<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
Filed by the registrant [X] [ ] Confidential, for Use of the Commission
Filed by a party other than the registrant [ ] Only (as permitted by Rule 14a-6(e)(2))
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Preliminary Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-12
</TABLE>
UNITEDGLOBALCOM, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
Class A Common Stock, $0.01 par value, of UnitedGlobalCom, Inc. ("Class
A Common Stock")
Class B Common Stock, $0.01 par value, of UnitedGlobalCom, Inc. ("Class
B Common Stock")
Series B Convertible Preferred Stock, $0.01 par value, of
UnitedGlobalCom, Inc. ("Series B Preferred Stock")
Series C Convertible Preferred Stock, $0.01 par value, of
UnitedGlobalCom, Inc. ("Series C Preferred Stock")
Series D Convertible Preferred Stock, $0.01 par value, of
UnitedGlobalCom, Inc. ("Series D Preferred Stock")
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
shares of Class A Common Stock
shares of Class B Common Stock
shares of Series B Convertible Preferred Stock
shares of Series C Convertible Preferred Stock
shares of Series D Convertible Preferred Stock
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
The amount of the filing fee of $606,518 was calculated pursuant to
Rule 0-11(a)(4) and (c) under the Securities Exchange Act of 1934, as
amended. The filing fee has been calculated by multiplying 1/50 of 1%
by the sum of (A)(1) 82,977,872 shares of Class A Common Stock
multiplied by (2) $28.625 (the average of the high and low prices of
Class A Common Stock reported on the Nasdaq National Stock Market on
October 27, 2000), (B) $42,783,000 (the book value of the Class B
Common Stock calculated as of September 30, 2000), (C) $27,843,078 (the
book value of the Series B Convertible Preferred Stock calculated as of
September 30, 2000), (D) $425,000,000 (the book value of the Series C
Convertible Preferred Stock calculated as of September 30, 2000), and
(E)(1) 5,750,000 depository receipts (evidencing 287,500 shares of
Series D Convertible Preferred Stock) multiplied by (2) $28.125 (the
average of the high and low prices of depository receipts evidencing
Series D Convertible Preferred Stock reported on the Nasdaq National
Stock Market on October 30, 2000).
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $3,032,586,414
--------------------------------------------------------------------------------
(5) Total fee paid: $606,518
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------------------
As filed with the Securities and Exchange Commission on November 3, 2000
<PAGE> 2
[UNITEDGLOGALCOM LOGO]
, 2000
Dear Fellow Stockholder:
You are invited to attend a special meeting of the stockholders of
UnitedGlobalCom, Inc. which will be at , Denver, Colorado, on
, 2000, at .m., local time. We have enclosed a notice of the
special meeting, a proxy statement/prospectus and a proxy card.
You will be asked at the special meeting to approve a merger and
contribution agreement and related transactions among us, Liberty Media
Corporation, or "Liberty," and a newly formed Delaware corporation, to be
renamed UnitedGlobalCom, Inc. following the merger. This newly formed
corporation, or "New United," will issue its own stock in connection with a
merger between us and a wholly owned subsidiary of New United. In connection
with the merger, New United will acquire interests in international broadband
distribution and programming assets of Liberty described in this proxy
statement/ prospectus, and rights of first offer and other rights and
obligations respecting certain other broadband interests of Liberty, in exchange
for approximately 75.3 million shares of New United Class B common stock.
OUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND CONTRIBUTION
AGREEMENT AND DECLARED THAT THE MERGER AND CONTRIBUTION AGREEMENT IS ADVISABLE,
AND IN THE BEST INTERESTS OF, US AND OUR STOCKHOLDERS. OUR BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER AND CONTRIBUTION AGREEMENT.
Among the factors considered by our board of directors in evaluating the merger
and contribution agreement was the opinion dated , 2000 of
, our financial advisor, which provides that, as of
such date, the merger consideration is fair, from a financial point of view, to
the holders of our common stock. The written opinion of
is attached as Appendix B to the accompanying proxy
statement/prospectus and should be read carefully and in its entirety.
You will also be asked at the special meeting to approve an amendment to
increase the number of shares of United's Class A common stock reserved for
issuance under our 1993 Stock Option Plan by from 9,200,000
shares to shares. OUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THIS
AMENDMENT AND RECOMMENDS THAT YOU VOTE IN FAVOR OF IT.
Whether or not you are personally able to attend the special meeting,
please complete, sign and date the enclosed proxy card and return it in the
enclosed prepaid envelope as soon as possible. This action will not limit your
right to vote in person if you do wish to attend the meeting and vote
personally.
The merger cannot be completed unless the holders of at least a majority of
the combined voting power of the outstanding shares of Class A common stock and
Class B common stock as of the record date approve the merger and contribution
agreement. Holders of shares of Class A common stock and Class B common stock
representing % of the outstanding votes as of the record date have indicated
that they will vote in favor of the transaction. Approval of the amendment to
the 1993 Stock Option Plan requires the affirmative vote of the holders of a
majority of the combined voting power of our Class A common stock and Class B
common stock as of , the record date, represented in person or by
proxy at the special meeting of stockholders. Only holders of our common stock
at the close of business on the record date will be entitled to vote at the
special meeting.
<PAGE> 3
For your convenience, the first three pages of the proxy
statement/prospectus contain frequently asked questions and related answers
about the merger. PLEASE REVIEW THE ENTIRE PROXY STATEMENT/PROSPECTUS CAREFULLY.
IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION
ENTITLED "RISK FACTORS" ON PAGE I-11. If you would like assistance in completing
your proxy card, or if you have any questions about the procedure for voting
your shares described in the attached proxy statement/prospectus, please contact
our Investor Relations Department at (303) 770-4001.
Sincerely yours,
Gene W. Schneider
Chairman of the Board and
Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY STATE SECURITIES
COMMISSION, HAS APPROVED OR DISAPPROVED THE MERGER AND RELATED TRANSACTIONS
DESCRIBED IN THIS PROXY STATEMENT/ PROSPECTUS OR THE STOCK OF NEW UNITED TO BE
ISSUED IN CONNECTION WITH THE MERGER OR DETERMINED THAT THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated , 2000, and is first
being mailed to our stockholders on or about , 2000.
<PAGE> 4
[UNITEDGLOGALCOM LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
A special meeting of the stockholders of UnitedGlobalCom, Inc., or
"United," will be held at , Denver, Colorado on , 2000
at .m., local time, for the following purposes:
(i) to consider and vote upon a proposal to approve the merger and
contribution agreement, dated as of , 2000, among United,
Liberty Media Corporation, or "Liberty" and a newly formed Delaware
corporation, or "New United," pursuant to which (a) New United will become
United's parent company, (b) holders of United stock will receive stock of
New United and (c) New United will acquire interests in certain
international broadband distribution and programming assets now owned by
Liberty, as well as rights of first offer and other rights and obligations
respecting certain other broadband interests of Liberty, in exchange for
approximately 75.3 million shares of New United Class B common stock;
(ii) to consider and vote upon an amendment to increase the number of
shares of United's Class A common stock reserved for issuance under its
1993 Stock Option Plan by from 9,200,000 shares to
shares; and
(iii) to transact such other business as may properly come before the
meeting or any adjournment or postponement of the meeting.
Holders of record of our Class A common stock and Class B common stock at the
close of business on , 2000, the record date of the meeting, will be
entitled to notice of and to vote together as a single class at the meeting. A
list of stockholders entitled to vote at the meeting will be available at our
office for review by any stockholder, for any purpose germane to the meeting,
during regular business hours for at least 10 days prior to the meeting.
Shares can only be voted at the meeting if the holder is present or
represented by a proxy. If you do not expect to attend the meeting, we urge you
to complete, date and sign the enclosed proxy card and return it promptly in the
accompanying, postage prepaid envelope, so that your shares may be voted in
accordance with your wishes and the presence of a quorum may be assured. Signing
the proxy does not affect your right to vote in person if you attend the
meeting. If your shares are registered in street name, however, you will need a
representation from your broker as to your stockholder status in order to vote
in person at the meeting. A representation is not necessary to attend the
meeting.
Our board of directors believes that approving the merger and contribution
agreement is advisable to, and in the best interests of, us and our
stockholders. Our board of directors recommends that you vote in favor of the
merger and contribution agreement. The merger and contribution agreement will
not be approved by the stockholders unless the holders of at least a majority of
the combined voting power of the outstanding shares of our Class A common stock
and Class B common stock as of the record date, voting as a single class,
approve the merger and contribution agreement. Holders of United's Class B
common stock, Series B preferred stock and Series C preferred stock are entitled
under Delaware law to require an appraisal of their shares and to demand the
payment of fair value for their shares. These rights, generally known as
appraisal rights, are described in detail in the proxy statement/prospectus
accompanying this notice. In addition, a copy of Section 262 of the Delaware
General Corporation Law, which governs appraisal rights, is attached as Appendix
D to the proxy statement/prospectus accompanying this notice. Holders of
United's Class A common stock and Series D preferred stock will not have
appraisal rights. We
<PAGE> 5
urge you to read both the summary and the statutory provision carefully. If you
wish to demand an appraisal of your shares, you must strictly comply with the
statutory requirements.
Our board of directors likewise believes that approving the amendment to
the United 1993 Stock Option Plan is advisable to, and in the best interest of
us, and our stockholders, and recommends that you vote in favor of the
amendment. Approval of the amendment requires the affirmative vote of the
holders of a majority of the combined voting power of our Class A common stock
and Class B common stock as of the record date, represented in person or by
proxy at the special meeting of stockholders.
This notice and the attached proxy statement/prospectus are first being
mailed to United's stockholders on or about , 2000.
BY ORDER OF THE BOARD OF DIRECTORS
Ellen P. Spangler,
Secretary
Denver, Colorado
, 2000
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE PREPAID ENVELOPE PROVIDED, WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE
SPECIAL MEETING.
<PAGE> 6
THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.
THIS PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 3, 2000
<TABLE>
<S> <C>
UNITEDGLOBALCOM, INC. NEW UNITEDGLOBALCOM, INC.
A DELAWARE CORPORATION A NEWLY FORMED DELAWARE CORPORATION
PROXY STATEMENT PROSPECTUS
For Special Meeting of Stockholders shares of Class A Common Stock
to be held , 2000 shares of Series B Preferred Stock
shares of Series C Preferred Stock
shares of Series D Preferred Stock
</TABLE>
We are furnishing this proxy statement/prospectus to holders of
UnitedGlobalCom, Inc. Class A common stock and Class B common stock. We are
soliciting proxies for use at a special meeting of our stockholders to consider
and vote upon a transaction with Liberty Media Corporation, or "Liberty." This
transaction involves us, through a merger, becoming a wholly owned subsidiary of
a newly formed Delaware corporation that will be renamed "UnitedGlobalCom, Inc."
following the merger.
As part of this transaction you will receive stock in the newly formed
company, or "New United." Our board of directors has approved a merger and
contribution agreement pursuant to which the transaction will be completed,
determined that the transaction is in the best interests of us and our
stockholders, and recommends that you approve the merger and contribution
agreement.
New United has filed a registration statement on Form S-4. This proxy
statement is also the prospectus of New United regarding its common stock and
preferred stock to be issued to our stockholders pursuant to the merger and
contribution agreement. Our Class A common stock is traded on the Nasdaq
National Stock Market under the symbol "UCOMA." Following the transaction, the
shares of Class A common stock to be issued by New United will be listed,
subject to official notice of issuance, on the Nasdaq National Stock Market
under the symbol "UCOMA." Depository receipts representing our Series D
preferred stock are traded on the Nasdaq National Stock Market under the symbol
"UCOMP."
FOR A DISCUSSION OF RISK FACTORS WHICH YOU SHOULD CONSIDER IN EVALUATING
THE TRANSACTION, SEE "RISK FACTORS" ON PAGE I-11.
You will also be asked at the special meeting to consider and vote upon an
amendment to increase the number of shares of United's Class A common stock
reserved for issuance under the United 1993 Stock Option Plan by
from 9,200,000 shares to shares.
The date of this proxy statement/prospectus is , 2000, and it
and a form of proxy are first being mailed or otherwise delivered to
stockholders on or about , 2000.
This proxy statement/prospectus does not constitute an offer or a
solicitation in any jurisdiction in which an offer or solicitation is unlawful.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT US THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS PROXY
STATEMENT/PROSPECTUS. SUCH INFORMATION IS AVAILABLE WITHOUT CHARGE TO YOU UPON
WRITTEN OR ORAL REQUEST AT THE FOLLOWING ADDRESS: UNITEDGLOBALCOM, INC., 4643
SOUTH ULSTER STREET, SUITE 1300, DENVER, COLORADO 80237, ATTENTION: INVESTOR
RELATIONS DEPARTMENT, OR VIA TELEPHONE AT (303) 770-4001. TO TIMELY OBTAIN
DELIVERY, YOU MUST REQUEST THE INFORMATION NO LATER THAN FIVE BUSINESS DAYS
BEFORE THE DATE YOU MUST MAKE YOUR INVESTMENT DECISION, OR NO LATER THAN
, 2000.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY STATE SECURITIES
COMMISSION, HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 7
TABLE OF CONTENTS
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NO.
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CHAPTER I -- OVERVIEW
QUESTIONS AND ANSWERS FOR STOCKHOLDERS...................... I-1
SUMMARY..................................................... I-4
Information About Us...................................... I-4
Contribution of the Liberty Assets........................ I-5
Description of the New United Stock....................... I-6
The Special Meeting....................................... I-6
Appraisal Rights.......................................... I-6
United's Reasons for the Merger and Related Transactions;
Recommendation of the United Board of Directors........ I-6
Fairness Opinion.......................................... I-7
Dividends................................................. I-7
Certain Federal Income Tax Consequences................... I-7
Summary Selected Historical and Pro Forma Financial
Data................................................... I-7
RISK FACTORS................................................ I-11
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS... I-15
CHAPTER II -- THE MERGER TRANSACTION
BACKGROUND AND OVERVIEW OF THE TRANSACTION.................. II-1
Background to the Merger.................................. II-1
Reasons for the Merger.................................... II-2
Fairness Opinion.......................................... II-4
Accounting Treatment...................................... II-4
Foreign Regulatory Filings................................ II-4
Bondholder Consent........................................ II-
Exchange of Shares........................................ II-4
Rights of Dissenting United Stockholders.................. II-5
THE MERGER AND CONTRIBUTION AGREEMENT AND RELATED
AGREEMENTS................................................ II-9
The Merger and Contribution Agreement..................... II-9
Ownership of New United After Closing of Principal
Transaction............................................ II-14
Stockholder Agreement..................................... II-14
Standstill Agreement...................................... II-15
CONTRIBUTION OF LIBERTY ASSETS.............................. II-17
Overview.................................................. II-17
Contribution of Principal Transaction Assets.............. II-17
Additional Transaction Assets............................. II-21
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................... II-25
CHAPTER III -- THE MEETING AND VOTING
Time and Place; Purpose................................... III-1
Voting Rights; Record Date................................ III-1
Proxies................................................... III-1
Share Ownership of Management............................. III-2
Voting Arrangements....................................... III-2
Appraisal Rights.......................................... III-2
</TABLE>
i
<PAGE> 8
<TABLE>
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NO.
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CHAPTER IV -- INFORMATION ABOUT NEW UNITED
NEW UNITED'S BUSINESS
Operating Data and Financial Information.................. IV-1
Overview of Principal Transaction Assets.................. IV-6
Telewest Communications plc............................... IV-7
Liberty's Latin American Assets........................... IV-7
Other Principal Transaction Assets........................ IV-8
Additional Transaction Assets............................. IV-9
Overview of United's Business............................. IV-9
United's European Operations.............................. IV-9
United's Asia/Pacific Operations.......................... IV-17
United's Latin American Operations........................ IV-18
Competition............................................... IV-19
Employees................................................. IV-20
Regulation................................................ IV-20
SELECTED FINANCIAL DATA..................................... IV-27
UNAUDITED PRO FORMA FINANCIAL INFORMATION OF NEW UNITED..... IV-30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF LIBERTY PRINCIPAL TRANSACTION
ASSETS GROUP.............................................. IV-36
Summary of Operations..................................... IV-36
Liquidity and Capital Resources........................... IV-41
Accounting Standards...................................... IV-41
LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK................. IV-42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF UNITED....................... IV-43
Introduction.............................................. IV-43
Services.................................................. IV-43
Pricing................................................... IV-44
Costs of Operations....................................... IV-45
Results of Operations..................................... IV-46
Liquidity and Capital Resources........................... IV-60
New Accounting Principles................................. IV-64
UNITED QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... IV-65
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF NEW UNITED.................................. IV-68
MANAGEMENT OF NEW UNITED FOLLOWING THE LIBERTY
TRANSACTION............................................... IV-68
DESCRIPTION OF NEW UNITED CAPITAL STOCK..................... IV-69
Common Stock.............................................. IV-69
Preferred Stock........................................... IV-70
Market Listings........................................... IV-71
Certificate of Incorporation and Bylaws................... IV-71
Delaware General Corporation Law, Section 203............. IV-72
COMPARATIVE PER SHARE MARKET INFORMATION.................... IV-73
COMPARISON OF STOCKHOLDERS' RIGHTS.......................... IV-74
</TABLE>
ii
<PAGE> 9
<TABLE>
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CHAPTER V -- AMENDMENT OF THE 1993 STOCK OPTION PLAN........ V-1
CHAPTER VI -- CERTAIN LEGAL INFORMATION
Legal Matters............................................. VI-1
Experts................................................... VI-1
CHAPTER VII -- ADDITIONAL INFORMATION FOR STOCKHOLDERS
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. VII-1
WHERE YOU CAN FIND MORE INFORMATION......................... VII-1
INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDICES
Appendix A Merger and Contribution Agreement
Appendix B Fairness Opinion of
Appendix C Certificate of Incorporation of New United
Appendix D Delaware General Corporation Law Section 262
</TABLE>
iii
<PAGE> 10
CHAPTER I -- OVERVIEW
QUESTIONS AND ANSWERS FOR STOCKHOLDERS
Q. WHAT ARE THE BENEFITS OF THE TRANSACTION? (PAGES THROUGH )
A. We believe that the merger will enhance and increase our presence in
various markets, including in European and Latin American markets. The
merger also offers our stockholders the opportunity to continue to
participate in our growth following the merger.
For more information regarding the expected benefits of the transaction,
see "The Merger Transaction -- Background and Overview of the Transaction,
Reasons for the Merger" on page .
Q. HOW WILL THE TRANSACTION BE STRUCTURED? (PAGES THROUGH )
A. New United will acquire certain of Liberty's international broadband
distribution and programming assets in exchange for 75.3 million shares of
Class B common stock of New United. In addition, pursuant to a merger,
shares of our common stock and preferred stock that are not owned by New
United, will be converted into identical numbers of shares of New United's
Class A common stock and preferred stock. The shares of Class B common
stock to be issued to Liberty will represent an approximately 48.4%
economic and approximately 83.8% voting interest in New United. Liberty
will be bound by voting and standstill agreements with New United and
certain of its controlling stockholders, and will have the right to select
four out of twelve members of the New United board of directors.
Q. WHAT WILL I RECEIVE IN THE TRANSACTION? (PAGES THROUGH )
A. You will receive one share of New United Class A common stock for each
share of United Class A common stock or Class B common stock you currently
hold. For example, if you own 500 shares of United Class A common stock and
500 shares of United Class B common stock, you will receive 1,000 shares of
New United Class A common stock. Holders of United preferred stock will
receive an equal number of shares of New United preferred stock with
substantially similar rights and preferences, except that the New United
preferred stock will have increased voting rights. New United will not
issue fractional shares of its common or preferred stock.
Q. WHAT IS THE UPC TRANSACTION? (PAGES THROUGH )
A. The UPC transaction is a transaction in which a newly formed Dutch company,
or "New UPC," will acquire all of the issued and outstanding stock of our
principal subsidiary, United Pan-Europe Communications N.V., or "UPC,"
pursuant to a merger of UPC into a newly formed wholly owned subsidiary of
New UPC, and New United will contribute to New UPC the interests in
Telewest Communications plc that New United acquires from Liberty in return
for equity in New UPC. The UPC transaction will result in New United
holding a direct and indirect ownership interest in New UPC of
approximately 61.0%. The merger of UPC into a subsidiary of New UPC
requires the approval of UPC's supervisory directors and a majority of its
shareholders and compliance with other Dutch corporate legal procedures.
Pursuant to the terms of UPC's indentures, the merger will also require
delivery of a fairness opinion.
Q. WHAT VOTE IS REQUIRED TO APPROVE THE MERGER? (PAGES THROUGH )
A. A favorable vote by the holders of at least a majority of the voting power
of the outstanding shares of United Class A common stock and Class B common
stock, voting as a single class, as of the record date, is required to
approve the merger and contribution agreement. As of the record date, the
holders of outstanding shares of Class B common stock and Class A common
stock having % of the total vote have agreed to vote in favor of the
transaction. You are entitled to cast one vote per share of United Class A
common stock and ten votes per share of United Class B common stock held as
of the close of business on , 2000, the record date.
I-1
<PAGE> 11
Q. ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
MERGER? (PAGES THROUGH )
A. Yes. In evaluating the merger and related transactions, you should
carefully consider the factors discussed in "Overview -- Risk Factors" on
page .
Q. WHAT DO I NEED TO DO NOW? (PAGES THROUGH )
A. After you read and consider carefully the information contained in this
document, please cast your vote on the merger and contribution agreement by
completing, signing and dating your proxy card. You should return your
completed proxy card as soon as possible in the enclosed postage-paid
envelope. If you return your signed proxy card but do not include
instructions on how to vote, your shares will be voted FOR approval of the
merger and contribution agreement. You can also attend the special meeting
and vote in person.
If you abstain from voting or do not vote, it will have the effect of
voting against approval of the merger and contribution agreement.
Our board of directors unanimously recommends that you vote FOR approval of
the merger and contribution agreement.
Q. IF MY UNITED SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY
BROKER VOTE MY SHARES FOR ME? (PAGES THROUGH )
A. Your broker will vote your shares only if you provide your broker with
instructions on how to vote. You should instruct your broker to vote your
shares by following the directions provided to you by your broker or in the
materials forwarded. Without instructions, your shares will not be voted. A
failure to vote for the merger and contribution agreement is equivalent to
a vote against the merger and contribution agreement.
Q. WHAT DO I DO IF I WANT TO CHANGE MY VOTE? (PAGES THROUGH )
A. If you want to change your vote after you have mailed your proxy card, send
a later-dated, signed proxy card before the stockholders' meeting to our
secretary, or attend the special meeting and vote in person. You may also
revoke your proxy by sending written notice to our secretary before the
meeting. If you have instructed a broker to vote your shares, you must
follow instructions from your broker to change your vote.
Q. SHOULD I SEND IN MY UNITED STOCK CERTIFICATES NOW? (PAGES THROUGH
)
A. No. After the transaction is completed, you will receive written
instructions for exchanging your United stock certificates for New United
stock certificates. DO NOT SEND IN YOUR STOCK CERTIFICATES WITH YOUR PROXY
CARD.
Q. AM I ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS? (PAGES THROUGH
)
A. Holders of our Class A common and Series D preferred stock which are traded
on the Nasdaq National Stock Market will not have appraisal rights. United
Class B common, Series B preferred and Series C preferred stock are not
listed on a national securities exchange, designated as a national market
system security by the National Association of Securities Dealers, Inc. or,
with respect to any class or series, held of record by more than 2,000
holders. Accordingly, under Delaware law, holders of those classes of stock
are entitled to dissent from the transaction and receive cash equal to the
fair value of their United stock instead of receiving shares of New United
stock.
You may obtain more information regarding your dissenters' or appraisal
rights discussed in "The Merger Transaction -- Background and Overview of
the Merger, Rights of Dissenting United Stockholders" on page and "The
Meeting and Voting -- Appraisal Rights" on page .
I-2
<PAGE> 12
Q. WHEN DO YOU EXPECT THE TRANSACTION TO BE COMPLETED? (PAGES
THROUGH )
A. The parties are working toward completing the transaction as quickly as
possible. New United and United hope to complete the transaction during the
first quarter of 2001. However, if conditions to the transaction are not
satisfied, the transaction may be completed later. Certain parts of the
transaction may be completed before or after other parts of the
transaction. See "The Merger Transaction -- The Merger and Contribution
Agreement and Related Agreements, The Merger and Contribution Agreement."
Q. WILL I RECOGNIZE AN INCOME TAX GAIN OR LOSS ON THE MERGER? (PAGES
THROUGH )
A. It is expected that if the merger is completed, you will not recognize a
gain or loss for United States federal income tax purposes as a result of
the transaction. However, you are urged to consult your own tax advisor to
determine the tax consequences particular to your situation.
Q. WHOM SHOULD I CALL WITH QUESTIONS? (PAGES THROUGH )
A. If you have any questions about the transaction or if you need additional
copies of the proxy statement/ prospectus, you should contact:
UNITEDGLOBALCOM, INC.
4643 South Ulster Street, Suite 1300
Denver, Colorado 80237
Attn: Investor Relations Department
(303) 770-4001
You may also obtain additional information about United from documents filed
with the SEC, by following the instructions in the section entitled "Additional
Information for Stockholders -- Where You Can Find More Information" on page
VII-1.
I-3
<PAGE> 13
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and does not contain all of the information that may be
important to you. To fully understand the merger and related transactions that
we propose to complete and for a more complete description of the legal terms of
the merger and related transactions, you should read carefully this entire
document and the other documents to which you have been referred. In particular,
please read the merger and contribution agreement attached as Appendix A, which
is incorporated by reference into this proxy statement/prospectus. Please also
read "Additional Information for Stockholders -- Where You Can Find More
Information." We included page references parenthetically to direct you to a
more complete description of the topics presented in this summary.
When we use the phrase "we," "us," "our" or similar terms, we refer to
UnitedGlobalCom, Inc., the company in which you currently own stock. When we
refer to information as "aggregate," we mean that the information is given in
respect of all systems in which we hold any equity interest as though we wholly
own them. All references to "dollars" and "$" are to dollars. For your
convenience, we have converted some amounts in non-dollar currencies to United
States dollars. These foreign currency translations for amounts prior to
December 31, 1999 use the same exchange rates as used in our December 31, 1999
financial statements, except where stated otherwise. For amounts after December
31, 1999, we have used June 30, 2000 exchange rates, except where stated
otherwise. These translated amounts may not currently equal such dollar amounts
nor may they necessarily be converted into dollars at the translation exchange
rates used.
INFORMATION ABOUT US (Pages through )
UNITEDGLOBALCOM, INC.
4643 South Ulster Street, Suite 1300
Denver, Colorado 80237
(303) 770-4001
We are the largest broadband communications provider outside the United
States. We provide multi-channel television services in 26 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 53.0% owned, publicly traded subsidiary, United Pan-Europe
Communications N.V. UPC is the largest Pan-European broadband communications
company providing multi-channel television, telephone and Internet/data services
in 13 countries in Europe and in Israel. Our Asia/Pacific operations are
primarily held through our 72.3% owned, publicly traded subsidiary, Austar
United Communications Limited. Austar United owns the largest provider of
multi-channel television services in regional Australia, various Australian
programming interests and a 50.0% interest in the only full service provider of
broadband communications in New Zealand. Our primary Latin America operation is
our 100% owned VTR GlobalCom S.A. VTR is Chile's largest multi-channel
television provider and a growing provider of telephone services.
Our operating companies consist primarily of highly penetrated, mature
broadband systems that generate stable cash flow. We also operate a number of
earlier stage broadband businesses. Our primary goal in the majority of these
markets is to capitalize on the opportunity to increase revenues and cash flows
through the introduction of new and expanded video programming services and the
launch of telephone and Internet/data services over our broadband communications
networks. Today, we are a full-service provider of these video, voice and
Internet/data services in most of our Western European markets and in Chile and
New Zealand.
For more information, see "Additional Information for Stockholders -- Where
You Can Find More Information," on page VII-1.
I-4
<PAGE> 14
CONTRIBUTION OF THE LIBERTY ASSETS (Pages through )
Liberty is a leading media, entertainment and communications company with
interests in a diverse group of public and private companies. New United
proposes to acquire the following assets of Liberty's, Liberty Media
International, Inc., or the "Principal Transaction Assets," in connection with
the merger and related transactions:
- a 25% indirect, economic interest in Telewest Communications plc, or
"Telewest," the second largest broadband communications provider in the
United Kingdom with approximately 4.7 million homes passed, approximately
1.2 million cable television subscribers, and approximately 1.7 million
fixed telephone subscribers.
- substantially all of Liberty's interests in certain of its Latin American
broadband interests including:
a 28.3% stake (which may, under certain circumstances, be increased to
50%) in Cablevision S.A. of Argentina, or "Cablevision," the largest
cable television operation in Latin America with over 3.4 million homes
passed and approximately 1.5 million subscribers;
49.0% of Liberty Cablevision of Puerto Rico, Inc., or "Liberty Puerto
Rico," one of the largest cable television operators in Puerto Rico;
regional programming services including: 100% of Pramer SCA, or "Pramer,"
which owns and/or distributes 18 channels principally to the Argentine
market, including the Latin American operations of Gems International
Television LLP, or the "Gems Network;" and a 40.0% stake in Torneos y
Competencias S.A., or "TyC," the leading provider of sports and
entertainment programming in Argentina;
other distribution assets, including: approximately 41.0% of Grupo
Portatel, S.A. de C.V., or "Portatel," a wireless service provider in
Mexico; and 43.0% of Digital Latin America, LLC, or "Digital Latin
America," a joint venture with Hicks, Muse, Tate & Furst, Inc. and
Motorola, Inc. to build a digital distribution platform for Latin
America;
- certain other broadband interests held by Liberty, including a 15.0%
stake in Crown Media Holdings, Inc., or "Crown Media," distributor of
Odyssey and the Hallmark Channel; 20.0% of Premium Movie Partnership, a
movie channel joint venture in Australia; and a 25.0% stake in MYHI, LLC,
or "Wave," a wireless cable service, or "MMDS," provider in Chile; and
- certain intercompany promissory notes in the aggregate principal amount
of $1.0 billion.
In addition, New United will be granted rights of first offer, subject to
existing rights of third parties, with respect to Liberty's programming and
distribution assets in Japan, as well as certain other rights and obligations
with respect to Liberty's broadband interests in other markets, including Chile.
We refer to the assets subject to these rights as the "Additional Transaction
Assets." We refer to the Principal Transaction Assets and Additional Transaction
Assets collectively as the "Liberty International Assets." New United's
acquisition of the Principal Transaction Assets and the Additional Transaction
Assets are subject to various conditions. See "The Merger Transaction -- The
Merger and Contribution Agreement and Related Agreements." Certain of the
contributed subsidiaries owe indebtedness to Liberty, which, other than that
indebtedness evidenced by the $1.0 billion of contributed intercompany
promissory notes, will remain outstanding following the merger and related
transactions. See "The Merger Transaction -- Contribution of Liberty
Assets -- Indebtedness of Contributed Subsidiaries."
Before the merger, certain long-time holders of our Class B common stock,
or the "Founders," and Liberty will contribute their United Class B common stock
to New United in exchange for the issuance of an equal number of substantially
identical shares of New United Class B common stock. A newly formed wholly owned
subsidiary of New United will be merged into us, and the outstanding shares of
our Class A common stock and the remaining outstanding shares of our Class B
common stock will be converted into an equal number of shares of New United's
Class A common stock. The outstanding shares of each series of United's
preferred stock will be converted into an equal number of shares of New United's
preferred
I-5
<PAGE> 15
stock with substantially similar rights and preferences, except that the New
United preferred stock will have increased voting rights. New United will
acquire the Principal Transaction Assets in exchange for approximately 75.3
million shares of New United's Class B common stock. The shares of New United
Class B common stock to be issued to Liberty in exchange for the Principal
Transaction Assets will represent an approximate 48.4% economic and approximate
83.8% voting interest in New United. We sometimes refer to these merger and
contribution transactions as the "Principal Transaction." Liberty will be bound
by voting and standstill agreements with New United and certain of its
controlling stockholders, and will have the right to designate four out of
twelve members of the New United board of directors.
Liberty and New United will also enter into certain rights of first offer,
puts and calls and other obligations, pursuant to which New United will have the
right and in some cases, the obligation, to acquire the Additional Transaction
Assets from Liberty. We sometimes refer to the transactions relating to these
assets as the "Additional Transactions."
Completion of the transaction in the structure described above requires the
consent of holders of a majority in principal amount of our outstanding bonds.
If we do not receive such consent, we will proceed with the transaction under an
alternate structure.
DESCRIPTION OF THE NEW UNITED STOCK (Pages through )
New United's stock has rights and preferences that are substantially the
same as the rights and preferences of United's stock, except that New United's
preferred stock has increased voting rights.
THE SPECIAL MEETING (Pages through )
The United special meeting will be held at , Denver, Colorado, on
, 2000, at .m., local time. At the meeting, you will be asked
to approve the merger and contribution agreement. Holders of at least a majority
of the outstanding shares of United Class A common stock and Class B common
stock, voting as a single class, as of the record date, must approve the merger
and contribution agreement in order for the merger to be approved.
APPRAISAL RIGHTS (Pages through )
Holders of United Class B common stock, Series B preferred stock and Series
C preferred stock are entitled under Delaware law to appraisal rights and to
receive payment in cash for the fair value of their shares.
UNITED'S REASONS FOR THE MERGER AND RELATED TRANSACTIONS; RECOMMENDATION OF THE
UNITED BOARD OF DIRECTORS (Pages through )
We are pursuing the merger and related transactions with New United and
Liberty for the following reasons:
- The merger and related transactions will substantially broaden our
existing footprint of broadband businesses, and thereby create potential
for additional growth.
- The Latin American businesses to be acquired in the merger and related
transactions will give New United a substantially improved presence in
that part of the world.
- We believe that Liberty is one of the world's most successful media and
communications companies, and the merger will strengthen our relationship
with Liberty.
- Upon the contribution by New United of Telewest to New UPC, New United's
ownership of New UPC will be 61.0%, in comparison to United's current
53.0% ownership of UPC.
- The consideration for the shares of Class B common stock to be issued by
New United in connection with the contribution of the Principal
Transaction Assets and the rights associated with the Additional
Transaction Assets represents a premium share price in relation to the
recent market prices of our Class A common stock and, in the opinion of
our board of directors, more closely reflects the underlying value of our
assets.
I-6
<PAGE> 16
- Because of the Amended and Restated Stockholder Agreement and the Amended
and Restated Standstill Agreement described in this proxy
statement/prospectus, the merger will not place control of New United in
the hands of Liberty, while those agreements are effective.
Our board of directors concluded that the terms of the merger are in the
best interests of, us and our stockholders after considering the potential
benefits and negative effects of the merger described in "The Merger
Transaction -- Background and Overview of the Transaction, Reasons for the
Merger." Our board of directors has approved the merger and contribution
agreement and unanimously recommends that you vote for approval of the merger
and contribution agreement.
FAIRNESS OPINION (Pages through )
In connection with the merger, our board considered the opinion of its
financial advisor, , as to the fairness from a financial point of view
of the merger and related transactions to the holders of our stock. The full
text of the written opinion of is attached to the back of this
document as Appendix B, and should be read carefully in its entirety for a
description of the assumptions made, matters considered and limitations on the
review undertaken. THE OPINION OF IS DIRECTED TO THE UNITED BOARD OF
DIRECTORS, AND THIS OPINION DOES NOT CONSTITUTE A RECOMMENDATION AS TO HOW TO
VOTE TO ANY STOCKHOLDER WITH RESPECT TO ANY MATTER RELATING TO THE MERGER.
DIVIDENDS (Pages through )
Neither we nor New United has ever paid dividends on common stock. New
United intends to retain all earnings for continued development and growth, and
has no plans to pay dividends in the future.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (Pages through )
We have received a tax opinion from our tax advisors that the transaction
will qualify as tax free under Section 351 of the Internal Revenue Code of 1986,
as amended, or the "Code," and that no gain or loss will be recognized by our
stockholders upon receipt of New United stock in exchange for their United
stock. This matter is not free from doubt. The tax opinion is subject to a
number of assumptions and conditions, including that a substantial business
purpose exists for the formation of New United and that New United will not
constitute an investment company under the Code.
SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA (Pages through )
How We Prepared the Financial Information. We are providing the following
information to aid you in your analysis of the financial aspects of the merger
and contribution transaction. We derived this information from our consolidated
financial statements and the combined financial statements of the Principal
Transaction Assets. New United has no historical operations. The information is
only a summary and you should read it together with our and the Principal
Transaction Assets' historical financial statements and related notes contained
in the underlying reports included in this proxy statement/ prospectus. See
"Additional Information for Stockholders."
Accounting Treatment. New United will become our parent company and holders
of our stock will receive stock of New United. Our merger with a newly created
subsidiary of New United will be accounted for by New United at historical cost.
The contribution of the Principal Transaction Assets to New United will be
accounted for by New United as a purchase of a business. This means that, for
accounting and financial reporting purposes, the assets and liabilities of the
Principal Transaction Assets will be recorded at their fair value, and any
excess of New United's purchase price over the fair value of the Principal
Transaction Assets' tangible net assets will be recorded as intangible assets,
including goodwill. See "The Merger Transaction -- Background and Overview of
the Transaction, Accounting Treatment."
We have presented unaudited pro forma condensed combined statements of
operations that reflect the purchase method of accounting to give you a better
understanding of what our businesses might have looked like had they been
combined since January 1, 1999. The pro forma balance sheet shows what New
United may have looked like if we had completed the transaction as of June 30,
2000. The companies may
I-7
<PAGE> 17
have performed differently had they always been combined. You should not rely on
the unaudited selected pro forma condensed combined financial information as
being indicative of the historical results that we would have had or the future
results that New United will experience after the merger and contribution
transaction. See "Information About New United -- Selected Financial Data" and
"Information About New United -- Unaudited Pro Forma Financial Information of
New United."
Merger-Related Expenses. We estimate that merger-related fees and expenses,
consisting primarily of SEC filing fees, fees and expenses of investment
bankers, attorneys and accountants, and financial printing and other related
charges, will be approximately $ million. After the merger, New United may
also incur charges and expenses related to integrating the operations of the
businesses of the Principal Transaction Assets.
SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF UNITED
In the table below, we provide you with our summary selected historical
consolidated financial data. We prepared this information using our consolidated
financial statements as of the dates indicated and for each of the fiscal years
in the five-year period ended December 31, 1999 and for the six month periods
ended June 30, 2000 and 1999. We derived our consolidated statement of
operations and balance sheet data below for the fiscal periods ended December
31, 1999 and 1998, February 28, 1998 and 1997 and February 29, 1996 from
financial statements audited by Arthur Andersen LLP, independent accountants.
The unaudited financial data as of June 30, 2000 and for the six month periods
ended June 30, 2000 and 1999 contain only normal recurring accruals, that in the
opinion of management, are necessary for a fair presentation of our results for
these periods. The interim results of operations are not necessarily indicative
of results that may be expected for a full year.
The financial data presented below are not necessarily comparable from
period to period as a result of several transactions, including acquisitions and
dispositions of consolidated and equity investees. For this and other reasons,
you should read it together with the historical financial statements and related
notes beginning on page F-1 and the discussion under "Information About New
United -- Management's Discussion and Analysis of Financial Condition and
Results of Operations of United." The numbers of shares of our common stock
outstanding and per share data have been adjusted to reflect our two-for-one
stock split distributed on November 30, 1999.
<TABLE>
<CAPTION>
UNITED
------------------------------------------------------------------------------------------
(UNAUDITED) FOR THE TEN FOR THE YEARS ENDED
FOR THE SIX MONTHS FOR THE YEAR MONTHS ------------------------------------
ENDED JUNE 30, ENDED ENDED FEBRUARY 28,
--------------------- DECEMBER 31, DECEMBER 31, --------------------- FEBRUARY 29,
2000 1999 1999 1998 1998 1997 1996
--------- --------- ------------ ------------ --------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................. $ 584,407 $ 253,914 $ 719,524 $ 254,068 $ 98,622 $ 31,555 $ 2,870
Operating loss.......... $(491,964) $(194,891) $(770,630) $(327,781) $(150,021) $ (87,677) $(26,168)
Net (loss) income....... $(530,904) $ 541,863 $ 636,318 $(545,532) $(342,532) $(138,825) $(91,311)
Basic net (loss) income
per share............. $ (5.82) $ 6.80 $ 7.53 $ (7.43) $ (4.46) $ (1.79) $ (1.35)
Diluted net (loss)
income per share...... $ (5.82) $ 6.11 $ 6.67 $ (7.43) $ (4.46) $ (1.79) $ (1.35)
</TABLE>
<TABLE>
<CAPTION>
AS OF
----------------------------------------------------------------------------
(UNAUDITED) DECEMBER 31, FEBRUARY 28,
JUNE 30, ----------------------- --------------------- FEBRUARY 29,
2000 1999 1998 1998 1997 1996
----------- ---------- ---------- ---------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets......................... $2,607,151 $2,986,266 $ 188,527 $ 410,999 $169,677 $194,444
Total assets........................... $10,531,140 $9,002,853 $1,542,095 $1,679,835 $819,936 $580,206
Senior notes and other long-term
debt................................. $7,564,284 $5,989,455 $1,939,289 $1,702,771 $675,183 $371,227
Stockholders' equity (deficit)......... $ 635,450 $1,114,306 $ (983,665) $ (392,280) $ 15,096 $151,976
</TABLE>
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<PAGE> 18
SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF THE PRINCIPAL TRANSACTION ASSETS
In the table below we provide you with the summary selected historical
combined financial data for the Principal Transaction Assets. We derived the
historical combined statement of operations data below for the ten month period
ended December 31, 1999, the two month period ended February 28, 1999 and for
the years ended December 31, 1999 and 1998 and the combined balance sheet data
as of December 31, 1999 and 1998 from the combined financial statements of
Liberty Principal Transaction Assets Group, audited by KPMG LLP, independent
accountants, included elsewhere in this proxy statement/prospectus. The
unaudited financial data as of June 30, 2000, for the six month period ended
June 30, 2000 and the four month period ended June 30, 1999 contain only normal
recurring accruals, that in the opinion of Liberty's management, are necessary
for a fair presentation of its results for these periods. The interim results of
operations are not necessarily indicative of results that may be expected for a
full year.
On March 9, 1999, AT&T acquired TCI, the parent company of Liberty, in a
merger transaction. For financial reporting purposes, the merger of AT&T and TCI
is deemed to have occurred on March 1, 1999. In connection with the merger, the
assets and liabilities of the Liberty Principal Transaction Assets Group were
adjusted to their respective fair values pursuant to the purchase method of
accounting. For periods prior to March 1, 1999, the assets and liabilities and
the related combined results of operations are referred to below as "Old Liberty
Group," and for periods subsequent to February 28, 1999, the assets and
liabilities of the Liberty Principal Transaction Assets Group and the related
consolidated results of operations are referred to as the "New Liberty Group."
The financial data presented below are not necessarily comparable from
period to period as a result of several transactions, including acquisitions and
dispositions of consolidated and equity investees. For this and other reasons,
you should read the selected historical financial data provided below in
conjunction with the Liberty Principal Transaction Assets Group financial
statements and accompanying notes beginning on page F-176 and the discussion
under "Information About New United -- Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Liberty Principal
Transaction Assets Group."
<TABLE>
<CAPTION>
LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
-------------------------------------------------------------------------------------------
NEW LIBERTY GROUP OLD LIBERTY GROUP
------------------------------------------------- ---------------------------------------
(UNAUDITED) (UNAUDITED) FOR THE YEARS ENDED
FOR THE SIX FOR THE FOUR FOR THE TEN FOR THE TWO DECEMBER 31,
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED -------------------
JUNE 30, 2000 JUNE 30, 1999 DECEMBER 31, 1999 FEBRUARY 28, 1999 1998 1997
------------- ------------- ----------------- ----------------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue............ $ 60,000 $ 37,000 $ 94,000 $ 15,000 $ 62,000 $213,000
Operating
earnings........ $ 8,000 $ 6,000 $ 14,000 $ -- $ 15,000 $ 32,000
Net income
(loss).......... $265,000 $(81,000) $(203,000) $(13,000) $(65,000) $(70,000)
</TABLE>
<TABLE>
<CAPTION>
OLD LIBERTY
NEW LIBERTY GROUP GROUP
-------------------------------- --------------
AS OF DECEMBER 31,
(UNAUDITED) ---------------------------
AS OF JUNE 30, 2000 1999 1998
------------------- ---------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.................................. $ 46,000 $ 48,000 $ 30,000
Total assets.................................... $3,979,000 $3,651,000 $1,620,000
Long-term debt.................................. $ 45,000 $ 45,000 $ 113,000
Combined equity................................. $1,896,000 $2,872,000 $1,432,000
</TABLE>
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<PAGE> 19
UNAUDITED SUMMARY SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
In the table below, we provide you with unaudited summary selected pro
forma condensed financial information for New United as if the merger and
contribution transaction had been completed on January 1, 1999, for purposes of
the statements of operations, and as if it had been completed on June 30, 2000,
for balance sheet purposes. This unaudited summary selected pro forma condensed
combined financial information is derived from our historical financial
statements and the Liberty Principal Transaction Assets Group's financial
statements, and based upon certain assumptions and adjustments. The companies
may have performed differently had they always been combined. You should not
rely on the unaudited summary selected pro forma condensed combined financial
information as being indicative of the historical results that we would have had
or the future results that we will experience after the merger. New United, we
and Liberty are unaware of events that would require a material change to the
preliminary purchase price allocation. However, a final determination of
necessary purchase accounting adjustments will be made upon the completion of a
study to be undertaken to determine the fair value of certain of its assets and
liabilities, including intangible assets. Assuming completion of the merger, the
actual financial position and results of operations will differ, perhaps
significantly, from the pro forma amounts reflected herein because of a variety
of factors, including access to additional information, changes in value not
currently identified and changes in operating results between the dates of the
pro forma financial data and the date on which the merger takes place. We have
included detailed unaudited pro forma financial statements and related notes
that provide further information on the transaction and related assumptions and
adjustments. See "Information About New United -- Unaudited Pro Forma Financial
Information of New United."
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS DATA:
Revenue................................................... $ 620,407 $ 784,524
Operating loss............................................ $(487,718) $ (766,139)
Net (loss) income......................................... $(715,793) $ 304,539
Basic net (loss) income per New United common share....... $ (4.34) $ 1.82
Diluted net (loss) income per New United common share..... $ (4.34) $ 1.79
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 2000
--------------
(IN THOUSANDS)
<S> <C>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET DATA:
Current assets............................................ $ 2,633,151
Total assets.............................................. $15,025,009
Senior notes and other long-term debt..................... $ 7,566,284
Total liabilities......................................... $10,245,420
Stockholders' equity...................................... $ 4,177,319
</TABLE>
AMENDMENT OF THE 1993 STOCK OPTION PLAN (Pages through )
Our board of directors is recommending that you approve an amendment to
increase the number of shares of United Class A common stock reserved for
issuance under our 1993 Stock Option Plan by from 9,200,000
shares to shares. Upon completion of the merger, United's obligations
under the 1993 Stock Option Plan will be assumed by New United, and stock
options for United common stock will be replaced with substitute stock options
for New United common stock. Each New United stock option will have the same
terms and conditions, exercise price, vesting and restrictions as the United
stock option it replaces. Our board of directors believes that this increase
will allow us and, following the merger, New United, to grant options to attract
and retain new employees who have not received grants of options, and to further
compensate, where appropriate, employees who have been previously awarded
options.
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<PAGE> 20
RISK FACTORS
Stockholders voting for the merger will be choosing to invest in New United
stock. An investment in the New United stock is subject to a number of risks.
You should consider carefully the following risk factors, as well as the more
detailed descriptions cross-referenced to the body of this proxy statement/
prospectus, all of the other information in this proxy statement/prospectus and
the information in the documents incorporated by reference. IN ADDITION TO THE
RISKS DESCRIBED BELOW, NEW UNITED WILL BE SUBJECT TO THE RISKS TO WHICH WE ARE,
AND HAVE BEEN, EXPOSED. PLEASE READ "ADDITIONAL INFORMATION FOR
STOCKHOLDERS -- WHERE YOU CAN FIND MORE INFORMATION."
RISKS RELATING TO THE MERGER WITH NEW UNITED
THE MARKET VALUE OF THE LIBERTY INTERNATIONAL ASSETS MAY FLUCTUATE PRIOR TO AND
FOLLOWING THE TIME WHEN THEY ARE CONTRIBUTED TO NEW UNITED
If the transaction is completed, each share of United stock will be
converted into one share of New United stock with substantially the same rights
and preferences as the United stock you currently hold. No adjustment will be
made to the number of shares of New United stock you will receive in the event
of any increase or decrease in the market prices per share of United common
stock or the value of the Principal Transaction Assets, or the rights associated
with the Additional Transaction Assets, to be contributed to New United.
Therefore, you are not assured of receiving consideration in the transaction
with a set market value or a maximum or minimum market value.
- On June 23, 2000, the last full trading day prior to the public
announcement of the merger and contribution agreement, the closing market
price per share of our Class A common stock was $43.56.
- On , 2000, the last practicable date prior to the printing of
this proxy statement/ prospectus, the closing market price per share of
our Class A common stock was $ .
NEW UNITED'S STOCK PRICE COULD BE VOLATILE FOLLOWING THE MERGER
Changes in market prices of New United's common stock may result from,
among other things:
- quarter-to-quarter variations in operating results;
- operating results being less than analysts' estimates;
- changes in analysts' earnings estimates;
- announcements of new technologies, products and services or pricing
policies by New United or its competitors;
- developments in existing customer or strategic relationships;
- actual or perceived changes in our business strategy;
- sales of large amounts of our common stock;
- changes in market conditions in the telecommunications industry;
- changes in prospects for telecommunications reform;
- changes in general economic conditions; and
- fluctuations in the securities markets in general.
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<PAGE> 21
THE FAIRNESS OPINION DELIVERED BY OUR FINANCIAL ADVISER DOES NOT ADDRESS CHANGES
IN THE RELATIVE VALUES OF UNITED AND THE PRINCIPAL TRANSACTION ASSETS AND THE
RIGHTS ASSOCIATED WITH THE ADDITIONAL TRANSACTION ASSETS SINCE ,
2000, THE DATE OF THE OPINION
The fairness opinion prepared by at the request of our board of
directors, as described in "The Merger Transaction -- Background and Overview of
the Transaction, Fairness Opinion," was delivered on , 2000 and
speaks only as of that date. It does not address any changes in relative value
or prospects of United and the businesses represented by the Principal
Transaction Assets and to rights respecting the Additional Transaction Assets to
be contributed to New United. The fairness opinion may not accurately address
the fairness of the contribution of the Principal Transaction Assets to New
United at the time the transaction is completed.
NEED FOR GOVERNMENTAL APPROVALS MAY DELAY COMPLETION OF THE MERGER
The merger is conditioned upon the receipt prior to the completion of the
merger of consents and approvals, including under appropriate competition, media
and telecommunications laws, for various governmental agencies with respect to
the merger and contribution agreement, the merger and the other transactions
contemplated by the merger and contribution agreement. You should be aware that
all required regulatory approvals may not be obtained in time and could result
in a significant delay in the completion of the merger and the exchange of your
shares. Also, governmental agencies may seek restrictions on the combined
operations of us and the businesses represented by the Liberty International
Assets as a condition to obtaining such approvals. Any such restriction could
adversely affect the value of New United's stock.
NEW UNITED MAY NOT HAVE SUFFICIENT TIME TO PERFORM ITS POTENTIAL OBLIGATIONS TO
ACQUIRE ADDITIONAL LIBERTY ASSETS IN CHILE
In connection with the transaction, we will have the right to acquire
certain of Liberty's assets in Chile and Liberty will have the right to force us
to purchase these assets. If these rights are exercised, the time period within
which New United would be required to complete the acquisition of these assets,
or cause a third party to complete such acquisition, may be inadequate to obtain
relevant governmental approvals or comply with conditions imposed by
governmental regulators. Under the merger and contribution agreement, New United
may be required to indemnify Liberty for any loss it would incur as a result of
the failure of the closing of the acquisition of these Chile assets to occur
within the prescribed time period or upon the terms specified in the merger and
contribution agreement.
RISKS RELATING TO THE COMBINED COMPANY'S BUSINESS
NEW UNITED WILL FACE TECHNICAL AND OPERATIONAL CHALLENGES THAT MAY PREVENT IT
FROM SUCCESSFULLY INTEGRATING THE LIBERTY INTERNATIONAL ASSETS
The transaction involves risks related to the integration and management of
acquired technology, operations and personnel. Following the transaction, New
United must operate as a combined organization using common information and
communication systems, operating procedures, financial controls and human
resources practices. New United may encounter difficulties, costs and delays
involved in integrating the operations of the Liberty International Assets,
including as a result of:
- potential incompatibility of business cultures;
- potential conflicts among or loss of sponsor, advertising or strategic
relationships;
- the loss of key employees; or
- diversion of management's attention from other ongoing business concerns.
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NEW UNITED'S BUSINESS MAY FAIL TO REALIZE THE ANTICIPATED BENEFITS OF THE
TRANSACTION
The success of the transaction will depend, in part, on New United's
ability to realize the anticipated synergies and growth opportunities from
combining the Liberty International Assets with New United's business. Even if
New United is able to integrate the business operations of the Liberty
International Assets successfully, it cannot assure you that this integration
will result in the realization of the full benefits expected from the
transaction or that these benefits will be achieved within the time frame that
we currently expect.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT NEW UNITED'S FINANCIAL
CONDITION
We are highly leveraged. As of June 30, 2000 we had consolidated long-term
debt of approximately $7.6 billion which includes parent company debt of
approximately $1.3 billion and subsidiary level debt of approximately $6.3
billion. New United's consolidated indebtedness will be approximately $209.0
million greater than United's indebtedness with the contribution of the
Principal Transaction Assets. Most of the Principal Transaction Assets that
Liberty will contribute to New United will be unconsolidated in New United's
financial statements. These unconsolidated companies have substantial
indebtedness.
New United currently believes that following the merger as contemplated,
cash on hand, cash flow from New United's future operations, asset sales and its
borrowing capacity will be sufficient to meet New United's obligations as they
become due. In certain circumstances, some of which may be beyond New United's
control, it may have to repay the indebtedness prior to when it is scheduled to
be repaid. New United may not be able to satisfy all of the conditions necessary
for its lenders to continue to lend it money under existing credit facilities.
Some of these conditions are beyond New United's control. We also cannot assure
you that circumstances will not require New United to sell assets or obtain
additional equity or debt financing at the New United level or those of its
subsidiaries and affiliates. New United may not at such time be able to sell
assets or obtain additional financing on reasonable terms or at all.
The degree to which New United will be leveraged could have important
consequences to you, including, but not limited to, the following:
- a substantial portion of cash flow from operations will be required to be
dedicated to debt service and will not be available for other purposes;
- New United's ability to obtain additional financing in the future could
be limited;
- certain of New United's borrowings could be at variable rates of
interest, which could result in higher interest expense in the event of
increases in interest rates; and
- New United's ability to execute its business plan, to compete
effectively, to respond adequately to unforeseen events and to take
advantage of opportunities could be limited.
NEW UNITED WILL LIKELY EXPERIENCE NET LOSSES FOR THE NEXT SEVERAL YEARS
We have experienced significant operating losses every year since we
started business through the year ended December 31, 1999. As of June 30, 2000,
we had an accumulated deficit of approximately $1.2 billion and expect to have
continued losses. We had net losses of $91.3 million, $138.8 million, $342.5
million and $545.5 million, for fiscal years ended February 29, 1996, February
28, 1997, February 28, 1998 and the ten months ended December 31, 1998,
respectively. Without the benefit of a $1.5 billion gain from the issuance of
subsidiary stock, we had a net loss of $872.5 million for the year ended
December 31, 1999. We had a net loss of $530.9 million for the six months ended
June 30, 2000. The consolidated businesses represented by the Principal
Transaction Assets also experienced substantial losses during these periods:
$70.0 million, $65.0 million, $13.0 million and $203.0 million for the years
ended December 31, 1997 and 1998, the two months ended February 28, 1999, and
the ten months ended December 31, 1999, respectively. Most of the unconsolidated
companies included in the Principal Transaction Assets also have a history of
net losses. We expect that New United will incur substantial
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additional losses for the indefinite future. Continuing net operating losses
could materially harm New United's results of operations and increase its need
for additional capital in the future.
THE LOSS OF KEY PERSONNEL COULD WEAKEN NEW UNITED'S TECHNOLOGICAL AND
OPERATIONAL EXPERTISE, DELAY THE INTRODUCTION OF NEW UNITED'S NEW BUSINESS LINES
AND LOWER THE QUALITY OF ITS SERVICE
New United's success and growth strategy depends, in large part, on its
ability to attract and retain key management, marketing and operating personnel,
both at the corporate and operating company levels. New United may find it
difficult to attract and retain these personnel while it is integrating the
operations of the Principal Transaction Assets. Retaining a successful
international management team may be particularly difficult because key
employees may be required to live and work outside of their home countries and
because experienced local managers are often unavailable. New United may not be
able to attract and retain the qualified personnel it needs for its business.
THE COMPLEXITIES OF NEW UNITED'S OPERATING SYSTEMS, LARGE NUMBERS OF CUSTOMERS
AND RAPID GROWTH COULD DISRUPT NEW UNITED'S OPERATIONS AND HARM ITS FINANCIAL
CONDITION
The contribution of the Principal Transaction Assets will add to the
complexity of New United's operating systems and substantially increase the size
of its customer base. New United may not plan for or be able to overcome all of
the problems it encounters in introducing its new local telephone and Internet/
data services, or the problems it encounters in providing other services to such
a large number of customers. New United's new services may not meet its
performance expectations. This would impede its planned revenue growth and
materially harm its financial condition. Problems with the existing or new
systems could delay the introduction of the new services, increase their costs,
or slow down successful marketing. We cannot be sure whether New United's
Internet access business will be able to handle a large number of online
subscribers at high data transmission speeds. As the number of subscribers goes
up, New United may have to add more fiber connection points in order to maintain
high speeds. This would require more capital, which New United may be unable to
raise. If New United cannot offer high data transmission speeds, customer demand
for its Internet/data services would go down. This would harm its Internet/data
services business, its operating results and its financial condition. We have
not yet tested the technology that New United plans to use for telephone
services for the numbers of subscribers it expects. It may not function
successfully at these scales. This would harm New United's telephone operations.
New United plans to use back-up batteries for its cable phones for operation
during power failures. These may run out in prolonged power failures. This would
interrupt the service and could lead to customer dissatisfaction. New United may
not be able to manage its growth effectively, which would harm its business,
operating results and financial condition.
We are establishing customer care facilities in our relevant markets to
support the launch of telephone and other new services. New United may not be
able to establish well-running customer care facilities staffed with appropriate
personnel. This could harm the introduction of its new services.
THE VALUE OF SOME OF THE ARGENTINE INTERESTS CONTRIBUTED BY LIBERTY MAY DECREASE
IF PENDING INVESTIGATIONS LEAD TO THE IMPOSITION OF FINES OR A LOSS OF
BROADCASTING LICENSES OR BROADCASTING RIGHTS FOR IMPORTANT PROGRAMMING
Argentine regulatory authorities are currently investigating certain claims
that have been filed against Cablevision and TyC alleging violations of
competition laws, including with respect to certain agreements between TyC and
the Argentine Soccer Federation granting TyC certain rights to sell Argentine
soccer programming. An adverse result in the investigation could result in the
loss of some of Cablevision's local broadcasting licenses and/or the imposition
of substantial fines on Cablevision and/or TyC, which could materially and
adversely affect TyC's programming revenues. In addition, the Argentine Congress
has passed legislation that, if signed into law by the President of Argentina,
could have an adverse effect on certain of TyC's contract rights to sell
Argentine national team soccer programming. The implementation of the
legislation could materially and adversely affect TyC's programming revenues.
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THERE MAY BE ADDITIONAL RISKS THAT WE ARE NOT AWARE OF RELATING TO THE ASSETS TO
BE ACQUIRED FROM LIBERTY
We are still conducting our due diligence investigations with respect to
many of the assets to be acquired from Liberty. In some cases, Liberty holds
only a minority interest, which may limit our access to information that may be
significant. Therefore, there may be additional material information and risk
that we are not aware of at this time, especially with respect to those assets
in which Liberty holds a minority interest.
SOME OF THE ASSETS TO BE ACQUIRED FROM LIBERTY ARE NOT CONTROLLING INTERESTS
Some of the assets to be acquired from Liberty are minority interests in
foreign companies. As a minority shareholder, we may not be in a position to
control the affairs or operations of those companies.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
We caution you that, in addition to the historical financial information
included in this proxy statement/prospectus, this proxy statement/prospectus
includes certain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 that are based on management's beliefs,
as well as on assumptions made by and information currently available to
management. All statements other than statements of historical fact included in
this proxy statement/ prospectus, including, without limitation, budgeted,
future, and certain other statements under "Overview -- Summary," and located in
other sections of this proxy statement/prospectus or documents incorporated by
reference regarding our and New United's financial position and business
strategy, may constitute forward-looking statements.
In addition, when we use the words "may," "will," "expects," "intends,"
"estimates," "anticipates," "believes," "plans," "seeks," or "continues" or the
negative thereof or similar expressions in this proxy statement/prospectus, we
intend to identify forward-looking statements. Such forward-looking statements
involve known and unknown risks, including, but not limited to, national and
international economic and market conditions, competitive activities or other
business conditions, and customer reception of our or New United's existing and
future services. These forward-looking statements may include, among other
things, statements concerning our and New United's plans, objectives and future
economic prospects, expectations, beliefs, future plans and strategies,
anticipated events or trends and similar expressions concerning matters that are
not historical facts. You should be aware that the multi-channel television,
telephone and Internet/data services industries are changing rapidly, and,
therefore, the forward-looking statements and statements of expectations, plans
and intent in this proxy statement/prospectus are subject to a greater degree of
risk than similar statements regarding certain other industries.
Although we and New United believe that our and its expectations with
respect to the forward-looking statements are based upon reasonable assumptions
within the bounds of our and its knowledge of our and its business and
operations as of the date of this proxy statement/prospectus, we and New United
cannot assure you that our or New United's actual results, performance or
achievements will not differ materially from any future results, performance or
achievements expressed or implied from such forward-looking statements.
Important factors that could cause actual results to differ materially from our
expectations are disclosed in this proxy statement/prospectus, including without
limitation in conjunction with the forward-looking statements included in this
proxy statement/prospectus and under "Overview -- Risk Factors." These factors
include, among other things, changes in television viewing preferences and
habits by our and New United's subscribers and potential subscribers, their
acceptance of new technology, programming alternatives and new video services
offered. They also include subscribers' acceptance of our and New United's newer
telephone and Internet/data services, our and its ability to manage and grow our
and its newer telephone and Internet/data services, our and its 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 and changes in the nature of key strategic relationships
with joint venturers. All subsequent written and oral forward-looking statements
attributable to us or New United or persons acting on our or New United's behalf
are expressly qualified in their entirety by our discussion of
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these factors. Other than as may be required by applicable law, we and New
United undertake no obligation to release publicly the results of any revisions
to these forward-looking statements that may be made to reflect any future
events or circumstances. We and New United caution you, however, that this list
of risk factors and other cautionary language contained in this proxy
statement/prospectus may not be exhaustive.
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CHAPTER II -- THE MERGER TRANSACTION
BACKGROUND AND OVERVIEW OF THE TRANSACTION
As part of the merger, we will become a wholly owned subsidiary of New
United. New United will receive the Principal Transaction Assets, as well as
rights of first offer and other rights and obligations respecting the Additional
Transaction Assets, in return for approximately 75.3 million shares of New
United Class B common stock.
BACKGROUND TO THE MERGER
United is the largest global broadband communications provider of video,
voice and data services with operations in over 20 countries throughout the
world. Liberty holds interests in a broad range of video programming,
communications, technology and Internet businesses in the United States, Europe,
South America and Asia. Each company considered the benefits of jointly
exploring these opportunities. For many years, United and Liberty have each
pursued a strategy that includes the exploration of international content and
broadband distribution opportunities. In August 1999, United was advised that
Liberty would be interested in purchasing the shares of Class B common stock
that were then held by Apollo Cable Partners, L.P., or "Apollo," and other of
its affiliated stockholders. Along with United and the Founders, Apollo and its
affiliated stockholders were parties to a Stockholders' Agreement executed in
1993, that, among other things, required a selling stockholder to first offer
Class B common stock to United, and to convert Class B common stock to Class A
common stock unless a third party transferee agreed to become a party to the
Stockholders' Agreement. United, the Founders, Apollo and its affiliated
stockholders were also parties to a 1993 Standstill Agreement to which any
purchaser of Apollo's Class B common stock would have to agree to become a
party.
