................................... 694,845 689,646
Deferred compensation..................................................................................... 1,371 173,251
Deferred taxes............................................................................................ 20,664 4,580
Other long-term liabilities............................................................................... 7,002 7,097
---------- ----------
Total liabilities................................................................................. 2,345,658 2,450,769
---------- ----------
Minority interests in subsidiaries........................................................................ 608,213 18,705
---------- ----------
Preferred stock, $0.01 par value, 3,000,000 shares authorized, stated at liquidation value:
Series A Convertible Preferred Stock, 32,000 and 132,144 shares issued and outstanding, respectively.... 6,373 26,086
---------- ----------
Series B Convertible Preferred Stock, 139,031 shares issued and outstanding............................. 30,691 30,200
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Stockholders' deficit:
Class A Common Stock, $0.01 par value, 60,000,000 shares authorized, 33,235,691 and 30,674,995
shares issued and outstanding, respectively............................................................ 333 307
Class B Common Stock, $0.01 par value, 30,000,000 shares authorized, 9,733,540 and 9,915,880
shares issued and outstanding, respectively............................................................ 97 99
Additional paid-in capital.............................................................................. 683,894 378,597
Deferred compensation................................................................................... (44,203) (679)
Treasury stock, at cost, 2,784,620 shares of Class A Common Stock....................................... (29,061) (29,061)
Accumulated deficit..................................................................................... (553,635) (1,241,986)
Other cumulative comprehensive loss..................................................................... (153,936) (90,942)
---------- ----------
Total stockholders' deficit....................................................................... (96,511) (983,665)
---------- ----------
Total liabilities and stockholders' deficit....................................................... $2,894,424 $1,542,095
========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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
March 31,
-----------------------------
1999 1998
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Revenue.......................................................................... $ 107,918 $ 67,396
System operating expense......................................................... (55,165) (27,740)
System selling, general and administrative expense............................... (41,590) (22,590)
Corporate general and administrative expense..................................... (26,082) (15,213)
Depreciation and amortization.................................................... (57,398) (52,535)
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Net operating loss....................................................... (72,317) (50,682)
Gain on issuance of common equity securities by subsidiary....................... 825,196 --
Interest income, including related party income of $138 and $205, respectively... 3,910 3,293
Interest expense................................................................. (56,623) (44,513)
Gain on sale of investment in affiliate.......................................... 7,456 --
Other expense, net............................................................... (11,465) (3,501)
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Net income (loss) before other items..................................... 696,157 (95,403)
Share in results of affiliated companies, net.................................... (20,562) (14,668)
Minority interests in subsidiaries............................................... 12,756 (335)
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Net income (loss) before extraordinary charge............................ 688,351 (110,406)
Extraordinary charge for early retirement of debt................................ -- (79,091)
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Net income (loss)........................................................ $ 688,351 $ (189,497)
========== ==========
Net income (loss) per common share:
Basic income (loss) before extraodinary charge........................... $ 16.47 $ (2.82)
Extraordinary charge..................................................... -- (2.01)
---------- ----------
Basic net income (loss).................................................. $ 16.47 $ (4.83)
========== ==========
Diluted income (loss) before extraordinary charge........................ $ 15.33 $ (2.82)
Extraordinary charge..................................................... -- (2.01)
---------- ----------
Diluted net income (loss)................................................ $ 15.33 $ (4.83)
========== ==========
Weighted-average number of common shares outstanding:
Basic.................................................................... 41,752,543 39,256,015
========== ==========
Diluted.................................................................. 44,911,765 39,256,015
========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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(1) Total
---------- ------ ---------- ------ ---------- -------- --------- --------- ----------- ------------ ---------
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Balances,
December 31,
1998..........30,674,995 $307 9,915,880 $99 $378,597 $ (679) 2,784,620 $(29,061) $(1,241,986) $ (90,942) $(983,665)
Exchange of
Class B
Common Stock
for Class A
Common Stock.. 182,340 2 (182,340) (2) -- -- -- -- -- -- --
Issuance of
Class A
Common Stock
in connection
with exercise
of warrants... 928,942 9 -- -- 13,925 -- -- -- -- -- 13,934
Issuance of
Class A
Common Stock
in connection
with Company's
stock option
plans......... 313,724 3 -- -- 3,870 -- -- -- -- -- 3,873
Exchange of
Series A
Convertible
Preferred
Stock for
Class A
Common Stock.. 1,135,690 12 -- -- 19,863 -- -- -- -- -- 19,875
Accrual of
dividends on
convertible
preferred
stock......... -- -- -- -- (653) -- -- -- -- -- (653)
Equity trans-
actions of
subsidiaries.. -- -- -- -- 268,292 (43,818) -- -- -- -- 224,474
Amortization
of deferred
compensation.. -- -- -- -- -- 294 -- -- -- -- 294
Net income..... -- -- -- -- -- -- -- -- 688,351 -- 688,351
Change in
cumulative
translation
adjustments... -- -- -- -- -- -- -- -- -- (62,897) (62,897)
Change in
unrealized
gain on
investment.... -- -- -- -- -- -- -- -- -- (97) (97)
---------- ---- --------- --- -------- -------- --------- -------- ----------- --------- ---------
Balances,
March 31,
1999..........33,235,691 $333 9,733,540 $97 $683,894 $(44,203) 2,784,620 $(29,061) $ (553,635) $(153,936) $ (96,511)
========== ==== ========= === ======== ======== ========= ======== =========== ========= =========
(1) Other Cumulative Comprehensive Loss at the end of each reporting period
consists of the following:
As of As of
December 31, March 31,
1998 1999
------------ ----------
Foreign currency translation adjustments..... $(90,788) $(153,685)
Unrealized (loss) gain on investments........ (154) (251)
-------- ---------
Total................................ $(90,942) $(153,936)
======== =========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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UNITED INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands)
(Unaudited)
For the Three Months Ended
March 31,
-----------------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................................................... $ 688,351 $(189,497)
Adjustments to reconcile net loss to net cash flows from operating activities:
Gain on issuance of common equity securities by subsidiary........................... (825,196) --
Extraordinary charge for early retirement of debt.................................... -- 79,091
Share in results of affiliated companies, net........................................ 17,488 14,673
Minority interests in subsidiaries................................................... (12,756) 335
Depreciation and amortization........................................................ 57,398 52,535
Accretion of interest on senior notes and amortization of deferred financing costs... 39,487 32,002
Compensation expense related to stock options........................................ 18,640 198
Gain on sale of investment in affiliate.............................................. (7,456) --
Increase in receivables, net......................................................... (17,571) (7,034)
(Increase) decrease in other assets.................................................. (3,686) 4,285
Increase in accounts payable, accrued liabilities and other.......................... 53,689 27,075
--------- ---------
Net cash flows from operating activities.......................................... 8,388 13,663
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term liquid investments............................................. (40,969) (57,327)
Proceeds from sale of short-term liquid investments................................... 35,325 15,325
Restricted cash (deposited) released, net............................................. (26,670) 2,505
Investments in and advances to affiliated companies................................... (12,556) (6,608)
Proceeds from sale of investments in affiliated companies............................. 18,704 --
New acquisitions, net of cash acquired................................................ (252,043) (88,048)
Capital expenditures.................................................................. (91,990) (29,709)
Deconsolidation of New Zealand subsidiary............................................. -- (9,881)
Other................................................................................. 1,167 (4,091)
--------- ---------
Net cash flows from investing activities.......................................... (369,032) (177,834)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock by subsidiary................................................ 1,414,001 --
Issuance of common stock in connection with exercise of warrants...................... 13,934 --
Issuance of common stock in connection with Company's and subsidiary's stock
option plans......................................................................... 16,832 720
Proceeds from offering of senior discount notes....................................... -- 812,200
Retirement of existing senior notes................................................... (265) (531,800)
Proceeds from short-term and long-term borrowings..................................... 413,313 93,288
Deferred financing costs.............................................................. (5,260) (19,789)
Repayments of short-term and long-term borrowings..................................... (875,666) (127,164)
Payment of sellers notes.............................................................. (18,537) --
--------- ---------
Net cash flows from financing activities.......................................... 958,352 227,455
--------- ---------
EFFECT OF EXCHANGE RATES ON CASH...................................................... (25,826) (128)
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS................................................. 571,882 63,156
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................................ 35,608 74,289
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............................................. $ 607,490 $ 137,445
========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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UNITED INTERNATIONAL HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Stated in thousands)
(Unaudited)
For the Three Months Ended
March 31,
-----------------------------------
1999 1998
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SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest............................................................... $ 31,998 $ 15,380
========= ========
Cash received for interest........................................................... $ 3,298 $ 517
========= ========
ACQUISITION OF REMAINING 49.0% OF DUTCH JOINT VENTURE:
Property, plant and equipment........................................................ $(179,131) $ --
Investments in affiliated companies.................................................. (46,830) --
Goodwill............................................................................. (287,631) --
Long-term liabilities................................................................ 242,536 --
Net current liabilities.............................................................. 5,384 --
--------- --------
Total cash paid.................................................................. (265,672) --
Cash acquired........................................................................ 13,629 --
--------- --------
Net cash paid.................................................................... $(252,043) $ --
========= ========
DECONSOLIDATION OF NEW ZEALAND SUBSIDIARY:
Working capital...................................................................... $ -- $ 4,159
Property, plant and equipment........................................................ -- (26,484)
Goodwill and other intangible assets................................................. -- (2,805)
Notes payable and other debt......................................................... -- 3,833
Minority interest.................................................................... -- 11,416
--------- --------
Total cash relinquished........................................................... $ -- $ (9,881)
========= ========
ACQUISITION OF DUTCH CABLE ASSETS:
Property, plant and equipment and other long-term assets............................. $ -- $(51,632)
Goodwill and other intangible assets................................................. -- (36,416)
--------- --------
Total cash paid.................................................................. $ -- $(88,048)
========= ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in thousands, except share and per share amounts)
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 March 31, 1999.
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************************************************************************************************************************************
* UIH *
* *
************************************************************************************************************************************
100% * 100% *
*************************************** *******************************************************************************************
* UIH Europe, Inc. * * United International Properties, Inc. *
* ("UIHE") * * ("UIPI") *
*************************************** *******************************************************************************************
* *
* **********************************************
62.4%(1) * 98.0% * * 100%
*************************************** ********************************************* *********************************************
* UPC * * UIH Asia/Pacific Communications, Inc. * * UIH Latin America, Inc. *
* * * ("UAP") * * ("ULA") *
*************************************** ********************************************* *********************************************
* * *
* * *
*************************************** ********************************************* *********************************************
*Austria: * *Australia: * *Brazil: *
* Telekabel Group 95.0% * * CTV Pty Limited and STV Pty * * TV Show Brazil, S.A. ("TVSB") 100.0% *
*Belgium: * * Limited (collectively, * * TV Cabo e Comunicacoes de *
* Radio Public N.V./S.A. * * "Austar") 100.0% * * Jundiai, S.A. ("Jundiai") 46.3% *
* ("TVD") 100.0% * * United Wireless Pty Limited * *Chile: *
*Czech Republic: * * ("United Wireless") 100.0% * * VTR Hipercable S.A. ("VTRH") 40.0% (4)*
* Kabel Net Group * * XYZ Entertainment Pty Limited * *Mexico: *
* ("KabelNet") 100.0% * * ("XYZ Entertainment") 50.0% * * Tele Cable de Morelos, S.A. *
*France: * *China: * * de C.V. ("Megapo") 49.0% *
* Mediareseaux Marne S.A. * * Hunan International TV * *Peru: *
* ("Mediareseaux") 99.6% * * Communications Company Limited * * Cable Star S.A. ("Cable Star") 60.0% *
*Hungary: * * ("HITV") 49.0% (2)* *Latin American Programming: *
* Telekabel Hungary BV * *New Zealand: * * MGM Networks Latin America *
* ("Telekabel Hungary") 79.3% * * Saturn Communications Limited * * LLC ("MGM Networks LA") 50.0% *
* Monor Telefon Tarsasag, * * ("Saturn") 65.0% * *********************************************
* Rt ("Monor") 44.8% * *Philippines: *
*Ireland: * * Pilipino Cable Corporation *
* Tara Television Limited * * ("PCC") 19.6% (3)*
* ("Tara") 80.0% * *Tahiti: *
*Israel: * * Telefenua S.A. ("Telefenua") 90.0% *
* Tevel Israel International * *********************************************
* Communications Ltd. *
* ("Tevel") 46.6% *
*Malta: *
* Melita Cable TV PLC *
* ("Melita") 50.0% *
*The Netherlands: *
* United Telekabel Holding *
* N.V. ("UTH") 100.0% *
*Norway: *
* Janco Multicom AS *
* ("Janco Multicom") 100.0% *
*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% *
***************************************
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UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Stated in thousands, except share and per share amounts)
(1) As of December 31, 1998, UIHE held all of the voting control of UPC and
owned all of its issued and outstanding shares, including 7.2% of such
shares, which had been registered in the name of a foundation controlled by
UIH to support UPC's employee stock option plan. In February 1999, UPC
successfully completed an initial public offering selling 44.6 million of
its shares on the Amsterdam Stock Exchange and Nasdaq National Market
System and completed a sale of 1.6 million shares to a strategic investor,
resulting in an ownership interest by UIHE of 64.3% subsequent to the
offering (see Note 3). As a result of employee stock option exercises
subsequent to the initial public offering date, the Company's ownership
interest in UPC decreased to 62.4% as of March 31, 1999. If all of the
remaining UPC stock options were exercised, the Company's ownership
interest would be 59.6% on a fully diluted basis.
(2) Pursuant to a memorandum of understanding with AmTec, Inc. ("AmTec") UAP
and AmTec agreed to exchange UAP's interest in HITV for AmTec stock.
Closing on the transaction is expected to occur by the end of 1999, subject
to certain conditions.
(3) 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"). UIH will hold an effective 19.6% interest in PCC when the
merger between Sun Cable (49.0%) and Sky Cable (51.0%) is completed in
1999.
(4) On April 29, 1999, ULA acquired the remaining ownership interest in VTRH
from its current partners, increasing its ownership interest to 100%. (see
Note 13).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The accompanying interim condensed consolidated financial statements are
unaudited and include the accounts of the Company and all subsidiaries where it
exercises a controlling financial interest through the ownership of a majority
voting interest, except for UTH from inception through January 31, 1999, where
because of certain minority shareholders rights the Company accounted for its
investment in UTH using the equity method of accounting. On February 16, 1999,
UPC acquired the minority shareholders' interest in UTH and began consolidating
UTH effective February 1, 1999. The Company previously consolidated the
operations of Saturn from July 1, 1996 through September 30, 1998. Prior to that
time, the Company accounted for its investment in Saturn under the equity
method. During the fourth quarter of 1998, the Company discontinued
consolidating the results of operations of Saturn effective January 1, 1998 and
returned to the equity method of accounting. The change was made to comply with
the consensus guidance of the Emerging Issues Task Force regarding Issue 96-16
("EITF 96-16"), and related rules of the SEC, because the minority shareholders
of Saturn have participating approval or veto rights with respect to certain
significant decisions of Saturn in the ordinary course of business. Accordingly,
the condensed consolidated statement of operations and statement of cash flows
for the period ended March 31, 1998 have been adjusted to reflect the
deconsolidation of Saturn effective as of January 1, 1998. The Company is
currently pursuing alternatives which would allow for the future consolidation
of Saturn. Effective October 1, 1998, the Company discontinued consolidating the
results of operations of Telefenua due to an other-than-temporary loss of
control and began using the equity method of accounting.
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 March 31, 1999 and the results of its operations for the three
months ended March 31, 1999 and 1998. All significant intercompany accounts and
transactions have been eliminated in consolidation. 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 ten months ended December 31, 1998.
INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD
For those investments in unconsolidated subsidiaries and companies in which the
Company's voting interest is 20.0% to 50.0%, its investments are held through a
combination of voting common stock, preferred stock, debentures or convertible
debt and/or the Company exerts significant influence through board
representation and management authority, the equity method of accounting is
used. Under this method, the investment, originally recorded at cost, is
9
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UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Stated in thousands, except share and per share amounts)
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 proportionate 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. Assets constructed incorporate overhead expense and interest
charges incurred during the period of construction; investment subsidies are
deducted. Upon disconnection of a subscriber, the remaining book value of the
subscriber equipment, excluding converters which are recovered upon
disconnection, and the capitalized labor are written off and accounted for as an
operating cost. Depreciation is calculated using the straight-line method over
the economic life of the asset.
The economic lives of property, plant and equipment at acquisition are as
follows:
Cable distribution networks.................... 5-20 years
Subscriber premises equipment and converters... 3-10 years
MMDS/DTH distribution facilities............... 5-20 years
Office equipment, furniture and fixtures....... 3-10 years
Buildings and leasehold improvements........... 3-33 years
Other.......................................... 3-10 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 years.
Licenses in newly-acquired companies are recognized at the fair market value of
those licenses at the date of acquisition. Licenses in new franchise areas
include the capitalization of direct costs incurred in obtaining the license.
The license value is amortized on a straight-line basis over the initial license
period, up to a maximum of 20 years.
SUBSCRIBER PREPAYMENTS AND DEPOSITS
Payments received in advance for multi-channel 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.
REVENUE RECOGNITION
Revenue is primarily derived from the sale of multi-channel television services
to subscribers and is recognized in the period the related services are
provided. Initial installation fees are recognized as revenue in the period in
which the installation occurs, to the extent installation fees are equal to or
less than direct selling costs, which are expensed. To the extent installation
fees exceed direct selling costs, the excess fees are deferred and amortized
over the average contract period. All installation fees and related costs with
respect to reconnections and disconnections are recognized in the period in
which the reconnection or disconnection occurs because reconnection fees are
charged at a level equal to or less than related reconnection costs.
