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 June 30, 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
UnitedGlobalCom, Inc.
(formerly known as 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
August 2, 1999 was:
Class A Common Stock -- 31,643,794 shares
Class B Common Stock -- 9,666,970 shares
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UnitedGlobalCom, 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 June 30, 1999 (Unaudited) and December 31, 1998.................. 3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1999
and 1998 (Unaudited)..................................................................................... 4
Condensed Consolidated Statement of Stockholders' Deficit for the Six Months Ended June 30, 1999
(Unaudited).............................................................................................. 5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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.................. 25
- ------
Item 3 - Quantitative and Qualitative Disclosures about Market Risk............................................. 42
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PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings.................................................................................... 46
- ------
Item 6 - Exhibits and Reports on Form 8-K....................................................................... 46
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UnitedGlobalCom, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except share and per share amounts)
(Unaudited)
As of As of
June 30, December 31,
1999 1998
---------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................................................... $ 252,107 $ 35,608
Restricted cash......................................................................................... 12,459 17,215
Short-term liquid investments........................................................................... 41,030 41,498
Subscriber receivables, net of allowance for doubtful accounts of $18,321 and $5,482, respectively...... 40,662 13,788
Costs to be reimbursed by affiliated companies.......................................................... 21,519 21,232
Other related party receivables......................................................................... 5,595 2,064
Other receivables....................................................................................... 30,074 15,380
Inventory............................................................................................... 34,464 12,762
Other current assets, net............................................................................... 63,668 16,363
---------- ----------
Total current assets................................................................................ 501,578 175,910
Investments in and advances to affiliated companies, accounted for under the equity method, net.......... 293,913 429,490
Property, plant and equipment, net of accumulated depreciation of $343,722 and $201,183, respectively.... 1,261,210 464,059
Goodwill and other intangible assets, net of accumulated amortization of $67,477 and $39,683,
respectively............................................................................................ 1,032,495 424,934
Deferred financing costs, net of accumulated amortization of $12,226 and $9,923, respectively............ 66,649 41,270
Other assets, net........................................................................................ 51,867 6,432
---------- ----------
Total assets........................................................................................ $3,207,712 $1,542,095
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable, including related party payables of $3,709 and $247, respectively..................... $ 116,457 $ 76,696
Accrued liabilities..................................................................................... 98,524 66,079
Subscriber prepayments and deposits..................................................................... 59,331 24,210
Short-term debt......................................................................................... 9,978 93,379
Current portion of senior discount notes................................................................ 161 412
Current portion of other long-term debt................................................................. 7,939 62,252
Other current liabilities............................................................................... 9,594 3,524
---------- ----------
Total current liabilities........................................................................... 301,984 326,552
Senior discount notes.................................................................................... 1,535,269 1,249,643
Other long-term debt..................................................................................... 1,008,346 689,646
Deferred compensation.................................................................................... 22,053 173,251
Deferred taxes........................................................................................... 18,600 4,580
Other long-term liabilities.............................................................................. 12,585 7,097
---------- ----------
Total liabilities................................................................................... 2,898,837 2,450,769
---------- ----------
Minority interests in subsidiaries....................................................................... 514,366 18,705
---------- ----------
Preferred stock, $0.01 par value, 3,000,000 shares authorized, stated at liquidation value:
Series A Convertible Preferred Stock, 22,000 and 132,144 shares issued and outstanding, respectively.... 4,425 26,086
---------- ----------
Series B Convertible Preferred Stock, 139,031 shares issued and outstanding............................. 31,190 30,200
---------- ----------
Stockholders' deficit:
Class A Common Stock, $0.01 par value, 60,000,000 shares authorized, 33,831,738 and 30,674,995
shares issued and outstanding, respectively............................................................ 338 307
Class B Common Stock, $0.01 par value, 30,000,000 shares authorized, 9,666,970 and 9,915,880
shares issued and outstanding, respectively............................................................ 97 99
Additional paid-in capital.............................................................................. 712,993 378,597
Deferred compensation................................................................................... (48,305) (679)
Treasury stock, at cost, 2,784,620 shares of Class A Common Stock....................................... (29,061) (29,061)
Accumulated deficit..................................................................................... (700,123) (1,241,986)
Other cumulative comprehensive loss..................................................................... (177,045) (90,942)
---------- ----------
Total stockholders' deficit......................................................................... (241,106) (983,665)
---------- ----------
Total liabilities and stockholders' deficit......................................................... $3,207,712 $1,542,095
========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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UnitedGlobalCom, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands, except share and per share amounts)
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue........................................................... $ 145,996 $ 70,439 $ 253,914 $ 137,835
System operating expense.......................................... (75,747) (33,481) (130,912) (61,221)
System selling, general and administrative expense................ (58,170) (30,883) (99,760) (53,473)
Corporate general and administrative expense...................... (58,974) (3,724) (85,056) (18,937)
Depreciation and amortization..................................... (75,679) (46,320) (133,077) (98,855)
---------- ---------- ---------- ----------
Net operating loss........................................... (122,574) (43,969) (194,891) (94,651)
Gain on issuance of common equity securities by subsidiary........ (3,129) - 822,067 -
Interest income, including related party income of $140,
$239, $278 and $444, respectively................................ 5,497 3,067 9,407 6,360
Interest expense.................................................. (61,834) (47,736) (118,457) (92,249)
Gain on sale of investment in affiliate........................... - - 7,456 -
Foreign currency exchange loss.................................... (14,715) (2,796) (20,205) (5,636)
Other expense, net................................................ (869) (695) (6,844) (1,356)
---------- ---------- ---------- ----------
Net (loss) income before other items......................... (197,624) (92,129) 498,533 (187,532)
Share in results of affiliated companies, net..................... (11,046) (16,250) (31,608) (30,918)
Minority interests in subsidiaries................................ 62,182 314 74,938 (21)
---------- ---------- ---------- ----------
Net (loss) income before extraordinary charge................ (146,488) (108,065) 541,863 (218,471)
Extraordinary charge for early retirement of debt................. - - - (79,091)
---------- ---------- ---------- ----------
Net (loss) income............................................ $ (146,488) $ (108,065) $ 541,863 $ (297,562)
========== ========== ========== ==========
Net (loss) income per common share:
Basic (loss) income before extraordinary charge.............. $ (3.63) $ (3.00) $ 13.61 $ (6.06)
Extraordinary charge......................................... - - - (2.19)
---------- ---------- ---------- ----------
Basic net (loss) income...................................... $ (3.63) $ (3.00) $ 13.61 $ (8.25)
========== ========== ========== ==========
Diluted (loss) income before extraordinary charge............ $ (3.63) $ (3.00) $ 12.63 $ (6.06)
Extraordinary charge......................................... - - - (2.19)
---------- ---------- ---------- ----------
Diluted net (loss) income.................................... $ (3.63) $ (3.00) $ 12.63 $ (8.25)
========== ========== ========== ==========
Weighted-average number of common shares outstanding:
Basic....................................................... 40,488,227 36,190,307 39,732,277 36,138,870
========== ========== ========== ==========
Diluted..................................................... 40,488,227 36,190,307 42,894,811 36,138,870
========== ========== ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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UnitedGlobalCom, Inc.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(Stated in thousands, except share amounts)
(Unaudited)
Other
Cumulative
Class A Class B Addi- Components
Common Stock Common Stock tional Deferred Treasury Stock of Total
---------------- ---------------- Paid-In Compen- ---------------- Accumulated Comprehen- Comprehen-
Shares Amount Shares Amount Capital sation Shares Amount Deficit sive Loss(1) sive Loss Total
--------- ------ --------- ------ -------- -------- --------- ------ ----------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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....... 248,910 2 (248,910) (2) - - - - - - - -
Issuance of
Class A
Common Stock
in connec-
tion with
exercise of
warrants.... 960,687 10 - - 14,401 - - - - - - 14,411
Issuance of
Class A
Common Stock
in connec-
tion with
Company's
stock option
plans....... 696,415 7 - - 7,913 - - - - - - 7,920
Issuance of
Class A
Common Stock
in connec-
tion with
Company's
401(k)
plan........ 751 - - - 51 - - - - - - 51
Exchange of
Series A
Convertible
Preferred
Stock for
Class A
Common
Stock....... 1,249,980 12 - - 21,862 - - - - - - 21,874
Accrual of
dividends on
convertible
preferred
stock....... - - - - (1,204) - - - - - - (1,204)
Equity
transactions
of sub-
sidiaries... - - - - 291,373 (48,102) - - - - - 243,271
Amortization of
corporate
level deferred
compensa-
tion........ - - - - - 476 - - - - - 476
Net income... - - - - - - - - 541,863 - 541,863 541,863
The accompanying notes are an integral part of these condensed consolidated financial statements.
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5
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UnitedGlobalCom, Inc.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT (Continued)
(Stated in thousands, except share amounts)
(Unaudited)
Other
Cumulative
Class A Class B Addi- Components
Common Stock Common Stock tional Deferred Treasury Stock of Total
---------------- ---------------- Paid-In Compen- ---------------- Accumulated Comprehen- Comprehen-
Shares Amount Shares Amount Capital sation Shares Amount Deficit sive Loss(1) sive Loss Total
--------- ------ --------- ------ -------- -------- --------- ------ ----------- ------------ ---------- ---------
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Change in
cumulative
translation
adjust-
ments....... - - - - - - - - - (86,569) (86,569) (86,569)
Change in
unrealized
gain on
investment.. - - - - - - - - - 466 466 466
---------- ---- --------- --- -------- -------- --------- -------- --------- --------- -------- ---------
Balances,
June 30,
1999........33,831,738 $338 9,666,970 $97 $712,993 $(48,305) 2,784,620 $(29,061) $(700,123) $(177,045) $455,760 $(241,106)
========== ==== ========= === ======== ======== ========= ======== ========= ========= ======== =========
(1) Other Cumulative Comprehensive Loss at the end of each reporting period
consists of the following:
As of As of
June 30, December 31,
1999 1998
---------- ------------
Foreign currency translation adjustments.......... $(177,357) $(90,788)
Unrealized (loss) gain on investments............. 312 (154)
--------- --------
Total........................................ $(177,045) $(90,942)
========= ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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UnitedGlobalCom, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands)
(Unaudited)
For the Six Months Ended
June 30,
----------------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................................................... $ 541,863 $(297,562)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Gain on issuance of common equity securities by subsidiary................................ (822,067) -
Extraordinary charge for early retirement of debt......................................... - 79,091
Share in results of affiliated companies, net............................................. 25,987 30,918
Minority interests in subsidiaries........................................................ (74,938) 21
Depreciation and amortization............................................................. 133,077 98,855
Accretion of interest on senior notes and amortization of deferred financing costs........ 86,754 65,274
Stock-based compensation expense.......................................................... 66,351 198
Gain on sale of investment in affiliate................................................... (7,456) -
Increase in receivables, net.............................................................. (25,315) (4,199)
Increase in other assets.................................................................. (17,458) (12,063)
Increase in accounts payable, accrued liabilities and other............................... 40,006 34,740
--------- ---------
Net cash flows from operating activities.............................................. (53,196) (4,727)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term liquid investments.................................................. (67,288) (116,784)
Proceeds from sale of short-term liquid investments........................................ 67,756 69,073
Restricted cash (deposited) released, net.................................................. 3,429 (2,721)
Investments in and advances to affiliated companies........................................ (37,815) (28,798)
Proceeds from sale of investment in affiliated company..................................... 18,000 -
New acquisitions, net of cash acquired..................................................... (682,081) (88,048)
Capital expenditures....................................................................... (220,280) (74,581)
Investment in bonds........................................................................ (17,032) -
Deconsolidation of New Zealand subsidiary.................................................. - (9,881)
Other...................................................................................... (5,729) (1,481)
--------- ---------
Net cash flows from investing activities.............................................. (941,040) (253,221)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock by subsidiary..................................................... 1,409,133 -
Issuance of common stock in connection with exercise of warrants........................... 14,411 -
Issuance of common stock in connection with Company's and subsidiary's stock option plans.. 22,472 1,422
Proceeds from offering of senior discount notes............................................ 208,939 812,200
Retirement of existing senior notes........................................................ (265) (531,800)
Proceeds from short-term and long-term borrowings.......................................... 555,945 134,205
Deferred financing costs................................................................... (20,236) (20,671)
Repayments of short-term and long-term borrowings.......................................... (911,728) (128,144)
Payment of sellers note.................................................................... (18,000) -
--------- ---------
Net cash flows from financing activities.............................................. 1,260,671 267,212
--------- ---------
EFFECT OF EXCHANGE RATES ON CASH........................................................... (49,936) (30)
INCREASE IN CASH AND CASH EQUIVALENTS...................................................... 216,499 9,234
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................................. 35,608 74,289
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................................... $ 252,107 $ 83,523
========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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UnitedGlobalCom, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Stated in thousands)
(Unaudited)
For the Six Months Ended
June 30,
----------------------------------
1999 1998
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SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.................................................................... $ 44,939 $ 20,252
========= ========
Cash received for interest................................................................ $ 8,822 $ 4,214
========= ========
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) $ -
========= ========
ACQUISITION OF REMAINING INTEREST IN CHILEAN JOINT VENTURE:
Working capital........................................................................... $ (10,671) $ -
Property, plant and equipment............................................................. (203,200) -
Goodwill and other intangible assets...................................................... (242,131) -
Other long-term assets.................................................................... (14,971) -
Elimination of equity investment in Chilean joint venture................................. 68,517 -
Long-term liabilities..................................................................... 144,277 -
--------- --------
Total cash paid....................................................................... (258,179) -
Cash acquired............................................................................. 5,498 -
--------- --------
Net cash paid......................................................................... $(252,681) $ -
========= ========
ACQUISITION OF 100% OF GELREVISION:
Property, plant and equipment............................................................. $ (49,407) $ -
Goodwill.................................................................................. (67,335) -
Net current liabilities................................................................... 2,682 -
Long-term liabilities..................................................................... 4,236 -
--------- --------
Total cash paid....................................................................... (109,824) -
Cash acquired............................................................................. 136 -
--------- --------
Net cash paid......................................................................... $(109,688) $ -
========= ========
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)
========= ========
OTHER ACQUISITIONS:
Property, plant and equipment............................................................. $ (72,967) $ -
Goodwill.................................................................................. (26,178) -
Net current assets........................................................................ (8,808) -
Long-term liabilities..................................................................... 39,100 -
--------- --------
Total cash paid....................................................................... (68,853) -
Cash acquired............................................................................. 1,184 -
--------- --------
Net cash paid......................................................................... $ (67,669) $ -
========= ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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UnitedGlobalCom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
(Unaudited)
1. ORGANIZATION AND NATURE OF OPERATIONS
UnitedGlobalCom, Inc. (formerly known as United International Holdings, Inc.,
together with its majority-owned subsidiaries, the "Company" or "United") 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 June 30, 1999.