In late August 1999, Gene W. Schneider, United's Chairman and Chief
Executive Officer, and Michael T. Fries, United's President, met several times
with representatives of Liberty to discuss Liberty's possible purchase of the
Class B common stock. During these discussions, they considered the terms of a
possible joint venture to which Liberty and UPC would contribute their shares of
United common stock, as well as revisions to the Stockholder's and Standstill
agreements to which Liberty would become subject. The joint venture would be
used as a vehicle to jointly evaluate content and distribution opportunities in
Europe. Liberty was also exploring selling one half of its interest in United to
Microsoft Corporation with Microsoft to also participate in the joint venture.
On August 30, 1999, United's board of directors met to consider approving
the purchase of the Class B common stock by Liberty. The board of directors also
considered the formation of the joint venture among Liberty, Microsoft and UPC.
Pursuant to Section 203 of the Delaware General Corporation Law, if United's
board of directors did not approve Liberty's purchase of Class B common stock
prior to the purchase, subsequent business combinations between the parties
could be restricted. After carefully reviewing the terms of the purchase and the
proposed joint venture, and after having been advised by counsel of the
provisions of Section 203, the board of directors unanimously approved Liberty's
acquisition, and Microsoft's subsequent acquisition, of the Class B common
stock. The board then considered and approved the proposed joint venture.
On September 7, 1999, United announced that Liberty had agreed to purchase
9,859,336 shares of Class B common stock from Apollo, Lawrence F. DeGeorge (a
former director of United) and Lawrence J. DeGeorge (a current director of
United). Liberty acquired the shares of Class B common stock in mid-September
1999, and succeeded to the rights and obligations of Apollo under the 1993
Stockholders' and Standstill agreements. Liberty, United and its affiliated
stockholders agreed to modify the 1993 Stockholders' and Standstill agreements
in certain respects. On November 15, 1999, John Malone, Liberty's Chairman, and
Greg Maffei, Microsoft's then chief financial officer, became members of
United's board of directors. Henry P. Vigil, Microsoft's vice president,
consumer strategy and partnerships, became a director of United on March 8, 2000
upon Mr. Maffei's resignation.
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By early 2000, Microsoft had not purchased any of the Class B common stock
held by Liberty. The parties had also not concluded the formation of the
announced joint venture, nor had they entered into the related definitive
agreements. Nonetheless, United and Liberty continued to believe that they could
benefit from the joint pursuit of international content and broadband
distribution opportunities. During February 2000, representatives of Liberty and
Messrs. Schneider and Fries began discussions concerning a structure in which
United's international operations would be combined with a substantial portion
of Liberty's international operations under a single corporate structure. In the
ensuing weeks, representatives of United and Liberty met on numerous occasions
to discuss such matters as the valuation of the Liberty International Assets,
the number of shares of Class B common stock to be issued in connection with the
contribution of the Liberty International Assets, and appropriate stockholder
and standstill agreements.
United's financial and legal advisors met several times with United's
management concerning the proposed transaction. On May 5, 2000, United's board
of directors met to consider the transaction that United's management had been
discussing with Liberty. Following presentations by United's management, the
board of directors unanimously concluded that the transaction was in the best
interest of United's stockholders. The board of directors authorized United's
management to enter into a binding agreement with Liberty on substantially the
terms described at the meeting.
Following the May 5, 2000, meeting of United's board of directors,
representatives of United held further discussions with Liberty and directed
their efforts toward obtaining the third party and regulatory approvals that
would be necessary for New United to acquire Liberty's management authority in
Telewest. United also sought assurance that New United's acquisition of
management authority in Telewest would not necessitate a bid for all of Telewest
under Rule 9 of the U.K. City Code on Takeovers and Acquisitions. Under some
circumstances, Rule 9 requires the purchaser of a minority management interest
in a U.K. company to make a bid for the entire U.K. company. After a number of
discussions respecting these issues, United and Liberty agreed to terms under
which nearly all of Liberty's economic interest in Telewest could be transferred
immediately at closing, while the transfer of Liberty's management authority in
Telewest would be deferred pending regulatory approvals and resolution of the
Rule 9 issue.
On June 16, 2000, United's board of directors met again and discussed the
status of the transaction with Liberty. United's management informed the board
that, owing to the uncertainty of the timing and terms of governmental and third
party approvals for the transfer of Liberty's interest in Telewest, the
transaction should be revised so that New United would receive a 99% economic
interest in Liberty's Telewest interest, but no management control, until such
time as the necessary governmental and third party approvals were obtained and
the Rule 9 issue was resolved. After considering this modification, the board of
directors again unanimously approved the transaction.
On June 25, 2000, United, Liberty and certain of their affiliates entered
into a binding agreement that set forth the material terms of the merger and
contribution agreement. United publicly announced the transaction on June 26,
2000. On July 11, 2000, the parties to the June 25 agreement executed an
amendment to the agreement. The purpose of the amendment was to make certain
adjustments to the terms of the transaction, primarily with respect to certain
operational matters of Liberty's assets in Argentina. On , 2000, the
parties to the June 25 agreement executed the merger and contribution agreement.
REASONS FOR THE MERGER
We are pursuing the merger transaction with New United for the following
reasons:
- The merger and related transactions will substantially broaden our
existing footprint of broadband businesses, and thereby create a
potential for additional growth. New United's acquisition of an interest
in Telewest will be of particular importance, as it will permit New
United and New UPC to expand their footprint to the United Kingdom,
Europe's most advanced broadband market, and strategically position New
United and New UPC for possible consolidation of broadband businesses in
Europe.
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- The Latin American businesses to be acquired in the merger and the
related transactions will give New United a substantially improved
presence in that part of the world.
- We believe Liberty is one of the world's most successful media and
communications companies, and the merger will strengthen our relationship
with Liberty.
- New United's ownership of New UPC will be approximately 61.0%, in
comparison to United's current 53.0% ownership of UPC.
- The consideration for the shares of Class B common stock to be issued by
New United in connection with the contribution of the Principal
Transaction Assets and the rights associated with the Additional
Transaction Assets represents a premium share price in relation to the
recent market prices of our Class A common stock and, in the opinion of
our board of directors, more closely reflects the underlying value of our
assets.
- Because of the Amended and Restated Stockholders Agreement and the
Amended and Restated Standstill Agreement described in this proxy
statement/prospectus, the merger will not place control of New United in
the hands of Liberty, while those agreements are effective.
At a meeting duly called and held on May 5, 2000, after due consideration,
our board unanimously:
- determined that the material terms of the transaction are advisable and
in the best interests of our stockholders;
- voted to approve the merger with a subsidiary of New United and the
transactions related to the Liberty International Assets; and
- determined to recommend that our stockholders approve the merger and
related transactions.
In reaching its decision to approve the transactions described in the
merger and contribution agreement and to recommend that our stockholders approve
the adoption of the merger and contribution agreement, our board consulted with
our management and its financial and legal advisors and considered certain
factors, including the following:
- the reasons for the merger that are listed immediately above under the
caption "The Merger Transaction -- Background and Overview of the
Transaction, Reasons for the Merger;"
- the strategic fit between us and the businesses represented by the
Principal Transaction Assets, and the belief that the combined company
has the potential to create stockholder value through additional
opportunities and operating efficiencies, although such opportunities and
operating efficiencies may not be realized;
- current industry trends, including the likelihood of continuing
consolidation and increasing competition in the broadband industries,
particularly in Europe; and
- the tax-free nature of the transaction for our stockholders.
Our board also considered the following potential risks relating to the
merger:
- the risk that the merger will not be consummated; and
- the other risks described under "Overview -- Risk Factors."
This discussion of the information and factors considered and given weight
by our board is not intended to be exhaustive, but includes the factors
considered material by our board. Our board relied on the experience and
expertise of , its financial advisor, for certain quantitative
analysis of the financial terms of the merger. In reaching its decision to
approve the transactions described in the merger and contribution agreement and
the merger and to recommend approval of the adoption of the merger and
contribution agreement to our stockholders, our board did not assign any
relative or specific weights to the various factors considered. Instead, our
board conducted an overall analysis of the factors described above,
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including through discussions with and asking questions of our management and
legal and financial advisors. In considering the factors described above,
individual directors may have given different weight to different factors. Mr.
John Malone, a member of our board and Liberty's Chairman, abstained from any
votes by the board involving the transactions described in the merger and
contribution agreement.
For the reasons described above, our board has unanimously approved and
deemed advisable and in the best interests of our stockholders the merger and
contribution agreement and the merger, and the transactions related to the
Liberty International Assets, and recommends that United stockholders vote FOR
approval of the adoption of the merger and contribution agreement.
FAIRNESS OPINION
[To be added in amendment]
ACCOUNTING TREATMENT
New United will become our parent company and holders of our stock will
receive stock of New United. Our merger with a newly created subsidiary of New
United will be accounted for by New United at historical cost. The contribution
of the Principal Transaction Assets by Liberty to New United will be accounted
for by New United as a purchase of a business. This means that, for accounting
and financial reporting purposes, the assets and liabilities of the Principal
Transaction Assets will be recorded at their fair value, and any excess of New
United's purchase price over the fair value of the Principal Transaction Assets'
tangible net assets will be recorded as intangible assets, including goodwill.
The revenues and expenses of the Principal Transaction Assets will be included
in New United's consolidated financial statements from the date the merger is
completed.
FOREIGN REGULATORY FILINGS
Consummation of the transaction requires a number of regulatory filings and
approvals in many of the countries in which United and/or Liberty operate. We
plan to make a filing with either the European Union (EU) Competition Committee
or comparable regulatory bodies in many of the EU member states. In addition, we
will make regulatory filings in many non-EU member states, as well as with the
competition authorities and/or telecommunications authorities in certain Latin
American countries, including in Argentina, Brazil, Mexico and, under certain
circumstances, Chile. We also need regulatory relief from the Australian
Securities and Investments Commission in relation to the implementation of the
transactions contemplated by the merger and contribution agreement. If we do not
receive required approval or the authorities condition their approval on
restructuring of the applicable part of the transaction, closing of the
transaction may be delayed.
BONDHOLDER CONSENT
Completion of the merger and related transactions in the manner described
in this proxy statement/prospectus requires the consent of holders of a majority
in principal amount of our outstanding bonds. We are in the process of seeking
such consent. If we do not receive the requisite consent, we will proceed with
the transaction under an alternate structure.
EXCHANGE OF SHARES
Upon completion of the merger, certificates representing shares of United
Class A common stock and certificates representing shares of a series of United
preferred stock will represent, as applicable, shares of New United Class A
common stock or shares of the equivalent series of New United preferred stock.
New United will appoint an exchange agent after the merger to handle the
exchange of certificates representing United Class B common stock converted in
the merger for certificates representing shares of New United Class A common
stock. The exchange agent, which may be affiliated with New United, will send to
each holder of record of United Class B common stock at the time the merger is
completed a letter of transmittal for use in the exchange as well as
instructions that explain how to surrender United Class B common stock
certificates to the exchange agent. WE REQUEST THAT YOU NOT SURRENDER
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YOUR UNITED CLASS B COMMON STOCK CERTIFICATES FOR EXCHANGE UNTIL YOU RECEIVE
YOUR LETTER OF TRANSMITTAL AND INSTRUCTIONS.
RIGHTS OF DISSENTING UNITED STOCKHOLDERS
United is a Delaware corporation. Section 262 of the Delaware General
Corporation Law provides appraisal rights (sometimes referred to as "dissenters'
rights") under certain circumstances to stockholders of a Delaware corporation
that is involved in a merger.
Record holders of United Class B common stock, United Series B preferred
stock and United Series C preferred stock that follow the appropriate procedures
are entitled to appraisal rights under Section 262 in connection with the
merger.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DELAWARE GENERAL CORPORATION LAW AND IS QUALIFIED
IN ITS ENTIRETY BY THE FULL TEXT OF SECTION 262, WHICH IS REPRINTED IN ITS
ENTIRETY AS APPENDIX D TO THIS PROXY STATEMENT/PROSPECTUS. ALL REFERENCES IN
SECTION 262 TO A "STOCKHOLDER" AND IN THIS DISCUSSION TO A "RECORD HOLDER" OR A
"HOLDER OF UNITED STOCK" ARE TO THE RECORD HOLDER OF THE SHARES OF UNITED CLASS
B COMMON STOCK, UNITED SERIES B PREFERRED STOCK AND UNITED SERIES C PREFERRED
STOCK IMMEDIATELY PRIOR TO THE EFFECTIVE TIME OF THE MERGER AS TO WHICH
APPRAISAL RIGHTS ARE ASSERTED. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES
HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER OR NOMINEE, MUST
ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW THE STEPS SUMMARIZED BELOW
PROPERLY AND IN A TIMELY MANNER TO PERFECT APPRAISAL RIGHTS.
Under the Delaware General Corporation Law, record holders of United Class
B common stock, United Series B preferred stock and/or United Series C preferred
stock that follow the procedures set forth in Section 262 and that have not
voted in favor of the approval and adoption of the merger and contribution
agreement will be entitled to have their shares of United appraised by the
Delaware Court of Chancery and to receive payment of the "fair value" of such
shares, exclusive of any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of interest, as determined
by the Delaware Court of Chancery.
Under Section 262, where a merger agreement is to be submitted for approval
and adoption at a meeting of stockholders, as in the case of the United special
stockholders meeting, not less than 20 days prior to the meeting, United must
notify each of its stockholders entitled to appraisal rights that such appraisal
rights are available and include in each such notice a copy of Section 262. THIS
PROXY STATEMENT/PROSPECTUS CONSTITUTES SUCH NOTICE TO THE HOLDERS OF UNITED
STOCK. Any holder of United Class B common stock, United Series B preferred
stock and/or United Series C preferred stock who wishes to exercise appraisal
rights or wishes to preserve such holder's right to do so should review the
following discussion and Appendix D carefully because failure to timely and
properly comply with the procedures specified in Section 262 will result in the
loss of appraisal rights under the Delaware General Corporation Law.
A holder of United Class B common stock, United Series B preferred stock
and/or United Series C preferred stock wishing to exercise such holder's
appraisal rights must deliver to United, before the vote on the approval and
adoption of the merger and contribution agreement at the special stockholders
meeting, a written demand for appraisal of such holder's United Class B common
stock, United Series B preferred stock and/or United Series C preferred stock
and must reasonably inform United of the identity of the holder of record as
well as the intention of the holder to demand an appraisal of the fair value of
the shares held. In addition, a holder of United Class B common stock, United
Series B preferred stock and/or United Series C preferred stock wishing to
exercise appraisal rights or wishing to preserve such holder's right to do so
must hold of record such shares on the date the written demand for appraisal is
made, must continue to hold such shares through the effective time of the merger
and must either vote against or abstain from voting on the approval and adoption
of the merger and contribution agreement.
Only a holder of record of United Class B common stock, United Series B
preferred stock and/or United Series C preferred stock is entitled to assert
appraisal rights for United Class B common stock,
II-5
<PAGE> 31
United Series B preferred stock and/or United Series C preferred stock
registered in such holder's name. A demand for appraisal should be executed by
or on behalf of the holder of record, fully and correctly, as such holder's name
appears on such holder's stock certificates, and must state that such holder
intends thereby to demand appraisal of such holder's shares of United Class B
common stock, United Series B preferred stock and/or United Series C preferred
stock. A proxy or vote against the approval and adoption of the merger and
contribution agreement will not constitute a demand for appraisal.
If the shares of United Class B common stock, United Series B preferred
stock and/or United Series C preferred stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the demand
should be made in that capacity, and, if the shares of United Class B common
stock, United Series B preferred stock and/or United Series C preferred stock
are owned of record by more than one person, as in a joint tenancy or tenancy in
common, the demand should be executed by or on behalf of all joint owners. An
authorized agent, including one or more joint owners, may execute a demand for
appraisal on behalf of all joint owners. An authorized agent, including one or
more joint owners, may execute a demand for appraisal on behalf of a holder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is agent
for such owner or owners. A record holder, such as a broker who holds United
Class B common stock, United Series B preferred stock and/or United Series C
preferred stock as nominee for several beneficial owners, may exercise appraisal
rights with respect to the shares of United Class B common stock, United Series
B preferred stock and/or United Series C preferred stock held for one or more
beneficial owners while not exercising such rights with respect to the shares of
United Class B common stock, United Series B preferred stock and/or United
Series C preferred stock held for other beneficial owners. In such case,
however, the written demand should set forth the number of shares of United
Class B common stock, United Series B preferred stock and/or United Series C
preferred stock as to which appraisal is sought. If no number of shares of
United Class B common stock, United Series B preferred stock and/or United
Series C preferred stock is expressly mentioned, the demand will be presumed to
cover all United Class B common stock, United Series B preferred stock and/or
United Series C preferred stock held in the name of the record owner. Holders of
United Class B common stock, United Series B preferred stock and/or United
Series C preferred stock who hold their shares in brokerage accounts or other
nominee forms and who wish to exercise appraisal rights are urged to consult
with their brokers or other nominees to determine the appropriate procedures for
making of a demand for appraisal by such nominee.
All written demands for appraisal of United Class B common stock, United
Series B preferred stock and/or United Series C preferred stock should be mailed
or delivered to UnitedGlobalCom, Inc., 4643 South Ulster Street, Suite 1300,
Denver, Colorado 80237, Attention: Secretary, so as to be received before the
vote on the approval and adoption of the merger and contribution agreement at
the United special stockholders meeting.
Within 10 days after the effective time of the merger, United, as the
surviving corporation in the merger, must send a notice as to the effectiveness
of the merger to each person that satisfied the appropriate provisions of
Section 262. Within 120 days after the effective time of the merger, but not
thereafter, United or any holder of United Class B common stock, United Series B
preferred stock and/or United Series C preferred stock entitled to appraisal
rights under Section 262 and who has complied with the foregoing procedures, may
file a petition in the Delaware Court of Chancery demanding a determination of
the fair value of such shares. United is not under any obligation, and has no
present intention, to file a petition with respect to the appraisal of the fair
value of the United Class B common stock, United Series B preferred stock and/or
United Series C preferred stock. Accordingly, it is the obligation of the
holders of the shares of United Class B common stock, United Series B preferred
stock and/or United Series C preferred stock to initiate all necessary action to
perfect their appraisal rights within the time prescribed in Section 262.
Within 120 days after the effective time of the merger, any record holder
of United Class B common stock, United Series B preferred stock and/or United
Series C preferred stock that has complied with the requirements for exercise of
appraisal rights will be entitled to request in writing a statement from United
II-6
<PAGE> 32
setting forth the aggregate number of shares of United Class B common stock,
United Series B preferred stock and/or United Series C preferred stock not voted
in favor of the merger with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. Such statement must
be mailed within 10 days after the written request has been received by United
or within 10 days after expiration of the period for delivery of demands for
appraisal, whichever is later.
If a holder of United Class B common stock, United Series B preferred stock
and/or United Series C preferred stock timely files a petition for appraisal and
serves a copy of such petition upon United, United will then be obligated,
within 20 days, to file with the Delaware Register in Chancery a duly verified
list containing the names and addresses of all stockholders who have demanded an
appraisal of their shares and with whom agreements as to the value of their
shares have not been reached. After notice to such stockholders as required by
the Delaware Court of Chancery, the Delaware Court of Chancery is empowered to
conduct a hearing on such petition to determine those stockholders that have
complied with Section 262 and that have become entitled to appraisal rights. The
Delaware Court of Chancery may require the holders of shares of United Class B
common stock, United Series B preferred stock and/or United Series C preferred
stock that demanded payment for their shares to submit their stock certificates
to the Delaware Register in Chancery for notation of the pendency of the
appraisal proceeding. If any stockholder fails to comply with such direction,
the Delaware Court of Chancery may dismiss the proceedings as to such
stockholder.
After determining the holders of United Class B common stock, United Series
B preferred stock and/or United Series C preferred stock entitled to appraisal,
the Delaware Court of Chancery will appraise the fair value of their shares of
United Class B common stock, United Series B preferred stock and/or United
Series C preferred stock, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
Holders considering seeking appraisal should be aware that the fair value of
their United Class B common stock, United Series B preferred stock and/or United
Series C preferred stock as determined under Section 262 could be more than, the
same as or less than the value of the consideration that they would otherwise
receive in the merger if they did not seek appraisal of their United Class B
common stock, United Series B preferred stock and/or United Series C preferred
stock, and that investment banking opinions as to fairness from a financial
point of view are not necessarily opinions as to fair value under Section 262.
The Delaware Supreme Court has stated that "proof of value by any techniques or
methods that are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal
proceedings. More specifically, the Delaware Supreme Court has stated that:
"Fair value, in an appraisal context, measures 'that which has been taken from
the stockholder, viz., his proportionate interest in a going concern.' In the
appraisal process the corporation is valued 'as an entity,' not merely as a
collection of assets or by the sum of the market price of each share of its
stock. Moreover, the corporation must be viewed as an on-going enterprise,
occupying a particular market position in the light of future prospects." In
addition, Delaware courts have decided that the statutory appraisal remedy,
depending on factual circumstances, may nor may not be a stockholder's exclusive
remedy. The Delaware Court of Chancery will also determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares of United Class B common stock, United Series B preferred stock and/or
United Series C preferred stock have been appraised. The costs of the action may
be determined by the Delaware Court of Chancery and taxed upon the parties as
the Delaware Court of Chancery deems equitable. The Delaware Court of Chancery
may also order that all or a portion of the expenses incurred by any holder of
United Class B common stock, United Series B preferred stock and/or United
Series C preferred stock in connection with an appraisal, including, without
limitation, reasonable attorneys' fees and the fees and expenses of experts
utilized in the appraisal proceeding, be charged pro rata against the value of
all of the shares of United Class B common stock, United Series B preferred
stock and/or United Series C preferred stock entitled to appraisal.
Any holder of United Class B common stock, United Series B preferred stock
and/or United Series C preferred stock that has duly demanded an appraisal in
compliance with Section 262 will not, after the effective time of the merger, be
entitled to vote such stockholder's shares of United Class B common
II-7
<PAGE> 33
stock, United Series B preferred stock and/or United Series C preferred stock
subject to such demand for any purpose or be entitled to the payment of
dividends or other distributions on those shares (except dividends or other
distributions payable to holders of record of United Class B common stock,
United Series B preferred stock and/or United Series C preferred stock as of a
date prior to the effective time of the merger).
If any holder of United Class B common stock, United Series B preferred
stock and/or United Series C preferred stock that demands appraisal of such
holder's shares of United Class B common stock, United Series B preferred stock
and/or United Series C preferred stock under Section 262 fails to perfect, or
effectively withdraws or loses such holder's right to appraisal, as provided in
the Delaware General Corporation Law, the United Class B common stock, United
Series B preferred stock and/or United Series C preferred stock of such holder
will be converted without interest into New United Class B common stock, New
United Series B preferred stock, or New United Series C preferred stock, as the
case may be. A holder of United Class B common stock, United Series B preferred
stock and/or United Series C preferred stock will fail to perfect, or will
effectively lose, the right to appraisal if no petition for appraisal is filed
within 120 days after the effective time of the merger. A holder may withdraw a
demand for appraisal by delivering to United a written withdrawal of the demand
for appraisal and an acceptance of the merger. Any such attempt to withdraw made
more than 60 days after the effective time of the merger will, however, require
the written approval of United. Further, once a petition for appraisal is filed,
the appraisal proceeding may not be dismissed as to any holder absent court
approval.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING
APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT A HOLDER
OF UNITED CLASS B COMMON STOCK, UNITED SERIES B PREFERRED STOCK AND/OR UNITED
SERIES C PREFERRED STOCK WILL BE ENTITLED TO RECEIVE ONLY THE CONSIDERATION SET
FORTH IN THE MERGER AND CONTRIBUTION AGREEMENT FOR EACH SHARE OF UNITED CLASS B
COMMON STOCK, UNITED SERIES B PREFERRED STOCK AND/OR UNITED SERIES C PREFERRED
STOCK ISSUED AND OUTSTANDING IMMEDIATELY PRIOR TO THE EFFECTIVE TIME OF THE
MERGER OWNED BY SUCH HOLDER).
The foregoing is a summary of certain of the provisions of Section 262 and
is qualified in its entirety by reference to the full text of such Section 262,
a copy of which is attached as Appendix D to this proxy statement/prospectus.
II-8
<PAGE> 34
THE MERGER AND CONTRIBUTION AGREEMENT AND RELATED AGREEMENTS
THE MERGER AND CONTRIBUTION AGREEMENT
OVERVIEW
The merger and contribution agreement among Liberty, New United and us will
combine our businesses and assets with certain of the Liberty International
Assets. As a result of the merger and the contribution of the Principal
Transaction Assets, or the Principal Transaction:
- New United will become our parent company and own the Principal
Transaction Assets;
- The holders of the various classes of our outstanding stock will acquire
an equal number of shares of substantially identical classes of stock of
New United; and
- New United will issue additional shares of New United's Class B common
stock in exchange for the Principal Transaction Assets.
Further information regarding the Principal Transaction and the Principal
Transaction Assets can be found under "-- The Merger and Contribution Agreement
and Related Agreements, The Merger and Contribution Agreement," "-- The Merger
and Contribution Agreement and Related Agreements, Ownership of New United After
Closing of Principal Transaction" and "-- Contribution of Liberty Assets,
Contribution of Principal Transaction Assets," "Information About New
United -- New United's Business, Telewest Communications," "Information About
New United -- New United's Business, Liberty's Latin American Assets,"
"Information About New United -- New United's Business, Other Liberty
International Assets."
We have also agreed with Liberty that New United will have a right of first
offer, call and other rights and obligations, to acquire the Additional
Transaction Assets and that Liberty will have certain related put rights.
Further information regarding the Additional Transactions and the
Additional Transaction Assets can be found under "-- The Merger and Contribution
Agreement and Related Agreements, Other International Interests, Additional
Telewest Interests and Chile Assets," "-- The Merger and Contribution Agreement
and Related Agreements, Contribution of Principal Transaction Assets, Other
Contributed Assets," "-- Contribution of Liberty Assets, Additional Transaction
Assets," and "Information About New United -- New United's Business -- Telewest
Communications," "Information About New United -- New United's
Business -- Liberty's Latin American Assets," "Information About New
United -- New United's Business -- Other Liberty International Assets."
The Principal Transaction will take place prior to the merger through a
number of substantially concurrent steps described below, each of which will
take place only if all of the steps occur. The first offer, put, call and other
rights, or the "Additional Transactions," may be exercised at the same time or
after the Principal Transaction.
FORMATION OF NEW UNITED AND CONTRIBUTION OF PRINCIPAL TRANSACTION ASSETS
New United was formed initially by Liberty and the Founders. Liberty and
the Founders currently hold 9,859,336 and 8,761,796 shares of our Class B common
stock, respectively, representing approximately 9.6% and approximately 8.6% of
our outstanding Class A common stock and Class B common stock, taken as a whole,
and 36.8% and 32.8% of the combined voting power of our outstanding capital
stock, respectively. In addition, UPC and public holders hold 5,569,240 and
76,065,901 shares of our Class A common stock, respectively, representing
approximately 5.4% and approximately 74.5% of our outstanding Class A common
stock and Class B common stock, taken as a whole, and 0% and approximately 30.4%
of the combined voting power of our outstanding capital stock, respectively. As
a majority owned subsidiary of United, UPC is unable to vote the United shares
it holds.
II-9
<PAGE> 35
Liberty and the Founders will contribute to New United all of the shares of
Class B common stock owned by them in exchange for an equal number of shares of
New United's Class B common stock having substantially identical terms as our
Class B common stock. As a result, Liberty will become the holder of 9,859,336
shares of New United's Class B common stock and the Founders will become the
holders of 8,761,796 shares of New United's Class B common stock, which are the
same amounts of our Class B common stock now held by Liberty and the Founders.
In connection with our merger transaction with New United, Liberty will
contribute 99% of its existing indirect interests in Telewest and $750 million
of intercompany notes in exchange for 53,570,837 shares of New United's Class B
common stock, and substantially all of its interests in certain Latin American
distribution and programming companies, as well as certain other international
assets and $250 million of intercompany notes in exchange for 21,688,000 shares
of New United's Class B common stock. See "-- Contribution of Liberty Assets,
Contribution of Principal Transaction Assets." The number of shares of New
United's Class B common stock to be issued to Liberty at the closing of the
Principal Transaction with respect to interests in Telewest could be increased
if Liberty acquires additional Telewest interests prior to the closing.
As a result of Liberty's contribution of the Principal Transaction Assets
at the closing of the Principal Transaction, Liberty's aggregate holding of New
United's Class B common stock will be increased by 75,258,837 shares, to
85,118,173 shares representing an increase from approximately 36.8% of United's
combined voting power to approximately 83.8% of New United's combined voting
power.
OUR MERGER WITH NEW UNITED SUBSIDIARY
The merger and contribution agreement provides that:
- a newly formed wholly owned subsidiary of New United will be merged into
us;
- each outstanding share of our Class A common stock and preferred stock
(including Series B, C and D preferred stock) will be converted into a
share of a substantially identical class of New United's stock (including
Class A common stock and Series B, C and D preferred stock);
- each outstanding share of our Class B common stock that is not held by
New United will be converted into a share of New United Class A common
stock, and our Class B common stock then owned by New United will be
cancelled;
- each outstanding United stock option will be converted, for each share
underlying such option, into an option to receive the same number of
shares of New United stock at the same exercise price;
- each share of Class B common stock of United held by New United will be
cancelled; and
- all outstanding shares of New United subsidiary's capital stock will be
converted into one share of Class A common stock of United as the
surviving corporation in the merger.
As a result of the merger:
- the holders of our Class A common stock will become holders of an equal
number of shares of New United Class A common stock will become the
holders of 5,569,240 shares and 76,666,709 shares of New United's Class A
common stock, respectively;
- the holders of our Series B, C and D preferred stock will become the
holders of an equal number of shares of substantially identical series of
New United's preferred stock; and
- we will become a wholly owned subsidiary of New United.
THE UPC TRANSACTION
The Principal Transaction Assets will initially be held by New United. It
is contemplated, however, that after the proposed transaction has been
completed, New United will contribute the existing Telewest
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<PAGE> 36
interests and, if then owned by New United, the additional Telewest assets to a
newly formed Dutch company that we describe in this proxy statement/prospectus
as "New UPC." This subsequent transaction will take place in a number of steps,
each of which will be conditioned on the others and will occur at substantially
the same time.
In the first step, New UPC will be formed with a capital structure
substantially identical to UPC (except that it will have additional authorized
ordinary shares A). New United will transfer the Telewest interests it acquires
from Liberty in the Principal Transaction to New UPC in exchange for a number of
New UPC ordinary shares A equal to (a) the number of Telewest shares times (b)
0.178887.
Contemporaneously, UPC will be merged into a newly formed wholly owned
subsidiary of New UPC, which will be known as United Pan-Europe Communications
B.V., or UPC B.V. That merger and contribution agreement will provide that:
- each outstanding share of UPC's outstanding ordinary shares A, priority
shares, and preference shares will be converted into a share of a
substantially identical class of New UPC's capital shares (including
ordinary shares A, priority shares and preference shares);
- each outstanding share of UPC B.V.'s capital stock will be canceled; and
- UPC B.V. will issue shares of its ordinary shares A to New UPC.
As a result of the Telewest contribution and UPC merger;
- New UPC's outstanding capital stock will be the same as UPC's current
outstanding capital stock, except for the additional shares issued by New
UPC in exchange for the Telewest interests, as set forth below;
- UPC will be transformed into UPC B.V., the successor to UPC in the
merger; and
- UPC B.V. will become a wholly owned subsidiary of New UPC.
As a result of the Telewest contribution and UPC merger, the interest of
United in UPC will compare to those of New United in New UPC as shown in the
following table.
<TABLE>
<CAPTION>
PRE- AND POST-TRANSACTION HOLDINGS OF COMMON SHARES
----------------------------------------------------
POST-CONTRIBUTION AND MERGER
EXISTING UPC NEW UPC
HOLDER CLASS A COMMON SHARES CLASS A COMMON SHARES(1)
------ --------------------- ----------------------------
<S> <C> <C>
United.................................. 53.0% 41.0%
New United.............................. 0% 20.0%
Public.................................. 47.0% 39.0%
</TABLE>
---------------
(1) Assumes 724,390,316 Telewest shares are contributed to New UPC.
The merger of UPC into new UPC requires the approval of UPC's supervisory
directors and a majority of its shareholders and compliance with other Dutch
corporate legal procedures. Pursuant to the terms of UPC's indentures, the UPC
merger will also require delivery of a fairness opinion.
OTHER INTERNATIONAL INTERESTS, ADDITIONAL TELEWEST INTERESTS AND CHILE ASSETS
We have also agreed with Liberty that:
- we will have a right of first offer, subject to third party rights, to
purchase certain Japanese assets of Liberty, and, if not acquired in
connection with the initial contributions to New United, additional
Telewest interests, and
- Liberty will have certain put rights, and we shall have certain call
rights, to require Liberty to sell and us to purchase certain Chile
assets.
II-11
<PAGE> 37
If any of these rights are exercised, they will increase the number of
shares of New United Class B common stock held by Liberty.
OTHER TERMS OF THE MERGER AND CONTRIBUTION AGREEMENT
Timing of closing. The contribution of the Principal Transaction Assets and
the merger will close on the date agreed by the parties to the agreement, but no
later than five business days following the date the last of the conditions to
close the transaction have been satisfied. The primary conditions to closing
include:
- approval of the transaction by United's stockholders;
- receipt of all third party and governmental consents necessary for the
transaction to close;
- receipt of legal and tax opinions; and
- all representations and warranties being true in all material respects.
Principal covenants. The principal covenants in the merger and contribution
agreement include an agreement by the parties to carry on their respective
businesses in the ordinary course consistent with past practice. The parties
also agreed, with a few exceptions, not to amend material agreements, merge or
consolidate with other companies, pay certain dividends, issue capital stock
and, in some cases, enter into certain related-party transactions. Liberty also
agreed not to solicit offers with respect to the assets New United is acquiring.
United, New United and the Founders have also agreed not to solicit any offer
for the sale of all or a substantial portion of United's assets or any business
combination of United. The parties agreed to use commercially reasonable efforts
to effect the transactions contemplated by the merger and contribution
agreement, including obtaining requisite consents and approvals, making
necessary filings and providing certain notices. New United, the Founders and
certain Liberty parties are obligated to execute and deliver the Stockholder
Agreement, Standstill Agreement and a registration rights agreement at the
closing of the Principal Transaction. New United is also obligated to apply for
the listing of its Class A common stock on the Nasdaq National Stock Market.
Representations and warranties. Liberty and certain of its affiliates,
United, UPC, New United, and the Founders will make to each other typical and
customary representations and warranties which are substantially reciprocal.
These include representations and warranties that relate to:
- corporate existence and authorization to enter in the contemplated
transaction;
- absence of any breach of organizational documents, law or certain
material agreements as a result of the contemplated transaction;
- absences of legal proceedings challenging the contemplated transaction;
- brokers' and finders' fees; and
- ownership of subsidiaries and, in the case of Liberty and the Founders,
United stock.
Given the structure of the transaction, Liberty and its affiliates, on the
one hand, and United and UPC, on the other hand, make various representations
and warranties concerning their respective assets that will be owned by New
United. The most significant of these relate to:
- capitalization and ownership of the respective subsidiaries and
affiliates;
- title to assets;
- the absence of undisclosed liabilities;
- contracts and commitments;
- United's filings with the SEC and certain Liberty subsidiary financial
statements and the absence of undisclosed changes since the date of the
latest filings and financial statements;
- employee matters, in the case of Liberty;
- compliance with laws; and
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<PAGE> 38
- tax matters.
In addition, New United represents and warrants that it is not an
investment company.
Conditions to closing. The obligations of Liberty, us and New United under
the merger and contribution agreement are conditioned on the satisfaction of or,
to the extent legally permissible, the waiver of the following conditions:
- receipt of governmental approvals and waivers;
- expiration or early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976;
- material approvals, waivers and consents from non-governmental third
parties;
- receipt of fairness opinions required by United;
- receipt of legal and tax opinions;
- approval of the merger and contribution agreement by United stockholders;
and
- exemption by the Australian Securities and Investments Commission from
compliance with provisions of the Corporations Law of Australia to which
the transactions contemplated by the merger and contribution agreement
are subject, either on an unconditional basis or on conditions reasonably
acceptable to United and Liberty.
Termination of the merger and contribution agreement. The merger and
contribution agreement may be terminated prior to the initial closing upon the
agreement of United and Liberty. If the initial closing has not occurred prior
to March 31, 2001, either Liberty or United may terminate the agreement,
provided that the failure to close was not the result of a breach by the
terminating party or by its affiliates of its respective covenants or
representations and warranties.
Indemnification. The Founders, Liberty and New United have agreed to
indemnify one another and their affiliates against liabilities arising out of a
breach of their respective representations, warranties and covenants in the
merger and contribution agreement, except that, in the case of a breach of
representations and warranties not related to ownership of the United Class B
common stock, ownership of the Liberty International Assets and certain other
matters, indemnification is limited to liabilities in excess of $250 million.
New United has also agreed to indemnify Liberty for liabilities related to the
Liberty International Assets, except to the extent that Liberty has agreed to be
responsible for such liabilities or that such liabilities arise from a breach of
Liberty's representations and warranties in the merger and contribution
agreement.
Appraisal rights. Record holders of United Class B common stock, United
Series B preferred stock and United Series C preferred stock that follow the
appropriate procedures are entitled to appraisal rights under Section 262 of the
Delaware General Corporation Law in connection with the merger. For more
information about such appraisal rights, see "-- Background and Overview of the
Transaction, Rights of Dissenting United Stockholders."
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<PAGE> 39
OWNERSHIP OF NEW UNITED AFTER CLOSING OF PRINCIPAL TRANSACTION
As of the date of this proxy statement/prospectus, our capital stock is
held approximately as set forth below, and, after the Principal Transaction has
been completed, New United's Class A common stock and Class B common stock will
be held approximately as set forth below:
<TABLE>
<CAPTION>
PRE- AND POST-TRANSACTION HOLDINGS OF SHARES
----------------------------------------------------------------------------------------------------
POST-TRANSACTION POST-TRANSACTION
EXISTING UNITED EXISTING UNITED NEW UNITED NEW UNITED
CLASS A CLASS B CLASS A CLASS B
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
----------------------- ---------------------- ----------------------- -----------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
NUMBER OF OF TOTAL NUMBER OF OF TOTAL NUMBER OF OF TOTAL NUMBER OF OF TOTAL
HOLDER SHARES COMMON SHARES COMMON SHARES COMMON SHARES COMMON
------ ---------- ---------- --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Founders............. 747,731 0.7% 8,761,796 8.6% 747,731 0.4% 8,761,796 4.9%
Liberty.............. 595,000 0.6 9,859,336 9.6 595,000 0.3 85,118,173 48.1
UPC.................. 5,569,240 5.4 -- -- 5,569,240 3.1 -- --
Public............... 76,065,901 74.5 600,808 0.6 76,666,709 43.2 -- --
</TABLE>
Because each share of our and New United's Class A common stock is entitled
to one vote and each share of our and New United's Class B common stock is
entitled to ten votes, the holders of our capital stock with voting power are,
and the holders of New United's capital stock with voting power will be,
approximately as set forth in the table below as of the date of this proxy
statement/prospectus and after completion of the Principal Transaction,
respectively. As a subsidiary of United, UPC cannot vote the United common stock
that it holds.
<TABLE>
<CAPTION>
PRE- AND POST-TRANSACTION HOLDINGS OF
VOTING POWER
----------------------------------------
PERCENTAGE OF
PERCENTAGE OF VOTING POWER OF
VOTING POWER OF POST-TRANSACTION
HOLDER EXISTING UNITED STOCK NEW UNITED STOCK
------ --------------------- ----------------
<S> <C> <C>
Founders........................................... 32.8% 8.7%
Liberty............................................ 36.8 83.8
Public............................................. 30.4 7.5
</TABLE>
The share numbers and percentages set forth above would differ if
additional Telewest or other international assets were acquired by New United
from Liberty.
STOCKHOLDER AGREEMENT
At the closing of the Principal Transaction, Liberty will enter into an
Amended and Restated Stockholder Agreement with certain Founders, including
various family interests of Gene W. Schneider, United's Chief Executive Officer,
and Mark L. Schneider, UPC's Chief Executive Officer, as well as certain other
long-time holders of our stock. Together with Liberty and its affiliates, the
Founders will hold approximately 92.5% of the voting power in New United
following the merger. Until directors are nominated for terms beginning in 2003,
the parties to the Stockholder Agreement will vote their New United shares for
eight directors nominated by the Founders and four directors nominated by
Liberty. Afterwards, the parties will vote for four directors nominated by the
Founders, four directors nominated by Liberty, and four directors chosen by the
board of directors nominees.
Under the terms of the Amended and Restated Stockholder Agreement, New
United must have the approval of the directors nominated by Liberty before it
can:
- acquire or dispose of assets or issue equity or debt securities, in any
12-month period, in an amount exceeding 30% of its market capitalization
(excluding a merger, sale of New United, sale of all or substantially all
of the assets of New United, or a reorganization among affiliated
entities, provided that all Class B common stock holders are treated
equally);
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- remove or replace its Chief Executive Officer, except in the case of
candidates pre-approved by Liberty;
- amend its charter or bylaws in a manner adverse to Liberty or the holders
of Class B common stock; or
- enter into a material transaction, outside the ordinary course of
business, with a Founder or other affiliate of New United.
Under the Amended and Restated Stockholder Agreement, the Founders may
transfer Class B shares to each other, family members, and certain
family-controlled interests, and Liberty may transfer Class B shares to its
affiliates, provided that any transferee becomes subject to the Amended and
Restated Stockholder Agreement. However, any other transfer of Class B common
stock, or conversion of Class B common stock into Class A common stock, must be
preceded by a first offer to the Founders or Liberty, as the case may be. The
recipient of the first offer will then have a set period of time to purchase the
stock on terms no less favorable than those on which the transfer would
otherwise be made. If a first offer from Liberty to the Founders is rejected,
Liberty must convert its Class B shares to Class A shares before they can be
transferred to a third party.
The Amended and Restated Stockholder Agreement permits New United to issue
additional shares of Class B common stock upon a majority vote of the board.
However, if the issuance of the additional shares dilutes Liberty's voting power
in New United by 10% or more, Liberty will have the right to maintain its voting
power by purchasing additional Class B shares at the same price or by exchanging
its Class A shares for Class B shares.
In addition, in the event that the Founders sell a majority of their Class
B shares to an unaffiliated third party after having made a first offer to
Liberty, Liberty may be required by the Founders, or may elect at its
discretion, to sell at least a proportionate amount of its Class B shares to the
same third party on the same terms. In circumstances where certain of the
Founders sell all of their Class B common stock, the Founders can require that
all of the shares of Class B common stock held by Liberty be sold to the third
party. If Liberty sells at least a majority of its Class B shares to an
unaffiliated third party, after having made a first offer to the Founders and
after having converted the Class B shares to Class A shares, the Founders may
elect to sell at least a proportionate amount of their Class B shares to the
same third party on the same terms. If Liberty is compelled by the Founders to
sell its Class B shares under the Amended and Restated Stockholder Agreement, it
may require that the transaction treat holders of Class B common stock equally
and that the transaction be tax-free to itself and its affiliates. Finally, if
at any time New United ceases to control UPC, the Founders and Liberty may
acquire UPC's interest in New United at fair market value.
The Amended and Restated Stockholder Agreement will terminate in its
entirety at such time as the Founders and their transferees as a whole, or Gene
W. Schneider and Mark L. Schneider and their transferees, no longer hold at
least 40% of the Class B shares they held when the Amended and Restated
Stockholder Agreement was signed (excluding any transfers to Liberty). Unless
the Amended and Restated Stockholder Agreement is terminated earlier, the
provisions requiring and allowing Liberty and the Founders to sell their shares
of Class B common stock in connection with the other party's sale of such stock
will terminate ten years after the date it is signed. When any party to the
Amended and Restated Stockholder Agreement no longer holds a voting interest in
New United equal to at least 10% of the voting interest the party held when it
became a party, it will no longer be subject to the Amended and Restated
Stockholder Agreement.
STANDSTILL AGREEMENT
Upon or prior to the completion of the merger, New United and Liberty will
enter into an Amended and Restated Standstill Agreement that imposes aggregate
ownership limitations on Liberty and its affiliates with regard to New United
common stock. The Amended and Restated Standstill Agreement will limit Liberty's
and its affiliates' aggregate ownership of New United common stock to the
percentage of
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outstanding common stock represented by (a) the greater of its percentage
ownership immediately following the issuance of New United common stock in
connection with the contribution of the Principal Transaction Assets and, when
and if occurring, the Additional Transaction Assets, or 47.0%, plus (b) any
shares acquired under the Amended and Restated Stockholder Agreement, in each
case on a fully diluted basis. Liberty will not be deemed to have violated this
limitation on account of any action taken by New United, such as a repurchase of
common stock.
Except as otherwise permitted by the Amended and Restated Stockholder
Agreement, the Amended and Restated Standstill Agreement will require Liberty to
vote its shares as recommended by a majority of the New United board or, at
Liberty's discretion, in the same proportion as shares voted by the other
stockholders. If Liberty wishes to dispose of its common stock, it may do so
under the Amended and Restated Standstill Agreement so long as the terms of the
Amended and Restated Stockholder Agreement are observed and, with regard to
Class A common stock, the transferee holds no more than 10% of New United's
voting power following the disposition and, with regard to Class B common stock,
the affiliate or Founder transferee agrees to be bound by the Amended and
Restated Standstill Agreement or the disposition occurs in connection with a
tender offer or exchange offer that the New United board has approved.
The Amended and Restated Standstill Agreement further restricts Liberty and
its affiliates from:
- soliciting proxies or participating in a proxy solicitation;
- combining into a group with other stockholders if the group would exceed
the ownership restrictions prescribed by the Amended and Restated
Standstill Agreement;
- entering into voting arrangements or using any other method to evade the
Amended and Restated Standstill Agreement;
- soliciting or encouraging an offer to purchase New United;
- failing to attend, in person or by proxy, New United stockholder
meetings;
- exercising dissenters' rights; and
- calling a stockholder meeting or making any stockholder proposal (except
to the board), or amending New United's bylaws without the consent of the
board.
The Amended and Restated Standstill Agreement obligates New United to give
Liberty prompt notice, and in no event less than five days' notice prior to
acceptance, of any offer to acquire all or substantially all of the assets of
New United, or to merge or consolidate with New United, or to acquire New
United's outstanding shares in a tender offer or exchange offer. If the New
United board does not reject any such offer within 10 days, Liberty or any of
its affiliates may make a competing offer, in which event the New United board
in the exercise of its fiduciary duties will consider waiving applicable
restrictive provisions of the Amended and Restated Standstill Agreement.
The Amended and Restated Standstill Agreement will terminate ten years
after the date it is signed, or at the same time the Amended and Restated
Stockholder Agreement terminates.
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CONTRIBUTION OF LIBERTY ASSETS
OVERVIEW
Before our merger with a subsidiary of New United, Liberty will contribute
to New United the Principal Transaction Assets in exchange for approximately
75.3 million shares of New United's Class B common stock. If Liberty acquires
and then contributes to New United additional Telewest interests or other
international assets at the closing. The number of shares of New United Class B
common stock to be issued to Liberty will increase. In addition, we will be
granted rights of first offer, subject to existing rights of third parties, with
respect to the Additional Transaction Assets. Most of the Principal Transaction
Assets are held by Liberty's subsidiary, Liberty Media International, Inc.
This summary of the Principal Transaction Assets and the Additional
Transaction Assets is qualified by reference to the complete text of the merger
and contribution agreement, which is attached as Appendix A to this proxy
statement/prospectus.
CONTRIBUTION OF PRINCIPAL TRANSACTION ASSETS
Existing Telewest Interests. In connection with the Principal Transaction,
Liberty will contribute to New United all the outstanding stock of three
subsidiaries of Liberty, which we call the "Contributed Telewest Subs," and
which currently own, directly or indirectly, a total of 724,390,316 ordinary and
limited voting shares of Telewest: Liberty UK Holdings, Inc., a Colorado
corporation which directly owns 42,130,814 Telewest shares; Liberty UK, Inc., a
Colorado corporation which (through its ownership interest in TW Holdings,
L.L.C.) indirectly owns 463,438,961 Telewest shares; and Liberty Programming UK,
Inc., a Delaware corporation which (through its ownership of Liberty Flex
Holdings Limited, a U.K. company) indirectly owns 218,820,541 Telewest shares.
Liberty will also contribute intercompany promissory notes made by the
Contributed Telewest Subs in the aggregate principal amount of $750 million (the
"Contributed Telewest Subs Promissory Notes"). The Contributed Telewest Subs
Promissory Notes will have a term of one year and will bear interest, payable
semiannually, at 14% per annum, and will be prepayable without penalty or
premium.
Prior to Liberty's contribution of the Contributed Telewest Subs to New
United, Liberty UK Holdings, Inc., Liberty UK, Inc., and Liberty Programming UK,
Inc. will each contribute the Telewest shares it owns directly or the equity of
the company through which it indirectly owns Telewest shares to separate
Delaware limited liability companies, limited liability partnerships or similar
entities, or alternatively, in the case of Liberty UK, Inc., Liberty UK, Inc.
may elect instead to recapitalize its existing ownership interest in TW
Holdings, L.L.C. if it owns 100% of the ownership interests in TW Holdings,
L.L.C. at such time. We refer to these newly formed Delaware limited liability
companies, limited liability partnerships or similar entities (or to the
recapitalized TW Holdings, L.L.C.) as the "New LLCs." Each of the three New LLCs
will issue in exchange a 99% membership interest and a 1% managing membership
interest. We call these membership interests the "99% New LLC Interests" and the
"1% Managing Membership Interests." The Contributed Telewest Subs will each
distribute the 1% Managing Membership Interests they hold to Liberty, which will
in turn contribute such 1% Managing Membership Interests to a new wholly owned
subsidiary that we call "Liberty Manager." Liberty will then contribute the
stock of the Contributed Telewest Subs (which will hold the 99% New LLC
Interests) and the Contributed Telewest Subs Promissory Notes to New United in
exchange for 53,570,837 shares of New United Class B common stock. New United
will in turn contribute the 99% New LLC Interests to New UPC in exchange for
additional shares of New UPC Class A common stock as part of the UPC
transaction.
Liberty Manager, as the managing member of the New LLCs, will have all
management and voting rights with respect to the New LLCs, including the sole
right to direct the management and policies (including all operating and
financial policies) of the New LLCs. New United, as the non-managing member,
will have the right to purchase Liberty Manager's interests in any New LLC if
Liberty Manager decides to cause such New LLC to sell all or substantially all
of the Telewest shares directly and
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indirectly owned by it, at a price equal to the product of Liberty Manager's
percentage interest in such New LLC multiplied by the value of the consideration
offered by the person to whom such Telewest shares are to be sold, or if such
shares are to be sold on a securities exchange, by the "Average Market Price" of
a Telewest share. Average Market Price means, with respect to any class of stock
as of any date of determination, the average of the closing sales price per
share for the period of ten trading days ending on the trading day that is two
trading days prior to the date of determination, as reported by the principal
securities exchange on which such class of stock is traded. Except as set forth
below, New Untied has agreed to indemnify Liberty and its affiliates, and AT&T
Corp. and its affiliates, for any tax liabilities arising from certain gain
recognition agreements relating to the Telewest interests contributed to New
United (the "GRA Tax Liabilities"). However, if Liberty Manager causes or
permits any action with respect to any New LLC or its assets that has a material
adverse U.S. income tax effect on New United or New UPC pursuant to the
applicable gain recognition agreements relating to the Telewest interests
contributed to New United or that creates any GRA Tax Liabilities, Liberty will
indemnify New United and New UPC for the tax costs arising directly from such
action, and New United shall not have an indemnification obligation for any such
GRA Tax Liabilities arising directly from such action, unless such action occurs
after Liberty Manager is acquired by New UPC or by a third party at New UPC's
direction or if the action giving rise to such tax effect or liability (a) is
one that Liberty Manager did not have a right to prevent, (b) would have
required Liberty Manager or any of its affiliates to expend or to commit to
expend its own funds or (c) would require that Liberty's representatives on the
board of directors of Telewest act in a manner that is inconsistent with their
fiduciary duties as directors under applicable law.
At such time as the parties have obtained all material third party and
regulatory consents, approvals and clearances necessary for the interests in
Telewest retained by Liberty Manager to be transferred to New United, without
any of the parties being required to make a bid for Telewest under Rule 9 of the
UK City Code on Takeovers and Mergers and without any third party having an
approval right or a right of first refusal or a buy-sell or similar right,
Liberty will contribute all outstanding stock of Liberty Manager to New United
in exchange for 541,120 shares of New United's Class B common stock, and New
United will cause Liberty Manager to contribute to New UPC the 1% Managing
Membership Interests in exchange for additional shares of the Class A Common
Shares of New UPC. Without United's consent, neither the stock of Liberty
Manager nor Liberty Manager's interests in the New LLCs may be transferred
except to an affiliate of Liberty that agrees to be bound by the obligations of
the transferor or except to New United or New UPC as previously described. The
parties have agreed to use their reasonable efforts to cause such contribution
to be tax-free to each of them.
If all material consents referred to in the preceding paragraph have not
been obtained by the second anniversary of the date on which Liberty contributes
the Contributed Telewest Subs to New United as described above, New UPC may, by
notice to Liberty stating that New UPC has decided to transfer to a third party
all of its direct and indirect interests in Telewest, require Liberty to
transfer all the stock of Liberty Manager, or to cause Liberty Manager to
transfer its membership interests in the New LLCs, to New UPC or to such third
party in exchange for 541,120 shares of New United's Class B common stock. The
parties will use their reasonable efforts to cause such transfer to be tax-free
to each of them.
Latin American Subsidiaries. In connection with the Principal Transaction,
Liberty will also contribute to New United, subject to certain conditions,
intercompany promissory notes in the aggregate principal amount of $250 million
made by Liberty Argentina, Inc. and the following shareholdings, which we refer
to as the "Contributed Latin American Subs":
- 49.0% of outstanding common equity, representing 9.0% of voting power, of
Liberty Puerto Rico;
- 100% of outstanding stock of Liberty Argentina, Inc. and, if applicable,
another subsidiary of Liberty designated by it, the sole asset of which
owns 28.3% (which, under some circumstances, may be increased to 50.0%)
of the outstanding common equity of Cablevision;
- 100% of outstanding stock of Associated Communications of Mexico, Inc.,
the sole asset of which is approximately 41% of the outstanding common
equity of Portatel;
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- 100% of outstanding stock of Liberty International DLA, Inc., the sole
asset of which is at least 43% of the outstanding equity interests in
Digital Latin America;
- 100% of outstanding stock of Liberty Programming South America, Inc. and
Liberty International Cable Management, Inc., the sole assets of which
are 100% of the outstanding common equity of Pramer, which includes the
international assets of the Gems Network; and
- 100% of the outstanding stock of Liberty Programming Argentina, Inc., the
primary asset of which is 40.0% of the outstanding common equity of TyC.
Prior to the closing of the Principal Transaction, the certificate of
incorporation of Liberty Puerto Rico will be amended to provide for two classes
of common stock having identical rights, except that one class will have ten
votes per share and the other will have one vote per share. The 49% interest in
Liberty Puerto Rico to be transferred to New United will be in the form of
shares of the class having one vote per share, so that New United will acquire
shares representing 49% of the common equity and 9% of the voting power of
Liberty Puerto Rico. In addition, Liberty will have the right to purchase New
United's interest in Liberty Puerto Rico at any time for a purchase price equal
to the fair market value of that interest, as agreed by the parties or, if they
cannot agree, as established by appraisal. At the election of Liberty, the
acquisition of New United's interest will be made for cash or will be a tax-free
transaction in which the consideration will be either AT&T Liberty Media Group
tracking stock or, if Liberty is then independent from AT&T Corp., Liberty
stock. If the acquisition of New United's interest is taxable, the consideration
paid to New United will be increased by an amount so that after payment of any
state, federal and foreign income or similar taxes on such consideration by New
United and any subsidiary, New United will receive for its interest an amount
equal to the purchase price plus such additional amount as reasonably may be
required to compensate New United for the cost of selling its interest in a
taxable sale rather than in a tax-free transaction.
In addition to the equity of Cablevision held by Liberty Argentina, Inc.,
New United may acquire additional equity of Cablevision. If Liberty Argentina,
Inc. or another subsidiary of Liberty acquires additional interests in
Cablevision pursuant to a letter agreement dated March 27, 2000 between Liberty
and AMI GP Ltd. then, at the closing of the proposed contribution and merger
transactions involving New United, Liberty will assign to New United Liberty's
rights, and New United will assume Liberty's obligations, under that agreement.
At such closing and subject to Cablevision's consent, Liberty also will cause
its wholly owned subsidiary, Liberty International Cable Management, Inc., or
"LICM," to assign to New United LICM's rights, and New United will assume LICM's
obligations, under a management agreement between Cablevision and LICM.
Liberty has paid $31 million to two of the shareholders of TyC as an
"earnout" obligation. At the closing of the Principal Transaction, New United
will pay to Liberty the amount of the earnout payment, plus interest at a rate
of 10% per annum (compounded quarterly) from the date Liberty makes the earnout
payment to the date of the closing of the Principal Transaction, such payment to
be made in shares of New United Class B common stock. The number of shares of
New United Class B common stock to be delivered shall be based upon the Average
Market Price of the New United Class A common stock. In addition, prior to the
closing of the Principal Transaction, Liberty will loan up to $20 million to one
of the TyC shareholders and will provide an unconditional guaranty of a bank
loan in the principal amount of up to $27 million to be made to the shareholder.
The obligations of the borrower under both loans will be secured by collateral
that will include a 20% interest in TyC, an 80% interest in an Argentine company
that owns the America 2 channel and personal guarantees of the two shareholders.
In consideration of providing the loan and the guaranty, Liberty will be granted
an option to acquire up to 80% of the entity with the indirect interest in the
America 2 channel. At the closing of the Principal Transaction, Liberty will
assign to New United the obligations and liabilities of the lender of the $20
million loan with respect to such loan and the rights and obligations under the
option, and New United will replace Liberty as the guarantor of the $27 million
loan (or will indemnify Liberty if the lender of the $27 million loan will not
accept such replacement) and will cause the TyC shareholder to pay to Liberty an
amount equal to the unpaid principal and interest on the $20 million loan plus
any
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amount Liberty has paid under the guaranty, with interest at a rate of 10% per
annum (compounded quarterly).
In exchange for its contribution to New United of the stock of the
Contributed Latin American Subs and $250 million of intercompany notes, Liberty
will receive 21,688,000 shares of New United Class B common stock.
Intercompany Notes. As described above, Liberty will contribute to New
United intercompany promissory notes made by the Contributed Subs in the
aggregate principal amount of $1 billion. The notes to be contributed will have
a term of one year and will bear interest, payable semiannually, at 14.0% per
annum, and will be prepayable without penalty or premium.
Indebtedness of Contributed Subsidiaries. We have agreed with Liberty that:
- one of the Contributed Subs, Liberty International DLA, Inc., may have,
at the time of New United's acquisition thereof, debt in a principal
amount equal to capital contributions made by it to Digital Latin America
(currently budgeted to be $17.2 million), bearing interest at the rate of
14.0% per annum and maturing one year after the first of such capital
contributions;
- either Liberty Argentina, Inc. or another wholly owned subsidiary of
Liberty that is formed to hold an interest in Cablevision may have debt
in a principal amount equal to the cost (approximately $410 million) of
acquiring additional interests in Cablevision to increase the aggregate
interest of those subsidiaries in Cablevision to 50.0%, bearing interest
at 14.0% per annum and maturing one year after the date of the payment of
such acquisition cost to the transferor(s) of those interests; and
- one or more of the Contributed Latin American Subs or the Contributed
Telewest Subs, or collectively, the "Contributed Subs," will have, at the
time of their acquisition by New United, debt payable to Liberty in the
principal amount of $200 million, bearing interest at the rate of 14.0%
per annum (increasing to 18.0% per annum in May 2001) and maturing in
November 2001.
The debt described above will be payable to Liberty and may be prepaid
without penalty and secured by stock or assets of the Contributed Telewest Subs
or the Contributed Latin American Subs.
Other Contributed Assets. In connection with the Principal Transaction,
Liberty will contribute to New United the following, which we sometimes refer to
as the "Other Contributed Assets":
- 100% of outstanding stock of Liberty Crown, Inc., the sole asset of which
is 16% of the common equity of Crown Media;
- 100% of the outstanding stock of Liberty Programming Australia, Inc., the
sole asset of which is a 20% partnership interest in The Premium Movie
Partnership; and
- a 20% interest in Wave.
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ADDITIONAL TRANSACTION ASSETS
Additional Telewest Interests. The number of Telewest shares that Liberty
must transfer to New United will be increased by 99% of any additional Telewest
shares issued to Liberty, any of the Contributed Telewest Subs or any other
subsidiary of Liberty prior to the closing of the Principal Transaction,
including any shares issued in consideration of the acquisition by Telewest of
assets of or an interest in any of Chorus Communication, Inc., or "Chorus,"
formerly known as "Princes Holdings," or Multithematiques. All Telewest shares
so acquired before that closing will be contributed to a New LLC in respect of
Liberty Manager's 1% Managing Membership Interest and the applicable 99% New LLC
Interest. To the extent that the number of Telewest shares to be contributed by
Liberty at the Principal Transaction closing is greater than 717,146,413,
Liberty will receive .0747 shares of New United's Class B common stock for each
additional Telewest share attributable to the 99% New LLC Interests (i.e., 99%
of the number of Telewest shares collectively owned by the New LLCs in excess of
724,390,316), subject to certain adjustments. Chorus is the parent company of
Cable Management Ireland.
Other International Assets. In the merger and contribution agreement,
Liberty has granted New United a right of first offer to acquire the following
assets, which we call the "Other International Assets:"
- 50.0% equity interest in Jupiter Telecommunications Co., Ltd.;
- 35.0% equity interest in Jupiter Programming Co., Ltd.; and
- any additional Telewest shares issued to Liberty, any of the Contributed
Telewest Subs or any other subsidiary of Liberty that are not contributed
to New United in connection with the Principal Transaction.
If Liberty proposes to dispose of all or a portion of the Other
International Assets to an unaffiliated third party, either directly or through
the disposition of a subsidiary that owns such assets, then, subject to certain
exceptions, Liberty must first offer to New United the interest in the Other
International Assets that is subject to disposition. Any such offer must set
forth the price and other material terms at which such interest would be
transferred, and Liberty and New United would then negotiate the transfer on an
exclusive basis for 30 days following New United's receipt of the offer. New
United would have the right to pay, and Liberty would have the right to require
New United to pay, the agreed-upon consideration for such interest in New United
Class B common stock in a transaction that is tax-free to Liberty. The value of
the shares of New United Class B common stock will be determined on the basis of
a sum of the parts methodology set forth in the merger and contribution
agreement, in the case of Other International Assets consisting of interests in
Jupiter Telecommunications or Jupiter Programming, and on the basis of the
Average Market Price of New United Class A common stock, in the case of Other
International Assets consisting of additional shares of Telewest.
If Liberty and New United do not reach agreement regarding the transfer by
the end of their 30-day negotiating period, Liberty may dispose of the Other
International Assets that were the subject of the offer for a period of 120
days, on terms no less favorable than those that appeared in Liberty's original
offer or in New United's last written offer. Liberty's 120-day period to dispose
of such assets will be extended by 60 days in the event that any required
approvals or consents are not obtained during that 120-day period.
If Liberty and New United do reach agreement regarding the transfer by the
end of their 30-day negotiating period, and the transfer is not completed within
120 days of their agreement (subject to a 60-day extension if required approvals
and consents are not obtained), Liberty may at any time dispose of the Other
International Assets that were the subject of the offer, so long as the failure
to complete the transaction is not attributable to a breach by Liberty of its
agreement with New United to transfer the Other International Assets.