STAFF ACCOUNTING BULLETIN NO. 51 ("SAB 51") ACCOUNTING POLICY
Gains realized as a result of stock sales by the Company's subsidiaries are
recorded in the statement of operations, except for any transactions which must
be credited directly to equity in accordance with the provisions of SAB 51.
STOCK-BASED COMPENSATION
Stock-based compensation is recognized using the intrinsic value method for the
Company's stock option plans, which results in compensation expense for the
difference between the grant price and the fair market value at each new
measurement date. In addition to the Company's stock option plans, UPC, UAP and
ULA have also adopted stock-based compensation 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 are 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.
10
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Stated in thousands, except share and per share amounts)
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
"Basic income (loss) per share" is determined by dividing net income (loss)
available to common stockholders by the weighted-average number of common shares
outstanding during each period. Net income (loss) available to common
stockholders includes the accrual of dividends on convertible preferred stock
which is charged directly to additional paid-in capital. "Diluted net income
(loss) per share" includes the effects of potentially issuable common stock, but
only if dilutive. The Company's stock option plans and convertible securities
are excluded from the Company's diluted income (loss) per share for the three
months ended March 31, 1998, because their effect would be anti-dilutive.
OTHER COMPREHENSIVE INCOME (LOSS)
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which requires that an enterprise
(i) classify items of other comprehensive income (loss) by their nature in a
financial statement and (ii) display the accumulated balance of other
comprehensive income (loss) separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position (see
Note 11).
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) equity and are included in Other Cumulative
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
functional currencies. As a result, amounts related to assets and liabilities
reported in the consolidated statements of cash flows will not agree to changes
in the corresponding balances in the consolidated balance sheets. The effects of
exchange rate changes on cash balances held in foreign currencies are reported
as a separate line below cash flows from financing activities. Certain of the
Company's foreign operating companies have notes payable and notes receivable
that are denominated in 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.
On January 1, 1999, eleven of the fifteen member countries of the European Union
fixed their conversion rates between their existing sovereign currencies and the
Euro, eliminating the foreign exchange rate fluctuation exposure of UPC related
to its operating subsidiaries in the eleven countries (including UPC's
subsidiaries in The Netherlands, Austria, Belgium, France and Spain). UPC's
investments in countries outside the eleven countries which have adopted the
Euro include Norway, Hungary, Ireland, Israel and Malta.
NEW ACCOUNTING PRINCIPLES
During 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 "Accounting For the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), 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. The Company adopted SOP 98-1 effective
January 1, 1999 with no material effect.
The American Institute of Certified Public Accountants recently issued Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"),
which is required to be adopted by affected companies for fiscal years beginning
after December 15, 1998. SOP 98-5 defines start-up and organization costs, which
must be expensed as incurred. In addition, all deferred start-up and
organization costs existing as of January 1, 1999 must be written-off and
11
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Stated in thousands, except share and per share amounts)
accounted for as a cumulative effect of an accounting change. The Company
adopted SOP 98-5 effective January 1, 1999 with no material effect.
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet at fair value.
Under SFAS 133, accounting for changes in fair value of a derivative depends on
its intended use and designation. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. The Company is currently assessing the effect of
this new standard.
3. ACQUISITIONS AND OTHER
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 Brabant Holding B.V. ("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"). The transaction was accounted for as a formation of a joint
venture with NUON's and UPC's net assets recorded at their historical carrying
values. Although UPC retained a 51.0% economic and voting interest in UTH,
because of joint governance on most significant operating decisions, UPC
accounted for its investment in UTH using the equity method of accounting.
On February 17, 1999, UPC acquired the remaining 49.0% of UTH from NUON (the
"NUON Transaction") for euro235,086 ($265,672). In addition, UPC repaid NUON a
euro15,101 ($17,066) subordinated loan, including accrued interest, dated
December 31, 1998, owed by UTH to NUON. The purchase of NUON's interest and
payment of the loan were funded with proceeds from UPC's initial public
offering. Effective February 1, 1999, UPC began consolidating the results of
operations of UTH. Details of the net assets acquired, based on the preliminary
purchase price allocation, were as follows:
Property, plant and equipment..................... $179,131
Investments in affiliated companies............... 46,830
Goodwill.......................................... 287,631
Long-term liabilities............................. (242,536)
Net current liabilities........................... (5,384)
--------
Total cash paid................................ $265,672
========
The following pro forma condensed consolidated operating results for the three
months ended March 31, 1999 and 1998 gives effect to the UTH Transaction and the
NUON Transaction as if they had occurred at the beginning of the periods
presented. 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.
<TABLE>
<CAPTION> For the Three Months Ended For the Three Months Ended
March 31, 1999 March 31, 1998
-------------------------- ---------------------------
Historical Pro Forma Historical Pro Forma
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue................................................. $ 107,918 $ 118,035 $ 67,396 $ 86,033
========== ========== ========== ==========
Net income (loss) before extraordinary charge........... $ 688,351 $ 684,368 $ (110,406) $ (114,313)
========== ========== ========== ==========
Net income (loss)....................................... $ 688,351 $ 684,368 $ (189,497) $ (193,404)
========== ========== ========== ==========
Net income (loss) per common share:
Basic income (loss) before extraordinary charge........ $ 16.47 $ 16.38 $ (2.82) $ (2.92)
Extraordinary charge................................... -- -- (2.01) (2.01)
---------- ---------- ---------- ----------
Basic net income (loss)................................ $ 16.47 $ 16.38 $ (4.83) $ (4.93)
========== ========== ========== ==========
Diluted income (loss) before extraordinary charge...... $ 15.33 $ 15.24 $ (2.82) $ (2.92)
Extraordinary charge................................... -- -- (2.01) (2.01)
---------- ---------- ---------- ----------
Diluted net income (loss).............................. $ 15.33 $ 15.24 $ (4.83) $ (4.93)
========== ========== ========== ==========
Weighted-average number of common shares outstanding:
Basic.................................................. 41,752,543 41,752,543 39,256,015 39,256,015
========== ========== ========== ==========
Diluted................................................ 44,911,765 44,911,765 39,256,015 39,256,015
========== ========== ========== ==========
</TABLE>
12
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Stated in thousands, except share and per share amounts)
ACQUISITION OF BRATISLAVA CABLE TV SYSTEM
In March 1999, UPC reached final agreement with Siemens Austria ("Siemens") to
purchase Siemens' 95.63% interest in SKT s.r.o., the company that owns and
operates the cable TV system in Bratislava, Slovak Republic. The completion of
the purchase is subject to obtaining the approval of regulatory authorities. The
purchase price for the 95.63% interest is approximately $41,000. As of March 31,
1999, $41,000 has been placed in escrow for the acquisition.
AGREEMENT FOR THE PURCHASE OF TIME WARNER CABLE FRANCE
In March 1999, UPC and Time Warner Entertainment ("TWE") reached a definitive
agreement for the purchase by UPC of 100% of Time Warner Cable France, a company
which controls and operates three cable TV systems in the suburbs of Paris and
Lyon and the city of Limoges. Completion of the purchase, which is subject to
regulatory approval, is expected to take place in the third quarter of 1999. The
purchase price for Time Warner Cable France is approximately $71,000
TELEKABEL HUNGARY AND TELEKABEL HUNGARY PROGRAMMING
On June 29, 1998, UPC acquired TWE's interest in its Hungarian multi-channel
television system assets for $9,500 in cash and a non-interest bearing
promissory note in the amount of $18,000 (the "Time Warner Note"). UPC and TWE
retained their respective percentage interests in Telekabel Hungary Programming.
UPC granted TWE an option to acquire UPC's interest in Telekabel Hungary
Programming along with certain other assets in consideration for the
cancellation of the Time Warner Note. On June 30, 1998, UPC merged its
100%-owned Hungarian multi-channel television systems ("Kabelkom"), along with
the assets acquired from TWE, with Hungary's second largest multiple system
operator to form the new joint venture Telekabel Hungary. UPC retained a 79.25%
ownership interest in the new entity. In March 1999, TWE exercised its option to
acquire UPC's interest in Telekabel Hungary Programming and the Time Warner Note
was cancelled.
UPC INITIAL PUBLIC OFFERING
During February 1999, UPC successfully completed an initial public offering
selling 44,600,000 shares on the Amsterdam Stock Exchange and Nasdaq National
Market System, raising gross and net proceeds at Dutch guilder ("NLG")63.91
($32.78) per share of NLG2,852,902 ($1,463,027) and NLG2,669,552 ($1,369,001),
respectively. Concurrent with the offering, proceeds were used to reduce the UPC
Senior Revolving Credit Facility totaling NLG635,791 ($326,047), including
accrued interest of NLG15,791 ($8,098), repay in its entirety the UPC Bridge
Bank Facility totaling NLG110,021 ($56,421), net of the interest reserve
account, and acquire NUON's 49.0% interest in UTH. Based on the carrying value
of the Company's investment in UPC as of February 11, 1999, UIH recognized a
gain of $825,196 from the resulting step-up in the carrying amount of UIH's
investment in UPC, in accordance with SAB 51. No deferred taxes were recorded
related to this gain due to the Company's intent on holding its investment in
UPC indefinitely. UPC's offering reduced the Company's ownership interest from
100% to 64.3%. As a result of employee stock option exercises subsequent to the
initial public offering date, the Company's ownership interest in UPC decreased
to 62.4% as of March 31, 1999. If all of the remaining UPC stock options were
exercised, the Company's ownership interest would be 59.6% on a fully diluted
basis.
13
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Stated in thousands, except share and per share amounts)
4. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER
THE EQUITY METHOD
<TABLE>
<CAPTION>
As of March 31, 1999
---------------------------------------------------------------------------------------------------
Investments in Cumulative Cumulative
and Advances to Dividends Share in Results of Translation Valuation
Affiliated Companies Received Affiliated Companies Adjustments Allowance Total
-------------------- --------- -------------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
EUROPE:
A2000......................... $ 83,776 $ -- $ (4,922) $ (79) $ -- $ 78,775
Tevel......................... 96,340 (6,180) (2,488) 2,404 -- 90,076
Melita........................ 14,078 -- 1,002 (148) -- 14,932
Monor......................... 5,454 -- (2,747) (7,701) -- (4,994)
IPS........................... 14,082 -- (7,258) (186) -- 6,638
Other......................... 6,016 -- (653) (171) -- 5,192
ASIA/PACIFIC:
Saturn........................ 55,990 -- (26,113) (3,550) -- 26,327
XYZ Entertainment............. 44,306 -- (18,533) 1,848 -- 27,621
PCC........................... 11,845 -- (3,027) (2,587) -- 6,231
HITV.......................... 6,073 -- (2,564) 16 -- 3,525
Telefenua..................... 18,599 -- (14,215) -- (4,384) --
Other......................... 350 -- -- -- -- 350
LATIN AMERICA:
VTRH.......................... 114,248 -- (20,217) (13,632) -- 80,399
Megapo........................ 32,496 (1,471) (1,002) (9,887) -- 20,136
MGM Networks LA (1)........... 21,310 -- (21,310) -- -- --
Jundiai....................... 6,797 -- (520) (2,677) -- 3,600
-------- ------- --------- -------- ------- --------
Total...................... $531,760 $(7,651) $(124,567) $(36,350) $(4,384) $358,808
======== ======= ========= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1998
---------------------------------------------------------------------------------------------------
Investments in Cumulative Cumulative
and Advances to Dividends Share in Results of Translation Valuation
Affiliated Companies Received Affiliated Companies Adjustments Allowance Total
-------------------- --------- -------------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
EUROPE:
UTH........................... $135,290 $ -- $ (11,447) $ 8,288 $ -- $132,131
Tevel......................... 96,340 (6,090) (390) (306) -- 89,554
Melita........................ 14,078 -- 997 724 -- 15,799
Telekabel Hungary
Programming.................. 12,263 -- (3,881) 28 -- 8,410
Monor......................... 11,301 -- (2,601) (7,849) -- 851
IPS........................... 14,082 -- (7,418) (25) -- 6,639
Other......................... 7,595 -- (531) 400 -- 7,464
ASIA/PACIFIC:
Saturn........................ 49,808 -- (23,138) (2,881) -- 23,789
XYZ Entertainment............. 44,306 -- (18,537) 111 -- 25,880
PCC........................... 11,673 -- (2,812) (2,824) -- 6,037
HITV.......................... 6,073 -- (2,435) 16 -- 3,654
Telefenua..................... 18,599 -- (14,215) -- (4,384) --
Other......................... 350 -- -- -- -- 350
LATIN AMERICA:
VTRH.......................... 112,052 -- (17,203) (9,874) -- 84,975
Megapo........................ 32,496 (1,471) (1,122) (11,067) -- 18,836
MGM Networks LA (1)........... 19,272 -- (19,272) -- -- --
Jundiai....................... 6,797 -- (587) (1,089) -- 5,121
-------- ------- --------- -------- ------- --------
Total...................... $592,375 $(7,561) $(124,592) $(26,348) $(4,384) $429,490
======== ======= ========= ======== ======= ========
</TABLE>
(1) Includes an accrued funding obligation of $3,519 and $3,012 at March 31,
1999 and December 31, 1998, respectively. The Company would face
significant and punitive dilution if it did not make the requested
fundings.
14
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Stated in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
5. PROPERTY, PLANT AND EQUIPMENT As of As of
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Cable distribution networks........................ $ 688,005 $ 255,702
Subscriber premises equipment and converters....... 294,005 264,867
MMDS/DTH distribution facilities................... 65,462 62,872
Office equipment, furniture and fixtures........... 26,560 30,415
Buildings and leasehold improvements............... 15,247 11,236
Other.............................................. 57,464 40,150
--------- ---------
1,146,743 665,242
Accumulated depreciation....................... (248,492) (201,183)
--------- ---------
Net property, plant and equipment.............. $ 898,251 $ 464,059
========= =========
</TABLE>
<TABLE>
<CAPTION>
6. GOODWILL AND OTHER INTANGIBLE ASSETS As of As of
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
EUROPE:
UTH.............................................. $ 355,799 $ --
Telekabel Group.................................. 189,957 206,092
Janco Multicom................................... 82,861 87,563
Telekabel Hungary................................ 46,609 51,550
TVD.............................................. 20,664 22,322
UPC.............................................. 31,415 --
Other............................................ 10,821 12,971
ASIA/PACIFIC:
Austar........................................... 57,718 55,804
Other............................................ 4,420 4,267
LATIN AMERICA:
TVSB............................................. 11,296 16,161
Cable Star....................................... 6,136 7,887
--------- --------
817,696 464,617
Accumulated amortization......................... (49,325) (39,683)
--------- --------
Net goodwill and other intangible assets......... $ 768,371 $424,934
========= ========
</TABLE>
<TABLE>
<CAPTION>
7. SHORT-TERM DEBT As of As of
March 31, December 31,
1999 1998
--------- -----------
<S> <C> <C>
Austar Bank Facility (see Note 9)............. $ 57,088 $ 36,738
Time Warner Note.............................. -- 18,000
Telekabel Hungary Facility.................... 20,086 15,504
Other UPC..................................... 3,779 --
VTRH Note..................................... 9,284 9,284
ULA Revolving Credit Facility................. -- 8,000
TVSB Seller Note.............................. 5,894 5,853
--------- --------
Total short-term debt...................... $ 96,131 $ 93,379
========= ========
</TABLE>
15
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Stated in thousands, except share and per share amounts)
TIME WARNER NOTE
In December 1998, TWE extended the maturity date of its non-interest bearing
note for a period of 90 days to the earlier of June 30, 1999 or 90 days after
written notice from TWE. Subsequent to December 31, 1998, the Time Warner Note
was cancelled as TWE exercised its option to acquire UPC's interest in Telekabel
Hungary Programming (see Note 3).
TELEKABEL HUNGARY FACILITY
In October 1998, Telekabel Hungary entered into a German mark ("DM") 65,600
($36,123) six month secured bridge facility (the "Telekabel Hungary Facility").
Availability under this facility depends on certain financial covenants. The
DM49,200 ($27,093) international tranche of the facility and half of the
DM16,400 ($9,030) local tranche bear interest at LIBOR plus 2.5% per annum plus
an additional cost of funding calculation. The remaining half of the local
tranche must be drawn in Hungarian forints and bears interest at Budapest
interbank offered rates for Hungarian forints ("BUBOR"), plus 2.5% per annum
plus an additional cost of funding calculation. As of March 31, 1999 and
December 31, 1998, the amount outstanding under this facility totaled DM36,600
($20,086) and DM26,000 ($15,504), respectively. In April 1999, a subsidiary of
UPC repaid the balance of the Telekabel Hungary Facility.
VTRH NOTE
UIH Chile, Inc., a wholly-owned subsidiary of ULA, executed a promissory note in
the amount of $7,770 payable to VTR S.A., the majority shareholder of VTRH, in
exchange for 51,993 shares of VTRH (the "VTRH Note"). The VTRH Note bears
interest at 12.95% per annum and was due April 30, 1999. On April 29, 1999 the
VTRH Note was repaid in conjunction with the VTRH Acquisition (see Note 13).
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 were due within 12 months at
an interest rate of LIBOR plus 3.5%. The facility was extendable up to 18 months
under certain conditions. In November 1998, ULA exercised its option to extend
the maturity date until February 1999, 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. The outstanding balance under this facility
was repaid in February 1999.
TVSB SELLER NOTE
On October 2, 1998, ULA increased its ownership interest in TVSB from 45.0% to
100% for $11,400, half of which was paid in cash, with the remainder financed by
the seller. This "TVSB Seller Note" bears interest at 10.0% and is due September
14, 1999.