9
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UnitedGlobalCom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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************************************************************************************************************************************
* United *
* *
************************************************************************************************************************************
100.0% * 100.0% *
*************************************** *******************************************************************************************
* UIH Europe, Inc. * * United International Properties, Inc. *
* ("UIHE") * * ("UIPI") *
*************************************** *******************************************************************************************
* *
* **********************************************
62.2%(1) * 98.0% * * 100.0%
*************************************** ********************************************* *********************************************
* United Pan-Europe Communications * * UIH Asia/Pacific Communications, Inc. * * UIH Latin America, Inc. *
* N.V. ("UPC") * * ("UAP")* * * ("ULA") *
*************************************** ********************************************* *********************************************
* * *
* 100.0% * *
*************************************** ********************************************* *********************************************
*Austria: * * UIH Australia/Pacific, Inc. * *Brazil: *
* Telekabel Group 95.0% * * ("United A/P") * * TV Show Brazil, S.A. ("TVSB") 100.0% *
*Belgium: * ********************************************* * TV Cabo e Comunicacoes de *
* Radio Public N.V./S.A. * * * Jundiai, S.A. ("Jundiai") 46.3% *
* ("TVD") 100.0% * 100.0%(2) * *Chile: *
*Czech Republic: * ********************************************* * VTR Hipercable S.A. ("VTRH") 100.0% *
* Kabel Net Group * * Austar United Communications Limited * *Mexico: *
* ("KabelNet") 100.0% * * ("Austar United") * * Tele Cable de Morelos, S.A. *
*France: * ********************************************* * de C.V. ("Megapo") 49.0% *
* Mediareseaux Marne S.A. * * *Peru: *
* ("Mediareseaux") 99.6% * 100.0% * * Cable Star S.A. ("Cable Star") 60.0% *
* Reseaux Cables de France * ********************************************* *Latin American Programming: *
* ("RCF") 95.7% * *Australia: * * MGM Networks Latin America *
*Hungary: * * CTV Pty Limited and STV Pty * * LLC ("MGM Networks LA") 50.0% *
* Telekabel Hungary BV * * Limited (collectively, * *********************************************
* ("Telekabel Hungary") 79.3% * * ("Austar") 100.0% *
* Monor Telefon Tarsasag, * * United Wireless Pty Limited *
* Rt ("Monor") 47.5% * * ("United Wireless") 100.0% *
*Ireland: * * XYZ Entertainment Pty Limited *
* Tara Television Limited * * ("XYZ Entertainment") 50.0% *
* ("Tara") 80.0% * *New Zealand: *
*Israel: * * Saturn Communications Limited *
* Tevel Israel International * * ("Saturn") 65.0% *
* Communications Ltd. * *********************************************
* ("Tevel") 46.6% *
*Malta: *
* Melita Cable TV PLC * *********************************************
* ("Melita") 50.0% * * *Other UAP *
*The Netherlands: * * *
* United Telekabel Holding * *China: *
* N.V. ("UTH") 100.0% * * Hunan International TV *
* A2000 Holding N.V. * * Communications Company *
* ("A2000") 50.0% * * Limited ("HITV") 49.0%(3)*
* Priority Telecom N.V. 100.0% * *Philippines: *
* chello Broadband N.V. * * Pilipino Cable Corporation *
* ("chello") 100.0% * * ("PCC") 19.6%(4)*
* UPC Programming B.V. * *Tahiti: *
* ("UPCtv") 100.0% * * Telefenua S.A. ("Telefenua") 90.0% *
*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% *
* Diplomatic International, *
srl 100.0% *
*Slovak Republic: *
* Kabeltel SRO ("Kabeltel") 100.0% *
* SKT spol s.r.o. ("SKT *
* Bratislava") 100.0% *
* Trnavatel SRO *
* ("Trnavatel") 75.0% *
*Spain/Portugal: *
* Ibercom, Inc. ("IPS") 50.0% *
***************************************
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UnitedGlobalCom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(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
United 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 62.2% as of June 30, 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) As a result of Austar United's Australian Stock Exchange initial public
offering and the purchase of the minority shareholder's ("SaskTel's") 35.0%
interest in Saturn subsequent to June 30, 1999, the Company now owns an
indirect interest in Austar United of approximately 74.1% which includes a
100% ownership interest in Saturn (see Note 13).
(3) 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.
(4) 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"). United 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.
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. On April 29, 1999, ULA acquired the majority
shareholders' interest in VTRH and began consolidating VTRH effective May 1,
1999. The Company previously accounted for its investment in Saturn under the
equity method because of certain minority shareholders rights. Immediately prior
to the Australian initial public offering, Austar United issued ordinary shares
of Austar United to SaskTel for its 35.0% interest in Saturn. As a result,
Saturn will be consolidated effective July 27, 1999. 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 June 30, 1999 and the results of its operations for the three and
six months ended June 30, 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
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.
11
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 is
recognized at each financial statement date based on the difference between the
grant price and the estimated fair value of the respective subsidiary's common
stock, relative to the percent vested.
12
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 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 June 30, 1999 and the three and six months ended June 30, 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
The Financial Accounting Standards Board ("FASB") 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. In June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS 133"
("SFAS 137"). SFAS 137 amends the effective date of SFAS 133 until fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company is
currently assessing the effect of this new standard.
13
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. ACQUISITIONS AND OTHER
UPC INITIAL PUBLIC OFFERING
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 Dutch guilder ("NLG")63.91
($32.78) per share of NLG2,852.9 million ($1,463.0 million) and NLG2,660.1
million ($1,364.1 million), respectively. Concurrent with the offering, proceeds
were used to reduce the UPC 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 the UPC Bridge Bank Facility totaling NLG110.0
million ($56.4 million), 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, United recognized a gain of $822.1 million from
the resulting step-up in the carrying amount of United'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 62.2% as of
June 30, 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.
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 euro235.1 million ($265.7 million). In addition, UPC repaid
NUON a euro15.1 million ($17.1 million) 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 (in thousands):
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 six
months ended June 30, 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.
14
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
For the Six Months Ended For the Six Months Ended
June 30, 1999 June 30, 1998
-------------------------- ---------------------------
Historical Pro Forma Historical Pro Forma
---------- ---------- ---------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Revenue.............................................. $ 253,914 $ 264,031 $ 137,835 $ 174,358
========== ========== ========== ==========
Net income (loss) before extraordinary charge........ $ 541,863 $ 537,168 $ (218,471) $(231,317)
========== ========== ========== ==========
Net income (loss).................................... $ 541,863 $ 537,168 $ (297,562) $(310,408)
========== ========== ========== ==========
Net income (loss) per common share:
Basic income (loss) before extraordinary charge.... $ 13.61 $ 13.49 $ (6.06) $ (6.42)
Extraordinary charge............................... - - (2.19) (2.19)
---------- ---------- ---------- ---------
Basic net income (loss)............................ $ 13.61 $ 13.49 $ (8.25) $ (8.61)
========== ========== ========== ==========
Diluted income (loss) before extraordinary charge.. $ 12.63 $ 12.52 $ (6.06) $ (6.42)
Extraordinary charge............................... - - (2.19) (2.19)
---------- ---------- ---------- ---------
Diluted net income (loss).......................... $ 12.63 $ 12.52 $ (8.25) $ (8.61)
========== ========== ========== ==========
Weighted-average number of common shares outstanding:
Basic.............................................. 39,732,277 39,732,277 36,138,870 36,138,870
========== ========== ========== ==========
Diluted............................................ 42,894,811 42,894,811 36,138,870 36,138,870
========== ========== ========== ==========
</TABLE>
ACQUISITION OF SKT BRATISLAVA
In June 1999, UPC acquired SKT Bratislava, the company that owns and operates a
cable television system in Bratislava, Slovak Republic. The purchase price was
approximately $43.3 million.
VTRH Acquisition
On April 29, 1999, an indirect wholly owned subsidiary of the Company acquired a
66.0% interest in VTRH (the "VTRH Acquisition"). This acquisition, combined with
the 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 66.0% interest in VTRH was approximately $258.2 million
in cash. In addition, the Company provided capital for VTRH to prepay
approximately $125.8 million of existing bank indebtedness and a promissory note
from the Company to one of the other shareholders of VTRH. Details of the net
assets acquired, based on the preliminary purchase price allocation, were as
follows (in thousands):
Current assets...................................... $ 54,792
Property, plant and equipment....................... 203,200
Goodwill and other intangible assets................ 242,131
Other long-term assets.............................. 14,971
Elimination of equity investment in VTRH............ (68,517)
Current liabilities................................. (44,121)
Long-term debt and other long-term liabilitites..... (144,277)
--------
$258,179
========
ACQUISITION OF GELREVISION
In June 1999, UPC acquired 100% of the GelreVision multi-channel television
systems in The Netherlands for NLG233.9 million ($109.8 million).
ACQUISITION OF RESEAUX CABLES DE FRANCE
In June 1999, UPC acquired 95.7% of Reseaux Cables de France ("RCF"), the fifth
largest cable television operation in France, which operates cable television
systems throughout France, for approximately FFR172.0 million ($27.1 million).
This acquisition is currently subject to pending arbitration proceedings between
the seller and a third party and our purchase of RCF may be challenged following
the conclusion of this arbitration.