The merger and contribution agreement specifies certain "permitted
transfers" of Other International Assets that are not subject to New United's
right of first offer, including transfers made to or among affiliates of Liberty
or transfers made in connection with a restructuring of Liberty. New United's
right of
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first offer with respect to Other International Assets will terminate when
Liberty no longer owns beneficially at least 25% of the voting power of New
United or July 1, 2010, whichever is earlier.
Chile Assets. In the merger and contribution agreement, Liberty has granted
New United a right to purchase, and New United has granted Liberty a right to
require the purchase of, certain Chilean assets of Liberty, which we call the
"Chile Assets":
- an indirect 30% equity interest in Metropolis Intercom S.A., or
"Metropolis," owned by Liberty as of June 25, 2000, or the "30%
Metropolis Interest;"
- an additional 20% equity interest in Metropolis that Liberty acquired on
October 2, 2000, or the "20% Metropolis Interest;" and
- the direct or indirect 50.0% interest in Metropolis owned by CristalChile
Comunicaciones S.A., Cristalerias de Chile S.A., or their affiliates,
which Liberty has an existing obligation to acquire, or the "Claro
Interest."
Liberty will have the right to require New United to purchase, and New
United will have the right to require Liberty to sell to New United, the 30%
Metropolis Interest by the transfer, in a transaction that is tax-free to
Liberty, of all of the outstanding stock of Liberty Chile, Inc. in exchange for
1,424,276 shares of New United's Class B common stock.
In addition, Liberty acquired the 20% Metropolis Interest for approximately
$126.5 million in cash. Liberty has the right to require New United to purchase,
and New United has the right to require Liberty to sell to New United, all the
outstanding capital stock of Liberty Chile, Inc., which at the time of the
acquisition of the 20% Metropolis Interest by New United will own, directly or
indirectly, the 20% Metropolis Interest. The amount payable by New United for
the 20% Metropolis Interest will be equal to the sum, without duplication, of:
- the cost of acquiring the 20% Metropolis Interest;
- the amount of any capital contributions to Metropolis made by Liberty or
any subsidiary of Liberty after June 25, 2000, reduced by any
distributions by Metropolis to Liberty or any subsidiary of Liberty; and
- notional interest at the rate of 10% per annum (compounded quarterly) on
the amounts described in the foregoing clauses from the date(s) of the
payment thereof to the date of the acquisition of the 20% Metropolis
Interest by New United.
The purchase price payable to Liberty for the 20% Metropolis Interest will be
payable, at the election of New United, in cash, shares of New United's Class B
common stock or freely traded stock of an affiliate of New United or any
combination thereof, subject to the merger and contribution agreement. For the
purpose of determining the number of shares of New United's Class B common stock
or freely traded affiliate stock to be received by Liberty, such securities will
be deemed to have a per share value equal to the Average Market Price of New
United's Class A common stock (if the securities are shares of New United's
Class B common stock) or of the relevant freely traded affiliate stock, in
either case determined as of the date of the closing of the acquisition by New
United of the 20% Metropolis Interest.
Liberty's right to sell and New United's right to purchase both the 30%
Metropolis Interest and the 20% Metropolis Interest will be subject to rights of
first refusal in favor of one or more holders of direct or indirect interests in
Metropolis that are currently in existence, and may be exercised at any time
after the first anniversary of the Principal Transaction.
In addition, Liberty currently has the obligation to acquire, directly or
through a subsidiary, the Claro Interest, upon exercise of a put right granted
to the owner of the Claro Interest, for consideration consisting, at Liberty's
election, of cash or shares of Liberty capital stock. The Claro Interest
represents a 50% interest in Metropolis. If Liberty acquires the Claro Interest,
Liberty will then have the right to require New United to purchase and New
United will have the right to require Liberty to sell to New
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United the Claro Interest at the purchase price equal to the price paid by
Liberty, which purchase price will be determined as follows:
If Liberty pays its purchase price for the Claro Interest in cash:
- the purchase price payable to Liberty when New United is required to
purchase the Claro Interest will be equal to
(i) the amount of cash paid to the seller, and
(ii) any capital contributions by Liberty or any subsidiary of Liberty
in respect of the Claro Interest after its acquisition by Liberty
or a subsidiary of Liberty, reduced by any distributions that
relate to the Claro Interest made after such acquisition, and
(iii) notional interest on the amounts described in clauses (i) and
(ii) at the rate of 10% per annum (compounded quarterly) from
the date of payment by Liberty to the date of payment to Liberty
by New United;
- the purchase price will be payable, at the election of New United, in
cash, shares of New United's Class B common stock or freely traded
affiliate stock, or any combination thereof; and
- the number of shares of New United's Class B common stock or freely
traded affiliate stock to be delivered to Liberty will be calculated
using the per share value thereof as of the date of the closing of the
acquisition of the Claro Interest by New United.
In this proxy statement/prospectus, Liberty Capital Stock means AT&T
Liberty Media Group Class A stock or, if at the time such stock is required or
permitted to be delivered the common stock of Liberty is not directly or
indirectly owned by AT&T Corp., publicly traded common stock of Liberty of a
class or series that, relative to any other class or series of common stock of
Liberty, has the lowest number of votes per share. If Liberty pays its purchase
price for the Claro Interest in shares of Liberty Capital Stock:
- the purchase price payable by New United to Liberty when Liberty is
required to sell the Claro Interest will be determined by multiplying the
number of shares of Liberty common stock delivered by Liberty in payment
of its purchase price for the Claro Interest by the per share value of
that Liberty common stock, determined as of the date of the closing of
such acquisition using the same "sum of the parts" methodology set forth
in the merger and acquisition agreement with regard to the Other
International Assets (changing any references to New United to be
references to the Liberty Media Group (as defined in the Certificate of
Incorporation of AT&T Corp.) or to Liberty Media Corporation, as
appropriate) as is used to derive a per share value for New United's
Class B common stock;
- the purchase price so determined will be payable, at the election of New
United, in cash, shares of New United's Class B common stock or freely
traded affiliate stock, or any combination thereof;
- the number of shares of New United's Class B common stock to be delivered
to Liberty will be determined as of the date of the closing of the sale
to New United or its designee using the per share value of New United's
Class B common stock derived by the use of the sum of the parts
methodology described above; and
- the number of shares of freely traded affiliate stock to be delivered to
Liberty will be determined using the per share value thereof as of the
date of the closing of the sale to New United or its designee.
Any transfer of the 30% Metropolis Interest, the 20% Metropolis Interest or
the Claro Interest to New United is to take place as soon as practicable, but in
any event within 270 days, after notice is given by one party to the other.
Liberty and New United have agreed to use reasonable efforts to obtain all
governmental and other third party approvals required to be obtained with
respect to the transfer of such
II-23
<PAGE> 49
interest to New United, but New United's obligation to purchase or to cause a
Chile Asset to be purchased shall not be excused because of the failure to
obtain any approval or other action by any governmental authority. If any such
approval or other action for the acquisition of a Chile Asset by New United is
required but cannot be obtained, New United will be obligated to secure a
purchaser for the Chile Asset who can obtain such approval, consent or other
action. If, however, neither New United nor any purchaser secured by New United
is able to secure any required governmental approval or other action and to
complete the purchase of the Chile Asset within 270 days after notice is given,
Liberty will be entitled to receive, on the first business day after expiration
of that 270-day period, the full amount of the consideration required to be
delivered to it for the Chile Asset that New United would otherwise purchase and
in exchange for such consideration Liberty will provide to New United, in lieu
of the Chile Asset otherwise required to be transferred, a stock appreciation
right or similar right representing, to the extent reasonably possible under the
circumstances (as determined in the reasonable judgment of Liberty and New
United), the economic equivalent of the Chile Asset that otherwise would be
transferred. If within 10 days after Liberty has delivered to New United a
proposed form of agreement setting forth the terms of the stock appreciation
right or other right, Liberty and New United cannot agree on whether such right
represents, to the extent reasonably possible under the circumstances, the
economic equivalent of such Chile Asset, that dispute will be submitted for
determination by a nationally recognized investment banking firm selected by
Liberty and New United. In making its determination, such firm is not to take
into account the fact that such right will not provide to New United any right
to participate in management of Metropolis or otherwise to have any of the
rights of an owner of a direct or indirect ownership interest in Metropolis. At
such time as New United or another person designated by New United has received
all governmental approvals, consents or other action required to complete the
purchase of the Chile Asset to which the such right relates, Liberty will, for
no additional consideration, transfer such Chile Asset to New United or to its
designee and such right then will terminate.
If a Chile Asset is acquired by a purchaser other than New United, New
United will pay Liberty the full amount of any deficiency in the consideration
paid by such purchaser compared to the consideration required to be paid by New
United (including, in the case of a sale of the 30% Metropolis Interest in a
transaction that does not qualify as a tax-free transaction for Liberty, such
additional amount as may be required to compensate it for the loss of such
treatment), and New United will indemnify Liberty and its affiliates against all
additional costs, liabilities and expenses incurred by them as a result of being
required to transfer the Chile Asset to a purchaser other than New United.
Liberty will not directly or indirectly (except to an affiliate that agrees
to be bound by the merger and contribution agreement) transfer any of the 30%
Metropolis Interest, the 20% Metropolis Interest, or (if the Claro Interest is
acquired by Liberty or any of its subsidiaries) the Claro Interest until
Liberty's right to sell and New United's right to purchase the Chile Assets have
been exercised or have expired. New United has agreed that, upon the acquisition
by New United of any direct or indirect interest in Metropolis, it will execute
and deliver an instrument agreeing to be bound by the Agreement dated as of May
17, 2000 among CristalChile Comunicaciones S.A., Cristalerias de Chile S.A., TCI
Comunicaciones de Chile Uno Limitada and Liberty, as well as the related
performance guarantee.
If Liberty's right to sell and New United's right to purchase any Chile
Assets has not been exercised by June 1, 2010, such right will expire at
midnight, Denver time, on that date.
Notwithstanding anything to the contrary described above, if Liberty is
required to sell any or all of the Chile Assets because of a final order or
other mandate of any court or other governmental authority, its right to sell
and New United's right to purchase such Chile Asset will be exercisable upon
issuance of such order or mandate and New United will be obligated to complete
(or to cause its designee to complete) the acquisition of the affected Chile
Asset on or before the 270th day after such right is exercised or the date that
is 15 days before the date prescribed by such order or mandate as the deadline
for Liberty's disposition of the affected Chile Asset, whichever occurs first.
If New United fails to satisfy that obligation, it is required to indemnify
Liberty for any loss incurred as a result of its failure. See "Overview -- Risk
Factors -- Risks Relating to the Merger with New United, New United may not have
sufficient time to perform its potential obligations to acquire additional
Liberty assets in Chile."
II-24
<PAGE> 50
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
This section summarizes the material United States federal income tax
consequences which expects to result from the transaction. Such
section is included herein solely for general information purposes, and is
intended only as a descriptive summary and does not purport to be a complete
technical analysis or a listing of all potential tax effects of each stockholder
or potential stockholder. This discussion is based on the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the applicable
Treasury Regulations (the "Regulations"), and public administrative and judicial
interpretation of the Code and Regulations, all of which are subject to change,
which changes could be applied retroactively. Furthermore, it is impracticable
to comment on all aspects of federal, state, local and foreign laws that may
affect the tax consequences of the transaction contemplated as it relates to the
particular circumstances of each stockholder or potential stockholder.
Therefore, the federal income tax discussion set forth below applies only to
holders of shares of United. The federal income tax consequences to any
particular stockholder may be affected by matters not discussed below.
United has not sought and will not seek any ruling from the Internal
Revenue Service (the "IRS") with respect to the merger and contribution
agreement and related transactions (the "Transaction"). The IRS could take
positions concerning the tax consequences of the Transaction that are different
from those set forth in this summary and a court could sustain any such
positions.
The contribution of certain stock and assets by the Founders, Liberty and
Liberty Media International to New United, together with the merger of New
United's subsidiary ("Transitory Sub") with and into United, in which existing
common and preferred shareholders of United will receive newly issued common and
preferred shares of New United, respectively, are parts of a single transaction
intended to qualify for tax-free treatment under Section 351 of the Code. Such
transaction will not constitute a taxable event with respect to United for
United States federal income tax purposes. Assuming the transaction so
qualifies, then for federal income tax purposes (i) holders of United common
stock whose shares are converted into New United common stock in the transaction
will not recognize gain or loss as a result of the conversion (except that
holders of United common stock who receive cash in lieu of fractional shares or
upon exercising dissenters' rights will recognize gain or loss), and (ii)
holders of United preferred stock whose shares are converted into New United
preferred stock in the transaction will not recognize gain or loss as a result
of the conversion (except that holders of United preferred stock who exercise
dissenters' rights will recognize gain or loss), and (iii) in the case of
holders who hold only one class of United common stock or United preferred
stock, but not both, the holding period (where the stock is a capital asset in
the hands of the exchanging shareholder) and basis applicable to shares of New
United common stock and New United preferred stock received in the transaction
will be the same as the holding period and basis attributable to the United
common stock and United preferred stock, as the case may be, that was converted
into New United common stock or New United preferred stock in the Transaction
(reduced by any basis allocable to a fractional share interest in New United
common stock or New United preferred stock for which cash is received) and (iv)
in the case of holders of more than one class of United common stock and/or
United preferred stock the aggregate basis applicable to shares of New United
common stock and New United preferred stock received in the transaction will be
the same as the aggregate basis attributable to the United common stock and
United preferred stock that was converted into New United common stock and New
United preferred stock in the transaction (reduced by any basis allocable to a
fractional share interest in New United common stock or New United preferred
stock for which cash is received), such aggregate basis being allocated among
the different shares of New United common stock and New United preferred stock
in proportion to the relative fair market values of each class of stock, and the
holding period (where the stock is a capital asset in the hands of the
exchanging shareholder) applicable to each share of New United common stock and
New United preferred stock received in the transaction will be a split holding
period based on the holding period of each proportionate part of the United
common stock and United preferred stock that was deemed converted into each New
United common stock and New United preferred stock in the transaction.
A holder of shares of United common stock or United preferred stock who
receives cash upon exercise of such holder's dissenters' rights will recognize
gain or loss measured by the difference between
II-25
<PAGE> 51
the amount of cash received and the amount of such holder's aggregate basis in
United common stock and United preferred stock. Any gain recognized by a
shareholder of the United common stock or United preferred stock who exercises
dissenters' rights will be taxed as capital gain. If a United shareholder who
exercises dissenters' rights, or a holder of United common stock, has held his
or her shares of United common stock or United preferred stock as the case may
be, as a capital asset, any capital gain or loss recognized will be long-term if
such shares were held for more than one year at the time of the transaction.
The Transaction may result in United undergoing an "ownership change," as
defined in Section 382 of the Code, that could limit United's ability to utilize
existing net operating losses to offset future income or gain recognized by
United. In addition, the Transaction may result in certain limitations on
United's ability to utilize its existing net operating losses against income and
gains recognized by New United.
The subsequent contribution of the Telewest interest to New UPC is intended
to qualify as a tax-free capital contribution under Section 351 of the Code, and
the merger of UPC with and into UPC Transitory Sub, a disregarded entity for
Federal income tax purposes, is intended to qualify as a reorganization under
Section 368(a)(1)(D) of the Code pursuant to which no gain or loss will be
recognized by UPC. New United will be required to file a five-year gain
recognition agreement with their U.S. income tax return in order to obtain
tax-free treatment on the exchange. Any disposition of stock in UPC, New UPC, or
the transferred assets within the five-year time frame could result in the U.S.
transferee being required to recognize any gain deferred on the transfer. If
such contribution and merger were to fail to qualify for tax-free treatment,
United will recognize gain to the extent the fair market value of the assets
contributed to New UPC exceeds its basis in such assets, and UPC will recognize
gain to the extent the fair market value of its assets exceed its tax basis in
such assets.
THE DISCUSSION ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. IT DOES NOT
ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGERS. THE DISCUSSION
IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND PROPOSED
TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT
DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD
AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. EACH UNITED SHAREHOLDER SHOULD
CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGERS TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE,
LOCAL AND FOREIGN TAX LAWS.
II-26
<PAGE> 52
CHAPTER III -- THE MEETING AND VOTING
, 2000
A.M., LOCAL TIME
This proxy statement/prospectus is furnished to you in connection with the
solicitation of proxies by our board of directors in connection with the
proposed merger.
TIME AND PLACE; PURPOSE
The special meeting will be held at .m., local time, on
, 2000, at the , , Denver, Colorado. At the
meeting, our stockholders will be asked to consider and vote upon the following
proposals: (i) the approval of the merger and contribution agreement; (ii) to
consider and vote upon an amendment to increase the number of shares of United's
Class A common stock reserved for issuance under its 1993 Stock Option Plan by
shares from 9,200,000 shares to shares; and (iii) to
transact such other business as may properly come before the meeting. Pursuant
to the merger and contribution agreement, we will merge with a subsidiary of New
United and New United will become our parent company. In connection with the
merger, you will receive stock in New United. New United will acquire certain of
Liberty's international broadband assets in exchange for a note payable to
Liberty for a minimum amount of $200 million in assumed debt and approximately
75.3 million shares of New United Class B common stock.
This proxy statement/prospectus and the accompanying form of proxy are
first being mailed to our stockholders on or about , 2000.
VOTING RIGHTS; RECORD DATE
Our board of directors has fixed the close of business on ,
2000 (the "Record Date"), as the record date for the determination of holders of
common stock entitled to receive notice of and to vote at the meeting.
Accordingly, only holders of record of shares of common stock at the close of
business on the Record Date are entitled to notice of and to vote at the
meeting. At the close of business on the Record Date, we had outstanding and
entitled to vote at the meeting shares of Class A common stock and
shares of Class B common stock. The Class A common stock and Class B common
stock vote together as a single class on all matters, except where otherwise
required by the Delaware General Corporation Law. Each share of Class A common
stock has one vote and each share of Class B common stock has ten votes on each
matter on which holders of such shares of such classes are entitled to vote at
the meeting.
The presence, in person or by proxy, of the holders of a majority of the
combined voting power of the outstanding shares of common stock entitled to vote
is necessary to constitute a quorum at the meeting. The affirmative vote of a
majority of the combined voting power of the outstanding shares of common stock
is required to approve the merger and contribution agreement.
PROXIES
All shares of common stock represented by properly executed proxies
received prior to or at the meeting, and not revoked, will be voted in
accordance with the instructions indicated in such proxies. If no specific
instructions are given with respect to the matters to be acted upon at the
meeting, shares of common stock represented by a properly executed proxy will be
voted FOR the merger and contribution agreement proposal. The merger and
contribution agreement proposal is the only matter to be acted upon at the
meeting. A properly executed proxy marked "ABSTAIN," although counted for
purposes of determining whether there is a quorum and for purposes of
determining the aggregate voting power and number of shares represented and
entitled to vote at the meeting, will not be voted and will have the same effect
as a vote cast against the proposal to which such instruction is indicated.
Shares represented by "broker non-votes" (i.e., shares held by brokers or
nominees which are represented at the meeting but with respect to which the
broker or nominee is not empowered to vote on a particular proposal) will also
III-1
<PAGE> 53
be counted for purposes of determining whether there is a quorum at the meeting
but will have the same effect as a vote cast against the adoption of the merger
and contribution agreement.
A stockholder may revoke his or her proxy at any time prior to its use by
delivering to our Secretary a signed notice of revocation or a later dated
signed proxy or by attending the meeting and voting in person. Attendance at the
meeting will not in itself constitute the revocation of a proxy. Any written
notice of revocation or subsequent proxy should be sent or hand delivered so as
to be received by UnitedGlobalCom, Inc., 4643 South Ulster Street, Suite 1300,
Denver, Colorado 80237, Attention: Secretary, at or before the vote to be taken
at the meeting.
The cost of solicitation of proxies will be paid by us. In addition to
solicitation by mail, our officers and employees may solicit proxies by
telephone, telegram, or by personal interviews. Such persons will receive no
additional compensation for such services. Brokerage houses, nominees,
fiduciaries and other custodians will be required to forward soliciting material
to the beneficial owners of shares held of record by them and will be reimbursed
for the reasonable expenses in connection therewith.
SHARE OWNERSHIP OF MANAGEMENT
As of , the record date, our directors and executive officers as
a group owned shares of our common stock, or approximately % of our
outstanding shares and % of the voting power of our common stock on that date.
VOTING ARRANGEMENTS
As of the record date, the holders of % of the outstanding shares of
Class A common stock and % of the outstanding shares of Class B common
stock together having % of the total vote have agreed to vote in favor of the
transaction.
APPRAISAL RIGHTS
Under Delaware law, record holders of our Class B common stock, Series B
preferred stock, or Series C preferred stock who do not vote for the merger and
contribution agreement may exercise appraisal rights by delivering to us a
demand in writing for the appraisal of such shares at a fair value. Stockholders
who elect to exercise appraisal rights must comply strictly with all of the
procedures set forth in Section 262 of the Delaware General Corporation Law to
preserve those rights.
Section 262 of the Delaware General Corporation Law sets forth the required
procedure a stockholder seeking appraisal must follow. The procedural rules are
specific. Failure to comply with the procedural rules may cause you to lose your
appraisal rights. Please review Section 262 for the complete procedure. We will
not give you any notice of your appraisal rights other than as described in this
proxy statement/ prospectus and as required by Delaware law.
YOU SHOULD NOT SEND IN ANY CERTIFICATES REPRESENTING OUR COMMON STOCK.
FOLLOWING THE EFFECTIVE TIME OF THE MERGER. YOU WILL RECEIVE INSTRUCTIONS FOR
THE SURRENDER AND EXCHANGE OF YOUR UNITED STOCK CERTIFICATES
III-2
<PAGE> 54
CHAPTER IV -- INFORMATION ABOUT NEW UNITED
NEW UNITED'S BUSINESS
Upon completion of the merger, New United's business will consist of the
businesses currently operated or held by us, as well as the businesses
represented by the Principal Transaction Assets and contemplated by the rights
respecting the Additional Transaction Assets.
OPERATING DATA AND FINANCIAL INFORMATION
The following tables show certain operating and financial data for our
systems and the Principal Transaction Assets that New United will own following
the merger, but prior to the contribution of Telewest to New UPC. The financial
information presented below reflects 100% of the operations of each respective
business. Certain systems are not majority owned affiliates and hence the
financial information is not consolidated in our or the Liberty Principal
Transaction Assets Group's statements of operations. In addition, certain
information presented in the tables below has been derived from financial
statements prepared in accordance with foreign generally accepted accounting
principles which differ from U.S. generally accepted accounting principles and
certain amounts have been converted to U.S. dollars using the period-end
exchange rates for the convenience translation.
OPERATING SYSTEM DATA FOR UNITED SYSTEMS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
----------------------------------------------------------------------------
HOMES IN TWO-WAY BASIC
UNITED SERVICE HOMES HOMES SUBSCRIBERS/ BASIC
OWNERSHIP AREA PASSED PASSED LINES PENETRATION
--------- ---------- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
UPC (EUROPE)
Video Subscribers:
The Netherlands............ 53.0% 2,541,686 2,431,861 1,953,910 2,253,204 92.7%
Poland..................... 53.0% 1,950,000 1,793,375 -- 1,416,473 79.0%
Germany.................... 13.3% 1,422,826 1,422,826 30,456 919,641 64.6%
Hungary (UPC
Magyarorszag)........... 53.0% 915,500 704,988 131,451 535,907 76.0%
Austria.................... 50.4% 1,080,900 910,550 867,300 478,520 52.6%
Israel..................... 24.7% 660,000 623,274 388,735 437,318 70.2%
France..................... 48.8% 2,460,357 1,111,477 230,531 381,519 34.3%
Czech Republic............. 53.0% 868,823 777,419 17,740 356,601 45.9%
Norway..................... 53.0% 529,000 469,248 84,531 330,292 70.4%
Slovak Republic............ 50.3-53.0% 417,813 295,914 -- 244,343 82.6%
Sweden..................... 53.0% 770,000 421,624 228,153 248,706 59.0%
Belgium.................... 53.0% 530,000 152,052 152,052 123,484 81.2%
Romania.................... 27.0-37.1% 509,320 395,910 -- 260,307 65.7%
Malta...................... 26.5% 177,000 175,986 -- 79,393 45.1%
Hungary (Monor)............ 52.3% 85,561 70,587 84,906 33,158 47.0%
---------- ---------- --------- ----------
Total.............. 14,918,786 11,757,091 4,169,765 8,098,866
---------- ---------- --------- ----------
Telephone Lines:
The Netherlands............ 53.0% 2,541,686 N/A N/A 169,769 N/A
Hungary (Monor)............ 52.3% 85,561 N/A N/A 73,825 N/A
Austria.................... 50.4% 1,080,900 N/A N/A 71,812 N/A
France..................... 48.8% 2,460,357 N/A N/A 25,403 N/A
Norway..................... 53.0% 529,000 N/A N/A 11,634 N/A
Czech Republic............. 53.0% 868,823 N/A N/A 3,613 N/A
---------- ---------- --------- ----------
Total.............. 7,566,327 N/A N/A 356,056
---------- ---------- --------- ----------
Data Subscribers:
Internet................... 13.3-53.0% N/A N/A N/A 214,155 N/A
---------- ---------- --------- ----------
</TABLE>
IV-1
<PAGE> 55
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
----------------------------------------------------------------------------
HOMES IN TWO-WAY BASIC
UNITED SERVICE HOMES HOMES SUBSCRIBERS/ BASIC
OWNERSHIP AREA PASSED PASSED LINES PENETRATION
--------- ---------- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Programming Subscribers:
Ireland.................... 42.4% N/A N/A N/A 3,228,922 N/A
Spain/Portugal............. 26.5% N/A N/A N/A 1,404,000 N/A
---------- ---------- --------- ----------
Total.............. N/A N/A N/A 4,632,922
---------- ---------- --------- ----------
AUSTAR UNITED (AUSTRALIA/NEW ZEALAND)
Video Subscribers:
Australia.................. 72.3% 2,085,000 2,083,108 -- 406,326 19.5%
New Zealand................ 36.2% 141,000 93,015 93,015 19,006 20.4%
---------- ---------- --------- ----------
Total.............. 2,226,000 2,176,123 93,015 425,332
---------- ---------- --------- ----------
Telephone Lines:
New Zealand................ 36.2% 141,000 N/A N/A 31,521 33.9%
---------- ---------- --------- ----------
Data Subscribers:
New Zealand................ 36.2% N/A N/A N/A 36,335 N/A
Australia.................. 72.3% N/A N/A N/A 8,490 N/A
---------- ---------- --------- ----------
Total.............. N/A N/A N/A 44,825
---------- ---------- --------- ----------
Programming Subscribers:
Australia.................. 36.2% N/A N/A N/A 1,017,000 N/A
---------- ---------- --------- ----------
OTHER ASIA/PACIFIC
Video Subscribers:
Philippines................ 19.6% 600,000 457,500 -- 186,217 40.7%
---------- ---------- --------- ----------
LATIN AMERICA
Video Subscribers:
Chile...................... 100.0% 2,350,000 1,622,783 492,720 394,119 24.3%
Mexico..................... 90.3% 341,600 233,277 -- 63,273 27.1%
Brazil (Jundiai)........... 46.3% 70,200 67,466 -- 17,540 26.0%
Brazil (TV Show
Brasil)................. 100.0% 437,000 306,000 -- 19,350 6.3%
Peru....................... 100.0% 140,000 63,932 -- 7,824 12.2%
---------- ---------- --------- ----------
Total.............. 3,338,800 2,293,458 492,720 502,106
---------- ---------- --------- ----------
Telephone Lines:
Chile...................... 100.0% 2,350,000 N/A N/A 94,191 19.1%
---------- ---------- --------- ----------
Data Subscribers:
Chile...................... 100.0% N/A N/A N/A 2,821 0.6%
---------- ---------- --------- ----------
Programming Subscribers:
Latin America.............. 50.0% N/A N/A N/A 5,778,276 N/A
---------- ---------- --------- ----------
TOTAL UNITED
Video Subscribers.......... 21,083,586 16,684,172 4,755,500 9,212,521
========== ========== ========= ==========
Telephone Lines............ 10,057,327 N/A N/A 481,768
========== ========== ========= ==========
Data Subscribers........... N/A N/A N/A 261,801
========== ========== ========= ==========
Programming Subscribers.... N/A N/A N/A 11,428,198
========== ========== ========= ==========
</TABLE>
IV-2
<PAGE> 56
OPERATING SYSTEM DATA FOR PRINCIPAL TRANSACTION ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
------------------------------------------------------------------------------
HOMES IN TWO-WAY BASIC
LIBERTY SERVICE HOMES HOMES SUBSCRIBERS/ BASIC
OWNERSHIP AREA PASSED PASSED LINES PENETRATION
--------- ---------- ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
TELEWEST
Video Subscribers......... 25.0% 5,629,000 4,708,695 N/A 1,128,808 24.0%
---------- ---------- --------- ----------
Telephone Lines........... 25.0% 5,629,000 N/A N/A 1,913,663 N/A
---------- ---------- --------- ----------
Data Subscribers.......... 25.0% N/A N/A N/A 136,715 N/A
---------- ---------- --------- ----------
Programming
Subscribers(1).......... 25.0% N/A N/A N/A 8,519,776 N/A
---------- ---------- --------- ----------
LATIN AMERICA
Video Subscribers:
Argentina............... 28.3% 4,000,000 3,420,000 N/A 1,453,000 42.5%
Puerto Rico(2).......... 100.0% 442,000 288,000 N/A 110,000 38.2%
---------- ---------- --------- ----------
Total........... 4,442,000 3,708,000 N/A 1,563,000
---------- ---------- --------- ----------
Programming Subscribers:
TyC (Argentina)......... 40.0% N/A N/A N/A N/A N/A
---------- ---------- --------- ----------
Pramer (Argentina)(3)... 100.0% N/A N/A N/A 17,524,000 N/A
---------- ---------- --------- ----------
ASIA/PACIFIC
Programming Subscribers:
Premium Movie
Partnership.......... 20.0% N/A N/A N/A 908,000 N/A
TOTAL PRINCIPAL TRANSACTION ASSETS
Video Subscribers....... 10,071,000 8,416,695 N/A 2,691,808
========== ========== ========= ==========
Telephone Lines......... 5,629,000 N/A N/A 1,913,663
========== ========== ========= ==========
Data Subscribers........ N/A N/A N/A 136,715
========== ========== ========= ==========
Programming
Subscribers.......... N/A N/A N/A 26,951,776
========== ========== ========= ==========
</TABLE>
PRO FORMA OPERATING SYSTEM DATA FOR NEW UNITED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
--------------------------------------------------
HOMES IN TWO-WAY BASIC
SERVICE HOMES HOMES SUBSCRIBERS/
AREA PASSED PASSED LINES
---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Video Subscribers....... 31,154,586 25,100,867 4,755,500 11,904,329
========== ========== ========= ==========
Telephone Lines......... 15,686,327 N/A N/A 2,395,431
========== ========== ========= ==========
Data Subscribers........ N/A N/A N/A 398,516
========== ========== ========= ==========
Programming
Subscribers.......... N/A N/A N/A 38,379,974
========== ========== ========= ==========
</TABLE>
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<PAGE> 57
REVENUE FOR UNITED SYSTEMS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNITED FOR THE YEAR ENDED
OWNERSHIP AT FOR THE SIX DECEMBER 31,
JUNE 30, MONTHS ENDED -----------------------
2000 JUNE 30, 2000 1999 1998
------------ ------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
UPC (EUROPE)
Video:
The Netherlands.......................... 53.0% $ 95,803 $ 158,586 $ 98,797
Poland................................... 53.0% 56,821 78,997 --
Germany.................................. 13.3% 52,671 -- --
Hungary (UPC Magyarorszag)............... 53.0% 20,609 33,478 11,827
Austria.................................. 50.4% 39,362 79,648 80,903
Israel................................... 24.7% 69,679 159,312 161,233
France................................... 48.8% 27,812 51,702 3,678
Czech Republic........................... 53.0% 11,756 26,680 4,032
Norway................................... 53.0% 23,266 46,784 43,876
Slovak Republic.......................... 50.3 - 53.0% 5,680 7,289 693
Sweden................................... 53.0% 15,757 29,990 --
Belgium.................................. 53.0% 7,330 14,968 16,803
Romania.................................. 27.0 - 37.1% 2,244 2,766 1,004
Malta.................................... 26.5% 7,634 15,172 14,297
Hungary (Monor).......................... 52.3% 729 5,774 4,666
-------- ---------- ----------
Total............................ $437,153 $ 711,146 $ 441,809
-------- ---------- ----------
Telephone:
The Netherlands.......................... 53.0% $ 43,758 $ 40,978 $ 2,913
Hungary (Monor).......................... 52.3% 4,603 13,063 10,551
Austria.................................. 50.4% 14,273 6,963 --
France................................... 48.8% 4,009 2,578 --
Norway................................... 53.0% 1,198 347 --
Czech Republic........................... 53.0% 476 172 --
-------- ---------- ----------
Total............................ $ 68,317 $ 64,101 $ 13,464
-------- ---------- ----------
Data:
Internet................................. 13.3 - 53.0% $ 36,723 $ 29,477 $ --
-------- ---------- ----------
Programming:
Ireland.................................. 42.4% N/A $ 951 $ 610
Spain/Portugal........................... 26.5% N/A 26,794 17,099
-------- ---------- ----------
Total............................ N/A $ 27,745 $ 17,709
-------- ---------- ----------
AUSTAR UNITED (AUSTRALIA/NEW ZEALAND)
Video:
Australia................................ 72.3% $ 80,697 $ 144,643 $ 89,263
New Zealand.............................. 36.2% 1,607 2,303 750
-------- ---------- ----------
Total............................ $ 82,304 $ 146,946 $ 90,013
-------- ---------- ----------
Telephone:
New Zealand.............................. 36.2% $ 17,672 $ 7,388 $ 919
-------- ---------- ----------
Data:
New Zealand.............................. 36.2% $ 2,170 $ 1,320 $ --
Australia................................ 72.3% 43 -- --
-------- ---------- ----------
Total............................ $ 2,213 $ 1,320 $ --
-------- ---------- ----------
Programming:
Australia................................ 36.2% $ 17,595 $ 30,764 $ 17,027
-------- ---------- ----------
</TABLE>
IV-4
<PAGE> 58
<TABLE>
<CAPTION>
UNITED FOR THE YEAR ENDED
OWNERSHIP AT FOR THE SIX DECEMBER 31,
JUNE 30, MONTHS ENDED -----------------------
2000 JUNE 30, 2000 1999 1998
------------ ------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OTHER ASIA/PACIFIC
Video:
Philippines.............................. 19.6% $ 11,601 $ 18,671 $ 13,538
-------- ---------- ----------
LATIN AMERICA
Video:
Chile.................................... 100.0% $ 58,188 $ 113,004 $ 112,985
Mexico................................... 90.3% 6,906 12,946 10,533
Brazil (Jundiai)......................... 46.3% 3,075 6,172 9,162
Brazil (TV Show Brasil).................. 100.0% 2,700 4,645 5,994
Peru..................................... 100.0% 1,047 2,334 1,858
-------- ---------- ----------
Total............................ $ 71,916 $ 139,101 $ 140,532
-------- ---------- ----------
Telephone:
Chile.................................... 100.0% $ 13,813 $ 14,467 $ 6,020
-------- ---------- ----------
Data:
Chile.................................... 100.0% $ 242 $ -- $ --
-------- ---------- ----------
Programming:
Latin America............................ 50.0% $ 5,508 $ 7,374 $ 3,671
-------- ---------- ----------
TOTAL UNITED
Video.................................... $602,974 $1,015,864 $ 685,892
======== ========== ==========
Telephone................................ $ 99,802 $ 85,956 $ 20,403
======== ========== ==========
Data..................................... $ 39,178 $ 30,797 $ --
======== ========== ==========
Programming.............................. $ 23,103 $ 65,883 $ 38,407
======== ========== ==========
</TABLE>
REVENUE FOR PRINCIPAL TRANSACTION ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIBERTY FOR THE YEAR ENDED
OWNERSHIP AT FOR THE SIX DECEMBER 31,
JUNE 30, MONTHS ENDED -----------------------
2000 JUNE 30, 2000 1999 1998
------------ ------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
TELEWEST
Video...................................... 25.0% $226,034 $ 418,084 $ 334,649
-------- ---------- ----------
Telephone.................................. 25.0% $454,889 $ 825,810 $ 524,930
-------- ---------- ----------
Data and other............................. 25.0% $ 70,694 $ 27,516 $ 34,145
-------- ---------- ----------
Programming(1)............................. 25.0% $ 98,645 $ 197,788 $ 210,277
-------- ---------- ----------
LATIN AMERICA
Video:
Argentina................................ 28.3% $273,800 $ 552,951 $ 466,132
Puerto Rico(2)........................... 100.0% 23,720 43,751 44,508
-------- ---------- ----------
Total............................ $297,520 $ 596,702 $ 510,640
-------- ---------- ----------
Programming:
TyC (Argentina).......................... 40.0% $ 34,703 $ 65,264 $ 73,887
Pramer (Argentina)(3).................... 100.0% 35,807 61,957 17,619
-------- ---------- ----------
Total............................ $ 70,510 $ 127,221 $ 91,506
-------- ---------- ----------
</TABLE>
IV-5
<PAGE> 59
<TABLE>
<CAPTION>
LIBERTY FOR THE YEAR ENDED
OWNERSHIP AT FOR THE SIX DECEMBER 31,
JUNE 30, MONTHS ENDED -----------------------
2000 JUNE 30, 2000 1999 1998
------------ ------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASIA/PACIFIC
Programming:
Premium Movie Partnership................ 20.0% $ 37,120 $ 71,107 $ 59,300
TOTAL PRINCIPAL TRANSACTION ASSETS
Video.................................... $523,554 $1,014,786 $ 845,289
======== ========== ==========
Telephone................................ $454,889 $ 825,810 $ 524,930
======== ========== ==========
Data and other........................... $ 70,694 $ 27,516 $ 34,145
======== ========== ==========
Programming.............................. $206,275 $ 396,116 $ 361,083
======== ========== ==========
</TABLE>
PRO FORMA REVENUE FOR NEW UNITED
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FOR THE SIX DECEMBER 31,
MONTHS ENDED -----------------------
JUNE 30, 2000 1999 1998
------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Video.................................... $1,126,528 $2,030,650 $1,531,181
========== ========== ==========
Telephone................................ $ 554,691 $ 911,766 $ 545,333
========== ========== ==========
Data and other........................... $ 109,872 $ 58,313 $ 34,145
========== ========== ==========
Programming.............................. $ 229,378 $ 461,999 $ 399,490
========== ========== ==========
</TABLE>
---------------
(1) Telewest acquired Flextech plc (a cable programming operator in the United
Kingdom) in April 2000. The revenue balances presented herein include
Flextech's operations for periods prior to the acquisition by Telewest on a
pro forma basis.
(2) New United will acquire only a 49.0% interest in Liberty Puerto Rico.
(3) This represents the subscribers for Pramer's owned programming services
only. At June 30, 2000, Pramer had 24,573,000 additional subscribers for
its distributed programming services.
OVERVIEW OF PRINCIPAL TRANSACTION ASSETS
In connection with the Principal Transaction, Liberty will contribute its
interests in the following companies to New United:
- a 25.0% economic interest in Telewest;
- at least 28.0% of the outstanding common equity of Cablevision;
- 49.0% of outstanding common equity, representing 9.0% of the voting
power, of Liberty Puerto Rico;
- approximately 41.0% of the outstanding common equity of Portatel;
- approximately 43.0% of the outstanding equity interests in Digital Latin
America;
- 100% of the outstanding common equity of Pramer;
- 40.0% of the outstanding common equity of TyC;
- 16.0% of Crown Media;
- 20.0% of Premium Movie Partnership; and
- 20.0% of Wave.
These interests are held by various Liberty subsidiaries that will be
contributed to New United.
IV-6
<PAGE> 60
TELEWEST COMMUNICATIONS PLC
Telewest is one of Britain's leading digital communications groups. As the
United Kingdom's second-largest cable operator, it currently provides
multi-channel television, telephone and Internet services to residential
households, and voice and data telecommunications services to business
customers. Its content division, Flextech plc, or "Flextech," is the biggest
provider of basic channels to the United Kingdom pay-TV market and is the
British Broadcasting Corporation's partner in a joint venture which has a
portfolio of pay-TV channels based on the corporation's programming.
Telewest provides its voice, video, data and Internet services to customers
in its 41 cable franchises in the United Kingdom via its broadband network. As
of June 30, 2000, Telewest's cable franchises covered approximately 35.6% of the
homes in the areas of the United Kingdom for which cable franchises have been
awarded and Telewest had passed approximately 4.7 million of the 5.6 million
homes in those franchise areas. As of June 30, 2000, Telewest had connected
approximately 1.1 million cable television customers and 1.9 million total
residential and business telephone customers. At June 30, 2000, the number of
residential customers subscribing to both cable television and telephone
services was approximately 969,000, or 61.1% of Telewest's total residential
customers.
In October 1999, Telewest began rolling-out "Active Digital," Telewest's
digital television service, to its customers. At August 2, 2000, Active Digital
had 223,000 subscribers, of which 179,000 had been connected, and Telewest
believes that it is on target to have 500,000 Active Digital subscribers by the
end of the first quarter of 2001. In March 2000, Telewest began offering
interactive television services to Active Digital customers in certain of
Telewest's franchise areas, and Telewest is continuing a progressive roll-out of
those services. Telewest offers e-mail and e-commerce access to the products and
services of 85 retailers in the United Kingdom. In March 2000, Telewest also
launched "blue yonder," its high-speed Internet service.
LIBERTY'S LATIN AMERICAN ASSETS
Cablevision S.A. Cablevision is one of the two largest cable television
systems in Argentina. At June 30, 2000, Cablevision's cable television systems
passed approximately 3.4 million homes and served approximately 1.5 million
subscribers, representing a penetration rate of approximately 43.0%. Of homes
passed, approximately 49.0% are passed by cable with bandwidth capacity of 750
MHz and approximately 18.0% are passed by cable with bandwidth capacity of
550MHz (the remainder of the network is primarily comprised of 450 MHz network).
Cablevision provides basic, premium and pay-per-view services to its
subscribers throughout Argentina. Historically, premium and pay-per-view
services have been offered to subscribers using advanced analog set top boxes.
Cablevision recently began offering premium and pay-per-view services using
advanced digital set top boxes and expanded the content offering to include
general entertainment movies from HBO Ole and Movie City. As of June 30, 2000
approximately 197,000 of Cablevision's subscribers have advanced set top boxes.
Cablevision also recently began providing interactive services to hotels.
On June 9, 2000, the President of Argentina issued a decree ratifying the
deregulation of the telephone industry as of November 9, 2000. Once the
deregulation is completed, any person, including cable television operators, may
seek licensing to provide telephone service. Cablevision has announced that its
wholly owned subsidiary, Fiber-Tel S.A., or "Fiber-Tel," will request a license
to provide telephone service.
Fiber-Tel already offers Internet access via dial-up, one-way cable modems
and, where Cablevision has deployed two-way 750 MHz architecture, two-way high
speed cable modems. At June 30, 2000, Fiber-Tel counted approximately 13,000
subscribers, with 6,000 of those subscribers receiving two-way high speed
Internet service. Fiber-Tel re-launched the two-way high speed service in
September 2000 and during the first month following the re-launch approximately
2,600 new subscribers signed up for the service.
IV-7
<PAGE> 61
Liberty Cablevision of Puerto Rico, Inc. Liberty Puerto Rico is one of the
largest providers of cable television services in Puerto Rico. It owns and
operates six cable television franchises serving 37 municipalities, which
include the communities of Luquillo, Arecibo, Florida, Caguas, Humacao, Cayay
and Barranquitas. As of June 30, 2000, Liberty Puerto Rico's cable television
systems passed 289,000 homes and served 110,000 subscribers, which represents a
penetration rate of 38.1%. Liberty Puerto Rico's entire network has 550 MHz
bandwidth capacity, and this infrastructure allows Liberty Puerto Rico to offer
enhanced entertainment, Internet/data and telecommunications services.
Pramer SCA. Pramer is one of the leading owners and distributors of pay
television programming services in Argentina. At June 30, 2000, Pramer owned
nine programming services and distributed an additional ten programming
services. Pramer's owned and distributed programming services were received in
more than 18 countries throughout South America, North America and Europe,
reaching a potential market of more than 12 million households.
Pramer's own services primarily feature genre such as art and culture,
general entertainment, politics and economics, sports, children's programming,
and programming targeted at women. In addition, Pramer's distributed services
also cover music, fashion, distance learning, broadcast television and news.
On June 2, 2000, Pramer acquired a 50.0% ownership interest in the Gems
Network, a provider of programming services primarily targeted at
Spanish-speaking women throughout the United States and South America. On
October 31, 2000, Pramer acquired 100% of the assets of Film & Arts, a
programming service that produces and distributes independent movies and art
programming.
Torneos y Competencias S.A. TyC is engaged in sports promotions and
development in Argentina including the production and broadcast of television
and radio programs, acquisition and sale of media rights, organization of
sporting events and shows, and sales of sports related merchandise. Certain of
TyC's affiliated companies (Television Satelital Codificada S.A., or "TSC," and
Tele Red Imagen S.A., or "TRISA") own the exclusive rights to soccer matches
organized by the Associacion del Futbol Argentino or the "AFA" through 2010,
with an option to extend the rights until 2014. See "Overview -- Risk
Factors -- Risks Relating to the Combined Company's Business -- The value of
some of the Argentine interests contributed by Liberty may decrease if pending
acquisitions lead to the imposition of fines or the loss of broadcasting
licenses or broadcasting rights for important programming."
TyC owns 50.0% of TSC, the company that commercializes the media rights
related to all AFA organized soccer matches. TyC owns 40.0% of TRISA, a company
that sells media rights and advertising for its own programs and the sports
programs of Channel 13 in Argentina. TRISA also owns the television channel TyC
Sports, one of the leading sports channels in Argentina.
Digital Latin America, LLC. Digital Latin America was formed in March 2000
to offer digital television services to cable television operators throughout
Latin America and the Caribbean. A start-up joint venture among Hicks, Muse,
Tate & Furst, Inc. and Motorola, Inc., Digital Latin America plans to launch its
digital services during the first quarter of 2001. Digital Latin America will be
able to provide digital compression and patented encryption technology to its
customers, allowing cable television operators to offer enhanced digital
services over their networks.
Grupo Portatel, S.A. de C.V. Portatel is a wireless broadband provider
offering a full range of analog cellar telephone services in the Southeastern
region of Mexico designated Cellular Region VIII by the Mexican Ministry of
Communications & Transportation and is in the process of implementing a digital
CDMA network. As of September 30, 2000, Portatel had approximately 106,000
wireless subscribers.
OTHER PRINCIPAL TRANSACTION ASSETS
The Premium Movie Partnership. The Premium Movie Partnership is an
Australian programming concern delivering programming to 908,000 subscribers as
of June 30, 2000. The Premium Movie Partnership distributes Encore and Showtime.
IV-8
<PAGE> 62
Crown Media Holdings, Inc. Crown Media is a Delaware corporation and
currently operates and distributes the Hallmark Entertainment Network
internationally and the Odyssey Network in the United States. Crown Media had
more than 60 million subscribers worldwide as of September 30, 2000.
MYHI, LLC (Wave). Wave operates an MMDS business in two markets in Chile.
Wave also holds MMDS licenses in other Chilean markets.
ADDITIONAL TRANSACTION ASSETS
Liberty has granted New United a right of first offer to acquire Liberty's
interests in Jupiter Telecommunications Co., Ltd. and Jupiter Programming Co.,
Ltd.
Jupiter Telecommunications is a Japanese cable provider. Jupiter
Telecommunications' cable systems passed approximately 4.2 million homes and
served approximately 674,000 subscribers as of June 30, 2000, which represents a
penetration rate of 16.0%.
Jupiter Programming is a Japanese programming concern that distributes
Cable Soft Network, CNBC Japan/Nikkei, Golf Network, Discovery Japan,
J-Sky-Sports and Shop Channel.
Metropolis Intercom S.A. Liberty currently owns a 50.0% indirect interest
in Metropolis. As a part of the Additional Transactions, New United may acquire
Liberty's indirect interest in Metropolis. Metropolis is one of the two largest
providers of cable television services in Chile. At June 30, 2000, Metropolis'
systems passed approximately 1.1 million homes and served approximately 267,600
subscribers, which represents a penetration rate of 24.3%. All of Metropolis'
network uses 750 MHz bandwidth capacity. Recently, Metropolis launched enhanced
digital services throughout its service area and intends to launch a two-way
high speed cable modem service to its subscribers by the end of 2000. See "The
Merger Transaction -- Contribution of Liberty Assets," for a description of the
put/call arrangements whereby New United may acquire Liberty's interest in
Metropolis.
OVERVIEW OF UNITED'S BUSINESS
We are a leading broadband communications provider outside the United
States. We provide multi-channel television services in 26 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 53.0% owned, publicly traded subsidiary, UPC, which is the
largest Pan-European broadband communications company providing multi-channel
television, telephone and Internet/data services to 13 countries in Europe and
in Israel. Our Asia/Pacific operations are primarily held through our 72.3%
owned, publicly traded subsidiary, Austar United, which owns the largest
provider of multi-channel television services in regional Australia, various
Australian programming interests and a 50.0% interest in the only full service
provider of broadband communications in New Zealand. Our primary Latin America
operation is our 100% owned VTR, Chile's largest multi-channel television
provider and a growing provider of telephone services.
Our primary goal in the majority of the markets is to capitalize on the
opportunity to increase revenues and cash flows through the introduction of new
and expanded video programming services and the launch of telephone and
Internet/data services over our broadband communications networks. Today, we are
a full-service provider of these video, voice and Internet/data services in most
of our Western European markets and in Chile and New Zealand.
Upon the consummation of the merger, we will merge into a subsidiary of New
United. New United will own all of our assets and conduct the business that we
currently are conducting.
UNITED'S EUROPEAN OPERATIONS
Our European operations are held through our 53.0% owned subsidiary, UPC,
which owns and operates the largest Pan-European group of broadband
communication networks. UPC provides multi-channel television, telephone and
high-speed Internet/data services in 13 countries in Europe and in
IV-9
<PAGE> 63
Israel. UPC's shares are publicly traded on the Amsterdam Stock Exchange under
the symbol "UPC" and on the Nasdaq National Stock Market under the symbol
"UPCOY." UPC had a market capitalization of approximately $8.0 billion based on
the closing price on Nasdaq on October 31, 2000.
UPC has undertaken a significant upgrade of its cable television
infrastructure, beginning in 1994 with its western European systems. When it
upgrades, UPC replaces parts of the coaxial cable with fiber optic lines and
upgrades the remaining coaxial cable to increase transmission speed and enable
signals to be sent both to and from the subscriber's home. This upgrading
enables UPC to provide digital video, telephone and Internet/data services. As
of June 30, 2000, approximately 64.0% of the network in UPC's western European
systems had been upgraded. UPC continues to evaluate upgrading its network in
its other systems.
VIDEO
UPC offers some of the most advanced analog video services available today
and a large choice of FM radio programs and plans to further increase its
offerings through an integrated digital set-top box. In addition, because many
of its operations are two-way capable, UPC has been able to add more interactive
services. In many systems, for example, UPC has introduced impulse pay-per-view
services, which enable subscribers to UPC's expanded basic tier to select and
purchase programming services, such as movies and special events, directly by
remote control.
UPC plans to continue increasing its revenue per subscriber by expanding
its video services program offerings in the expanded basic tier service,
pay-per-view and digital audio areas. UPC plans to continue improving its
expanded basic tier offerings by adding new channels and, where possible,
migrating popular commercial channels into an expanded basic tier service.
Generally, basic tier pricing is regulated while the expanded basic tier is not
price-regulated.
UPC has constructed a satellite-based pan-European digital distribution
platform that will enable digital distribution of its new channels and other
television signals to its upgraded networks. UPC launched its digital
distribution platform in October 2000. As UPC rolls-out the set-top computers
over its network, it will convert its impulse pay-per-view services into a near
video on demand service that would be able to provide up to 75 channels of
programming. Near video on demand is achieved by broadcasting movies as
frequently as every 15 minutes, thus enabling subscribers to choose a movie at a
convenient start time. UPC is negotiating to acquire rights to broadcast
first-run hit movies, adult programming and special events over this planned
digital distribution platform.
Full digitalization of UPC's television signals, to be made possible by
UPC's network upgrade to full two-way capability, will provide UPC's Western
European systems with substantially more channel capacity. The roll-out of
digital services via the set-top computer will involve significant capital
investment and the use of new technologies. We cannot assure you that we will be
able to complete the roll-out of the set-top computers on the planned schedule.
VOICE
UPC offers local telephone services over its cable network, under the brand
name Priority Telecom, in its Austrian, Dutch, Swedish, French and Norwegian
systems. UPC also has a traditional telephone network in Hungary and the Czech
Republic. UPC also provides national and international long distance voice
telephone services. UPC believes that its fiber and broadband, coaxial cable and
cable-based subscriber relationships provide ready access to potential
residential telephone subscribers. UPC believes its networks and facilities also
provide the opportunity for cost-effective access to potential business
telephone customers.
Traditional telephone service is carried over twisted copper pair in the
local loop. The cable telephone technology that UPC is using allows telephone
traffic to be carried over its upgraded network without requiring the
installation of twisted copper pair. This technology only requires the addition
of equipment at
IV-10
<PAGE> 64
the master telecom center, the distribution hub and in the customer's home to
transform voice communication into signals capable of transmission over the
fiber and coaxial cable.
UPC generally prices its Priority Telecom offering in the residential
market at a discount compared to services offered by incumbent
telecommunications operators. Because of the relatively high European local
tariff rates, UPC believes potential customers will be receptive to its
telephone services at this price. In addition to offering competitive pricing,
UPC offers a full complement of services to telephone subscribers including
custom local access services, "CLASS," including caller ID, call waiting, call
forwarding, call blocking, distinctive ringing and three-way calling.
Priority Telecom offers product packages of traditional voice and data
services to small and medium sized business customers. For the large business
customer, tailor-made solutions are being offered through the business segment
of Priority Telecom which aims at marketing these solutions on a Pan-European
scale.
Each of UPC's operating companies that offers telephone services has
entered into an interconnection agreement with the incumbent national
telecommunications service provider. In addition, certain of these operating
companies have also entered into interconnection agreements with other
telecommunications service providers, providing alternative routes and
additional flexibility. Even though UPC has secured interconnection
arrangements, UPC may still experience difficulty operating under them. In its
Amsterdam system, for example, capacity constraints at the interconnection have
lowered the quality of its telephone service, resulting in a higher rate of
customer loss than its system has experienced before. In Austria, while UPC
secured its interconnection arrangement with the support of the Austrian
telecommunications regulator, the Austrian incumbent telecommunications operator
is challenging the arrangement in the Austrian courts.
UPC is developing a pan-European backbone and telecommunications carrier
business. This backbone is designed to link its major cable and telephone
networks through a combination of leased capacity arrangements to allow it to
capture more traffic between its operating areas and to leverage UPC's national
assets to lower the termination cost and thereby create a strong competitive
cost advantage relative to other carriers. UPC is currently conducting limited
trials in Sweden and the Netherlands for offering telephone services over the
Internet based on voice over Internet protocols, or "VOIP." This new technology
will have substantial cost advantages over existing telephone technologies, both
in lower upfront capital expenditures and lower costs, as VOIP will avoid a
large portion of interconnect fees with local telephone companies. However, this
technology is not yet proven and we cannot predict the outcome of these trials
or the successful deployment in the mass market on a commercially viable scale.
In April 2000, Priority Telecom announced that it has signed a Memorandum
of Understanding to acquire Cignal Global Communications, or "Cignal", a US
based provider of global network services. In a stock-based deal, Priority
Telecom is acquiring 100% of Cignal in exchange for a 16.0% interest in Priority
Telecom. The transaction is subject to regulatory approval and is expected to
close during the fourth quarter of 2000.
DATA
UPC's chello broadband subsidiary is a leading international provider of
broadband Internet services. chello broadband has long-term agreements for the
distribution of Internet services to residential and business customers using
cable television, fixed wireless and satellite infrastructure of local
operators, including our operating companies, covering 16.8 million homes in
Europe, Australia, New Zealand and Latin America. chello broadband currently
provides its services through UPC's operating companies in Austria, Belgium,
France, The Netherlands, Norway and Sweden, and through our operating companies
in Chile, Australia and New Zealand, covering a total of approximately 12.3
million homes.
chello broadband launched its services in March 1999, and at June 30, 2000,
it had approximately 219,000 subscribers. chello broadband was voted Best
European Consumer ISP at the European ISP Awards in December 1999. In June 2000,
chello broadband was awarded the Ground Breaker Award for
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<PAGE> 65
Marketing at the Multichannel News International Third Annual Summit 2000.
chello broadband was also selected as one of Europe's top 50 high tech companies
by TIME magazine in June 2000.
In each of its existing markets, chello broadband offers high-speed
Internet access and local language portals that integrate multimedia, locally
relevant content and services specially designed for the broadband environment.
chello broadband has agreements to launch its services on many of our
networks. At June 2000, chello broadband's total coverage rights included 16.8
million homes in the local operators' service areas and 13.2 million homes
passed (of which 6.2 million were upgraded).
chello broadband's agreements with local operating companies cover all the
homes in their territory. Therefore, as local operating companies' networks
expand, other than through acquisitions, chello broadband's exclusive rights to
distribute its services expand as well.
chello broadband is designed to be a leading provider of broadband Internet
services to residential customers and small and medium-sized businesses. chello
broadband has developed nine local language portals with the objective of making
them the leading broadband Internet portals in their markets. Each of these
portals brings together locally relevant content with broadband content and is
managed and supported locally by a chello office. chello broadband plans to
offer an expanding variety of multimedia programming, e-commerce and services
specifically designed to take advantage of the speed and versatility provided by
broadband access. Currently, subscribers are able to listen to music and watch
videos, news, and sporting events at near television-quality.
chello broadband offers one of the most compelling consumer Internet
experiences currently available in its markets. Upon installation, each new
subscriber's personal computer is configured for chello broadband's services,
which provides easy access to the chello broadband portals and the Internet.
chello broadband offers residential subscribers the following significant
benefits:
- high-speed access;
- flat fee;
- user friendly, always-on Internet access;
- higher quality services; and
- local language portals with compelling broadband content.
chello broadband provides basic broadband Internet access to local area
networks, or LANs, designed to support between one and twenty-five personal
computers. This service, called Small LAN Connect, currently supports over 4,000
businesses. In addition, chello broadband is conducting trials of its service,
called Remote LAN Connect, in Austria and Norway. This service offers, among
other features, enhanced two-way security, Internet access for an unlimited
number of personal computers and enhanced email.
PROGRAMMING
UPC has been involved in several country-specific programming ventures
including those dedicated to creating channels for Spain, Portugal, Benelux, the
United Kingdom, and Poland. Together, these programming ventures have developed
channels in key genres including sports, children, documentaries, music and
movies, which are either produced, subtitled or dubbed in the local language. We
believe that UPC's programming ventures add value to its video distribution
business by providing compelling content to its subscribers.
UPC's programming operations encompass the following: a 100% interest in
UPCtv which develops and produces multiple proprietary channels of television
programming for distribution on both UPC and non-UPC systems throughout Europe
and has to date launched eight thematic channels; an 80.0% interest in Tara TV
which provides a general entertainment channel for the United Kingdom; a 50.0%
interest in Iberian Programming Services which produces a movie channel, a
documentary channel, a children's
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channel and a music channel independently, as well as a history channel in joint
venture with A&E Networks for the Spanish and Portuguese markets; and a 50.0%
interest in MTV Networks Polska, or "MTV," which produces a local language music
channel in joint venture with MTV; a 50.0% interest in Xtra music which provides
an 80 channel digital audio service by satellite in Europe in joint venture with
DMX; and a 10.0% interest in Cinenova which produces a premium movie channel in
the Netherlands and Belgium in joint venture with Disney and Sony. UPC owns
23.5% of SBS. SBS creates, acquires, packages and distributes programming and
other media content in many of UPC's territories and elsewhere in Europe via
television channels, radio stations and the Internet. SBS owns and/or operates
12 television and 17 radio stations across 12 countries in addition to various
promotional websites.
WESTERN EUROPE AND ISRAEL
Austria: UPC Telekabel Group. UPC owns 95.0% of the UPC Telekabel Group,
which provides communications services to Vienna and other Austrian cities and
is the largest video distribution system in Austria with over 40.0% of the
market.
UPC is capitalizing on UPC Telekabel Group's strong market position and
positive perception by its customers by aggressively expanding UPC Telekabel
Group's service offerings as its network is upgraded to full two-way capability.
The upgraded network enabled UPC Telekabel Group to launch an expanded basic
tier, impulse pay-per-view services and Internet/data services in 1997. UPC
Telekabel Group also offers Priority Telecom cable telephone services in Vienna.
As of June 30, 2000, approximately 52.6% of the homes passed by Telekabel
Group's network subscribed to its basic cable television services. UPC Telekabel
Group offers subscribers an expanded basic tier of additional programming as
well as an impulse pay-per-view service. The pay-per-view buy rate has grown to
more than two movies per expanded basic tier subscriber per month, although
Telekabel Group expects this average to decrease because high-demand customers
subscribed early to the expanded basic tier and later subscribers will likely
have a lower demand for pay-per-view services.
UPC Telekabel Group consists of five Austrian corporations, each of which
owns a cable television operating system. UPC owns 95.0% of, and manages, each
UPC Telekabel Group company.
Belgium: UPC Belgium. UPC Belgium, UPC's 100% owned subsidiary, provides
cable television and communications services in selected areas of Brussels and
Leuven. UPC Belgium, which as of June 30, 2000 had 81.2% basic penetration in
its franchise areas, plans to increase revenues through the introduction of new
services that currently are not subject to price regulations. UPC Belgium offers
an expanded basic tier cable television, impulse pay per view as well as UPC's
chello broadband Internet access service. UPC Belgium intends to provide cable
telephone services using a VOIP technology when it is commercially viable.
France: UPC France. UPC France is one of the largest cable television
providers in France. UPC France's major operations are located in suburban
Paris, the Marne-la-Vallee area east of Paris, Lyon, Limoges and in other towns
and cities throughout France.
Mediareseaux, UPC France's initial system, has constructed its network with
technology and capacity to offer integrated video, voice and Internet/data
services. UPC is upgrading the networks of its recently acquired French systems
to be able to offer these services as well. UPC expects this upgrade to be
completed in 2002.
In June 1998, UPC France's subsidiary, Mediareseaux, obtained a 15 year
telephone and network operator license for an area that includes 1.5 million
homes in the eastern suburbs of Paris. Mediareseaux began offering telephone
services in March 1999 within its cable television franchise area.
Mediareseaux also offers chello broadband's Internet access services via
its cable systems, and is carrying out a trial offering of broadband fixed
wireless local loop service in two towns in the eastern suburbs of Paris under a
temporary license. One of UPC's recently acquired systems began offering
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Internet/data services at the end of 1997. UPC launched chello broadband's
internet access service on its remaining systems in the second quarter of 2000.
UPC's interest in UPC France is now 92.0%. UPC France owns between 95.0%
and 100% of each of its systems.
Germany: PrimaCom. Since December 1999, UPC has purchased shares totaling
approximately 25.1% of PrimaCom which owns and operates cable television
networks in Germany.
The Netherlands: UPC Nederland. UPC's Dutch systems are its largest group
of cable television systems. UPC has had operations in The Netherlands since it
was formed in 1995, but substantially all of its operations in The Netherlands
have come from acquisitions. UPC's systems include A2000, its subscriber system
located in Amsterdam, and K&T, its subscriber system located in Rotterdam.
UPC began upgrading a portion of its Dutch networks in 1997 and expects
that substantially all of its network in The Netherlands will be fully upgraded
by the end of 2000. Due to the large number of current subscribers located in
four large clusters in The Netherlands, UPC has constructed a fiber backbone to
interconnect these region-wide networks. In addition to cable television
services, UPC Nederland offers Internet and telephone services over its upgraded
network.