8. SENIOR DISCOUNT NOTES
As of As of
March 31, December 31,
1999 1998
---------- ------------
1998 Notes............................ $ 916,690 $ 893,003
Old Notes............................. 155 412
UIH A/P Notes......................... 368,816 356,640
---------- ----------
1,285,661 1,250,055
Less current portion............... (155) (412)
---------- ----------
Total senior discount notes........ $1,285,506 $1,249,643
========== ==========
16
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Stated in thousands, except share and per share amounts)
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 for proceeds of $812,200 (the
"1998 Notes"), had an accreted value of $916,690 as of March 31, 1999. 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 between 1994 and 1996
at a discount from their original principal amount at maturity (the "Old
Notes"), had an accreted value of $155 as of March 31, 1999. On February 5,
1998, the Company redeemed for $531,800 in cash all but $465 principal amount at
maturity. The Old Notes redeemed had an accreted value of $466,200 as of
February 5, 1998. This tender premium of $65,600, combined with the write-off of
unamortized deferred financing costs and other transaction-related costs
totaling $13,491, resulted in an extraordinary charge of $79,091. In February
1999, an additional $295 principal amount at maturity was redeemed for $265 in
cash, leaving a balance of $170 principal amount at maturity. The remaining Old
Notes will mature on November 15, 1999.
UIH A/P NOTES
The 14.0% senior notes, issued by a wholly-owned subsidiary of UAP, UIH
Australia/Pacific, Inc. ("UIH A/P") in May 1996 and September 1997 at a discount
from their principal amount of $488,000, had an accreted value of $368,816 as of
March 31, 1999 (the "UIH A/P Notes"). On and after May 15, 2001, cash interest
will accrue and will be payable semi-annually on each May 15 and November 15,
commencing November 15, 2001. The UIH A/P 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 equity sale
resulting in gross proceeds to UIH A/P of $70,000, 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 UIH A/P Notes
will accrete to a principal amount of $492,866 on May 15, 2001, the date cash
interest begins to accrue.
9. OTHER LONG-TERM DEBT
As of As of
March 31, December 31,
1999 1998
--------- ------------
UTH Facility............................. $263,370 $ --
UPC Senior Revolving Credit Facility..... 176,514 512,179
CNBH Facility............................ 116,827 --
UPC Bridge Bank Facility................. -- 60,063
Mediareseaux Facility.................... 29,181 21,346
UPC DIC Loan............................. 31,780 84,214
Other UPC................................ 6,348 3,821
Austar Bank Facility..................... 69,775 67,352
Other Asia/Pacific....................... 3,065 2,923
-------- --------
696,860 751,898
Less current portion.................. (2,015) (62,252)
-------- --------
Total other long-term debt............ $694,845 $689,646
======== ========
UTH FACILITY
In March 1999, UTH replaced their existing NLG690,000 ($336,585) facility with a
senior facility (the "UTH Facility"). The UTH Facility consists of a euro340,000
($366,182) revolving facility to N.V. Telekabel, a subsidiary of UTH, that will
convert to a term facility on December 31, 2001. Euro5,000 ($5,385) of the UTH
Facility is in the form of an overdraft facility that will be available until
December 31, 2007. The UTH Facility bears interest at the Euro Interbank Offered
Rate ("EIOR") plus a margin between 0.75% and 2.00% based on leverage multiples
tied to N.V. Telekabel's net operating income. The UTH Facility is secured,
among other things, by a pledge of shares held by the borrower and will restrict
N.V. Telekabel's ability to incur additional debt.
17
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Stated in thousands, except share and per share amounts)
UPC SENIOR REVOLVING CREDIT FACILITY
In October 1997, UPC and certain of its subsidiaries entered into the
NLG1,100,000 ($536,585) multi-currency UPC Senior Revolving Credit Facility with
a syndicate of banks. In February 1999, UPC agreed with its lender to reduce
this facility amount from NLG1,100,000 to NLG1,000,000 ($487,805). As of March
31, 1999 a total of NLG361,854 ($176,514) was outstanding under this facility.
The amount outstanding for UPC, Telekabel Group and Janco Multicom was NLG0,
NLG197,421 ($96,303) and NLG164,433 ($80,211), respectively. Amounts advanced
under the Senior Revolving Credit Facility bear interest at the London interbank
offered rate ("LIBOR") 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 repaid a
portion of this facility in February 1999 with proceeds from their initial
public offering (see Note 3).
CNBH FACILITY
In February 1998, CNBH entered into a secured NLG250,000 ($121,951) ten year
term facility with a syndicate of banks (the "CNBH Facility"). In January 1999,
this facility was increased to NLG274,000 ($133,659). The CNBH Facility bears
interest at the Amsterdam Interbank Offered Rate ("AIBOR"), plus a margin
between 0.7% and 0.75%. Most of the proceeds were used to repay in full an
existing bank facility totaling NLG187,000 ($91,220). The remaining amount under
this facility is available to finance certain capital expenditures. Beginning in
2001, CNBH will be required to apply 50.0% of its excess cash flow to prepayment
of its facility. The facility restricts the payment of dividends and
distributions and limits the amount of payments to UPC under its general
services agreement. In connection with this facility, CNBH also entered into a
NLG5,000 ($2,439) ten-year term working capital facility with a bank.
UPC BRIDGE BANK FACILITY
In December 1997, UPC entered into the $125,000 Bridge Bank Facility with a
syndicate of banks. UPC repaid the remaining balance of this facility in
February 1999 with proceeds from their initial public offering (see Note 3).
MEDIARESEAUX FACILITY
In July 1998, Mediareseaux entered into a 9.5 year term facility with a bank for
an amount of French francs ("FRF") 680,000 ($111,647) (the "Mediareseaux
Facility"). The purpose of the facility is to finance on-going capital
expenditures, working capital and acquisitions with a limit of FRF120,000
($19,702). The Mediareseaux Facility bears interest at LIBOR plus a margin
ranging from 0.75% to 2.0%. The availability of the facility depends on revenue
generated and debt to equity ratios. The availability period ends at December
31, 2002. The repayment period starts from January 1, 2003 to final maturity in
2007. During the repayment period, Mediareseaux must apply 50.0% of its excess
cash flow in prepaying the facility. In July 1998, Mediareseaux secured a 9.5
year FRF20,000 ($3,284) overdraft facility, subject to the same terms and
conditions as the Mediareseaux Facility except that the availability tests are
not applicable. As of March 31, 1999 and December 31, 1998 an amount of
FRF178,065 ($29,181) and FRF120,000 ($21,346), respectively, was outstanding
under the Mediareseaux Facility.
UPC DIC LOAN
In November 1998, a subsidiary of Discount Investment Corporation ("DIC") loaned
UPC a total of $90,000 to acquire the additional interests in Tevel and Melita
(the "DIC Loan"). The DIC Loan matures in November 2000 and is secured by UPC's
pledge of its ownership interest in Tevel. The DIC Loan bears interest at 8.0%
and is payable, together with 106.0% of the principal amount, on maturity. In
connection with the DIC Loan, UPC granted to an affiliate of DIC an option to
acquire a total of $90,000, plus accrued interest, of ordinary shares of UPC at
a price equal to 90.0% of the initial public offering price. UPC allocated the
$90,000 in loan proceeds between the debt instrument and the equity option
element on the basis of relative fair values. In February 1999, the option
agreement was amended, resulting in a grant of two options of $45,000 each to
acquire ordinary shares of UPC. DIC then exercised the first option for $45,000,
paying in cash and acquiring 1,558,654 ordinary shares of UPC. UPC repaid
$45,000 of the DIC Loan and accrued interest with proceeds received from the
option exercise. The remaining option is exercisable until September 30, 2000.
18
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Stated in thousands, except share and per share amounts)
AUSTAR BANK FACILITY
In July 1997, Austar secured a senior syndicated term debt facility in the
amount of A$200,000 ($126,863) to fund Austar's subscriber acquisition and
working capital needs (the "Austar Bank Facility"). The Austar Bank Facility
consisted 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 March 31, 1999, Austar had drawn the entire amount of the
working capital facility and the cash advance facility totaling A$110,000
($69,775). The working capital facility was fully repayable on June 30, 2000.
The cash advance facility was fully repayable pursuant to an amortization
schedule beginning December 31, 2000 and ending June 30, 2004. In September
1998, Austar received an amendment to the Austar Bank Facility which allowed
Austar to temporarily draw under the A$90,000 term loan facility at an increased
interest rate of 2.25% above the professional market rate in Australia. As of
March 31, 1999, Austar had drawn A$90,000 ($57,088) on the term loan facility
for a total outstanding balance of A$200,000. On April 23, 1999 (subsequently
executed and funded A$222,000 on April 28, 1999), Austar executed a new
A$400,000 syndicated senior secured debt facility (the "New Austar Bank
Facility") to refinance the A$200,000 Austar Bank Facility and to fund Austar's
subscriber acquisition and working capital needs. The New Austar Bank Facility
consists of two sub-facilities: (i) A$200,000 amortizing term facility ("Tranche
1") and (ii) A$200,000 cash advance facility ("Tranche 2"). Tranche 1 was used
to refinance the Austar Bank Facility, and Tranche 2 is available upon the
contribution of additional equity on a 2:1 debt-to-equity basis. All of Austar's
assets are pledged as collateral for this facility. In addition, pursuant to
this facility, Austar cannot pay any dividends, interest or fees under its
technical assistance agreements without the consent of the majority banks. The
New Austar Bank Facility bears interest at the professional market rate in
Australia plus a margin ranging from 1.75% to 2.25% based upon certain debt to
cash flow ratios. The New Austar Bank Facility is fully repayable pursuant to an
amortization schedule beginning December 31, 2002 and ending March 31, 2006.
10. STOCKHOLDERS' DEFICIT
EQUITY TRANSACTIONS OF SUBSIDIARY
The issuance of warrants, the issuance of convertible debt with an equity
component, variable plan accounting for stock options and the recognition of
deferred compensation expense by the Company's 62.4% owned subsidiary UPC,
affects the carrying value of the Company's investment in UPC. The following
represents the effect on additional paid-in capital as a result of these equity
transactions by UPC during the three months ended March 31, 1999:
Variable plan accounting for UPC stock options.... $220,392
Deferred compensation expense, net................ (43,818)
Issuance of warrants to Microsoft................. 33,025
Issuance of convertible debt (DIC Loan)........... 14,875
--------
Total.......................................... $224,474
========
RELATIONSHIP WITH MICROSOFT
On January 25, 1999, UPC and Microsoft Corporation ("Microsoft") signed a letter
of intent providing for the establishment of a technical services relationship.
In connection with this letter of intent, UPC agreed to grant Microsoft warrants
to purchase up to 3,800,000 shares of UPC at Microsoft's option, at an exercise
price of $28.00 per share. The first half of the warrants are for the right to
negotiate license technology from Microsoft under definitive agreements to be
negotiated in the future. Concurrent with the initial public offering, UPC
recorded as contract acquisition rights NLG64,400 ($33,025) associated with the
first half of the warrants. Such costs will be amortized on a straight-line
basis over the expected contract life, which is yet to be determined. The
accounting for the cost associated with the second half of the warrants will
depend on the ultimate nature of the performance criteria giving rise to the
earn-out of these warrants. These warrants will be recorded as such at fair
value when it is probable the performance criteria will be met in accordance
with EITF Issue No. 96-18.
19
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Stated in thousands, except share and per share amounts)
11. COMPREHENSIVE INCOME (LOSS)
The components of total comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1999 1998
--------- ----------
<S> <C> <C>
Net income (loss)....................................... $688,351 $(189,497)
Other comprehensive income (loss):
Change in cumulative translation adjustments.......... (62,897) 425
Change in unrealized gain/loss on investments......... (97) 781
-------- ---------
Total comprehensive income (loss)................. $625,357 $(188,291)
======== =========
</TABLE>
12. SEGMENT AND GEOGRAPHIC INFORMATION
The Company's business has historically been derived from its video
entertainment segment. This service has been provided in various countries where
the Company owns and operates its systems. During 1998, the Company introduced
telephony and internet/data services and during 1999 the Company will continue
to introduce these services to several systems. To date, revenues and net
operating results from these services have not been significant and therefore
segment information for these services is not required. Accordingly, the
Company's current reportable segments are the various countries in which it
operates multi-channel television, programming and/or telephony operations.
These reportable segments are evaluated separately because each geographic
region presents different marketing strategies and technology issues as well as
distinct economic climates and regulatory constraints. The key operating
performance criteria used in this evaluation include revenue growth, operating
income before depreciation, amortization and stock-based compensation expense
("Adjusted EBITDA"), and capital expenditures. Senior management of the Company
does not view segment results below Adjusted EBITDA, therefore segment
information on these items is not provided.
20
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Stated in thousands, except share and per share amounts)
The Company's consolidated segment information is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended As of As of
March 31, 1999 March 31, 1998 March 31, December 31,
--------------------------- -------------------------- 1999 1998
Adjusted Adjusted -----------------------------
Revenue EBITDA (1) Revenue EBITDA (1) Total Assets
------- ---------- ------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Europe (UPC):
The Netherlands.......... $ 20,614 $ 731 $ 6,486 $ 3,545 $1,679,856 $ 297,068
Austria.................. 24,736 10,215 21,057 11,727 320,735 341,159
Belgium.................. 4,482 418 4,077 1,346 54,844 57,847
Czech Republic........... 1,142 (245) 976 (448) 9,630 11,497
France................... 1,612 (1,597) 640 (401) 58,071 51,092
Hungary.................. 8,886 3,027 -- -- 83,890 86,921
Norway................... 12,375 2,282 11,194 4,475 221,975 219,068
UPC Corporate and Other.. 2,027 (7,703) 1,822 (3,386) 24,725 22,744
-------- ------- ------- ------- ---------- ----------
Total Europe.......... 75,874 7,128 46,252 16,858 2,453,726 1,087,396
-------- ------- ------- ------- ---------- ----------
Asia/Pacific:
Australia................ 30,256 78 19,316 (1,385) 185,410 181,169
Other.................... -- (1,398) 1,137 (5,036) 76,517 72,781
-------- ------- ------- ------- ---------- ----------
Total Asia/Pacific.... 30,256 (1,320) 20,453 (6,421) 261,927 253,950
-------- ------- ------- ------- ---------- ----------
Latin America:
Chile.................... -- -- -- -- 80,399 84,975
Other.................... 1,788 (1,836) 475 (3,114) 56,020 73,048
-------- ------- ------- ------- ---------- ----------
Total Latin America... 1,788 (1,836) 475 (3,114) 136,419 158,023
-------- ------- ------- ------- ---------- ----------
Corporate & Other.......... -- (251) 216 (5,272) 42,352 42,726
-------- ------- ------- ------- ---------- ----------
Total Company......... $107,918 $ 3,721 $67,396 $ 2,051 $2,894,424 $1,542,095
======== ======= ======= ======= ========== ==========
</TABLE>
(1) Adjusted EBITDA represents net operating earnings before depreciation,
amortization and stock-based compensation charges. Industry analysts
generally consider Adjusted EBITDA to be a helpful way to measure the
performance of cable television operations and communications companies.
Management believes Adjusted EBITDA helps investors to assess the cash flow
from operations from period to period and thus to value the Company's
business. Adjusted EBITDA should not, however, be considered a replacement
for net income, cash flows or for any other measure of performance or
liquidity under generally accepted accounting principles, or as an
indicator of a company's operating performance. The Company is not entirely
free to use the cash represented by Adjusted EBITDA. Several of the
Company's consolidated operating companies are restricted by the terms of
their debt arrangements. Each company has its own operating expenses and
capital expenditure requirements, which can limit the Company's use of
cash. The presentation of Adjusted EBITDA may not be comparable to
statistics with a similar name reported by other companies. Not all
companies and analysts calculate Adjusted EBITDA in the same manner.
Adjusted EBITDA reconciles to the consolidated statement of operations as
follows:
For the Three Months Ended
March 31,
-----------------------------
1999 1998
--------- ---------
Net operating loss..................... $(72,317) $(50,682)
Depreciation and amortization.......... 57,398 52,535
Stock-based compensation expense....... 18,640 198
-------- --------
Consolidated Adjusted EBITDA....... $ 3,721 $ 2,051
======== ========
21
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Stated in thousands, except share and per share amounts)
13. SUBSEQUENT EVENTS
VTR ACQUISITION
On April 29, 1999, an indirect wholly owned subsidiary of the Company acquired a
60.0% interest in VTRH (the "VTRH Acquisition"). This acquisition, combined with
the 40.0% interest in VTRH that is owned by another indirect wholly owned
subsidiary of the Company, gives the Company an indirect 100% interest in VTRH.
The purchase price for the 60.0% interest in VTRH was approximately $258,000 in
cash, which included repayment of advances from the other shareholders of VTRH
and certain other expenses. In addition, the Company provided capital for VTRH
to prepay approximately $126,000 of existing bank indebtedness and a promissory
note from the Company to one of the other shareholders of VTRH.
To finance the prepayment of VTRH's indebtedness and a portion of the purchase
price for the VTRH Acquisition, the Company concurrently sold in a private
transaction $208,900 of 10.875% Senior Discount Notes due 2009 (the "1999
Notes"). The remaining portion of the VTRH Acquisition was funded with cash on
hand and approximately $145,000 borrowed under a Senior Secured Credit Facility
between VTRH and a syndicate of banks (the "VTRH Bank Facility").