15
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES, ACCOUNTED FOR UNDER THE
EQUITY METHOD
<TABLE>
<CAPTION>
As of June 30, 1999
---------------------------------------------------------------------------------------------------
Investments in Cumulative Cumulative
and Advances to Dividends Share in Results of Translation Valuation
Affiliated Companies Received Affiliated Companies Adjustments Allowance Total
-------------------- --------- -------------------- ----------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
EUROPE:
A2000......................... $ 94,020 $ - $ (12,645) $ (3,092) $ - $ 78,283
Tevel......................... 99,184 (6,180) (2,220) 407 - 91,191
Melita........................ 14,062 - 831 (583) - 14,310
Monor......................... 5,454 - (1,738) (7,539) - (3,823)
IPS........................... 14,082 - 185 193 - 14,460
Other......................... 12,323 - (1,729) (215) - 10,379
ASIA/PACIFIC:
Saturn........................ 55,990 - (27,788) (3,549) - 24,653
XYZ Entertainment............. 44,306 - (18,818) 3,291 - 28,779
PCC........................... 12,342 - (2,944) (2,588) - 6,810
HITV.......................... 6,073 - (2,235) 16 - 3,854
Telefenua..................... 18,599 - (14,215) - (4,384) -
Other......................... 350 - - - - 350
LATIN AMERICA:
Megapo........................ 32,496 (1,471) (957) (9,729) - 20,339
MGM Networks LA (1)........... 22,918 - (22,918) - - -
Jundiai....................... 6,797 - (1,203) (2,681) - 2,913
Other......................... 1,514 - 3 (102) - 1,415
-------- ------- --------- -------- ------- --------
Total...................... $440,510 $(7,651) $(108,391) $(26,171) $(4,384) $293,913
======== ======= ========= ======== ======= ========
</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
-------------------- --------- -------------------- ----------- --------- ---------
(In thousands)
<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 $3.6 and $3.0 million at June 30,
1999 and December 31, 1998, respectively. The Company would face
significant and punitive dilution if it did not make the requested
fundings.
16
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
5. PROPERTY, PLANT AND EQUIPMENT As of As of
June 30, December 31,
1999 1998
--------- ------------
(In thousands)
<S> <C> <C>
Cable distribution networks........................ $1,066,120 $255,702
Subscriber premises equipment and converters....... 326,040 264,867
MMDS/DTH distribution facilities................... 70,680 62,872
Office equipment, furniture and fixtures........... 35,076 30,415
Buildings and leasehold improvements............... 28,283 11,236
Other.............................................. 78,733 40,150
---------- --------
1,604,932 665,242
Accumulated depreciation...................... (343,722) (201,183)
---------- --------
Net property, plant and equipment............. $1,261,210 $464,059
========== ========
6. GOODWILL AND OTHER INTANGIBLE ASSETS As of As of
June 30, December 31,
1999 1998
--------- ------------
(In thousands)
EUROPE:
UTH............................................. $ 397,826 $ -
Telekabel Group................................. 182,808 206,092
Janco Multicom.................................. 86,958 87,563
Telekabel Hungary............................... 44,666 51,550
TVD............................................. 21,093 22,322
UPC............................................. 30,235 -
SKT Bratislava.................................. 19,860 -
Other........................................... 11,042 12,971
ASIA/PACIFIC:
Austar.......................................... 60,757 55,804
Other........................................... 1,502 4,267
LATIN AMERICA:
VTRH............................................ 225,715 -
TVSB............................................ 11,374 16,161
Cable Star...................................... 6,136 7,887
---------- --------
1,099,972 464,617
Accumulated amortization........................ (67,477) (39,683)
---------- --------
Net goodwill and other intangible assets........ $1,032,495 $424,934
========== ========
7. SHORT-TERM DEBT As of As of
June 30, December 31,
1999 1998
--------- ------------
(In thousands)
Austar Bank Facility (see Note 9).................. $ - $ 36,738
Time Warner Note................................... - 18,000
Telekabel Hungary Facility......................... - 15,504
Other UPC.......................................... 3,809 -
VTRH Note.......................................... - 9,284
ULA Revolving Credit Facility...................... - 8,000
TVSB Seller Note................................... 6,169 5,853
---------- --------
Total short-term debt........................... $ 9,978 $ 93,379
========== ========
</TABLE>
17
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
8. SENIOR DISCOUNT NOTES As of As of
June 30, December 31,
1999 1998
--------- ------------
(In thousands)
<S> <C> <C>
1999 Notes......................................... $ 212,853 $ -
1998 Notes......................................... 940,996 893,003
Old Notes.......................................... 161 412
United A/P Notes................................... 381,420 356,640
---------- ----------
1,535,430 1,250,055
Less current portion............................ (161) (412)
---------- ----------
Total senior discount notes..................... $1,535,269 $1,249,643
========== ==========
</TABLE>
1999 NOTES
On April 29, 1999, the Company sold in a private transaction $355.0 million
principal amount at maturity of 10.875% senior discount notes due 2009. The 1999
Notes were issued at a discount from their principal amount at maturity,
resulting in gross proceeds to United of approximately $208.9 million. The 1999
Notes will accrete at 10.875% per annum, compounded semi-annually, to an
aggregate principal amount of $355.0 million on May 1, 2004. Commencing November
1, 2004, cash interest on the 1999 Notes will begin to accrue, payable on May 1
and November 1 of each year until maturity at a rate of 10.875% per annum. The
1999 Notes will mature on May 15, 2009, and are redeemable after May 1, 2004 at
premiums declining to par on May 1, 2007. Additionally, subject to certain
limitations, prior to May 1, 2002, United may redeem an aggregate of 35.0% of
the 1999 Notes at the Company's option with the net proceeds from one or more
public offerings or certain asset sales. The 1999 Notes are senior, general,
unsecured obligations, ranking equally in right of payment to existing and
future senior, unsecured obligations, senior to all future junior obligations
and effectively junior to existing secured obligations, including the 1998
Notes.
Under the terms of the indentures governing the 1998 Notes and the 1999 Notes
(the "Indentures"), the Company's subsidiaries are generally prohibited and/or
restricted from incurring any lien against their assets other than liens
incurred in the ordinary course of business, from paying dividends, and from
making investments in entities that are not "restricted" by the terms of the
Indentures. The Indentures generally prohibit the Company from incurring
additional indebtedness with the exception of a general allowance of $25.0
million. The Indentures also limit the amount of additional debt that its
subsidiaries or controlled affiliates may borrow, or preferred shares that they
may issue. Generally, additional borrowings, when added to existing
indebtedness, must satisfy, among other conditions, at least one of the
following tests: (i) 7.0 times the borrower's consolidated operating cash flow;
(ii) 1.75 times its consolidated interest expense; or (iii) 225.0% of the
borrower's consolidated invested equity capital. In addition, there must be no
existing default under the Indentures at the time of the borrowing. The
Indentures also restrict its subsidiaries' ability to make certain asset sales
and certain payments.
1998 NOTES
The 10.75% senior secured notes, which the Company issued in February 1998 at a
discount from their principal amount of $1,375.0 million for proceeds of $812.2
million (the "1998 Notes"), had an accreted value of $941.0 million as of June
30, 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.
UNITED A/P NOTES
The 14.0% senior notes, issued by United A/P in May 1996 and September 1997 at a
discount from their principal amount of $488.0 million, had an accreted value of
$381.4 million as of June 30, 1999 (the "United 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 United 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,
United A/P consummated an equity sale resulting in gross proceeds to United 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 United A/P Notes will accrete to a principal amount of
$492.9 million on May 15, 2001, the date cash interest begins to accrue.
18
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
9. OTHER LONG-TERM DEBT As of As of
June 30, December 31,
1999 1998
--------- ------------
(In thousands)
<S> <C> <C>
New Telekabel Facility............................. $ 253,478 $ -
UPC Senior Revolving Credit Facility............... 215,035 512,179
CNBH Facility...................................... 112,439 -
RCF Facility....................................... 38,208 -
UPC DIC Loan....................................... 33,773 84,214
Mediareseaux Facility.............................. 32,627 21,346
UPC Bridge Bank Facility........................... - 60,063
Other UPC.......................................... 15,244 3,821
VTRH Bank Facility................................. 145,000 -
New Austar Bank Facility........................... 167,546 67,352
Other Asia/Pacific................................. 2,935 2,923
---------- --------
1,016,285 751,898
Less current portion............................ (7,939) (62,252)
---------- --------
Total other long-term debt...................... $1,008,346 $689,646
========== ========
</TABLE>
NEW TELEKABEL FACILITY
In March 1999, UTH replaced their existing NLG690.0 million ($323.9 million)
facility with a senior facility (the "New Telekabel Facility"). The New
Telekabel Facility consists of a euro340.0 million ($351.6 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 ($5.2 million) of the New
Telekabel Facility is in the form of an overdraft facility that will be
available until December 31, 2007. The New Telekabel Facility bears interest at
the Euro Interbank Offered Rate ("EURIBOR") plus a margin between 0.75% and
2.00% based on leverage multiples tied to N.V. Telekabel's net operating cash
flow.
UPC SENIOR REVOLVING CREDIT FACILITY
In October 1997, UPC and certain of its subsidiaries entered into the NLG1.1
billion ($516.4 million) 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 NLG1.1 billion to NLG1.0 billion ($469.5
million). As of June 30, 1999 a total of NLG458.0 million ($215.0 million) was
outstanding under this facility. The amount outstanding for UPC, Telekabel Group
and Janco Multicom was NLG0, NLG256.4 million ($120.4 million) and NLG201.6
million ($94.6 million), 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. In
July 1999, this facility was refinanced with a new senior credit facility (see
Note 13).
CNBH FACILITY
In February 1998, CNBH entered into a secured NLG250.0 million ($117.4 million)
ten year term facility with a syndicate of banks (the "CNBH Facility"). In
January 1999, this facility was increased to NLG274.0 million ($128.6 million).
The CNBH Facility bears interest at the Amsterdam Interbank Offered Rate
("AIBOR"), plus a margin between 0.7% and 0.75%. Beginning in 2001, CNBH will be
required to apply 50.0% of its excess cash flow to prepayment of its facility.
In connection with this facility, CNBH also entered into a NLG5.0 million ($2.3
million) ten-year term working capital facility with a bank.
RCF FACILITY
In 1990, RCF and six of its subsidiaries entered into a French francs
("FFR")160.0 million ($25.2 million) credit facility with a consortium of banks
to finance working capital and operations (the "RCF Facility"). In 1995 this
facility was amended and extended to FFR252.4 million ($39.8 million) to
refinance three further credit facilities entered into by other subsidiaries of
RCF with a consortium of banks in an aggregate amount of FFR108.0 million ($17.0
million) in 1993. The loan bears interest at PIBOR (the French interbank offer
rate) plus 1.5%, payable in arrears quarterly. The loan is to be repaid in
yearly installments of FFR34.6 million ($5.5 million) beginning at the end of
1999 until December 31, 2005.
19
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UPC DIC LOAN
In November 1998, a subsidiary of Discount Investment Corporation ("DIC") loaned
UPC a total of $90.0 million to acquire the additional interests in Tevel and
Melita (the "DIC Loan"). The DIC Loan matures in November 2000 and 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 $90.0 million, plus accrued interest, of
ordinary shares of UPC at a price equal to 90.0% of the initial public offering
price. UPC allocated the $90.0 million 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 $45.0 million each to acquire ordinary shares of UPC. DIC then
exercised the first option for $45.0 million, paying in cash and acquiring
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 remaining
option is exercisable until September 30, 2000.
MEDIARESEAUX FACILITY
In July 1998, Mediareseaux entered into a 9.5 year term facility with a bank for
an amount of FFR680.0 million ($107.2 million) (the "Mediareseaux Facility").
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 FFR20.0
million ($3.2 million) overdraft facility, subject to the same terms and
conditions as the Mediareseaux Facility except that the availability tests are
not applicable.
VTRH BANK FACILITY
On April 29, 1999, VTRH entered into a $220.0 million term loan facility in
connection with the VTRH Acquisition (the "VTRH Bank Facility"). The VTRH Bank
Facility consists of two tranches - Tranche A, with an aggregate principal
amount of $140.0 million, and Tranche B, with an aggregate principal amount of
$30.0 million. The banks are in the process of syndicating the final $50.0
million of the VTRH Bank Facility. The VTRH Bank Facility bears interest at
LIBOR plus a margin of 5.0%, increasing by 0.5% every three months beginning
April 29, 2001 until maturity on April 29, 2002.
NEW AUSTAR BANK FACILITY
On April 23, 1999, Austar executed a new A$400.0 million ($267.0 million)
syndicated senior secured debt facility (the "New Austar Bank Facility") to
refinance the existing 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. 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. As of June 30, 1999, Austar has drawn A$200.0 million under
Tranche 1 and A$51.0 million under Tranche 2, for a total outstanding balance of
A$251.0 million ($167.5 million).
20
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 62.2% owned subsidiary UPC,
affects the equity accounts of the Company. The following represents the effect
on additional paid-in capital as a result of these equity transactions by UPC
during the six months ended June 30, 1999 (in thousands):
Variable plan accounting for UPC stock options........ $243,473
Deferred compensation expense......................... (82,536)
Amortization of deferred compensation................. 34,434
Issuance of warrants.................................. 33,025
Issuance of convertible debt (DIC Loan)............... 14,875
--------
Total............................................ $243,271
========
11. COMPREHENSIVE INCOME (LOSS)
The components of total comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Net (loss) income................................... $(146,488) $(108,065) $541,863 $(297,562)
Other comprehensive (loss) income:
Change in cumulative translation adjustments...... (23,672) (11,091) (86,569) (10,430)
Change in unrealized gain/loss on investments..... 563 (322) 466 459
--------- --------- -------- ---------
Total comprehensive (loss) income............. $(169,597) $(119,478) $455,760 $(307,533)
========= ========= ======== =========
</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.