As a result of UPC's Nederland's high video penetration and the rate
regulation of the basic tier in many of UPC Nederland's franchise areas, UPC has
focused its efforts on increasing revenue per subscriber in these systems
through the introduction of new video, telephone and Internet/data services.
Many of UPC's Dutch systems have offered an expanded basic tier since late 1996.
UPC launched impulse pay-per-view services in 1997 in A2000 and in 1998 in some
of its other Dutch systems.
In April 1999, A2000 and the municipality of Amsterdam reached an agreement
on a large scale introduction of digital set-top boxes and a reduction of the
rate regulated basic cable television package to 15 public channels. This
agreement allows A2000 to migrate a number of popular commercial channels to its
expanded basic tier. During the period preceding the introduction of and
migration of channels to its digital platform, A2000 and the municipality of
Amsterdam have agreed to increasing A2000's current 26 channel basic package to
32 channels with an increase in the monthly subscription fee. Once the digital
set-top boxes are introduced, the price for the rate-regulated 15 public channel
basic service will be reduced and the price for the expanded basic tier will
increase over time until it becomes unregulated in 2001. The agreement requires
A2000 to provide UPC's integrated digital set-top box to customers requesting
the expanded basic tier. UPC's set-top boxes will enable these customers to
receive chello broadband Internet service over a computer or a television. UPC
expects the introduction of the digital set-top boxes to occur in the fourth
quarter of 2000. A similar agreement has been reached with the municipality of
Haarlem, where the introduction of digital set-top boxes is planned in the
fourth quarter of 2000.
UPC's Amsterdam system launched its cable telephone service in July 1997.
UPC Nederland launched Priority Telecom cable telephone service in many other
parts of its network in May 1999. UPC expects to launch these services in some
of its more recently acquired systems.
Some of UPC's Dutch systems had Internet access services as early as 1997.
UPC launched chello broadband's Internet/data services in all of its existing
systems in 1999 and K&T in 2000.
Norway: UPC Norge. UPC Norge is Norway's largest cable television operator
with approximately 42.0% of the total Norwegian cable television market as of
December 31, 1999. UPC Norge's main network is located in Oslo and its other
systems are located primarily in the southeast and along the southwestern coast.
UPC Norge is upgrading its network to two-way capacity. The upgrade, which began
in 1998, is scheduled to be completed in 2002/2003. During 1999, UPC Norge began
offering subscribers chello broadband service and Priority Telecom's cable
telephone service.
Approximately 70.4% of the homes passed by UPC Norge's systems subscribe to
UPC's cable television service. UPC currently offers four tiers of video
services. Approximately 32.0% of UPC Norge's subscribers subscribe to one or
more higher tiers of service.
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UPC Norge introduced Priority Telecom's cable telephone service in April
1999 in the upgraded portions of its network. UPC Norge launched an Internet
access service in March 1998 and introduced chello broadband service in June
1999.
Sweden: Stjarn. In July 1999, UPC acquired Stjarn. Stjarn operates cable
television systems servicing the greater Stockholm area and leases a fiber optic
network with 770,000 homes and 30,000 businesses in its franchise area. As of
June 30, 2000, Stjarn provided analog television services across its broadband
network to approximately 248,700 subscribers out of a total of approximately
421,600 homes passed. Stjarn launched Internet services in one area in the City
of Stockholm in April 1999 and introduced chello broadband service in November
1999.
Stjarn leases the fiber optic cables it uses to link to its main headend
under agreements with Stokab, a city-controlled entity with exclusive rights to
lay ducts for cables for communications or broadcast services in the City of
Stockholm. The main part of the leased ducting and fiber optic cables is covered
by an agreement which expires in January 2019. Additional fibers are leased
under several short-term agreements, most of which have three year terms but
some of which have ten year terms.
Israel: Tevel. Tevel has exclusive cable television broadcasting franchises
for the entire Tel Aviv metropolitan area, the region of Ashdod-Ashkelon, which
is 30 miles south of Tel Aviv, and the Jezreel Valley, which is 80 miles
northeast of Tel Aviv. In April 1998, Tevel acquired 100% of Gvanim Cable
Television Ltd. and has since fully integrated Gvanim's operations with its own.
The Gvanim acquisition increased franchise area coverage to approximately 40.0%
of the total homes in Israel.
Tevel is upgrading all of its systems to be able to provide additional
cable television services, as well as cable telephone and Internet/data
services.
In light of plans to open Israel's communications market to competition,
Israel's cable television companies are endeavoring to consolidate their
activity. Tevel is expected to own 40.0% of the consolidated cable company. The
cable company consolidation proceeding is conditional upon receipt of the
appropriate approvals and may change as a result of the ongoing ministerial
disputes concerning the structure of Israel's communications market. Should
liberalization occur, the launch of telephone and Internet/data services may be
considered.
In addition to its cable operations, Tevel owns 50.0% of Globkol, a
telecommunications equipment company that designs, installs and maintains
switching systems for businesses. Tevel also owns 45.0% of Netvision, one of
Israel's leading Internet service providers and has the right to increase its
interest to 50.0%.
CENTRAL AND EASTERN EUROPE
Czech Republic: KabelNet and Kabel Plus. KabelNet, UPC's Czech Republic
subsidiary, provides cable and "wireless" cable television services in the
cities of Prague and Brno, the Czech Republic's second largest city. In October
1999, UPC acquired 94.6% of Kabel Plus, the leading provider of cable television
services in the Czech Republic. UPC acquired the remaining 5.4% of Kabel Plus in
the first quarter of 2000. Combined, these systems passed about 777,400 homes
and served about 356,600 television subscribers in the Czech Republic as of June
30, 2000. Approximately 12.0% of these are served by UPC's wireless MMDS
network. UPC recently acquired DattelKabel, a Prague-based cable television
operator with approximately 55,300 subscribers as of June 30, 2000.
UPC offers a number of tiers of programming services in the Czech Republic.
UPC launched direct to home, or "DTH," service in the Czech Republic during the
third quarter of 2000, leveraging its existing platform in Poland. UPC has plans
to launch Internet/data services in its Czech systems in 2001 and telephone
services in 2002, once the market has deregulated for telephone services.
Hungary: UPC Magyarorszag. UPC has owned and operated systems in Hungary
for nearly a decade. In June 1998, UPC combined its Hungarian operations with
Kabeltel, Hungary's second largest operator of cable television systems,
creating Telekabel Hungary, in which UPC retained a 79.3% interest. UPC
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launched DTH service in Hungary during the third quarter of 2000, leveraging its
existing platform in Poland. In February 2000, UPC acquired the 20.7% of UPC
Magyarorszag which it did not own. UPC plans to launch Internet/data services in
UPC Magyarorszag in November 2000.
Hungary: Monor. Monor, one of UPC's Hungarian operating companies, has
offered traditional telephone services since December 1994. Monor has the
exclusive, local-loop telephone concession for the region of Monor, Hungary with
a term through 2002. UPC has an economic ownership interest in Monor of
approximately 98.7%.
Poland: @Entertainment, Inc. In August 1999, UPC acquired @Entertainment,
which owns and operates the largest cable television system in Poland.
@Entertainment's cable subscribers are located in regional clusters encompassing
eight of the ten largest cities in Poland. @Entertainment expanded its
distribution capacity with the launch of its DTH broadcasting service for
Poland, targeted at homes outside of its cable network coverage area. DTH
subscribers receive Wizja TV, UPC's multi-channel Polish-language DTH service,
the first such service available in Poland. @Entertainment is also trying to
sell Wizja-TV programming to third party cable systems in Poland.
The portions of @Entertainment's cable television networks currently being
constructed are being constructed with the flexibility and capacity to be
cost-effectively reconfigured to offer an array of interactive and integrated
entertainment, telecommunications and information services. UPC intends to
upgrade selected portions of existing cable networks to meet similar standards.
United has applied for the data license for the territory of Poland and plans to
start providing Internet services during November 2000.
@Entertainment has been able to avoid constructing its own underground
conduits in certain areas by entering into a series of agreements with TPSA (the
Polish national telephone company), which permit @Entertainment to use TPSA's
infrastructure for an indefinite period or for fixed periods up to 20 years.
Approximately 80.0% of @Entertainment's cable television plant has been
constructed using pre-existing conduits from TPSA and other parties. A
substantial portion of these contracts to use TPSA conduit permits termination
by TPSA without penalty upon breaches of specified regulations. Any termination
by TPSA of such contracts could result in @Entertainment losing its permits, the
termination of agreements with co-op authorities and programmers, and an
inability to service customers with respect to the areas where its networks
utilize the conduits that were the subject of such TPSA contracts. In addition,
some conduit agreements with TPSA provide that cables can be installed in the
conduits only for the use of cable television. If @Entertainment uses the cables
for a purpose other than cable television, such as data transmission, telephone,
or Internet access, such use could be considered a violation of the terms of
certain conduit agreements, unless this use is expressly authorized by TPSA.
There is no guarantee that TPSA would give its approval to permit other uses of
the conduits.
Romania. UPC is currently involved in the operations of seven cable
companies in Romania. UPC currently has plans to launch telephone or
Internet/data services in the Romanian systems.
UPC recently entered into a joint venture with the owners of two Romanian
cable television companies (collectively, "AST") to which UPC's and AST's
Romanian assets were contributed. UPC holds a 70.0% interest in the joint
venture. Together, the joint venture systems have more than 260,000 subscribers.
Slovak Republic: UPC Slovensko. UPC offers subscribers three tiers of cable
television service on its Slovak system. UPC plans to introduce Internet
services in Slovak cities by 2003. UPC intends to introduce telephone services
in all systems by early 2003. UPC launched DTH service in Slovakia during the
third quarter of 2000, leveraging its existing platform in Poland.
OTHER SYSTEMS
Malta: Melita. Melita, of which UPC owns 50.0%, operates an exclusive
franchise network in Malta. Melita currently offers general cable television
services and is upgrading its system to be able to provide Internet access and
other enhanced services. Pending litigation and recent legislation has affected
UPC's
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ability to offer Internet/data services. The liberalization process is moving
forward and Melita expects to be able to launch Internet/data services soon.
Once the new telecommunication law is fully implemented, Melita will consider
the launch of telephone services.
UNITED'S ASIA/PACIFIC OPERATIONS
Our Asia/Pacific operations are primarily held through our approximately
72.3% owned subsidiary, Austar United, which is the fastest growing broadband
communications company in Australia and New Zealand. Austar United provides
multi-channel television, telephone, Internet/data services and programming
services through its three core businesses: Austar, XYZ Entertainment and
Telstra Saturn. Austar United completed an initial public offering in July 1999
and is publicly traded on the Australian Stock Exchange under the symbol "AUN."
Austar United had a market capitalization of approximately $1.0 billion based on
the closing price on the Australian Stock Exchange on October 31, 2000.
Austar (Australia). Austar is the largest provider of pay television
services in regional Australia with a service area encompassing approximately
2.1 million homes, or approximately one-third of Australia's total homes. Austar
is the only pay television provider in substantially all of its service area.
Due to the low housing densities that characterize Austar's service area, Austar
primarily employs digital DTH satellite and wireless cable technologies to
deliver its service. These technologies have enabled Austar to deploy its
services quickly and achieve rapid subscriber growth.
Austar primarily uses both digital DTH and wireless cable distribution
technologies in certain cities with more than 20,000 homes. In its other service
areas (except Darwin where it operates a cable system), Austar distributes its
service exclusively utilizing digital DTH. As of October, approximately 84.0% of
Austar's subscribers are serviced by digital DTH, while 14.0% receive service
via wireless cable. Austar constructs and owns the MMDS transmission facilities
and installs and retains ownership of all customer premises equipment for both
its DTH and wireless cable customers.
Austar offers the widest range of programming available in Australia. Its
favorable programming agreements allow Austar to establish different service
levels of tiers at multiple price points. By tiering its services, Austar
permits its subscribers to select programming that is customized to their
interests, which we believe is a valuable tool in ensuring our product meets
customer value expectations. Tiering also provides customers with a lower-priced
basic service that both enhances sales opportunities and helps reduce the level
of customer churn.
Austar has the exclusive rights to distribute Showtime, Encore and TV-1 via
digital DTH and wireless cable throughout Austar's service area until December
2007. In addition, Austar has the right to distribute Fox Sports and Fox Sports
Two over the same technologies throughout Austar's service area until 2006.
Austar's programming agreement for C7 Sports provides Austar with non-exclusive
Australian Football League ("AFL") coverage. Austar also has non-exclusive
distribution rights for the three C&W Optus movie channels, Movie Network, Movie
Greats and Movie Extra, until December 2006. Austar also has rights to
distribute additional C&W Optus programming.
Austar has exclusive rights in its service area to distribute via DTH and
wireless cable five channels of programming supplied by XYZ Entertainment:
Discovery Channel, Nickelodeon, The Lifestyle Channel, Channel [V] and arena.
Austar also obtains at competitive price levels additional programming from a
number of independent sources, including Time Warner, ESPN, Seven Network,
National Geographic, CMT and Sky Racing. Weather 21, the Adults Only channel and
certain pay-per-view events are sourced from entities in which we have an
interest.
Austar's rights to distribute certain programming are dependent on its
supplier's ability to provide such programming to Austar. In the event that any
of Austar's programming suppliers are unable to supply programming to Austar, we
are confident that we will be able to secure alternative sources of programming.
Austar launched high-speed and traditional Internet access services in its
markets in early 2000. Austar currently delivers these services via wireless
cable technologies and plans to start delivering these
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services in some of its operating areas via digital DTH by the end of 2000.
Austar will benefit from United's experience in rolling out Internet/data
services. For example, Austar is currently using chello broadband, UPC's
Internet portal and content service, to support the deployment of its broadband
Internet/data offerings to its service area. These high-speed services provide
customers with downstream transmission speeds (from the Internet to the
subscriber) that are much faster than traditional dial-up modems. We believe
that the provision of Internet/data services represents a significant market
opportunity due to the combination of substantial consumer demand for Internet
access, the limited capacity of the public switched telephone network in
regional Australia and the lack of a broadband alternative. Austar also launched
the resale of mobile telephone products in October 2000.
Austar has licensed an operating system for interactive television for
digital set-top boxes with Open TV, Inc. The Open TV operating system enables
Austar to introduce an enhanced electronic programming guide, interactive
television applications and transactional services such as home banking and
other electronic commerce. The introduction of these services should continue to
help Austar realize its objectives of increasing revenue and decreasing churn.
Telstra Saturn (New Zealand). Telstra Saturn is the only provider of
integrated telephone, pay television and Internet services in New Zealand. These
services are currently provided in the greater Wellington area over a hybrid
fiber cable network with an overlay of traditional telephone lines. Austar
United and Telstra New Zealand Limited each own 50.0% of Telstra Saturn. Telstra
Saturn's predecessor launched pay television service in 1996 on the initial
portions of its network. In April 1998, Telstra Saturn's predecessor launched a
bundle of telephone and pay television services to both residential and business
markets, including enhanced switch-based services. In mid-1998, Telstra Saturn's
predecessor launched Internet/data services via cable modems to the business
market and began offering residential dial-up Internet/data services in November
1998. Telstra Saturn plans to create a state-of-the-art national broadband
network which will include a submarine fiber backbone linking Auckland,
Wellington and Christchurch during the next five years.
Other UAP Operations. Through UAP, we also provide multi-channel television
services in the Philippines, which are held through our approximately 19.6%
economic interest in Pilipino Cable Corporation, which operates a wireline cable
service providing service to 186,200 subscribers and passing 457,500 homes as of
June 30, 2000.
UNITED'S LATIN AMERICAN OPERATIONS
VTR. Our largest operation in Latin America is our 100% owned Chilean
operation, VTR. Through VTR we are the largest provider of wireline cable
television, MMDS and DTH technologies and a growing provider of telephone
services in Chile. Wireline cable is VTR's primary business representing
approximately 78.0% of VTR's subscribers. VTR has an estimated 56.0% market
share of cable television services throughout Chile and an estimated 40.0%
market share within Santiago, Chile's largest city. In 1998, VTR began the
wide-scale roll-out of residential cable telephone service in six communities
contained within Santiago and one major city outside Santiago and is currently
expanding its efforts to include additional areas throughout Chile.
As of September 30, 2000, approximately 34.0% of VTR's cable homes passed
were capable of using VTR's telephone services and approximately 113,000 homes
subscribed to these services. Approximately 39.0% of VTR's telephone subscribers
also subscribe to VTR's cable services.
VTR began marketing cable telephone services to residential customers in
several communities within Santiago in 1997. VTR offers basic dial tone service
as well as several value added services including voice mail, caller I.D., 3-way
calling, speed dial, wake up service, call waiting, call forwarding, local bill
detail, unlisted number and directory assistance. VTR primarily provides service
to residential customers who require one or two telephone lines. VTR also
provides service to small businesses and home offices requiring up to twelve
telephone lines. In general, VTR has been able to achieve approximately 20.0% to
30.0% penetration of its new telephone markets within the first year of
marketing. As of December 31, 1999, VTR was offering services in two additional
cities outside Santiago, and by the end of 2000, VTR
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plans to provide cable telephone service to four additional cities outside
Santiago and five additional communities in Santiago.
As of September 30, 2000, approximately 34.0% of VTR's network was capable
of providing cable telephone service. Since 76.0% of VTR's network currently has
750 MHz of capacity, VTR's costs to upgrade to two-way capable architecture are
relatively low. In areas where VTR's network has less than 750 MHz of capacity,
VTR either has to retrofit existing network or rebuild the network to upgrade to
two-way capability. VTR's plan is to be technologically capable of providing
service to approximately 200,000 to 300,000 additional two-way homes by the end
of 2000 and to be able to provide telephone service to 1.4 million homes by
2002.
VTR has the necessary interconnect agreements with local carriers, cellular
operators and long distance carriers to allow VTR to provide its telephone
services. Interconnect agreements are mandatory for all local carriers.
VTR began offering Internet/data services in 1999. VTR projects that there
will be increasing demand for Internet services. Currently, other than VTR there
are no providers of high-speed Internet access beyond the trial stages in Chile.
Other ULA Operations. We also provide multi-channel television services in
Brazil, Peru and Mexico. We have ownership interests in two systems in Brazil:
(i) a 46.3% interest in Jundiai, which holds nonexclusive cable television
licenses for the city of Jundiai in southern Brazil and (ii) a 100% interest in
TVSB, an owner and operator of a 31 channel exclusive license MMDS system in
Fortaleza, on the Northeast coast of Brazil. We also have a 90.3% interest in
Megapo, based in Cuernavaca, South of Mexico City and 100% of CableStar S.A., a
cable television system in Peru.
We also provide programming services to various Latin American countries
through our 50.0% ownership interest in MGM Networks LA. MGM Networks LA
currently produces and distributes three pan-regional channels including: MGM
Gold, a Portuguese language movie and television series channel for Brazil; MGM,
a Spanish language movie and television series channel; and Casa Club TV, a
Spanish and Portuguese language lifestyle channel dedicated to home, food and
lifestyle programming featuring a significant block of original productions.
These three channels are currently distributed on most major cable and satellite
systems in 17 countries throughout Latin America.
COMPETITION
In areas where our cable television franchises are exclusive, our operating
companies generally face competition only from digital DTH satellite service
providers and television broadcasters. We have faced the most competition from
DTH providers in Amsterdam, France and Sweden. In those areas where our cable
television franchises are nonexclusive, including Chile, New Zealand, France,
Sweden and Poland, our operating companies face competition from other cable
television service providers, DTH satellite service providers and television
broadcasters. In the programming business, we compete with other programming
suppliers for sales to systems other than our own.
Our operating companies that provide telephone services face competition
from the incumbent telecommunications operator in each country. These operators
have substantially more experience in providing telephone services and have
greater resources to devote to the provision of telephone services. In many
countries, our operating companies also face competition from other new
telephone service providers like us, including traditional wireline providers,
other cable telephone providers, wireless telephone providers and indirect
access providers.
In the provision of Internet access, services and online content, chello
broadband faces competition from incumbent telecommunications companies and
other telecommunications operators, other cable-based Internet service
providers, non cable-based Internet service providers and Internet portals. The
Internet services offered by these competitors include both traditional dial-up
Internet services and high-speed access services.
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EMPLOYEES
As of December 31, 1999, we, together with our consolidated subsidiaries,
had approximately 10,000 employees. Certain of our operating subsidiaries,
including our Austrian, Dutch, Norwegian and Australian systems are parties to
collective bargaining agreements with some of their respective employees. We
believe that our relations with our employees are good. As of December 31, 1999,
the consolidated subsidiary to be contributed by Liberty had 172 employees.
REGULATION
The provision of video, telephone, Internet/data and broadcasting networks
and services in the countries in which we operate is regulated. The scope of
regulation varies from country to country, although in some significant
respects, regulation in UPC's Western European markets is harmonized under the
regulatory structure of the EU. Adverse regulatory developments could subject us
to a number of risks. These regulations could limit our growth plans, limit our
revenues, and limit the number and types of services we offer in different
markets. In addition, regulation may impose certain obligations on our systems
that subject them to competitive pressure, including pricing restrictions,
interconnect obligations and open-network provision obligations. Failure to
comply with current or future regulation could expose us to various penalties.
Set forth below is an overview of the types of regulation that affects our
video, telephone and Internet/data services as well as a summary of the
regulatory environment in the EU and the countries in which our more major
systems operate.
VIDEO SERVICES
In the provision of video services, our operating companies are generally
required to either obtain licenses or permits from or notify or register with
the relevant regulatory authorities. In some countries we pay annual franchise
fees based on the amount of our revenues.
In many countries where we operate, we are required to transmit to
subscribers certain "must carry" channels, which generally consist of public
national and local channels. Some countries may require a certain amount of
local content or impose restrictions on certain types of programming.
The regulatory authorities in many countries where we operate also impose
pricing restrictions. Generally, basic tier price increases must be approved by
the relevant local or national authority. In certain countries, price increases
will only be approved if the increase is justified by an increase in costs
associated with providing the service or if the increase is less than or equal
to the increase in the consumer price index.
TELEPHONE
The liberalization of the telecommunications market in Europe and Chile
allowed new entrants like us to enter the telephone services market. Generally,
our operating companies are required to obtain licenses to offer telephone
services. Our operating companies have, to date, not been subject to telephone
rate regulation but would become subject to such regulation in a number of
jurisdictions upon becoming a significant market power.
Incumbent telephone providers in many markets are often required to offer
new entrants into the telephone market interconnection with their networks on a
non-discriminatory basis. In some countries, including Austria, The Netherlands
and Norway, we have had to seek the intervention of the regulatory authority in
interconnection agreement negotiations with the incumbent operators. Following
regulatory intervention in Austria, the incumbent operator brought an action in
the Austrian courts seeking to revise certain terms of its interconnection
agreements with a number of other telephone service providers. This action is
still pending before the Austrian Supreme Administrative Court.
IV-20
<PAGE> 74
INTERNET/DATA
UPC's chello broadband subsidiary and most of our operating companies must
comply with relevant laws in the provision of Internet access services and
on-line content. In several countries, including Norway and Hungary, the
provision of Internet/data services does not require any sort of license or
notification to a regulatory body. Other countries, including Austria, Belgium
and The Netherlands, require that providers of these services register with or
notify the relevant regulatory authority of the services they provide and, in
some cases, the prices charged to subscribers for such services. Our operating
companies that provide Internet services must comply with both Internet-specific
and general legislation concerning data protection, content provider liability
and electronic commerce. As regulation in this area develops, it will likely
have a significant impact on the provision of Internet services by our operating
companies.
COMPETITION LAW AND OTHER MATTERS
EU directives and national consumer protection and competition laws in
UPC's Western European markets impose limitations on the pricing and marketing
of integrated packages of services, such as video, telephone and Internet/data
services. These limitations are common in developed market economies and are
designed to protect consumers and ensure a fair competitive market. While UPC
may offer our services in integrated packages in our Western European markets,
UPC is generally not permitted to make subscription to one service, such as
cable television, conditional upon subscription to another service, such as
telephone, that a subscriber might not otherwise take. In addition, we must not
abuse or enhance a dominant market position through unfair anti-competitive
behavior. For example, cross-subsidization between our business lines that would
have this effect would be prohibited. We have to be careful, therefore, in
accounting for discounts in services provided in integrated packages.
EUROPEAN UNION
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden and the United
Kingdom are all member states of the EU. As such, these countries are required
to enact national legislation which implements directives issued by the EU
Commission and other EU bodies. Although not an EU Member State, Norway is a
member of the European Economic Area and has generally implemented or is
implementing the same principles on the same timetable as EU member states. The
Czech Republic, Hungary, Malta, Poland, Romania and Slovak Republic, which are
in the process of negotiations of its membership into the EU, started adjusting
its regulatory system to EU requirements. As a result, most of the European
markets in which UPC operates have been significantly affected by regulation
initiated at the EU level.
On November 10, 1999, the European Commission released a report proposing
new EU policies for telecommunications regulation and requested comments on its
proposals. The proposed regulatory framework would attempt to decrease national
variations in regulations and licensing systems and further increase market
competition. The European Commission is also proposing to use competition laws
rather than regulation to prevent dominant carriers from abusing their market
power.
VIDEO SERVICES
Conditional Access. EU member states regulate the offering of conditional
access systems, such as program decoders used for the expanded basic tier
services offered by many of our operating companies. Providers of such
conditional access systems are required to make them available on a fair,
reasonable and non-discriminatory basis to other video service providers, such
as broadcasters.
Broadcasting. Generally, broadcasts emanating from and intended for
reception within a country have to respect the laws of that country. Other EU
member states are required to allow broadcast signals of broadcasters in other
member states to be freely transmitted within their territory so long as the
broadcaster complies with the law of the originating member state. An EU
directive also establishes quotas for the transmission of European-produced
programming and programs made by European producers who are independent of
broadcasters.
IV-21
<PAGE> 75
Another major EU directive for broadcasting, requires member states to
permit a satellite broadcaster to obtain the necessary copyright license for its
programs in just one country (generally, the country in which the broadcaster is
established), rather than obtaining copyright licenses in each country in which
the broadcast is received.
TELEPHONE AND INTERNET/DATA SERVICES
Liberalization of Telecommunications Services and Infrastructure. A central
aim of the liberalization process has been to reduce the monopoly power of the
incumbent telecommunications operators in order to introduce competition in the
European telecommunications market. Liberalization measures have been adopted
under the EU Treaty's competition rules and harmonization measures based on the
principle that special and exclusive rights should be abolished and that public
telecommunications networks have to be made accessible on the basis of
objective, transparent, public and non-discriminatory conditions. Many measures
apply only to providers of public telecommunications networks or services having
significant market power in a particular market. The exclusive rights of
incumbent operators in the EU to provide telecommunications services were
gradually removed so that competing operators and service providers would be
entitled to offer all telecommunications services other than public voice
telephone. The incumbent telecommunications operator invariably owned the
national networks, however, and the lack of an alternative infrastructure to
provide such liberalized services operated as a major barrier to entry into the
market by competitors. In an effort to overcome this barrier, the EU introduced
a directive that required member states to remove existing restrictions on the
use of cable television networks to provide telecommunications services. As a
result of these directives, UPC's Western European operating companies may
establish and provide telecommunications networks and/or services, including
public voice telephone and Internet/data services, through their cable networks,
subject to obtaining the necessary licenses and authorizations.
In June 1999, the European Commission adopted a directive requiring member
states to enact legislation directing certain telecommunications operators to
separate their cable television and telecommunications operations into distinct
legal entities. This directive is intended to aid the development of the cable
television sector and to encourage competition and innovation in local
telecommunications and high speed Internet access. The directive includes
competition safeguards to deter anticompetitive cross-subsidies or
discrimination by incumbent telecommunications operators as they enter into
cable television or broadband services.
Interconnection. An EU directive sets forth the general framework for
interconnection, including general obligations for telecommunications operators
to interconnect with their networks. The directive requires member states to
impose obligations on public telecommunications network operators to negotiate
interconnection agreements on a non-discriminatory basis. Public
telecommunications network operators with significant market power (which,
although it may vary, is presumed when an operator has 25.0% or more of the
relevant market) are subject to additional obligations. They must offer
interconnection without discriminating between operators that offer similar
services, and their interconnection charges must follow the principles of
transparency and be based on the actual cost of providing the interconnection.
The directive also contains provisions on collocation of facilities, number
portability with certain exceptions, supplementary charges to contribute to the
costs of universal service obligations and other interconnection standards. As a
result, if the principles in the directive are fully applied, our operating
companies in the EU and Norway should be able to interconnect with the public
fixed network and other major telecommunications networks on reasonable terms in
order to provide their services.
Licensing. EU member states are required to adopt national legislation so
that providers of telecommunications services generally require either no
authorization or a general authorization which is conditional upon "essential
requirements," such as the security and integrity of the network's operation.
Licensing conditions and procedures must be objective, transparent and
non-discriminatory. Member states may issue individual licenses in certain
situations. For example, the provision of public voice telephone services and
the establishment or provision of public telecommunication networks may be
subject to individual licenses. In addition, telecommunications operators with
significant market power may be
IV-22
<PAGE> 76
required by member states to hold individual licenses carrying more burdensome
conditions than the authorizations held by other providers. Significant market
power is typically 25.0% of the relevant market. License fees can only include
administrative costs except in the case of scarce resources where additional
fees are allowed.
Regulation of the Internet. Although Internet-specific regulations have not
been issued, EU policy may develop harmonized principles of "responsibility of
content" to apply to Internet access providers analogous to those applicable to
publishing companies. We do not expect such regulations to materially adversely
affect our Internet business plans.
AUSTRIA
Video Services. The city of Vienna's approval is required for changes in
subscriber rates for basic tier service.
Telephone Services. Telekabel Wien has received a license to provide public
voice telephone services in the entire Republic of Austria and a license for the
public offer of leased lines through its cable network. These licenses are
granted for an unlimited period of time.
In November 1998, Telekabel Wien entered into an interconnection agreement
with TA, the incumbent operator. Difficulty and delay in negotiations and
agreement led Telekabel Wien to seek the intervention of the Austrian
telecommunications regulator, which determined the principal terms of the
agreement. TA brought an action in the Austrian courts against some of the major
carriers to revise the terms of the interconnection arrangement. The Supreme
Constitutional Court ruled in March 1999 that the TA's constitutionally
guaranteed rights were not infringed. However, the court left open the issue of
whether the decree issued by the telecommunications regulator was otherwise
lawfully issued. The case is now pending before the Austrian Supreme
Administrative Court.
Recently, the TA brought an action before the Austrian Supreme
Administrative Court against a decision of the telecommunications regulator,
which determines the principal terms of granting Telekabel Wien direct access to
telephone customers. If the court decides in favor of TA, the telecommunications
regulator will have to make a new decision and lay down new conditions for the
direct access to the telephone customers. This may also lead to the payment of
additional costs for the direct access, even for past periods.
Although there are no voice telephone pricing regulations currently
applicable to Telekabel Wien, the Telekom Control Commission must be notified of
the tariff structure and any subsequent rate increases. In addition, if
Telekabel Wien were held to have significant market power (as defined in
Austria's Telecommunications Act) with respect to the services offered, certain
matters including tariffs would become subject to the approval of the Telekom
Control Commission.
FRANCE
Video Services. Cable television operators must obtain licenses granted by
the Conseil Superieur de l'Audiovisuel and must also enter into agreements, with
local authorities covering public service delegation and/or public domain
occupancy. Some of UPC France's agreements with local authorities require the
local authorities' approval for a change of basic rates. Cable television
operators are required to transmit particular channels as part of their basic
tier service. Various other national laws also restrict the content of
programming distributed by cable television operators.
Telephone Services. Mediareseaux holds licenses granted by the Minister of
Telecommunications for a public telecommunications network and voice telephony
services in three French departments in the Paris region. Mediareseaux has
applied for a nation-wide license. Mediareseaux was granted temporary licenses
in December 1998 and April 1999 to conduct experimental business in the field of
wireless local loop in the Champs sur Marne area. UPC France's other operating
companies do not hold any telecommunications licenses.
IV-23
<PAGE> 77
THE NETHERLANDS
Video Services. Operators in The Netherlands do not require a license for
the installation, maintenance or operation of a cable network. Network operators
need only register with Dutch Telecommunications Act, the Dutch Independent Post
and Telecommunications Authority ("OPTA"). Cable television network providers
must transmit to all its subscribers at least 15 programs for television and at
least 25 programs for radio, including approximately seven television and nine
radio "must carry" channels. Our Dutch operating companies often purchased their
cable television networks from the local municipalities. Pursuant to the terms
of the agreements with the municipalities, the Dutch operating companies were
obligated to continue to provide basic tier services of between 20 and 30
television channels, including the 15 required under the media laws.
In April 1999, A2000 and the municipality of Amsterdam reached an agreement
on a large-scale introduction of digital decoders and a reduction of the basic
cable television package to 15 public channels. The agreement allows A2000 to
migrate a number of popular commercial channels to its expanded basic tier. Once
the digital decoders are introduced, the price for the rate regulated 15 public
channel basic fee will be reduced and the price for the expanded basic tier will
increase over time until it becomes unregulated in 2001. The agreement will
initially affect approximately 390,000 customers in the greater Amsterdam area.
Negotiations with the remaining municipalities are in process.
Telephone Services. Until recently, the fixed telecommunications
infrastructure was a statutory monopoly of KPN. Cable television networks may
now be used for the provision of all telecommunications services. Number
portability was introduced in The Netherlands in 1999.
UPC Netherlands has entered into a total of three interconnection
agreements with KPN, WorldCom and Enertel networks. In a decision of November
29, 1999, OPTA ruled that the temporary tariffs (based on KPN's expected costs)
that KPN can charge for interconnection for the period between July 1, 1999 and
July 1, 2000 will be higher than the temporary tariffs that KPN was allowed to
charge for the previous period. The costs for Priority Telecom for
interconnection with KPN are therefore likely to rise. In its decision of
December 16, 1999, OPTA ruled that the temporary interconnection tariffs that it
set for the period of July 1, 1998 to July 1, 1999 will not be corrected
pursuant to calculations based upon KPN's actual costs over that period. The
OPTA has therefore decided to consider these temporary interconnection tariffs
as the definitive tariffs (although on the basis of the calculation that OPTA
made, the tariffs for this period should be higher, it decided not to allow a
raise since that would have a negative effect on the position of new entrants in
the market). In the event that this decision of OPTA is challenged and the
definitive tariffs are consequently determined on the basis of KPN's actual
costs as calculated by OPTA, Priority Telecom may have to reimburse KPN on the
basis of the difference between the temporary and the definitive tariff.
While Priority Telecom's telephone service is not currently subject to
price regulation, the prices of its competitor, KPN, are. OPTA indicated that
KPN should during 1999 reduce its end-user tariffs in accordance with principles
of cost orientation as set forth by OPTA. The fact that KPN's end-user tariffs
for all of its basic telephone services (with the exception of international
calls but including ISDN) must be cost orientated may have a negative effect on
Priority Telecom's ability to compete.
NORWAY
Video Services. Under Norway's Telecommunications Act, the installation and
operation of the cable infrastructure and equipment must be authorized by and
registered with the Norwegian Post and Telecommunications Authority on the basis
of certain necessary technical qualifications. Cable television providers have
"must-carry" obligations obliging them to include three national channels and
typically one local television channel in their basic tier services.
Telephone Services. For telephone operators and service providers without
significant market power, as is currently the case with UPC Norge, no license is
required to offer voice telephone services. Such providers need only register
with the Norwegian Post and Telecommunications Authority.
IV-24
<PAGE> 78
UPC Norge has entered into an interconnection agreement with Telenor.
Mediation proceedings before the Norwegian Post and Telecommunications Authority
between UPC Norge and Telenor concluded in July 1999. The mediation related to
certain changes that UPC Norge wished to make to its current interconnection
agreement with Telenor. As a result of the mediation, an amendment protocol was
added to the interconnection agreement. According to this amendment protocol,
UPC Norge and Telenor have agreed that the current interconnection agreement
will remain in force until a new interconnection agreement has been negotiated.
Negotiation of the new interconnection agreement commenced in September 1999.
UNITED KINGDOM
Video and Telephone Services. The principal regulators of the United
Kingdom cable television and telephone industry are the Independent Television
Commission, the Office of Telecommunications, the Office of Fair Trading, the
Department of Trade and Industry and the Department of Culture, Media and Sport.
Cable television and telephone services in the United Kingdom are regulated
under the Broadcasting Act 1990, the Broadcasting Act 1996 and the
Telecommunications Act. Cable television pricing in the United Kingdom is not
subject to pricing restrictions, but is subject to review under fair trading
regulation by the Independent Television Commission and examination by the
Office of Fair Trading.
The supply of cable television and telephone services by Telewest requires
two principal licenses: (1) a license issued under either the Cable and
Broadcasting Act 1984 (prior to 1991) or under the Broadcasting Act 1990 (after
1991), and (2) a Telecommunications Act License.
Telewest was granted a non-exclusive national broadcast license which
covers all of its franchises, and, with the exception of those franchises which
have not been redesignated as non-exclusive, the rest of the United Kingdom. On
January 1, 2001, those franchises which have not been redesignated as
non-exclusive, will become non-exclusive and Telewest's national broadcast
license will be amended to include those franchise areas.
Telewest currently has 41 franchise-specific Telecommunications Act
Licenses. In addition, Telewest has two national telecommunications licenses
which allow it to provide telecommunications networks and services outside of
its franchise areas. Telewest also holds licenses for Satellite Master Antenna
television systems, issued under the Telecommunications Act. Satellite
Television Licenses are granted on demand, subject to certain restrictions set
out in the Broadcasting Act 1990.
Programming. Telewest also holds 18 licensable program service licenses
which enable it to produce local programming including local advertisements.
AUSTRALIA
The provision of subscription television services in Australia is regulated
by the Australian federal government under various Commonwealth statutes. In
addition, State and Territory laws, including environmental and consumer
contract legislation, may impact the construction and maintenance of a
transmission system for subscription television services, the content of those
services, as well as on various aspects of the subscription television business
itself.
The Australia Broadcasting Services Act of 1992 ("BSA") regulates the
ownership and operation of all categories of television and radio broadcasting
services in Australia. The technical delivery of broadcasting services is
separately licensed under the Radiocommunications Act 1992 or the
Telecommunications Act 1997 depending on the delivery technology utilized, such
as wireline cable, DTH, MMDS or any other means of transmission. The BSA
regulates subscription television broadcasting services by requiring each
service to have an individual license. Companies associated with Austar hold
approximately 152 subscription television broadcasting licenses issued under the
BSA. Each license is issued subject to certain conditions. The government may
vary or revoke license conditions or may, by written notice, specify additional
conditions.
IV-25
<PAGE> 79
Those companies also hold a carrier license, and operate as carriage
service providers, under the Telecommunications Act for the provision of
broadband internet services and Darwin-based pay television services; as well as
hold a mixture of spectrum and apparatus licenses issued under the
Radiocommunications Act.
Under the BSA, foreign ownership of "company interests" of pay television
broadcasting licenses is limited to 20.0% by a single foreign person and an
aggregate of 35.0% by all foreign persons. The BSA licenses authorizing Austar's
pay television services are held by Australian companies for the purposes of the
BSA.
CHILE
Cable and telephone applications for concessions and permits are submitted
to the Ministry of Transportation and Telecommunications which, through the
Subsecretary of Telecommunications, is the government body responsible for
regulating, granting concessions, and registering all telecommunications.
Wireline cable television licenses are non-exclusive and granted for indefinite
terms, based on a business plan for a particular geographic area. There is an
18.0% Value Added Tax levied on multi-channel television services but no royalty
or other charges associated with the re-transmitting of programming from off-air
broadcasting television networks. Wireless licenses have renewable terms of 10
years. VTR has cable permits in most major and medium sized markets in Chile.
Cross ownership between cable television and telephone is also permitted.
The General Telecommunications Law of Chile allows telecommunications
companies to provide service and develop telecommunications infrastructure
without geographic restriction or exclusive rights to serve. Chile currently has
a competitive, multi-carrier system for international and local long distance
telecommunications services. Prices for local services are currently determined
by regulatory authorities until the market is determined to be competitive. The
maximum rate structure is determined every five years. Local service providers
with concessions are obligated to provide service to all concessionaires who are
willing to pay for an extension to get service. Local providers must also give
long distance service providers equal access to their network connections.
ARGENTINA
Video Services. The installation and operation of cable television service
in Argentina is governed by Argentine Law No. 22,285, as amended, and the
related regulations of the Argentine broadcasting agency, the Federal
Broadcasting Committee. Cable television companies in Argentina are required to
obtain a non-exclusive broadcasting license from the Federal Broadcasting
Committee to carry and distribute programming over their cable networks. Cable
television companies are required to inform the Federal Broadcasting Committee
30 days before changing cable subscription rates.
Argentine broadcasting law regulates who may be a shareholder of a company
that holds broadcasting licenses, and provides that all direct shareholding
investments in Argentine cable companies must be approved by the Federal
Broadcasting Committee.
Telephone Services. On June 9, 2000, the President of Argentina issued a
decree ratifying the deregulation of the telephone industry as of November 9,
2000. Once the deregulation is completed, any person, including cable television
operators, may seek licensing to provide telephone service. The Argentine
government has enacted a series of new regulations that will govern the
telecommunications industry after November 9, 2000. One of these regulations
provides that all telecommunications service providers must pay 1.0% of total
income derived from telecommunications services, net of applicable taxes. These
fees will be used to provide services that are considered publicly desirable but
are not sufficiently profitable to encourage market participants to provide
them.
IV-26
<PAGE> 80
SELECTED FINANCIAL DATA
In the table below, we provide you with our selected historical
consolidated financial data. We prepared this information using our consolidated
financial statements as of the dates indicated and for each of the fiscal years
in the five-year period ended December 31, 1999 and for the six month periods
ended June 30, 2000 and 1999. We derived our consolidated statement of
operations and balance sheet data below for the fiscal periods ended December
31, 1999 and 1998, February 28, 1998 and 1997 and February 29, 1996 from
financial statements audited by Arthur Andersen LLP, independent accountants.
The unaudited financial data as of June 30, 2000 and for the six month periods
ended June 30, 2000 and 1999 contain only normal recurring accruals, that in the
opinion of management, are necessary for a fair presentation of our results for
these periods. The interim results of operations are not necessarily indicative
of results that may be expected for a full year. The financial data presented
below is not necessarily comparable from period to period as a result of several
transactions, including acquisitions and dispositions of consolidated and equity
investees. For this and other reasons, you should read it together with our
historical financial statements and related notes and also with management's
discussion and analysis of financial condition and results of operations
contained in the underlying reports included in this proxy statement/prospectus.
The number of shares of our common stock outstanding and per share data have
been adjusted to reflect our two-for-one stock split distributed on November 30,
1999.
<TABLE>
<CAPTION>
UNITED
----------------------------------------------------------------------------------------------
(UNAUDITED)
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED FOR THE YEAR FOR THE TEN --------------------------------------
JUNE 30, ENDED MONTHS ENDED FEBRUARY 28,
----------------------- DECEMBER 31, DECEMBER 31, ----------------------- FEBRUARY 29,
2000 1999 1999 1998 1998 1997 1996
---------- ---------- ------------ ------------ ---------- ---------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................... $ 584,407 $ 253,914 $ 719,524 $ 254,068 $ 98,622 $ 31,555 $ 2,870
System operating expense...... (378,702) (130,912) (452,515) (122,811) (65,631) (26,251) (4,224)
Selling, general and
administrative expense...... (338,892) (184,816) (618,925) (299,993) (91,356) (54,020) (22,483)
Depreciation and
amortization................ (358,777) (133,077) (418,714) (159,045) (91,656) (38,961) (2,331)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating loss......... (491,964) (194,891) (770,630) (327,781) (150,021) (87,677) (26,168)
Gain on issuance of common
equity securities by
subsidiaries................ 73,646 822,067 1,508,839 -- -- -- --
Interest income............... 69,722 9,407 54,238 10,464 7,806 13,329 8,417
Interest expense.............. (417,491) (118,457) (399,999) (163,227) (124,288) (79,659) (36,045)
Gain on sale of investments in
affiliates.................. -- 7,456 -- -- 90,020 65,249 16,013
Other expense, net............ (129,234) (27,354) (61,269) (11,622) (19,881) (6,850) (5,974)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Loss) income before
income taxes and
other items.......... (895,321) 498,228 331,179 (492,166) (196,364) (95,608) (43,757)
Income tax benefit (expense),
net......................... 2,781 305 (198) (610) -- -- --
Minority interests in
subsidiaries................ 401,577 74,938 360,444 1,410 1,568 4,358 1,081
Share in results of
affiliates, net............. (39,941) (31,608) (55,107) (54,166) (68,645) (47,575) (48,635)
Extraordinary charge for early
retirement of debt.......... -- -- -- -- (79,091) -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net (loss) income...... $ (530,904) $ 541,863 $ 636,318 $ (545,532) $ (342,532) $ (138,825) $ (91,311)
========== ========== ========== ========== ========== ========== ==========
Net (loss) income per common
share:
Basic net (loss) income... $ (5.82) $ 6.80 $ 7.53 $ (7.43) $ (4.46) $ (1.79) $ (1.35)
========== ========== ========== ========== ========== ========== ==========
Diluted net (loss)
income................. $ (5.82) $ 6.11 $ 6.67 $ (7.43) $ (4.46) $ (1.79) $ (1.35)
========== ========== ========== ========== ========== ========== ==========
Weighted-average number of
common shares outstanding:
Basic..................... 95,734,422 79,464,553 82,024,077 73,644,728 77,033,786 78,071,552 68,035,320
========== ========== ========== ========== ========== ========== ==========
Diluted................... 95,734,422 88,672,220 95,331,929 73,644,728 77,033,786 78,071,552 68,035,320
========== ========== ========== ========== ========== ========== ==========
</TABLE>
IV-27
<PAGE> 81
<TABLE>
<CAPTION>
UNITED
----------------------------------------------------------------------------------
AS OF
----------------------------------------------------------------------------------
FEBRUARY 28,
(UNAUDITED) DECEMBER 31, DECEMBER 31, --------------------- FEBRUARY 29,
JUNE 30, 2000 1999 1998 1998 1997 1996
------------- ------------ ------------ ---------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents, restricted cash
and short-term liquid investments....... $ 2,078,803 $2,573,821 $ 94,321 $ 358,122 $140,743 $161,983
Other current assets, net................. 528,348 412,445 94,206 52,877 28,934 32,461
Investments in affiliates, net............ 863,938 309,509 429,490 341,252 253,108 272,205
Property, plant and equipment, net........ 2,883,063 2,379,837 451,442 440,735 219,342 31,102
Goodwill and other intangible assets,
net..................................... 3,872,903 2,944,802 424,934 409,190 132,636 45,629
Other non-current assets.................. 304,085 382,439 47,702 77,659 45,173 36,826
----------- ---------- ---------- ---------- -------- --------
Total assets....................... $10,531,140 $9,002,853 $1,542,095 $1,679,835 $819,936 $580,206
=========== ========== ========== ========== ======== ========
Current liabilities....................... $ 1,607,708 $ 908,700 $ 326,552 $ 291,390 $ 88,941 $ 13,255
Senior notes and other long-term
debt.................................... 7,564,284 5,989,455 1,939,289 1,702,771 675,183 371,227
Other non-current liabilities............. 121,428 95,502 184,928 30,204 9,116 --
----------- ---------- ---------- ---------- -------- --------
Total liabilities.................. 9,293,420 6,993,657 2,450,769 2,024,365 773,240 384,482
Minority interests in subsidiaries........ 574,961 867,970 18,705 15,186 307 2,509
Preferred stock and other................. 27,309 26,920 56,286 32,564 31,293 41,239
Stockholders' equity (deficit)............ 635,450 1,114,306 (983,665) (392,280) 15,096 151,976
----------- ---------- ---------- ---------- -------- --------
Total liabilities and stockholders'
equity
(deficit)........................ $10,531,140 $9,002,853 $1,542,095 $1,679,835 $819,936 $580,206
=========== ========== ========== ========== ======== ========
</TABLE>
IV-28
<PAGE> 82
In the table below we provide you with the selected historical combined
financial data for the Principal Transaction Assets. We derived the historical
combined statement of operations data below for the ten month period ended
December 31, 1999, the two month period ended February 28, 1999 and for the
years ended December 31, 1999 and 1998 and the combined balance sheet data as of
December 31, 1999 and 1998 from the combined financial statements of Liberty
Principal Transaction Assets Group, audited by KPMG LLP, independent
accountants, included elsewhere in this proxy statement/prospectus. The
unaudited financial data as of June 30, 2000, for the six month period ended
June 30, 2000 and the four month period ended June 30, 1999 contain only normal
recurring accruals, that in the opinion of Liberty's management, are necessary
for a fair presentation of its results for these periods. The interim results of
operations are not necessarily indicative of results that may be expected for a
full year.
On March 9, 1999, AT&T acquired TCI, the parent company of Liberty, in a
merger transaction. For financial reporting purposes, the merger of AT&T and TCI
is deemed to have occurred on March 1, 1999. In connection with the merger, the
assets and liabilities of the Liberty Principal Transaction Assets Group were
adjusted to their respective fair values pursuant to the purchase method of
accounting. For periods prior to March 1, 1999, the assets and liabilities and
the related combined results of operations are referred to below as "Old Liberty
Group," and for periods subsequent to February 28, 1999, the assets and
liabilities of the Liberty Group and the related consolidated results of
operations are referred to as the "New Liberty Group."
The financial data presented below are not necessarily comparable from
period to period as a result of several transactions, including acquisitions and
dispositions of consolidated and equity investees. For this and other reasons,
you should read the selected historical financial data provided below in
conjunction with the Liberty Principal Transaction Assets Group financial
statements and accompanying notes beginning on page F-176 and the discussion
under "Information About New United -- Management's Discussion and Analysis of
Financial Condition and Results of Operations of Liberty Principal Transaction
Assets Group."
<TABLE>
<CAPTION>
LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
-------------------------------------------------------------------------------------------
NEW LIBERTY GROUP OLD LIBERTY GROUP
------------------------------------------------- ---------------------------------------
(UNAUDITED) (UNAUDITED) FOR THE YEARS ENDED
FOR THE SIX FOR THE FOUR FOR THE TEN FOR THE TWO DECEMBER 31,
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED -------------------
JUNE 30, 2000 JUNE 30, 1999 DECEMBER 31, 1999 FEBRUARY 28, 1999 1998 1997
------------- ------------- ----------------- ----------------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue............ $ 60,000 $ 37,000 $ 94,000 $ 15,000 $ 62,000 $213,000
Operating
earnings........ $ 8,000 $ 6,000 $ 14,000 $ -- $ 15,000 $ 32,000
Net income
(loss).......... $265,000 $(81,000) $(203,000) $(13,000) $(65,000) $(70,000)
</TABLE>
<TABLE>
<CAPTION>
OLD LIBERTY
NEW LIBERTY GROUP GROUP
-------------------------------- --------------
AS OF DECEMBER 31,
(UNAUDITED) ---------------------------
AS OF JUNE 30, 2000 1999 1998
------------------- ---------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................................... $ 46,000 $ 48,000 $ 30,000
Total assets..................................... $3,979,000 $3,651,000 $1,620,000
Long-term debt................................... $ 45,000 $ 45,000 $ 113,000
Combined equity.................................. $1,896,000 $2,872,000 $1,432,000
</TABLE>
IV-29
<PAGE> 83
UNAUDITED PRO FORMA FINANCIAL INFORMATION OF NEW UNITED
We have provided the following unaudited pro forma condensed combined
statements of operations to give you a better understanding of what our
businesses might have looked like had they been combined since January 1, 1999.
The pro forma balance sheet shows what New United would have looked like if we
had completed the transaction as of June 30, 2000. We derived this information
from our consolidated financial statements and the combined financial statements
of Liberty Principal Transaction Assets Group, in addition to certain
assumptions and adjustments in the accompanying notes to the pro forma
information. The information should be read together with our and Liberty
Principal Transaction Assets Group's historical financial statements and related
notes contained in the underlying reports included in this proxy
statement/prospectus.
New United will become our parent company and holders of our stock will
receive stock of New United. Our merger with a newly created subsidiary of New
United will be accounted for by New United at historical cost. The contribution
of the Principal Transaction Assets to New United will be accounted for by New
United as a purchase of a business. This means that, for accounting and
financial reporting purposes, the assets and liabilities of the Principal
Transaction Assets will be recorded at their fair value, and any excess of New
United's purchase price over the fair value of the Principal Transaction Assets'
tangible net assets will be recorded as intangible assets, including goodwill.
The companies may have performed differently had they always been combined.
You should not rely on the unaudited selected pro forma condensed combined
financial information as being indicative of the historical results that we
would have had or the future results that New United will experience after the
merger and contribution transaction. The preliminary allocation of purchase
price to tangible and intangible assets reflects their estimated fair value
based upon information available at the time of the preparation of the
accompanying unaudited pro forma financial statements. New United, we and
Liberty are unaware of events that would require a material change to the
preliminary purchase price allocation. However, a final determination of
necessary purchase accounting adjustments will be made upon the completion of a
study to be undertaken to determine the fair value of certain of its assets and
liabilities, including intangible assets. Assuming completion of the merger, the
actual financial position and results of operations will differ, perhaps
significantly, from the pro forma amounts reflected herein because of a variety
of factors, including access to additional information, change in value not
currently identified and changes in operating results between the dates of the
pro forma financial data and the date on which the merger takes place.
IV-30
<PAGE> 84
NEW UNITED
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL DECONSOLIDATION PRO FORMA
TRANSACTION OF LIBERTY PURCHASE NEW UNITED
UNITED(1) ASSETS(1) PUERTO RICO(2) ADJUSTMENTS PRO FORMA
----------- ----------- --------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents... $ 969,367 $ 5,000 $ 1,000 $ (5,000)(3) $ 970,367
Restricted cash............. 17,322 -- -- -- 17,322
Short-term liquid
investments.............. 1,092,114 -- -- -- 1,092,114
Subscriber receivables,
net...................... 108,601 34,000 (15,000) -- 127,601
Other current assets, net... 419,747 7,000 (1,000) -- 425,747
----------- ---------- --------- ----------- -----------
Total current
assets............ 2,607,151 46,000 (15,000) (5,000) 2,633,151
Investments in affiliates,
net......................... 863,938 3,477,000 68,000 625,238(4) 5,034,176
Marketable equity securities
and other investments....... 97,131 146,000 -- -- 243,131
Property, plant and equipment,
net......................... 2,883,063 77,000 (67,000) -- 2,893,063
Goodwill and other intangible
assets, net................. 3,872,903 233,000 (177,000) 86,631(5) 4,015,534
Deferred financing costs,
net......................... 168,198 -- -- -- 168,198
Deferred taxes................ 9,519 -- -- -- 9,519
Other assets, net............. 29,237 -- (1,000) -- 28,237
----------- ---------- --------- ----------- -----------
Total assets........ $10,531,140 $3,979,000 $(192,000) $ 706,869 $15,025,009
=========== ========== ========= =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable............ $ 339,537 $ 25,000 $ (6,000) $ -- $ 358,537
Accrued liabilities......... 456,943 22,000 (1,000) (21,000)(6) 456,943
Subscriber prepayments and
deposits................. 78,564 -- -- -- 78,564
Due to parent............... -- 1,204,000 -- (1,204,000)(6) --
Short-term debt............. 713,953 -- -- 200,000(6) 913,953
Current portion of other
long-term debt........... 12,574 7,000 -- -- 19,574
Other current liabilities... 6,137 -- -- -- 6,137
----------- ---------- --------- ----------- -----------
Total current
liabilities....... 1,607,708 1,258,000 (7,000) (1,025,000) 1,833,708
Senior discount notes and
senior notes................ 6,038,668 -- -- -- 6,038,668
Other long-term debt.......... 1,525,616 45,000 (43,000) -- 1,527,616
Deferred compensation......... 74,258 -- -- -- 74,258
Deferred taxes................ 18,046 780,000 (55,000) -- 743,046
Other long-term liabilities... 29,124 -- (1,000) -- 28,124
----------- ---------- --------- ----------- -----------
Total liabilities... 9,293,420 2,083,000 (106,000) (1,025,000) 10,245,420
----------- ---------- --------- ----------- -----------
Minority interests in
subsidiaries................ 574,961 -- -- -- 574,961
----------- ---------- --------- ----------- -----------
Series B Convertible Preferred
Stock....................... 27,309 -- -- -- 27,309
----------- ---------- --------- ----------- -----------
Stockholders' equity.......... 635,450 1,896,000 (86,000) 1,731,869(7) 4,177,319
----------- ---------- --------- ----------- -----------
Total liabilities
and stockholders'
equity............ $10,531,140 $3,979,000 $(192,000) $ 706,869 $15,025,009
=========== ========== ========= =========== ===========
</TABLE>
IV-31
<PAGE> 85
NEW UNITED
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL DECONSOLIDATION PRO FORMA
TRANSACTION OF LIBERTY PURCHASE NEW UNITED
UNITED(1) ASSETS(1) PUERTO RICO(2) ADJUSTMENTS PRO FORMA
---------- ----------- --------------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
Revenue......................... $ 584,407 $ 60,000 $(24,000) $ -- $ 620,407
Operating expense............... (378,702) (26,000) 6,000 -- (398,702)
Selling, general and
administrative expense........ (338,892) (14,000) 8,000 -- (344,892)
Depreciation and amortization... (358,777) (12,000) 9,000 (2,754)(8) (364,531)
---------- --------- -------- --------- -----------
Operating loss................ (491,964) 8,000 (1,000) (2,754) (487,718)
Gain on issuance of common
equity securities by
subsidiaries.................. 73,646 -- -- -- 73,646
Interest income................. 69,722 1,000 -- -- 70,722
Interest expense................ (417,491) (22,000) 1,000 7,000(9) (431,491)
Gain on sale of investments in
affiliates.................... -- 640,000 -- (640,000)(10) --
Foreign currency exchange (loss)
gain.......................... (124,110) -- -- -- (124,110)
Other expense, net.............. (5,124) -- -- -- (5,124)
---------- --------- -------- --------- -----------
(Loss) income before income
taxes and other items...... (895,321) 627,000 -- (635,754) (904,075)
Income tax benefit (expense).... 2,781 (153,000) -- 224,000(10) 73,781
Minority interest in
subsidiaries.................. 401,577 -- -- -- 401,577
Share in results of affiliates,
net........................... (39,941) (209,000) (1,000) (37,135)(11) (287,076)
---------- --------- -------- --------- -----------
Net (loss) income............. $ (530,904) $ 265,000 $ (1,000) $(448,889) $ (715,793)
========== ========= ======== ========= ===========
Basic net (loss) income per
common share.................. $ (5.82) $ (4.34)
========== ===========
Diluted net (loss) income per
common share.................. $ (5.82) $ (4.34)
========== ===========
Weighted-average common shares
basic......................... 95,734,422 170,993,259
========== ===========
Weighted-average common shares
diluted....................... 95,734,422 170,993,259
========== ===========
</TABLE>
IV-32
<PAGE> 86
NEW UNITED
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL DECONSOLIDATION PRO FORMA
TRANSACTION OF LIBERTY PURCHASE NEW UNITED
UNITED(1) ASSETS(1) PUERTO RICO(2) ADJUSTMENTS PRO FORMA
---------- ----------- --------------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
Revenue........................... $ 719,524 $ 109,000 $(44,000) $ -- $ 784,524
Operating expense................. (452,515) (46,000) 15,000 -- (483,515)
Selling, general and
administrative expense.......... (618,925) (28,000) 11,000 -- (635,925)
Depreciation and amortization..... (418,714) (21,000) 15,000 (6,509)(8) (431,223)
---------- --------- -------- --------- -----------
Operating loss.................. (770,630) 14,000 (3,000) (6,509) (766,139)
Gain on issuance of common equity
securities by subsidiaries...... 1,508,839 -- -- -- 1,508,839
Interest income................... 54,238 3,000 -- -- 57,238
Interest expense.................. (399,999) (7,000) 2,000 (28,000)(9) (432,999)
Provision for losses on marketable
equity securities and investment
costs........................... (7,127) -- -- -- (7,127)
Foreign currency exchange (loss)
gain............................ (39,501) -- -- -- (39,501)
Other expense, net................ (14,641) -- -- -- (14,641)
---------- --------- -------- --------- -----------
Income (loss) before income
taxes and other items........ 331,179 10,000 (1,000) (34,509) 305,670
Income tax (expense) benefit...... (198) 138,000 (1,000) -- 136,802
Minority interest in
subsidiaries.................... 360,444 -- -- -- 360,444
Share in results of affiliates,
net............................. (55,107) (364,000) -- (79,270)(11) (498,377)
---------- --------- -------- --------- -----------
Net income (loss)............... $ 636,318 $(216,000) $ (2,000) $(113,779) $ 304,539
========== ========= ======== ========= ===========
Basic net income (loss) per common
share........................... $ 7.53 $ 1.82
========== ===========
Diluted net income (loss) per
common share.................... $ 6.67 $ 1.79
========== ===========
Weighted-average common shares
basic........................... 82,024,077 157,282,914
========== ===========
Weighted-average common shares
diluted......................... 95,331,929 170,590,766
========== ===========
</TABLE>
IV-33
<PAGE> 87
NEW UNITED
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(1) These columns represent the financial position and historical results of
operations of the respective companies.
(2) The Liberty Principal Transaction Assets Group includes the financial
position and results of operations of its wholly owned subsidiary, Liberty
Puerto Rico. As United is acquiring a non-controlling 49.0% interest in
Liberty Puerto Rico, this column adjusts the financial position and
results of operations to reflect a 49.0%-owned equity investee.
(3) Represents our estimate of the minimum amount of merger-related fees and
expenses, consisting primarily of SEC filing fees, fees and expenses of
investment bankers, attorneys and accountants, and financial printing and
other related charges. We anticipate these fees and expenses may be
significantly higher.
(4) Represents the estimated net increase in investments in affiliates based
upon a preliminary allocation of the purchase price, as follows (in
thousands):
<TABLE>
<S> <C>
Elimination of historical book value........................ $(3,545,000)
United's pro forma proportionate interest in the net assets
of the businesses acquired................................ 1,256,195
Estimate of new excess basis from preliminary allocation of
purchase price............................................ 2,914,043
-----------
$ 625,238
===========
</TABLE>
(5) Represents the pro forma increase in goodwill and other intangible assets,
as follows (in thousands):
<TABLE>
<S> <C>
Elimination of historical book value........................ $(56,000)
Estimate of new goodwill from preliminary allocation of
purchase price............................................ 142,631
--------
$ 86,631
========
</TABLE>
The estimate of new goodwill is based upon the following (in thousands):
<TABLE>
<S> <C>
Class B common stock consideration.......................... $ 3,541,869
Debt assumed, net of intercompany debt eliminated in
consolidation............................................. 200,000
Minimum estimated acquisition costs......................... 5,000
-----------
Total consideration paid by United........................ 3,746,869
Allocation to:
Investments in affiliates................................. (4,170,238)
Marketable securities..................................... (146,000)
Other assets.............................................. (40,000)
Deferred taxes............................................ 725,000
Other liabilities......................................... 27,000
-----------
Preliminary estimate of goodwill............................ $ 142,631
===========
</TABLE>
(6) Represents intercompany promissory notes made by the Contributed Subs to
Liberty in the aggregate principal amount of $1.2 billion and related
accrued interest of $21.0 million. These notes accrue interest at an
initial rate of 14.0% per annum. Liberty will contribute $1.0 billion of
these notes to New United as part of the merger and contribution
transaction. Hence, these notes and the related accrued interest will
eliminate in consolidation. The remaining $200.0 million of promissory
notes and related interest will remain an obligation of the Contributed
Subs to Liberty following the transaction.
IV-34
<PAGE> 88
(7) Represents the net increase to stockholders' equity as follows (in
thousands):
<TABLE>
<S> <C>
Consideration in the form of 75,258,837 shares of Class B
common stock valued at $47.0625 per share................. $ 3,541,869
Elimination of historical equity of Liberty Principal
Transaction Assets Group.................................. (1,810,000)
-----------
$ 1,731,869
===========
</TABLE>
The per share value of Class B common stock issued to effect the merger
and contribution transaction was determined using the closing price of
United's Class A common stock for the two days prior, the day of and two
days after the Principal Transaction was announced to the public.