The VTRH Bank Facility consists of two tranches - Tranche A, which is a single
term loan facility with an aggregate principal amount of $140,000, substantially
all of which was borrowed for the VTRH Acquisition, and Tranche B, which is a
three-year term loan facility, with an aggregate principal amount of up to
$80,000. Both tranches have been guaranteed by VTRH and its subsidiaries. The
banks are in the process of syndicating the final approximately $50,000 of the
VTRH Bank Facility. The Company has agreed to participate in the syndication as
necessary.
The 1999 Notes have essentially the same terms as the 1998 Notes, except for the
maturity date, coupon rate and the 1999 Notes are not secured.
AGREEMENT TO ACQUIRE GELREVISION
In April 1999, UTH and Gamog reached in principal an agreement for the
acquisition of Gamog's cable company, GelreVision, for approximately NLG243,000
($118,537). The acquisition is expected to close in the third quarter of 1999.
ACQUISITION OF ADDITIONAL INTEREST IN IPS
In April 1999, a subsidiary of UPC and Disney/ABC International Television, Inc.
("Disney") entered into an agreement with the shareholders of IPS whereby UPC
and Disney agreed to acquire the other shareholders' 33.0% interest. After the
acquisition, UPC will hold a 50.0% interest in IPS. UPC's portion of the
purchase price is $7,600.
22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. These
forward-looking statements may include, among other things, statements
concerning our 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. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements,
or industry results, to be materially different from what we say or imply with
such forward-looking statements. These factors include, among other things,
changes in television viewing preferences and habits by our subscribers and
potential subscribers, their acceptance of new technology, programming
alternatives and new video services we may offer. They also include subscribers'
acceptance of our newer telephone and Internet/data services, our ability to
manage and grow our newer telephone and Internet/data services, our ability to
secure adequate capital to fund other system growth and development, risks
inherent in investment and operations in foreign countries, changes in
government regulation, changes in the nature of key strategic relationships with
joint venture partners, and other factors discussed in our report on Form 8-K
dated September 24, 1996. These forward-looking statements apply only as of the
time of this report, and we have no obligation or plans to provide updates or
revisions to these forward-looking statements or any other changes in events,
conditions or circumstances on which these statements are based. Our statements
in Management's Discussion and Analysis of Financial Condition and Results of
Operations in this report related to the Year 2000 issues are hereby denominated
as "Year 2000 Statements" within the meaning of the Year 2000 Information and
Readiness Disclosure Act. The following discussion and analysis of financial
condition and results of operations cover the three months ended March 31, 1999
and 1998, and should be read together with our consolidated financial statements
and related notes included elsewhere herein. These consolidated financial
statements provide additional information regarding our financial activities and
condition.
INTRODUCTION
UIH was formed in 1989 for the purpose of developing, acquiring and managing
foreign multi-channel television, programming and telephony operations outside
the United States. Through UPC, our systems in Europe together have the largest
number of subscribers of any group of broadband communications networks operated
across Europe. Through ULA and UAP, we hold interests in multi-channel
television operating systems and related business development projects in Chile,
Brazil, Mexico, Peru, Australia, New Zealand, Tahiti, the Philippines and China,
as well as interests in programming companies for the Australia and Latin
America markets.
For the three months ended March 31, 1999 and 1998, we consolidated the results
from our systems in The Netherlands, Austria, Belgium, Norway, France, Hungary
(1999 only), the Czech Republic, Romania, the Slovak Republic, Ireland,
Australia, Peru and Brazil (Fortaleza). Unconsolidated systems included our
interests in certain Israeli, Maltese, New Zealand, Brazil (Jundiai), Chile,
Mexico, Tahiti, the Philippines and China systems, and programming interests in
Spain, Australia and Latin America. We account for these unconsolidated systems
using the equity method of accounting.
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 we had an ownership interest as of
March 31, 1999. In addition, the following proportionate data represents certain
operating and financial results for us, multiplied by our applicable ownership
percentage.
23
<PAGE>
<TABLE>
<CAPTION>
As of and for the three months ended March 31, 1999
----------------------------------------------------------------------------------------------
Homes in Basic Long-
GROSS OPERATING SYSTEM DATA Paid-in Service Homes Subscribers/ Basic Adjusted Term
Ownership Area Passed Lines Penetration Revenue EBITDA(1) Debt(2)
-------- --------- -------- ----------- ------------ ------- -------- --------
| (In thousands)(3)
<S> <C> <C> <C> <C> <C> | <C> <C> <C>
EUROPE (UPC) |
- ------------ |
Multi-channel TV Subscribers: |
The Netherlands................ 31.2-62.4% 1,529,214 1,491,220 1,404,131 94.2% | $47,041 $ 16,321 $243,913
Austria........................ 59.3% 1,076,190 903,200 457,165 50.6% | $23,711 $ 9,792 $ -
Hungary (Telekabel Hungary).... 49.5% 901,500 528,719 442,390 83.7% | $ 8,518 $ 2,901 $ -
Israel......................... 29.1% 595,000 583,408 406,970 69.8% | $35,303 $ 13,961 $245,612
Norway......................... 62.4% 529,900 464,941 322,735 69.4% | $11,862 $ 2,187 $ -
Belgium........................ 62.4% 133,030 133,030 126,818 95.3% | $ 4,296 $ 401 $ -
Malta.......................... 31.2% 179,000 164,553 71,040 43.2% | $ 3,902 $ 1,742 $ 22,851
Romania........................ 31.8-62.4% 180,000 98,174 62,524 63.7% | $ 606 $ 248 $ -
Czech Republic................. 62.4% 229,531 153,949 54,691 35.5% | $ 1,095 $ (235) $ -
Hungary (Monor)................ 27.9% 85,000 68,339 31,108 45.5% | $ 4,892 $ 942 $ 41,189
France......................... 62.2% 190,000 82,320 32,662 39.7% | $ 1,545 $ (1,531) $ -
Slovak Republic................ 46.8-62.4% 64,493 40,494 25,697 63.5% | $ 295 $ (55) $ -
--------- --------- --------- | ------- -------- --------
Total...................... 5,692,858 4,712,347 3,437,931 | $143,066 $ 46,674 $553,565
--------- --------- --------- | -------- -------- --------
Telephony Lines: |
Hungary (Monor)................ 27.9% 85,000 84,037 70,210 83.5% |[FINANCIAL INFORMATION IS INCLUDED
The Netherlands................ 31.2-62.4% 1,529,214 541,613 46,102 8.5% |IN MULTI-CHANNEL TV INFORMATION
---------- --------- --------- |ABOVE]
Total...................... 1,614,214 625,650 116,312 |
---------- --------- --------- |
Data Subscribers: |
Internet....................... 31.2-62.4% N/A N/A 35,449 N/A |[FINANCIAL INFORMATION IS INCLUDED
---------- --------- --------- |IN MULTI-CHANNEL TV INFORMATION
Programming Subscribers: |ABOVE]
Spain/Portugal (IPS)........... 20.9% N/A N/A 990,000 N/A | $ 3,707 $ 746 $ 3,500
Ireland (Tara)................. 49.9% N/A N/A 801,245 N/A | $ 191 $ (2,001) $ -
---------- --------- --------- | ------- -------- --------
Total...................... N/A N/A 1,791,245 | $ 3,898 $(1,225) $ 3,500
---------- --------- --------- | ------- ------- --------
ASIA/PACIFIC |
- ------------ |
Multi-channel TV Subscribers: |
Australia (Austar)............. 98.0% 2,085,000 2,083,000 311,119 14.9% | $29,419 $ (5,945) $ -
Philippines.................... 19.2% 600,000 419,037 164,257 39.2% | $ 4,384 $ 1,019 $ 32
Tahiti......................... 88.2% 31,000 20,128 6,125 30.4% | $ 1,137 $ 116 $ -
New Zealand.................... 63.7% 141,000 56,249 7,590 13.5% | $ 1,393 $ (2,257) $ 26,816
---------- --------- --------- | ------- -------- --------
Total...................... 2,857,000 2,578,414 489,091 | $36,333 $ (7,067) $ 26,848
---------- --------- --------- | ------- -------- --------
Telephony Lines: |
New Zealand.................... 63.7% 141,000 53,257 10,675 20.0% |[FINANCIAL INFORMATION IS INCLUDED
---------- --------- --------- |IN MULTI-CHANNEL TV INFORMATION
Data Subscribers: |ABOVE]
New Zealand.................... 63.7% N/A N/A 900 |
---------- --------- --------- |
Programming Subscribers: |
Australia (XYZ Entertainment).. 49.0% N/A N/A 750,439 N/A | $ 6,587 $ 2,504 $ -
---------- --------- --------- | ------- -------- --------
LATIN AMERICA |
- ------------- |
Multi-channel TV Subscribers: |
Chile.......................... 34.0% 2,321,000 1,594,582 390,864 24.5% | $27,867 $ 6,996 $122,392
Mexico......................... 49.0% 341,600 224,760 55,880 24.9% | $ 3,077 $ 1,184 $ -
Brazil (Jundiai)............... 46.3% 70,200 66,255 19,166 28.9% | $ 1,541 $ 560 $ 81
Brazil (TVSB).................. 100% 437,000 306,000 12,605 4.1% | $ 995 $ (204) $ -
Peru........................... 60.0% 140,000 58,193 9,388 16.1% | $ 185 $ (28) $ -
---------- --------- --------- | ------- -------- --------
Total...................... 3,309,800 2,249,790 487,903 | $33,665 $ 8,508 $122,473
---------- --------- --------- | ------- -------- --------
Telephony Lines: |
Chile.......................... 34.0% 2,321,000 244,965 32,884 13.4% |[FINANCIAL INFORMATION IS INCLUDED
---------- --------- --------- |IN MULTI-CHANNEL TV INFORMATION
Programming Subscribers: |ABOVE]
Latin American................. 50.0% N/A N/A 3,889,363 N/A | $ 1,425 $ (4,004) $ -
---------- --------- --------- | ------- -------- --------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
As of and for the three months ended March 31, 1999
-------------------------------------------------------------------------
Homes in Basic Long-
Service Homes Subscribers/ Adjusted Term
Area Passed Lines Revenue EBITDA(1) Debt(2)
---------- --------- ----------- ------- -------- --------
| (In thousands)(3)
<S> <C> <C> <C> | <C> <C> <C>
TOTAL COMPANY BASED ON |
GROSS DATA: |
- ----------- |
Multi-channel TV Subscribers... 11,859,658 9,540,551 4,414,925 | $213,064 $48,115 $702,886
========== ========= ========= | ======== ======= ========
Telephony Lines................ 4,076,214 923,872 159,871 | $ - $ - $ -
========== ========= ========= | ======== ======= ========
Data Subscribers............... N/A N/A 36,349 | $ - $ - $ -
========== ========= ========= | ======== ======= ========
Programming Subscribers........ N/A N/A 6,431,047 | $ 11,910 $(2,755) $ 3,500
========== ========= ========= | ======== ======= ========
|
TOTAL COMPANY BASED ON |
CONSOLIDATED SYSTEMS: |
- -------------------- |
Multi-channel TV Subscribers.... 6,917,358 5,768,240 2,728,203 | $100,704 $21,232 $792,991
========== ========= ========= | ======== ======= ========
Telephony Lines................ 950,714 155,504 20,760 | $ 3,723 $(6,178) $ -
========== ========= ========= | ======== ======= ========
Data Subscribers............... N/A N/A 18,587 | $ 3,300 $(9,332) $ -
========== ========= ========= | ======== ======= ========
Programming Subscribers........ N/A N/A 298,060 | $ 191 $(2,001) $ -
========== ========= ========= | ======== ======= ========
|
TOTAL COMPANY BASED ON |
PROPORTIONATE DATA: |
- ------------------ |
Multi-channel TV Subscribers... 6,711,684 5,583,415 2,264,462 | $111,620 $17,289 $224,934
========== ========= ========= | ======== ======= ========
Telephony Lines................ 1,676,410 358,159 58,431 | $ - $ - $ -
========== ========= ========= | ======== ======= ========
Data Subscribers............... N/A N/A 19,160 | $ - $ - $ -
========== ========= ========= | ======== ======= ========
Programming Subscribers........ N/A N/A 2,919,128 | $ 4,810 $(1,617) $ 732
========== ========= ========= | ======== ======= ========
|
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
As of and for the three months ended March 31, 1998
----------------------------------------------------------------------------------------------
Homes in Basic Long-
GROSS OPERATING SYSTEM DATA Paid-in Service Homes Subscribers/ Basic Adjusted Term
Ownership Area Passed Lines Penetration Revenue EBITDA(1) Debt(2)
-------- --------- -------- ----------- ------------ ------- -------- --------
| (In thousands)(3)
<S> <C> <C> <C> <C> <C> | <C> <C> <C>
EUROPE (UPC) |
- ------------ |
Multi-channel TV Subscribers: |
The Netherlands................ 50.0-100% 813,635 806,230 749,288 92.9% | $20,871 $ 8,030 $ -
Austria........................ 95.0% 1,065,327 893,301 439,100 49.2% | $21,059 $10,922 $ -
Hungary (Kabelkom)............. 50.0% 300,000 300,000 266,311 88.8% | $ 31 $ 10 $ -
Israel......................... 23.3% 360,000 354,308 244,697 69.1% | $22,459 $12,555 $ 1,823
Norway......................... 100% 529,924 460,242 317,947 69.1% | $10,851 $ 4,338 $ -
Belgium........................ 100% 133,000 133,000 127,366 95.8% | $ 4,453 $ 1,329 $ -
Malta.......................... 25.0% 179,000 155,493 61,153 39.3% | $ 3,387 $ 1,516 $ 20,146
Romania........................ 90.0-100% 150,000 69,654 40,006 57.4% | $ 188 $ 105 $ -
Czech Republic................. 100% 271,100 146,448 52,140 35.6% | $ 934 $ (429) $ -
Hungary (Monor)................ 46.3% 85,000 60,534 27,120 44.8% | $ 4,222 $ 2,577 $ 48,728
France......................... 99.6% 86,000 35,212 14,829 42.1% | $ 640 $ (401) $ -
Slovak Republic................ 75.0-100% 67,959 22,603 16,309 72.2% | $ 164 $ (99) $ -
--------- --------- --------- | ------- ------- --------
Total...................... 4,040,945 3,437,025 2,356,266 | $89,259 $40,453 $ 70,697
--------- --------- --------- | ------- ------- --------
Telephony Lines: |
Hungary (Monor)................ 46.3% 85,000 84,037 63,914 76.1% |[FINANCIAL INFORMATION IS INCLUDED
The Netherlands................ 50.0-100% - - - N/A |IN MULTI-CHANNEL TV INFORMATION
--------- --------- --------- |ABOVE]
Total...................... 85,000 84,037 63,914 |
--------- --------- --------- |
Programming Subscribers: |
Spain/Portugal (IPS)........... 33.5% N/A N/A 539,000 N/A | $ 3,707 $ 746 $ -
Ireland (Tara)................. 75.0% N/A N/A 414,749 N/A | $ 103 $(1,330) $ -
--------- --------- --------- | ------- ------- --------
Total...................... N/A N/A 953,749 | $3,810 $ (584) $ -
--------- --------- --------- | ------ ------ --------
ASIA/PACIFIC |
- ------------ |
Multi-channel TV Subscribers: |
Australia (Austar)............. 98.0% 1,635,000 1,589,000 199,955 12.6% | $18,263 $ 327 $ -
Philippines.................... 39.2% 600,000 175,414 65,953 37.6% | $ 1,591 $ 301 $ -
Tahiti......................... 88.2% 31,000 20,128 6,104 30.3% | $ 1,137 $ 116 $ -
New Zealand.................... 63.7% 141,000 23,780 3,245 13.6% | $ 143 $(1,720) $ 3,707
--------- --------- --------- | ------- ------- --------
Total...................... 2,407,000 1,808,322 275,257 | $21,134 $ (976) $ 3,707
--------- --------- --------- | ------- ------- --------
Programming Subscribers: |
Australia (XYZ Entertainment).. 24.5% N/A N/A 577,476 N/A | $ 3,959 $ 195 $ -
--------- --------- --------- | ------- ------- --------
LATIN AMERICA |
- ------------- |
Multi-channel TV Subscribers: |
Chile.......................... 34.0% 2,321,000 1,478,851 366,345 24.8% | $28,139 $ 7,890 $127,621
Mexico......................... 49.0% 341,600 176,125 53,439 30.3% | $ 3,074 $ 1,133 $ 158
Brazil (Jundiai)............... 46.3% 70,000 66,590 20,959 31.5% | $ 2,355 $ 819 $ 58
Brazil (TVSB).................. 45.0% 387,000 387,000 12,593 3.3% | $ 1,381 $ (47) $ -
Peru........................... 99.2-100% 140,000 42,747 6,706 15.7% | $ 475 $ (35) $ -
--------- --------- --------- | ------- ------- --------
Total...................... 3,259,600 2,151,313 460,042 | $35,424 $ 9,760 $127,837
--------- --------- --------- | ------- ------- --------
Telephony Lines: |
Chile.......................... 34.0% 2,321,000 16,676 5,336 32.0% |[FINANCIAL INFORMATION IS INCLUDED
--------- --------- --------- |IN MULTI-CHANNEL TV INFORMATION
Programming Subscribers: |ABOVE]
Latin American................. 50.0% N/A N/A 1,810,000 N/A | $ 588 $(3,810) $ -
--------- --------- --------- | ------- ------- --------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
As of and for the three months ended March 31, 1998
----------------------------------------------------------------------
Homes in Basic Long-
Service Homes Subscribers/ Adjusted Term
Area Passed Lines Revenue EBITDA(1) Debt(2)
--------- -------- ----------- ------- -------- --------
| (In thousands)(3)
<S> <C> <C> <C> | <C> <C> <C>
TOTAL COMPANY BASED ON |
GROSS DATA: |
- ----------- |
Multi-channel TV Subscribers... 9,707,545 7,396,660 3,091,565 | $144,690 $49,122 $202,241
========= ========= ========= | ======== ======= ========
Telephony Lines................ 2,406,000 100,713 69,250 | $ - $ - $ -
========= ========= ========= | ======== ======= ========
Programming Subscribers........ N/A N/A 3,341,225 | $ 8,357 $(4,199) $ -
========= ========= ========= | ======== ======= ========
|
TOTAL COMPANY BASED ON |
PROPORTIONATE DATA: |
- ------------------ |
Multi-channel TV Subscribers... 6,342,332 5,027,098 2,091,118 | $ 91,799 $28,866 $ 73,879
========= ========= ========= | ======== ======= ========
Telephony Lines................ 828,495 44,579 31,406 | $ - $ - $ -
========= ========= ========= | ======== ======= ========
Programming Subscribers........ N/A N/A 1,538,109 | $ 2,583 $(2,605) $ -
========= ========= ========= | ======== ======= ========
|
TOTAL COMPANY BASED ON |
CONSOLIDATED SYSTEMS: |
- -------------------- |
Multi-channel TV Subscribers... 4,356,163 3,651,783 1,450,202 | $ 67,313 $ 2,575 $680,659
========= ========= ========= | ======== ======= ========
Telephony Lines................ - - - | $ 59 $ (128) $ -
========= ========= ========= | ======== ======= ========
Programming Subscribers........ N/A N/A 414,749 | $ 24 $ (396) $ -
========= ========= ========= | ======== ======= ========
</TABLE>
27
<PAGE>
(1) Adjusted EBITDA represents net operating earnings before depreciation,
amortization and stock-based compensation charges. Industry analysts
generally consider Adjusted EBITDA to be a helpful way to measure the
performance of cable television operations and communications companies. We
believe Adjusted EBITDA helps investors to assess the cash flow from our
operations from period to period and thus to value our business. Adjusted
EBITDA should not, however, be considered a replacement for net income,
cash flows or for any other measure of performance or liquidity under
generally accepted accounting principles, or as an indicator of a company's
operating performance. We are not entirely free to use the cash represented
by Adjusted EBITDA. Several of our consolidated operating companies are
restricted by the terms of their debt arrangements. Each company has its
own operating expenses and capital expenditure requirements, which can
limit our use of cash. Our presentation of Adjusted EBITDA may not be
comparable to statistics with a similar name reported by other companies.