21
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company's consolidated segment information is as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
---------------------------------------- ---------------------------------------- As of As of
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998 June 30, December 31,
------------------- ------------------ ------------------- ------------------ 1999 1998
Adjusted Adjusted Adjusted Adjusted ---------- ------------
Revenue EBITDA(1) Revenue EBITDA(1) Revenue EBITDA(1) Revenue EBITDA(1) Total Assets
------- --------- ------- --------- ------- --------- ------- --------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Europe (UPC):
The Netherlands.......$ 32,933 $(6,610) $ 6,725 $ 3,852 $ 53,547 $ (5,879) $ 13,211 $ 8,014 $1,371,433 $ 297,068
Austria............... 24,322 8,247 21,844 9,993 49,058 18,462 42,901 21,103 324,969 341,159
Belgium............... 4,519 876 4,244 1,796 9,001 1,294 8,693 3,142 45,719 57,847
Czech Republic........ 1,186 (41) 1,107 (268) 2,328 (286) 2,083 (716) 11,212 11,497
France................ 1,939 (1,801) 891 (503) 3,551 (3,398) 1,531 (904) 229,200 51,092
Hungary............... 8,422 2,555 - - 17,308 5,582 - - 98,671 86,921
Norway................ 12,222 3,616 11,694 3,980 24,597 5,898 22,888 8,455 143,315 219,068
Corporate and Other... 2,317 (5,915) 2,627 (2,887) 4,344 (13,618) 4,077 (6,273) 50,062 22,744
-------- ------- ------- ------- -------- -------- -------- ------- ---------- ----------
Total Europe......... 87,860 927 49,132 15,963 163,734 8,055 95,384 32,821 2,274,581 1,087,396
-------- ------- ------- ------- -------- -------- -------- ------- ---------- ----------
Asia/Pacific:
Australia............. 34,564 (962) 19,188 (7,721) 64,820 (1,441) 38,504 (9,106) 225,930 181,169
Corporate and other... 821 (749) 1,122 5,189 821 (1,590) 2,259 153 71,369 72,781
-------- ------- ------- ------- -------- -------- -------- ------- ---------- ----------
Total Asia/Pacific... 35,385 (1,711) 20,310 (2,532) 65,641 (3,031) 40,763 (8,953) 297,299 253,950
-------- ------- ------- ------- -------- -------- -------- ------- ---------- ----------
Latin America:
Chile................. 21,014 5,050 - - 21,014 5,050 - - 483,130 84,975
Corporate and other... 1,737 (3,346) 728 (4,961) 3,525 (5,182) 1,203 (8,075) 60,858 73,048
-------- ------- ------- ------- -------- -------- -------- ------- ---------- ----------
Total Latin America.. 22,751 1,704 728 (4,961) 24,539 (132) 1,203 (8,075) 543,988 158,023
-------- ------- ------- ------- -------- -------- -------- ------- ---------- ----------
Corporate and Other.... - (104) 269 (6,119) - (355) 485 (11,391) 91,844 42,726
-------- ------- ------- ------- -------- -------- -------- ------- ---------- ----------
Total Company........$145,996 $ 816 $70,439 $ 2,351 $253,914 $ 4,537 $137,835 $ 4,402 $3,207,712 $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 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.
22
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Adjusted EBITDA reconciles to the consolidated statement of operations as
follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C>
Net operating loss...................................... $(122,574) $(43,969) $(194,891) $(94,651)
Depreciation and amortization........................... 75,679 46,320 133,077 98,855
Stock-based compensation expense........................ 47,711 - 66,351 198
--------- -------- --------- --------
Consolidated Adjusted EBITDA......................... $ 816 $ 2,351 $ 4,537 $ 4,402
========= ======== ========= ========
</TABLE>
13. SUBSEQUENT EVENTS
SERIES C PREFERRED STOCK
On July 6, 1999, the Company issued 425,000 shares of par value $0.01 per share
Series C Preferred Stock, resulting in gross and net proceeds to the Company of
$425.0 million and $382.5 million, respectively. The purchasers of the Series C
Preferred Stock deposited $29.75 million into an account from which the holders
will be entitled to quarterly payments in an amount equal to $17.50 per
preferred share commencing on September 30, 1999 through June 30, 2000, in cash
or Class A common stock at United's option. The Series C Preferred Stock had an
initial liquidation value of $1,000 per share, and accrues dividends perpetually
at a rate of 7.0% per annum, payable quarterly on March 31, June 30, September
30 and December 31 of each year, commencing on September 30, 2000, payable in
cash or Class A common stock at the Company's option. Each share of Series C
Preferred Stock is convertible any time at the option of the holder into the
number of shares of the Company's Class A common stock equal to the liquidation
value at the time of conversion divided by $84.30. The conversion price is
subject to adjustment upon the occurrence of certain events. The Company has the
right to require conversion on or after December 31, 2000 if the closing price
of United's common stock has equaled or exceeded 150.0% of the conversion price
for a certain period of time, or on or after June 30, 2002 if the closing price
of United's common stock has equaled or exceeded 130.0% of the conversion price
for a certain period of time. On or after June 30, 2002, the Company has the
option to redeem the Series C Preferred Stock in certain circumstances in cash
or Class A common stock. The Series C Preferred Stock ranks senior to United's
common stock and pari passu with the Company's existing preferred stock. The
Company has granted certain rights to holders of the Series C Preferred Stock to
register under the Securities Act of 1933 the shares of common stock issuable in
lieu of cash payment of amounts due on a change of control, redemption and
dividend payment date, and the shares of common stock issuable upon conversion
of the Series C Preferred Stock.
RESTRUCTURING OF ASIA/PACIFIC ASSETS AND INITIAL PUBLIC OFFERING
In June 1999, the Company's interest in Austar, United Wireless, XYZ
Entertainment and Saturn were contributed to Austar United in exchange for new
shares issued by Austar United. On July 27, 1999, Austar United closed an
initial public offering. A total of 103.5 million ordinary shares representing
approximately 21.6% of Austar United were offered for sale at a price of A$4.70
(US$3.11) for total gross proceeds of A$486.5 million ($321.9 million). In
connection with the offering, Austar United acquired from SaskTel its 35.0%
interest in Saturn in exchange for 13,659,574 ordinary shares, thereby
increasing Austar United's ownership in Saturn from 65.0% to 100%. As a result
of these transactions, the Company's fully diluted ownership interest in Austar
United is currently 74.1%.
UPC HIGH YIELD BOND OFFERING
On July 27, 1999, UPC completed its $1.5 billion bond offering. The offering
consists of three tranches: $800.0 million ten year Senior Notes due 2009 with a
10.875% coupon; Euro300.0 million ten year Senior Notes due 2009 with a coupon
of 10.875%; and $735.0 million aggregate principal amount ten year 12.5% Senior
Discount Notes due 2009. The Senior Discount Notes were sold at 54.521% of the
face amount yielding gross proceeds of $400.0 million and will accrue but not
pay interest until 2004. The $800.0 million of Senior Notes was swapped into
Euros to minimize UPC's currency and interest rate exposure. The swap will yield
an initial average interest rate on the swap portion of 7.8% and an initial
weighted average interest rate on the total $1.5 billion offering of 9.7%.
23
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UPC SENIOR CREDIT FACILITY
On July 27, 1999, UPC and a syndicate of banks entered into a Euro1.0 billion
multi currency senior secured credit facility (the "UPC Senior Credit
Facility"). Until the earlier of October 31, 1999 and the completion of the
syndication of the UPC Senior Credit Facility, availability under the UPC Senior
Credit Facility is limited to Euro500.0 million and such amount may not be used
to fund any acquisitions. The UPC Senior Credit Facility matures on July 26,
2006 and is comprised of two tranches. The Euro750.0 million Tranche A is a
senior secured reducing revolving credit facility. Tranche B is a Euro250.0
million term loan credit facility. The UPC Senior Credit Facility bears interest
at EURIBOR (for borrowings in Euros) and at LIBOR (for all other borrowings)
plus a margin between 0.75% and 2.0%, plus an additional cost of funding.
Proceeds from this facility were used to refinance the existing UPC Senior
Revolving Credit Facility.
STJARN ACQUISITION
On July 30, 1999, UPC acquired the stock of NBS Nordic Broadband Services AB,
whose primary asset is the operating company StjarnTVnatet AB ("Stjarn") for a
purchase price of approximately $397.0 million. $100.0 million of the purchase
price will be paid in the form of a one year note with interest at 8.0% per year
and the balance of the purchase price will be paid in cash. The note will
automatically convert into UPC's equity in the event of a public equity offering
of UPC's shares. If no public equity offering occurs, UPC will have the option,
at maturity of the note, to pay the note in either cash or UPC stock. Stjarn
operates cable television systems serving the greater Stockholm area.
@ENTERTAINMENT ACQUISITION
On August 6, 1999, UPC completed its tender offer for all outstanding shares of
the common stock of @Entertainment, Inc. at a price of $19.00 per share cash.
Subsequently all remaining outstanding common stock, preferred stock, stock
options and stock warrants were purchased by UPC. The purchase price was
approximately $807.0 million.
ACQUISITION OF INTEREST IN SBS
In July 1999, UPC purchased 4.8% of SBS for $24.3 million in cash. In August
1999, UPC acquired an additional 8.6% for $75.9 million, increasing its
ownership interest in SBS to 13.4%.
ACQUISITION OF VIDEOPOLE
In August 1999, UPC completed the acquisition of Videopole for a total purchase
price of $135.1 million. The purchase price was paid in cash of $65.2 million
and 955,376 ordinary shares of UPC.
24
<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 and six months ended June
30, 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
United was formed in 1989 for the purpose of developing, acquiring and managing
foreign multi-channel television, programming and telephony operations outside
the United States. Today we are a leading broadband communications provider
outside the United States. We provide multi-channel television services in over
20 countries worldwide and telephone and Internet/data services in a growing
number of our international markets. Our operations are grouped into three major
geographic regions: Europe, Asia/Pacific and Latin America. Our European
operations are held through our approximately 59.6% owned, publicly traded
subsidiary, UPC, which is the largest pan-European broadband communications
(multi-channel television, telephone and Internet/data) provider in terms of the
number of subscribers. Our Asia/Pacific operations are primarily held through
our approximately 74.1% owned, publicly traded subsidiary, Austar United, which
owns the largest provider of multi-channel television services in regional
Australia, various Australian programming interests and the only full service
provider of broadband communications in New Zealand. Our primary Latin American
operation is VTRH, Chile's largest multi-channel television provider and a
growing provider of telephone services.
For the three months ended June 30, 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, Chile (from May 1, 1999), Peru and Brazil (Fortaleza). Unconsolidated
systems include our interests in certain Israeli, Maltese, New Zealand, Brazil
(Jundiai), 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
June 30, 1999. In addition, the following proportionate data represents certain
operating and financial results for us, multiplied by our applicable ownership
percentage.
25
<PAGE>
<TABLE>
<CAPTION>
GROSS OPERATING SYSTEM DATA
As of and for the Six Months Ended June 30, 1999
----------------------------------------------------------------------------------------------------
Homes in Basic Long-
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............... 31.1-62.2% 1,712,920 1,645,140 1,538,756 93.5% | $ 95,664 $ 27,775 $227,473
Austria....................... 59.1% 1,078,980 905,430 461,018 50.9% | $ 46,562 $ 17,473 $ -
Hungary (Telekabel Hungary)... 49.3% 901,500 550,423 449,337 81.6% | $ 16,418 $ 5,286 $ -
Israel........................ 29.0% 602,000 592,326 410,380 69.3% | $ 80,204 $ 41,466 $231,452
Norway........................ 62.2% 529,900 465,951 323,265 69.4% | $ 23,347 $ 5,638 $ -
Belgium....................... 62.2% 133,060 133,060 125,786 94.5% | $ 8,546 $ 1,302 $ -
Malta......................... 31.1% 179,000 166,415 73,051 43.9% | $ 7,601 $ 3,221 $ 22,919
Romania....................... 31.7-62.2% 180,000 99,274 61,944 62.4% | $ 1,172 $ 490 $ -
Czech Republic................ 62.2% 229,531 157,586 54,691 34.7% | $ 2,211 $ (265) $ -
Hungary (Monor)............... 29.6% 85,000 70,061 31,686 45.2% | $ 9,602 $ 6,220 $ 33,729
France........................ 59.5-62.0% 412,500 287,087 108,140 37.7% | $ 10,776 $ (2,180) $ -
Slovak Republic............... 46.7-62.2% 344,343 211,295 185,633 87.9% | $ 1,027 $ 204 $ -
--------- --------- --------- | -------- -------- --------
Total.................... 6,388,734 5,284,048 3,823,687 | $303,130 $106,630 $515,573
--------- --------- --------- | -------- -------- --------
Telephony Lines: |
Hungary (Monor)............... 29.6% 85,000 84,619 71,721 84.8% | [Financial information is
The Netherlands............... 31.1-62.2% 1,712,920 556,886 54,007 9.7% | included in multi-channel TV
Austria....................... 59.1% 1,078,980 525,607 7,879 1.5% | information above.]