(8) Represents the pro forma net increase to depreciation and amortization as
follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Elimination of historical goodwill amortization.... $ 2,000 $ 3,000
Amortization of new goodwill based on an estimated
useful life of 15 years.......................... (4,754) (9,509)
------- -------
$(2,754) $(6,509)
======= =======
</TABLE>
(9) Represents the pro forma impact on interest expense as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Elimination of historical interest expense on the
debt payable to parent........................... $ 21,000 $ --
Additional interest expense on the $200.0 million
note payable to Liberty.......................... (14,000) (28,000)
-------- --------
$ 7,000 $(28,000)
======== ========
</TABLE>
(10) Represents the elimination of certain non-recurring gains and losses of
the Liberty Principal Transaction Assets Group. The Liberty Principal
Transaction Assets Group recorded a gain of $649.0 million (excluding
related tax expense of $227.0 million) related to the merger of Flextech
and Telewest. Also, the Liberty Principal Transaction Assets Group
recorded a loss of $9.0 million (excluding related tax benefit of $3.0
million) on the sale of an equity method affiliate for shares of Crown
Media.
(11) Represents the pro forma impact on share in results of affiliates as
follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Elimination of historical excess basis
amortization..................................... $ 60,000 $ 115,000
Amortization of new excess basis in investments in
affiliates based on an estimated useful life of
15 years......................................... (97,135) (194,270)
-------- ---------
$(37,135) $ (79,270)
======== =========
</TABLE>
IV-35
<PAGE> 89
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
The following discussion and analysis provides information concerning our
combined results of operations and financial condition. This discussion should
be read in conjunction with our accompanying combined financial statements and
the notes thereto. For purposes of the following Management's Discussion and
Analysis of Financial Condition and Results of Operations, the Liberty Principal
Transaction Assets Group is referred to as "Liberty Group." Liberty Group is a
combination of certain combined subsidiaries and equity method investees of
Liberty, a wholly owned subsidiary of AT&T Corp.
Liberty Group's attributed subsidiaries generally operate or hold interests
in international businesses which provide cable television, telephone and
programming services.
Liberty Group's combined subsidiaries at December 31, 1999, included Pramer
and Liberty Puerto Rico. These businesses are wholly owned and, accordingly, the
results of operations of these businesses are included in the combined results
of Liberty Group for the periods in which they were under Liberty Group's
control.
A significant portion of Liberty Group's operations are conducted through
entities in which Liberty Group holds a 20% to 50% ownership interest. These
businesses are accounted for using the equity method of accounting and,
accordingly, are not included in the combined results of Liberty Group except as
they affect Liberty Group's interest in earnings or losses of affiliates for the
period in which they were accounted for using the equity method. Included in
Liberty's investments in affiliates at December 31, 1999 were Telewest,
Cablevision, Flextech, TyC, and Premium Movie Partnership.
As a result of AT&T's acquisition of Tele-Communications, Inc., including
Liberty, by merger (the "AT&T Merger") on March 9, 1999, Liberty Group's assets
and liabilities have been recorded at their respective fair values (pursuant to
the purchase method of accounting) therefore creating a new cost basis. For
financial reporting purposes the AT&T merger is deemed to have occurred on March
1, 1999.
SUMMARY OF OPERATIONS
Liberty Group's attributed programming business is Pramer, which provides
basic programming distributed by cable, DTH satellite and other distribution
media throughout Argentina. Liberty Puerto Rico is principally engaged in
distributing cable television services to homes and businesses in Puerto Rico.
Also included in Liberty Group's financial results through October 9, 1997, are
those of Cablevision, a company engaged in the business of the construction,
acquisition, ownership and operation of cable television systems in Argentina.
Effective October 9, 1997, Liberty began accounting for its investment in
Cablevision under the equity method of accounting. To enhance the reader's
understanding, separate combined financial data has been provided below for the
periods in which they were combined for Pramer, Liberty Puerto Rico and
Cablevision due to the significance of those operations. The table sets forth,
for the periods indicated, certain financial information and the percentage
relationship that certain items bear to revenue. Liberty Group holds significant
equity investments, the results of which are not a component of operating
income, but are discussed below under "-- Investments in Affiliates Accounted
for Under the Equity Method." Other items of significance are discussed
separately below.
In order to provide a meaningful basis for comparing the six month periods
ended June 30, 2000 and 1999 and years ended December 31, 1999 and 1998 for
purposes of the following table and discussion, the operating results of Liberty
Group for the four month period ended June 30, 1999 and ten months ended
December 31, 1999 have been combined with the operating results of Liberty Group
for the two months ended February 28, 1999. Depreciation, amortization and
certain other line items included in the operating results of Liberty Group are
not comparable between periods as the four month period ended June 30, 1999 and
ten month period ended December 31, 1999 (successor periods), includes the
effects of purchase
IV-36
<PAGE> 90
accounting adjustments related to the AT&T merger, and prior periods do not. The
combining of predecessor and successor accounting periods is not permitted by
generally accepted accounting principles.
<TABLE>
<CAPTION>
LIBERTY GROUP
-------------------------------------------
SIX MONTHS SIX MONTHS
ENDED % OF ENDED % OF
JUNE 30, TOTAL JUNE 30, TOTAL
2000 REVENUE 1999 REVENUE
---------- ------- ---------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Pramer:
Revenue...................................... $36 100% $33 100%
Operating, selling, general and
administrative............................ 26 72 26 79
Depreciation and amortization................ 3 8 2 6
--- --- --- ---
Operating income.......................... $ 7 20% $ 5 15%
=== === === ===
Liberty Puerto Rico:
Revenue...................................... $24 100 $19 100%
Operating, selling, general and
administrative............................ 14 58 11 58
Depreciation and amortization................ 9 38 7 37
--- --- --- ---
Operating income.......................... $ 1 4% $ 1 25%
=== === === ===
</TABLE>
<TABLE>
<CAPTION>
LIBERTY GROUP
------------------------------------------------------------------------
YEAR ENDED % OF YEAR ENDED % OF YEAR ENDED % OF
DECEMBER 31, TOTAL DECEMBER 31, TOTAL DECEMBER 31, TOTAL
1999 REVENUE 1998 REVENUE 1997 REVENUE
------------ ------- ------------ ------- ------------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Pramer:
Revenue....................... $65 100% $17 100% $ -- --
Operating, selling, general
and administrative......... 48 74 9 53 -- --
Depreciation and
amortization............... 6 9 1 6 -- --
--- --- --- --- ---- ---
Operating income........... $11 17% $ 7 41% $ -- --
=== === === === ==== ===
Liberty Puerto Rico:
Revenue....................... $44 100% $45 100% $ 40 100%
Operating, selling, general
and administrative......... 26 59 27 60 25 63
Depreciation and
amortization............... 15 34 10 22 9 23
--- --- --- --- ---- ---
Operating income........... $ 3 7% $ 8 18% $ 6 15%
=== === === === ==== ===
Cablevision:
Revenue....................... $-- -- $-- -- $173 100%
Operating, selling, general
and administrative......... -- -- -- -- 106 61
Depreciation and
amortization............... -- -- -- -- 41 24
--- --- --- --- ---- ---
Operating income........... $-- -- $-- -- $ 26 15%
=== === === === ==== ===
</TABLE>
SIX MONTHS ENDED JUNE 30, 2000, COMPARED TO JUNE 30, 1999
CONSOLIDATED SUBSIDIARIES
Pramer. The majority of Pramer's revenue is derived from the delivery of
basic cable television programming to subscribers pursuant to affiliation
agreements between Pramer, cable operators and DTH distributors. Pramer is party
to an affiliation agreement with Cablevision, Pramer believes that the terms of
this affiliation agreement is similar to those with third parties. Pramer
generally receives payment for these services based on the number of subscribers
that receive the Pramer services.
IV-37
<PAGE> 91
Revenue increased to $36 million during the six-month period ended June 30,
2000 from $33 million during the six-month period ended June 30, 1999. This
increase is the result of increased advertising revenue and increased
distribution of programming services.
Operating, selling, general and administrative expenses were $26 million
during the six-months ended June 30, 2000 and June 30, 1999. Such expenses
stayed unchanged due to Pramer's stable and mature cost structure which allows
efficient addition of new services.
Depreciation and amortization increased to $3 million during the six-month
period ended June 30, 2000 from $2 million during the six-month period ended
June 30, 1999. This increase is the result of increased capital expenditures for
advertisement insertion equipment.
Liberty Cablevision of Puerto Rico. Liberty Puerto Rico's revenue is
derived primarily from the construction, acquisition, ownership and operation of
cable television systems in Puerto Rico.
Revenue increased to $24 million during the six-month period ended June 30,
2000 from $19 million during the six-month period ended June 30, 1999. This
increase is the result of 12% average subscriber growth for basic services,
increased penetration for premium services and rate increases.
Operating, selling, general and administrative expenses increased to $14
million during the six-months ended June 30, 2000 from $11 million during the
six-month period ended June 30, 1999. This increase was consistent with the
increase in revenue.
Depreciation and amortization increased to $9 million during the six-month
period ended June 30, 2000 from $7 million during the six-month period ended
June 30, 1999. This increase is the result of capital expenditures to rebuild or
improve the cable network for damage inflicted by Hurricane Georges in September
1998.
INTEREST EXPENSE
Interest expense was $22 million for the six months ended June 30, 2000 as
compared to $3 million and $1 million for the four months ended June 30, 1999
and the two months ended February 28, 1999, respectively. Such increase relates
to interest expense incurred on a $1.2 billion intercompany note distributed to
Liberty which was effected on May 18, 2000. Interest accrues at a 14% rate on
such note payable.
INVESTMENTS IN AFFILIATES ACCOUNTED FOR UNDER THE EQUITY METHOD
Liberty Group's shares of losses of affiliates were $209 million, $122
million and $47 million during the six month period ended June 30, 2000, the
four month period ended June 30, 1999 and the two month period ended February
28, 1999, respectively.
Telewest. Liberty Group's share of Telewest's net losses was approximately
$167 million, $97 million and $38 million during the six month period ended June
30, 2000, the four months ended June 30, 1999 and the two month period ended
February 28, 1999, respectively. The increase in Liberty Group's share of losses
in Telewest of $32 million during the six month period ended June 30, 2000 as
compared to the six month period ended June 30, 1999, is primarily due to the
acquisition of Flextech during the six-months ended June 30, 2000. In addition,
Liberty Group's share of losses of Telewest for the six month period ended June
30, 2000 and the four month period ended June 30, 1999 included $43 million and
$29 million, respectively, in amortization related to purchase accounting
adjustments associated with the AT&T merger.
Flextech. Liberty Group's share of Flextech's net losses was approximately
$18 million, $13 million and $5 million during the six month period ended June
30, 2000, the four months ended June 30, 1999 and the two month period ended
February 28, 1999, respectively. Liberty Group's share of losses in Flextech was
unchanged during the six month period ended June 30, 2000 as compared to the six
month period ended June 30, 1999, is principally because Flextech was acquired
by Telewest in April 2000.
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<PAGE> 92
Cablevision. Liberty Group's share of Cablevision's net losses was
approximately $20 million, $8 million and $3 million during the six month period
ended June 30, 2000, the four months ended June 30, 1999 and the two month
period ended February 28, 1999, respectively. The increase in Liberty Group's
share of losses in Cablevision of $9 million during the six month period ended
June 30, 2000 as compared to the six month period ended June 30, 1999, is
primarily due to declining subscriber base, increasing programming costs and
increasing interest expense.
GAIN ON SALES OF INVESTMENTS, NET
In April 2000, Telewest acquired Flextech. As a result, each share of
Flextech was exchanged for 3.78 new Telewest shares. Prior to the acquisition,
Liberty Group owned an approximate 37% equity interest in Flextech and a 22%
equity interest in Telewest. As a result of the acquisition, Liberty Group owns
an approximate 25% equity interest in Telewest. Liberty Group recognized a $649
million gain (excluding related tax expense of $227 million) on the acquisition
during the six months ended June 30, 2000 based on the difference between the
carrying value of Liberty Group's interest in Flextech and the fair value of the
Telewest shares received. At June 30, 2000, Liberty Group owned 724 million of
the issued and outstanding Telewest ordinary shares.
In May 2000, Crown Media purchased one of the Liberty Group's equity
investments in conjunction with the Crown Media initial public offering. As a
result of this transaction, Liberty Group received 9,154,930 shares of Crown
Media and realized a $9 million loss on the sale. Following the contribution and
the Crown Media initial public offering, Liberty owns approximately 16% of Crown
Media.
YEAR ENDED DECEMBER 31, 1999, COMPARED TO DECEMBER 31, 1998, COMPARED TO
DECEMBER 31, 1997
CONSOLIDATED SUBSIDIARIES
Pramer. Revenue increased to $65 million from $17 million in 1998. This
increase is the result of Liberty's Group's acquisition of Pramer on August 1,
1998. Prior to the acquisition date Pramer is not included in Liberty Group's
operations.
Operating, selling, general and administrative expenses were $48 million
and $9 million for the years ended December 31, 1999 and 1998, respectively.
These increases are due to Liberty Group's acquisition of Pramer on August 1,
1998.
Depreciation and amortization were $6 million and $1 million for the years
ended December 31, 1999 and 1998, respectively. These increases are due to
Liberty Group's acquisition of Pramer on August 1, 1998.
Liberty Cablevision of Puerto Rico. Revenue was $44 million, $45 million
and $40 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The decline in revenue of approximately 2% from 1998 to 1999 is
due to a net decrease in subscribers due to Hurricane Georges which ravaged the
island in September 1998. Liberty Puerto Rico has been in the process of
rebuilding its cable network and reconnecting subscribers that suffered outages
due to the hurricane. The increase in revenue of approximately 12% from 1997 to
1998 is primarily due to the acquisition of another Puerto Rico cable system.
Operating, selling, general and administrative expenses were $26 million,
$27 million and $25 million for the years ended December 31, 1999, 1998 and
1997, respectively. Such expenses have remained relatively consistent as a
percentage of total revenue at 59%, 60% and 63% for the years ended December 31,
1999, 1998 and 1997. This trend is consistent with the cable television industry
and the impact of the hurricane.
Depreciation and amortization was $15 million, $10 million and $9 million
for the years ended December 31, 1999, 1998 and 1997. The increase of 33% from
1998 to 1999 is due to the rebuild of Liberty Puerto Rico's cable network
following the hurricane. The increase in 1998 as compared to 1997 is due to
capital expenditures in the normal course of business.
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<PAGE> 93
Cablevision. On October 9, 1997, Liberty Group sold a portion of its 51.0%
interest in Cablevision to unaffiliated third parties for cash. Upon the
consummation of the sale, Liberty Group began accounting for its interest in
Cablevision under the equity method of accounting and accordingly the results of
operations of Cablevision were no longer included in the combined financial
results of Liberty Group.
INVESTMENTS IN AFFILIATES ACCOUNTED FOR UNDER THE EQUITY METHOD
Liberty Group's share of losses of affiliates was $317 million, $47 million
$177 million and $160 million during the ten months ended December 31, 1999, the
two months ended February 28, 1999 and the years ended December 31, 1998 and
1997, respectively.
Telewest. Liberty Group's share of Telewest's net losses was approximately
$225 million, $38 million, $135 million and $145 million during the ten months
ended December 31, 1999, the two months ended February 28, 1999 and the years
ended December 31, 1998 and 1997, respectively. Liberty Group's share of losses
for the ten months ended December 31, 1999 included $73 million in amortization
related to purchase accounting adjustments associated with the AT&T merger.
Excluding this amortization, Liberty's share of losses in Telewest for the year
ended December 31, 1999 increased by $55 million or 41% and compared to the year
ended December 31, 1998. This increase was due principally to:
- increased interest expense;
- increased depreciation and amortization expense resulting from
acquisitions; and
- increased foreign currency transaction losses.
Liberty Group's share of losses from Telewest for the year ended December
31, 1998 decreased by $10 million or 7%. This increase was due principally to
the net effect of:
- changes in foreign currency transaction losses;
- an increase in operating cash flow resulting from revenue growth; and
- an increase in interest expense.
Telewest experienced unrealized foreign currency transaction losses on its
US dollar denominated debentures resulting from the translation of the
debentures into British pounds sterling and the adjustment of a related foreign
currency option contract to market value. This accounts for much of the changes
in foreign currency transaction losses in each of the periods discussed.
Flextech. Liberty Group's share of Flextech's net losses was approximately
$41 million, $5 million, $21 million and $16 million during the ten months ended
December 31, 1999, the two months ended February 28, 1999 and the years ended
December 31, 1998 and 1997, respectively. Liberty Group's share of losses for
the ten months ended December 31, 1999 included $22 million in amortization
related to purchase accounting adjustments associated with Liberty Group's
investment in Flextech in connection with the AT&T merger. Excluding this
amortization, Liberty Group's share of losses in Flextech for the year ended
December 31, 1999 increased by $3 million or 14%, as compared to the year ended
December 31, 1998. This increase was due to increased stock compensation,
increases in Flextech's stock price, and increased losses from joint ventures.
Liberty Group's share of losses from Flextech for the year ended December
31, 1998 increased by $5 million, or 31%, over 1997 due principally to increased
losses from joint ventures.
Cablevision. Liberty Group's share of Cablevision's net losses was
approximately $28 million, $3 million, $23 million and $3 million during the ten
months ended December 31, 1999, the two months ended February 28, 1999 and the
years ended December 31, 1998 and 1997, respectively. Liberty Group's share of
losses for the ten months ended December 31, 1999 included $7 million in
amortization related to purchase accounting adjustments associated with the AT&T
merger. Excluding this amortization, Liberty's share of losses in Cablevision
for the year ended December 31, 1999 increased by $1 million or 4% and
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compared to the year ended December 31, 1998. This increase was due, in part, to
interest expense from additional borrowings in 1999.
Liberty Group's share of losses of from Cablevision for the year ended
December 31, 1998 increased by $20 million due to Cablevision being accounted
for under the equity method for the entire year in 1998 versus only three months
in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Liberty Group has no directly available sources of cash other than through
the operations of the wholly owned businesses in the Liberty Group. Liberty
Group has historically received cash contributions from Liberty to make
additional investments and or capital calls to its subsidiaries and business
affiliates. Liberty Group has no employees or operations of its own.
Flextech has undertaken to finance the working capital requirements of a
joint venture that it has formed with BBC Worldwide Limited, and is obligated to
provide this joint venture with a primary credit facility of L88 million and,
subject to certain restrictions, a standby credit facility of L30 million. As of
June 30, 2000, this joint venture had borrowed L66 million under the primary
credit facility. If Flextech defaults in its funding obligation to the joint
venture and fails to cure the default within 42 days after receipt of notice
from BBC Worldwide, BBC Worldwide is entitled, within the following 90 days, to
require that Liberty Group assumes all of Flextech's funding obligations to the
joint venture.
On May 18, 2000, the Liberty Group declared a distribution of combined
equity in the amount of $1.2 billion in the form of notes payable, secured by
the assets of the underlying investments of Liberty Group. A portion of the
notes payable, totaling $200 million, bear interest at 14% per annum, increasing
to 18% in May 2001, and mature in November 2001. The remaining notes bear
interest at 14% per annum and are due in May 2001. Interest on the notes is
payable semi-annually commencing in September 2000.
ACCOUNTING STANDARDS
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("Statement 133"), which is effective for all fiscal
years beginning after June 15, 2000. Statement 133 establishes accounting and
reporting standards for derivative instruments and hedging activities by
requiring that all derivative instruments be reported as assets or liabilities
and measured at their fair values. Under Statement 133, changes in the fair
values of derivative instruments are recognized immediately in earnings unless
those instruments qualify as hedges of the:
- fair values of existing assets, liabilities, or firm commitments;
- variability of cash flows of forecasted transactions; or
- foreign currency exposures of net investments in foreign operations.
Although Liberty's management has not completed its assessment of the impact of
Statement 133 on Liberty Group's combined results of operations and financial
position, management does not expect that the impact of Statement 133 will be
significant; however, no assurances can be given that it will not be
significant.
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LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Liberty Principal Transaction Assets Group is exposed to market risk in
the normal course of its business operations due to its investments in different
foreign countries and ongoing investing and financial activities. Market risk
refers to the risk of loss arising from adverse changes in foreign currency
exchange rates, interest rates and stock prices. The risk of loss can be
assessed from the perspective of adverse changes in fair values, cash flows and
future earnings. The Liberty Principal Transaction Assets Group has established
policies, procedures and internal processes governing its management of market
risks and the use of financial instruments to manage its exposure to such risks.
Contributions to the Liberty Principal Transaction Assets Group's foreign
affiliates are denominated in foreign currency. The Liberty Principal
Transaction Assets Group therefore is exposed to changes in foreign currency
exchange rates. Currently, the Liberty Principal Transaction Assets Group does
not hedge any foreign currency exchange risk because of the long-term nature of
its interests in foreign affiliates. The Liberty Principal Transaction Assets
Group continually evaluates its foreign currency exposure (primarily the
Argentine peso, British pound sterling and Australian dollar) based on current
market conditions and the business environment.
The Liberty Principal Transaction Assets Group is exposed to changes in
interest rates primarily as a result of its borrowing and investing activities,
which include fixed and floating rate investments and borrowings used to
maintain liquidity and fund its business operations. The nature and amount of
the Liberty Principal Transaction Assets Group's long-term and short-term debt
are expected to vary as a result of future requirements, market conditions and
other factors. As of June 30, 2000, the majority of the Liberty Principal
Transaction Assets Group's debt was composed of fixed rate debt. The fixed rate
nature of the Liberty Principal Transaction Assets Group's debt limits Liberty
Group's exposure to interest rate risk associated with rising variable interest
rates. The Liberty Principal Transaction Assets Group does, however, have
interest rate risk with respect to opportunity cost, which is measured through
changes in the fair value of debt. At June 30, 2000, the aggregate fair value of
the Liberty Principal Transaction Assets Group's debt approximates its carrying
value.
The Liberty Principal Transaction Assets Group is exposed to changes in
stock prices primarily as a result of its significant holdings in publicly
traded securities. The Liberty Principal Transaction Assets Group continually
monitors changes in stock markets, in general, and changes in the stock prices
of its significant holdings, specifically. Changes in stock prices can be
expected to vary as a result of general market conditions, technological
changes, specific industry changes and other factors. The Liberty Principal
Transaction Assets Group does not hedge any of its investment positions subject
to fluctuations in stock prices.
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<PAGE> 96
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF UNITED
The following discussion and analysis of financial condition and results of
operations covers the six months ended June 30, 2000 and 1999 (unaudited), the
year ended December 31, 1999, the ten months ended December 31, 1998 and the
year ended February 28, 1998 and should be read together with our consolidated
financial statements and the related notes thereto included elsewhere in this
proxy statement/ prospectus.
INTRODUCTION
For the six months ended June 30, 2000 and 1999, and the year ended
December 31, 1999, we consolidated the results of operations from our systems in
Austria, Belgium, Czech Republic, France, Hungary, Ireland, The Netherlands,
Norway, Poland (from August 1, 1999), Romania, Slovak Republic, Sweden (from
July 1, 1999), Australia, New Zealand (from August 1, 1999 until April 1, 2000),
Chile (from May 1, 1999), Peru and Brazil (Fortaleza). Unconsolidated systems
include our interests in certain systems in Israel, Malta, Brazil (Jundiai),
Mexico, the Philippines and China and programming interests in Spain, Australia
and Latin America. We account for these unconsolidated systems using the equity
method of accounting. Under this method, the investment, originally recorded at
cost, is adjusted to recognize our proportionate share of net earnings or losses
of the affiliate, limited to the extent of our investment in and advances to the
affiliate, including any debt guarantees or other contractual funding
commitments. Our proportionate share of net earnings or losses of each affiliate
includes the amortization of the excess of our cost over our proportionate
interest in each affiliate's net tangible assets. During the ten months ended
December 31, 1998, we consolidated certain of our Dutch systems for the period
ended July 31, 1998. Thereafter, all of our Dutch systems were accounted for
using the equity method until February 17, 1999. On December 11, 1997, we
purchased the remaining 50.0% of UPC we did not already own, and as a result
began consolidating UPC's operating results. We had historically accounted for
UPC under the equity method.
Prior to the ten months ended December 31, 1998, our fiscal year-end was
the last day of February, and we accounted for our share of the income or loss
of our operating companies based on the calendar year results of each operating
company. This created a two-month delay in reporting the operating company
results in our consolidated results for our fiscal year-end. On February 24,
1999, we changed our fiscal year-end from the last day in February to the last
day in December, effective December 31, 1998. To effect the transition to the
new fiscal year-end, the combined results of operations of the operating
companies for January and February 1998, a loss of $50.4 million, has been
reported as a one-time adjustment to our retained deficit as of March 1, 1998,
in our consolidated statement of stockholders' equity (deficit). Consequently,
the consolidated statement of operations presents the consolidated results of us
and our subsidiaries for the ten months ended December 31, 1998.
SERVICES
To date, our primary source of revenue has been video entertainment
services. We believe that an increasing percentage of our future revenues will
come from telephone and Internet/data services. Within a decade, video services
could account for half of our total revenue, as our other services increase.
These are forward-looking statements and will not be fulfilled unless our new
services grow dramatically. Our capital constraints, technological limitations,
competition, lack of programming, loss of personnel, adverse regulation and many
other factors could prevent our new services from growing as we expect. The
introduction of telephone and Internet/data services had a significant negative
impact on operating income (loss) and Adjusted EBITDA during 1999 and into 2000.
We expected this negative impact due to the high costs associated with obtaining
subscribers, branding, and launching these new services against the incumbent
operator. This negative impact is expected to decline. We intend for these new
businesses to be Adjusted EBITDA positive after two to three years following
introduction of the service, but there can be no assurance this will occur.
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<PAGE> 97
Video. Our operating systems generally offer a range of video service
subscription packages including a basic tier and an expanded basic tier. In some
systems, we also offer mini-tiers and other premium programming. Historically,
video services revenue has increased as a result of acquisitions of systems,
subscriber growth from both well established and developing systems, and
increases in revenue per subscriber from basic rate increases and the
introduction of expanded basic tiers and pay-per-view services.
Voice. Our operating systems offer a full complement of telephone services,
including caller ID, call waiting, call forwarding, call blocking, distinctive
ringing and three-way calling. In addition, we have begun to offer business
services, including dedicated leased lines, LAN interconnection services and
cable ISDN.
Data. We are in the early stages of executing our Internet/data services
business, and the profitability of both the Internet as a mass market delivery
vehicle and our business is unproven. Our expansion plans contemplate geographic
coverage across several continents, with locally tailored content and products
and services in multiple languages. chello broadband, which launched its service
in April 1999, provides high-speed Internet access and local portal and
integrated broadband content to our local operating companies and non-affiliated
operating companies through a franchise agreement. Under the franchise agreement
chello broadband provides our non-affiliated local operators with high-speed
connectivity, caching, local language broadband portals, and marketing support
for a fee based upon a percentage of subscription and installation revenue. In
the future the franchise agreement provides that the local operator will receive
a percentage of the revenue from chello broadband generated e-commerce and
advertising. The local operator is responsible for the local network including
the upgrade, management and maintenance, sales and training, customer support
and service, installation and cost of customer premise equipment. During 1999,
substantially all of chello broadband's revenues were subscription based and
derived from our local operating companies. These intercompany revenues have
been eliminated in our consolidated operating results. We believe we have an
opportunity to grow non-affiliated revenue through chello broadband in future
years, however we cannot predict whether our products and services, including
broadband Internet services in general, will become accepted or profitable in
these markets.
Programming. United's programming business provides programming for video
service providers in Europe, Latin America, Australia and New Zealand. In
addition to being provided on our systems, the programming is also sold to
non-United operators.
PRICING
Video. We usually charge a one-time installation fee when we connect video
subscribers, a monthly subscription fee that depends on whether basic or
expanded basic tier service is offered, and incremental amounts for those
subscribers purchasing pay-per-view and premium programming, which are generally
offered only to expanded basic tier subscribers.
Voice. Revenue from residential telephone usually consists of a flat
monthly line rental and a usage charge based upon minutes. Other telephone
revenue includes IP data services to the small and medium-sized business
customers, carrier select revenue as well as lease line and other business
revenue. In order to achieve high growth from early market entry, we price our
telephone service at a discount compared to services offered by incumbent
telecommunications operators. In addition, we may waive or substantially
discount our installation fees.
Data. To date, virtually all of our revenues have been derived from monthly
subscription fees. Most local operators have chosen to waive installation
charges. In the future, we expect to generate revenues from advertising and
e-commerce as we develop our portals and our digital set-top box services.
Currently, our services are offered to residential subscribers at flat
subscription fees. Our flat fee is designed to be generally lower than the costs
associated with dial-up Internet access, including the access fees and phone
charges with dial-up access. For business subscribers to services other than our
standard broadband Internet access services, we generally agree on the pricing
with local operators on a case-by-case basis, depending on the size and capacity
requirements of the businesses.
Programming. We charge video service providers a per-subscriber fee for our
programming channels.
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<PAGE> 98
COSTS OF OPERATIONS
Video. Operating costs include the direct costs of programming, franchise
fees and operating expenses necessary to provide the service to the subscriber.
Direct costs of programming are variable, based on the number of subscribers.
The cost per subscriber is established by negotiation between us and the program
supplier or rates negotiated by cable associations. Franchise fees, where
applicable, are typically based upon a percentage of revenue. Other direct
operating expenses include operating personnel, service vehicles, maintenance
and plant electricity. Selling, general and administrative expenses include
personnel-related costs such as stock-based compensation expenses, marketing,
sales and commissions, legal and accounting, office facilities and other
overhead costs.
Voice. Operating costs include interconnect costs, number portability fees,
network operations, customer operations and customer care. Interconnect costs
are variable based upon usage as determined through negotiated interconnect
agreements. Selling, general and administrative expenses include branding,
marketing and customer acquisition costs, personnel-related costs such as
stock-based compensation expense, legal and accounting, human resources, office
facilities and other overhead costs.
Data. Operating costs consist primarily of leased-line and network
development and management costs, as well as portal design and development,
local connectivity costs, help desk and customer care costs. Stock-based
compensation expenses related to operations personnel are also part of our
operating costs. Selling, general and administrative expenses include branding,
customer acquisition costs, personnel-related costs, legal and accounting,
office facilities and other overhead.
Programming. Operating costs include the costs of programming rights,
production costs and distribution costs, including transponder fees and
operating costs. A significant portion of these costs are fixed in nature
through contractual commitments. Selling, general and administrative expenses
include marketing and subscription acquisition costs, legal and accounting,
office facilities and other overhead costs.
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<PAGE> 99
RESULTS OF OPERATIONS
The following table sets forth information from our major consolidated
operating systems for each of the three years ended December 31, 1999, 1998 and
1997 and the six month periods ended June 30, 2000 and 1999 (all amounts in U.S.
dollars):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------ -------------------------------
2000 1999 1999 1998 1997
----------- ---------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
UPC Revenue:
Video................................ $ 286,335 $142,734 $ 384,397 $189,863 $164,323
Telephone............................ 74,811 11,190 42,606 267 --
Internet/Data........................ 31,378 7,758 26,506 4,756 392
Programming and DTH.................. 23,995 1,165 12,029 677 51
Other................................ 2,920 887 7,884 9,955 8,181
--------- -------- --------- -------- --------
Total UPC Revenue............ $ 419,439 $163,734 $ 473,422 $205,518 $172,947
========= ======== ========= ======== ========
UPC Adjusted EBITDA:
Video................................ $ 107,264 $ 64,107 $ 124,010 $ 84,828 $ 67,979
Telephone............................ (47,399) (13,817) (44,810) (5,813) --
Internet/Data........................ (88,057) (24,961) (81,179) (12,493) 197
Programming and DTH.................. (51,147) (11,795) (81,496) (5,061) (5,914)
Other................................ (50,218) (5,479) (40,534) (5,463) (8,677)
--------- -------- --------- -------- --------
Total UPC Adjusted
EBITDA(1).................. $(129,557) $ 8,055 $(124,009) $ 55,998 $ 53,585
========= ======== ========= ======== ========
Austar United Revenue:
Video................................ $ 83,381 $ 64,820 $ 142,452 $ 85,199 $ 63,848
Telephone............................ 3,166 -- -- -- --
Internet/Data and other.............. 2,344 -- -- -- --
--------- -------- --------- -------- --------
Total Austar United
Revenue.................... $ 88,891 $ 64,820 $ 142,452 $ 85,199 $ 63,848
========= ======== ========= ======== ========
Austar United Adjusted EBITDA:
Video................................ $ 2,969 $ (1,441) $ (7,687) $(23,129) $(19,220)
Telephone............................ (483) -- -- -- --
Internet/Data and other.............. (13,017) (3,525) -- -- --
--------- -------- --------- -------- --------
Total Austar United Adjusted
EBITDA(1).................. $ (10,531) $ (4,966) $ (7,687) $(23,129) $(19,220)
========= ======== ========= ======== ========
VTR Revenue:
Video................................ $ 58,188 $ 55,963 $ 113,004 $116,488 $114,423
Telephone............................ 13,813 5,061 14,467 2,516 263
Internet/Data........................ 242 -- -- -- --
--------- -------- --------- -------- --------
Total VTR Revenue............ $ 72,243 $ 61,024 $ 127,471 $119,004 $114,686
========= ======== ========= ======== ========
VTR Adjusted EBITDA:
Video................................ $ 19,887 $ 12,436 $ 27,725 $ 30,763 $ 23,687
Telephone............................ (5,692) (438) (4,388) (2,741) (1,687)
Internet/Data........................ (929) -- -- -- --
Other................................ (4,528) (1,024) (2,048) -- --
--------- -------- --------- -------- --------
Total VTR Adjusted
EBITDA(1).................. $ 8,738 $ 10,974 $ 21,289 $ 28,022 $ 22,000
========= ======== ========= ======== ========
</TABLE>
---------------
(1) "Adjusted EBITDA" represents net operating earnings before depreciation,
amortization and stock-based compensation charges. Stock-based compensation
charges result from variable plan accounting for our subsidiaries' phantom
stock option plans and are generally non-cash charges. Industry analysts
generally consider Adjusted EBITDA to be a helpful way to measure the
performance of cable television operations and communications companies.
Adjusted EBITDA should not, however, be
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<PAGE> 100
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.
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>
AUSTRALIAN
EURO DOLLAR CHILEAN PESO
------ ---------- ------------
<S> <C> <C> <C>
Average rate first six months of 2000................. 1.0372 1.6442 516.5963
Average rate first six months of 1999................. 0.9190 1.5489 487.5346
Average rate 1999..................................... 0.9528 1.5488 507.8951
Average rate 1998..................................... 0.9030 1.6102 N/A
Average rate 1997..................................... 0.8849 1.3584 N/A
</TABLE>
COMPARISON OF THE FIRST SIX MONTHS OF 2000 TO THE FIRST SIX MONTHS OF 1999
REVENUE
United's revenue increased $330.5 million, or 130.2%, from $253.9 million
for the six months ended June 30, 1999 to $584.4 million for the six months
ended June 30, 2000.
Europe. Revenue for UPC in U.S. dollar terms increased $255.7 million, or
156.2% from $163.7 million for the six months ended June 30, 1999 to $419.4
million for the six months ended June 30, 2000, despite a 12.9% devaluation of
the Euro to the U.S. dollar from period to period. The increase in video revenue
resulted primarily from UPC's acquisitions. The increase in video revenue
attributable to acquisitions totaled 92.9% of the total increase. Of this
increase, acquisitions in The Netherlands represent 35.0%, acquisitions in
France represent 22.8%, the acquisition in Poland represents 23.0% and the
acquisition in Sweden represents 10.6%. The remaining increase in video revenue
came from subscriber growth, increased revenue per subscriber in Austria,
Norway, UPC's existing system in France, and UPC's systems in Eastern Europe.
The increase in UPC's telephone revenue is primarily due to the launch of local
telephone services, under the brand name Priority Telecom, in UPC's Austrian,
Dutch, French and Norwegian systems. In addition, UPC began consolidating
telephone revenue from its acquisitions of A2000 (September 1999) and Monor
(December 1999). The increase in UPC's Internet/data services revenue is
primarily due to the launch of chello broadband in April 1999. During the second
quarter of 1999, UPC launched chello broadband on the upgraded portion of its
networks in Austria, Belgium, France, the Netherlands (with the exception of
A2000) and Norway. UPC launched chello broadband at A2000 (Netherlands) as well
as in Sweden in the fourth quarter of 1999. The increase in UPC's Programming
and DTH revenue from period to period is primarily due to the acquisition of
@Entertainment in August 1999.
Asia/Pacific. Austar United's revenue increased $24.1 million, or 37.2%,
from $64.8 million for the six months ended June 30, 1999 to $88.9 million for
the six months ended June 30, 2000, despite a 6.2% devaluation of the Australian
dollar to the U.S. dollar from period to period. The increase in video revenue
from period to period was primarily due to Austar United's subscriber growth as
well as growth in premium tiers, resulting in an average revenue per subscriber
of $33.67 for the six months ended June 30, 2000, compared to $32.48 for the
same period in the prior year.
Latin America. Revenue for VTR in U.S. dollar terms increased $11.2
million, or 18.4% from $61.0 million for the six months ended June 30, 1999 to
$72.2 million for the six months ended June 30, 2000, despite a 6.0% devaluation
of the Chilean peso to the U.S. dollar from period to period. The increase in
telephone revenue of $8.8 million for the six months ended June 30, 2000
compared to the prior year resulted from telephone subscriber growth as well as
an increase in average monthly revenue per
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subscriber for telephone service from $26.21 for the six months ended June 30,
1999 to $28.61 for the same period in the current year. Video revenue increased
a modest $2.2 million for the six months ended June 30, 2000 because of
increased churn and lower sales volume than expected for its video service due
to an economic recession in Chile and increased competition. The number of
subscribers increased slightly from 391,021 as of June 30, 1999 to 394,119 as of
June 30, 2000. The average monthly revenue per subscriber for video was $24.61
for the six months ended June 30, 2000 compared to $23.85 for the same period in
the prior year.
ADJUSTED EBITDA
United's Adjusted EBITDA decreased $138.4 million during the six months
ended June 30, 2000 compared to the six months ended June 30, 1999.
Europe. Adjusted EBITDA for UPC in U.S. dollar terms decreased $137.7
million, from $8.1 million for the six months ended June 30, 1999 to negative
$129.6 million for the six months ended June 30, 2000. Video EBITDA increased
67.3% for the six months ended June 30, 2000 compared to the same period in the
prior year, while video revenue increased 100.6%. As a percentage of revenue,
video operating and SG&A expense increased 7.5% from 55.0% for the six months
ended June 30, 1999 to 62.5% for the six months ended June 30, 2000. This
increase was primarily due to higher operating costs as a percentage of revenue
for systems UPC acquired during 1999. UPC expects to reduce this percentage in
future years as the new acquisitions are integrated and through other operating
efficiencies. UPC's negative Adjusted EBITDA from its local telephone services
was due to the recent launch of Priority Telecom in its Austrian, Dutch, French
and Norwegian systems. In order to achieve high growth from early market entry,
UPC prices its telephone service at a discount compared to services offered by
incumbent telecommunications operators. UPC may also waive or discount
installation fees. UPC's significant negative Adjusted EBITDA from its
Internet/data service was due to the launch of chello broadband on the upgraded
portion of its networks in Austria, Belgium, France, The Netherlands (with the
exception of A2000) and Norway in the second quarter of 1999. UPC launched
chello broadband in A2000 and Sweden in the fourth quarter of 1999. Subsequent
to UPC's acquisition of @Entertainment in August 1999, UPC began to restructure
the Polish DTH and programming businesses by separating them into two business
lines. UPC has incurred significant start-up and restructuring costs related to
this endeavor. UPC expects to incur additional operating losses related to its
programming and DTH businesses for the next two years, while UPC develops and
expands its subscriber base.
Asia/Pacific. Austar United's Adjusted EBITDA loss increased by $5.5
million, or 110.0%, from negative $5.0 million for the six months ended June 30,
1999 to negative $10.5 million for the six months ended June 30, 2000. This
increase in Adjusted EBITDA loss was primarily due to the increased expenses
associated with the launch of Austar United Broadband's Internet business. The
Adjusted EBITDA loss for video improved by $4.4 million for the six months ended
June 30, 2000 compared to the same period in the prior year. Austar's
incremental sales growth was partially offset by increased programming costs as
subscribers increased and the Australian dollar weakened against the U.S.
dollar, as well as by increased marketing costs due to a push for improved brand
name awareness in the marketplace during the second quarter. The Adjusted EBITDA
loss for the Internet business increased to $6.6 million for the six months
ended June 30, 2000 compared to nil in the prior year as Austar United Broadband
rolls out its broadband Internet services.
Latin America. VTR's Adjusted EBITDA in U.S. dollar terms decreased $2.3
million, or 20.9% from $11.0 million for the six months ended June 30, 1999 to
$8.7 million for the six months ended June 30, 2000. The overall decrease was
due primarily to an increase in management fees of $3.5 million for the six
months ended June 30, 2000 compared to the prior period, as we began
consolidating VTR. VTR's Adjusted EBITDA from its video business increased for
the six months ended June 30, 2000 compared to the prior period as modest price
increases exceeded expenses. Although revenues from telephone services increased
significantly from the comparable period in 1999, development expenses of this
new business continue to exist. VTR expects these operating and selling, general
and administrative expenses as a
IV-48
<PAGE> 102
percentage of telephone revenue to decline in future periods because development
costs in general will taper off and certain costs have already been incurred and
are fixed in relation to subscriber volumes.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE
United's corporate general and administrative expense decreased $76.1
million from $85.1 million for the six months ended June 30, 1999 to $9.0
million for the six months ended June 30, 2000. This decrease was primarily
attributable to a stock-based compensation credit of $0.7 million for the six
months ended June 30, 2000 compared to a charge $66.4 million for the same
period in 1999. These plans include the UPC phantom stock option plan, the
chello broadband phantom stock option plan, the Austar United stock option plan,
the ULA phantom stock option plan and the VTR phantom stock option plan, which
continue to require variable plan accounting. Under this method of accounting,
increases in the fair market value of these shares result in non-cash
compensation charges to the statement of operations for vested options, while
decreases in the fair market value of these shares will cause a reversal of
previous charges taken.
DEPRECIATION AND AMORTIZATION
United's depreciation and amortization expense increased $225.7 million
during the six months ended June 30, 2000 compared to the six months ended June
30, 1999, as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Europe...................................................... $277,735 $ 73,099
Asia/Pacific................................................ 54,798 49,945
Latin America............................................... 25,492 9,411
Corporate and other......................................... 752 622
-------- --------
Total depreciation and amortization expense....... $358,777 $133,077
======== ========
</TABLE>
Europe. UPC's depreciation and amortization expense in U.S. dollar terms
increased $204.6 million, from $73.1 million for the six months ended June 30,
1999 to $277.7 million for the six months ended June 30, 2000. The increase
resulted primarily from acquisitions completed during 1999 in The Netherlands
and Poland, as well as additional depreciation related to additional capital
expenditures to upgrade the network in UPC's Western European systems and
new-build for developing systems.
Asia/Pacific. Depreciation and amortization expense for Austar United
increased $4.3 million, or 8.6%, from $49.9 million for the six months ended
June 30, 1999 to $54.2 million for the six months ended June 30, 2000. On a
functional currency basis, Austar United's depreciation and amortization expense
increased A$11.5 million, from A$77.5 million to A$89.0 million for the same
period, a 14.8% increase. This increase is primarily due to Saturn being
consolidated for the first quarter 2000 and reported under the equity method
during the first six months in 1999.
Latin America. The increase in the six months ended June 30, 2000 is due to
consolidating the results of operations of VTR effective May 1, 1999.
GAIN ON ISSUANCE OF COMMON EQUITY SECURITIES BY SUBSIDIARIES
During February 1999, UPC successfully completed an initial public offering
selling 133.8 million shares on the Amsterdam Stock Exchange and Nasdaq, raising
gross and net proceeds at $10.93 per share of $1,463.0 million and $1,364.1
million, respectively. Concurrent with the offering, a third party exercised an
option and acquired approximately 4.7 million 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
IV-49
<PAGE> 103
UPC, in accordance with SAB 51. In March 2000, Austar United successfully priced
a second public offering selling 20.0 million shares on the Australian Stock
Exchange, raising gross and net proceeds at $5.20 per share of $104.0 million
and $102.4 million, respectively. Based on the carrying value of our investment
in Austar United as of March 29, 2000, we recognized a gain of $66.8 million
from the resulting step-up in the carrying amount of our investment in Austar
United, in accordance with SAB 51. We recorded an additional gain in accordance
with SAB 51 of $6.8 million related to the UPC France transaction in February
2000. No deferred taxes were recorded related to these gains due to our intent
on holding our investment in UPC and Austar United indefinitely.
INTEREST INCOME
United's interest income increased during the six months ended June 30,
2000 compared to the corresponding period in the prior year due to higher cash
balances related to the issuance of new debt and equity in late 1999.
INTEREST EXPENSE
United's interest expense increased $299.0 million, from $118.5 million
during the six months ended June 30, 1999 to $417.5 million during the six
months ended June 30, 2000. This increase was primarily due to the $4.1 billion
of senior notes and senior discount notes issued by UPC from July 1999 through
January 2000, as well as continued accretion of interest on United's $1,375.0
million aggregate principal amount 1998 senior notes and United's 1999 senior
notes.
FOREIGN CURRENCY EXCHANGE LOSS
United's foreign currency exchange loss increased $103.9 million from $20.2
million for the six months ended June 30, 1999 to $124.1 million for the six
months ended June 30, 2000. This increase was primarily due to UPC, which has
bond and notes payable that are denominated in U.S. dollars.
MINORITY INTERESTS IN SUBSIDIARIES
United's minority interests' share of losses increased $326.7 million from
$74.9 million for the six months ended June 30, 1999 to $401.6 million for the
six months ended June 30, 2000. The initial public offerings of UPC (February
1999) and Austar United (July 1999) and other share issuances have reduced our
ownership from 100% and 98.0% as of December 31, 1998 to 53.0% and 72.3% as of
June 30, 2000 for UPC and Austar United, respectively. For accounting purposes
we continue to consolidate 100% of the results of operations of UPC and Austar
United, then deduct the minority interests' share of income (loss) before
arriving at net income (loss). Of the total increase for the six months ended
June 30, 2000, $305.6 million related to UPC and $21.2 million related to Austar
United.
IV-50
<PAGE> 104
SHARE IN RESULTS OF AFFILIATED COMPANIES
Our share in results of affiliates totaled $39.9 million and $31.6 million
for the six months ended June 30, 2000 and 1999, respectively, as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
United Europe:
A2000(1).................................................. $ -- $(12,813)
UTH(2).................................................... -- (2,757)
Hungary................................................... -- (111)
Tevel..................................................... (3,378) (1,830)
Melita.................................................... (474) (167)
Monor..................................................... -- 851
Iberian Programming....................................... 1,979 --
SBS....................................................... (11,397) --
PrimaCom.................................................. (10,993) --
Other..................................................... (5,890) 304
-------- --------
(30,153) (16,523)
-------- --------
United Asia/Pacific:
Saturn(3)................................................. (7,787) (3,582)
XYZ Entertainment......................................... (414) (4,393)
Pilipino Cable Corporation................................ 56 (64)
Hunan International TV.................................... 487 201
Other..................................................... (165) --
-------- --------
(7,823) (7,838)
-------- --------
United Latin America:
VTR(4).................................................... -- (3,963)
Megapo.................................................... (683) 238
MGM Networks LA........................................... (1,398) (3,646)
Jundiai................................................... 116 124
-------- --------
(1,965) (7,247)
-------- --------
Total share in results of affiliated companies.... $(39,941) $(31,608)
======== ========
</TABLE>
---------------
(1) Effective September 1, 1999, we increased our ownership interest in A2000
from 50.0% to 100% and began consolidating its results of operations.
(2) Effective February 1, 1999 we increased our ownership interest in UTH from
51.0% to 100% and began consolidating its results of operations.
(3) Effective January 1, 1998, we discontinued consolidating the results of
operations of Saturn and returned to the equity method of accounting due to
certain minority shareholder's rights. Effective August 1, 1999, we
increased our ownership interest in Saturn to 100% and began consolidating
its results of operations. Effective April 1, 2000 we discontinued
consolidating the results of operations of Saturn and returned to the equity
method of accounting due to the joint venture with Telstra.
(4) Effective May 1, 1999, we increased our ownership interest in VTR to 100%
and began consolidating its results of operations.
IV-51
<PAGE> 105
COMPARISON OF FISCAL YEARS 1999, 1998 AND 1997
REVENUE
United's revenue increased $465.5 million, or 183.2%, during the year ended
December 31, 1999 and increased $155.4 million, or 157.6% during the ten months
ended December 31, 1998, the detail of which is as follows:
<TABLE>
<CAPTION>
FOR THE TEN
FOR THE YEAR ENDED MONTHS ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 FEBRUARY 28 1998
------------------ ----------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Europe............................. $473,422 $172,287 $ 9,996
Asia/Pacific....................... 150,932 77,269 68,961
Latin America...................... 94,893 4,512 19,244
Corporate and Other................ 277 -- 421
-------- -------- -------
Total revenue............ $719,524 $254,068 $98,622
======== ======== =======
</TABLE>
Europe. Revenue for UPC in U.S. dollar terms increased $267.9 million, or
130.4%, from $205.5 million for the year ended December 31, 1998 to $473.4
million for the year ended December 31, 1999, despite a 5.5% devaluation of the
euro to the U.S. dollar. On a functional currency basis, UPC's revenue increased
E261.9 million, or 141.1%, from E185.6 million for the year ended December 31,
1998 to E447.5 million for the year ended December 31, 1999, primarily due to an
increase in cable television revenue of E191.9 million. The increase in cable
television revenue attributable to acquisitions made during 1999 totaled E160.8
million, or 83.8% of the total increase. Of this increase, acquisitions in the
Netherlands represent 59.3%, acquisitions in France represent 12.7%, the
acquisition in Poland represents 15.8% and acquisitions in Sweden and other
represent 12.2%. The remaining increase in cable television revenue of
approximately 16.2% came from subscriber growth, increased revenue per
subscriber in Austria, Norway, UPC's existing system in France, and UPC's
systems in Eastern Europe and the inclusion of a full year of operations in 1999
for acquisitions completed in 1998. UPC's telephone revenue increased E40.1
million to E40.3 million for the year ended December 31, 1999 from E0.2 million
for the year ended December 31, 1998. During 1999, we launched local telephone
services, under the brand name Priority Telecom, in our Austrian, Dutch, French
and Norwegian systems. In addition, A2000, which we consolidated effective
September 1, 1999, had an existing telephone service from July 1997. UPC's
Internet/data services revenue increased E20.8 million to E25.1 million for the
year ended December 31, 1999 from E4.3 million for the year ended December 31,
1998. The increase is primarily due to the launch of residential and business
cable-modem high-speed Internet access services. During the second quarter of
1999, we launched chello broadband on the upgraded portion of our networks in
Austria, Belgium, France, the Netherlands (with the exception of A2000) and
Norway. We launched chello broadband in A2000 and Sweden in the fourth quarter
of 1999. Internet/data services revenue from 1998 primarily relates to revenue
from Austria, Belgium and Norway, which provided Internet access service from
1997.
Revenue for UPC in U.S. dollar terms increased $32.5 million, or 18.8%,
from $173.0 million for the year ended December 31, 1997 to $205.5 million for
the year ended December 31, 1998. On a functional currency basis, UPC's revenue
increased E32.6 million, or 21.3%, from E153.0 million for the year ended
December 31, 1997 to E185.6 million for the year ended December 31, 1998,
primarily due to an increase in cable television revenue of E26.0 million. The
increase in cable television revenue resulted primarily from the acquisition of
Combivisie in January 1998 which was consolidated through July 31, 1998 (21.6%)
and the consolidation of Telekabel Hungary effective July 1, 1998 (48.5%). The
remaining increase in cable television revenue came from subscriber growth and
in revenue per subscriber in Austria, Norway, our existing system in France, and
our systems in Eastern Europe.
United began consolidating the results of UPC effective December 11, 1997.
Accordingly, we recorded $9.9 million of revenue from UPC during the three weeks
ended December 31, 1997.
IV-52
<PAGE> 106
Asia/Pacific. Revenue for Austar United in U.S. dollar terms increased
$57.3 million, or 67.3%, from $85.2 million for the year ended December 31, 1998
to $142.5 million for the year ended December 31, 1999, including a positive
impact of $4.3 million due to exchange rate fluctuations. On a functional
currency basis, Austar United's revenue increased A$84.4 million, or 62.0%, from
A$136.1 million for the year ended December 31, 1998 to A$220.5 million for the
year ended December 31, 1999. This increase was primarily due to subscriber
growth (381,763 at December 31, 1999 compared to 288,721 at December 31, 1998)
and increased average monthly revenue per subscriber as Austar United continues
to expand the content of its television service. The average monthly revenue per
subscriber increased A$6.71 ($4.40) from an average per subscriber of A$47.00
($30.83) for the year ended December 31, 1998 to an average of A$53.71 ($35.23)
per subscriber for the year ended December 31, 1999, a 14.3% increase.
Revenue for Austar United in U.S. dollar terms increased $21.4 million, or
33.5%, from $63.8 million for the year ended December 31, 1997 to $85.2 million
for the year ended December 31, 1998, despite a negative impact of $15.0 million
due to exchange rate fluctuations. On a functional currency basis, Austar
United's revenue increased A$49.6 million, from A$86.5 million for the year
ended December 31, 1997 to A$136.1 million for the year ended December 31, 1998,
a 57.3% increase. This increase was primarily due to subscriber growth (288,721
at December 31, 1998 compared to 196,205 at December 31, 1997) as Austar United
continued to roll-out its services.
Latin America. United began consolidating the results of operations of VTR
effective May 1, 1999. Revenue for VTR in U.S. dollar terms increased $8.5
million, or 7.1%, from $119.0 million for the year ended December 31, 1998 to
$127.5 million for the year ended December 31, 1999, despite a 12.1% devaluation
in the Chilean peso to the U.S. dollar. The increase in revenue primarily
resulted from telephony subscriber growth volume (66,718 at December 31, 1999
compared to 20,985 at December 31, 1998). The average monthly revenue per
subscriber for telephony service was $18.07 for the year ended December 31,
1999, compared to $10.00 for the year ended December 31, 1998. VTR experienced
increased churn and lower sales volume than expected for its multi-channel
television service during the year ended December 31, 1999 due to an economic
recession in Chile and increased competition. The number of subscribers
decreased from 393,851 as of December 31, 1998 to 386,967 as of December 31,
1999. The average monthly revenue per subscriber for multi-channel television
was $24.34 for the year ended December 31, 1999, compared to $24.67 for the year
ended December 31, 1998.
Revenue for CableStar in U.S. dollar terms increased $1.4 million, or
93.3%, from $1.5 million for the year ended December 31, 1997 to $2.9 million
for the year ended December 31, 1998. The remainder of Latin America's revenue
for the year ended December 31, 1998 was attributable to our system in Brazil.
We consolidated the results of Bahia Blanca effective November 1, 1996
through August 31, 1997. Bahia Blanca's revenue, consisting primarily of service
fees, was $17.6 million through the eight months ended August 31, 1997. The
remainder of Latin America's revenue for the year ended December 31, 1997 was
attributable to our systems in Peru.
IV-53
<PAGE> 107
ADJUSTED EBITDA
Adjusted EBITDA decreased $124.2 million during the year ended December 31,
1999, and increased $54.4 million during the ten months ended December 31, 1998,
the detail of which is as follows:
<TABLE>
<CAPTION>
FOR THE TEN
FOR THE YEAR MONTHS FOR THE YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Europe............................................ $(124,009) $ 42,608 $ (9,204)
Asia/Pacific...................................... (11,141) (33,380) (37,962)
Latin America..................................... 6,859 (10,264) (8,278)
Corporate and Other............................... 109 (2,907) (2,921)
--------- -------- --------
Total Adjusted EBITDA................... $(128,182) $ (3,943) $(58,365)
========= ======== ========
</TABLE>
Europe. Adjusted EBITDA for UPC in U.S. dollar terms decreased $180.1
million from $56.0 million for the year ended December 31, 1998 to negative
$124.1 million for the year ended December 31, 1999, despite a 5.5% devaluation
of the euro to the U.S. dollar. On a functional currency basis, UPC's Adjusted
EBITDA decreased E170.4 million from E50.6 million for the year ended December
31, 1998 to negative E119.8 million for the year ended December 31, 1999,
primarily due to the continued introduction of its telephone and Internet/data
services businesses. In addition, as a percentage of revenue, operating expense
for cable television increased 6.9% from 32.5% for the year ended December 31,
1998 to 39.4% for the year ended December 31, 1999. This increase is primarily
due to higher operating costs as a percentage of revenue for systems we acquired
during 1999. As a percentage of revenue, operating expenses in our new
acquisitions was approximately 38.3%. We expect to reduce this percentage in
future years through revenue growth and operating efficiencies. UPC expects to
incur substantial operating losses related to its programming and DTH businesses
for the next two years, while UPC develops and expands its subscriber base.
During the year ended December 31, 1999, UPC's significant negative Adjusted
EBITDA from its local telephone services was due to the recent launch of
Priority Telecom in its Austrian, Dutch, French and Norwegian systems. During
the year ended December 31, 1999, UPC's significant negative Adjusted EBITDA
from its Internet/data service was due to the launch of chello broadband on the
upgraded portion of its networks in Austria, Belgium, France, The Netherlands
(with the exception of A2000) and Norway in the second quarter. UPC launched
chello broadband in A2000 and Sweden in the fourth quarter of 1999.
Adjusted EBITDA for UPC in U.S. dollar terms increased $2.4 million from
$53.6 million for the year ended December 31, 1997 to $56.0 million for the year
ended December 31, 1998. On a functional currency basis, UPC's Adjusted EBITDA
increased E3.2 million from E47.4 million for the year ended December 31, 1997
to E50.6 million for the year ended December 31, 1998. Adjusted EBITDA for cable
television increased as a percentage of revenue from 1997 to 1998 primarily due
to lower operating costs as a percentage of revenue for systems UPC acquired in
1998. This was offset by negative Adjusted EBITDA from telephone services due to
the launch in several markets in 1998.
Asia/Pacific. Austar United's Adjusted EBITDA loss improved by $15.4
million, or 66.7%, from negative $23.1 million for the year ended December 31,
1998 to negative $7.7 million for the year ended December 31, 1999, including a
negative impact of $0.2 million due to exchange rate fluctuations. On a
functional currency basis, Austar United's Adjusted EBITDA loss improved by
A$26.1 million from negative A$38.0 million for the year ended December 31, 1998
to negative A$11.9 million for the year ended December 31, 1999, a 68.7%
improvement. The improvement in Adjusted EBITDA loss for the comparable periods
from year to year is primarily due to Austar United achieving incremental sales
growth while keeping certain costs fixed, such as the National Customer
Operations Center (NCOC), corporate management staff and media-related marketing
costs.
IV-54
<PAGE> 108
Austar United's Adjusted EBITDA loss increased $3.9 million, or 20.3%, from
negative $19.2 million for the year ended December 31, 1997 to negative $23.1
million for the year ended December 31, 1998, including a positive impact of
$4.8 million due to exchange rate fluctuations. On a functional currency basis,
Austar United's Adjusted EBITDA loss increased A$12.0 million from negative
A$26.0 million for the year ended December 31, 1997 to negative A$38.0 million
for the year ended December 31, 1998, a 46.2% increase. Although revenue
increased compared to the same periods in the prior year, increases in operating
expense and selling, general and administrative expense outpaced the revenue
increase, primarily due to higher short-term programming costs in connection
with the receivership of Australis, Austar United's previous programming
supplier, and the subsequent May 1998 joint venture with Optus Vision, as well
as increases in salaries and benefits for additional personnel necessary to
support the growth of Austar United's NCOC.
Latin America. We began consolidating the results of operations of VTR
effective May 1, 1999. VTR's Adjusted EBITDA in U.S. dollar terms decreased $4.7
million, or 16.8%, from $28.0 million for the year ended December 31, 1998 to
$23.3 million for the year ended December 31, 1999, partly due to a 12.1%
devaluation in the Chilean peso to the U.S. dollar. Although revenue increased
compared to the same periods in the prior year, increases in operating expense
and selling, general and administrative expense outpaced the revenue increases,
primarily due to the focus on the continued development of VTR's telephone
services and an increase in senior management personnel hired from the former
shareholders of VTR.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSE
United's corporate general and administrative expense increased $123.5
million from $194.8 million for the ten months ended December 31, 1998 to $318.3
million for the year ended December 31, 1999, and increased $166.2 million from
$28.6 million for the year ended February 28, 1998 to $194.8 million for the ten
months ended December 31, 1998. This increase from 1998 to 1999 was primarily
attributable to a stock-based compensation charge of $202.2 million from UPC's
phantom stock option plans for the year ended December 31, 1999, compared to
$162.1 million for the ten months ended December 31, 1998, as well as a full
year of results compared to ten months. These plans include the UPC phantom
stock option plan and the chello broadband phantom stock option plan, which
continue to require variable plan accounting. Under this method of accounting,
increases in the fair market value of these shares result in non-cash
compensation charges to the statement of operations for vested options. In
addition, UAP and Austar United recorded a total of $22.5 million of non-cash
stock-based compensation expense for the year ended December 31, 1999 compared
to nil for the year ended December 31, 1998. The increase in the ten months
ended December 31, 1998 compared to the year ended February 28, 1998 was
primarily due to stock-based compensation expense totaling $164.8 million,
$162.1 million of which was attributable to UPC's stock option plans. Corporate
general and administrative expense also increased due to the consolidation of
UPC effective December 11, 1997. These increases were offset by reporting ten
months of results in the transition period compared to twelve in the prior year,
as well as the non-recurrence of certain prior year charges.
IV-55
<PAGE> 109
DEPRECIATION AND AMORTIZATION
United's depreciation and amortization expense increased $259.7 million
during the year ended December 31, 1999 and $67.4 million during the ten months
ended December 31, 1998, the detail of which is as follows:
<TABLE>
<CAPTION>
FOR THE TEN
FOR THE YEAR MONTHS FOR THE YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Europe............................................ $280,442 $ 76,550 $ 6,343
Asia/Pacific...................................... 104,723 79,746 80,802
Latin America..................................... 32,142 1,637 3,503
Corporate and other............................... 1,407 1,112 1,008
-------- -------- -------
Total depreciation and amortization
expense............................... $418,714 $159,045 $91,656
======== ======== =======
</TABLE>
Europe. UPC's depreciation and amortization expense in U.S. dollars
increased $186.1 million, or 197.3%, from $94.3 million for the year ended
December 31, 1998 to $280.4 million for the year ended December 31, 1999,
including a positive impact from the 5.5% devaluation of the euro to the U.S.
dollar. On a functional currency basis, UPC's depreciation and amortization
expense increased E180.9 million, or 212.3%, from E85.2 million for the year
ended December 31, 1998 to E266.1 million for the year ended December 31, 1999.
This increase resulted primarily from acquisitions completed during 1999 in the
Netherlands and Poland, as well as additional depreciation related to additional
capital expenditures to upgrade the network in our Western European systems and
new-build for developing systems.
Depreciation and amortization expense for UPC in U.S. dollar terms
increased $26.1 million, or 38.3%, from $68.2 million for the year ended
December 31, 1997 to $94.3 million for the year ended December 31, 1998. On a
functional currency basis, UPC's depreciation and amortization expense increased
E24.9 million to E85.2 million from E60.3 million for the year ended December
31, 1997, a 41.3% increase. Of this increase, E11.9 million was attributable to
the application of push-down accounting, including goodwill created in
connection with the acquisition of UPC on December 11, 1997. The remaining
increase comprised of additional depreciation related to the acquisitions of
Combivisie and Telekabel Hungary, additional capital expenditures to upgrade the
network in our Western European systems and new-build for developing systems.
We began consolidating the results of UPC effective December 11, 1997.
Accordingly, we recorded $6.1 million of depreciation and amortization expense
from UPC during the year ended February 28, 1998.
Asia/Pacific. Depreciation and amortization expense for Austar United
increased $2.2 million, or 2.3%, from $95.4 million for the year ended December
31, 1998 to $97.6 million for the year ended December 31, 1999, including a
negative impact of $2.8 million due to exchange rate fluctuations. On a
functional currency basis, Austar United's depreciation and amortization expense
increased A$3.9 million, from A$143.0 million for the year ended December 31,
1998 to A$146.9 million for the year ended December 31, 1999, a 2.7% increase.