Not all companies and analysts calculate Adjusted EBITDA in the same
manner.
(2) The amounts disclosed herein represent unconsolidated debt. Consolidated
debt for the operating systems is included in the footnotes to the
consolidated financial statements.
(3) The financial information presented herein has been taken from unaudited
financial information of the respective operating companies that were
providing service as of March 31, 1999. Certain information presented
herein has been derived from financial statements prepared in accordance
with foreign generally accepted accounting principles which differ from
U.S. generally accepted accounting principles. In addition, certain amounts
have been converted to U.S. dollars using the March 31, 1999 exchange rates
for the convenience translation.
28
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES
We have financed our acquisitions and funding of our video, voice and data
systems in the three main regions of the world in which we operate primarily
through public and private debt and equity as well as cash 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") for UIH (parent only) from inception to
date:
<TABLE>
<CAPTION>
For the Three
Inception to Months Ended
December 31, 1998 March 31, 1999 Total
UIH (Parent Only) ----------------- -------------- --------
----------------- (In millions)
<S> <C> <C> <C>
UIH (Parent Only)
Financing Sources:
Gross bond proceeds............................ $1,138.1 $ -- $1,138.1
Gross equity proceeds (1)...................... 408.9 18.7 427.6
Asset sales, dividends and note payments....... 224.4 94.7 319.1
Interest income and other...................... 32.7 2.1 34.8
-------- ------ --------
Total sources.............................. 1,804.1 115.5 1,919.6
-------- ------ --------
Application of Funds:
Investment in:
UPC........................................... (454.7) (1.0) (455.7)
UAP (1)....................................... (256.4) (20.5) (276.9)
ULA........................................... (292.3) (13.9) (306.2)
Other......................................... (25.8) -- (25.8)
-------- ------ --------
Total...................................... (1,029.2) (35.4) (1,064.6)
Repayment of bonds (2)......................... (531.8) (0.3) (532.1)
Offering costs................................. (64.5) -- (64.5)
Corporate equipment and development............ (25.7) (5.3) (31.0)
Corporate overhead and other................... (106.5) (4.9) (111.4)
-------- ------ --------
Total uses................................. (1,757.7) (45.9) (1,803.6)
-------- ------ --------
Period change in cash.......................... 46.4 69.6 116.0
Cash, beginning of period...................... -- 46.4 --
-------- ------ --------
Cash, end of period............................ $ 46.4 $116.0 116.0
======== ====== --------
UIH's Subsidiaries
------------------
Cash, end of period:
UPC............................................ 572.0
UAP............................................ 4.2
ULA............................................ 0.6
Other.......................................... 3.2
--------
Total UIH's subsidiaries................... 580.0
--------
Total consolidated cash, cash equivalents,
and short-term liquid investments........ $ 696.0
========
</TABLE>
(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 $65.6 million.
UIH PARENT
We had $116.0 million of cash, cash equivalents, restricted cash and short-term
liquid investments on hand as of March 31 1999. On April 29, 1999 we used
approximately $50.0 million of UIH Parent cash to partially fund the VTRH
Acquisition. Additional sources of cash in 1999 may include the raising of
additional private or public debt and/or equity and/or the receipt of sales
proceeds from the disposition of non-strategic assets by certain subsidiaries.
Uses of cash in the next year will include continued funding to the Asia/Pacific
and Latin America regions to meet the existing growth plans of our systems in
those regions and corporate overhead. We do 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
29
<PAGE>
operating cash flow and proceeds from its initial public offering in February
1999. We estimate approximately $42.3 million of UIH Parent funding will be
required by systems in the Asia/Pacific region during 1999, and approximately
$26.3 million of UIH Parent funding will be required by systems in the Latin
America region during 1999. We believe that our existing capital resources,
combined with potential debt or equity financings will enable us to assist in
satisfying the operating and development requirements of our subsidiaries and to
cover corporate overhead for the next year. To the extent we pursue new
acquisitions or development opportunities, we 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 that,
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.
During February 1999, UPC successfully completed an initial public offering
selling 44.6 million shares on the Amsterdam Stock Exchange and Nasdaq National
Market System, raising gross and net proceeds at NLG63.91 per share of
NLG2,852.9 million ($1,463.0 million) and NLG2,670.0 million ($1,369.0 million),
respectively (the "UPC IPO"). Concurrent with the offering, DIC exercised one of
its two option agreements acquiring approximately 1.6 million shares for $45.0
million. Proceeds from the option exercise were used to repay $45.0 million of
the DIC Loan and related interest. Also concurrent with the offering, proceeds
were used to reduce UPC's Senior Revolving Credit Facility totaling NLG635.8
million ($326.0 million), including accrued interest of NLG15.8 million ($8.1
million), repay in its entirety UPC's Bridge Bank Facility totaling NLG110.0
million ($56.4 million), net of the interest reserve account, acquire NUON's
49.0% interest in UTH for NLG518.1 million ($265.7 million) and assume from NUON
a subordinated loan, including accrued interest of NLG33.3 million ($17.1
million). UPC also repaid approximately $89.2 million of intercompany loans to
UIH Parent. The remaining proceeds from the initial public offering are expected
to be used primarily for capital expenditures and to fund other costs associated
with UPC's network upgrade, the build and launch of UPC's telephone and
Internet/data services businesses as well as UPC's video distribution and
programming businesses. Some of the proceeds are expected to be used for
acquisitions of new systems and other related businesses. Based on the carrying
value of our investment in UPC as of February 11, 1999, we recognized a gain of
$825.2 million from the resulting step-up in the carrying amount of our
investment in UPC, in accordance with SAB 51. No deferred taxes were recorded
related to this gain due to our intent on holding our investment in UPC
indefinitely. The UPC IPO reduced our ownership interest in UPC from 100% to
64.3%. As a result of employee stock option exercises subsequent to the initial
public offering date, the Company's ownership interest in UPC decreased to 62.4%
as of March 31, 1999.
UAP
UAP has financed its operations and acquisitions primarily from cash and
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.
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.
We expect the need for additional funding for Austar in the future. The amount
of capital needed is dependent primarily upon three factors: (i) the number of
new subscribers added; (ii) the level of churn, that is, the level of existing
subscribers who disconnect from Austar's service; and (iii) the mix of DTH
satellite compared to MMDS installations. Substantially all fixed costs required
to operate Austar's service have already been incurred. The average cost to
install a subscriber includes variables such as equipment, marketing and sales
costs, and installation fees. The average cost of a subscriber who disconnects
is reduced by the recovery of certain equipment (principally converters), and is
further reduced if a new subscriber is installed in a previously disconnected
home. Austar plans to continue to expand and add subscribers; however, the
timing of such expansion and the funds required for such expansion are largely
variable. Based upon current plans and budgeted churn, Austar will require
approximately $112.4 million to continue on its current expansion path from
January 1, 1999 through December 31, 1999, which will be funded substantially by
the New Austar Bank Facility. The remaining sources of funds for such expansion
may include the raising of private or public debt and/or equity by UAP or its
subsidiaries and/or continued investment by us. We believe that committed
30
<PAGE>
financial support from us combined with these potential debt or equity
financings and, if necessary, reductions in planned capital expenditures, are
sufficient to sustain Austar's operations through at least mid-2000.
We expect the need for additional funding for Saturn in the future. Saturn's
capital needs include approximately $37.2 million for the completion of the
network required by Saturn to offer cable television and telephony services and
approximately $4.8 million until Saturn has sufficient cash flows to cover its
operations and the capital required to install customers, although there can be
no assurance that further additional capital will not be required. The sources
of funds for such expansion may include their existing bank facility, the
raising of private or public debt and/or equity by UAP or its subsidiaries
and/or continued investment by us and our partner in Saturn. We believe that
committed financial support from us combined with these potential debt or equity
financings and, if necessary, reductions in planned capital expenditures, are
sufficient to sustain Saturn's operations through at least mid-2000.
ULA
ULA has financed its operations and acquisitions primarily from cash contributed
by us, asset sales, ULA corporate level debt and project debt financed at the
operating company level. In January 1996, ULA sold its 25.0% interest in a
company developing a cable television system in Rio de Janeiro, Brazil for
approximately $13.5 million, recognizing a gain of approximately $11.9 million.
In August 1996, ULA sold its 34.0% interest in a company developing a cable
television system in Sao Paulo, Brazil for $78.1 million in cash and a note
receivable and recognized a gain of $65.2 million. In October 1997, ULA sold all
of its Argentina multi-channel television system assets (Bahia Blanca) for
approximately $211.1 million, resulting in a gain of approximately $90.0
million. ULA's systems, which are at various stages of construction and
development, will generally depend on funding from us and project financing to
meet their growth needs. ULA anticipates additional funding for various projects
totaling approximately $26.3 million through 1999. In addition to continued
investment by us, other sources of funds for growth for ULA systems may include
the raising of private or public debt and/or equity or the sale of non-strategic
assets. ULA may or may not be successful in completing all or any of such
financings. We believe, however, that financial support from us combined with,
if necessary, reductions in planned capital expenditures, are sufficient to
sustain ULA's operations through at least the end of 1999.
On April 29, 1999, an indirect wholly owned subsidiary of ours acquired a 60.0%
interest in VTRH (the "VTRH Acquisition"). This acquisition, combined with the
40.0% interest in VTRH that is owned by another indirect wholly owned subsidiary
of ours, gives us an indirect 100% interest in VTRH. The purchase price for the
60.0% interest in VTRH was approximately $258.0 million in cash, which included
repayment of advances from the other shareholders of VTRH and certain other
expenses. In addition, we provided capital for VTRH to prepay approximately
$126.0 million of existing bank indebtedness and a promissory note from us to
one of the other shareholders of VTRH.
To finance the prepayment of VTRH's indebtedness and a portion of the purchase
price for the VTRH Acquisition, we concurrently sold in a private transaction
$208.9 million of 10.875% Senior Discount Notes due 2009 (the "1999 Notes"). The
remaining portion of the VTRH Acquisition was funded with cash on hand and
approximately $145.0 million borrowed under a Senior Secured Credit Facility
between VTRH and a syndicate of banks (the "VTRH Bank Facility").
The VTRH Bank Facility consists of two tranches - Tranche A, which is a single
term loan facility with an aggregate principal amount of $140.0 million,
substantially all of which was borrowed for the VTRH Acquisition, and Tranche B,
which is a three-year term loan facility, with an aggregate principal amount of
up to $80.0 million. Both tranches have been guaranteed by VTRH and its
subsidiaries. The banks are in the process of syndicating the final
approximately $50.0 million of the VTRH Bank Facility. We have agreed to
participate in the syndication as necessary.
The 1999 Notes have essentially the same terms as our outstanding 10.75% Senior
Secured Discount Notes due 2008, except for the maturity, coupon rate and the
1999 Notes are not secured.
OBLIGATIONS
Our consolidated subsidiaries and UIH Parent had the following long-term and
short-term debt outstanding as of March 31, 1999. Debt denominated in currencies
other than United States dollars has been translated to United States dollars
for the last column using March 31, 1999 exchange rates.
31
<PAGE>
<TABLE>
<CAPTION>
Outstanding
Final At March 31,
Description (Borrower) Use of Funds Maturity Interest Rate Facility Size 1999
- ----------------------------- -------------------- -------- -------------------- ------------- -------------
(in millions) (in millions)
<S> <C> <C> <C> <C> <C>
Parent:
UIH 1998 Notes Refinancing 2008 10.75% $1,375.0 $ 916.7
UIH Old Notes -- -- -- -- $ 0.1
UPC:
UTH Facility Refinancing 2002 EIOR + 0.75% to 2.0% Euro340.0 $ 263.4
Senior Revolving Credit Facility UIH/Philips transaction; 2006 LIBOR + 0.5% to NLG1,000.0 $ 176.5
Refinancing; 2.0% per annum
Acquisitions;
Capital expenditures;
Working capital
CNBH Facility Refinancing 2008 AIBOR + 0.7% to NLG274.0 $ 116.8
0.75%
Mediareseaux Facility Capital expenditures; 2007 FRF LIBOR + 0.75% FRF 680.0 $ 29.2
Acquisitions; Working to 2.0%
capital
DIC Loan To increase interests in 2000 8.0% per annum $45.0 $ 31.8
Israeli and Maltese + 6.0% of principal
operating systems amount at maturity
Telekabel Hungary Facility Capital expenditures, April 1999 BUBOR + 2.5% DM 65.6 $ 20.1
Acquisitions; Working
capital
Other Various Various Various Various $ 10.1
UAP:
UIH A/P Notes Refinancing; 2006 14.0% $492.9 $ 368.8
Capital Expenditures
Austar Bank Facility Capital expenditures; April 1999 Australian Base Rate A$200.0 $ 126.9
Working capital + 1.75% to 2.25%
Other Various Various Various Various $ 3.1
ULA:
VTRH Note Funding of VTRH April 1999 12.95% $9.3 $ 9.3
TVSB Seller Note Acquisition of TVSB September 10.0% $5.9 $ 5.9
14, 1999
--------
Total UIH Consolidated $2,078.7
========
</TABLE>
32
<PAGE>
SENIOR DISCOUNT NOTES. In February 1998, we raised total gross proceeds of
$812.2 million from the issuance of the 1998 Notes. We used $531.8 million of
the proceeds (which included approximately $65.6 million for tender premiums and
associated costs) to repurchase the Old Notes. The 1998 Notes were issued at a
significant discount from their aggregate principal amount at maturity and will
accrete at a rate of 10.75% per annum, compounded semi-annually to an aggregate
principal amount on February 15, 2003 of $1.375 billion. Cash interest will
commence to accrue on the 1998 Notes on February 15, 2003. Commencing August 15,
2003, cash interest on the 1998 Notes will be payable on February 15 and August
15 of each year until maturity at a rate of 10.75% per annum. The 1998 Notes
will mature on February 15, 2008, and will be redeemable at various premiums to
par at our option, on or after February 15, 2003. The 1998 Notes are secured by
a first priority lien on the capital stock and intercompany notes to UIH of UIPI
and UIHE. We will hold our future investments in, and conduct our future
operations through, UIPI and UIHE.
PREFERRED STOCK. In December 1995, in connection with our acquisition of an
additional 40.0% economic interest in Austar, we issued 170,513 shares of our
Series A Preferred Stock, having a liquidation value at issuance of
approximately $29.8 million ($175.00 per preferred share) as partial
consideration for the 40.0% interest we acquired in Austar (increasing our
interest at that time to 90.0%). In June 2000, we are required to redeem the
Series A Preferred Stock not previously converted at the then liquidation value.
The Series A Preferred Stock is convertible into Class A common shares of UIH
based upon the accreted liquidation value divided by $17.50. As of March 31,
1999 all but 32,000 shares of Series A Preferred Stock have been converted into
Class A common shares. The June 2000 redemption value for the remaining 32,000
shares of Series A Preferred Stock is approximately $6.7 million.
In July 1998, in connection with our acquisition of certain Australian pay
television assets, we issued 28,965 shares of our Series B Preferred Stock
having a liquidation value at issuance of approximately $6.2 million ($212.50
per preferred share). In September 1998, in connection with our acquisition of
an additional 25.0% interest in XYZ Entertainment, we issued 110,066 shares of
our Series B Preferred Stock having a liquidation value at issuance of
approximately $23.4 million ($212.50 per preferred share). In June of 2008, we
are required to redeem the Series B Preferred Stock not previously converted at
the then liquidation value. Assuming that none of the Series B Preferred Stock
is converted prior to redemption, the total cost of redeeming the Series B
Preferred Stock would be approximately $55.7 million. The Series B Preferred
Stock is convertible into Class A common shares of UIH based upon the accreted
liquidation value divided by $21.25.