France........................ 59.5-62.0% 412,500 65,509 5,160 7.9% |
Norway........................ 62.2% 529,900 11,970 451 3.8% |
--------- --------- --------- |
Total..................... 3,819,300 1,244,591 139,218 |
--------- --------- --------- |
Data Subscribers: | [Financial information is
Internet...................... 31.1-62.2% N/A N/A 52,677 N/A | included in multi-channel
--------- --------- --------- | TV information above.]
Programming Subscribers: |
Spain/Portugal (IPS).......... 31.1% N/A N/A 1,031,000 N/A | $ 13,286 $ 5,801 $ 3,149
Ireland (Tara)................ 49.8% N/A N/A 749,244 N/A | $ 405 $ (2,327) $ -
--------- --------- --------- | -------- -------- --------
Total..................... N/A N/A 1,780,244 | $ 13,691 $ 3,474 $ 3,149
--------- --------- --------- | -------- -------- --------
ASIA/PACIFIC |
- ------------ |
Multi-channel TV Subscribers: |
Australia (Austar)............ 98.0% 2,085,000 2,083,000 329,002 15.8% | $ 66,396 $ (7,110) $ -
Philippines................... 19.2% 600,000 425,239 174,075 40.9% | $ 9,364 $ 2,808 $ 48
Tahiti........................ 88.2% 31,000 20,128 6,125 30.4% | $ 2,259 $ 129 $ -
New Zealand................... 63.7% 141,000 72,212 11,163 15.5% | $ 3,748 $ (3,631) $ 41,742
--------- --------- --------- | -------- -------- --------
Total..................... 2,857,000 2,600,579 520,365 | $ 81,767 $ (7,804) $ 41,790
--------- --------- --------- | -------- -------- --------
Telephony Lines: |
New Zealand................... 63.7% 141,000 71,710 15,683 21.9% |
--------- --------- --------- |
Data Subscribers: | [Financial information is
New Zealand................... 63.7% N/A N/A 2,927 N/A | included in multi-channel TV
--------- --------- --------- | information above.]
Programming Subscribers: |
Australia (XYZ |
Entertainment)................ 49.0% N/A N/A 807,680 N/A | $ 15,499 $ 7,114 $ -
--------- --------- --------- | -------- -------- --------
LATIN AMERICA |
- ------------- |
Multi-channel TV Subscribers: |
Chile......................... 100.0% 2,321,000 1,593,681 391,021 24.5% | $ 53,472 $ 12,061 $ -
Mexico........................ 49.0% 341,600 229,451 57,031 24.9% | $ 6,015 $ 2,028 $ -
Brazil (Jundiai).............. 46.3% 70,200 66,341 18,250 27.5% | $ 3,091 $ 1,164 $ 79
Brazil (TVSB)................. 100.0% 437,000 306,000 13,335 4.4% | $ 2,069 $ (893) $ -
Peru.......................... 60.0% 140,000 61,072 9,375 15.4% | $ 1,236 $ (176) $ -
--------- --------- --------- | -------- -------- --------
Total..................... 3,309,800 2,256,545 489,012 | $ 65,883 $ 14,184 $ 79
--------- --------- --------- | -------- -------- --------
Telephony Lines: |
Chile......................... 100.0% 2,321,000 300,353 43,379 14.4% | [Financial information is
--------- --------- --------- | included in multi-channel TV
Programming Subscribers: | information above.]
Latin American................ 50.0% N/A N/A 4,354,718 N/A | $ 3,070 $ (7,192) $ -
--------- --------- --------- | -------- -------- --------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
As of and for the Six Months Ended June 30, 1999
--------------------------------------------------------------------------------
Homes in Basic Long-
Service Homes Subscribers/ Adjusted Term
Area Passed Lines Revenue EBITDA(1) Debt(2)
------------ ----------- ------------ | ---------- --------- ----------
<S> <C> <C> <C> | <C> <C> <C>
TOTAL COMPANY BASED ON GROSS DATA: |
- --------------------------------- |
Multi-channel TV Subscribers................ 12,555,534 10,141,172 4,833,064 | $450,780 $113,010 $ 557,442
Telephony Lines............................. 6,281,300 1,616,654 198,280 | $ - $ - $ -
Data Subscribers............................ N/A N/A 55,604 | $ - $ - $ -
Programming Subscribers..................... N/A N/A 6,942,642 | $ 32,260 $ 3,396 $ 3,149
|
TOTAL COMPANY BASED ON CONSOLIDATED SYSTEMS: |
- ------------------------------------------- |
Multi-channel TV Subscribers................ 9,925,536 7,918,801 3,519,006 | $231,048 $ 42,645 $1,026,263
Telephony Lines............................. 5,475,102 1,074,216 80,986 | $ 13,297 $(13,283) $ -
Data Subscribers............................ N/A N/A 38,255 | $ 9,139 $(25,218) -
Programming Subscribers..................... N/A N/A 749,244 | $ 430 $ (5,167) $ -
|
TOTAL COMPANY BASED ON PROPORTIONATE DATA: |
- ----------------------------------------- |
Multi-channel TV Subscribers................ 8,659,063 6,984,715 2,775,147 | $273,381 $ 49,951 $ 181,568
Telephony Lines............................. 4,533,551 954,362 106,880 | $ - $ - $ -
Data Subscribers............................ N/A N/A 29,464 | $ - $ - $ -
Programming Subscribers..................... N/A N/A 3,266,587 | $ 13,462 $ 536 $ 979
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
GROSS OPERATING SYSTEM DATA
As of and for the Six Months Ended June 30, 1998
----------------------------------------------------------------------------------------------------
Homes in Basic Long-
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% 823,421 808,529 749,836 92.7% | $ 40,568 $15,418 $224,798
Austria....................... 95.0% 1,067,983 895,553 440,128 49.1% | $ 40,831 $20,093 $ -
Hungary (Kabelkom)............ 79.3% 778,500 470,804 406,475 86.3% | $ 3,164 $ 515 $ -
Israel........................ 23.3% 600,000 564,251 392,204 69.5% | $ 59,438 $29,623 $250,000
Norway........................ 100.0% 529,924 461,087 320,597 69.5% | $ 21,959 $ 8,117 $ -
Belgium....................... 100.0% 133,000 133,000 127,736 96.0% | $ 8,499 $ 3,000 $ -
Malta......................... 25.0% 179,000 159,537 65,608 41.1% | $ 6,823 $ 2,976 $ 19,627
Romania....................... 51.0-100% 176,000 95,654 59,201 61.9% | $ 381 $ 199 $ -
Czech Republic................ 100.0% 271,100 147,187 52,150 35.4% | $ 1,985 $ (684) $ -
Hungary (Monor)............... 46.3% 85,000 62,775 28,310 45.1% | $ 8,626 $ 5,330 $ 49,684
France........................ 99.6% 86,000 47,494 18,118 38.1% | $ 1,460 $ (862) $ -
Slovak Republic............... 75.0-100% 67,959 22,647 15,175 67.0% | $ 303 $ (179) $ -
--------- ---------- --------- | -------- ------- --------
Total..................... 4,797,887 3,868,518 2,675,538 | $194,037 $83,546 $544,109
--------- --------- --------- | -------- ------- --------
Telephony Lines: |
Hungary (Monor)............... 46.3% 85,000 84,037 65,547 78.0% | [Financial information is included
The Netherlands............... 50.0-100% 575,000 291,490 9,094 3.1% | in multi-channel TV information
--------- --------- --------- | above.]
Total..................... 660,000 375,527 74,641 |
--------- --------- --------- |
Programming Subscribers: |
Spain/Portugal (IPS).......... 33.5% N/A N/A 570,000 N/A | $ 7,646 $ 1,294 $ -
Ireland (Tara)............... 75.0% N/A N/A 456,021 N/A | $ 290 $(2,402) $ -
--------- --------- --------- | -------- ------- --------
Total..................... N/A N/A 1,026,021 | $ 7,936 $(1,108) $ -
--------- --------- --------- | -------- ------- --------
ASIA/PACIFIC |
- ------------ |
Multi-channel TV Subscribers: |
Australia (Austar)............ 98.0% 1,635,000 1,632,691 215,275 13.2% | $ 39,563 $(6,301) $ -
Philippines................... 19.2% 600,000 353,090 153,616 43.5% | $ 6,717 $ 1,775 $ -
Tahiti........................ 88.2% 31,000 20,128 6,125 30.4% | $ 2,259 $ 129 $ -
New Zealand................... 63.7% 141,000 36,613 3,635 9.9% | $ 389 $(4,001) $ 5,493
--------- --------- --------- | -------- ------- --------
Total..................... 2,407,000 2,042,522 378,651 | $ 48,928 $(8,398) $ 5,493
--------- --------- --------- | -------- ------- --------
Telephony Lines: |
New Zealand................... 63.7% 141,000 7,709 1,023 13.3% | [Financial information is included
--------- --------- --------- | in multi-channel TV information
Programming Subscribers: | above.]
Australia (XYZ |
Entertainment)................ 24.5% N/A N/A 543,564 N/A | $ 6,370 $ 5,291 $ -
--------- --------- --------- | -------- ------- --------
LATIN AMERICA |
- ------------- |
Multi-channel TV Subscribers: |
Chile......................... 34.0% 2,321,000 1,556,971 380,716 24.5% | $ 56,657 $15,514 $119,225
Mexico........................ 49.0% 341,600 176,285 55,221 31.3% | $ 5,965 $ 2,036 $ 172
Brazil (Jundiai).............. 46.3% 70,000 67,488 20,342 30.1% | $ 4,706 $ 1,349 $ 39
Brazil (TVSB)................. 45.0% 387,000 387,000 12,649 3.3% | $ 2,849 $ (197) $ -
Peru.......................... 99.2-100% 140,000 46,936 8,647 18.4% | $ 930 $ (449) $ -
--------- --------- --------- | -------- ------- --------
Total..................... 3,259,600 2,234,680 477,575 | $ 71,107 $18,253 $119,436
--------- --------- --------- | -------- ------- --------
Telephony Lines: |
Chile......................... 34.0% 2,321,000 60,000 7,884 13.1% | [Financial information is included
--------- --------- --------- | in multi-channel TV information
Programming Subscribers: | above.]
Latin American................ 50.0% N/A N/A 2,794,800 N/A | $ 1,397 $(8,338) $ -
--------- --------- --------- | -------- ------- --------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
As of and for the Six Months Ended June 30, 1998
---------------------------------------------------------------------------------
Homes in Basic Long-
Service Homes Subscribers/ Adjusted Term
Area Passed Lines Revenue EBITDA(1) Debt(2)
------------ ----------- ------------ | ---------- --------- ----------
<S> <C> <C> <C> | <C> <C> <C>
TOTAL COMPANY BASED ON GROSS DATA: |
- --------------------------------- |
Multi-channel TV Subscribers................ 10,464,487 8,145,720 3,531,764 | $314,072 $93,401 $669,038
Telephony Lines............................. 3,122,000 443,236 83,548 | $ - $ - $ -
Programming Subscribers..................... N/A N/A 4,364,385 | $ 15,703 $(4,155) $ -
|
TOTAL COMPANY BASED ON PROPORTIONATE DATA: |
- ----------------------------------------- |
Multi-channel TV Subscribers................ 6,767,063 5,413,835 2,359,740 | $190,830 $49,080 $242,698
Telephony Lines............................. 1,205,812 209,965 38,227 | $ - $ - $ -
Programming Subscribers..................... N/A N/A 2,063,539 | $ 5,039 $(4,242) $ -
|
TOTAL COMPANY BASED ON CONSOLIDATED SYSTEMS: |
- ------------------------------------------- |
Multi-channel TV Subscribers................ 5,164,887 4,214,150 1,900,752 | $137,038 $ 7,618 $725,987
Telephony Lines............................. - - - | $ 185 $ (556) $ -
Programming Subscribers..................... N/A N/A 456,021 | $ 612 $(2,660) $ -
</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. 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 June 30, 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 June 30, 1999 exchange rates for
the convenience translation.