Depreciation and amortization expense for Austar United in U.S. dollar
terms increased $18.5 million, or 24.1%, from $76.9 million for the year ended
December 31, 1997 to $95.4 million for the year ended December 31, 1998,
including a positive impact of $15.2 million due to exchange rate fluctuations.
On a functional currency basis, Austar United's depreciation and amortization
expense increased A$43.4 million, from A$99.6 million for the year ended
December 31, 1997 to A$143.0 million for the year ended December 31, 1998, a
43.6% increase. These increases were primarily due to the larger fixed asset
base due to the significant deployment of operating assets to meet subscriber
growth as well as increases related to subscriber disconnects.
IV-56
<PAGE> 110
Latin America. The increase in the year ended December 31, 1999 is due to
consolidating the results of operations of VTR effective May 1, 1999.
GAIN ON ISSUANCE OF COMMON EQUITY SECURITIES BY SUBSIDIARIES
In February 1999, UPC successfully completed an initial public offering
selling 133.8 million shares on the Amsterdam Stock Exchange and Nasdaq, raising
gross and net proceeds at NLG21.30 ($10.93) per share of NLG2,852.9 ($1,463.0)
million and NLG2,660.1 ($1,364.1) million, respectively. Concurrent with the
offering, a subsidiary of DIC exercised its option and acquired approximately
4.7 million 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 Staff Accounting
Bulletin No. 51 ("SAB 51").
In July 1999, Austar United successfully completed an initial public
offering selling 103.5 million shares on the Australian Stock Exchange, raising
gross and net proceeds at A$4.70 ($3.03) per share of A$486.5 ($313.6) million
and A$453.6 ($292.8) million, respectively. Based on the carrying value of our
investment in Austar United as of July 27, 1999, we recognized a gain of $248.4
million from the resulting step-up in the carrying amount of our investment in
Austar United, in accordance with SAB 51.
In August 1999, UPC partially funded the acquisition of Videopole with 2.9
million ordinary shares of UPC. Based on the carrying value of our investment in
UPC as of July 31, 1999, we recognized a gain of $34.9 million from the
resulting step-up in the carrying amount of our investment in UPC, in accordance
with SAB 51.
In October 1999, UPC completed a second public offering of 45.0 million
ordinary shares, raising gross and net proceeds at E19.92 ($21.58) per share of
E896.3 ($970.9) million and E851.5 ($922.4) million, respectively. Based on the
carrying value of our investment in UPC as of October 19, 1999, we recognized a
gain of $403.4 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 these gains due to our intent on
holding our investment in UPC and Austar United indefinitely.
INTEREST INCOME
Interest income increased $43.8 million and $2.7 million during the year
ended December 31, 1999 and the ten months ended December 31, 1998,
respectively, compared to the amounts for the corresponding periods in the prior
year. The increase in the year ended December 31, 1999 was due to higher cash
balances related to the issuance of new debt and equity in 1999 and the increase
in the ten months ended December 31, 1998 was due to higher cash balances
related to the issuance of our senior notes in February 1998.
INTEREST EXPENSE
Interest expense increased $236.8 million from $163.2 million during the
year ended December 31, 1998 to $400.0 million during the year ended December
31, 1999. These increases were primarily due to the continued accretion of
interest on our $1,375.0 million aggregate principal amount 1998 senior notes,
our 1999 senior notes and new debt in 1999 at UPC, including their senior notes
and new debt facilities.
Interest expense increased $38.9 million, or 31.3%, from $124.3 million
during the year ended February 28, 1998 to $163.2 million during the ten months
ended December 31, 1998. This increase was primarily due to the continued
accretion of interest on our $1,375.0 million aggregate principal amount 1998
senior notes and continued accretion on the $492.9 million aggregate principal
amount senior notes at United A/P.
IV-57
<PAGE> 111
PROVISION FOR LOSSES ON MARKETABLE EQUITY SECURITIES AND INVESTMENT RELATED
COSTS
The provision for losses on marketable equity securities and investment
related costs consists of our write-off of various non-strategic investments.
GAIN ON SALE OF INVESTMENTS IN AFFILIATES
In October 1997, we sold all of our Argentine multi-channel television
system assets for approximately $211.1 million cash, resulting in a gain of
approximately $90.0 million.
FOREIGN CURRENCY EXCHANGE (LOSS) GAIN
Foreign currency exchange loss increased $41.1 million from $1.6 million
gain for the ten months ended December 31, 1998 to $39.5 million loss for the
year ended December 31, 1999, primarily due to UPC and VTR, which have notes
payable that are denominated in U.S. dollars.
MINORITY INTERESTS IN SUBSIDIARIES
The minority interests' share of losses increased $359.0 million from $1.4
million for the ten months ended December 31, 1998 to $360.4 million for the
year ended December 31, 1999. The initial public offerings of UPC (February
1999) and Austar United (July 1999) reduced our ownership from 100% and 98.0% as
of December 31, 1998 to 53.2% and 75.4% as of December 31, 1999 for UPC and
Austar United, respectively. For accounting purposes we continue to consolidate
100% of the results of operations of UPC and Austar United, then deduct the
minority interests' share of losses before arriving at net income. Of the $359.0
million increase for the year ended December 31, 1999, $344.5 million related to
UPC and $13.6 million related to Austar United.
SHARE IN RESULTS OF AFFILIATES
Our share in the results of affiliates totaled a loss of $55.1 million,
$54.2 million and $68.6 million for the year ended December 31, 1999, the ten
months ended December 31, 1998 and the year ended February 28, 1998,
respectively, as follows:
<TABLE>
<CAPTION>
FOR THE TEN
FOR THE YEAR MONTHS FOR THE
ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
United Europe:
UPC(1).......................................... $ -- $ -- $(42,236)
A2000(2)........................................ (16,750) (11,515) --
UTH(3).......................................... (1,436) (9,850) --
Hungary......................................... (41) (3,446) --
Melita, Princes Holdings and Tevel(4)........... -- (288) --
Tevel(4)........................................ (8,402) -- --
Melita(4)....................................... (687) -- --
Monor........................................... 1,630 (1,848) (4,590)
Iberian Programming............................. 2,455 (77) (2,348)
SBS............................................. (5,557) -- --
Other........................................... (3,120) (457) (195)
-------- -------- --------
(31,908) (27,481) (49,369)
-------- -------- --------
United Asia/Pacific:
Saturn(5)....................................... (6,262) (8,628) --
XYZ Entertainment(6)............................ (5,290) 506 (2,408)
Pilipino Cable Corporation...................... (55) (1,383) (656)
Hunan International TV.......................... (42) (2,092) (220)
-------- -------- --------
(11,649) (11,597) (3,284)
-------- -------- --------
</TABLE>
IV-58
<PAGE> 112
<TABLE>
<CAPTION>
FOR THE TEN
FOR THE YEAR MONTHS FOR THE
ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
United Latin America:
VTR(7).......................................... (5,507) (5,427) (7,805)
Megapo.......................................... (346) 253 (386)
TV Show Brasil(8)............................... -- (891) (616)
MGM Networks LA................................. (6,223) (9,221) (7,477)
Jundiai......................................... 526 198 426
-------- -------- --------
(11,550) (15,088) (15,858)
-------- -------- --------
Other............................................. -- -- (134)
-------- -------- --------
Total share in results of affiliates.... $(55,107) $(54,166) $(68,645)
======== ======== ========
</TABLE>
---------------
(1) Effective December 11, 1997, we increased our ownership interest in UPC from
50.0% to 100% and began consolidating its results of operations.
(2) Effective September 1, 1999, we increased our ownership interest in A2000
from 50.0% to 100% and began consolidating its results of operations.
(3) Effective February 1, 1999, we increased our ownership interest in UTH from
51.0% to 100% and began consolidating its results of operations.
(4) 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.
(5) Effective January 1, 1998, we discontinued consolidating the results of
operations of Saturn and returned to the equity method of accounting due to
certain minority shareholder's rights. Effective August 1, 1999, we
increased our ownership interest in Saturn to 100% and began consolidating
its results of operations.
(6) In September 1998, we acquired an additional 25.0% interest in XYZ
Entertainment, increasing our ownership to 50.0%.
(7) Effective May 1, 1999, we increased our ownership interest in VTR to 100%
and began consolidating its results of operations.
(8) Effective October 2, 1998, we increased our ownership interest in TV Show
Brasil to 100% and began consolidating its results of operations.
EXTRAORDINARY CHARGE FOR EARLY RETIREMENT OF DEBT
In connection with the issuance of our senior notes in February 1998, 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 year ended February 28, 1998 of $79.1 million.
IV-59
<PAGE> 113
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, JUNE 30,
1999 2000 TOTAL
------------ ------------ ---------
(IN MILLIONS)
<S> <C> <C> <C>
United (Parent Only)
Financing sources:
Gross bond proceeds......................... $ 1,347.0 $ -- $ 1,347.0
Gross equity proceeds....................... 1,686.7(1) 5.4 1,692.1
Asset sales, dividends and note payments.... 319.1 50.8 369.9
Interest income and other................... 95.0 41.6 136.6
--------- -------- ---------
Total sources....................... 3,447.8 97.8 3,545.6
--------- -------- ---------
Application of funds:
Investment in:
UPC...................................... (459.1) 0.6 (458.5)
United Asia/Pacific (UAP)................ (315.6)(1) -- (315.6)
United Latin America (ULA)............... (623.6) (101.8) (725.4)
Other.................................... (25.8) (12.0) (37.8)
--------- -------- ---------
Total............................... (1,424.1) (113.2) (1,537.3)
Repayment of bonds.......................... (532.1)(2) -- (532.1)
Offering costs.............................. (102.2) -- (102.2)
Corporate equipment and development......... (31.0) -- (31.0)
Corporate overhead and other................ (122.6) (14.3) (136.9)
--------- -------- ---------
Total uses.......................... (2,212.0) (127.5) (2,339.5)
--------- -------- ---------
Period change in cash....................... 1,235.8 (29.7) 1,206.1
Cash, beginning of period................... -- 1,235.8 --
--------- -------- ---------
Cash, end of period......................... $ 1,235.8 $1,206.1 $ 1,206.1
--------- -------- ---------
United's subsidiaries' cash, end of period:
UPC...................................... 552.5
UAP...................................... 307.6
ULA...................................... 6.8
Other.................................... 5.8
---------
Total United's subsidiaries......... 872.7
---------
Total consolidated cash, cash
equivalents, restricted cash and
short-term liquid investments..... $ 2,078.8
=========
</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.
IV-60
<PAGE> 114
United Parent. We had $1,206.1 million of cash, cash equivalents,
restricted cash and short-term liquid investments on hand as of June 30, 2000.
Additional sources of cash through 2000 may include the raising of additional
private or public debt and/or equity and/or the receipt of sales proceeds from
the disposition of non-strategic assets by certain subsidiaries. Uses of cash in
the next year will include continued funding to the Latin America region to meet
the existing growth plans of our systems, as well as potential acquisitions in
that region and corporate overhead. We estimate approximately $65.0 million of
United parent funding will be required by systems in the Latin America region
during the remainder of 2000. We believe that our existing capital resources
will enable us to assist in satisfying the operating and development
requirements of our 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 $552.5 million in cash, cash equivalents, restricted cash and
short-term liquid investments on hand as of June 30, 2000. UPC has funded its
operations with cash contributed by United and with proceeds from the sale of
equity and debt securities, including its initial public offering in February
1999. UPC has also financed its business with credit facilities at the corporate
and operating system level.
In September 2000, UPC agreed to sell approximately $1.25 billion of
convertible preferred stock. We expect this transaction to close in December
2000. In October 2000, UPC closed a E4.0 ($3.8) billion 8.0 and 8.75 year
operating and term loan. The facilities refinanced existing operating company
bank debt currently totaling E1.7 ($1.6) billion as of June 30, 2000. The new
loan facilities added E2.3 ($2.2) billion of liquidity and will be used to
finance the further rollout of digital and triple play services.
The proceeds from the debt and equity offerings, in addition to borrowing
capacity on UPC's facilities at the corporate and project debt level, are
expected to be used primarily for acquisitions, capital expenditures and other
costs associated with UPC's network upgrade and the continued development of
UPC's telephone and Internet/data services businesses. UPC may need to raise
additional capital in the future to the extent UPC pursues additional
acquisitions or development opportunities or if cash flow from operations is
insufficient to satisfy UPC's liquidity requirements.
UAP. UAP had $307.6 million of cash, cash equivalents and short-term liquid
investments on hand as of June 30, 2000. UAP has funded its operations with cash
contributed by United and with proceeds from the sale of equity and debt
securities, including Austar United's initial public offering in July 1999 and
second offering in March 2000. Its subsidiaries, Austar and Saturn, also have
credit facilities to fund their respective businesses.
ULA. ULA had $6.8 million of cash, cash equivalents, restricted cash and
short-term liquid investments on hand as of June 30, 2000. 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. VTR has
capacity for borrowing under a bank facility. ULA anticipates continued nominal
funding from us for Latin America programming and projects in Brazil. To the
extent ULA pursues additional acquisitions or development opportunities, ULA
will need to raise additional capital or seek strategic partners.
IV-61
<PAGE> 115
INDEBTEDNESS
As of June 30, 2000, United and its consolidated subsidiaries had
outstanding $6.1 billion of senior notes and $1.5 billion of other long-term
debt. The following table sets forth the outstanding long-term indebtedness of
United's unconsolidated subsidiaries and affiliates as of June 30, 2000:
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
--------------------------
UNITED LONG-TERM
SYSTEM OWNERSHIP DEBT
------ --------- --------------
(IN THOUSANDS)
<S> <C> <C>
Israel............................................... 24.7% $223,129
Germany.............................................. 13.3% $203,650
Malta................................................ 26.5% $ 27,475
New Zealand.......................................... 36.2% $ 79,749
Philippines.......................................... 19.6% $ 20,659
</TABLE>
STATEMENTS OF CASH FLOWS
We had cash and cash equivalents of $1,925.9 million as of December 31,
1999, an increase of $1,890.3 million from $35.6 million as of December 31,
1998. Cash and cash equivalents as of December 31, 1998 represented a decrease
of $267.8 million from $303.4 million as of February 28, 1998, and cash and cash
equivalents as of February 28, 1998 represented an increase of $234.6 million
from $68.8 million as of February 28, 1997.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR FOR THE TEN MONTHS FOR THE YEAR
------------------------ ENDED DECEMBER 31, ENDED DECEMBER 31, ENDED FEBRUARY 28,
2000 1999 1999 1998 1998
----------- ---------- ------------------ ------------------ ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating
activities.......... $ (226,005) $ (53,196) $ (117,084) $ 1,988 $(60,652)
Cash flows from
investing
activities.......... (2,807,839) (941,040) (4,353,364) (433,460) (73,096)
Cash flows from
financing
activities.......... 2,192,946 1,260,671 6,308,415 158,815 369,089
Effect of exchange
rates on cash....... (115,650) (49,936) 52,340 4,824 (684)
----------- ---------- ----------- --------- --------
Net (decrease)
increase in cash and
cash equivalents.... (956,548) 216,499 1,890,307 (267,833) 234,657
Cash and cash
equivalents at
beginning of
period.............. 1,925,915 35,608 35,608 303,441 68,784
----------- ---------- ----------- --------- --------
Cash and cash
equivalents at end
of period........... $ 969,367 $ 252,107 $ 1,925,915 $ 35,608 $303,441
=========== ========== =========== ========= ========
</TABLE>
Six Months Ended June 30, 2000. Principal sources of cash during the six
months ended June 30, 2000 included $1,612.2 million in proceeds from the
issuance of senior notes and senior discount notes by UPC and $940.1 million of
borrowings on various subsidiary facilities, including $289.2 million under the
new UPC Nederland Facility, $192.8 million under the UPC Senior Credit Facility,
$142.7 million from the new UPC France Facility and $223.1 million under UPC's
new A2000 Facility, proceeds of which were used to pay off existing A2000
Facilities. Additional sources of cash included net proceeds of $102.4 million
from Austar United's second public offering of common equity securities, $10.6
million from the exercise of stock options and $35.9 million from affiliate
dividends and other investing and financing sources.
Principal uses of cash during the six months ended June 30, 2000 included
$1,006.0 million for the acquisition of the K&T Group in The Netherlands, $352.2
million for other acquisitions, $633.6 million of
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<PAGE> 116
capital expenditures for system upgrade and new-build activities, $530.7 million
of net cash invested in short-term liquid investments, $416.1 million for
repayments of debt, $160.6 million for an additional investment in SBS, $122.1
million for shares in Primacom AG, $38.6 million of other investments in
affiliates, $115.7 million negative exchange rate effect on cash, $56.3 million
for deferred financing costs and $225.8 million for operating activities and
other investing and financing uses.
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 Discount Investment Corporation'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 VTR 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 including
$252.7 million for the acquisition of the additional 66.0% interest in VTR,
$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.
Year Ended December 31, 1999. Principal sources of cash during the year
ended December 31, 1999 included $2,540.8 million in proceeds from the issuance
of senior notes and senior discount notes by UPC, $1,409.1 million in proceeds
from UPC's initial public offering and DIC's exercise of its option to acquire
shares in UPC, $922.4 million in net proceeds from UPC's second public offering
of equity securities, $571.4 million in net proceeds from the issuance of our
Class A common stock in a public offering, $381.6 million in net proceeds from
the issuance of our Series C Convertible preferred stock, $375.3 million of
borrowings on UPC's senior credit facility, $292.8 million in net proceeds from
the Austar United initial public offering, $257.2 million of borrowings on the
Telekabel Group facility, $259.9 million in net proceeds from the issuance of
our Series D Convertible preferred stock, $229.9 million of borrowings on
Austar's bank facility and Saturn's bank facility, $208.9 million in proceeds
from the private issuance of our debt securities due 2009, $61.0 million of
borrowings on VTR's bank facility, $141.2 million of other borrowings, $50.0
million from the exercise of stock options and warrants, $18.0 million of
proceeds from the sale of UPC's Hungarian programming assets, $52.3 million
positive exchange rate effect on cash and $3.1 million from other investing and
financing sources.
Principal uses of cash during the year ended December 31, 1999 included
$848.2 million of net cash invested in short-term liquid investments, $794.2
million of capital expenditures for system upgrade and new-build activities,
$744.5 million for the acquisition of @Entertainment, $521.7 million for the
repayment of UPC's existing senior revolving credit facility, $306.1 million for
the repayment of an existing facility at UPC Nederland, $293.2 million for the
acquisition of Stjarn, $252.7 million for the acquisition of the additional
66.0% interest in VTR, $252.0 million for the acquisition of the additional
49.0% interest in UTH, $228.5 million for the acquisition of A2000, $150.0
million for the acquisition of Kabel Plus, $109.7 million for the acquisition of
GelreVision, $291.2 million for other acquisitions, $373.5 million of
investments in affiliates, including UPC's acquisition of an interest in
PrimaCom for $227.9 million and SBS for $100.2 million, $129.1 million for the
repayment of Austar's existing bank facility, $320.1 million for the repayment
of other loans, $100.7 million for deferred financing costs,
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<PAGE> 117
$18.0 million for payment of a note, and $151.2 million for operating activities
and other investing and financing uses.
Ten Months Ended December 31, 1998. Principal sources of cash during the
ten months ended December 31, 1998 included $321.2 million from short-term and
long-term borrowings, primarily on UPC's senior revolving credit facility,
CNBH's major facility, the DIC Loan and Austar's bank facility, $27.9 million
from the net release of restricted funds, primarily the Janco deposit, $20.0
million from the sale of Portugal and other systems, $12.2 million from the
issuance of our equity securities and $6.8 million from operating activities and
other investing and financing sources.
Principal uses of cash during the ten months ended December 31, 1998
included capital expenditures totaling $217.1 million for system upgrades and
new-build activities, $168.4 million of debt repayments, primarily on UPC's
bridge bank facility and other bank facilities, $139.0 million of funding to our
operating systems including the acquisition of additional interests in Tevel,
Melita, Janco and TVSB, $109.9 million primarily for the new acquisitions of
Combivisie (The Netherlands) and Kabelkom (Hungary) and $21.5 million for other
investing and financing uses.
Year Ended February 28, 1998. Principal sources of cash during the year
ended February 28, 1998 included gross proceeds of $812.2 million from the sale
of our 1998 senior notes, $211.1 million net cash proceeds from the sale of our
Argentine cable systems, $110.0 million of borrowings by ULA to finance
acquisitions in Argentina, $85.2 million of borrowings on Austar's bank
facility, $38.0 million from ULA's revolving credit facility, net proceeds from
the net change in short-term investments of $36.6 million, $29.9 million gross
proceeds from the issuance of United A/P senior notes in September 1997, $22.0
million from cash contributions from minority interest partners and $1.3 million
of repayments on notes receivable and other sources.
Principal uses of cash during the year ended February 28, 1998 included
redemption of our old senior notes of $531.8 million, investments in our
affiliated companies totaling $177.6 million, repayment of debt under the
Argentina acquisition financing of $110.0 million, purchases of property, plant
and equipment totaling $115.0 million to continue the build-out of existing
projects, payments on our seller notes for Comodoro, Trelew, Santa Fe and Bahia
Blanca, Argentina totaling $46.4 million, debt financing costs of $30.9 million,
$8.4 million deposited in restricted cash, $30.8 million for repayment of other
debt and other investing and financing uses, and the funding of operating
activities of $60.7 million during the period.
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
approved Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133 ("SFAS 137"). SFAS 137 amends the effective date of
SFAS 133, which will now be effective for the Company's first quarter 2001. The
Company is currently assessing the effect of this new standard.
In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
"Revenue Recognition" ("SAB 101"), which provides interpretive guidance on the
recognition, presentation and disclosure of revenue in financial statements. The
Company is required to determine the impact of SAB 101 no later than the end of
the fourth quarter of fiscal 2000. Depending on the results of the evaluation,
the implementation of SAB 101 may require the Company to restate its current
year results to reflect any cumulative effect of a change in accounting
principle as if SAB 101 has been implemented on January 1, 2000. The Company is
currently reviewing SAB 101 to determine what impact, if any, the adoption of
SAB 101 will have on its financial position or results of operations.
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<PAGE> 118
UNITED 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
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:
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
AS OF
JUNE 30, 2000
------------------
(IN THOUSANDS)
<S> <C>
U.S. Dollar Denominated Facilities:
Stjarn Seller's Note due 2000(1)....................... $ 100,000
UPC 12.5% Senior Discount Notes due 2009(1)............ 448,104
UPC 13.375% Senior Discount Notes due 2009(1).......... 272,891
UPC 13.75% Senior Discount Notes due 2010(1)........... 543,860
UPC 11.25% Senior Notes due 2010(1).................... 595,883
@Entertainment Senior Discount Notes(1)................ 279,578
UPC DIC Loan(1)........................................ 44,672
Monor Facility(1)...................................... --
VTR Bank Facility(2)................................... 176,000
Intercompany Loan to VTR(2)............................ 148,600
----------
$2,609,588
==========
</TABLE>
---------------
(1) Functional currency is Euros.
(2) Functional currency is Chilean Pesos.
Occasionally we will execute hedge transactions to reduce our exposure to
foreign currency exchange rate risk. In connection with UPC's offering of senior
notes in July 1999, October 1999 and January 2000, UPC entered into
cross-currency swap agreements, exchanging dollar-denominated notes into euro-
denominated notes.
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<PAGE> 119
INTEREST RATE SENSITIVITY
The table below provides information about our primary debt obligations.
The fixed 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, 2000 EXPECTED PAYMENT AS OF DECEMBER 31,
------------------------- ----------------------------------------------------
BOOK VALUE FAIR VALUE 2000 2001 2002 2003 2004
----------- ----------- ---------- -------- -------- ------- -------
(U.S. DOLLARS, IN THOUSANDS, EXCEPT INTEREST RATES)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate United USD 1998
Notes.......................... $ 1,044,857 $ 948,750 $ -- $ -- $ -- $ -- $ --
Average interest rate.......... 10.75% 12.32%
Fixed rate United USD 1999
Notes.......................... $ 236,630 $ 220,477 $ -- $ -- $ -- $ -- $ --
Average interest rate.......... 10.875% 12.82%
Fixed rate UPC USD Senior Notes
due 2009....................... $ 719,738 $ 694,576 $ -- $ -- $ -- $ -- $ --
Average interest rate.......... 10.875% 13.18%
Fixed rate UPC Euro Senior Notes
due 2009....................... $ 286,096 $ 246,042 $ -- $ -- $ -- $ -- $ --
Average interest rate.......... 10.875% 13.39%
Fixed rate UPC USD Senior
Discount Notes due 2009........ $ 448,104 $ 363,825 $ -- $ -- $ -- $ -- $ --
Average interest rate.......... 12.50% 15.48%
Fixed rate UPC USD Senior Notes
due 2007....................... $ 181,821 $ 178,000 $ -- $ -- $ -- $ -- $ --
Average interest rate.......... 10.875% 13.26%
Fixed rate UPC Euro Senior Notes
due 2007....................... $ 95,365 $ 84,875 $ -- $ -- $ -- $ -- $ --
Average interest rate.......... 10.875% 13.26%
Fixed rate UPC USD Senior Notes
due 2009....................... $ 227,359 $ 225,715 $ -- $ -- $ -- $ -- $ --
Average interest rate.......... 11.25% 13.34%
Fixed rate UPC Euro Senior Notes
due 2009....................... $ 95,655 $ 84,761 $ -- $ -- $ -- $ -- $ --
Average interest rate.......... 11.25% 13.44%
Fixed rate UPC USD Senior
Discount Notes due 2009........ $ 272,891 $ 234,220 $ -- $ -- $ -- $ -- $ --
Average interest rate.......... 13.375% 15.42%
Fixed rate UPC Euro Senior
Discount Notes due 2009........ $ 103,989 $ 89,252 $ -- $ -- $ -- $ -- $ --
Average interest rate.......... 13.375% 15.42%
Fixed rate UPC USD Senior Notes
due 2010....................... $ 595,883 $ 534,000 $ -- $ -- $ -- $ -- $ --
Average interest rate.......... 11.25% 13.36%
Fixed rate UPC Euro Senior Notes
due 2010....................... $ 189,367 $ 167,843 $ -- $ -- $ -- $ -- $ --
Average interest rate.......... 11.25% 13.31%
Fixed rate UPC USD Senior Notes
due 2010....................... $ 281,139 $ 267,000 $ -- $ -- $ -- $ -- $ --
Average interest rate.......... 11.50% 13.58%
Fixed rate UPC USD Senior
Discount Notes due 2010........ $ 543,860 $ 475,000 $ -- $ -- $ -- $ -- $ --
Average interest rate.......... 13.75% 15.38%
Fixed rate United USD A/P
Notes.......................... $ 436,336 $ 448,509 $ -- $ -- $ -- $ -- $ --
Average interest rate.......... 14.00% 13.32%
Variable rate UPC NLG Senior
Credit Facility(1)............. $ 531,007 $ 531,007 $ 531,007 $ -- $ -- $ -- $ --
Average interest rate.......... 7.2% 7.2%
Variable rate Telekabel Euro
Facility(1).................... $ 214,715 $ 214,715 $ 214,715 $ -- $ -- $ -- $ --
Average interest rate.......... 5.9% 5.9%
Variable rate CNBH NLG
Facility(1).................... $ 115,618 $ 115,618 $ 115,618 $ -- $ -- $ -- $ --
Average interest rate.......... 5.3% 5.3%
<CAPTION>
EXPECTED PAYMENT AS OF DECEMBER 31,
-----------------------
THEREAFTER TOTAL
---------- ----------
(U.S. DOLLARS, IN THOUSANDS, EXCEPT INTEREST RATES)
<S> <C> <C>
Fixed rate United USD 1998
Notes.......................... $1,044,857 $1,044,857
Average interest rate..........
Fixed rate United USD 1999
Notes.......................... $ 236,630 $ 236,630
Average interest rate..........
Fixed rate UPC USD Senior Notes
due 2009....................... $ 719,738 $ 719,738
Average interest rate..........
Fixed rate UPC Euro Senior Notes
due 2009....................... $ 286,096 $ 286,096
Average interest rate..........
Fixed rate UPC USD Senior
Discount Notes due 2009........ $ 448,104 $ 448,104
Average interest rate..........
Fixed rate UPC USD Senior Notes
due 2007....................... $ 181,821 $ 181,821
Average interest rate..........
Fixed rate UPC Euro Senior Notes
due 2007....................... $ 95,365 $ 95,365
Average interest rate..........
Fixed rate UPC USD Senior Notes
due 2009....................... $ 227,359 $ 227,359
Average interest rate..........
Fixed rate UPC Euro Senior Notes
due 2009....................... $ 95,655 $ 95,655
Average interest rate..........
Fixed rate UPC USD Senior
Discount Notes due 2009........ $ 272,891 $ 272,891
Average interest rate..........
Fixed rate UPC Euro Senior
Discount Notes due 2009........ $ 103,989 $ 103,989
Average interest rate..........
Fixed rate UPC USD Senior Notes
due 2010....................... $ 595,883 $ 595,883
Average interest rate..........
Fixed rate UPC Euro Senior Notes
due 2010....................... $ 189,367 $ 189,367
Average interest rate..........
Fixed rate UPC USD Senior Notes
due 2010....................... $ 281,139 $ 281,139
Average interest rate..........
Fixed rate UPC USD Senior
Discount Notes due 2010........ $ 543,860 $ 543,860
Average interest rate..........
Fixed rate United USD A/P
Notes.......................... $ 436,336 $ 436,336
Average interest rate..........
Variable rate UPC NLG Senior
Credit Facility(1)............. $ -- $ 531,007
Average interest rate..........
Variable rate Telekabel Euro
Facility(1).................... $ -- $ 214,715
Average interest rate..........
Variable rate CNBH NLG
Facility(1).................... $ -- $ 115,618
Average interest rate..........
</TABLE>
IV-66
<PAGE> 120
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000 EXPECTED PAYMENT AS OF DECEMBER 31,
------------------------- ----------------------------------------------------
BOOK VALUE FAIR VALUE 2000 2001 2002 2003 2004
----------- ----------- ---------- -------- -------- ------- -------
(U.S. DOLLARS, IN THOUSANDS, EXCEPT INTEREST RATES)
<S> <C> <C> <C> <C> <C> <C> <C>
Variable rate New A2000
Facility(1).................... $ 220,702 $ 220,702 $ 220,702 $ -- $ -- $ -- $ --
Average interest rate.......... 4.7% 4.7%
Variable rate Rhone Vision Cable
FFR Credit Facility(1)......... $ 58,135 $ 58,135 $ 58,135 $ -- $ -- $ -- $ --
Average interest rate.......... 4.9% 4.9%
Fixed rate UPC USD DIC Loan...... $ 44,672 $ 44,672 $ 44,672 $ -- $ -- $ -- $ --
Average interest rate.......... 8.0% 8.0%
Stjarn Seller's Note............. $ 100,000 $ 100,000 $ 100,000 $ -- $ -- $ -- $ --
Average interest rate.......... 8.0% 8.0%
Variable rate UPC NL Bridge
Loan(1)........................ $ 286,096 $ 286,096 $ 286,096 $ -- $ -- $ -- $ --
Average interest rate.......... 6.4% 6.4%
Variable rate France
Facility(1).................... $ 141,095 $ 141,095 $ 141,095 $ -- $ -- $ -- $ --
Average interest rate.......... 6.5% 6.5%
Variable rate VTR USD Bank
Facility....................... $ 176,000 $ 176,000 $ -- $ -- $176,000 $ -- $ --
Average interest rate.......... 11.41% 11.41%
Variable rate Austar A$ New
Austar Bank Facility........... $ 219,039 $ 219,039 $ -- $ -- $ 7,666 $42,165 $67,355
Average interest rate.......... 7.4% 7.4%
Fixed rate @Entertainment Senior
Discount Notes................. $ 279,578 $ 278,976 $ -- $ -- $ -- $14,483 $ --
Average interest rate.......... 7.0%-14.50% 7.0%-14.62%
----------- ----------- ---------- -------- -------- ------- -------
$ 8,145,747 $ 7,648,900 $1,712,040 $ -- $183,666 $56,648 $67,355
=========== =========== ========== ======== ======== ======= =======
<CAPTION>
EXPECTED PAYMENT AS OF DECEMBER 31, INTEREST RATES)
-----------------------
THEREAFTER TOTAL
---------- ----------
(U.S. DOLLARS, IN THOUSANDS, EXCEPT INTEREST RATES)
<S> <C> <C>
Variable rate New A2000
Facility(1).................... $ -- $ 220,702
Average interest rate..........
Variable rate Rhone Vision Cable
FFR Credit Facility(1)......... $ -- $ 58,135
Average interest rate..........
Fixed rate UPC USD DIC Loan...... $ -- $ 44,672
Average interest rate..........
Stjarn Seller's Note............. $ -- $ 100,000
Average interest rate..........
Variable rate UPC NL Bridge
Loan(1)........................ $ -- $ 286,096
Average interest rate..........
Variable rate France
Facility(1).................... $ -- $ 141,095
Average interest rate..........
Variable rate VTR USD Bank
Facility....................... $ -- $ 176,000
Average interest rate..........
Variable rate Austar A$ New
Austar Bank Facility........... $ 101,853 $ 219,039
Average interest rate..........
Fixed rate @Entertainment Senior
Discount Notes................. $ 265,095 $ 279,578
Average interest rate..........
---------- ----------
$6,126,038 $8,145,747
========== ==========
</TABLE>
---------------
(1) Expected to be refinanced by the E4.0 billion Facility.
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<PAGE> 121
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 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.
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.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF NEW UNITED
As existing United stockholders will receive the same number and kind of
shares in New United that they presently hold in United, the ownership of New
United will differ from that of United only to the extent that additional equity
is issued to Liberty in connection with the contribution of assets. Following
the transaction, Liberty will own approximately 48.4% of the common stock of New
United. Liberty will have the right to vote approximately 83.8% of the total
vote of New United, although Liberty is subject to voting arrangements and
restrictions pursuant to the Amended and Restated Stockholder Agreement. Please
read "The Merger Transaction -- The Merger and Contribution Agreement and
Related Agreements, Ownership of New United After Closing of Principal
Transaction." The Amended and Restated Standstill Agreement will limit Liberty's
and its affiliates' ownership of New United common stock and require Liberty to
note its shares in accordance with that agreement. See "The Merger
Transaction -- The Merger and Contribution Agreement and Related Agreements,
Standstill Agreement."
MANAGEMENT OF NEW UNITED FOLLOWING THE LIBERTY TRANSACTION
The management of New United following the Liberty transaction will be the
same as the management of United, except that Liberty will have the right to
appoint four members to New United's twelve member board of directors. We
anticipate that New United's board of directors will initially comprise the
following individuals: Robert R. Bennett, Albert M. Carollo, Sr., John P. Cole,
Michael T. Fries, Gary S. Howard, John C. Malone, John F. Riordan, Curtis
Rochelle, Gene W. Schneider, Mark L. Schneider, Hank Vigil, Tina M. Wildes. See
"The Merger Transaction -- The Merger and Contribution Agreement, Stockholder
Agreement."
All of the New United directors other than Messrs. Bennett and Howard are
currently directors of United.
Robert R. Bennett, 42, has served as Liberty's President and Chief
Executive Officer and one of its directors since April 1997. Mr. Bennett has
served as Executive Vice President of Tele-Communications, Inc., or "TCI," from
April 1997 to March 1999. Mr. Bennett served as Liberty's Executive Vice
President and Chief Financial Officer, Secretary and Treasurer from June 1995
through March 1997, and as Liberty's Senior Vice President from September 1991
to June 1995. Mr. Bennett also served as acting Chief Financial Officer of
Liberty Digital, Inc. from June 1997 to July 1997. Mr. Bennett is a director of
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<PAGE> 122
Gemstar-TV Guide International, Inc., Discovery Communications, Inc., USANi,
LLC, Starz Encore Group, BET Holdings II, Inc., E! Entertainment Television,
Court TV, Telemundo, Teligent, Inc., Telewest, Liberty Livewire Corporation,
Liberty Satellite & Technology, Inc. and Chairman of the Board and a director of
Liberty Digital, Inc.
Gary S. Howard, 49, has served as Liberty's Executive Vice President, Chief
Operating Officer and one of Liberty's directors since July 1998. Mr. Howard
served as Chief Executive Officer of TCI Satellite Entertainment, Inc. from
December 1996 until April 2000. Mr. Howard served as Executive Vice President of
TCI from December 1997 to March 1999; as Chief Executive Officer, Chairman of
the Board and a director of TV Guide, Inc. from June 1997 to March 1999; and as
President and Chief Executive Officer of TCI Ventures Group, LLC from December
1997 to March 1999. Mr. Howard served as President of TV Guide, Inc. from June
1997 to September 1997; as President of TCI Satellite Entertainment, Inc. from
February 1995 through August 1997; as Senior Vice President of TCI
Communications, Inc., or "TCIC," from October 1994 to December 1996; and as Vice
President of TCIC from December 1991 through October 1994. Mr. Howard is an
Executive Vice President and director of Liberty Digital, Inc., Liberty
Satellite & Technology, Inc., Astrolink, Teligent, Inc., Liberty Livewire
Corporation, and OnCommand Corporation.
We do not anticipate that the compensation of New United's management will
differ from the compensation of United's management as a result of the Liberty
transaction.
DESCRIPTION OF NEW UNITED CAPITAL STOCK
New United's authorized capital stock consists of:
- 210,000,000 shares of Class A common stock;
- 30,000,000 shares of Class B common stock; and
- 3,000,000 shares of preferred stock, all $0.01 par value per share.
As of the date of this proxy statement/prospectus, New United had no
capital stock outstanding. Pro forma for the Liberty transaction, New United
will have outstanding:
- shares of Class A common stock;
- shares of Class B common stock;
- shares of Series B convertible preferred stock;
- shares of 7% Series C senior cumulative convertible preferred stock;
and
- shares of 7% Series D senior cumulative convertible preferred stock.
COMMON STOCK
New United's Class A common stock and Class B common stock will be
identical, except that:
- each share of Class A common stock will entitle the holder to one vote,
and each share of Class B common stock will entitle the holder to ten
votes, on each matter to be voted on by New United's stockholders; and
- each share of Class B common stock will be convertible at the option of
the holder into one share of Class A common stock. Class A common stock
will not be convertible into Class B common stock.
Holders of New United Class A and Class B common stock will vote as one
class on all matters, including the election of directors, to be voted on by New
United's stockholders, with certain exceptions specified by the Delaware General
Corporation Law. Holders of Class B common stock will have the power to control
all matters requiring approval of New United's stockholders voting as a single
class.
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<PAGE> 123
Holders of New United Class A and Class B common stock will be entitled to
receive any dividends that are declared by New United's board of directors out
of funds legally available for that purpose. In the event of New United's
liquidation, dissolution or winding up, holders of New United Class A and Class
B common stock will be entitled to share in all assets available for
distribution to holders of common stock. Holders of New United Class A and Class
B common stock have no preemptive rights. New United's Certificate of
Incorporation provides that if there is any dividend, subdivision, combination
or reclassification of either class of common stock, a proportionate dividend,
subdivision, combination or reclassification of the other class of common stock
will be made at the same time.
New United has appointed Mellon Investor Services LLC as the transfer agent
and registrar for its Class A common stock.
PREFERRED STOCK
New United's Series B preferred stock will have an initial liquidation
value per share equal to $212.50 increased by an annual rate of 6.5% per annum,
compounded quarterly from July 9, 1998 as to 4,496 shares and from September 11,
1998 as to 109,487 shares through the date of the closing of the merger. The
preference will increase at a rate of 6.5% per annum, compounded quarterly. Each
share of New United Series B preferred stock will be convertible into the number
of shares of New United Class A common stock equal to the liquidation value at
the time of conversion divided by $10.63. New United is required to redeem the
New United Series B preferred stock on June 30, 2008.
New United's Series C preferred stock will have a liquidation value of
$1,000 per share. Each share of New United Series C preferred stock will be
convertible at any time at the option of the holder into the number of shares of
New United Class A common stock equal to the liquidation value divided by $42.15
(subject to adjustment). The New United Series C preferred stock will be
evidenced by depositary shares, each representing 1/20th of a share of New
United Series C preferred stock. We have, and New United will have, the right to
require conversion after December 31, 2000 if the closing price of our or New
United's Class A common stock has equaled or exceeded 150% of the conversion
price for at least 20 of 30 consecutive trading days or after June 30, 2002 if
the closing price has equaled or exceeded 130% of the conversion price for at
least 20 of 30 consecutive trading days. We have, and New United will have, the
option to redeem the Series C preferred stock on or after June 30, 2002.
New United's Series D preferred stock will have a liquidation value of
$1,000 per share. Each share of New United Series D preferred stock will be
convertible at any time at the option of the holder into the number of shares of
New United Class A common stock equal to the liquidation value divided by the
conversion price of $63.79 (subject to adjustment). The New United Series D
preferred stock will be evidenced by depositary shares each representing 1/20th
of a share of New United Series D preferred stock. We have, and New United will
have the right to require conversion after June 30, 2001 if the closing price of
our New United's Class A common stock has equaled or exceeded 130% of the
conversion price for at least 20 of 30 consecutive trading days or after
December 31, 2002 if the closing price has equaled or exceeded 150% of the
conversion price for at least 20 of 30 consecutive trading days. We have, and
New United will have, the option to redeem the Series D preferred stock on or
after December 31, 2002.
Holders of the depositary shares evidencing the Series C preferred stock
and Series D preferred stock will be entitled to receive cumulative annual
dividends of 7% of the liquidation preference of their depositary shares,
payable quarterly in arrears out of assets legally available therefor on March
31, June 30, September 30 and December 31 of each year. Dividends, to the extent
declared by New United's board, may, at New United's option, be paid in cash, by
delivery of fully paid and nonassessable shares of Class A common stock,
determined by dividing the dividend amount by 97% of the five trading day
average closing price, or a combination thereof.
Each share of Series B, Series C and Series D preferred stock entitles the
holder to one vote for each four shares of Class A common stock into which the
preferred stock is convertible.
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<PAGE> 124
New United is authorized to issue 3,000,000 shares of preferred stock. New
United's board of directors is authorized, without any further action by the
stockholders, to determine the following for any unissued series of preferred
stock:
- voting rights;
- dividend rights;
- dividend rates;
- liquidation preferences;
- redemption provisions;
- sinking fund terms;
- conversion or exchange rights;
- the number of shares in the series; and
- other rights, preferences, privileges and restrictions.
In addition, the New United preferred stock could have other rights,
including economic rights senior to New United's common stock, so that the
issuance of the New United preferred stock could adversely affect the market
value of New United's common stock. The issuance of New United preferred stock
may also have the effect of delaying, deferring or preventing a change in
control of New United without any action by the stockholders. New United has no
current plans to issue any preferred shares other than as contemplated by the
Liberty transaction.
MARKET LISTINGS
New United's Class A common stock will be listed for trading on the Nasdaq
National Stock Market. New United's Class B common stock and preferred stock
will have no established trading market. New United may elect to list any series
of securities on an exchange, and in the case of the common stock, on any
additional exchange, but, is not obligated to do so. No assurance can be given
as to the liquidity of the trading market for any of the securities.
CERTIFICATE OF INCORPORATION AND BYLAWS
The provisions of New United's certificate of incorporation (which is
attached to this proxy statement/prospectus as Appendix C) and bylaws summarized
below may have an anti-takeover effect and may delay or prevent a tender offer
or takeover attempt that a stockholder might consider in its best interest,
including attempts that might result in a premium over the market price for the
shares held by stockholders.
New United's certificate of incorporation or bylaws provide:
- that directors can be removed from office only for cause and only with
the approval of 80.0% of the votes of outstanding shares of stock
entitled to vote in the election of directors;
- for a classified board of directors, with each class containing as nearly
as possible one-third of the number of directors on the board and the
members of each class serving for three-year terms;
- that vacancies on the board of directors may be filled only by the
remaining directors;
- that the stockholders may take action only at an annual or special
meeting of stockholders, and not by written consent of the stockholders;
- that special meetings of stockholders generally can be called only by the
board of directors;
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<PAGE> 125
- that our stockholders may adopt, amend or repeal the bylaws only with the
approval of holders of at least 80.0% of the voting power; and
- for an advance notice procedure for the nomination, other than by the
board of directors or a committee of the board of directors, of
candidates for election as directors as well as for other stockholder
proposals to be considered at annual meetings of stockholders. In
general, we must receive notice of intent to nominate a director or raise
business at meetings not less than 30 nor more than 60 days before the
meeting, and must contain certain information concerning the person to be
nominated or the matters to be brought before the meeting and concerning
the stockholder submitting the proposal. The affirmative vote of the
holders of at least 80.0% of the voting power is required to amend or
repeal these provisions or to provide for cumulative voting.
DELAWARE GENERAL CORPORATION LAW, SECTION 203
We are and New United will be subject to Section 203 of the Delaware
General Corporation Law, which limits the ability of a publicly held Delaware
corporation to consummate a "business combination" with an "interested
stockholder" for a period of three years after the date such person became an
"interested stockholder" unless:
- before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;
- upon consummation of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85.0% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares held
by directors who are also officers of the corporation and certain shares
held by employee stock plans); or
- following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of 66.7% of the outstanding voting
stock of the corporation not owned by the interested stockholder.
An "interested stockholder" generally is defined as a person who, together
with affiliates and associates, owns (or, within the prior three years, owned)
15.0% or more of a corporation's outstanding voting stock.
For purposes of Section 203, the term "business combination" is defined
broadly to include:
- mergers with or caused by the interested stockholder;
- sales or other dispositions to the interested stockholder (except
proportionately with the corporation's other stockholders) of assets of
the corporation or a subsidiary equal to 10.0% or more of the aggregate
market value of the corporation's consolidated assets or its outstanding
stock;
- the issuance or transfer by the corporation or a subsidiary of stock of
the corporation or such subsidiary to the interested stockholder (except
for transfers in a conversion or exchange or a pro rata distribution or
other transactions that do not increase the interested stockholder's
proportionate ownership of any class or series of the corporation's
consolidated assets or its outstanding stock;
IV-72
<PAGE> 126
- the issuance or transfer by the corporation or a subsidiary of stock of
the corporation or such subsidiary to the interested stockholder (except
for transfers in a conversion or exchange or a pro rata distribution or
other transactions that do not increase the interested stockholder's
proportionate ownership of any class or series of the corporation's or
such subsidiary's stock); or
- receipt by the interested stockholder (except proportionately as a
stockholder), directly or indirectly, of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the
corporation or a subsidiary.
Liberty is not subject to Section 203 because United's and New United's
boards of directors have approved of Liberty becoming an interested stockholder.
COMPARATIVE PER SHARE MARKET INFORMATION
Our Class A common stock trades on the Nasdaq National Stock Market under
the symbol "UCOMA." On November 11, 1999, the board of directors authorized a
two-for-one stock split effected in the form of a stock dividend distributed on
November 30, 1999, to shareholders of record on November 22, 1999. The effect of
the stock split has been recognized retroactively in all share and per share
amounts in this report. The following table shows the range of high and low
sales prices reported on the Nasdaq National Stock Market for the periods
indicated:
<TABLE>
<CAPTION>
UNITED
----------------
HIGH LOW
------- ------
<S> <C> <C>
Year ended February 28, 1998:
First Quarter............................................. $ 5.13 $ 4.13
Second Quarter............................................ $ 5.75 $ 4.88
Third Quarter............................................. $ 6.88 $ 5.16
Fourth Quarter............................................ $ 7.28 $ 5.19
Ten months ended December 31, 1998
First Quarter............................................. $ 9.63 $ 7.00
Second Quarter............................................ $ 9.72 $ 5.09
Third Quarter............................................. $ 8.44 $ 3.88
Fourth Quarter............................................ $ 10.25 $ 7.94
Year ending December 31, 1999
First Quarter............................................. $ 33.00 $ 9.38
Second Quarter............................................ $ 37.56 $21.75
Third Quarter............................................. $ 46.00 $32.00
Fourth Quarter............................................ $ 72.50 $35.50
Year ended December 31, 2000
First Quarter............................................. $114.63 $56.06
Second Quarter............................................ $ 74.38 $31.31
Third Quarter............................................. $ 62.00 $26.31
Fourth Quarter (through November 2, 2000)................. $ 33.50 $20.25
</TABLE>
The closing price for United's Class A common stock on November 2, 2000 was
$32.45.
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<PAGE> 127
The following table sets forth the closing prices per share of United Class
A common stock as reported on the Nasdaq National Stock Market, on:
- June 23, 2000, the last full trading day prior to the public announcement
of the merger and contribution agreement; and
- , 2000, the last full trading day for which closing prices
were available at the time of the printing of this proxy
statement/prospectus.
<TABLE>
<S> <C>
June 23, 2000.............................................. $43.56
, 2000............................................. $ --
------
</TABLE>
You are advised to obtain current market quotations for United common
stock. No assurance can be given as to the market prices of United common stock
at any time before the consummation of the transaction or as to the market price
of New United common stock at any time after the transaction.
COMPARISON OF STOCKHOLDERS' RIGHTS
Both United and New United are incorporated under the laws of the State of
Delaware, and the capital stock of New United will have similar rights and
preferences as the capital stock of United. See "-- Description of New United
Capital Stock."
IV-74
<PAGE> 128
CHAPTER V -- AMENDMENT OF THE 1993 STOCK OPTION PLAN
United's 1993 Stock Option Plan, or the "Employee Plan," provides for the
grant of options to purchase shares of United Class A common stock to employees
and consultants who are selected for participation in the Employee Plan. The
board of directors has adopted an amendment to the Employee Plan to increase the
number of shares of Class A Common Stock reserved for issuance under the
Employee Plan by from 9,200,000 shares to shares. Upon completion
of the merger, United's obligations under the Employee Plan will be assumed by
New United, and stock options for United common stock will be replaced with
substitute stock options for New United common stock. Each New United stock
option will have the same terms and conditions, exercise price, vesting and
restrictions as the United stock option it replaces.
As of the record date, options have been granted under the Employee Plan to
purchase a total of shares of which options for shares have been
cancelled, leaving only shares of United Class A common stock available for
option grants under the Employee Plan. The board of directors believes that it
is in the best interest of United, and in the best interest of New United
following the merger, to increase the number of shares available for option
grants under the Employee Plan. The increase will allow United and, following
the merger, New United, to grant options to attract and retain new employees who
have not received grants of options under the Employee Plan, and to further
compensate, where appropriate, employees who have been previously awarded
options under the Employee Plan.
Upon the closing of the merger, New United will assume the Employee Plan
and all obligations under the Employee Plan and the Employee Plan will become
the stock option plan for employees of New United.
Approval of the amendment to the Employee Plan requires the affirmative
vote of the holders of a majority of the combined voting power of our Class A
common stock and Class B common stock as of the record date, represented in
person or by proxy at the special meeting of stockholders.
The board of directors recommends that stockholders approve the amendment
to the Employee Plan. The principal features of the Employee Plan are summarized
below:
Administration of the Employee Plan. The compensation committee of the
board of directors, or the "Committee," administers and interprets the Employee
Plan. The Committee must be structured at all times so that it satisfies the
"disinterested administration" requirement of Rule 16b-3 under the Securities
Act of 1934, as amended, and the "outside director" requirement for the
exemption pursuant to Section 162(m) of the Internal Revenue Code of 1986, as
amended.
Number of Shares: Amendment to Increase Number of Shares. The number of
shares is subject to adjustment on account of stock splits, stock dividends,
recapitalizations and other dilutive changes in the Class A common stock. As a
result of the two-for-one stock split effected on November 30, 1999, the number
of shares was increased from 4,600,000 to 9,200,000. The amendment will increase
the number of shares of Class A common stock by to shares.
Options Granted Under the Employee Plan. The Employee Plan provides for the
grant of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code, or "Incentive Options," and options that are not
Incentive Options, or "Non-Qualified Options." Incentive Options may be granted
only to employees. We refer to Incentive Options and Non-Qualified Options
collectively as "Employee Options." Employee Options granted under the Employee
Plan are non-transferable, except by will or pursuant to the laws of descent and
distribution.
The Committee has the sole discretion to determine the employees and
consultants to whom Employee Options may be granted and the manner in which the
Employee Options will vest. However, an Incentive Option can vest each year with
respect to no more than $100,000 in value of common stock based upon fair market
value of the common stock on the date of grant of the Incentive Options. Options
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<PAGE> 129
covering no more than 500,000 shares of Class A common stock may be granted to a
single participant during any calendar year.
Term of Employee Options. The Committee determines the Employee Option
term, which can be no longer than 10 years (5 years in case of an Incentive
Option granted to an employee who owns common stock having more than 10% of
voting power). Unless the Committee specifies otherwise, the following
provisions apply with respect to the exercisability of an option following the
termination of the option holder's employment or consulting relationship. An
Employee Option will terminate prior to its stated term upon termination of
employment or death. If an option holder's employment or consulting relationship
terminates within six months after the Employee Option's grant date for any
reason other than death or disability, or if the employment of the option holder
is terminated for cause, the Employee Option is void for all purposes. If the
option holder's employment or consulting relationship terminates because the
option holder becomes disabled, the Employee Option will terminate one year
after termination. If the option holder's employment or consulting relationship
terminates other than for cause, disability or death and such termination occurs
more than six months after the date of grant, the Employee Option will expire
three months from the date of termination. If the option holder dies while
employed, while a consultant, or within the three-month period described in the
preceding sentence, the Employee Option will terminate one year after the date
of death. In all cases the Employee Option may be exercised only to the extent
it was vested at the date the employment or consulting relationship is
terminated, and only if it has not expired according to its terms.
Exercise. The Committee determines the exercise price for each Employee
Option; however, Incentive Options must have an exercise price that is at least
equal to fair market value of the Class A common stock on the date the Incentive
Option is granted (at least equal to 110% of fair market value in the case of an
Incentive Option granted to an employee who owns common stock having more than
10% of the voting power).
An option holder may exercise an Employee Option by written notice and
payment of the exercise price (i) in cash or certified funds (ii) by the
surrender of a number of shares of Class A common stock already owned by the
option holder for at least six months (or other periods specified by the
Committee) and with a fair market value equal to the exercise price, or (iii)
through a broker's transaction by directing the issuance of a certificate for
the Class A common stock to a broker who will sell all or a portion of the Class
A common stock to pay the exercise price or make a loan to the option holder to
permit the option holder to pay the exercise price. Option holders who are
subject to withholding of federal and state income tax as a result of exercising
an Employee Option may satisfy the income tax withholding obligation through the
withholding of a portion of the Class A common stock to be received upon the
exercise of the Employee Option.
Merger and Reorganization. Upon the occurrence of (i) the merger or
consolidation of United (other than a merger or consolidation in which United is
the continuing company and that does not result in any changes in the
outstanding shares of common stock), (ii) the sale of all or substantially all
of the assets of United (other than a sale in which United continues as the
holding company of an entity that conducts the business formerly conducted by
United), or (iii) the dissolution or liquidation of United, all outstanding
Employee Options will terminate automatically when the event occurs, if United
gives the option holders 30 days prior written notice of the event. Notice is
not required for a merger or consolidation or for a sale if United, the
successor or the purchaser makes adequate provision for the assumption of the
outstanding Employee Options or the substitution of new options on terms
comparable to the outstanding Employee Options. When the notice is given, all
outstanding Employee Options fully vest and can be exercised prior to the event.
Because New United will assume the obligations under the Employee Plan, United
will not give notice and none of the outstanding Employee Options will terminate
automatically.
Change in Control. Upon a "change in control" of United, all outstanding
Employee Options vest fully. A "change in control" occurs if (i) 30% or more of
United's voting stock is acquired by persons or entities without the approval of
a majority of the board of directors unrelated to the acquirer or
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<PAGE> 130
(ii) individuals who are members of the board of directors at the beginning of
the 24-month period cease to make up at least two-thirds of the board of
directors at anytime during that period, unless the election of new members was
approved by the majority of the board of directors in office immediately prior
to the 24-month period and of new members who were so approved.
Amendment and Termination. The board of directors may amend the Employee
Plan in any respect at any time, but no amendment can impair any Employee Option
previously granted or deprive an option holder of any common stock acquired
without the option holder's consent. The Employee Plan will terminate on June 1,
2003, unless sooner terminated by the board of directors.
Federal Income Tax Consequences. When a Non-Qualified Option is granted,
there are no income tax consequences for the option holder or United. When a
Non-Qualified Option is exercised, in general, the option holder recognizes
compensation equal to the excess of the fair market value of the common stock on
the date of exercise over the exercise price. The compensation recognized by an
employee is subject to income tax withholding. United is entitled to a deduction
equal to the compensation recognized by the option holder for United's taxable
year that ends with or within the taxable year in which the option holder
recognized the compensation.
When an Incentive Option is granted, there are no income tax consequences
for the option holder or United. When an Incentive Option is exercised, the
option holder does not recognize income and United does not receive a deduction.
However, the option holder must treat the excess of the fair market value of the
common stock on the date of exercise over the exercise price as an item of
adjustment for purposes of the alternative minimum tax. If the option holder
makes a "disqualifying disposition" of the common stock (described below) in the
same taxable year that the Incentive Option was exercised, there are no
alternative minimum tax consequences.
If the option holder disposes of the Class A common stock after the option
holder has held the Class A common stock for at least two years after the
Incentive Option was granted and 12 months after the Incentive Option was
exercised, the amount the option holder receives upon disposition over the
exercise price is treated as long-term capital gain for the option holder.
United is not entitled to a deduction. If the option holder makes a
"disqualifying disposition" of the common stock by disposing of the common stock
before it has been held for at least two years after the Incentive Option was
granted and one year after the date the Incentive Option was exercised, the
option holder recognizes compensation income equal to the excess of (i) fair
market value of the common stock on the date the Incentive Option was exercised
or, if less, the amount received on the disposition over (ii) the exercise
price. At present, United is not required to withhold. United is entitled to a
deduction equal to the compensation recognized by the option holder for United's
taxable year that ends with or within the taxable year in which the option
holder recognized the compensation.
Under Section 162(m) of the Internal Revenue Code, United may be limited as
to federal income tax deductions to the extent that the total annual
compensation in excess of $1,000,000 is paid to the Chief Executive Officer or
any one of the other four highest-paid executive officers who are employed by
United on the last day of the taxable year. However, certain "performance-based
compensation," the material terms of which are disclosed to and approved by
stockholders, is not subject to this limitation on deductibility. United has
structured the Employee Plan with the intention that the compensation paid under
it would be qualified performance-based compensation and would be deductible
without regard to the limitations otherwise imposed by Section 162(m) of the
Internal Revenue Code.
THE BOARD RECOMMENDS A VOTE FOR THE AMENDMENT TO THE 1993 STOCK OPTION
PLAN.
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<PAGE> 131
CHAPTER VI -- CERTAIN LEGAL INFORMATION
LEGAL MATTERS
The validity of the shares of New United stock offered by this proxy
statement/prospectus of the transaction will be passed upon for us by Holme
Roberts & Owen LLP, Denver, Colorado.
EXPERTS
Our consolidated financial statements and schedules included in this proxy
statement/prospectus and elsewhere in the registration statement for the year
ended December 31, 1999, the ten months ended December 31, 1998 and the year
ended February 28, 1998, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The consolidated financial statements of United International Properties,
Inc. included in this proxy statement/prospectus and elsewhere in the
registration statement for the year ended December 31, 1999, the ten months
ended December 31, 1998 and the year ended February 28, 1998, have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The consolidated financial statements of United Europe, Inc. included in
this proxy statement/ prospectus and elsewhere in the registration statement for
the year ended December 31, 1999, the ten months ended December 31, 1998 and the
year ended February 28, 1998, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
The consolidated financial statements of United Telekabel Holding N.V. as
of December 31, 1998 and for the period from August 6, 1998 (inception) to
December 31, 1998 included in this proxy statement/prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen, independent
auditors, as indicated in their report with respect thereto and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
The combined balance sheets of Liberty Principal Transaction Assets Group
("New Liberty Group" or "Successor") as of December 31, 1999 and of Liberty
Principal Transaction Assets Group ("Old Liberty Group" or "Predecessor") as of
December 31, 1998, and the related combined statements of operations and
comprehensive earnings, combined equity and cash flows for the period from March
1, 1999 to December 31, 1999 (Successor period) and from January 1, 1999 to
February 28, 1999 and for each of the years in the two-year period ended
December 31, 1998 (Predecessor period), have been included herein and in the
registration statement in reliance upon the report dated February 29, 2000, of
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
The KPMG LLP report contains an explanatory paragraph that states that
effective March 9, 1999, AT&T Corp., the owner of the assets comprising New
Liberty Group, acquired TeleCommunications, Inc., the owner of the assets
comprising Old Liberty Group, in a business combination accounted for as a
purchase. As a result of the acquisition, the combined financial information for
the periods after the acquisition is presented on a different basis than that
for the periods before the acquisition and, therefore, is not comparable.
The consolidated balance sheets of Telewest Communications plc as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years
ended December 31, 1999 have been included herein and in the registration
statement in reliance upon the report dated April 20, 2000, of KPMG Audit plc,
independent public accountants, appearing elsewhere herein, and upon authority
of said firm as experts in accounting and auditing.
VI-1
<PAGE> 132
CHAPTER VII -- ADDITIONAL INFORMATION FOR STOCKHOLDERS
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We have filed the following document with the SEC and this document is
incorporated in this proxy statement/prospectus by reference and made a part
hereof.
- Our Proxy Statement for our annual stockholders' meeting dated May 1,
2000.
All documents subsequently filed by us pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act, after the date of this proxy statement/prospectus
and prior to the date of the special meeting, shall be deemed to be incorporated
by reference in this proxy statement/prospectus and to be a part hereof from the
dates of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this proxy statement/prospectus shall be deemed to
be modified or superseded for purposes of this proxy statement/prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference in this
proxy statement/prospectus modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this proxy statement/prospectus.
We will provide you without charge upon your written or oral request, a
copy of any and all of the information that has been incorporated by reference
in this proxy statement/prospectus (not including exhibits to such information
unless such exhibits are specifically incorporated by reference into such
information). Any such request should be directed to UnitedGlobalCom, Inc.,
Investor Relations, 4643 South Ulster Street, Suite 1300, Denver, Colorado 80237
(telephone number 303-770-4001).
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission under the Securities
Exchange Act of 1934. You may read and copy this information at the following
locations of the SEC:
Judiciary Plaza, Room 10024
450 Fifth Street, N.W. Street
Washington, D.C. 20549
Seven World Trade Center
Suite 1300
New York, New York 10048
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661
You can also obtain copies of this information by mail from the Public
Reference Room of the SEC, 450 Fifth Street, N.W., Room 10024, Washington D.C.
20549, at prescribed rates. You may obtain information on the operation of the
Public Reference Room by calling the SEC at (800) SEC-0330.
The SEC also maintains an internet world wide web site that contains
reports, proxy statements and other information about issuers, like us that file
electronically with the SEC. The address of that site is http://www.sec.gov. Our
Class A common stock is traded on the Nasdaq National Stock Market, and copies
of reports, proxy statements and other information can be inspected at the
offices of the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.
New United filed with the SEC registration statements on Form S-4 that
register the securities New United is offering. The registration statement,
including the attached exhibits and schedules, contains additional relevant
information about us and New United's securities. The proxy statement/rules and
regulations of the SEC allow us to omit certain information included in the
registration statement from this proxy statement/prospectus.
VII-1
<PAGE> 133
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
UNITEDGLOBALCOM, INC.
Condensed Consolidated Balance Sheet as of June 30, 2000
(Unaudited)............................................... F-3
Condensed Consolidated Statements of Operations for the Six
Months Ended June 30, 2000 and 1999 (Unaudited)........... F-4
Condensed Consolidated Statement of Stockholders' Equity for
the Six Months Ended June 30, 2000 (Unaudited)............ F-5
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999 (Unaudited)........... F-6
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-8
UNITEDGLOBALCOM, INC.