WARRANTS. In conjunction with the issuance of the Old Notes, we issued 394,000
warrants to purchase a total of 1,786,699 shares of Class A Common Stock at a
price of $15.00 per share. Holders of the warrants required us to purchase a
total of 76,070 warrants during a put option period in February 1996. During the
three months ended March 31, 1999, a total of 204,840 warrants were exercised,
resulting in proceeds of $13.9 million. A total of 928,942 shares of Class A
Common Stock were issued. The remaining 113,090 outstanding warrants
(representing 512,863 shares of Class A Common Stock) are exercisable at any
time before November 15, 1999, and would result in proceeds of approximately
$7.7 million, if exercised.
UTH FACILITY. In March 1999, UTH replaced their existing NLG690.0 million
($336.6 million) facility with the UTH Facility. The UTH Facility consists of a
euro340.0 million ($366.2 million) revolving facility to N.V. Telekabel, a
subsidiary of UTH, that will convert to a term facility on December 31, 2001.
Euro5.0 million ($5.4 million) of the UTH Facility is in the form of an
overdraft facility that will be available until December 31, 2007. The UTH
Facility bears interest at EIOR, plus a margin between 0.75% and 2.00% based on
leverage multiples tied to N.V. Telekabel's net operating income. The UTH
Facility is secured, among other things, by a pledge of shares held by the
borrower and will restrict N.V. Telekabel's ability to incur additional debt.
UPC SENIOR REVOLVING CREDIT FACILITY. In October 1997, UPC and Norkabel as
borrowers entered into the NLG1.1 billion ($536.6 million) multi-currency UPC
Senior Revolving Credit Facility with a syndicate of banks led by The
Toronto-Dominion Bank. Norkabel was succeeded as a borrower by Janco Multicom
after the merger of Janco and Norkabel. In December 1997, Telekabel Wien and the
other members of the Telekabel Group also became borrowers under this facility.
Although currently not a borrower, TVD is a guarantor under this facility. As of
March 31, 1999, the amount outstanding under this facility owed by UPC,
Telekabel Group and Janco Multicom was NLG0, NLG197.4 million ($96.3 million)
and NLG164.4 million ($80.2 million), respectively. UPC's borrowings and those
of its subsidiaries in Austria, Belgium and Norway are limited by financial
covenants under this facility. The principal amount of all borrowings may not
exceed certain multiples of total annualized net operating cash flow for UPC and
its subsidiaries. In addition, the principal amount of all borrowings may not
exceed certain multiples of UPC's cable television net operating cash flow. This
facility generally prohibits dividends and other distributions to UPC's
shareholders unless, among other things, UPC achieves certain financial ratios
33
<PAGE>
for at least two consecutive quarters. This facility also includes financial
covenants relating to interest and debt service coverage and application of
proceeds from asset sales and debt or equity offerings. UPC agreed with its
lenders to reduce this facility amount from NLG1.1 billion to NLG1.0 billion
($487.8 million) in February 1999. This amount will be further reduced by 5.0%
each quarter beginning December 31, 2001 until final maturity. UPC repaid a
portion of this facility in February 1999 with proceeds from their initial
public offering.
CNBH FACILITY. In February 1998, CNBH entered into a secured NLG250.0 million
($122.0 million) ten year term facility with a syndicate of banks. In January
1999, this facility was increased to NLG274.0 million ($133.7 million). The CNBH
Facility bears interest at AIBOR, plus a margin between 0.7% and 0.75%. Most of
the proceeds were used to repay in full an existing bank facility totaling
NLG187.0 million ($91.2 million). The remaining amount under this facility is
available to finance certain capital expenditures. Beginning in 2001, CNBH will
be required to apply 50.0% of its excess cash flow to prepayment of the CNBH
facility. The CNBH Facility restricts the payment of dividends and distributions
and limits the amount of payments to UPC under its general services agreement.
In connection with this facility, CNBH also entered into a NLG5.0 million ($2.4
million) ten year term working capital facility with a bank.
MEDIARESEAUX FACILITY. In July 1998, Mediareseaux entered into an FRF680.0
million ($111.6 million) term facility with a bank to finance capital
expenditures, working capital and acquisitions. This facility is secured by the
assets of Mediareseaux and a pledge of UPC's stock of Mediareseaux. The
availability of this facility depends on revenue generated and its debt to
equity ratios. Drawings under this facility may be made until December 31, 2002.
The repayment period runs from January 1, 2003 to final maturity in 2007.
Mediareseaux may not draw more than FRF120.0 million ($19.7 million) of this
facility for acquisitions. During the repayment period, Mediareseaux must apply
50.0% of its excess cash flow in prepaying the facility. This facility generally
restricts the payment of dividends and distributions. This facility also
restricts Mediareseaux from incurring additional indebtedness, subject to
certain exceptions. In July 1998, Mediareseaux also secured a 9.5 year FRF20.0
million ($3.3 million) overdraft facility, subject to the same terms and
conditions as this facility except for the availability tests which are not
applicable. As of March 31, 1999 an amount of FRF178.1 million ($29.2 million)
was outstanding under the Mediareseaux Facility.
UPC DIC LOAN. In November 1998, a subsidiary of DIC loaned UPC $90.0 million.
UPC used the proceeds to acquire interests in the Israeli and Maltese systems.
The DIC Loan matures in November 2000 and is secured by UPC's pledge of its
ownership interest in the Israeli system. The DIC Loan bears interest at 8.0%
per annum and is payable, together with an additional 6.0% of the principal
amount, on maturity. In connection with the DIC Loan, UPC granted an affiliate
of DIC an option to acquire $90.0 million, plus accrued interest, of UPC
ordinary shares at a price equal to 90.0% of the initial public offering price.
Subsequent to December 31, 1998, UPC negotiated an amendment to this option,
resulting in an option to acquire $45.0 million, plus accrued interest, of UPC's
ordinary shares at a price equal to 90.0% of the initial public offering price,
and, if this option is exercised, another option to acquire $45.0 million, plus
accrued interest, of UPC's ordinary shares at a price equal to the 30 day
average closing price of UPC's shares on the Amsterdam Stock Exchange
immediately prior to the second option exercise, or the initial public offering
price, whichever is higher. At the UPC IPO date, DIC exercised the first option
and acquired 1,558,654 ordinary shares of UPC. UPC repaid $45.0 million of the
DIC Loan and accrued interest with proceeds received from the option exercise.
The other option is exercisable until September 30, 2000.
TELEKABEL HUNGARY FACILITY. In October 1998, Telekabel Hungary entered into a
DM65.6 million ($36.1 million) six month secured bridge facility. Availability
under this facility depends on certain financial covenants. The DM49.2 million
($27.1 million) international tranche of the facility and half of the DM16.4
million ($9.0 million) local tranche bear interest at LIBOR plus 2.5% per annum,
plus an additional cost of funding calculation. The remaining half of the local
tranche must be drawn in Hungarian forints and bears interest at BUBOR plus 2.5%
per annum, plus an additional cost of funding calculation. The Telekabel Hungary
Facility was repaid in April, 1999.
UIH A/P NOTES. The 14.0% senior notes, which UIH A/P issued in May 1996 and
September 1997 at a discount from their principal amount of $488.0 million had
an accreted value of $368.8 million as of March 31, 1999. On and after May 15,
2001, cash interest will accrue and will be payable semi-annually on each May 15
and November 15, commencing November 15, 2001. The UIH A/P 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 equity sale resulting in gross proceeds to UIH A/P of $70.0 million, 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
UIH A/P Notes will accrete to a principal amount of $492.9 million on May 15,
2001, the date cash interest begins to accrue.
34
<PAGE>
On November 17, 1997, pursuant to the terms of the indentures governing the UIH
A/P Notes, UIH A/P issued warrants to purchase a total of 488,000 shares of its
common stock, which represented 3.4% of its common stock. The warrants are
exercisable at a price of $10.45 per share which would result in gross proceeds
of approximately $5.1 million, if exercised. The warrants are exercisable
through May 15, 2006.
AUSTAR BANK FACILITY. In July 1997, Austar secured the Austar Bank Facility in
the amount of A$200.0 million ($126.9 million as of March 31, 1999) to fund
Austar's subscriber acquisition and working capital needs. The Austar Bank
Facility consisted of three sub-facilities: (i) A$50.0 million revolving working
capital facility, (ii) A$60.0 million cash advance facility and (iii) A$90.0
million term loan facility. As of March 31, 1999, Austar had drawn the entire
amount of the working capital facility and the cash advance facility totaling
A$110.0 million ($69.8 million). The working capital facility was fully
repayable on June 30, 2000. The cash advance facility was fully repayable
pursuant to an amortization schedule beginning December 31, 2000 and ending June
30, 2004. In September 1998, Austar received an amendment to the Austar Bank
Facility which allowed Austar to temporarily draw under the remaining A$90.0
million term loan facility at an increased interest rate of 2.25% above the
professional market rate in Australia. As of March 31, 1999, Austar had drawn
A$90.0 million ($57.1 million) on the term loan facility for a total outstanding
balance of A$200.0 million. On April 23, 1999 (subsequently executed and funded
A$222.0 million on April 28, 1999), Austar executed a new A$400.0 million
syndicated senior secured debt facility (the "New Austar Bank Facility") to
refinance the A$200.0 million Austar Bank Facility and to fund Austar's
subscriber acquisition and working capital needs. The New Austar Bank Facility
consists of two sub-facilities: (i) A$200.0 million amortizing term facility
("Tranche 1") and (ii) A$200.0 million cash advance facility ("Tranche 2").
Tranche 1 was used to refinance the Austar Bank Facility, and Tranche 2 is
available upon the contribution of additional equity on a 2:1 debt-to-equity
basis. All of Austar's assets are pledged as collateral for this facility. In
addition, pursuant to this facility, Austar cannot pay any dividends, interest
or fees under its technical assistance agreements without the consent of the
majority banks. The New Austar Bank Facility bears interest at the professional
market rate in Australia plus a margin ranging from 1.75% to 2.25% based upon
certain debt to cash flow ratios. The New Austar Bank Facility is fully
repayable pursuant to an amortization schedule beginning December 31, 2002 and
ending March 31, 2006.
VTRH NOTE. UIH Chile, Inc. a wholly-owned subsidiary of ULA executed a
promissory note in the amount of $7.8 million payable to VTR S.A., the majority
shareholder of VTRH, in exchange for 51,993 shares of VTRH (the "VTRH Note").
The VTRH Note bears interest at 12.95% per annum and was due April 30, 1999. On
April 29, 1999 the VTRH Note was repaid in conjunction with the VTRH
Acquisition.
TVSB SELLER NOTE. On October 2, 1998, ULA increased its ownership interest in
TVSB from 45.0% to 100% for $11.4 million, half of which was paid in cash, with
the remaining $5.7 million financed by the seller. This note bears interest at
10.0% and is due September 14, 1999.
STATEMENTS OF CASH FLOWS
We had cash and cash equivalents of $607.5 million as of March 31, 1999, an
increase of $571.9 million from $35.6 million as of December 31, 1998. Cash and
cash equivalents of $137.5 million as of March 31, 1998 represented an increase
of $63.2 million from $74.3 million as of December 31, 1997, the detail of which
is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
----------------------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Cash flows from operating activities................. $ 8,388 $ 13,663
Cash flows from investing activities................. (369,032) (177,834)
Cash flows from financing activities................. 958,352 227,455
Effect of exchange rates on cash..................... (25,826) (128)
-------- --------
Net increase in cash and cash equivalents............ 571,882 63,156
Cash and cash equivalents at beginning of period..... 35,608 74,289
-------- --------
Cash and cash equivalents at end of period........... $607,490 $137,445
======== ========
</TABLE>
35
<PAGE>
THREE MONTHS ENDED MARCH 31, 1999
Principal sources of cash during the three months ended March 31, 1999 included
$1,414.0 million in proceeds from UPC's initial public offering and DIC's
exercise of its option to acquire shares in UPC, $275.3 million of borrowings on
the UTH Facility, $99.7 million of borrowings on the UPC Senior Revolving Credit
Facility, $38.3 million of other borrowings by our operating companies in
France, Hungary and Australia, $30.8 million from the issuance of our and UPC's
equity securities, $18.7 million of proceeds from the sale of our Hungarian
programming assets, $14.3 million from the release of restricted cash upon the
repayment of the UPC Bridge Bank Facility and other releases and $9.5 million
from operating activities and other investing and financing sources.
Principal uses of cash during the three months ended March 31, 1999 included
$252.0 million for the acquisition of the additional 49.0% interest in UTH, net
of cash acquired, $318.8 million for the repayment of the existing facility at
UTH, $316.1 million for the repayment of a portion of the UPC Senior Revolving
Credit Facility, $139.9 million for the repayment of other loans, $92.0 million
of capital expenditures for system upgrade and new-build activities, $56.1
million for the repayment of the UPC Bridge Bank Facility, $45.0 million for the
repayment of a portion of the DIC Loan, a deposit of $41.0 million for the
acquisition of GelreVision, $25.8 million negative exchange rate effect on cash,
$18.5 million for payment of the Time Warner Note, $12.6 million of funding to
our affiliates, $5.6 million for the net change in short-term investments and
$5.3 million for other investing and financing uses.
THREE MONTHS ENDED MARCH 31, 1998
Principal sources of cash during the three months ended March 31, 1998 included
$812.2 million from the issuance of the 1998 Notes, $93.0 million of borrowings
on the UPC Senior Revolving Credit Facility and CNBH's major facility and $28.5
million from operating activities and other investing and financing sources.
Principal uses of cash during the three months ended March 31, 1998 included
$531.8 million for the redemption of the existing Old Notes, $100.4 million for
the repayment of the KTE facility and a portion of the UPC Bridge Bank Facility,
$88.0 million for the acquisition of Combivisie, The Netherlands, $42.0 million
for the net purchase of short-term investments, $29.7 million of capital
expenditures for system upgrade and new-build activities, $25.0 million for the
repayment of the ULA Revolving Credit Facility, $19.8 million of debt financing
costs, $6.6 million of funding to our affiliates and $27.2 million for operating
activities and other investing and financing uses.
36
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth information from our Consolidated Statements of
Operations for the three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
----------------------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Revenue....................................................... $107,918 $ 67,396
System operating expense...................................... (55,165) (27,740)
System selling, general and administrative expense............ (41,590) (22,590)
Corporate general and administrative expense.................. (26,082) (15,213)
Depreciation and amortization................................. (57,398) (52,535)
-------- ---------
Net operating loss................................... (72,317) (50,682)
Gain on issuance of common equity securities by subsidiary.... 825,196 --
Interest income .............................................. 3,910 3,293
Interest expense.............................................. (56,623) (44,513)
Gain on sale of investment in affiliate....................... 7,456 --
Other expense, net............................................ (11,465) (3,501)
-------- ---------
Net income (loss) before other items.................. 696,157 (95,403)
Share in results of affiliated companies, net................. (20,562) (14,668)
Minority interests in subsidiaries............................ 12,756 (335)
-------- ---------
Net income (loss) before extraordinary charge......... 688,351 (110,406)
Extraordinary charge for early retirement of debt............. -- (79,091)
-------- ---------
Net income (loss)..................................... $688,351 $(189,497)
======== =========
Other Information:
Adjusted EBITDA (1):
Net operating loss....................................... $(72,317) $ (50,682)
Depreciation and amortization............................ 57,398 52,535
Stock-based compensation expense......................... 18,640 198
-------- ---------
Consolidated Adjusted EBITDA......................... $ 3,721 $ 2,051
======== =========
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION> For the Three Months Ended For the Three Months Ended
March 31, 1999 March 31, 1998
-------------------------- --------------------------
Adjusted Adjusted
Revenue EBITDA (1) Revenue EBITDA (1)
--------- ---------- --------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Europe (UPC):
The Netherlands........... $ 20,614 $ 731 $ 6,486 $ 3,545
Austria................... 24,736 10,215 21,057 11,727
Belgium................... 4,482 418 4,077 1,346
Czech Republic............ 1,142 (245) 976 (448)
France.................... 1,612 (1,597) 640 (401)
Hungary................... 8,886 3,027 -- --
Norway.................... 12,375 2,282 11,194 4,475
UPC Corporate and Other... 2,027 (7,703) 1,822 (3,386)
-------- ------- ------- -------
Total Europe............ 75,874 7,128 46,252 16,858
-------- ------- ------- -------
Asia/Pacific:
Australia................. 30,256 78 19,316 (1,385)
Other..................... -- (1,398) 1,137 (5,036)
-------- ------- ------- -------
Total Asia/Pacific...... 30,256 (1,320) 20,453 (6,421)
-------- ------- ------- -------
Latin America:
Chile..................... -- -- -- --
Other..................... 1,788 (1,836) 475 (3,114)
-------- ------- ------- -------
Total Latin America..... 1,788 (1,836) 475 (3,114)
-------- ------- ------- -------
Corporate & Other........... -- (251) 216 (5,272)
-------- ------- ------- -------
Total Company........... $107,918 $ 3,721 $67,396 $ 2,051
======== ======= ======= =======
</TABLE>
(1) "Adjusted EBITDA" represents net operating earnings before depreciation,
amortization and stock-based compensation charges. Industry analysts
generally consider Adjusted EBITDA to be a helpful way to measure the
performance of cable television operations and communications companies. We
believe Adjusted EBITDA helps investors to assess the cash flow from our
operations from period to period and thus to value our business. Adjusted
EBITDA should not, however, be considered a replacement for net income,
cash flows or for any other measure of performance or liquidity under
generally accepted accounting principles, or as an indicator of a company's
operating performance. We are not entirely free to use the cash represented
by Adjusted EBITDA. Several of our consolidated operating companies are
restricted by the terms of their debt arrangements. Each company has its
own operating expenses and capital expenditure requirements, which can
limit our use of cash. Our presentation of Adjusted EBITDA may not be
comparable to statistics with a similar name reported by other companies.