29
<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 United (parent only) from inception to
date:
<TABLE>
<CAPTION>
For the Six
Inception to Months Ended
December 31, 1998 June 30, 1999 Total
United (Parent Only) ----------------- ------------- --------
------------------- (In millions)
<S> <C> <C> <C>
Financing Sources:
Gross bond proceeds.......................... $ 1,138.1 $ 208.9 $1,347.0
Gross equity proceeds (1).................... 408.9 22.3 431.2
Asset sales, dividends and note payments..... 224.4 94.7 319.1
Interest income and other.................... 32.7 16.2 48.9
---------- ------- --------
Total sources........................... 1,804.1 342.1 2,146.2
---------- ------- --------
Application of Funds:
Investment in:
UPC........................................ (454.7) (1.9) (456.6)
UAP (1).................................... (256.4) (32.0) (288.4)
ULA........................................ (292.3) (282.2) (574.5)
Other...................................... (25.8) - (25.8)
---------- ------- --------
Total................................... (1,029.2) (316.1) (1,345.3)
Repayment of bonds (2)....................... (531.8) (0.3) (532.1)
Offering costs............................... (64.5) (6.5) (71.0)
Corporate equipment and development.......... (25.7) (5.3) (31.0)
Corporate overhead and other................. (106.5) (8.4) (114.9)
---------- ------- --------
Total uses.............................. (1,757.7) (336.6) (2,094.3)
---------- ------- --------
Period change in cash........................ 46.4 5.5 51.9
Cash, beginning of period.................... - 46.4 -
---------- ------- --------
Cash, end of period.......................... $ 46.4 $ 51.9 51.9
========== ======= --------
United's Subsidiaries
---------------------
Cash, end of period:
UPC.......................................... 229.0
UAP.......................................... 4.8
ULA.......................................... 17.0
Other........................................ 2.9
--------
Total United's subsidiaries............. 253.7
--------
Total consolidated cash, cash
equivalents, restricted cash and
short-term liquid investments.......... $ 305.6
========
</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.
30
<PAGE>
UNITED PARENT
We had $51.9 million of cash, cash equivalents, restricted cash and short-term
liquid investments on hand as of June 30, 1999. On July 6, 1999 we raised net
proceeds of $382.5 million from the issuance of 425,000 shares of Series C
Preferred Stock. We do not expect to contribute additional capital to UPC and
Austar United for their on-going operating or development requirements, as they
will finance their operating systems and development opportunities with their
operating cash flow and debt and equity financings. We believe that our existing
capital resources will enable us to assist in satisfying the operating and
development requirements of our other subsidiaries and cover corporate overhead
for the next year. To the extent we pursue new acquisitions or development
opportunities, we will need to raise additional capital or seek strategic
partners. Because we do not currently generate positive operating cash flow, our
ability to repay our long-term obligations will be dependent on developing one
or more additional sources of cash.
UPC
UPC had $229.0 million of cash, cash equivalents, restricted cash and short-term
liquid investments on hand as of June 30, 1999. 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 NLG2,660.1 million ($1,364.1 million), respectively. 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 United Parent, and
completed the acquisition of GelreVision NLG233.9 million ($114.1 million), SKT
Bratislava ($43.3 million) and RCF FFR172.0 million ($27.1 million). The
remaining proceeds from the initial public offering, in addition to borrowing
capacity on UPC's facilities at the corporate and project debt level, 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.
Subsequent to June 30, 1999, UPC closed an offering of 10.875% senior notes due
2009 and 12.5% senior discount notes due 2009. The offering generated gross
proceeds of approximately $1.5 billion. Proceeds from the bond offering will
primarily be used to fund planned acquisitions. Also subsequent to June 30, 1999
UPC entered into a Euro1.0 billion credit facility. Proceeds from the UPC Senior
Credit Facility are expected to be used to refinance the existing Senior
Revolving Credit Facility, repay certain intercompany debts, pay interest on
funds downstreamed from the proceeds of the bond offering, fund general
corporate purposes, fund capital expenditures, pay amounts due under the UPC
Senior Credit Facility and other permitted distributions. While the proceeds
from the bond offering and the UPC Senior Credit Facility are adequate to meet
UPC's existing business requirements, UPC may need to raise additional capital
in the future to the extent UPC pursues new acquisitions or development
opportunities or if cash flow from operations is insufficient to satisfy UPC's
liquidity requirements.
UAP
UAP had $4.8 million of cash, cash equivalents and short-term liquid investments
on hand as of June 30, 1999. On July 27, 1999, Austar United closed an initial
public offering. A total of 103.5 million ordinary shares representing
approximately 21.6% of Austar United were offered for sale at a price of A$4.70
(US$3.11) for total gross proceeds of A$486.5 million ($321.9 million). In
connection with the offering, Austar United acquired from SaskTel its 35.0%
interest in Saturn in exchange for 13,659,574 ordinary shares, thereby
increasing Austar United's ownership in Saturn from 65.0% to 100%. As a result
of these transactions, the Company's fully diluted ownership interest in Austar
United is currently 74.1%. Future funding for Austar United customer base
expansion and project build-out will come from these proceeds and the New Austar
Bank Facility.
31
<PAGE>
ULA
ULA had $17.0 million of cash, cash equivalents, restricted cash and short-term
liquid investments on hand as of June 30, 1999. 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's Chilean system,
VTRH, has capacity for borrowing under the VTRH Bank Facility as of June 30,
1999. With this facility and positive operating cash flow, the business is fully
funded through mid-2000 without additional assistance from United. ULA
anticipates additional funding for Latin America programming and projects in
Brazil totaling approximately $4.8 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.
STATEMENTS OF CASH FLOWS
We had cash and cash equivalents of $252.1 million as of June 30, 1999, an
increase of $216.5 million from $35.6 million as of December 31, 1998. Cash and
cash equivalents of $83.5 million as of June 30, 1998 represented an increase of
$9.2 million from $74.3 million as of December 31, 1997, the detail of which is
as follows:
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
----------------------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Cash flows from operating activities................. $ (53,196) $ (4,727)
Cash flows from investing activities................. (941,040) (253,221)
Cash flows from financing activities................. 1,260,671 267,212
Effect of exchange rates on cash..................... (49,936) (30)
--------- --------
Net increase in cash and cash equivalents............ 216,499 9,234
Cash and cash equivalents at beginning of period..... 35,608 74,289
--------- --------
Cash and cash equivalents at end of period........... $ 252,107 $ 83,523
========= ========
</TABLE>
SIX MONTHS ENDED JUNE 30, 1999
Principal sources of cash during the six months ended June 30, 1999 included
$1,409.1 million in proceeds from UPC's initial public offering and DIC's
exercise of its option to acquire shares in UPC, $266.6 million of borrowings on
the New Telekabel Facility, $208.9 million in proceeds from the issuance of the
1999 Notes, $162.1 million of borrowings on the New Austar Bank Facility, $54.4
million of borrowings on the UPC Senior Revolving Credit Facility, $30.0 million
of borrowings on the VTRH Bank Facility, $42.8 million of borrowings by our
other operating companies, $36.9 million from the issuance of our and UPC's
equity securities, $18.0 million of proceeds from the sale of our Hungarian
programming assets and $3.9 million from other investing and financing sources.
Principal uses of cash during the six months ended June 30, 1999 included $252.7
million for the acquisition of the additional 66.0% interest in VTRH, $252.0
million for the acquisition of the additional 49.0% interest in UTH, $109.7
million for the acquisition of GelreVision, $67.7 million for other
acquisitions, $306.1 million for the repayment of the existing facility at UTH,
$306.1 million for the repayment of a portion of the UPC Senior Revolving Credit
Facility, $129.1 million for the repayment of the Austar Bank Facility, $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, $69.3 million for the repayment of other
loans, $220.3 million of capital expenditures for system upgrade and new-build
activities, $49.9 million negative exchange rate effect on cash, $37.8 million
of funding to our affiliates, $20.2 million for deferred financing costs, $18.0
million for payment of a note, and $76.2 million for operating activities and
other investing and financing uses.
SIX MONTHS ENDED JUNE 30, 1998
Principal sources of cash during the six months ended June 30, 1998 included
$812.2 million from the issuance of the 1998 Notes, $132.7 million of borrowings
on the UPC Senior Revolving Credit Facility and CNBH's major facility and $2.9
million from other investing and financing sources.
Principal uses of cash during the six months ended June 30, 1998 included $531.8
million for the redemption of the existing Old Notes, $100.9 million for the
32
<PAGE>
repayment of the KTE facility and a portion of the UPC Bridge Bank Facility,
$88.0 million for the acquisition of Combivisie, The Netherlands, $47.7 million
for the net purchase of short-term investments, $74.6 million of capital
expenditures for system upgrade and new-build activities, $25.0 million for the
repayment of the ULA Revolving Credit Facility, $20.7 million of debt financing
costs, $28.8 million of funding to our affiliates and $21.1 million for
operating activities and other investing and financing uses.
RESULTS OF OPERATIONS
The following table displays selected system operating data for our significant
consolidated systems in the currency reported to United:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
UPC Revenue (NLG):
Cable Television............................ 156,265 93,323 289,178 184,578
Telephony................................... 15,563 255 22,866 375
Internet/Data............................... 12,170 2,066 19,507 3,069
Programming and Other....................... (864) 4,621 403 7,248
---------- ---------- ---------- ----------
Total UPC Revenue....................... 183,134 100,265 331,954 195,270
========== ========== ========== ==========
UPC Adjusted EBITDA (NLG):
Cable Television............................ 69,941 42,492 129,865 87,305
Telephony................................... (15,926) (865) (28,043) (1,127)
Internet/Data............................... (33,113) (2,866) (51,416) (5,506)
Programming and Other....................... (18,970) (8,531) (34,494) (13,481)
---------- ---------- ---------- ----------
Total UPC Adjusted EBITDA (1)........... 1,932 30,230 15,912 67,191
========== ========== ========== ==========
Austar (A$):
Revenue..................................... 53,089 30,479 99,468 59,270
========== ========== ========== ==========
Adjusted EBITDA (1)......................... (3,465) (9,956) (10,651) (9,440)
========== ========== ========== ==========
VTRH (Chilean Pesos "Ch"):
Revenue (2)................................. 15,564,194 12,415,523 29,896,977 24,541,071
========== ========== ========== ==========
Adjusted EBITDA (1) (2)..................... 3,093,313 3,573,413 5,867,570 7,410,845
========== ========== ========== ==========
</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. 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) Based on Chilean GAAP. We began consolidating the results of
operations of VTRH beginning May 1, 1999.
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:
<TABLE>
<CAPTION>
Dutch Australian Chilean
Guilder Dollar Peso
------- ---------- -------
<S> <C> <C> <C>
Average rate three months ended June 30, 1999........ 2.0844 1.5302 489.6650
Average rate three months ended June 30, 1998........ 2.0229 1.5935 N/A
</TABLE>
REVENUE. Revenue increased $75.6 million, or 107.4%, from $70.4 million for the
three months ended June 30, 1998 to $146.0 million for the three months ended
June 30, 1999. Revenue increased $116.1 million, or 84.3%, from $137.8 million
for the six months ended June 30, 1998 to $253.9 million for the six months
ended June 30, 1999.
33
<PAGE>
EUROPE
Revenue for UPC in U.S. dollar terms increased $38.8 million, or 79.0% from
$49.1 million for the three months ended June 30, 1998 to $87.9 million for the
three months ended June 30, 1999, including a negative impact of $1.5 million
due to exchange rate fluctuations. Revenue for UPC in U.S. dollar terms
increased $68.3 million, or 71.6% from $95.4 million for the six months ended
June 30, 1998 to $163.7 million for the six months ended June 30, 1999,
including a positive impact of $0.6 million due to exchange rate fluctuations.