Report of Independent Public Accountants.................... F-22
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-23
Consolidated Statements of Operations for the Year Ended
December 31, 1999, the Ten Months Ended December 31, 1998
and the Year Ended February 28, 1998...................... F-24
Consolidated Statements of Stockholders' Equity (Deficit)
for the Year Ended December 31, 1999, the Ten Months Ended
December 31, 1998 and the Year Ended February 28, 1998.... F-25
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1999, the Ten Months Ended December 31, 1998
and the Year Ended February 28, 1998...................... F-28
Notes to Consolidated Financial Statements.................. F-31
UNITEDGLOBALCOM, INC. (PARENT ONLY)
Report of Independent Public Accountants on Schedule........ F-82
Condensed Financial Position of Registrant (Parent only
Schedule I)............................................... F-83
Condensed Information as to the Operations of Registrant
(Parent only Schedule I).................................. F-84
Condensed Information as to the Cash Flows of Registrant
(Parent only Schedule I).................................. F-85
Valuation and Qualifying Accounts (Schedule II)............. F-86
UNITED INTERNATIONAL PROPERTIES, INC. (SUBSIDIARY WHOSE
STOCK SECURES UNITEDGLOBALCOM, INC. INDEBTEDNESS)
Report of Independent Public Accountants.................... F-87
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-88
Consolidated Statements of Operations for the Year Ended
December 31, 1999, the Ten Months Ended December 31, 1998
and the Year Ended February 28, 1998...................... F-89
Consolidated Statements of Parent's Deficit................. F-90
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1999, the Ten Months Ended December 31, 1998
and the Year Ended February 28, 1998...................... F-91
Notes to Consolidated Financial Statements.................. F-93
UNITED EUROPE, INC. (SUBSIDIARY WHOSE STOCK SECURES
UNITEDGLOBALCOM, INC. INDEBTEDNESS)
Report of Independent Public Accountants.................... F-119
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-120
Consolidated Statements of Operations for the Year Ended
December 31, 1999, the Ten Months Ended December 31, 1998
and the Year Ended February 28, 1998...................... F-121
Consolidated Statements of Parent's Equity (Deficit)........ F-122
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1999, the Ten Months Ended December 31, 1998
and the Year Ended February 28, 1998...................... F-123
Notes to Consolidated Financial Statements.................. F-126
</TABLE>
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<PAGE> 134
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
UNITED TELEKABEL HOLDING, N.V. (SIGNIFICANT EQUITY INVESTEE
OF UNITEDGLOBALCOM, INC.)
Independent Auditors' Report................................ F-159
Consolidated Balance Sheet as of December 31, 1998.......... F-160
Consolidated Statement of Operations from August 6, 1998
(commencement of operations) until December 31, 1998...... F-161
Consolidated Statement of Cash Flows from August 6, 1998
(commencement of operations) until December 31, 1998...... F-162
Notes to Consolidated Financial Statements.................. F-163
LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
Combined Balance Sheets as of June 30, 2000 (Unaudited) and
December 31, 1999......................................... F-176
Combined Statements of Operations and Comprehensive Income
(Loss) for the Six Months Ended June 30, 2000, the Four
Months Ended June 30, 1999 and the Two Months Ended
February 28, 1999 (Unaudited)............................. F-177
Combined Statements of Equity for the Six Months Ended June
30, 2000 (Unaudited)...................................... F-178
Statements of Cash Flows for the Six Months Ended June 30,
2000, the Four Months Ended June 30, 1999 and the Two
Months Ended February 28, 1999 (Unaudited)................ F-179
Notes to Combined Financial Statements (Unaudited).......... F-180
LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
Independent Auditors' Report................................ F-184
Combined Balance Sheets as of December 31, 1999 and 1998.... F-185
Combined Statements of Operations and Comprehensive Loss for
the Ten Months Ended December 31, 1999, the Two Months
Ended February 28, 1999 and the Years Ended December 31,
1998 and 1997............................................. F-186
Combined Statements of Equity for the Ten Months Ended
December 31, 1999, the Two Months Ended February 28, 1999
and the Years Ended December 31, 1998 and 1997............ F-187
Combined Statements of Cash Flows for the Ten Months Ended
December 31, 1999, the Two Months Ended February 28, 1999
and the Years Ended December 31, 1998 and 1997............ F-188
Notes to Combined Financial Statements...................... F-190
TELEWEST COMMUNICATIONS PLC (SIGNIFICANT EQUITY INVESTEE OF
LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP)
Independent Auditors' Report................................ F-201
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997.......................... F-202
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-203
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.......................... F-204
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997.............. F-205
Notes to the Consolidated Financial Statements.............. F-206
</TABLE>
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<PAGE> 135
UNITEDGLOBALCOM, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF
JUNE 30,
2000
-----------
<S> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 969,367
Restricted cash........................................... 17,322
Short-term liquid investments............................. 1,092,114
Subscriber receivables, net of allowance for doubtful
accounts of $42,611..................................... 108,601
Costs to be reimbursed by affiliated companies, net....... 10,730
Other receivables, including related party receivables of
$1,810.................................................. 137,028
Inventory................................................. 128,707
Deferred taxes............................................ 3,021
Other current assets, net................................. 140,261
-----------
Total current assets................................ 2,607,151
Investments in affiliates, accounted for under the equity
method, net............................................... 863,938
Marketable equity securities and other investments.......... 97,131
Property, plant and equipment, net of accumulated
depreciation of $683,332.................................. 2,883,063
Goodwill and other intangible assets, net of accumulated
amortization of $292,694.................................. 3,872,903
Deferred financing costs, net of accumulated amortization of
$27,998................................................... 168,198
Deferred taxes.............................................. 9,519
Other assets, net........................................... 29,237
-----------
Total assets........................................ $10,531,140
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable, including related party payables of
$736.................................................... $ 339,537
Accrued liabilities....................................... 456,943
Subscriber prepayments and deposits....................... 78,564
Short-term debt........................................... 713,953
Current portion of other long-term debt................... 12,574
Other current liabilities................................. 6,137
-----------
Total current liabilities........................... 1,607,708
Senior discount notes and senior notes...................... 6,038,668
Other long-term debt........................................ 1,525,616
Deferred compensation....................................... 74,258
Deferred taxes.............................................. 18,046
Other long-term liabilities................................. 29,124
-----------
Total liabilities................................... 9,293,420
-----------
Minority interests in subsidiaries.......................... 574,961
-----------
Series B Convertible Preferred Stock, 3,000,000 shares
authorized, stated at liquidation value, 114,123 shares
issued and outstanding.................................... 27,309
-----------
Stockholders' equity
Class A Common Stock, $0.01 par value, 210,000,000 shares
authorized, 82,644,618 shares issued and outstanding.... 827
Class B Common Stock, $0.01 par value, 30,000,000 shares
authorized, 19,221,940 shares issued and outstanding.... 192
Series C Convertible Preferred Stock, 425,000 shares
authorized, issued and outstanding...................... 425,000
Series D Convertible Preferred Stock, 287,500 shares
authorized, issued and outstanding...................... 278,835
Additional paid-in capital................................ 1,563,191
Deferred compensation..................................... (178,413)
Treasury stock, at cost, 5,569,240 shares of Class A
Common Stock............................................ (29,061)
Accumulated deficit....................................... (1,177,782)
Other cumulative comprehensive loss....................... (247,339)
-----------
Total stockholders' equity.......................... 635,450
-----------
Total liabilities and stockholders' equity.......... $10,531,140
===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-3
<PAGE> 136
UNITEDGLOBALCOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JUNE 30,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenue..................................................... $ 584,407 $ 253,914
System operating expense.................................... (378,702) (130,912)
System selling, general and administrative expense.......... (329,865) (99,760)
Corporate general and administrative expense................ (9,027) (85,056)
Depreciation and amortization............................... (358,777) (133,077)
----------- -----------
Operating loss.................................... (491,964) (194,891)
Gain on issuance of common equity securities by
subsidiaries.............................................. 73,646 822,067
Interest income, including related party income of $280 and
$278, respectively........................................ 69,722 9,407
Interest expense............................................ (417,491) (118,457)
Gain on sale of investments in affiliates................... -- 7,456
Foreign currency exchange loss, net......................... (124,110) (20,205)
Other expense, net.......................................... (5,124) (7,149)
----------- -----------
(Loss) income before other items.................. (895,321) 498,228
Income tax benefit, net..................................... 2,781 305
Minority interests in subsidiaries.......................... 401,577 74,938
Share in results of affiliates, net......................... (39,941) (31,608)
----------- -----------
Net (loss) income................................. $ (530,904) $ 541,863
=========== ===========
Foreign currency translation adjustments.................... $ (65,748) $ (86,569)
Unrealized holding gains arising during period.............. 29,647 466
----------- -----------
Comprehensive (loss) income....................... $ (567,005) $ 455,760
=========== ===========
Basic net (loss) income attributable to common
shareholders.............................................. $ (556,716) $ 540,659
=========== ===========
Diluted net (loss) income attributable to common
shareholders.............................................. $ (556,716) $ 541,863
=========== ===========
Net (loss) income per common share:
Basic net (loss) income........................... $ (5.82) $ 6.80
=========== ===========
Diluted net (loss) income......................... $ (5.82) $ 6.11
=========== ===========
Weighted-average number of common shares outstanding:
Basic............................................. 95,734,422 79,464,553
=========== ===========
Diluted........................................... 95,734,422 88,672,220
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-4
<PAGE> 137
UNITEDGLOBALCOM, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(STATED IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B SERIES C SERIES D
COMMON STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK ADDITIONAL
------------------- ------------------- ------------------ ------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ------ ---------- ------ ------- -------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1999..................... 81,574,815 $816 19,323,940 $193 425,000 $410,125 287,500 $268,773 $1,416,635
Exchange of Class B Common
Stock for Class A Common
Stock.................... 102,000 1 (102,000) (1) -- -- -- -- --
Issuance of Class A Common
Stock in connection with
Company's stock option
plans.................... 922,036 9 -- -- -- -- -- -- 5,497
Exchange of Series B
Convertible Preferred
Stock for Class A Common
Stock.................... 45,767 1 -- -- -- -- -- -- 486
Accrual of dividends on
Series B, C and D
Convertible Preferred
Stock.................... -- -- -- -- -- 14,875 -- 10,062 (875)
Equity transactions of
subsidiaries............. -- -- -- -- -- -- -- -- 141,448
Amortization of deferred
compensation............. -- -- -- -- -- -- -- -- --
Net loss.................. -- -- -- -- -- -- -- -- --
Change in cumulative
translation
adjustments.............. -- -- -- -- -- -- -- -- --
Change in unrealized gain
on available-for-sale
securities............... -- -- -- -- -- -- -- -- --
---------- ---- ---------- ---- ------- -------- ------- -------- ----------
Balances, June 30, 2000... 82,644,618 $827 19,221,940 $192 425,000 $425,000 287,500 $278,835 $1,563,191
========== ==== ========== ==== ======= ======== ======= ======== ==========
<CAPTION>
OTHER
TREASURY STOCK CUMULATIVE
DEFERRED -------------------- ACCUMULATED COMPREHENSIVE
COMPENSATION SHARES AMOUNT DEFICIT LOSS TOTAL
------------ --------- -------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1999..................... $(119,996) 5,569,240 $(29,061) $ (621,941) $(211,238) $1,114,306
Exchange of Class B Common
Stock for Class A Common
Stock.................... -- -- -- -- -- --
Issuance of Class A Common
Stock in connection with
Company's stock option
plans.................... -- -- -- -- -- 5,506
Exchange of Series B
Convertible Preferred
Stock for Class A Common
Stock.................... -- -- -- -- -- 487
Accrual of dividends on
Series B, C and D
Convertible Preferred
Stock.................... -- -- -- (24,937) -- (875)
Equity transactions of
subsidiaries............. (54,023) -- -- -- -- 87,425
Amortization of deferred
compensation............. (4,394) -- -- -- -- (4,394)
Net loss.................. -- -- -- (530,904) -- (530,904)
Change in cumulative
translation
adjustments.............. -- -- -- -- (65,748) (65,748)
Change in unrealized gain
on available-for-sale
securities............... -- -- -- -- 29,647 29,647
--------- --------- -------- ----------- --------- ----------
Balances, June 30, 2000... $(178,413) 5,569,240 $(29,061) $(1,177,782) $(247,339) $ 635,450
========= ========= ======== =========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-5
<PAGE> 138
UNITEDGLOBALCOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
2000 1999
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................................... $ (530,904) $ 541,863
Adjustments to reconcile net (loss) income to net cash flows
from operating activities:
Gain on issuance of common equity securities by
subsidiaries........................................... (73,646) (822,067)
Share in results of affiliates, net....................... 36,059 25,987
Minority interests in subsidiaries........................ (401,577) (74,938)
Exchange rate differences in loans........................ 113,891 18,365
Depreciation and amortization............................. 358,777 133,077
Accretion of interest on senior notes and amortization of
deferred financing costs............................... 213,284 86,754
Stock-based compensation expense.......................... (686) 66,351
Gain on sale of investments in affiliates................. -- (7,456)
Increase in receivables, net.............................. (87,934) (25,315)
Increase in other assets.................................. (74,999) (17,458)
Increase in accounts payable, accrued liabilities and
other.................................................. 221,730 21,641
----------- ----------
Net cash flows from operating activities.......... (226,005) (53,196)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term liquid investments................... (1,978,560) (67,288)
Proceeds from sale of short-term liquid investments......... 1,447,864 67,756
Restricted cash (deposited) released, net................... (7) 3,429
Investments in affiliates and other investments............. (321,266) (37,815)
Proceeds from sale of investments in affiliated companies... -- 18,000
New acquisitions, net of cash acquired...................... (1,358,219) (682,081)
Capital expenditures........................................ (633,566) (220,280)
Other....................................................... 35,915 (22,761)
----------- ----------
Net cash flows from investing activities.......... (2,807,839) (941,040)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock by subsidiaries.................... 102,403 1,409,133
Issuance of common stock in connection with Company's and
subsidiary's stock option plans........................... 10,613 22,472
Issuance of common stock in connection with exercise of
warrants.................................................. -- 14,411
Proceeds from offering of senior notes and senior discount
notes..................................................... 1,612,200 208,939
Retirement of existing senior notes......................... -- (265)
Proceeds from short-term and long-term borrowings........... 940,120 555,945
Deferred financing costs.................................... (56,276) (20,236)
Repayments of short-term and long-term borrowings........... (416,114) (911,728)
Payment of sellers note..................................... -- (18,000)
----------- ----------
Net cash flows from financing activities.......... 2,192,946 1,260,671
----------- ----------
EFFECT OF EXCHANGE RATES ON CASH............................ (115,650) (49,936)
----------- ----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............ (956,548) 216,499
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 1,925,915 35,608
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 969,367 $ 252,107
=========== ==========
</TABLE>
F-6
<PAGE> 139
UNITEDGLOBALCOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(STATED IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
2000 1999
----------- ----------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.................................... $ 126,097 $ 44,939
=========== ==========
Cash received for interest................................ $ 70,866 $ 8,822
=========== ==========
Acquisition of K&T Group:
Property, plant and equipment............................. $ (227,845) $ --
Investments in affiliated companies....................... (8,430) --
Goodwill.................................................. (786,436) --
Long-term liabilities..................................... 225,439 --
Net current liabilities................................... 8,129 --
Receivables acquired...................................... (216,904) --
----------- ----------
Net cash paid..................................... $(1,006,047) $ --
=========== ==========
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)
=========== ==========
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)
=========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-7
<PAGE> 140
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
(UNAUDITED)
1. ORGANIZATION AND NATURE OF OPERATIONS
UnitedGlobalCom, 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 telephone operations outside the United States. The following
chart presents a summary of the Company's significant investments in
telecommunications as of June 30, 2000.
<TABLE>
<CAPTION>
UNITED
<S> <C> <C> <C> <C> <C>
100.0% 100.0%
UNITED EUROPE, INC. ("UEI") UNITED INTERNATIONAL PROPERTIES, INC. ("UIPI")
53.0% 100.0% 100.0%
UNITED PAN-EUROPE COMMUNICATIONS N.V. UNITED ASIA/PACIFIC UNITED LATIN AMERICA, INC.
("UPC") COMMUNICATIONS, INC. ("ULA")
("UAP")*
72.3%
AUSTAR UNITED COMMUNICATIONS, LIMITED BRAZIL:
AUSTRIA: ("AUSTAR UNITED") TV Show Brasil 100.0%
Telekabel Group 95.0% Jundiai 46.3%
BELGIUM: CHILE:
UPC Belgium 100.0% VTR 100.0%
CZECH REPUBLIC: MEXICO:
Kabel Net 100.0% AUSTRALIA: Megapo 90.3%
Kabel Plus 99.9% Austar 100.0% PERU:
FRANCE: Austar United Broadband 100.0% Cable Star 100.0%
UPC France(1) 92.0% XYZ Entertainment 50.0% LATIN AMERICAN PROGRAMMING:
GERMANY: NEW ZEALAND: MGM Networks LA 50.0%
PrimaCom 25.1% Telstra Saturn 50.0%
HUNGARY:
UPC Magyarorszag 100.0%
Monor 98.7%
IRELAND: * OTHER UAP
Tara 80.0%
ISRAEL: CHINA:
Tevel 46.6% Hunan International TV 49.0%
MALTA: PHILIPPINES:
Melita 50.0% Philipino Cable Corporation 19.6%
THE NETHERLANDS:
UPC Nederland(2) 100.0%
NORWAY:
UPC Norge 100.0%
El Tele Ostfold 100.0%
POLAND:
UPC Polska 100.0%
ROMANIA:
UPC Romania 51.0%- 70.0%
SLOVAK REPUBLIC:
UPC Slovak 95.0%-100.0%
SPAIN/PORTUGAL:
Iberian Programming 50.0%
Munditelecom 51.0%
SWEDEN:
UPC Sweden 100.0%
UNITED KINGDOM:
Xtra Music 41.0%
OTHER BUSINESS LINES:
SBS 23.5%
Priority Telecom 100.0%
chello broadband 100.0%
UPCtv 100.0%
</TABLE>
(1) The investments in Mediareseaux, Videopole, Time Warner Cable France, RCF
and Intercomm are held through UPC France.
(2) The investments in GelreVision, A2000, K&T Group, Tebecai and Haarlem are
held through UPC Nederland.
F-8
<PAGE> 141
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. The following illustrates those subsidiaries for which the
Company did not consolidate the results of operations for the entire six months
ended June 30, 2000 and/or June 30, 1999:
<TABLE>
<CAPTION>
EFFECTIVE DATE OF
ENTITY CONSOLIDATION REASON
------ ----------------- ------
<S> <C> <C>
UPC Nederland(1) February 1, 1999 Acquisition of remaining 49.0%
interest in United Telekabel
Holding N.V. ("UTH"')
VTR May 1, 1999 Acquisition of remaining 66.0%
interest
UPC Slovensko (Slovak Republic) June 1, 1999 Acquisition
GelreVision (The Netherlands) June 1, 1999 Acquisition
Reseaux Cables de France
("RCF"') June 1, 1999 Acquisition
Saturn(2) August 1, 1999 Acquisition of remaining 35.0%
interest
Stjarn (Sweden) August 1, 1999 Acquisition
Videopole (France) August 1, 1999 Acquisition
@Entertainment (UPC Polska) August 1, 1999 Acquisition
Time Warner Cable France September 1, 1999 Acquisition
A2000 (The Netherlands) September 1, 1999 Acquisition of remaining 50.0%
interest
Kabel Plus October 1, 1999 Acquisition
Monor December 1, 1999 Acquisition
Intercomm France Holding S.A. March 1, 2000 Acquisition of 92.0% interest
Tebecai February 1, 2000 Acquisition
El Tele Ostfold and Vestfold March 1, 2000 Acquisition
K&T Group March 31, 2000 Acquisition
</TABLE>
---------------
(1) Prior to the acquisition date, the equity method of accounting was used
because of certain minority shareholder's rights.
(2) Saturn was deconsolidated effective April 1, 2000 in connection with the
formation of the 50/50 joint venture Telstra Saturn.
F-9
<PAGE> 142
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 2000 and the results of its operations for the three and
six months ended June 30, 2000 and 1999. 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 year ended December 31, 1999.
INVESTMENTS IN AFFILIATES, 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.
MARKETABLE EQUITY SECURITIES AND OTHER INVESTMENTS
The cost method of accounting is used for the Company's other investments in
affiliates in which the Company's ownership interest is less than 20.0% and
where the Company does not exert significant influence, except for those
investments in marketable equity securities. The Company classifies its
investments in marketable equity securities in which its interest is less than
20.0% and where the Company does not exert significant influence as
available-for-sale and reports such investments at fair market value. Unrealized
gains and losses are charged or credited to equity, and realized gains and
losses and other-than-temporary declines in market value are included in
operations.
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:
<TABLE>
<S> <C>
Cable distribution networks............................. 3-20 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
</TABLE>
F-10
<PAGE> 143
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
DEFERRED FINANCING COSTS
Costs to obtain debt financings are capitalized and amortized over the life of
the debt facility using the effective interest method.
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,
telephone and Internet/data 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, chello
broadband, ULA, VTR and Austar United 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. Subsequent decreases in the estimated
fair value result in a credit to the statement of operations.
BASIC AND DILUTED NET (LOSS) INCOME PER SHARE
"Basic net (loss) income per share" is determined by dividing net (loss) income
available to common stockholders by the weighted-average number of common shares
outstanding during each period. Net (loss) income available to common
stockholders includes the accrual of dividends on convertible preferred
F-11
<PAGE> 144
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
stock which is charged directly to additional paid-in capital. "Diluted net
(loss) income per share" includes the effects of potentially issuable common
stock, but only if dilutive. On November 11, 1999, The Board of Directors
authorized a two-for-one stock split effected in the form of a stock dividend
distributed on November 30, 1999 to stockholders of record on November 22, 1999.
All historical weighted average share and per share amounts have been restated
to reflect the stock split.
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' 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. 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.
NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet at fair value.
Under SFAS 133, accounting for changes in fair market value of a derivative
depends on its intended use and designation. In June 1999, the FASB approved
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133 ("SFAS 137"). SFAS 137 amends the effective date of SFAS 133,
which will now be effective for the Company's first quarter 2001. The Company is
currently assessing the effect of this new standard.
In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
"Revenue Recognition" ("SAB 101") which provides interpretive guidance on the
recognition, presentation and disclosure of revenue in financial statements. The
Company is required to determine the impact of SAB 101 no later than the end of
the fourth quarter of fiscal 2000. Depending on the results of the evaluation,
the implementation of SAB 101 may require the Company to restate its current
year results to reflect any cumulative effect of a change in accounting
principle as if SAB 101 had been implemented on January 1, 2000. The Company is
currently reviewing SAB 101 to determine what impact, if any, the adoption of
SAB 101 will have on its financial position or results of operations.
F-12
<PAGE> 145
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS AND OTHER
AGREEMENT WITH LIBERTY MEDIA CORPORATION
In June 2000, the Company and Liberty Media Corporation ("Liberty") announced an
agreement in which United will acquire certain of Liberty's international
broadband distribution and programming assets in exchange for $200.0 million in
cash and 75.3 million shares of United's Class B common stock. These shares
represent a 38.0% economic and a 72.0% voting interest in United. The Liberty
assets to be acquired by United include a 25.0% indirect economic interest in
Telewest Communications, the second largest broadband communications provider in
the United Kingdom. United will also acquire Liberty's Latin American broadband
interests, including a 28.0% interest in Cablevision S.A. of Argentina; 49.0% of
Liberty Cablevision of Puerto Rico; 41.0% of Grupo Portatel, a wireless
broadband service provider in Mexico; and 43.0% of Digital Latin America. The
transaction is subject to certain regulatory, shareholder and third party
approvals and is expected to close in the fourth quarter of 2000. Upon closing
Liberty will be bound by certain voting and standstill agreements with the
Company and certain of its controlling shareholders.
SATURN TELSTRA JOINT VENTURE
On April 6, 2000, Saturn merged with Telstra New Zealand Limited, a wholly-owned
subsidiary of Telstra Corporation Limited, to form Telstra Saturn. Telstra
Saturn offers video, voice and data services to New Zealand's business and
residential markets.
4. INVESTMENTS IN AFFILIATES, ACCOUNTED FOR UNDER THE EQUITY METHOD
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
----------------------------------------------------------------------
CUMULATIVE CUMULATIVE
INVESTMENTS IN DIVIDENDS SHARE IN RESULTS TRANSLATION
AFFILIATES RECEIVED OF AFFILIATES ADJUSTMENTS TOTAL
-------------- --------- ---------------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Europe:
SBS............................ $ 264,675 $ -- $(11,980) $ (2,459) $250,236
Tevel.......................... 99,385 (6,180) (7,843) (3,561) 81,801
Melita......................... 14,062 -- 1,349 (2,897) 12,514
Iberian Programming............ 11,947 (2,560) 2,216 2,790 14,393
Xtra Music..................... 12,186 -- (1,729) (3,503) 6,954
PrimaCom....................... 341,017 -- (10,965) (11,828) 318,224
Other.......................... 41,780 -- (3,753) 992 39,019
Asia/Pacific:
XYZ Entertainment.............. 44,306 (3,197) (15,320) (72) 25,717
Telstra Saturn................. 66,318 -- (7,787) (1,283) 57,248
Pilipino Cable Corporation..... 16,010 -- (3,015) (2,588) 10,407
Hunan International TV......... 6,061 -- (1,990) 16 4,087
Other.......................... 2,797 -- (166) (148) 2,483
Latin America:
Megapo......................... 71,819 (20,862) (2,333) (11,083) 37,541
MGM Networks LA(1)............. 13,386 -- (13,386) -- --
Jundiai........................ 6,032 (1,572) 188 (1,334) 3,314
---------- -------- -------- -------- --------
Total.................. $1,011,781 $(34,371) $(76,514) $(36,958) $863,938
========== ======== ======== ======== ========
</TABLE>
---------------
(1) Includes an accrued funding obligation of $3.4 million at June 30, 2000. The
Company would face significant and punitive dilution if it did not make the
requested fundings.
F-13
<PAGE> 146
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
AS OF JUNE 30,
2000
--------------
(IN THOUSANDS)
<S> <C>
Cable distribution networks................................. $2,450,762
Subscriber premises equipment and converters................ 537,436
MMDS/DTH distribution facilities............................ 178,391
Office equipment, furniture and fixtures.................... 155,879
Buildings and leasehold improvements........................ 122,745
Other....................................................... 121,182
----------
3,566,395
Accumulated depreciation.......................... (683,332)
----------
Net property, plant and equipment................. $2,883,063
==========
</TABLE>
6. GOODWILL AND OTHER INTANGIBLE ASSETS
<TABLE>
<CAPTION>
AS OF JUNE 30,
2000
--------------
(IN THOUSANDS)
<S> <C>
Europe:
UPC Polska................................................ $ 912,322
UPC Nederland............................................. 1,589,867
UPC Sweden................................................ 416,533
Telekabel Group........................................... 168,499
UPC France................................................ 208,599
UPC Norge................................................. 78,707
Kabel Plus................................................ 86,088
UPC Magyarorszag.......................................... 109,126
UPC N.V................................................... 150,569
Monor..................................................... 21,866
UPC Slovak................................................ 21,662
UPC Belgium............................................... 20,805
El Tele Ostfold........................................... 24,846
Other..................................................... 39,290
Asia/Pacific:
Austar United............................................. 78,230
Latin America:
VTR....................................................... 223,108
TV Show Brasil............................................ 8,300
Cable Star................................................ 7,180
----------
4,165,597
Accumulated amortization.................................. (292,694)
----------
Net goodwill and other intangible assets.................. $3,872,903
==========
</TABLE>
F-14
<PAGE> 147
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHORT-TERM DEBT
<TABLE>
<CAPTION>
AS OF JUNE 30,
2000
--------------
(IN THOUSANDS)
<S> <C>
UPC facilities.............................................. $700,930
Other ULA and UAP........................................... 13,023
--------
Total short-term debt............................. $713,953
========
</TABLE>
8. SENIOR DISCOUNT NOTES AND SENIOR NOTES
<TABLE>
<CAPTION>
AS OF JUNE 30,
2000
--------------
(IN THOUSANDS)
<S> <C>
United 1998 Notes........................................... $1,044,857
United 1999 Notes........................................... 236,630
UPC 10.875% USD Senior Notes due 2009....................... 719,738
UPC 10.875% Euro Senior Notes due 2009...................... 286,096
UPC 12.5% USD Senior Discount Notes due 2009................ 448,104
UPC 10.875% USD Senior Notes due 2007....................... 181,821
UPC 10.875% Euro Senior Notes due 2007...................... 95,365
UPC 11.25% USD Senior Notes due 2009........................ 227,359
UPC 11.25% Euro Senior Notes due 2009....................... 95,655
UPC 13.375% USD Senior Discount Notes due 2009.............. 272,891
UPC 13.375% Euro Senior Discount Notes due 2009............. 103,989
UPC 11.25% USD Senior Notes due 2010........................ 595,883
UPC 11.25% Euro Senior Notes due 2010....................... 189,367
UPC 11.5% USD Senior Notes due 2010......................... 281,139
UPC 13.75% Senior Discount Notes due 2010................... 543,860
@Entertainment Senior Discount Notes........................ 279,578
United A/P Notes............................................ 436,336
----------
6,038,668
Less current portion.............................. --
----------
Total senior discount notes and senior notes...... $6,038,668
==========
</TABLE>
9. OTHER LONG-TERM DEBT
<TABLE>
<CAPTION>
AS OF JUNE 30,
2000
--------------
(IN THOUSANDS)
<S> <C>
UPC Senior Credit Facility.................................. $ 531,007
UPC Nederland Facilities.................................... 346,560
UPC France Facilities....................................... 201,391
Other UPC................................................... 60,956
VTR Bank Facility........................................... 176,000
New Austar Bank Facility.................................... 219,039
Saturn Bank Facility........................................ --
Other Asia/Pacific.......................................... 2,694
Other Latin America......................................... 543
----------
1,538,190
Less current portion.............................. (12,574)
----------
Total other long-term debt........................ $1,525,616
==========
</TABLE>
F-15
<PAGE> 148
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMMITMENT
In May 2000, UPC closed a E4.0 ($3.8) billion 8.0 and 8.75 year Operating and
Term Loan Commitment. The facilities will refinance existing operating company
bank debt currently totaling E1.7 ($1.6) billion as of June 30, 2000. The new
loan facilities will add E2.3 ($2.2) billion of liquidity and will be used to
finance the further rollout of digital video, voice and data services. The loan
is expected to be closed and drawn in the third quarter 2000.
10. STOCKHOLDERS' EQUITY
COMMON STOCK
In April 1993, the Company adopted a Restated Certificate of Incorporation
pursuant to which the Company authorized the issuance of two classes of common
stock, Class A Common Stock and Class B Common Stock. Each share of Class A
Common Stock is entitled to one vote per share while each share of Class B
Common Stock is entitled to ten votes per share. Each share of Class B Common
Stock is convertible at any time at the option of the holder into one share of
Class A Common Stock. The two classes of common stock are identical in all other
respects.
COMMON STOCK SPLIT
On November 11, 1999, the Board of Directors authorized a two-for-one stock
split effected in the form of a stock dividend distributed on November 30, 1999
to shareholders of record on November 22, 1999. The effect of the stock split
has been recognized retroactively in all share and per share amounts in the
accompanying consolidated financial statements and notes.
SERIES C CONVERTIBLE PREFERRED STOCK
In July 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 $381.6 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. On September 30, 1999, December 31,
1999, March 31, 2000 and June 30, 2000 the holders received their quarterly
payment in cash. The Series C Preferred Stock has 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 $42.15.
SERIES D CONVERTIBLE PREFERRED STOCK
In December 1999, the Company issued 287,500 shares of par value $0.01 per share
Series D Preferred Stock, resulting in gross and net proceeds to the Company of
$287.5 million and $259.9 million, respectively. The purchasers of the Series D
Preferred Stock deposited $20.1 million into an account from which the holders
will be entitled to payments in an amount equal to $17.50 per preferred share
per quarter commencing on December 31, 1999 through September 30, 2000 in cash
or Class A Common Stock at United's option. On December 31, 1999, March 31, 2000
and June 30, 2000 the holders received their payment in cash. The Series D
Preferred Stock has 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,
F-16
<PAGE> 149
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30 and December 31 of each year, commencing on December 31, 2000,
payable in cash or Class A Common Stock at the Company's option. Each share of
Series D 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 $63.79.
UPC STOCK SPLIT
In March 2000, at an extraordinary general meeting of shareholders, shareholders
of UPC approved an amendment to UPC's Articles of Association to effect a
three-for-one stock split. All share and per share amounts in the accompanying
notes to the consolidated financial statements have been adjusted to reflect
this stock split.
EQUITY TRANSACTIONS OF SUBSIDIARIES
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 subsidiaries affects the equity
accounts of the Company. The following represents the effect on additional
paid-in capital and deferred compensation as a result of these equity
transactions:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, 2000
----------------------------
AUSTAR
UPC UNITED TOTAL
-------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Variable plan accounting for stock options............. $ 54,023 $ -- $ 54,023
Deferred compensation expense.......................... (54,023) -- (54,023)
Amortization of deferred compensation.................. (7,934) 3,540 (4,394)
Issuance of warrants by UPC............................ 59,912 -- 59,912
Issuance of shares by subsidiary of UPC................ 27,513 -- 27,513
-------- ------ --------
Total........................................ $ 79,491 $3,540 $ 83,031
======== ====== ========
</TABLE>
OTHER CUMULATIVE COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
AS OF JUNE 30,
2000
--------------
(IN THOUSANDS)
<S> <C>
Foreign currency translation adjustments.................... $(283,690)
Unrealized gain on available-for-sale securities............ 36,351
---------
Total............................................. $(247,339)
=========
</TABLE>
F-17
<PAGE> 150
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. BASIC AND DILUTED NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
JUNE 30,
----------------------
2000 1999
--------- --------
(IN THOUSANDS)
<S> <C> <C>
BASIC:
Net (loss) income......................................... $(530,904) $541,863
Accretion of Series A Convertible Preferred Stock......... -- (214)
Accretion of Series B Convertible Preferred Stock......... (875) (990)
Accretion of Series C Convertible Preferred Stock......... (14,875) --
Accretion of Series D Convertible Preferred Stock......... (10,062) --
--------- --------
Basic net (loss) income attributable to common
shareholders.................................... (556,716) 540,659
--------- --------
DILUTED:
Accretion of Series A Convertible Preferred Stock......... -- 214
Accretion of Series B Convertible Preferred Stock......... --(1) 990
Accretion of Series C Convertible Preferred Stock......... --(1) --
Accretion of Series D Convertible Preferred Stock......... --(1) --
--------- --------
Diluted net (loss) income attributable to common
shareholders.................................... $(556,716) $541,863
========= ========
</TABLE>
(1) Excluded from the calculation of diluted net (loss) income attributable to
common shareholders because the effect is anti-dilutive.
12. SEGMENT INFORMATION
<TABLE>
<CAPTION>
AS OF
JUNE 30,
2000
-----------
TOTAL
ASSETS
-----------
<S> <C>
Europe:
The Netherlands........................................ $ 2,864,769
Austria................................................ 397,221
Belgium................................................ 47,863
Czech Republic......................................... 156,434
France................................................. 757,647
Hungary................................................ 287,530
Norway................................................. 251,694
Poland................................................. 1,179,791
Sweden................................................. 427,001
Corporate and Other.................................... 1,689,059
-----------
Total Europe......................................... 8,059,009
-----------
Asia/Pacific:
Australia.............................................. 577,360
Corporate and Other.................................... 54,266
-----------
Total Asia/Pacific................................... 631,626
-----------
Latin America:
Chile.................................................. 507,723
Brazil................................................. 17,710
Corporate and Other.................................... 61,590
-----------
Total Latin America.................................. 587,023
-----------
Corporate & Other......................................... 1,253,482
-----------
Total Company..................................... $10,531,140
===========
</TABLE>
F-18
<PAGE> 151
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 2000
---------------------------------------------------------------------
INTERNET/
VIDEO TELEPHONE DATA PROGRAMMING OTHER TOTAL
-------- --------- --------- ----------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Europe:
The Netherlands................. $ 96,029 $ 42,352 $ 13,634 $ 1,145 $ 339 $ 153,499
Austria......................... 39,615 14,343 11,546 -- -- 65,504
Belgium......................... 7,366 601 1,820 -- -- 9,787
Czech Republic.................. 11,836 479 -- -- 1,709 14,024
France.......................... 27,960 4,022 1,005 -- -- 32,987
Hungary......................... 22,364 10,208 122 -- 7 32,701
Norway.......................... 23,416 1,197 935 -- -- 25,548
Poland.......................... 34,232 -- -- 22,850 -- 57,082
Sweden.......................... 15,854 218 2,316 -- -- 18,388
Corporate and Other............. 7,663 1,391 -- -- 865 9,919
-------- -------- -------- -------- -------- ---------
Total Europe.................. 286,335 74,811 31,378 23,995 2,920 419,439
-------- -------- -------- -------- -------- ---------
Asia/Pacific:
Australia....................... 82,537 -- 429 -- 1,037 84,003
New Zealand..................... 844 3,166 878 -- -- 4,888
Corporate and Other............. -- -- -- -- -- --
-------- -------- -------- -------- -------- ---------
Total Asia/Pacific............ 83,381 3,166 1,307 -- 1,037 88,891
-------- -------- -------- -------- -------- ---------
Latin America:
Chile........................... 58,188 13,813 242 -- -- 72,243
Brazil.......................... 2,729 -- -- -- -- 2,729
Corporate and Other............. 1,049 -- -- -- 4 1,053
-------- -------- -------- -------- -------- ---------
Total Latin America........... 61,966 13,813 242 -- 4 76,025
-------- -------- -------- -------- -------- ---------
Corporate & Other................. -- -- -- -- 52 52
-------- -------- -------- -------- -------- ---------
Total Company.............. $431,682 $ 91,790 $ 32,927 $ 23,995 $ 4,013 $ 584,407
======== ======== ======== ======== ======== =========
ADJUSTED EBITDA: (1)
Europe:
The Netherlands................. $ 47,451 $(33,061) $(69,481) $(19,327) $ (5,523) $ (79,941)
Austria......................... 21,363 (3,294) 482 -- -- 18,551
Belgium......................... 2,844 (254) (2,414) -- -- 176
Czech Republic.................. 2,181 34 -- (50) 604 2,769
France.......................... 6,399 (9,121) (3,888) -- (298) (6,908)
Hungary......................... 7,479 5,593 (2,037) (77) 7 10,965
Norway.......................... 8,910 (5,948) (1,726) -- (122) 1,114
Poland.......................... 1,440 -- -- (31,445) (1,147) (31,152)
Sweden.......................... 6,236 (1,705) (4,310) -- -- 221
Corporate and Other............. 2,961 357 (4,683) (248) (41,928) (43,541)
-------- -------- -------- -------- -------- ---------
Total Europe.................. 107,264 (47,399) (88,057) (51,147) (48,407) (127,746)
-------- -------- -------- -------- -------- ---------
Asia/Pacific:
Australia....................... 3,222 (126) (6,864) -- (5,057) (8,825)
New Zealand..................... (253) (357) 248 -- (1,344) (1,706)
Corporate and Other............. -- -- -- -- 948 948
-------- -------- -------- -------- -------- ---------
Total Asia/Pacific............ 2,969 (483) (6,616) -- (5,453) (9,583)
-------- -------- -------- -------- -------- ---------
Latin America:
Chile........................... 19,887 (5,692) (929) -- (4,528) 8,738
Brazil.......................... (150) -- -- -- -- (150)
Corporate and Other............. (407) -- -- -- 1,966 1,559
-------- -------- -------- -------- -------- ---------
Total Latin America........... 19,330 (5,692) (929) -- (2,562) 10,147
-------- -------- -------- -------- -------- ---------
Corporate & Other................. -- -- -- -- (6,691) (6,691)
-------- -------- -------- -------- -------- ---------
Total Company.............. $129,563 $(53,574) $(95,602) $(51,147) $(63,113) $(133,873)
======== ======== ======== ======== ======== =========
</TABLE>
F-19
<PAGE> 152
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
--------------------------------------------------------------------
INTERNET/
VIDEO TELEPHONE DATA PROGRAMMING OTHER TOTAL
-------- --------- --------- ----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Europe:
The Netherlands............................ $ 42,613 $ 9,696 $ 1,226 $ 12 $ -- $ 53,547
Austria.................................... 42,806 1,113 5,139 -- -- 49,058
Belgium.................................... 7,989 -- 1,012 -- -- 9,001
Czech Republic............................. 2,328 -- -- -- -- 2,328
France..................................... 3,067 348 136 -- -- 3,551
Hungary.................................... 17,258 -- 50 -- -- 17,308
Norway..................................... 24,369 33 195 -- -- 24,597
Poland..................................... -- -- -- -- -- --
Sweden..................................... -- -- -- -- -- --
Corporate and Other........................ 2,304 -- -- 1,153 887 4,344
-------- -------- -------- -------- -------- --------
Total Europe............................. 142,734 11,190 7,758 1,165 887 163,734
-------- -------- -------- -------- -------- --------
Asia/Pacific:
Australia.................................. 64,820 -- -- -- -- 64,820
New Zealand................................ -- -- -- -- -- --
Corporate and Other........................ -- -- -- -- 821 821
-------- -------- -------- -------- -------- --------
Total Asia/Pacific....................... 64,820 -- -- -- 821 65,641
-------- -------- -------- -------- -------- --------
Latin America:
Chile...................................... 18,906 2,108 -- -- -- 21,014
Brazil..................................... 2,108 -- -- -- -- 2,108
Corporate and Other........................ 1,417 -- -- -- -- 1,417
-------- -------- -------- -------- -------- --------
Total Latin America...................... 22,431 2,108 -- -- -- 24,539
-------- -------- -------- -------- -------- --------
Corporate & Other............................ -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Company.......................... $229,985 $ 13,298 $ 7,758 $ 1,165 $ 1,708 $253,914
======== ======== ======== ======== ======== ========
ADJUSTED EBITDA:(1)
Europe:
The Netherlands............................ $ 21,134 $ (3,562) $(20,442) $ (3,358) $ -- $ (6,228)
Austria.................................... 23,812 (5,187) (163) -- -- 18,462
Belgium.................................... 2,520 -- (1,165) -- -- 1,355
Czech Republic............................. (286) -- -- -- -- (286)
France..................................... (164) (2,320) (914) -- -- (3,398)
Hungary.................................... 5,595 -- (13) -- -- 5,582
Norway..................................... 10,827 (2,748) (2,180) -- -- 5,899
Corporate and Other........................ 669 -- (84) (8,437) (5,259) (13,111)
-------- -------- -------- -------- -------- --------
Total Europe............................. 64,107 (13,817) (24,961) (11,795) (5,259) 8,275
-------- -------- -------- -------- -------- --------
Asia/Pacific:
Australia.................................. (1,441) -- -- -- (3,525) (4,966)
New Zealand................................ -- -- -- -- -- --
Corporate and Other........................ -- -- -- -- 1,778 1,778
-------- -------- -------- -------- -------- --------
Total Asia/Pacific....................... (1,441) -- -- -- (1,747) (3,188)
-------- -------- -------- -------- -------- --------
Latin America:
Chile...................................... 4,399 651 -- -- (1,024) 4,026
Brazil..................................... (1,401) -- -- -- -- (1,401)
Corporate and Other........................ (226) -- -- -- (2,773) (2,999)
-------- -------- -------- -------- -------- --------
Total Latin America...................... 2,772 651 -- -- (3,797) (374)
-------- -------- -------- -------- -------- --------
Corporate & Other............................ -- -- -- -- (176) (176)
-------- -------- -------- -------- -------- --------
Total Company.......................... $ 65,438 $(13,166) $(24,961) $(11,795) $(10,979) $ 4,537
======== ======== ======== ======== ======== ========
</TABLE>
F-20
<PAGE> 153
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) "Adjusted EBITDA" represents net operating earnings before depreciation,
amortization and stock-based compensation charges. Stock-based compensation
charges result from variable plan accounting for our subsidiaries' phantom
stock option plans and are generally non-cash charges. Industry analysts
generally consider Adjusted EBITDA to be a helpful way to measure the
performance of cable television operations and communications companies.
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.
The Company's consolidated segment Adjusted EBITDA reconciles to the
consolidated statement of operations as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Operating loss.............................................. $(491,964) $(194,891)
Depreciation and amortization............................... 358,777 133,077
Stock-based compensation expense............................ (686) 66,351
--------- ---------
Consolidated Adjusted EBITDA...................... $(133,873) $ 4,537
========= =========
</TABLE>
F-21
<PAGE> 154
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UnitedGlobalCom, Inc.:
We have audited the accompanying consolidated balance sheets of UnitedGlobalCom,
Inc. (a Delaware corporation) (formerly United International Holdings, Inc.) and
subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
year ended December 31, 1999, the ten months ended December 31, 1998 (see Note
2) and the year ended February 28, 1998. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform these
audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
UnitedGlobalCom, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the year ended December 31,
1999, the ten months ended December 31, 1998 and the year ended February 28,
1998 in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 29, 2000
F-22
<PAGE> 155
UNITEDGLOBALCOM, INC.
CONSOLIDATED BALANCE SHEETS
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------------------
1999 1998
---------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $1,925,915 $ 35,608
Restricted cash........................................... 18,217 17,215
Short-term liquid investments............................. 629,689 41,498
Subscriber receivables, net of allowance for doubtful
accounts of $27,808 and $5,482, respectively............ 83,388 13,788
Costs to be reimbursed by affiliated companies, net....... 13,430 21,232
Other receivables, including related party receivables of
$1,680 and $2,064, respectively......................... 131,622 17,444
Inventory................................................. 82,995 25,379
Deferred taxes............................................ 2,119 --
Other current assets, net................................. 98,891 16,363
---------- -----------
Total current assets................................ 2,986,266 188,527
Investments in affiliates, accounted for under the equity
method, net............................................... 309,509 429,490
Marketable equity securities and other investments.......... 235,917 --
Property, plant and equipment, net of accumulated
depreciation of $482,524 and $201,183, respectively....... 2,379,837 451,442
Goodwill and other intangible assets, net of accumulated
amortization of $170,133 and $39,683, respectively........ 2,944,802 424,934
Deferred financing costs, net of accumulated amortization of
$17,062 and $9,923, respectively.......................... 130,704 41,270
Deferred taxes.............................................. 3,698 --
Other assets, net........................................... 12,120 6,432
---------- -----------
Total assets........................................ $9,002,853 $ 1,542,095
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable, including related party payables of $390
and $247, respectively.................................. $ 306,760 $ 76,696
Accrued liabilities....................................... 324,431 66,079
Subscriber prepayments and deposits....................... 41,466 24,210
Short-term debt........................................... 173,296 93,379
Current portion of senior discount notes and other
long-term debt.......................................... 52,180 62,664
Other current liabilities................................. 10,567 3,524
---------- -----------
Total current liabilities........................... 908,700 326,552
Senior discount notes and senior notes...................... 4,385,004 1,249,643
Other long-term debt........................................ 1,604,451 689,646
Deferred compensation....................................... 54,825 173,251
Deferred taxes.............................................. 17,074 4,580
Other long-term liabilities................................. 23,603 7,097
---------- -----------
Total liabilities................................... 6,993,657 2,450,769
---------- -----------
Minority interests in subsidiaries.......................... 867,970 18,705
---------- -----------
Preferred stock, $0.01 par value, 3,000,000 shares
authorized, stated at liquidation value:
Series A Convertible Preferred Stock, 0 and 132,144 shares
issued and outstanding, respectively.................... -- 26,086
---------- -----------
Series B Convertible Preferred Stock, 116,185 and 139,031
shares issued and outstanding, respectively............. 26,920 30,200
---------- -----------
Stockholders' equity (deficit)
Class A Common Stock, $0.01 par value, 210,000,000 shares
authorized, 81,574,815 and 61,349,990 shares issued and
outstanding, respectively............................... 816 614
Class B Common Stock, $0.01 par value, 30,000,000 shares
authorized, 19,323,940 and 19,831,760 shares issued and
outstanding, respectively............................... 193 198
Series C Convertible Preferred Stock, 425,000 shares
authorized, 425,000 and 0 shares issued and outstanding,
respectively............................................ 410,125 --
Series D Convertible Preferred Stock, 287,500 shares
authorized, 287,500 and 0 shares issued and outstanding,
respectively............................................ 268,773 --
Additional paid-in capital................................ 1,416,635 378,191
Deferred compensation..................................... (119,996) (679)
Treasury stock, at cost, 5,569,240 shares of Class A
Common Stock............................................ (29,061) (29,061)
Accumulated deficit....................................... (621,941) (1,241,986)
Other cumulative comprehensive loss....................... (211,238) (90,942)
---------- -----------
Total stockholders' equity (deficit)................ 1,114,306 (983,665)
---------- -----------
Commitments and contingencies (Notes 14 and 15)
Total liabilities and stockholders' equity
(deficit)........................................... $9,002,853 $ 1,542,095
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE> 156
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenue..................................................... $ 719,524 $ 254,068 $ 98,622
System operating expense.................................... (452,515) (122,811) (65,631)
System selling, general and administrative expense.......... (300,674) (105,226) (62,803)
Corporate general and administrative expense................ (318,251) (194,767) (28,553)
Depreciation and amortization............................... (418,714) (159,045) (91,656)
----------- ----------- -----------
Operating loss..................................... (770,630) (327,781) (150,021)
Gain on issuance of common equity securities by
subsidiaries.............................................. 1,508,839 -- --
Interest income, including related party income of $561,
$497 and $302, respectively............................... 54,238 10,464 7,806
Interest expense............................................ (399,999) (163,227) (124,288)
Provision for losses on marketable equity securities and
investment related costs.................................. (7,127) (9,686) (14,793)
Gain on sale of investments in affiliates................... -- -- 90,020
Foreign currency exchange (loss) gain....................... (39,501) 1,582 (1,419)
Other expense, net.......................................... (14,641) (3,518) (3,669)
----------- ----------- -----------
Income (loss) before income taxes and other
items............................................ 331,179 (492,166) (196,364)
Income tax expense.......................................... (198) (610) --
Minority interests in subsidiaries.......................... 360,444 1,410 1,568
Share in results of affiliates, net......................... (55,107) (54,166) (68,645)
----------- ----------- -----------
Income (loss) before extraordinary charge.......... 636,318 (545,532) (263,441)
Extraordinary charge for early retirement of debt........... -- -- (79,091)
----------- ----------- -----------
Net income (loss).................................. $ 636,318 $ (545,532) $ (342,532)
=========== =========== ===========
Foreign currency translation adjustments.................... $ (127,154) $ (24,713) $ (50,274)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period........................................... 6,858 (505) (1,593)
Reclassification adjustment for losses included in
net income....................................... -- -- 8,013
----------- ----------- -----------
Comprehensive income (loss)........................ $ 516,022 $ (570,750) $ (386,386)
=========== =========== ===========
Basic net income (loss) attributable to common
shareholders (Note 13).................................... $ 617,926 $ (547,155) $ (343,803)
=========== =========== ===========
Diluted net income (loss) attributable to common
shareholders (Note 13).................................... $ 636,318 $ (547,155) $ (343,803)
=========== =========== ===========
Net income (loss) per common share:
Basic income (loss) before extraordinary charge........... $ 7.53 $ (7.43) $ (3.43)
Extraordinary charge...................................... -- -- (1.03)
----------- ----------- -----------
Basic net income (loss)................................... $ 7.53 $ (7.43) $ (4.46)
=========== =========== ===========
Diluted income (loss) before extraordinary charge......... $ 6.67 $ (7.43) $ (3.43)
Extraordinary charge...................................... -- -- (1.03)
----------- ----------- -----------
Diluted net income (loss)................................. $ 6.67 $ (7.43) $ (4.46)
=========== =========== ===========
Weighted-average number of common shares outstanding:
Basic..................................................... 82,024,077 73,644,728 77,033,786
=========== =========== ===========
Diluted................................................... 95,331,929 73,644,728 77,033,786
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE> 157
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(STATED IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL TREASURY STOCK
------------------- ------------------- PAID-IN DEFERRED --------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION SHARES AMOUNT
---------- ------ ---------- ------ ---------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, February 28, 1997........ 52,194,526 $523 25,943,550 $259 $340,361 $ (624) -- $ --
Issuance of Class A Common Stock in
connection with Company's stock
option plan...................... 303,788 3 -- -- 793 -- -- --
Issuance of Class A Common Stock in
connection with Company's 401(k)
plan............................. 46,968 -- -- -- 334 -- -- --
Exchange of Class B Common Stock
for Class A Common Stock......... 216,904 2 (216,904) (2) -- -- -- --
Accrual of dividends on convertible
preferred stock.................. -- -- -- -- (1,271) -- -- --
Compensation expense related to
stock options.................... -- -- -- -- 351 -- -- --
Issuance of warrants to purchase
common stock of subsidiary....... -- -- -- -- 3,678 -- -- --
Gain on sale of stock by
subsidiaries..................... -- -- -- -- 7,614 -- -- --
Amortization of deferred
compensation..................... -- -- -- -- -- 582 -- --
Purchase of Class A Common Stock by
subsidiary....................... -- -- -- -- -- -- 6,338,302 (33,074)
Net loss........................... -- -- -- -- -- -- -- --
Change in unrealized gain (loss) on
available-for-sale securities,
net.............................. -- -- -- -- -- -- -- --
Provision for loss on
available-for-sale securities.... -- -- -- -- -- -- -- --
Change in cumulative translation
adjustments...................... -- -- -- -- -- -- -- --
---------- ---- ---------- ---- -------- ------- --------- --------
Balances, February 28, 1998........ 52,762,186 $528 25,726,646 $257 $351,860 $ (42) 6,338,302 $(33,074)
========== ==== ========== ==== ======== ======= ========= ========
<CAPTION>
OTHER
CUMULATIVE
ACCUMULATED COMPREHENSIVE
DEFICIT LOSS TOTAL
----------- ------------- ---------
<S> <C> <C> <C>
Balances, February 28, 1997........ $ (303,553) $(21,870) $ 15,096
Issuance of Class A Common Stock in
connection with Company's stock
option plan...................... -- -- 796
Issuance of Class A Common Stock in
connection with Company's 401(k)
plan............................. -- -- 334
Exchange of Class B Common Stock
for Class A Common Stock......... -- -- --
Accrual of dividends on convertible
preferred stock.................. -- -- (1,271)
Compensation expense related to
stock options.................... -- -- 351
Issuance of warrants to purchase
common stock of subsidiary....... -- -- 3,678
Gain on sale of stock by
subsidiaries..................... -- -- 7,614
Amortization of deferred
compensation..................... -- -- 582
Purchase of Class A Common Stock by
subsidiary....................... -- -- (33,074)
Net loss........................... (342,532) -- (342,532)
Change in unrealized gain (loss) on
available-for-sale securities,
net.............................. -- (1,593) (1,593)
Provision for loss on
available-for-sale securities.... -- 8,013 8,013
Change in cumulative translation
adjustments...................... -- (50,274) (50,274)
----------- -------- ---------
Balances, February 28, 1998........ $ (646,085) $(65,724) $(392,280)
=========== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE> 158
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL TREASURY STOCK
------------------- ------------------- PAID-IN DEFERRED --------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION SHARES AMOUNT
---------- ------ ---------- ------ ---------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, February 28, 1998........ 52,762,186 $528 25,726,646 $257 $351,860 $ (42) 6,338,302 $(33,074)
Issuance of Class A Common Stock in
connection with public offering,
net of offering costs............ 900,000 9 -- -- 7,395 -- -- --
Issuance of Class A Common Stock in
connection with Company's stock
option plan...................... 906,288 9 -- -- 4,779 -- -- --
Issuance of Class A Common Stock in
connection with Company's 401(k)
plan............................. 35,716 -- -- -- 260 -- -- --
Exchange of Class B Common Stock
for Class A Common Stock......... 5,894,886 59 (5,894,886) (59) -- -- -- --
Exchange of Series A Convertible
Preferred Stock for Class A
Common Stock..................... 850,914 9 -- -- 7,436 -- -- --
Accrual of dividends on convertible
preferred stock.................. -- -- -- -- (1,623) -- -- --
Repricing of stock options......... -- -- -- -- 1,380 (1,380) -- --
Amortization of deferred
compensation..................... -- -- -- -- -- 743 -- --
Gain on deemed issuance of stock by
subsidiary....................... -- -- -- -- 5,786 -- -- --
Class A Common Stock issued by
subsidiary for additional
interest in Ireland systems...... -- -- -- -- 918 -- (769,062) 4,013
Elimination of historical two month
reporting difference due to
change in fiscal year............ -- -- -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- -- --
Change in cumulative translation
adjustments...................... -- -- -- -- -- -- -- --
Change in unrealized gain (loss) on
available-for-sale securities.... -- -- -- -- -- -- -- --
---------- ---- ---------- ---- -------- ------- --------- --------
Balances, December 31, 1998........ 61,349,990 $614 19,831,760 $198 $378,191 $ (679) 5,569,240 $(29,061)
========== ==== ========== ==== ======== ======= ========= ========
<CAPTION>
OTHER
CUMULATIVE
ACCUMULATED COMPREHENSIVE
DEFICIT LOSS TOTAL
----------- ------------- ---------
<S> <C> <C> <C>
Balances, February 28, 1998........ $ (646,085) $(65,724) $(392,280)
Issuance of Class A Common Stock in
connection with public offering,
net of offering costs............ -- -- 7,404
Issuance of Class A Common Stock in
connection with Company's stock
option plan...................... -- -- 4,788
Issuance of Class A Common Stock in
connection with Company's 401(k)
plan............................. -- -- 260
Exchange of Class B Common Stock
for Class A Common Stock......... -- -- --
Exchange of Series A Convertible
Preferred Stock for Class A
Common Stock..................... -- -- 7,445
Accrual of dividends on convertible
preferred stock.................. -- -- (1,623)
Repricing of stock options......... -- -- --
Amortization of deferred
compensation..................... -- -- 743
Gain on deemed issuance of stock by
subsidiary....................... -- -- 5,786
Class A Common Stock issued by
subsidiary for additional
interest in Ireland systems...... -- -- 4,931
Elimination of historical two month
reporting difference due to
change in fiscal year............ (50,369) -- (50,369)
Net loss........................... (545,532) -- (545,532)
Change in cumulative translation
adjustments...................... -- (24,713) (24,713)
Change in unrealized gain (loss) on
available-for-sale securities.... -- (505) (505)
----------- -------- ---------
Balances, December 31, 1998........ $(1,241,986) $(90,942) $(983,665)
=========== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE> 159
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
(STATED IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A CLASS B SERIES C SERIES D
COMMON STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK
------------------- ------------------- ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------ ---------- ------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1998.............. 61,349,990 $614 19,831,760 $198 -- $ -- -- $ --
Exchange of Class B Common Stock for
Class A Common Stock.................... 507,820 5 (507,820) (5) -- -- -- --
Issuance of Class A Common Stock in
connection with exercise of warrants.... 2,883,600 29 -- -- -- -- -- --
Issuance of Class A Common Stock in
connection with Company's stock option
plans................................... 1,838,089 18 -- -- -- -- -- --
Issuance of Class A Common Stock in
connection with Company's 401(k) plan... 1,502 -- -- -- -- -- -- --
Exchange of Series A Convertible
Preferred Stock for Class A Common
Stock................................... 3,006,404 30 -- -- -- -- -- --
Exchange of Series B Convertible
Preferred Stock for Class A Common
Stock................................... 487,410 5 -- -- -- -- -- --
Issuance of Series C Convertible
Preferred Stock, net of offering
costs................................... -- -- -- -- 425,000 395,250 -- --
Issuance of Class A Common Stock in
connection with public offering, net of
offering costs.......................... 11,500,000 115 -- -- -- -- -- --
Issuance of Series D Convertible
Preferred Stock......................... -- -- -- -- -- -- 287,500 267,375
Accrual of dividends on Series A, B, C
and D Convertible Preferred Stock....... -- -- -- -- -- 14,875 -- 1,398
Equity transactions of subsidiaries...... -- -- -- -- -- -- -- --
Amortization of deferred compensation.... -- -- -- -- -- -- -- --
Net income............................... -- -- -- -- -- -- -- --
Change in cumulative translation
adjustments............................. -- -- -- -- -- -- -- --
Change in unrealized gain on
available-for-sale securities........... -- -- -- -- -- -- -- --
---------- ---- ---------- ---- ------- -------- ------- --------
Balances, December 31, 1999.............. 81,574,815 $816 19,323,940 $193 425,000 $410,125 287,500 $268,773
========== ==== ========== ==== ======= ======== ======= ========
<CAPTION>
OTHER
ADDITIONAL TREASURY STOCK CUMULATIVE
PAID-IN DEFERRED -------------------- ACCUMULATED COMPREHENSIVE
CAPITAL COMPENSATION SHARES AMOUNT DEFICIT LOSS
---------- ------------ --------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1998.............. $ 378,191 $ (679) 5,569,240 $(29,061) $(1,241,986) $ (90,942)
Exchange of Class B Common Stock for
Class A Common Stock.................... -- -- -- -- -- --
Issuance of Class A Common Stock in
connection with exercise of warrants.... 21,598 -- -- -- -- --
Issuance of Class A Common Stock in
connection with Company's stock option
plans................................... 10,184 -- -- -- -- --
Issuance of Class A Common Stock in
connection with Company's 401(k) plan... 51 -- -- -- -- --
Exchange of Series A Convertible
Preferred Stock for Class A Common
Stock................................... 26,276 -- -- -- -- --
Exchange of Series B Convertible
Preferred Stock for Class A Common
Stock................................... 5,173 -- -- -- -- --
Issuance of Series C Convertible
Preferred Stock, net of offering
costs................................... (13,642) -- -- -- -- --
Issuance of Class A Common Stock in
connection with public offering, net of
offering costs.......................... 571,325 -- -- -- -- --
Issuance of Series D Convertible
Preferred Stock......................... (7,446) -- -- -- -- --
Accrual of dividends on Series A, B, C
and D Convertible Preferred Stock....... (2,119) -- -- -- (16,273) --
Equity transactions of subsidiaries...... 427,044 (221,640) -- -- -- --
Amortization of deferred compensation.... -- 102,323 -- -- -- --
Net income............................... -- -- -- -- 636,318 --
Change in cumulative translation
adjustments............................. -- -- -- -- -- (127,154)
Change in unrealized gain on
available-for-sale securities........... -- -- -- -- -- 6,858
---------- --------- --------- -------- ----------- ---------
Balances, December 31, 1999.............. $1,416,635 $(119,996) 5,569,240 $(29,061) $ (621,941) $(211,238)
========== ========= ========= ======== =========== =========
<CAPTION>
TOTAL
----------
<S> <C>
Balances, December 31, 1998.............. $ (983,665)
Exchange of Class B Common Stock for
Class A Common Stock.................... --
Issuance of Class A Common Stock in
connection with exercise of warrants.... 21,627
Issuance of Class A Common Stock in
connection with Company's stock option
plans................................... 10,202
Issuance of Class A Common Stock in
connection with Company's 401(k) plan... 51
Exchange of Series A Convertible
Preferred Stock for Class A Common
Stock................................... 26,306
Exchange of Series B Convertible
Preferred Stock for Class A Common
Stock................................... 5,178
Issuance of Series C Convertible
Preferred Stock, net of offering
costs................................... 381,608
Issuance of Class A Common Stock in
connection with public offering, net of
offering costs.......................... 571,440
Issuance of Series D Convertible
Preferred Stock......................... 259,929
Accrual of dividends on Series A, B, C
and D Convertible Preferred Stock....... (2,119)
Equity transactions of subsidiaries...... 205,404
Amortization of deferred compensation.... 102,323
Net income............................... 636,318
Change in cumulative translation
adjustments............................. (127,154)
Change in unrealized gain on
available-for-sale securities........... 6,858
----------
Balances, December 31, 1999.............. $1,114,306
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE> 160
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ 636,318 $(545,532) $(342,532)
Elimination of historical two month reporting difference due
to change in fiscal year.................................. -- (50,369) --
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Gain on issuance of common equity securities by
subsidiaries............................................ (1,508,839) -- --
Extraordinary charge for early retirement of debt......... -- -- 79,091
Share in results of affiliates, net....................... 49,638 66,326 70,291
Minority interests in subsidiaries........................ (360,444) (1,186) (1,568)
Depreciation and amortization............................. 418,714 192,968 91,656
Accretion of interest on senior notes and amortization of
deferred financing costs................................ 224,569 130,803 110,633
Stock-based compensation expense.......................... 223,734 164,793 351
Gain on sale of investments in affiliates................. -- -- (90,020)
Provision for losses on marketable equity securities and
investment related costs................................ 7,127 9,473 14,793
Increase in receivables, net.............................. (83,611) (12,755) (3,222)
(Increase) decrease in other assets....................... (28,918) (8,528) 6,993
Increase in accounts payable, accrued liabilities and
other................................................... 304,628 55,995 2,882
----------- --------- ---------
Net cash flows from operating activities........... (117,084) 1,988 (60,652)
----------- --------- ---------
Cash flows from investing activities:
Purchase of short-term liquid investments................... (988,380) (149,601) (94,656)
Proceeds from sale of short-term liquid investments......... 140,216 141,834 131,284
Restricted cash released (deposited), net................... (3,259) 27,904 (8,350)
Investments in affiliates and other investments............. (373,526) (139,011) (177,632)
Proceeds from sale of investments in affiliated companies... 18,000 19,968 211,125
New acquisitions, net of cash acquired...................... (2,321,799) (109,881) --
Capital expenditures........................................ (794,177) (217,057) (115,033)
Other....................................................... (30,439) (7,616) (19,834)
----------- --------- ---------
Net cash flows from investing activities........... (4,353,364) (433,460) (73,096)
----------- --------- ---------
Cash flows from financing activities:
Issuance of common stock in connection with public
offerings, net of financing costs......................... 571,440 7,402 --
Issuance of Series C Convertible Preferred Stock............ 381,608 -- --
Issuance of Series D Convertible Preferred Stock............ 259,929 -- --
Issuance of common stock in connection with exercise of
warrants.................................................. 21,627 -- --
Issuance of common stock by subsidiaries.................... 2,624,306 -- --
Issuance of common stock in connection with Company's and
subsidiary's stock option plans........................... 28,355 4,789 796
Proceeds from offering of senior notes and senior discount
notes..................................................... 2,749,752 -- 842,125
Retirement of existing senior notes......................... (435) -- (531,800)
Proceeds from short-term and long-term borrowings........... 1,064,579 321,167 233,715
Deferred financing costs.................................... (100,679) (5,932) (30,868)
Repayments of short-term and long-term borrowings........... (1,277,038) (168,358) (120,570)
Payment of sellers notes.................................... (18,000) -- (46,351)
Cash (paid to) contributed from minority interest
partners.................................................. 2,971 (253) 22,042
----------- --------- ---------
Net cash flows from financing activities........... 6,308,415 158,815 369,089
----------- --------- ---------
Effect of exchange rates on cash............................ 52,340 4,824 (684)
----------- --------- ---------
Increase (decrease) in cash and cash equivalents............ 1,890,307 (267,833) 234,657
Cash and cash equivalents, beginning of period.............. 35,608 303,441 68,784
----------- --------- ---------
Cash and cash equivalents, end of period.................... $ 1,925,915 $ 35,608 $ 303,441
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE> 161
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.................................... $ 101,121 $ 40,929 $ 7,513
=========== ========= =========
Cash received for interest................................ $ 41,633 $ 9,074 $ 7,694
=========== ========= =========
Issuance of preferred stock utilized in purchase of
Australian investments.................................. $ -- $ 29,544 $ --
=========== ========= =========
Seller note for purchase of system in Hungary............. $ -- $ 18,000 $ --
=========== ========= =========
Seller notes for purchase of Argentine systems............ $ -- $ -- $ 52,061
=========== ========= =========
Acquisition of 100% of @Entertainment:
Net current assets........................................ $ (51,239) $ -- $ --
Property, plant and equipment............................. (196,178) -- --
Goodwill.................................................. (986,814) -- --
Long-term liabilities..................................... 448,566 -- --
Other..................................................... (21,335) -- --
----------- --------- ---------
Total cash paid.................................... (807,000) -- --
Cash acquired............................................. 62,507 -- --
----------- --------- ---------
Net cash paid...................................... $ (744,493) $ -- $ --
=========== ========= =========
Acquisition of 100% of Stjarn:
Property, plant and equipment............................. $ (43,171) $ -- $ --
Goodwill.................................................. (442,094) -- --
Net current liabilities................................... 55,997 -- --
Long-term liabilities..................................... 32,268 -- --
----------- --------- ---------
Total purchase price............................... (397,000) -- --
Seller's Note............................................. 100,000 -- --
----------- --------- ---------
Total cash paid.................................... (297,000) -- --
Cash acquired............................................. 3,792 -- --
----------- --------- ---------
Net cash paid...................................... $ (293,208) $ -- $ --
=========== ========= =========
Acquisition of remaining 49.0% of UTH:
Property, plant and equipment............................. $ (210,013) $ -- $ --
Investments in affiliated companies....................... (46,830) -- --
Goodwill.................................................. (256,749) -- --
Net current liabilities................................... 5,384 -- --
Long-term liabilities..................................... 242,536 -- --
----------- --------- ---------
Total cash paid.................................... (265,672) -- --
Cash acquired............................................. 13,629 -- --
----------- --------- ---------
Net cash paid...................................... $ (252,043) $ -- $ --
=========== ========= =========
Acquisition of remaining 50.0% of A2000:
Receivables assumed....................................... $ (13,062) $ -- $ --
Property, plant and equipment............................. (96,539) -- --
Goodwill.................................................. (274,361) -- --
Net current liabilities................................... 25,044 -- --
Long-term liabilities..................................... 129,918 -- --
----------- --------- ---------
Total cash paid.................................... (229,000) -- --
Cash acquired............................................. 521 -- --
----------- --------- ---------
Net cash paid...................................... $ (228,479) $ -- $ --
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 162
UNITEDGLOBALCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Acquisition of remaining interest in VTR:
Working capital........................................... $ (10,381) $ -- $ --
Property, plant and equipment............................. (203,154) -- --
Goodwill and other intangible assets...................... (244,981) -- --
Other long-term assets.................................... (14,685) -- --
Elimination of equity investment in Chilean joint
venture................................................. 69,381 -- --
Long-term liabilities..................................... 145,641 -- --
----------- --------- ---------
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) $ -- $ --
=========== ========= =========
Contribution of Dutch cable systems to new joint venture:
Working capital........................................... $ -- $ (1,871) $ --
Investments in affiliated companies....................... -- 96,866 --
Property, plant and equipment............................. -- 85,037 --
Goodwill and other intangible assets...................... -- 78,515 --
Senior secured notes and other debt....................... -- (111,553) --
Other liabilities......................................... -- (17,417) --
----------- --------- ---------
Total net assets contributed....................... $ -- $ 129,577 $ --
=========== ========= =========
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) $ --
=========== ========= =========
Sale of Argentine cable systems:
Working capital, net of cash relinquished of $2,133....... $ -- $ -- $ (3,319)
Investments in affiliated companies....................... -- -- 83,535
Property, plant and equipment and other long-term
assets.................................................. -- -- 4,560
Goodwill and other intangible assets...................... -- -- 60,727
Sellers notes (assumed by the buyers)..................... -- -- (24,398)
Gain on sale.............................................. -- -- 90,020
----------- --------- ---------
Cash received from sale............................ $ -- $ -- $ 211,125
=========== ========= =========
Acquisition of additional 50.0% interest in UPC:
Working capital, including cash acquired of $50,872....... $ -- $ -- $ (7,158)
Investment in UnitedGlobalCom, Inc. Class A Common
Stock................................................... -- -- (33,074)
Investments in affiliated companies....................... -- -- (167,945)
Property, plant and equipment and other long-term
assets.................................................. -- -- (273,988)
Goodwill and other intangible assets...................... -- -- (383,503)
Elimination of United's equity investment in UPC.......... -- -- 46,319
Long-term debt............................................ -- -- 624,633
Other liabilities......................................... -- -- 32,216
----------- --------- ---------
Total cash paid.................................... $ -- $ -- $(162,500)
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 163
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 telecommunications as of
December 31, 1999.