Not all companies and analysts calculate Adjusted EBITDA in the same
manner.
The following table displays selected system operating data for our significant
consolidated systems in the currency reported to UIH:
For the Three Months Ended
March 31,
--------------------------
1999 1998
---------- ----------
(In thousands)
UPC Revenue (NLG):
Cable Television................. 132,913 91,255
Telephony........................ 7,303 120
Internet/Data.................... 6,473 1,003
Programming and Other............ 2,131 2,627
------- ------
Total UPC Revenue............ 148,820 95,005
======= ======
UPC Adjusted EBITDA (NLG):
Cable Television................. 59,924 44,813
Telephony........................ (12,117) (262)
Internet/Data.................... (18,303) (2,640)
Programming and Other............ (15,524) (4,950)
------- ------
Total UPC Adjusted EBITDA.... 13,980 36,961
======= ======
Austar (A$):
Revenue.......................... 47,754 28,791
======= ======
Adjusted EBITDA.................. (2,433) (1,297)
======= ======
38
<PAGE>
The following rates were used to translate the selected system operating data
above into U.S. dollars for consolidation purposes per one U.S. dollar:
Dutch Australian
Guilder Dollar
------- ----------
Average rate three months ended March 31, 1999....... 1.9614 1.5729
Average rate three months ended March 31, 1998....... 2.0474 1.4979
REVENUE. Revenue increased $40.5 million, or 60.1%, from $67.4 million for the
three months ended March 31, 1998 to $107.9 million for the three months ended
March 31, 1999.
EUROPE
Revenue for UPC in U.S. dollar terms increased $29.6 million, or 63.9% from
$46.3 million for the three months ended March 31, 1998 to $75.9 million for the
three months ended March 31, 1999, including a positive impact of $2.0 million
due to exchange rate fluctuations. On a functional currency basis, UPC's revenue
increased NLG53.8 million or 56.6% from NLG95.0 million for the three months
ended March 31, 1998 to NLG148.8 million for the three months ended March 31,
1999. Of this increase, approximately NLG41.7 million resulted from increased
cable television revenue, NLG7.2 million resulted from increased telephony
revenue and NLG5.5 million resulted from increased Internet revenue. These
increases were partially offset by a decrease of NLG0.6 million in revenue from
other services. The increase in cable television revenue primarily resulted from
the consolidation of UTH effective February 1, 1999 and the consolidation of
Telekabel Hungary effective July 1, 1998. For the period from February 1, 1999
through March 31,1999, cable television revenue from UTH was NLG32.7 million, as
compared to cable television revenue from CNBH, UPC's only consolidated Dutch
system for the three months ended March 31, 1998, of NLG13.2 million. Total
cable television revenue of Telekabel Hungary was NLG17.4 million for the three
months ended March 31, 1999, compared to NLG0 for the three months ended March
31, 1998. The balance of the increase in cable television revenue came from
subscriber growth. The increase in telephony revenue is primarily a result of
the consolidation of UTH. Internet revenue increased primarily due to increased
Internet subscribers in Austria, Belgium and the Netherlands.
ASIA/PACIFIC
Revenue for Austar increased $11.1 million, or 57.8%, from $19.2 million for the
three months ended March 31, 1998 to $30.3 million for the three months ended
March 31, 1999. On a functional currency basis, Austar's revenue increased
A$19.0 million, or 66.0%, from A$28.8 million for the three months ended March
31, 1998 to A$47.8 million for the three months ended March 31, 1999. These
increases were primarily due to subscriber growth (311,119 at March 31, 1999
compared to 199,955 at March 31, 1998) as Austar continues to roll out its
services. The U.S. dollar increase occurred despite the negative impact of $1.5
million due to exchange rate fluctuations between the three months ended March
31, 1999 and 1998.
ADJUSTED EBITDA. Adjusted EBITDA increased $1.6 million during the three months
ended March 31, 1999 compared to the three months ended March 31, 1998.
EUROPE
Adjusted EBITDA for UPC in U.S. dollar terms decreased $9.8 million, or 58.0%,
from $16.9 million for the three months ended March 31, 1998 to $7.1 million for
the three months ended March 31, 1999, offset by a positive impact of $0.8
million due to exchange rate fluctuations. On a functional currency basis, UPC's
Adjusted EBITDA decreased NLG23.0 million, or 62.2%, from NLG37.0 million for
the three months ended March 31, 1998 to NLG14.0 million for the three months
ended March 31, 1999. Although revenue increased compared to the same period in
the prior year, increases in operating expense and selling, general and
administrative expense outpaced the revenue increase, primarily due to the focus
on the continued development of UPC's newer telephony and Internet/data
services. We believe the introduction of telephone services and Internet/data
services will have a significant negative impact on Adjusted EBITDA during 1999.
Thereafter, this negative impact is expected to decline. The financial effect of
the development of our video programming businesses and the construction of our
digital distribution platform will depend upon our ability to find joint venture
partners for these new investments. If we are unable to find joint venture
partners for these new investments, we will be required to consolidate all of
the losses of these new investments.
39
<PAGE>
UPC's operating expense for the three months ended March 31, 1999 increased over
the same period in 1998 due to an increase in cable television expense of
NLG15.3 million, an increase in telephony operating expense of NLG8.3 million,
an increase in Internet operating expense of NLG9.2 million and an increase for
other services of NLG3.4 million. The increase in cable television operating
expense primarily resulted from the consolidation of UTH effective February 1,
1999 and the consolidation of Telekabel Hungary effective July 1, 1998. For the
period from February 1, 1999 through March 31,1999, cable television operating
expense for UTH was NLG7.7 million, as compared to cable television operating
expense from CNBH, UPC's only consolidated Dutch system for the three months
ended March 31, 1998, of NLG2.7 million. Total cable television operating
expense of Telekabel Hungary was NLG6.0 million for the three months ended March
31, 1999 as compared with NLG0 for the three months ended March 31, 1998. The
balance of the increase in cable television operating expense came from
subscriber growth. The increase in telephony operating expense is primarily a
result of the consolidation of UTH, as well as continued development of our
telephony business. The increase in Internet operating expense is attributable
to development of chello and increased Internet/data operating company expense.
UPC launched chello in March 1999 and will begin recognizing revenue in the
second quarter of 1999.
UPC's selling, general and administrative expense for the three months ended
March 31, 1999 increased over the same period in 1998 due to an increase of
NLG11.2 million for cable television selling, general and administrative
expense, an increase of NLG10.8 million for telephony selling, general and
administrative expense and an increase of NLG11.9 million for Internet selling,
general and administrative expense. The increase in cable television selling,
general and administrative expense is primarily attributable to the
consolidation of UTH effective February 1, 1999 and the consolidation of
Telekabel Hungary as of July 1, 1998. For the period from February 1, 1999
through March 31, 1999, cable television selling, general and administrative
expense from UTH was NLG8.1 million, compared to cable television selling,
general and administrative expense from CNBH, UPC's only consolidated Dutch
system for the three months ended March 31, 1998, of NLG1.8 million. Total cable
television selling, general and administrative expense for Telekabel Hungary was
NLG5.4 million for the three months ended March 31, 1999, compared to NLG0 for
the three months ended March 31, 1998. The increase in telephony selling,
general and administrative expense is a combination of the consolidation of UTH,
as well as increased development and the launch of telephony services in
Austria, Norway and France in the first quarter of 1999. The increase in
Internet selling, general and administrative expense is also attributable to
further development and launch preparation expense.
ASIA/PACIFIC
Adjusted EBITDA for Austar in U.S. dollar terms decreased $0.6 million, or
66.7%, from negative $0.9 million for the three months ended March 31, 1998 to
negative $1.5 million for the three months ended March 31, 1999. On a functional
currency basis, Austar's Adjusted EBITDA decreased A$1.1 million, or 84.6%, from
negative A$1.3 million for the three months ended March 31, 1998 to negative
A$2.4 million for the three months ended March 31, 1999.
Austar's operating expense increased $11.5 million, or 100.9%, from $11.4
million for the three months ended March 31, 1998 to $22.9 million for the three
months ended March 31, 1999. On a functional currency basis, Austar's operating
expense increased A$18.9 million, from A$17.1 million for the three months ended
March 31, 1998 to A$36.0 million for the three months ended March 31, 1999, a
110.5% increase. These increases were primarily due to an increase in satellite
programming costs resulting 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. We expect that the
restructuring of programming costs for certain channels will result in somewhat
higher costs 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 expense related to volume increases in telephone, billing and
collection costs. The U.S. dollar increase was positively impacted by $1.1
million due to exchange rate fluctuations between the three months ended March
31, 1999 and 1998. Austar expects operating expense as a percentage of 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.
Austar's selling, general and administrative expense increased $0.8 million, or
8.3%, from $9.6 million for the three months ended March 31, 1998 to $10.4
40
<PAGE>
million for the three months ended March 31, 1999. On a functional currency
basis, Austar's selling, general and administrative expense increased A$2.0
million, from A$14.3 million for the three months ended March 31, 1998 to A$16.3
million for the three months ended March 31, 1999, a 13.9% increase. The U.S.
dollar increase was positively impacted by $0.5 million due to exchange rate
fluctuations between the three months ended March 31, 1999 and 1998.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE. Corporate general and
administrative expense increased $10.9 million, or 71.7%, from $15.2 million for
the three months ended March 31, 1998 to $26.1 million for the three months
ended March 31, 1999. The increase in the three months ended March 31, 1999 was
primarily attributable to a stock-based compensation charge of NLG36.6 million
($18.6 million) from UPC's stock option plans, compared to NLG0.4 million ($0.2
million) for the same period in 1998. Prior to UPC's public offering, these
plans required variable plan accounting. Increases in the fair market value of
UPC's shares resulted in non-cash compensation charges to the statement of
operations for vested options. Following the initial public offering of UPC, UPC
has the right to settle the options in shares upon exercise; therefore options
issued pursuant to the stock option plan will no longer require variable plan
accounting. Only our subsidiaries' phantom stock option plans will continue to
require variable plan accounting. This increase was partially offset by the
non-recurrence of certain prior period charges attributable to professional
consulting services incurred in connection with assisting company management in
evaluating various strategic issues including capital formation and strategic
asset deployment alternatives.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
$4.9 million during the three months ended March 31, 1999 compared to the three
months ended March 31, 1998, as follows:
<TABLE>
<CAPTION> For the Three Months Ended
March 31,
----------------------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Europe.................................................. $32,221 $24,654
Asia/Pacific............................................ 24,468 27,412
Latin America........................................... 460 166
Corporate and other..................................... 249 303
------- -------
Total depreciation and amortization expense.......... $57,398 $52,535
======= =======
</TABLE>
EUROPE
UPC's depreciation and amortization expense in U.S. dollar terms increased $7.5
million, or 30.4%, from $24.7 million for the three months ended March 31, 1998
to $32.2 million for the three months ended March 31, 1999, offset by a positive
impact of $1.0 million due to exchange rate fluctuations. On a functional
currency basis, UPC's depreciation and amortization expense increased NLG14.7
million, or 30.3%, from NLG48.5 million for the three months ended March 31,
1998 to NLG63.2 million for the three months ended March 31, 1999. The increase
is primarily due to additional depreciation and amortization from the
consolidation of UTH effective February 1, 1999 and the consolidation of
Telekabel Hungary effective July 1, 1998. The remaining increase is comprised of
additional depreciation related to additional capital expenditures to upgrade
the network in our Western European systems and new-build for developing
systems.
ASIA/PACIFIC
Austar's depreciation and amortization expense decreased $2.6 million, or 9.7%,
from $26.9 million for the three months ended March 31, 1998 to $24.3 million
for the three months ended March 31, 1999. On a functional currency basis,
Austar's depreciation and amortization expense decreased A$2.1 million, or 5.4%,
from A$38.9 million for the three months ended March 31, 1998 to A$36.8 million
for the three months ended March 31, 1999. The U.S. dollar increase was
positively impacted by $0.3 million due to exchange rate fluctuations between
the three months ended March 31, 1999 and 1998.
GAIN ON ISSUANCE OF SECURITIES BY SUBSIDIARY. During February 1999, UPC
successfully completed an initial public offering selling 44.6 million shares on
the Amsterdam Stock Exchange and Nasdaq National Market System, raising gross
and net proceeds at NLG63.91 ($32.78) per share of NLG2,852.9 million ($1,463.0
million) and NLG2,670.0 million ($1,369.0 million), respectively. Concurrent
with the offering, DIC exercised its option and acquired 1,558,654 ordinary
shares of UPC, resulting in proceeds to UPC of $45.0 million. Based on the
carrying value of our investment in UPC as of February 11, 1999, we recognized a
gain of $825.2 million from the resulting step-up in the carrying amount of our
investment in UPC, in accordance with SAB 51. No deferred taxes were recorded
related to this gain due to our intent on holding our investment in UPC
indefinitely.
41
<PAGE>
INTEREST EXPENSE. Interest expense increased $12.1 million, or 27.2%, from $44.5
million during the three months ended March 31, 1998 to $56.6 million during the
three months ended March 31, 1999. This increase was primarily due to the
continued accretion of interest on our $1,375.0 million aggregate principal
amount 1998 Notes, continued accretion on the $492.9 million aggregate principal
amount UIH A/P Notes, new debt in 1999 such as the DIC Loan and Telekabel
Hungary Facility and consolidation of the UTH Facility.
GAIN ON SALE OF INVESTMENT IN AFFILIATE. In March 1999, we sold our interest in
Telekabel Hungary Programming, recognizing a gain of $7.5 million.
EXTRAORDINARY CHARGE FOR EARLY RETIREMENT OF DEBT. In connection with the
issuance of the 1998 Notes, we paid $531.8 million to repurchase the existing
Old Notes which had an accreted value of $466.2 million as of February 5, 1998.
This tender premium of $65.6 million, combined with the write off of unamortized
deferred financing costs and other transaction related costs totaling $13.5
million, resulted in an extraordinary charge during the three months ended March
31, 1998 of $79.1 million.
SHARE IN RESULTS OF AFFILIATED COMPANIES. Our share in results of affiliated
companies totaled $20.6 million and $14.7 million for the three months ended
March 31, 1999 and 1998, respectively, as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
March 31, 1999 March 31, 1998
----------------------------------- -----------------------------------
Company Company
Ownership Share in Results of Ownership Share in Results of
Interest Affiliated Companies Interest Affiliated Companies
--------- -------------------- --------- --------------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Europe:
A2000........................................ 50.0% $ (5,089) 50.0% $ (4,859)
UTH (1)...................................... 100.0% (2,757) -- --
Hungary...................................... 50.0% (111) 50.0% (444)
UII Partnership
(Melita, Princes Holdings and Tevel)(2).... various -- various (200)
Tevel (2).................................... 46.6% (2,098) -- --
Melita (2)................................... 50.0% 5 -- --
Monor........................................ 44.8% (153) 48.6% (264)
Other........................................ various (132) various (373)
-------- --------
(10,335) (6,140)
-------- --------
Asia/Pacific:
Saturn....................................... 65.0% (1,948) 65.0% (1,804)
XYZ Entertainment............................ 50.0% (3,186) 25.0% (485)
PCC.......................................... 19.6% (181) 40.0% (391)
HITV......................................... 49.0% (129) 49.0% (161)
-------- --------
(5,444) (2,841)
-------- --------
Latin America:
VTRH......................................... 34.0% (2,973) 34.0% (2,304)
Megapo....................................... 49.0% 157 49.0% 119
TVSB (3)..................................... 100.0% -- 45.0% 265
MGM Networks LA.............................. 50.0% (2,038) 50.0% (3,845)
Jundiai...................................... 46.3% 71 46.3% 78
-------- --------
(4,783) (5,687)
-------- --------
Total share in results of
affiliated companies......................... $(20,562) $(14,668)
======== ========
</TABLE>
(1) Effective February 1, 1999 we increased our ownership interest in UTH from
51.0% to 100% and began consolidating their results of operations.
(2) Historically we held our interests in Melita, Princes Holdings and Tevel
through UII, a general partnership. In November 1998 we acquired our
partner's interest in Tevel and Melita and sold our interest in Princes
Holdings.
(3) Effective October 2, 1998 we increased our ownership interest in TVSB to
100% and began consolidating their results of operations.
42
<PAGE>
NEW ACCOUNTING PRINCIPLES
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 "Accounting For the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), 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. We adopted SOP 98-1 effective January 1,
1999 with no material effect.
The American Institute of Certified Public Accountants recently issued Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"),
which is required to be adopted by affected companies for fiscal years beginning
after December 15, 1998. SOP 98-5 defines start-up and organization costs, which
must be expensed as incurred. In addition, all deferred start-up and
organization costs existing as of January 1, 1999 must be written-off and
accounted for as a cumulative effect of an accounting change. We adopted SOP
98-5 effective January 1, 1999 with no material effect.
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet at fair value.
Under SFAS 133, accounting for changes in fair value of a derivative depends on
its intended use and designation. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. We are currently assessing the effect of this new
standard.
YEAR 2000 READINESS DISCLOSURE
Our 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 our multi-channel television and telephony
systems or programming services malfunctioning or failing to operate.