On a functional currency basis, UPC's revenue increased NLG82.8 million or 82.6%
from NLG100.3 million for the three months ended June 30, 1998 to NLG183.1
million for the three months ended June 30, 1999. On a functional currency
basis, UPC's revenue increased NLG136.7 million or 70.0% from NLG195.3 million
for the six months ended June 30, 1998 to NLG332.0 million for the six months
ended June 30, 1999. 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 June 30, 1999, cable television revenue from UTH was NLG86.8
million, as compared to cable television revenue from CNBH, UPC's only
consolidated Dutch system for the three months ended June 30, 1998, of NLG26.5
million. Total cable television revenue from Telekabel Hungary was NLG34.9
million for the six months ended June 30, 1999, compared to NLGnil for the six
months ended June 30, 1998. The remaining increase in cable television revenue
came from subscriber growth. The increase in telephony revenue is primarily a
result of the consolidation of UTH, as well as increased telephony revenue from
the launch of telephony services in Austria, France and Norway in the first half
of 1999. Internet/data services revenue is primarily due to increased revenue
from Austria due to subscriber growth, and the launch of Internet/data services
in Belgium, France, The Netherlands and Norway in the first half of 1999.
ASIA/PACIFIC
Revenue for Austar increased $15.6 million, or 81.7% from $19.1 million for the
three months ended June 30, 1998 to $34.7 million for the three months ended
June 30, 1999. Austar's revenue increased $25.9 million, or 67.6%, from $38.3
million for the six months ended June 30, 1998 to $64.2 million for the six
months ended June 30, 1999. On a functional currency basis, Austar's revenue
increased A$22.6 million from A$30.5 million for the three months ended June 30,
1998 to A$53.1 million for the three months ended June 30, 1999, a 74.1%
increase. Austar's functional revenue increased A$40.2 million, from A$59.3
million for the six months ended June 30, 1998 to A$99.5 million for the six
months ended June 30, 1999, a 67.8% increase. These increases were primarily due
to subscriber growth (329,002 at June 30, 1999 compared to 215,275 at June 30,
1998) as Austar continues to expand its customer base. The U.S. dollar increase
was positively impacted by $1.4 million due to fluctuation in exchange rates
between the three months ended June 30, 1999 and 1998. The U.S. dollar increase
occurred despite the negative impact of $0.1 million due to fluctuation in
exchange rates between the six months ended June 30, 1999 and 1998.
LATIN AMERICA
We began consolidating the results of operations of VTRH effective May 1, 1999.
On a functional currency basis, VTRH's revenue increased Ch3.2 billion or 25.8%
from Ch12.4 billion for the three months ended June 30, 1998 to Ch15.6 billion
for the three months ended June 30, 1999. The increase in revenue primarily
resulted from telephony subscriber growth (43,379 at June 30, 1999 compared to
7,884 at June 30, 1998) as well as modest multi-channel television subscriber
growth (391,021 at June 30, 1999 compared to 380,716 at June 30, 1998). In
addition, certain of VTRH's multi-channel television systems experienced rate
increases this year compared to last year. For the three months ended June 30,
1999 the average monthly revenue per subscriber was Ch10,797 compared to
Ch10,251 for the same period in the prior year.
ADJUSTED EBITDA. Adjusted EBITDA decreased $1.5 million during the three months
ended June 30, 1999 compared to the three months ended June 30, 1998. Adjusted
EBITDA increased $0.1 million during the six months ended June 30, 1999 compared
to the six months ended June 30, 1998.
EUROPE
Adjusted EBITDA for UPC in U.S. dollar terms decreased $15.1 million, or 94.4%,
from $16.0 million for the three months ended June 30, 1998 to $0.9 million for
the three months ended June 30, 1999, including a negative impact of $0.5
million due to exchange rate fluctuations. Adjusted EBITDA for UPC in U.S.
dollar terms decreased $24.7 million, or 75.3%, from $32.8 million for the six
months ended June 30, 1998 to $8.1 million for the six months ended June 30,
1999, offset by a positive impact of $0.3 million due to exchange rate
fluctuations. On a functional currency basis, UPC's Adjusted EBITDA decreased
NLG28.3 million, or 93.7%, from NLG30.2 million for the three months ended June
30, 1998 to NLG1.9 million for the three months ended June 30, 1999. On a
34
<PAGE>
functional currency basis, UPC's Adjusted EBITDA decreased NLG51.3 million, or
76.3%, from NLG67.2 million for the six months ended June 30, 1998 to NLG15.9
million for the six months ended June 30, 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.
ASIA/PACIFIC
Austar's Adjusted EBITDA loss decreased $3.8 million, or 62.3%, from $(6.1)
million for the three months ended June 30, 1998 to $(2.3) million for the three
months ended June 30, 1999. This decrease in Adjusted EBITDA loss for the three
months is due to the increase in revenue in 1999 associated with subscriber
growth partially offset by increased programming costs. Austar's Adjusted EBITDA
loss increased $1.0 million, or 17.2%, from $(5.8) million for the six months
ended June 30, 1998 to $(6.8) million for the six months ended June 30, 1999.
The increase in Adjusted EBITDA loss for the six month period from year to year
was primarily due to the large increase in programming and transmission costs.
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. These expense increases were almost entirely
offset by increased revenues between periods due to subscriber growth. On a
functional currency basis, Austar's Adjusted EBITDA loss decreased A$6.5 million
from A$(10.0) million for the three months ended June 30, 1998 to A$(3.5)
million for the three months ended June 30, 1999, a 65.0% decrease. Austar's
functional currency Adjusted EBITDA loss increased A$1.3 million, from A$(9.4)
million for the six months ended June 30, 1998 to A$(10.7) million for the six
months ended June 30, 1999, a 13.8% increase. The U.S. dollar Adjusted EBITDA
loss decrease was positively impacted by $0.1 million due to fluctuation in
exchange rates between the three months ended June 30, 1999 and 1998 and the
U.S. dollar Adjusted EBITDA loss increase was negatively impacted by $0.1
million due to fluctuation in exchange rates between the six months ended June
30, 1999 and 1998.
LATIN AMERICA
We began consolidating the results of operations of VTRH effective May 1, 1999.
On a functional currency basis, VTRH's Adjusted EBITDA decreased Ch0.5 billion,
or 13.9%, from Ch3.6 billion for the three months ended June 30, 1998 to Ch3.1
billion for the three months ended June 30, 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 VTRH's newer
telephony and Internet/data services and an increase in senior management
personnel hired from the former shareholders of VTRH.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE. Corporate general and
administrative expense increased $55.3 million from $3.7 million for the three
months ended June 30, 1998 to $59.0 million for the three months ended June 30,
1999. Corporate general and administrative expense increased $66.2 million from
$18.9 million for the six months ended June 30, 1998 to $85.1 million for the
six months ended June 30, 1999. These increases were primarily attributable to a
stock-based compensation charge of $30.5 million and $49.2 million from UPC's
stock option plans for the three and six months ended June 30, 1999,
respectively, compared to $0.2 million for the same periods in 1998. In
addition, UAP recorded $17.6 million of non-cash stock-based compensation
expense for the three and six months ended June 30, 1999.
35
<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
$29.4 million and $34.2 million during the three and six months ended June 30,
1999 compared to the three and six months ended June 30, 1998, respectively, as
follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Europe......................................... $40,878 $22,632 $ 73,099 $47,286
Asia/Pacific................................... 25,477 23,223 49,945 50,635
Latin America.................................. 8,951 283 9,411 449
Corporate and other............................ 373 182 622 485
------- ------- -------- -------
Total depreciation and amortization
expense................................. $75,679 $46,320 $133,077 $98,855
======= ======= ======== =======
</TABLE>
EUROPE
UPC's depreciation and amortization expense in U.S. dollar terms increased $18.3
million, or 81.0%, from $22.6 million for the three months ended June 30, 1998
to $40.9 million for the three months ended June 30, 1999, offset by a positive
impact of $0.6 million due to exchange rate fluctuations. UPC's depreciation and
amortization expense in U.S. dollar terms increased $25.8 million, or 54.5%,
from $47.3 million for the six months ended June 30, 1998 to $73.1 million for
the six months ended June 30, 1999, including a negative impact of $0.6 million
due to exchange rate fluctuations. On a functional currency basis, UPC's
depreciation and amortization expense increased NLG38.7 million, or 83.2%, from
NLG46.5 million for the three months ended June 30, 1998 to NLG85.2 million for
the three months ended June 30, 1999. On a functional currency basis, UPC's
depreciation and amortization expense increased NLG53.4 million, or 56.2%, from
NLG95.0 million for the six months ended June 30, 1998 to NLG148.4 million for
the six months ended June 30, 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. We expect depreciation and amortization to
increase in the future due to anticipated acquisitions and continued new-build
for developing systems.
ASIA/PACIFIC
Depreciation and amortization expense for Austar increased $3.6 million, or
16.8%, from $21.4 million for the three months ended June 30, 1998 to $25.0
million for the three months ended June 30, 1999. Depreciation and amortization
expense for Austar increased $0.8 million, or 1.7% from $48.2 million for the
six months ended June 30, 1998 to $49.0 million for the six months ended June
30, 1999. On a functional currency basis, Austar's depreciation and amortization
expense increased A$4.5 million, from A$32.4 million for the three months ended
June 30, 1998 to A$36.9 million for the three months ended June 30, 1999, a
13.9% increase. On a functional currency basis, Austar's depreciation and
amortization expense increased A$1.9 million, from A$71.3 million for the six
months ended June 30, 1998 to A$73.2 million for the six months ended June 30,
1999, a 2.7% increase. The U.S. dollar increases were negatively impacted by
$0.9 million due to fluctuation in exchange rates between the three months ended
June 30, 1999 and 1998 and positively impacted by $0.1 million due to
fluctuation in exchange rates between the six months ended June 30, 1999 and
1998.
LATIN AMERICA
The increase in the three and six month periods ended June 30, 1999 is due to
consolidating the results of operations of VTRH effective May 1, 1999.
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 NLG2,660.1 million ($1,364.1 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 $822.1 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.
36
<PAGE>
INTEREST EXPENSE. Interest expense increased $14.1 million, or 29.6%, from $47.7
million during the three months ended June 30, 1998 to $61.8 million during the
three months ended June 30, 1999. Interest expense increased $26.3 million, or
28.5%, from $92.2 million during the six months ended June 30, 1998 to $118.5
million during the six months ended June 30, 1999. These increases were
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 United A/P Notes, new debt in 1999 such as the DIC
Loan and Telekabel Hungary Facility and consolidation of the New Telekabel
Facility and VTRH Bank Facility.
FOREIGN CURRENCY EXCHANGE LOSS. Foreign currency exchange loss increased $11.9
million from $2.8 million for the three months ended June 30, 1998 to $14.7
million for the three months ended June 30, 1999. Foreign currency exchange loss
increased $14.6 million from $5.6 million for the six months ended June 30, 1998
to $20.2 million for the six months ended June 30, 1999. These increases were
primarily due to a decrease in the value of the Chilean Peso in relation to the
U.S. dollar during the three months ended June 30, 1999. VTRH has approximately
$253.0 million of U.S. dollar denominated notes payable which are subject to
fluctuations in exchange rates.
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 six months ended June
30, 1998 of $79.1 million.
SHARE IN RESULTS OF AFFILIATED COMPANIES. Our share in results of affiliated
companies totaled a loss of $11.0 million and $16.3 million for the three months
ended June 30, 1999 and 1998, respectively, and a loss of $31.6 million and
$30.9 million for the six months ended June 30, 1999 and 1998, respectively, as
follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Three Months Ended
June 30, 1999 June 30, 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% $ (7,724) 50.0% $ (6,499)
UTH (1)....................................... 100.0% - - -
Hungary....................................... 50.0% - 50.0% (2,358)
UII Partnership
(Melita, Princes Holdings and Tevel)(2)...... various - various 630
Tevel (2)..................................... 46.6% 268 - -
Melita (2).................................... 50.0% (172) - -
Monor......................................... 47.5% 1,004 48.6% (693)
Other......................................... various 436 various (322)
-------- --------
(6,188) (9,242)
-------- --------
Asia/Pacific:
Saturn........................................ 65.0% (1,634) 65.0% (2,175)
XYZ Entertainment............................. 50.0% (1,207) 25.0% 955
PCC........................................... 19.6% 117 40.0% 52
HITV.......................................... 49.0% 330 49.0% (161)
-------- --------
(2,394) (1,329)
-------- --------
Latin America:
VTRH (3)...................................... 100.0% (990) 34.0% (2,075)
Megapo........................................ 49.0% 81 49.0% (79)
TVSB (4)...................................... 100.0% - 45.0% (218)
MGM Networks LA............................... 50.0% (1,608) 50.0% (3,394)
Jundiai....................................... 46.3% 53 46.3% 87
-------- --------
(2,464) (5,679)
-------- --------
Total share in results of
affiliated companies........................... $(11,046) $(16,250)
======== ========
</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.