YEAR 2000 PROGRAM. In response to possible Year 2000 problems, our Board of
Directors 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 our business. 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 March 31, 1999, 91.0% of our operating systems had completed the
Identification Phase and the Task Force is working on the Implementation Phase
for these systems. The Task Force has researched approximately 83.0% 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 us. The remaining items require
further research or additional testing. Because of several acquisitions in the
later part of 1998, such as UTH, our research of items has expanded
significantly. As a result, the research on 75.0% of the identified items has
been completed and research on the remaining items is ongoing.
Certain of our operating systems have not completed the Identification Phase,
including Tahiti, the Philippines and certain Australian programming interests.
Despite our attempts to include these systems in our Year 2000 Program, these
systems have not responded. Therefore, we have no information on which to
determine if these systems will be Year 2000 compliant by December 31, 1999. If
43
<PAGE>
none of these systems are Year 2000 compliant, we do not believe that their
operation failure, if any, will have a material adverse effect on our business
as a whole. The basis for determining the above percentages includes these
systems.
During the three months ended March 31, 1999, we acquired several systems, which
will be included in our Year 2000 Program. At this time we have not determined
whether any of these systems have their own programs in place for Year 2000
compliance. We are undertaking such review during the second quarter 1999 and
will determine at what level their systems are at within our Year 2000 Program.
The Task Force commenced the Testing Phase in first quarter 1999. The Task Force
is supervising the Testing Phase of the computer system for our headend
controllers and our customer service billing systems and routers. Based on
current data to date, we expect to complete this testing by mid-1999. At this
time, we anticipate that all material aspects of the program will be completed
before January 1, 2000, and we do not anticipate any material remediations or
replacements.
In general, we manage the program with our internal Task Force. In addition, we
have retained several independent consultants to assist with the Year 2000
Program for our operations in Europe, Eastern Europe and New Zealand. 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.
In addition to our program, we are 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 us in developing our
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 us, during second quarter 1999.
THIRD PARTY DEPENDENCIES. We believe our largest Year 2000 risk is our
dependency upon third-party products. Two significant areas on which our systems
depend upon third-party products are programming and telephony interconnects. We
do 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 we would not be able
to provide our services to our customers. Notwithstanding these limitations, the
Task Force monitors the websites for all vendors used by us, 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. We also have 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, we are unable to assess
the risk posed by our dependence upon such third parties' systems. Vendors for
critical equipment components, such as the headend controllers mentioned below,
have been more responsive and we believe substantially all of our equipment will
be Year 2000 compliant. We cannot, 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 Task Force is working closely with the manufacturers of our 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 us or our
systems. Approximately 91.0% 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, we use 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.
We have considered certain limited contingency plans, including preparing
back-up programming and stand-by power generators. Based on these
considerations, the Task Force has distributed a contingency plan to all of our
operating systems, which sets forth preparation procedures and recovery
solutions. 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.
44
<PAGE>
MINORITY-HELD SYSTEMS. We have 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, 95.0% 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 1999, including
procedures it undertakes with respect to third parties to ensure their Year 2000
compliance.
COSTS OF COMPLIANCE. The Task Force is not able to determined the full cost of
its Year 2000 program and its related impact on the financial condition of the
Company. In the course of our business, we have made substantial capital
adjustments over the past few years in improving our systems, primarily for
reasons other than Year 2000. Because these upgrades also resulted in Year 2000
compliance, replacement and remediation costs have been low. The Task Force has,
however, revised its estimates of the cost for the Year 2000 program to $3.9
million. The cost includes certain identified replacement and remediation
procedures and external consultants, and has been increased because of system
acquisitions and additional date sensitive items that require research as to
Year 2000 compliance. Such estimate does not, however, include internal costs
because we do not separately track the internal costs incurred for the Year 2000
program. Although no assurance can be made, we believe that the known Year 2000
compliance issues can be remedied without a material financial impact on us. 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,
we can not predict the financial impact on us if Year 2000 problems are caused
by third parties upon which our systems are dependent or experienced by entities
in which we hold investments. The failure of any one of these parties to
implement Year 2000 procedures could have a material adverse impact on our
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 UPC operating companies' billing systems will
include amounts in euro as well as the respective country's existing currency.
All of UPC's accounting and management reporting systems currently are
multi-currency.
UPC intends to use the euro as its reporting currency by the end of 2000. We do
not expect the introduction of the euro to affect materially UPC's cable
television and other operations. We have not yet taken steps to confirm that the
financial institutions and other third parties with whom we have financial
relationships are prepared for the use of the euro. Thus far, we have not
experienced any material problem with third parties as a result of the
introduction of the euro. We believe the introduction of the euro will not
require us to amend any of our financial instruments or loan facilities, other
than amendments that will be made automatically by operation of law. These will
include automatic replacement of the currencies of participating countries with
the euro. They will also include automatic replacement of interest rates of
participating countries with European interest rates. We believe the
introduction of the euro will reduce our exposure to risk from foreign currency
and interest rate fluctuations.
45
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
INVESTMENT PORTFOLIO
We do not use derivative financial instruments in our non-trading investment
portfolio. We place our cash and cash equivalent investments in highly liquid
instruments that meet high credit quality standards with original maturities at
the date of purchase of less than three months. We also place our short-term
investments in liquid instruments that meet high credit quality standards with
original maturities at the date of purchase of between three and twelve months.
We also limit the amount of credit exposure to any one issue, issuer or type of
instrument. These investments are subject to interest rate risk and will fall in
value if market interest rates increase. We do not expect, however, any material
loss with respect to our investment portfolio. In February 1999, UPC completed
its initial public offering raising net proceeds of NLG2,670.0 million ($1,369.0
million). The proceeds from the offering will be invested in short-term
investments that meet high credit quality standards with original maturities at
the date of purchase between one and twelve months. We must comply with the
restrictions placed on us by the 1998 Notes indenture, which limits such
investments to a risk profile of A2/P2 commercial paper.
IMPACT OF FOREIGN CURRENCY RATE CHANGES
We are exposed to foreign exchange rate fluctuations related to our operating
subsidiaries' monetary assets and liabilities and the financial results of
foreign subsidiaries when their respective financial statements are translated
into U.S. dollars during consolidation. Our exposure to foreign exchange rate
fluctuations also arises from intercompany charges such as the cost of
equipment, management fees and certain other charges. These intercompany
accounts are predominantly denominated in the functional currency of the foreign
subsidiary.
The 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 operating
companies have notes payable and notes receivable which are denominated in a
currency other than their own functional currency. Foreign currency rate changes
also affect our share in results of our minority-owned affiliates.
The functional currency for our foreign operations is the applicable local
currency for each affiliate company. Assets and liabilities of foreign
subsidiaries are translated at the exchange rates in effect at year-end, and the
statements of operations are translated at the average exchange rates during the
period. Exchange rate fluctuations on translating foreign currency financial
statements into U.S. dollars result in unrealized gains or losses referred to as
translation adjustments. Cumulative translation adjustments are recorded as a
separate component of other cumulative comprehensive loss in the statement of
stockholders' (deficit) equity.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise. Subsequent
changes in exchange rates result in transaction gains and losses which are
reflected in income as unrealized (based on period-end translations) or realized
upon settlement of the transactions.
Cash flows from our 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.
The spot rates and average rates for the primary currencies that impact our
financial statements are shown below per one U.S. dollar:
<TABLE>
<CAPTION>
Dutch Australian
Guilder Dollar
------- ----------
<S> <C> <C>
Spot Rate March 31, 1999................................. 2.0500 1.5765
Average rate for three months ended March 31, 1999....... 1.9614 1.5729
Spot Rate December 31, 1998.............................. 1.8900 1.6332
Spot Rate March 31, 1998................................. 2.0800 1.5108
Average rate for three months ended March 31, 1998....... 2.0474 1.4979
Spot Rate December 31, 1997.............................. 2.0200 1.5378
</TABLE>
46
<PAGE>
In general, we do not execute hedge transactions to reduce our exposure to
foreign currency exchange rate risk. Accordingly, we may experience economic
loss and a negative impact on earnings and equity with respect to our holdings
solely as a result of foreign currency exchange rate fluctuations. During the
three months ended March 31, 1999, we recorded a negative change in cumulative
translation adjustments of $62.9 million, primarily due to the strengthening of
the U.S. dollar compared to the Dutch guilder.
INTEREST RATE SENSITIVITY
The table below provides information about our primary debt obligations. The
variable rate financial instruments are sensitive to changes in interest rates.
The information is presented in U.S. dollar equivalents, which is our reporting
currency.
<TABLE>
<CAPTION>
As of March 31, 1999
------------------------------------------
Book Value Fair Value
---------- ----------
(U.S. dollars, in thousands, except interest rates)
<S> <C> <C>
Long-term and short-term debt:
Fixed rate U.S. dollar denominated 1998 Notes............................... $916,690 $931,563
Average interest rate..................................................... 10.75% 10.51%
Fixed rate U.S. dollar denominated UIH A/P Notes............................ $368,816 $308,041
Average interest rate..................................................... 14.00% 17.41%
Fixed rate U.S. dollar denominated DIC Loan................................. $ 31,780 $ 31,780
Average interest rate..................................................... 8.00% 8.00%
Fixed rate U.S. dollar denominated VTRH Note................................ $ 9,284 $ 9,284
Average interest rate..................................................... 12.95% 12.95%
Fixed rate U.S. dollar denominated TVSB Seller Note......................... $ 5,894 $ 5,894
Average interest rate..................................................... 10.00% 10.00%
Variable rate Dutch guilder denominated Senior Revolving Credit Facility.... $176,514 $176,514
Average interest rate..................................................... 5.09% 5.09%
Variable rate Euro denominated UTH Facility................................. $263,370 $263,370
Average interest rate..................................................... 5.09% 5.09%
Variable rate French Franc denominated Mediareseaux Facility................ $ 29,181 $ 29,181
Average interest rate..................................................... 5.09% 5.09%
Variable rate German Mark denominated Telekabel Hungary Facility............ $ 20,086 $ 20,086
Average interest rate..................................................... 5.59% 5.59%
Variable rate Australian dollar denominated Austar Bank Facility............ $126,863 $126,863
Average interest rate..................................................... 6.75% 6.75%
Variable rate Dutch guilder denominated CNBH Facility....................... $116,827 $116,827
Average interest rate..................................................... 4.69% 4.69%
</TABLE>
47
<PAGE>
The table below presents principal cash flows by expected maturity dates for our
debt obligations. The information is presented in U.S. dollar equivalents, which
is our reporting currency.
<TABLE>
<CAPTION>
As of March 31, 1999
----------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total
-------- -------- -------- -------- -------- ---------- --------
(U.S. dollars, in thousands except interest rates)
<S> <C> <C> <C> <C> <C> <C> <C>
Long-term and short-term debt:
Fixed rate U.S. dollar denominated
1998 Notes..................................... -- -- -- -- -- $916,690 $916,690
Fixed rate U.S. dollar denominated
UIH A/P Notes.................................. -- -- -- -- -- $368,816 $368,816
Fixed rate U.S. dollar denominated
DIC Loan....................................... -- $31,780 -- -- -- -- $ 31,780
Fixed rate U.S. dollar denominated
VTRH Note...................................... $ 9,284 -- -- -- -- -- $ 9,284
Fixed rate U.S. dollar denominated
TVSB Seller Note............................... $ 5,894 -- -- -- -- -- $ 5,894
Variable rate Dutch guilder denominated
Senior Revolving Credit Facility............... -- -- $24,390 $97,561 $54,563 -- $176,514
Variable rate Euro denominated
UTH Facility................................... -- -- -- $13,168 $26,337 $223,865 $263,370
Variable rate French Franc denominated
Mediareseaux Facility.......................... -- -- -- -- $ 2,918 $ 26,263 $ 29,181
Variable rate German Mark denominated
Telekabel Hungary Facility..................... $ 20,086 -- -- -- -- -- $ 20,086
Variable rate Australian dollar denominated
Austar Bank Facility........................... $ 57,088 -- -- -- -- $ 69,775 $126,863
Variable rate Dutch guilder denominated
CNBH Facility.................................. -- -- $ 3,428 $7,999 $14,856 $ 90,544 $116,827
</TABLE>
We use interest rate swap agreements from time to time, to manage interest rate
risk on our floating rate debt facilities. Interest rate swaps are entered into
depending on our assessment of the market, and generally are used to convert the
floating rate debt to fixed rate debt. Interest differentials paid or received
under these swap agreements are recognized over the life of the contracts as
adjustments to the effective yield of the underlying debt, and related amounts
payable to, or receivable from, the counterparties are included in the
consolidated balance sheet. Currently, we have two interest rate swaps to manage
interest rate exposure on the Austar Bank Facility. These swap agreements expire
in 2002 and effectively convert an aggregate principal amount of A$50.0 million
($31.7 million as of March 31, 1999) of variable rate, long-term debt into fixed
rate borrowings. As of March 31, 1999, the weighted-average fixed rate under
these agreements was 7.94% compared to a weighted-average variable rate on the
Austar Bank Facility of 6.75%. As a result of these swap agreements, interest
expense was increased by approximately A$0.2 million ($0.1 million) during the
first quarter of 1999.
Fair values of the interest rate swap agreements are based on the estimated
amounts that we would receive or pay to terminate the agreements at the
reporting date, taking into account current interest rates and the current
creditworthiness of the counterparties. As of March 31, 1999, we estimate that
we would have paid approximately A$1.3 million ($0.8 million) to terminate the
agreements.
48
<PAGE>
The table below provides information about our interest rate swaps. The table
presents notional amounts and weighted-average interest rates by expected
(contractual) maturity dates. Notional amounts are used to calculate the
contractual payments to be exchanged under the contract. The information is
presented in U.S. dollar equivalents (in thousands), which is our reporting
currency.
<TABLE>
<CAPTION>
As of March 31, 1999
-------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total
---- ---- ---- ---- ---- ---------- -------
(U.S. dollars, in thousands, except interest rates)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps:
Variable to fixed................. -- -- -- $31,716 -- -- $31,716
Average pay rate %................ 8.00% 8.00% 8.00% 8.00% -- -- 8.00%
Average receive rate %............ 6.75% 6.75% 6.75% 6.75% -- -- 6.75%
</TABLE>
INFLATION AND FOREIGN INVESTMENT RISK
Certain of our operating companies operate in countries where the rate of
inflation is extremely high relative to that in the United States. While our
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. We are also
impacted by inflationary increases in salaries, wages, benefits and other
administrative costs, the effects of which to date have not been material.
Our foreign operating companies are all directly affected by their respective
countries' government, economic, fiscal and monetary policies and other
political factors. We believe that our operating companies' financial conditions
and results of operations have not been materially adversely affected by these
factors.
49
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
From time to time, we and our operating companies may become involved in
litigation relating to claims arising out of our operations in the normal course
of business.
On April 20, 1999, a class action suit was filed in the District Court of Tel
Aviv against several cable operators in Israel, including Tevel. The complaint
alleges that the cable operators have taken advantage of their monopoly position
in the market by charging excessive prices for the services provided. The
plaintiffs are seeking damages in the amount of NIS1,000 per subscriber. Tevel's
cable television service subscription rates are subject to governmental
regulation through franchise agreements and through the arrangement approved by
the Restrictive Trade Practices Tribunal. Tevel intends to vigorously defend
itself against these allegations.
Item 5. Other Information
- --------------------------
The 1999 Annual Meeting of Stockholders will be held on or about July 30, 1999.
The deadline for submitting stockholder proposals for inclusion in the Company's
proxy statement and form of proxy for the 1999 Annual Meeting of Stockholders is
June 11, 1999. Proposals received after such date will be considered untimely.
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
<TABLE>
<CAPTION>
- --------------------------- ------------------------------------ -------------------------------
Date of Filing Date of Event Item Reported
- --------------------------- ------------------------------------ -------------------------------
<S> <C> <C>
March 12, 1999 Amendment No. 1 to Form 8-K dated Item 2 - Acquisition of 49.0%
February 17, 1999 interest in UTH
- --------------------------- ------------------------------------ -------------------------------
March 4, 1999 February 17, 1999 Item 2 - Acquisition of 49.0%
interest in UTH
- --------------------------- ------------------------------------ -------------------------------
February 26, 1999 February 24, 1999 Item 8 - Change in Fiscal Year
- --------------------------- ------------------------------------ -------------------------------
</TABLE>
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Denver,
State of Colorado, on this 17th day of May 1999.
United International Holdings, Inc.
a Delaware corporation
By: /s/ Valerie L. Cover
----------------------------------
Valerie L. Cover
Controller and Vice President
(a Duly Authorized Officer and
Principal Financial Officer)
51
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITED
INTERNATIONAL HOLDINGS, INC.'S FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 607,490
<SECURITIES> 0
<RECEIVABLES> 28,007
<ALLOWANCES> 0
<INVENTORY> 19,701
<CURRENT-ASSETS> 817,121
<PP&E> 1,146,743
<DEPRECIATION> 248,492
<TOTAL-ASSETS> 2,894,424
<CURRENT-LIABILITIES> 336,270
<BONDS> 1,980,351
37,064
0
<COMMON> 430
<OTHER-SE> 86,441
<TOTAL-LIABILITY-AND-EQUITY> 2,894,424
<SALES> 0
<TOTAL-REVENUES> 107,918
<CGS> 0
<TOTAL-COSTS> 55,165
<OTHER-EXPENSES> 57,398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,623
<INCOME-PRETAX> 688,351
<INCOME-TAX> 0
<INCOME-CONTINUING> 688,351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 688,351
<EPS-PRIMARY> 16.47
<EPS-DILUTED> 15.33
</TABLE>