37
<PAGE>
(3) Effective May 1, 1999 we increased our ownership interest in VTRH to 100%
and began consolidating its results of operations.
(4) Effective October 2, 1998 we increased our ownership interest in TVSB to
100% and began consolidating its results of operations.
<TABLE>
<CAPTION>
For the Six Months Ended For the Six Months Ended
June 30, 1999 June 30, 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% $(12,813) 50.0% $(11,358)
UTH (5)....................................... 100.0% (2,757) - -
Hungary....................................... 50.0% (111) 50.0% (2,802)
UII Partnership
(Melita, Princes Holdings and Tevel) (6)..... various - various 430
Tevel (6)..................................... 46.6% (1,830) - -
Melita (6).................................... 50.0% (167) - -
Monor......................................... 47.5% 851 48.6% (957)
Other......................................... various 304 various (695)
-------- --------
(16,523) (15,382)
-------- --------
Asia/Pacific:
Saturn........................................ 65.0% (3,582) 65.0% (3,979)
XYZ Entertainment............................. 50.0% (4,393) 25.0% 470
PCC........................................... 19.6% (64) 40.0% (339)
HITV.......................................... 49.0% 201 49.0% (322)
-------- --------
(7,838) (4,170)
-------- --------
Latin America:
VTRH (7)...................................... 100.0% (3,963) 34.0% (4,379)
Megapo........................................ 49.0% 238 49.0% 40
TVSB (8)...................................... 100.0% - 45.0% 47
MGM Networks LA............................... 50.0% (3,646) 50.0% (7,239)
Jundiai....................................... 46.3% 124 46.3% 165
-------- --------
(7,247) (11,366)
-------- --------
Total share in results of
affiliated companies.......................... $(31,608) $(30,918)
======== ========
</TABLE>
(5) Effective February 1, 1999 we increased our ownership interest in UTH from
51.0% to 100% and began consolidating their results of operations.
(6) 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.
(7) Effective May 1, 1999 we increased our ownership interest in VTRH to 100%
and began consolidating its results of operations.
(8) Effective October 2, 1998 we increased our ownership interest in TVSB to
100% and began consolidating its results of operations.
38
<PAGE>
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 United 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 June 30, 1999, 96.0% 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 94.0% of the
items identified during the Identification Phase as to Year 2000 compliance. Of
the items researched, 81.0% are compliant and 5.0% are not compliant but can be
easily remediated without significant cost to us. The remaining items require
further research or additional testing. With respect to systems recently
acquired or to be acquired, we have not determined whether any of these systems
have their own programs in place for Year 2000 compliance. We are undertaking
such reviews as soon as possible after the acquisitions, at which point we will
determine at what level their systems are within our Year 2000 Program. In
addition, our program has expanded because certain suppliers of computer
software and hardware have re-classified their products from compliant to
non-compliant or conditionally compliant. The majority of these items can be
remedied with free downloadable patches from the vendor web sites.
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, testing will continue through year-end 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.
Certain of our operating systems have not completed the Identification Phase,
including Tahiti 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 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.
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 of its members. These test procedures have been made
available to members, including us.
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
39
<PAGE>
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. For example, this is how the Task Force
learned that previously compliant reports on computer hardware and software from
third party vendors have been re-classified as non-compliant or conditionally
compliant. Such changes are not within the control of the Company.
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 this 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 cannot in all
cases be independently verified, and because of the uncertainties inherent in
Year 2000 remediation.
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 United
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. 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 consultants are also contacting third party vendors regarding their Year
2000 compliance measures. The Task Force will continue to evaluate the need for
external resources to complete the Implementation Phase and implement the
Testing Phase.
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 United 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 99.0% of the headend controllers,
which are considered the most critical component of the headend devices, have
been upgraded and tested as compliant. 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 United.
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 determine 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 $4.4
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
40
<PAGE>
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.
41
<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.
IMPACT OF FOREIGN CURRENCY RATE CHANGES
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 Chilean
Guilder Dollar Peso
------- ---------- --------
<S> <C> <C> <C>
Spot Rate June 30, 1999............................... 2.1300 1.4981 518.7500
Average rate for three months ended June 30, 1999..... 2.0844 1.5302 489.6650
Spot Rate December 31, 1998........................... 1.8900 1.6332 N/A
Spot Rate June 30, 1998............................... 2.0400 1.6145 N/A
Average rate for three months ended June 30, 1998..... 2.0229 1.5935 N/A
Spot Rate December 31, 1997........................... 2.0200 1.5378 N/A
</TABLE>
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 that are denominated in
U.S. dollars but recorded in the functional currency of the foreign subsidiary.
In addition, certain of our operating companies have notes payable and notes
receivable which are denominated in a currency other than their own functional
currency, as follows:
Amount Outstanding
as of June 30, 1999
U.S. Dollar Denominated Facilities -------------------
---------------------------------- (in thousands)
DIC Loan (1)
8.0% per annum + 6.0% of
principal at maturity..................... $45,000
Intercompany Loan to UPC (1)
10.75% per annum.......................... $ 5,881
TVSB Seller Note (2)
average rate in 1999 of 10.0%............. $ 5,700
VTRH Bank Facility (3)
average rate in 1999 of 9.82%............. $145,000
Intercompany Loan to VTRH (3)
13.75% per annum.......................... $108,000
(1) Functional currency is Dutch Guilders.
(2) Functional currency is Brazilian Reals.
(3) Functional currency is Chilean Pesos.
42
<PAGE>
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. 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.
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
six months ended June 30, 1999, we recorded a negative change in cumulative
translation adjustments of $86.6 million, primarily due to the strengthening of
the U.S. dollar compared to the Dutch guilder and the Chilean Peso.
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 June 30, 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 1999 Notes................................ $212,853 $202,052
Average interest rate...................................................... 10.875% 12.000%
Fixed rate U.S. dollar denominated 1998 Notes................................ $940,996 $914,375
Average interest rate...................................................... 10.75% 11.464%
Fixed rate U.S. dollar denominated United A/P Notes.......................... $381,420 $345,006
Average interest rate...................................................... 14.00% 16.26%
Fixed rate U.S. dollar denominated DIC Loan.................................. $ 33,773 $ 33,773
Average interest rate...................................................... 8.00% 8.00%
Fixed rate U.S. dollar denominated TVSB Seller Note.......................... $ 6,169 $ 6,169
Average interest rate...................................................... 10.00% 10.00%
Variable rate Dutch guilder denominated Senior Revolving Credit Facility..... $215,035 $215,035
Average interest rate...................................................... 6.00% 6.00%
Variable rate Euro denominated New Telekabel Facility........................ $253,478 $253,478
Average interest rate...................................................... 4.90% 4.90%
Variable rate French Franc denominated Mediareseaux Facility................. $ 32,627 $ 32,627
Average interest rate...................................................... 4.90% 4.90%
Variable rate French Franc denominated RCF Facility.......................... $ 38,208 $ 38,208
Average interest rate...................................................... 4.40% 4.40%
Variable rate Australian dollar denominated New Austar Bank Facility......... $167,546 $167,546
Average interest rate...................................................... 7.20% 7.20%
Variable rate Dutch guilder denominated CNBH Facility........................ $112,439 $112,439
Average interest rate...................................................... 3.90% 3.90%
Variable rate U.S. dollar denominated VTRH Bank Facility..................... $145,000 $145,000
Average interest rate...................................................... 9.82% 9.82%
</TABLE>
43
<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>
Expected payment as of December 31,
----------------------------------------------------------------------------
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
1999 Notes..................................... $ - $ - $ - $ - $ - $ 212,853 $212,853
Fixed rate U.S. dollar denominated
1998 Notes..................................... $ - $ - $ - $ - $ - $ 940,996 $940,996
Fixed rate U.S. dollar denominated
United A/P Notes............................... $ - $ - $ - $ - $ - $ 381,420 $381,420
Fixed rate U.S. dollar denominated
DIC Loan....................................... $ - $33,773 $ - $ - $ - $ - $ 33,773
Fixed rate U.S. dollar denominated
TVSB Seller Note............................... $ 6,169 $ - $ - $ - $ - $ - $ 6,169
Variable rate Dutch guilder denominated
Senior Revolving Credit Facility............... $215,035 $ - $ - $ - $ - $ - $215,035
Variable rate Euro denominated
New Telekabel Facility......................... $ - $ - $ - $ 12,674 $25,348 $ 215,456 $253,478
Variable rate French Franc denominated
Mediareseaux Facility.......................... $ - $ - $ - $ - $32,627 $ - $ 32,627
Variable rate French Franc denominated
RCF Facility................................... $ 5,446 $ 5,446 $5,446 $ 5,446 $ 5,446 $ 10,978 $ 38,208
Variable rate Australian dollar denominated
New Austar Bank Facility....................... $ - $ - $ - $ - $51,553 $ 115,993 $167,546
Variable rate Dutch guilder denominated
CNBH Facility.................................. $ - $ - $3,296 $ 7,699 $14,298 $ 87,146 $112,439
Variable rate U.S. dollar denominated
VTRH Bank Facility............................. $ - $ - $ - $145,000 $ - $ - $145,000
</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 four interest rate swaps to
manage interest rate exposure on the New Austar Bank Facility. Two of these swap
agreements expire in 2002 and effectively convert an aggregate principal amount
of A$50.0 million ($33.4 million as of June 30, 1999) of variable rate,
long-term debt into fixed rate borrowings. The other two swap agreements expire
in 2004 and convert on aggregate principal amount of A$100.0 million ($66.8
million as of June 30, 1999) of variable rate, long-term debt into fixed rate
borrowings. As of June 30, 1999, the weighted-average fixed rate under these
agreements was 7.95%. As a result of these swap agreements, interest expense was
increased by approximately A$0.3 million ($0.2 million) during the second
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 June 30, 1999, we estimate that we
would have paid approximately A$3.4 million ($2.3 million) to terminate the
agreements.
44
<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 December 31,
-------------------------------------------------------------
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.................. - - - $33,376 - $66,751 $100,127
Average pay rate %................. 7.95% 7.95% 7.95% 7.95% 7.95% 7.95% 7.95%
Average receive rate %............. 7.65% 7.65% 7.65% 7.65% 7.65% 7.65% 7.65%
</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.
45
<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.
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>
------------------------- ------------------------------------ -------------------------------
<S> <C> <C>
Date of Filing Date of Event Item Reported
------------------------- ------------------------------------ -------------------------------
April 26, 1999 February 17, 1999 Item 5 - Initial public
offering of UPC
------------------------- ------------------------------------ -------------------------------
May 10, 1999 April 29, 1999 Item 5 - VTRH Acquisition
------------------------- ------------------------------------ -------------------------------
June 16, 1999 June 16, 1999 Item 5 - Austar United
Communications Limited
Initial Public Offering
------------------------- ------------------------------------ -------------------------------
June 28, 1999 June 28, 1999 Item 2 - Acquisition of:
UTH
@Entertainment
A2000
Kabel Plus
------------------------- ------------------------------------ -------------------------------
June 29, 1999 June 29, 1999 Item 5 - United offering of
Series C Convertible
Preferred Stock
------------------------- ------------------------------------ -------------------------------
</TABLE>
46
<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, on this 16th day of August
1999.
UnitedGlobalCom, Inc.
a Delaware corporation
By: /s/ Valerie L. Cover
--------------------------------
Valerie L. Cover
Controller and Vice President
(a Duly Authorized Officer and
Principal Financial Officer)
47
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNITEDGLOBALCOM, INC.'S FORM 10-Q FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 252,107
<SECURITIES> 0
<RECEIVABLES> 40,662
<ALLOWANCES> 0
<INVENTORY> 34,464
<CURRENT-ASSETS> 501,578
<PP&E> 1,604,932
<DEPRECIATION> 343,722
<TOTAL-ASSETS> 3,207,712
<CURRENT-LIABILITIES> 301,984
<BONDS> 2,543,615
35,615
0
<COMMON> 435
<OTHER-SE> (284,139)
<TOTAL-LIABILITY-AND-EQUITY> 3,207,712
<SALES> 0
<TOTAL-REVENUES> 145,996
<CGS> 0
<TOTAL-COSTS> 75,747
<OTHER-EXPENSES> 75,679
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,834
<INCOME-PRETAX> (146,488)
<INCOME-TAX> 0
<INCOME-CONTINUING> (146,488)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (146,488)
<EPS-BASIC> (3.63)
<EPS-DILUTED> (3.63)
</TABLE>