<TABLE>
<CAPTION>
UNITED
100% 100%
<S> <C>
United Europe Inc. ("UEI") United International Properties, Inc. ("UIPI")
53.2% 100.0% 100.0%
United Pan-Europe Communications N.V. United Asia/Pacific Communications, Inc. United Latin America, Inc.
("UPC") ("UAP")* ("ULA")
100.0%
Brazil:
Austria: United Australia/Pacific, Inc. TV Show Brasil 100.0%
Telekabel Group 95.0% ("United A/P") Jundiai 46.3%
Belgium: Chile:
UPC Belgium 100.0% 75.4% VTR 100.0%
Czech Republic: Mexico:
Kabel Net 100.0% Austar United Communications, Limited Megapo 49.0%(4)
Kabel Plus 94.6% ("Austar United") Peru:
France: Cable Star 62.2%
UPC France 99.6%(1) Australia: Latin American Programming:
Germany: Austar 100.0% MGM Networks LA 50.0%
PrimaCom 18.2%(2) XYZ Entertainment 50.0%
Hungary: New Zealand:
UPC Magyarorszag 79.3% Saturn 100.0%
Monor 97.1%
Ireland: *Other UAP
Tara 80.0%
Israel: China:
Tevel 46.6% Hunan International TV 49.0%
Malta: Philippines:
Melita 50.0% Philipino Cable Corporation 19.6%
The Netherlands:
UPC Nederland 100.0%
Norway:
UPC Norge 100.0%
Poland:
@Entertainment 100.0%
Romania:
UPC Romania 51.0%-100.0%
Slovak Republic:
UPC Slovak 95.0%-100.0%
Spain/Portugal:
Iberian Programming 50.0%
Sweden:
Stjarn 100.0%
United Kingdom:
Xtra Music 41.0%
Other Business Lines: (1) In February 2000, UPC's interest decreased to 92.0% (See Note 19).
SBS 13.3%(3) (2) Subsequent to December 31, 1999, UPC increased its interest to 24.9%.
Priority Telecom 100.0% (3) In February 2000, UPC acquired an additional 10.2% interest in SBS for E.162.5
chello broadband 100.0% ($163.5) million.
UPCtv 100.0% (4) In January 2000, ULA purchased an additional 41.3% interest in Megapo for $22.8
million.
</TABLE>
F-31
<PAGE> 164
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 consolidated financial statements include the accounts of the
Company and all subsidiaries where it exercises a controlling financial interest
through the ownership of a majority voting interest. The following illustrates
those subsidiaries for which the Company consolidated the results of operations
for only a portion of the fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
EFFECTIVE DATE
ENTITY OF CONSOLIDATION REASON
------ ---------------- ------
<S> <C> <C>
UPC Nederland(1) February 1, 1999 Acquisition of remaining 49.0%
interest in United Telekabel
Holding N.V. ("UTH")
VTR May 1, 1999 Acquisition of remaining 66.0%
interest
UPC Slovensko (Slovak
Republic) June 1, 1999 Acquisition
GelreVision (The Netherlands) June 1, 1999 Acquisition
Reseaux Cables de France
("RCF") June 1, 1999 Acquisition
Saturn(2) August 1, 1999 Acquisition of remaining 35.0%
interest
Stjarn August 1, 1999 Acquisition
Videopole (France) August 1, 1999 Acquisition
@Entertainment August 1, 1999 Acquisition
Time Warner Cable France September 1, 1999 Acquisition
A2000 (The Netherlands) September 1, 1999 Acquisition of remaining 50.0%
interest
Kabel Plus October 1, 1999 Acquisition
Monor December 1, 1999 Acquisition
</TABLE>
---------------
(1) Prior to the acquisition date, the equity method of accounting was used
because of certain minority shareholder's rights.
(2) The Company consolidated the results of operations of Saturn from July 1,
1996 to December 31, 1997. Effective January 1, 1998 the Company
discontinued consolidating the results of operations of Saturn because of
certain minority shareholder's rights.
The Company began consolidating UPC upon acquisition of the remaining 50.0%
interest on December 11, 1997. Prior to December 11, 1997, the Company accounted
for its investment in UPC under the equity method. All significant intercompany
accounts and transactions have been eliminated in consolidation.
F-32
<PAGE> 165
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CHANGE IN FISCAL YEAR-END
Prior to the ten months ended December 31, 1998, the Company's fiscal year-end
was February 28, and it accounted for its share of the income or loss of its
operating companies based on the calendar year results of each operating
company. This created a two month delay in reporting the operating company
results in the Company's consolidated results for its fiscal year-end. On
February 24, 1999, the Company changed its fiscal year-end from the last day in
February to the last day in December, effective December 31, 1998. To effect the
transaction to the new fiscal year, the combined results of operations of the
operating companies for January and February 1998, a loss of $50.4 million, has
been reported as a one-time adjustment to retained deficit as of March 1, 1998
in the consolidated statement of stockholders' equity (deficit). Consequently,
the consolidated statement of operations presents the consolidated results of
the Company and its subsidiaries for the ten months ended December 31, 1998. For
comparative purposes, the Company's consolidated revenue, net operating loss and
net loss were $84.3 million, $125.4 million and $206.4 million, respectively,
for the ten months ended December 31, 1997 and the Company's consolidated
revenue, net operating loss and net loss were $298.6 million, $350.7 million and
$595.9 million, respectively, for the year ended December 31, 1998.
CASH AND CASH EQUIVALENTS AND SHORT-TERM LIQUID INVESTMENTS
Cash and cash equivalents include cash and investments with original maturities
of less than three months. Short-term liquid investments include certificates of
deposit, commercial paper, corporate bonds and government securities which have
original maturities greater than three months but less than twelve months.
Short-term liquid investments are classified as available-for-sale and are
reported at fair market value.
RESTRICTED CASH
Cash held as collateral for letters of credit and other loans is classified
based on the expected expiration of such facilities. Cash held in escrow and
restricted to a specific use is classified based on the expected timing of such
disbursement.
COSTS TO BE REIMBURSED BY AFFILIATED COMPANIES
The Company incurs costs on behalf of affiliated companies, such as salaries and
benefits, travel and professional services. These costs are reimbursed by the
affiliated companies.
INVENTORY
Inventory is stated at the lower of cost (first-in, first-out basis) or market.
INVESTMENTS IN AFFILIATES, 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.
F-33
<PAGE> 166
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARKETABLE EQUITY SECURITIES AND OTHER INVESTMENTS
The cost method of accounting is used for the Company's other investments in
affiliates in which the Company's ownership interest is less than 20.0% and
where the Company does not exert significant influence, except for those
investments in marketable equity securities. The Company classifies its
investments in marketable equity securities in which its interest is less than
20.0% and where the Company does not exert significant influence as
available-for-sale and reports such investments at fair market value. Unrealized
gains and losses are charged or credited to equity, and realized gains and
losses and other-than-temporary declines in market value are included in
operations.
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:
<TABLE>
<S> <C>
Cable distribution networks............................. 3-20 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
</TABLE>
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.
RECOVERABILITY OF TANGIBLE AND INTANGIBLE ASSETS
The Company evaluates the carrying value of all tangible and intangible assets
whenever events or circumstances indicate the carrying value of assets may
exceed their recoverable amounts. An impairment loss is recognized when the
estimated future cash flows (undiscounted and without interest) expected to
result from the use of an asset are less than the carrying amount of the asset.
Measurement of an impairment loss is based on fair value of the asset computed
using discounted cash flows if the asset is expected to be held and used.
Measurement of an impairment loss for an asset held for sale would be based on
fair market value less estimated costs to sell.
DEFERRED FINANCING COSTS
Costs to obtain debt financing are capitalized and amortized over the life of
the debt facility using the effective interest method.
F-34
<PAGE> 167
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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,
telephone and Internet/data 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.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of subscriber receivables. Concentrations of
credit risk with respect to subscriber receivables are limited due to the
Company's large number of customers and their dispersion across many different
countries worldwide.
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, chello
broadband, ULA and Austar United have also adopted stock-based compensation
plans for their employees. With respect to certain of 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.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method which
requires recognition of deferred tax assets and liabilities for the expected
future income tax consequences of transactions which have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and income tax basis of assets, liabilities and loss carryforwards
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Net deferred tax assets are then reduced by a valuation
allowance if management believes it more likely than not they will not be
realized. Withholding taxes are taken into consideration in situations where the
income of subsidiaries is to be paid out as dividends in the near
F-35
<PAGE> 168
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
future. Such withholding taxes are generally charged to income in the year in
which the dividend income is generated.
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
"Basic net income (loss) per share" is determined by dividing net income (loss)
available to common stockholders by the weighted-average number of common shares
outstanding during each period. Net income (loss) available to common
stockholders includes the accrual of dividends on convertible preferred stock
which is charged directly to additional paid-in capital. "Diluted net income
(loss) per share" includes the effects of potentially issuable common stock, but
only if dilutive. On November 11, 1999 the Board of Directors authorized a
two-for-one stock split effected in the form of a stock dividend distributed on
November 30, 1999 to stockholders of record on November 22, 1999. All historical
weighted average share and per share amounts have been restated to reflect the
stock split.
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' equity (deficit) 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. 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.
NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet at fair value.
Under SFAS 133, accounting for changes in fair value of a derivative depends on
its intended use and designation. SFAS 133 is effective for fiscal years
beginning after June 15, 2000. The Company is currently assessing the effect of
this new standard.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Views on Selected Revenue Recognition
Issues" ("SAB 101"), which provides the staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. SAB 101
is effective for the second quarter of 2000. The Company is currently assessing
the effect of SAB 101.
F-36
<PAGE> 169
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
3. ACQUISITIONS AND OTHER
UPC STOCK OFFERINGS
In February 1999, UPC successfully completed an initial public offering selling
133.8 million shares on the Amsterdam Stock Exchange and The Nasdaq Stock
Market, Inc. ("Nasdaq"), raising gross and net proceeds at Dutch guilder
("NLG")21.30 ($10.93) per share of NLG2,852.9 ($1,463.0) million and NLG2,660.1
($1,364.1) million, respectively. The proceeds were used to reduce debt
facilities and finance acquisitions. 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 in UPC
from 100% to 59.6%.
In October 1999 UPC completed a second public offering of 45.0 million ordinary
shares, raising gross and net proceeds at Euro ("E")19.92 ($21.58) per share of
E896.3 ($970.9) million and E851.5 ($922.4) million, respectively. The proceeds
were used to finance acquisitions. Based on the carrying value of the Company's
investment in UPC as of October 19, 1999, United recognized a gain of $403.4
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. This second offering further reduced the Company's ownership to
53.2% as of December 31, 1999.
If all of the UPC stock options and warrants outstanding as of December 31, 1999
were exercised, the Company's ownership interest would be 51.7% 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 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
E235.1 ($265.7) million. In addition, UPC repaid NUON a E15.1 ($17.1) million
subordinated loan, including accrued interest, dated December 23, 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):
<TABLE>
<S> <C>
Property, plant and equipment............................ $ 210,013
Investments in affiliated companies...................... 46,830
Goodwill................................................. 256,749
Long-term liabilities.................................... (242,536)
Net current liabilities.................................. (5,384)
---------
Total cash paid................................ $ 265,672
=========
</TABLE>
F-37
<PAGE> 170
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following pro forma condensed consolidated operating results for the year
ended December 31, 1999 and the ten months ended December 31, 1998 give effect
to the UTH Transaction and the NUON Transaction as if they had occurred at the
beginning of the periods presented. This pro forma condensed consolidated
financial information does not purport to represent what the Company's results
of operations would actually have been if such transactions had in fact occurred
on such dates. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------- -------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue...................................... $ 719,524 $ 729,641 $ 254,068 $ 335,076
========== ========== ========== ==========
Net income (loss)............................ $ 636,318 $ 631,623 $ (545,532) $ (581,388)
========== ========== ========== ==========
Net income (loss) per common share:
Basic net income (loss).................... $ 7.53 $ 7.48 $ (7.43) $ (7.92)
========== ========== ========== ==========
Diluted net income (loss).................. $ 6.67 $ 6.63 $ (7.43) $ (7.92)
========== ========== ========== ==========
Weighted-average number of common shares
outstanding:
Basic...................................... 82,024,077 82,024,077 73,644,728 73,644,728
========== ========== ========== ==========
Diluted.................................... 95,331,929 95,331,929 73,644,728 73,644,728
========== ========== ========== ==========
</TABLE>
VTR ACQUISITION
On April 29, 1999, an indirect wholly-owned subsidiary of ULA acquired a 66.0%
interest in VTR, a company that provides telephony and multi-channel television
services to the greater Santiago, Chile area (the "VTR Acquisition"). This
acquisition, combined with the interest in VTR that is owned by another indirect
wholly-owned subsidiary of the Company, gives the Company an indirect 100%
interest in VTR. The purchase price for the 66.0% interest in VTR was
approximately $258.2 million in cash. In addition, the Company provided capital
for VTR to prepay approximately $125.8 million of existing bank indebtedness and
a promissory note from the Company to one of the other shareholders of VTR.
ACQUISITION OF UPC SLOVENSKO
In June 1999, UPC acquired SKT spol s.r.o. (now known as UPC Slovensko), a
company that owns and operates a cable television system in Bratislava, the
capital of the Slovak Republic, for $43.3 million.
ACQUISITION OF GELREVISION
In June 1999, UPC acquired through UPC Nederland 100% of the GelreVision
multi-channel television systems in The Netherlands for NLG233.9 ($109.8)
million.
ACQUISITION OF RESEAUX CABLES DE FRANCE
In June 1999, UPC acquired through UPC France 95.7% of RCF, which operates cable
television systems throughout France, for French francs ("FFR")172.0 ($27.1)
million.
F-38
<PAGE> 171
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RESTRUCTURING OF UNITED A/P ASSETS AND AUSTAR UNITED INITIAL PUBLIC OFFERING
In June 1999, the Company's interest in Austar, XYZ Entertainment and Saturn
were contributed to Austar United in exchange for new shares issued by Austar
United. On July 27, 1999, Austar United acquired from SaskTel its 35.0% interest
in Saturn in exchange for approximately 13.7 million of Austar United's shares,
thereby increasing Austar United's ownership interest in Saturn from 65.0% to
100%. In addition, Austar United successfully completed an initial public
offering selling 103.5 million shares on the Australian Stock Exchange, raising
gross and net proceeds at Australian dollar ("A$")4.70 ($3.03) per share of
A$486.5 ($313.6) million and A$453.6 ($292.8) million, respectively. Based on
the carrying value of the Company's investment in Austar United as of July 27,
1999, United recognized a gain of $248.4 million from the resulting step-up in
the carrying amount of United's investment in Austar United, 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 Austar United indefinitely. Austar
United's offering reduced the Company's ownership interest from 100% to
approximately 75.5%. As a result of employee stock option exercises subsequent
to the initial public offering date, the Company's ownership interest in Austar
United decreased to 75.4% as of December 31, 1999. Including all stock options
granted to employees that were vested as of December 31, 1999, the Company's
ownership interest in Austar United on a fully-diluted basis is approximately
73.7%.
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 8.5% of SBS for $75.9 million.
STJARN ACQUISITION
In July 1999, UPC acquired Stjarn for a purchase price of $397.0 million, of
which $100.0 million was paid in the form of a one-year note with interest at
8.0% per year and the balance of the purchase price was paid in cash. 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.
ACQUISITION OF VIDEOPOLE
In August 1999, UPC acquired through UPC France 100% of Videopole for a total
purchase price of $135.1 million. The purchase price was paid in cash ($69.9
million) and 2.9 million ordinary shares of UPC ($65.2 million). Based on the
carrying value of the Company's investment in UPC as of July 31, 1999, United
recognized a gain of $34.9 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.
@ENTERTAINMENT ACQUISITION
In August 1999, UPC acquired 100% of @Entertainment for $807.0 million in cash.
Details of the net assets acquired, based on a preliminary purchase price
allocation using information currently available, were as follows (in
thousands):
<TABLE>
<S> <C>
Net current assets....................................... $ 51,239
Property, plant and equipment............................ 196,178
Goodwill................................................. 986,814
Long-term liabilities.................................... (448,566)
Other.................................................... 21,335
---------
Total cash paid................................ $ 807,000
=========
</TABLE>
F-39
<PAGE> 172
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following pro forma condensed consolidated operating results for the year
ended December 31, 1999 and the ten months ended December 31, 1998 give effect
to the acquisition of @Entertainment as if it had occurred at the beginning of
each period 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 transaction had in fact occurred on
such dates. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------- -------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- ---------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue...................................... $ 719,524 $ 766,503 $ 254,068 $ 304,446
========== ========== ========== ==========
Net income (loss)............................ $ 636,318 $ 444,151 $ (545,532) $ (725,398)
========== ========== ========== ==========
Net income (loss) per common share:
Basic net income (loss).................... $ 7.53 $ 5.19 $ (7.43) $ (9.87)
========== ========== ========== ==========
Diluted net income (loss).................. $ 6.67 $ 4.66 $ (7.43) $ (9.87)
========== ========== ========== ==========
Weighted-average number of common shares
outstanding:
Basic...................................... 82,024,077 82,024,077 73,644,728 73,644,728
========== ========== ========== ==========
Diluted.................................... 95,331,929 95,331,929 73,644,728 73,644,728
========== ========== ========== ==========
</TABLE>
ACQUISITION OF TIME WARNER CABLE FRANCE
In August 1999, UPC acquired through UPC France 100% of Time Warner Cable
France, a company that operates three cable television systems in the suburbs of
Paris and Lyon and in the city of Limoges. The purchase price was $71.1 million
in cash. Simultaneous with the acquisition of Time Warner Cable France, UPC
acquired an additional 47.6% interest in one of its operating systems, Rhone
Vision Cable, in which Time Warner France had a 49.9% interest, for FFR89.3
($14.6) million, increasing UPC's ownership in that system to 97.5%.
ACQUISITION OF 50.0% OF A2000
In September 1999, UPC acquired through UPC Nederland, the remaining 50.0% of
A2000 that it did not already own for $229.0 million and $13.1 million in cash
and assumed receivables, respectively.
KABEL PLUS ACQUISITION
In October 1999, UPC acquired a 94.6% interest in Kabel Plus for a purchase
price of $150.0 million, and took control of the Kabel Plus cable television
systems in the Czech and Slovak Republics.
ACQUISITION OF ADDITIONAL INTEREST IN MONOR
In December 1999, UPC acquired an additional 48.0% economic interest in Monor
from its partner and several small minority shareholders for $45.0 million,
increasing UPC's ownership to 97.1%. Monor's telephone system is located in the
Monor region, an area which borders Budapest in Hungary.
PURCHASE OF MINORITY INTEREST IN PRIMACOM
In December 1999, UPC purchased a total interest of 18.2% in PrimaCom, which
owns and operates cable television networks in Germany, for E226.5 ($227.9)
million. The fair value of this investment was
F-40
<PAGE> 173
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$231.9 million as of December 31, 1999 and is reflected in "Marketable equity
securities and other investments" on the Consolidated Balance Sheet.
COMBIVISIE AND CNBH
Effective January 1, 1998, UPC acquired certain assets, including the Dutch
cable systems of Combivisie for $88.0 million. The purchase was funded with
draws on UPC's existing credit facilities. Subsequent to the transaction, the
assets and liabilities of UPC's other Dutch systems and Combivisie were merged,
forming CNBH, a wholly-owned subsidiary of UPC Nederland.
HUNGARY
In June 1998, UPC acquired certain Hungarian multi-channel television system
assets for $9.5 million in cash and a non-interest bearing promissory note in
the amount of $18.0 million. These assets are now part of UPC Magyarorszag.
MGM NETWORKS LA
In May 1998, ULA entered into a joint venture with a division of
Metro-Goldwyn-Mayer, Inc. ("MGM") to form MGM Networks LA. Under the terms of
the joint venture, ULA contributed its 100% interest in a Latin American
programming venture for a 50.0% interest in MGM Networks LA, and MGM acquired a
50.0% interest in MGM Networks LA by contributing its Brazil channel (MGM Gold
Brazil) and committing to fund the first $9.9 million ($6.7 million of which was
funded at closing) required by MGM Networks LA. MGM Networks LA has also entered
into a trademark license agreement with MGM for the use of the MGM brand name
and also into a program license agreement to acquire programming from MGM.
AUSTAR
In July 1998, Austar acquired certain Australian pay television assets of East
Coast Television Pty Limited ("ECT"), an affiliate of Century Communications
Corporation ("Century"), for $6.1 million of the Company's newly-created Series
B Convertible Preferred Stock. ECT's subscription television business includes
subscribers and certain MMDS licenses and transmission equipment serving the
areas in and around Newcastle, Gossford, Wollongong and Tasmania, Australia.
XYZ ENTERTAINMENT
In September 1998, UAP acquired the Australian programming assets held by
Century, consisting of Century's 25.0% interest in XYZ Entertainment, a
programming company that owns and/or distributes five channels to the Australian
multi-channel marketplace, increasing its ownership to 50.0% in XYZ
Entertainment. The purchase price consisted of $1.2 million in cash and $23.4
million of the Company's Series B Preferred Stock.
TV SHOW BRASIL
In October 1998, ULA increased its ownership interest in TV Show Brasil from
45.0% to 100% for $11.4 million, half of which was paid in cash, with the
remainder financed by the seller.
CABLE STAR
In October 1998, ULA and Arequipa Cable Vision ("ACV") each contributed their
Peruvian multi-channel television assets to Cable Star, with ULA receiving 60.0%
of the outstanding shares of Cable Star and the former shareholders of ACV
receiving the other 40.0%.
F-41
<PAGE> 174
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TEVEL AND MELITA
In November 1998, UPC (i) acquired from Tele-Communications International, Inc.
("TINTA") its indirect 23.3% and 25.0% interests in the Tevel and Melita
systems, respectively for $91.5 million, doubling UPC's respective ownership in
these systems to 46.6% and 50.0%, respectively, (ii) purchased an additional
5.0% interest in Princes Holdings and 5.0% of Tara in consideration for 769,062
shares of United Class A Common Stock held by UPC, and (iii) sold the 5.0%
interest in Princes Holdings, together with its existing 20.0% interest, to
TINTA for $20.5 million. The net payment of $71.0 million to TINTA ($68.0
million after closing adjustments) was funded with the proceeds of a $90.0
million promissory note made by a subsidiary of UPC to its primary partners in
the Tevel system (the "UPC DIC Loan").
UPC
In July 1995, the Company and Philips Electronics N.V. ("Philips") contributed
their respective ownership interests in European and Israeli multi-channel
television systems to UPC. Philips contributed to UPC its 95.0% interest in
cable television systems in Austria, its 100% interest in cable television
systems in Belgium, its minority interests in multi-channel television systems
in Germany, the Netherlands (Eindhoven) and France. The Company contributed its
interests in multi-channel television systems in Israel, Ireland, the Czech
Republic, Malta, Norway, Hungary, Sweden and Spain. The Company also contributed
$78.2 million in cash to UPC and issued to Philips 6,338,302 shares of its Class
A Common Stock having a value of $50.0 million (at date of closing). In
addition, UPC issued to Philips $133.6 million of convertible subordinated
pay-in-kind notes (the "PIK Notes"). As a result of this transaction, the
Company and Philips each owned a 50.0% economic and voting interest in UPC.
On December 11, 1997, the Company acquired Philips' entire interest in UPC (the
"UPC Transaction"). As part of the UPC Transaction, (i) UPC purchased the
6,338,302 shares of Class A Common Stock of the Company held by Philips, (ii)
United purchased NLG169.9 ($84.3) million of the accreted amount of UPC's PIK
Notes and redeemed them for 45,540,783 shares of UPC, (iii) UPC repaid to
Philips the remaining NLG170.4 ($84.6) million accreted amount of the PIK Notes,
(iv) United purchased 39,364,812 shares of UPC directly from Philips, and (v)
UPC repurchased Philips' remaining equity interest in UPC (73,135,188 shares).
The Company effectively owned 100% of UPC as a result of the UPC Transaction,
including shares held by a foundation controlled by United which administers the
UPC stock plan for the benefit of UPC employees and management, pursuant to
UPC's equity incentive plans. The final purchase price (excluding
transaction-related costs) was $425.2 million, comprised of $168.7 million for
the purchase by the Company and repayment by UPC of UPC's PIK Notes, $33.2
million allocated to the purchase by UPC of 6,338,302 shares of the Company's
Class A Common Stock and $223.3 million allocated to the purchase of Philips'
interest in UPC. The UPC Transaction was funded by a long-term revolving credit
facility through UPC with a syndicate of banks ($151.5 million), a bridge bank
facility through a subsidiary of UPC ($111.2 million) and a cash investment by
the Company of $162.5 million.
F-42
<PAGE> 175
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Details of the net assets acquired, based on a preliminary allocation of the
purchase price, which were denominated in Dutch guilders and translated to U.S.
dollars using the exchange rate on the date of acquisition, were as follows (in
thousands):
<TABLE>
<S> <C>
Working capital, including cash acquired of $50,872...... $ (7,158)
Investment in United Class A Common Stock................ (33,074)
Investment in affiliated companies....................... (167,945)
Property, plant and equipment and other long-term
assets................................................. (273,988)
Goodwill and other intangible assets..................... (383,503)
Elimination of United equity investment.................. 46,319
Long-term debt........................................... 624,633
Other liabilities........................................ 32,216
---------
Total cash paid................................ $(162,500)
=========
</TABLE>
ARGENTINA
In October 1997, the Company completed the sale of all of its cable television
assets in Argentina, including the regions of Bahia Blanca, Comodoro, Trelew and
Santa Fe (the "Argentina Transaction"). The sale price for Bahia Blanca,
Comodoro, Trelew and Santa Fe collectively was $268.2 million, of which $25.3
million consisted of remaining notes payable to sellers from the original
acquisitions. From this net sales price of $242.9 million, $29.6 million was
paid directly by the buyers to other minority interest stockholders, resulting
in net proceeds to the Company of approximately $211.1 million. The payment was
received in full in cash. The Company recognized a gain on the transaction of
$90.0 million.
TARA
In October 1997, Tara issued shares to third parties in exchange for
consideration totaling $2.5 million, thereby diluting the Company's interest in
Tara from 100% to 75.0%. A gain of $1.6 million recognized on the transaction
was credited to additional paid-in capital in accordance with SAB 51.
SATURN
In July 1997, SaskTel Holdings (New Zealand), Inc. ("SaskTel") purchased a 35.0%
equity interest in Saturn by investing New Zealand dollars ("NZ$")29.9 ($19.6)
million directly into Saturn for its newly-issued shares, thereby reducing the
Company's equity interest in Saturn to 65.0%. A gain of $6.0 million recognized
on the transaction was credited to additional paid-in capital in accordance with
SAB 51.
PRO FORMA FINANCIAL INFORMATION FOR THE YEAR ENDED FEBRUARY 28, 1998
The following pro forma condensed consolidated operating results for the year
ended February 28, 1998 give effect to the UPC Transaction and the Argentina
Transaction as if each had occurred at the beginning of the period presented.
This pro forma condensed consolidated financial information and notes thereto do
not purport to represent what the Company's results of operations would actually
have been if
F-43
<PAGE> 176
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
such transactions had in fact occurred on such date. The pro forma adjustments
are based upon currently available information and upon certain assumptions that
management believes are reasonable.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FEBRUARY 28, 1998
---------------------------
HISTORICAL PRO FORMA(1)
----------- -------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
Revenue..................................................... $ 98,622 $ 244,394
========== ==========
Net loss before extraordinary charge........................ $ (263,441) $ (395,723)
========== ==========
Net loss.................................................... $ (342,532) $ (474,814)
========== ==========
Net loss per common share:
Basic and diluted loss before extraordinary charge........ $ (3.43) $ (5.62)
Extraordinary charge...................................... (1.03) (1.12)
---------- ----------
Basic and diluted net loss................................ $ (4.46) $ (6.74)
========== ==========
Weighted-average number of shares outstanding............... 77,033,786 70,695,484
========== ==========
</TABLE>
---------------
(1) Represents elimination of historical statement of operations balances for
the Argentina systems and elimination of the gain recorded on the Argentina
Transaction, as well as inclusion of the historical amounts included in
UPC's consolidated statement of operations for the period from January 1,
1997 to December 10, 1997, additional depreciation and amortization related
to the step-up in basis in tangible assets and additional goodwill, the net
decrease in equity in losses of affiliated companies, and the net increase
in interest expense as a result of the UPC Transaction.
4. CASH AND CASH EQUIVALENTS, RESTRICTED CASH AND SHORT-TERM LIQUID INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------------------------
CASH AND SHORT-TERM
CASH RESTRICTED LIQUID
EQUIVALENTS CASH INVESTMENTS TOTAL
----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash............................................ $1,046,827 $18,217 $ -- $1,065,044
Certificates of deposit......................... 52,000 -- 293,497 345,497
Commercial paper................................ 803,088 -- 182,486 985,574
Corporate bonds................................. 24,000 -- 126,179 150,179
Government securities........................... -- -- 27,527 27,527
---------- ------- -------- ----------
Total................................. $1,925,915 $18,217 $629,689 $2,573,821
========== ======= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
---------------------------------------------------
CASH AND SHORT-TERM
CASH RESTRICTED LIQUID
EQUIVALENTS CASH INVESTMENTS TOTAL
----------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash............................................ $ 18,766 $17,215 $ -- $ 35,981
Certificates of deposit......................... -- -- 4,000 4,000
Commercial paper................................ 16,580 -- 10,541 27,121
Corporate bonds................................. -- -- 15,935 15,935
Government securities........................... 262 -- 11,022 11,284
---------- ------- -------- ----------
Total................................. $ 35,608 $17,215 $ 41,498 $ 94,321
========== ======= ======== ==========
</TABLE>
F-44
<PAGE> 177
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENTS IN AFFILIATES, ACCOUNTED FOR UNDER THE EQUITY METHOD
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------------------------------------------------
CUMULATIVE
SHARE IN CUMULATIVE
INVESTMENTS DIVIDENDS RESULTS OF TRANSLATION VALUATION
IN AFFILIATES RECEIVED AFFILIATES ADJUSTMENTS ALLOWANCE TOTAL
------------- --------- ---------- ----------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Europe:
SBS......................... $ 99,621 $ -- $ (5,421) $ 2,858 $-- $ 97,058
Tevel....................... 100,679 (6,180) (12,108) 3,761 -- 86,152
Melita...................... 14,062 -- 2,066 (2,417) -- 13,711
Iberian Programming......... 11,947 -- (460) 2,828 -- 14,315
Xtra Music.................. 9,913 -- (2,476) (640) -- 6,797
Other....................... 27,447 -- (65) (1,048) -- 26,334
Asia/Pacific:
XYZ Entertainment........... 44,306 -- (18,564) 2,804 -- 28,546
Pilipino Cable
Corporation.............. 14,950 -- (3,004) (2,588) -- 9,358
Hunan International TV...... 6,061 -- (2,477) 16 -- 3,600
Other....................... 350 -- -- -- -- 350
Latin America:
Megapo...................... 32,496 (1,408) (1,618) (9,382) -- 20,088
MGM Networks LA(1).......... 11,988 -- (11,988) -- -- --
Jundiai..................... 6,032 (1,572) 72 (1,334) 3,198
Other....................... 2 -- -- -- -- 2
-------- ------- -------- ------- --- --------
Total............... $379,854 $(9,160) $(56,043) $(5,142) $-- $309,509
======== ======= ======== ======= === ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-------------------------------------------------------------------------
CUMULATIVE
INVESTMENTS SHARE IN CUMULATIVE
IN DIVIDENDS RESULTS OF TRANSLATION VALUATION
AFFILIATES RECEIVED AFFILIATES 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
Monor...................... 11,301 -- (2,601) (7,849) -- 851
Iberian Programming........ 14,082 -- (7,418) (25) -- 6,639
Xtra Music................. 5,326 -- (536) 252 -- 5,042
Other...................... 14,532 -- (3,876) 176 -- 10,832
Asia/Pacific:
Saturn..................... 49,808 -- (23,138) (2,881) -- 23,789
XYZ Entertainment.......... 44,306 -- (18,537) 111 -- 25,880
Pilipino Cable
Corporation............. 11,673 -- (2,812) (2,824) -- 6,037
Hunan International TV..... 6,073 -- (2,435) 16 -- 3,654
Telefenua.................. 18,599 -- (14,215) -- (4,384) --
Other...................... 350 -- -- -- -- 350
Latin America:
VTR........................ 112,052 -- (17,203) (9,874) -- 84,975
Megapo..................... 32,496 (1,471) (1,122) (11,067) -- 18,836
MGM Networks LA(1)......... 5,687 -- (5,687) -- -- --
Jundiai.................... 6,797 -- (587) (1,089) -- 5,121
-------- ------- --------- -------- ------- --------
Total.............. $578,790 $(7,561) $(111,007) $(26,348) $(4,384) $429,490
======== ======= ========= ======== ======= ========
</TABLE>
---------------
(1) Includes an accrued funding obligation of $3.0 and $2.9 million at December
31, 1999 and 1998, respectively. The Company would face significant and
punitive dilution if it did not make the requested fundings.
F-45
<PAGE> 178
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1999 and 1998, the Company had the following differences
related to the excess of its cost over its proportionate interest in each
affiliate's net tangible assets included in the above table. Such differences
are being amortized over 15 years.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999 AS OF DECEMBER 31, 1998
-------------------------- --------------------------
BASIS ACCUMULATED BASIS ACCUMULATED
DIFFERENCE AMORTIZATION DIFFERENCE AMORTIZATION
---------- ------------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Europe:
SBS........................................ $109,080 $ (2,828) $ -- $ --
Tevel...................................... 82,010 (7,947) 80,644 (3,351)
Melita..................................... 11,673 (1,242) 12,898 (451)
Iberian Programming........................ 11,941 (521) 2,216 (85)
Xtra Music................................. 5,511 (246) 3,585 (73)
Other...................................... -- -- 9,985 (404)
Asia/Pacific:
XYZ Entertainment.......................... 25,791 (1,609) 23,595 --
Saturn..................................... -- -- 12,733 (1,005)
Latin America:
VTR........................................ -- -- 19,994 (1,941)
Megapo..................................... 20,518 (6,983) 19,583 (5,767)
-------- -------- -------- --------
Total.............................. $266,524 $(21,376) $185,233 $(13,077)
======== ======== ======== ========
</TABLE>
Condensed financial information for UPC, stated in U.S. dollars, is presented
below:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
1997(1)
--------------
(IN THOUSANDS)
<S> <C>
Revenue..................................................... $ 172,951
Operating, selling, general and administrative expense...... (121,833)
Depreciation and amortization............................... (68,148)
---------
Net operating loss................................ (17,030)
Interest, net............................................... (32,936)
Share in results of affiliated companies, net............... (10,395)
Other....................................................... (29,820)
---------
Net loss.......................................... $ (90,181)
=========
</TABLE>
---------------
(1) The Company consolidated the results of UPC effective December 11, 1997.
F-46
<PAGE> 179
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1999 1998
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cable distribution networks................................. $1,826,781 $ 255,702
Subscriber premises equipment and converters................ 451,505 252,250
MMDS/DTH distribution facilities............................ 144,593 62,872
Office equipment, furniture and fixtures.................... 103,869 30,415
Buildings and leasehold improvements........................ 162,522 11,236
Other....................................................... 173,091 40,150
---------- ---------
2,862,361 652,625
Accumulated depreciation.......................... (482,524) (201,183)
---------- ---------
Net property, plant and equipment................. $2,379,837 $ 451,442
========== =========
</TABLE>
7. GOODWILL AND OTHER INTANGIBLE ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------
1999 1998
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Europe:
@Entertainment............................................ $ 935,867 $ --
UPC Nederland............................................. 763,714 --
Stjarn.................................................... 430,606 --
Telekabel Group........................................... 177,800 206,092
UPC France................................................ 117,787 --
UPC Norge................................................. 85,405 87,563
Kabel Plus................................................ 85,330 --
UPC Magyarorszag.......................................... 55,068 51,550
UPC....................................................... 29,406 --
Monor..................................................... 24,420 --
UPC Slovak................................................ 23,026 --
UPC Belgium............................................... 20,994 22,322
Other..................................................... 12,932 12,971
Asia/Pacific:
Austar United............................................. 114,882 --
Austar.................................................... -- 60,071
Latin America:
VTR....................................................... 223,484 --
TV Show Brasil............................................ 8,298 16,161
Cable Star................................................ 5,916 7,887
---------- --------
3,114,935 464,617
Accumulated amortization.......................... (170,133) (39,683)
---------- --------
Net goodwill and other intangible assets.......... $2,944,802 $424,934
========== ========
</TABLE>
F-47
<PAGE> 180
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SHORT-TERM DEBT
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1999 1998
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Stjarn Seller's Note (Note 3)............................... $100,000 $ --
Stjarn Credit Facility...................................... 39,333 --
A2000 Bank Facility (Note 10)............................... 20,575 --
Other UPC................................................... 4,355 33,504
Other Latin America and Asia/Pacific........................ 9,033 59,875
-------- -------
Total short-term debt............................. $173,296 $93,379
======== =======
</TABLE>
Carrying value approximates fair value for these short-term facilities.
STJARN CREDIT FACILITY
In December 1998, Stjarn's parent company entered into a Swedish Kronor ("SEK")
521.0 ($61.3) million loan agreement with a bank to refinance certain debt. The
loan currently consists of an A facility, a medium term loan in the amount of
SEK371.0 ($43.6) million and a revolving credit facility in the amount of
SEK150.0 ($17.6) million. These facilities bear interest at the rate of
Stockholm Interbank Offered Rate ("STIBOR") plus a margin of 0.75% to 1.25%. As
a result of UPC's acquisition of Stjarn, both the A facility and the revolving
facility are now due on March 31, 2000.
9. SENIOR DISCOUNT NOTES AND SENIOR NOTES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
United 1998 Notes........................................... $ 991,568 $ 893,003
United 1999 Notes........................................... 224,426 --
United Old Notes............................................ -- 412
UPC USD Senior Notes due 2009............................... 759,442 --
UPC 10.875% Euro Senior Notes due 2009...................... 301,878 --
UPC USD Senior Discount Notes due 2009...................... 421,747 --
UPC 10.875% USD Senior Notes due 2007....................... 191,852 --
UPC 10.875% Euro Senior Notes due 2007...................... 100,625 --
UPC 11.25% USD Senior Notes due 2009........................ 239,905 --
UPC 11.25% Euro Senior Notes due 2009....................... 100,894 --
UPC 13.375% USD Senior Discount Notes due 2009.............. 255,786 --
UPC 13.375% Euro Senior Discount Notes due 2009............. 102,847 --
@Entertainment 1999 Senior Discount Notes................... 141,807 --
@Entertainment 1998 Senior Discount Notes................... 115,984 --
@Entertainment 1999 Series C Senior Discount Notes.......... 11,841 --
PCI Discount Notes.......................................... 16,457 --
United A/P Notes............................................ 407,945 356,640
---------- ----------
4,385,004 1,250,055
Less current portion.............................. -- (412)
---------- ----------
Total senior discount notes....................... $4,385,004 $1,249,643
========== ==========
</TABLE>
F-48
<PAGE> 181
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNITED 1998 NOTES
In February 1998, the Company sold in a private transaction $1,375.0 million
principal amount at maturity of 10.75% senior secured discount notes due 2008.
The United 1998 Notes were issued at a discount from their principal amount at
maturity, resulting in gross proceeds to United of approximately $812.2 million.
The Company used approximately $531.8 million of the proceeds from the United
1998 Notes to complete a tender offer for the Company's existing 14.0% senior
secured discount notes due 1999 (collectively, the "United Old Notes") and the
consent solicitation that the Company conducted concurrently therewith. The
Company commenced the tender offer on January 7, 1998, and the tender offer
expired on February 4, 1998, with over 99.8% of the United Old Notes being
validly tendered. The Company subsequently purchased $0.5 million principal
amount at maturity of the United Old Notes on the open market, leaving
approximately $0.5 million principal amount at maturity outstanding as of
February 28, 1998. The United Old Notes redeemed had an aggregate accreted value
of approximately $466.2 million as of February 5, 1998. The tender premium of
approximately $65.6 million, combined with the write-off of unamortized deferred
financing costs and other transaction-related costs totaling approximately $13.5
million, resulted in an extraordinary charge of $79.1 million.
The United 1998 Notes will accrete at 10.75% per annum, compounded semi-annually
to an aggregate principal amount of $1,375.0 million on February 15, 2003, at
which time cash interest will commence to accrue. Commencing August 15, 2003,
cash interest on the United 1998 Notes will be payable on February 15 and August
15 of each year until maturity at a rate of 10.75% per annum. The United 1998
Notes will mature on February 15, 2008, and will be redeemable at the option of
the Company on or after February 15, 2003.
The United 1998 Notes are senior secured obligations of the Company that rank
senior in right of payment to all future subordinated indebtedness of the
Company. The United 1998 Notes are effectively subordinated to all future
indebtedness and other liabilities and commitments of the Company's
subsidiaries. Under the terms of the indenture governing the United 1998 Notes
(the "Indenture"), the Company's subsidiaries are generally prohibited and/or
restricted from incurring any liens 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
Indenture. The Company has the option to invest in "unrestricted entities" in an
aggregate amount equal to the sum of $100.0 million plus the aggregate amount of
net cash proceeds from sales of equity, net of payments made on its preferred
stock plus net proceeds from certain litigation settlements. The Indenture
generally prohibits the Company from incurring additional indebtedness with the
exception of a general allowance of $75.0 million for debt maturing on or after
February 15, 2008, certain guarantees totaling $15.0 million, refinancing
indebtedness, normal indebtedness to restricted affiliates and other letters of
credit in the ordinary course of business. The Indenture also limits 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% of
the borrower's consolidated invested equity capital. In addition, there must be
no existing default under the Indenture at the time of the borrowing. The
Indenture also restricts its subsidiaries' ability to make certain asset sales
and certain payments.
In conjunction with the United Old Notes, the Company issued 394,000 warrants,
including related put rights (the "Warrants") to purchase a total of 3,573,398
shares of Class A Common Stock at a price of $7.50 per share. At any time
between January 31, 1996 and March 1, 1996, the Warrant holders had the right to
require the Company to repurchase all or a part of the Warrants for $28.34 per
Warrant. Holders of the Warrants required the Company to purchase 76,070
Warrants to purchase 689,864 shares of Class A Common Stock for a cost of $2.2
million on March 1, 1996. The remaining value assigned to the
F-49
<PAGE> 182
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Warrants of $9.0 million was reclassified to additional paid-in capital on March
1, 1996. The remaining 317,930 outstanding Warrants (representing 2,883,600
shares of Class A Common Stock) were exercised during 1999, resulting in
proceeds of $21.6 million.
UNITED 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
United 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 United 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 United 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 United 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 United 1999 Notes at the Company's
option with the net proceeds from one or more public offerings or certain asset
sales. The United 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 United 1998 Notes.
UPC USD SENIOR NOTES DUE 2009, UPC 10.875% EURO SENIOR NOTES DUE 2009 AND UPC
USD SENIOR DISCOUNT NOTES DUE 2009 (COLLECTIVELY THE "UPC JULY 1999 NOTES")
In July 1999, UPC completed a private placement bond offering consisting of
$800.0 million ten-year 10.875% Senior Notes due 2009, E300.0 million of
ten-year 10.875% Senior Notes due 2009 and $735.0 million aggregate principal
amount of ten-year 12.5% Senior Discount Notes due 2009. The UPC Senior Discount
Notes due 2009 were sold at 54.5% of face value amount yielding gross proceeds
of approximately $400.7 million, and will accrue but not pay interest until
2005. Interest payments on the Senior Notes due 2009 will be due semi-annually,
commencing February 1, 2000. The indentures governing the UPC July 1999 Notes
place certain limitations on UPC's ability, and the ability of its subsidiaries,
to borrow money, issue capital stock, pay dividends in stock or repurchase
stock, make investments, create certain liens, engage in certain transactions
with affiliates, and sell certain assets or merge with or into other companies.
Concurrent with the closing of the UPC July 1999 Notes offering, UPC entered
into a cross-currency swap, swapping the $800.0 million UPC Senior Notes due
2009 into fixed and variable rate Euro notes with a notional amount totaling
E754.7 million. One half of the Euro notes have a fixed interest rate of 8.54%
through August 1, 2004, thereafter switching to a variable interest rate of Euro
Interbank Offered Rate ("EURIBOR") plus 4.15%, for an initial rate of 7.1%.
UPC 10.875% USD AND EURO SENIOR NOTES DUE 2007, UPC 11.25% USD AND EURO SENIOR
NOTES DUE 2009 AND UPC 13.375% USD AND EURO SENIOR DISCOUNT NOTES DUE 2009
(COLLECTIVELY THE "UPC OCTOBER 1999 NOTES")
In October 1999, UPC completed a private placement bond offering consisting of
six tranches: $200.0 million and E100.0 million of eight-year 10.875% Senior
Notes due 2007; $252.0 million and E101.0 million of ten-year 11.25% Senior
Notes due 2009 and $478.0 million and E191.0 million aggregate principal amount
of ten-year 13.375% Senior Discount Notes due 2009. The Senior Discount Notes
were sold at 52.3% of the face amount yielding gross proceeds of $250.0 million
and E100.0 million and will accrue but not pay interest until November 2004. UPC
then entered into cross-currency swaps, swapping the $252.0 million 11.25%
coupon into fixed and variable rate Euro notes with a notional amount totaling
E240.2 million, and swapping the $200.0 million 10.875% coupon into fixed and
variable rate Euro notes with a notional amount totaling E190.7 million. Of the
former swap, E120.1 million have a fixed interest
F-50
<PAGE> 183
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
rate of 9.9% through November 1, 2004, thereafter switching to a variable rate
of EURIBOR + 4.8%. The remaining E120.1 million have a variable interest rate of
EURIBOR + 4.80%. Of the latter swap, E95.4 million have a fixed interest rate of
9.9% through November 1, 2004, thereafter switching to a variable rate of
EURIBOR + 4.8%. The remaining E95.4 million have a variable interest rate of
EURIBOR + 4.8%.
@ENTERTAINMENT 1999 SENIOR DISCOUNT NOTES, @ENTERTAINMENT 1998 SENIOR DISCOUNT
NOTES AND @ENTERTAINMENT 1999 SERIES C SENIOR DISCOUNT NOTES (COLLECTIVELY THE
"@ENTERTAINMENT NOTES")
In January 1999, @Entertainment sold 256,800 units consisting of Senior Discount
Notes due 2009 and warrants to purchase 1,813,665 shares of @Entertainment's
common stock. The @Entertainment 1999 Senior Discount Notes were issued at a
discount to their aggregate principal amount at maturity yielding gross proceeds
of approximately $100.0 million. Cash interest on the @Entertainment 1999 Senior
Discount Notes will not accrue prior to February 1, 2004. Thereafter, cash
interest will accrue at a rate of 14.5% per annum, payable semi-annually in
arrears on August 1 and February 1 of each year, commencing August 1, 2004. In
connection with the acquisition of @Entertainment, UPC acquired all of the
existing warrants held in connection with the @Entertainment 1999 Senior
Discount Notes.
In July 1998, @Entertainment sold 252,000 units, consisting of 14.5% Senior
Discount Notes due 2008 and warrants entitling the warrant holders to purchase
1,824,514 shares of @Entertainment common stock. This offering generated
approximately $125.1 million in gross proceeds to @Entertainment. The
@Entertainment 1998 Senior Discount Notes are unsubordinated and unsecured
obligations of @Entertainment. Cash interest will not accrue prior to July 15,
2003. After that, cash interest will accrue at a rate of 14.5% per year and will
be payable semi-annually in arrears on January 15 and July 15 of each year,
beginning January 15, 2004. The @Entertainment 1998 Senior Discount Notes will
mature on July 15, 2008. In connection with the acquisition of @Entertainment,
UPC acquired all of the existing warrants held in connection with the
@Entertainment 1998 Senior Discount Notes.
Pursuant to the terms of the @Entertainment indenture, @Entertainment
repurchased $49.1 million aggregate principal amount at maturity of these notes
for $26.5 million as a result of UPC's acquisition of @Entertainment.
In January 1999, @Entertainment sold $36.0 million aggregate principal amount at
maturity of Series C Senior Discount Notes generating approximately $9.8 million
of gross proceeds. The @Entertainment 1999 Series C Senior Discount Notes are
senior unsecured obligations of @Entertainment. Original issue discount will
accrete from January 20, 1999, until maturity on July 15, 2008. Cash interest
will accrue beginning July 15, 2004 at a rate of 7.0% per year on the principal
amount at maturity, and will be payable semi-annually in arrears, on July 15 and
January 15 of each year beginning January 15, 2005.
PCI DISCOUNT NOTES
Poland Communications, Inc. ("PCI"), @Entertainment's major operating
subsidiary, sold $130.0 million of discount notes in October 1996. The PCI
Discount Notes bear interest at 9.875%, payable on May 1 and November 1 of each
year. The PCI Discount Notes mature on November 1, 2003. Pursuant to the terms
of the PCI indenture, @Entertainment repurchased a majority of the PCI Discount
Notes in November 1999 as a result of UPC's acquisition of @Entertainment.
UNITED A/P NOTES
The 14.0% senior notes were issued by United A/P in May 1996 and September 1997
at a discount from their principal amount of $488.0 million, resulting in gross
proceeds of $255.0 million. On and after May 15, 2001, cash interest will accrue
and will be payable semi-annually on each May 15 and
F-51
<PAGE> 184
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
In November 1997, pursuant to the terms of the indentures governing the United
A/P Notes, United A/P issued warrants to purchase 488,000 shares of its common
stock. The warrants are exercisable through May 15, 2006 at a price of $10.45
per share, which would result in gross proceeds of $5.1 million upon exercise.
The warrants were valued at $3.7 million and have been reflected as an
additional discount to the United A/P Notes on a pro-rata basis and as an
increase in additional paid-in capital. Warrants to acquire 50 shares were
exercised November 24, 1999.
10. OTHER LONG-TERM DEBT
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1999 1998
---------- --------
(IN THOUSANDS)
<S> <C> <C>
UPC Senior Credit Facility.................................. $ 359,720 $ --
New Telekabel Facility...................................... 256,861 --
A2000 Facilities............................................ 209,132 --
CNBH Facility............................................... 122,317 --
Rhone Vision Cable Credit Facility.......................... 61,360 --
RCF Facility................................................ 31,852 --
UPC DIC Loan................................................ 39,366 84,214
Mediareseaux Facility....................................... 45,193 21,346
Monor Facility.............................................. 33,488 --
Videopole Facility.......................................... 7,752 --
Other UPC................................................... 50,345 3,821
UPC Senior Revolving Credit Facility........................ -- 512,179
UPC Bridge Bank Facility.................................... -- 60,063
VTR Bank Facility........................................... 176,000 --
New Austar Bank Facility.................................... 202,703 67,352
Saturn Bank Facility........................................ 57,685 --
Other Asia/Pacific.......................................... 2,263 2,923
Other Latin America......................................... 594 --
---------- --------
1,656,631 751,898
Less current portion.............................. (52,180) (62,252)
---------- --------
Total other long-term debt........................ $1,604,451 $689,646
========== ========
</TABLE>
UPC SENIOR CREDIT FACILITY
On July 27, 1999, several UPC subsidiaries and a syndicate of banks executed a
Loan and Note Issuance Agreement for a E1.0 ($1.1) billion multicurrency senior
secured credit facility. The UPC Senior Credit Facility matures on July 27, 2006
and is comprised of two tranches. The E750.0 ($755.1) million Tranche A is a
senior secured reducing revolving credit facility. Tranche B is a E250.0
($251.7) million term loan credit facility. The UPC Senior Credit Facility bears
interest at EURIBOR (for borrowings in euro) and at the London Interbank Offered
Rate ("LIBOR") (for all other borrowings) plus a margin of between 0.75% and
2.0% (which shall be at least 1.5% for the first six months following closing)
plus an
F-52
<PAGE> 185
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
additional cost of funding calculation. In addition to repayment of UPC's
existing revolving credit facility, proceeds from the UPC Senior Credit Facility
were used to fund acquisitions, repay certain intercompany debts, pay interest
on funds downstreamed from the proceeds of high yield issues, general corporate
purposes, capital expenditures and other permitted distributions. Borrowings
under the UPC Senior Credit Facility are limited by financial ratio tests. The
UPC Senior Credit Facility contains change in control provisions related to
UPC's ownership in certain subsidiaries and United's ownership of UPC. In
addition, the UPC Senior Credit Facility limits acquisitions funded by loan
proceeds to E400.0 ($402.7) million over the life of the UPC Senior Credit
Facility. The UPC Senior Credit Facility contains certain financial covenants
and restrictions on UPC and its subsidiaries' ability to make dividends or other
payments to UPC, incur indebtedness, dispose of assets and merge and enter into
affiliate transactions. Net proceeds of certain disposals are required to be
used to prepay the facility.
NEW TELEKABEL FACILITY
In March 1999, UPC Nederland replaced their existing facility with a senior
facility. The New Telekabel Facility consists of a E340.0 ($342.3) million
revolving facility to N.V. Telekabel, a subsidiary of UPC Nederland, that will
convert to a term facility on December 31, 2001. The New Telekabel Facility
includes E5.0 ($5.0) million in the form of an overdraft facility that will be
available until December 31, 2007. The New Telekabel Facility bears interest at
EURIBOR plus a margin between 0.75% and 2.00% based on leverage multiples tied
to certain measures of net operating cash flow.
A2000 FACILITIES
In January 1996, A2000 and one of its subsidiaries entered into bank facilities
of NLG90.0 ($41.1) million and NLG375.0 ($171.2) million, respectively. In
October 1996, a subsidiary of A2000 entered into a bank facility of NLG45.0
($20.5) million. These facilities have between nine- and ten-year terms and
interest rates of Amsterdam Interbank Offered Rate ("AIBOR") plus 0.75% or AIBOR
plus 0.7% or fixed rates (fixed prior to each advance) increased by 0.7% or
0.75% per annum. The facilities also restrict the borrowers from incurring
additional indebtedness and from paying dividends and distributions, subject to
certain exceptions.
CNBH FACILITY
In February 1998, CNBH entered into a secured NLG250.0 ($114.2) million ten-year
term facility with a syndicate of banks. In January 1999, this facility was
increased to NLG274.0 ($125.1) million. The CNBH Facility bears interest at
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 ($2.3) million
ten-year term working capital facility with a bank.
RHONE VISION CABLE CREDIT FACILITY
In July 1996, Rhone Vision Cable, a subsidiary of Time Warner Cable France,
entered into a FFR680.0 ($104.4) million credit facility with a bank to finance
construction and installation of Rhone Vision Cable networks. The facility bears
interest at LIBOR plus 1.0%, payable quarterly. The facility must be repaid by
the earlier of June 30, 2002 or six months after network completion.
RCF FACILITY
In 1990, RCF and six of its subsidiaries entered into a FFR160.0 ($24.6) million
credit facility with a consortium of banks to finance working capital and
operations. In 1995 this facility was amended and extended to FFR252.4 ($38.7)
million to refinance three further credit facilities entered into by other
F-53
<PAGE> 186
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
subsidiaries of RCF. 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 ($5.3) million beginning at the end of 1999 until
December 31, 2005.
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 UPC 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 UPC 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 4.7 million ordinary
shares of UPC. UPC repaid $45.0 million of the UPC 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 ($104.4) million. 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 ($3.1) million overdraft
facility, subject to the same terms and conditions as the Mediareseaux Facility
except that the availability tests are not applicable.
MONOR FACILITY
In September 1997, Monor entered into a $42.0 million term loan facility with a
syndicate of banks. The proceeds of the Monor facility were used to repay
indebtedness and for capital expenditures in the build-out of Monor's network.
Monor's facility matures on December 31, 2006 and bears interest at LIBOR plus
1.5%. Monor entered into an interest rate swap agreement with a bank, swapping
the floating rate to a fixed rate of 6.7% for German marks and 7.8% for U.S.
dollars. Monor's facility is secured by a pledge over the shares of Monor and
its assets. This facility limits Monor's ability to encumber its assets, incur
indebtedness and pay dividends.
VTR BANK FACILITY
On April 29, 1999, VTR entered into a $220.0 million term loan facility in
connection with the VTR Acquisition. The VTR 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 $80.0 million. The VTR 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. The VTR
Bank Facility indenture restricts certain investments and payments, including a
ceiling on capital expenditures per fiscal year, as well as generally
prohibiting VTR from incurring additional indebtedness with the exception of a
general allowance of $15.0 million. In addition, VTR must maintain certain
financial ratios on a quarterly basis,
F-54
<PAGE> 187
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
such as total debt to EBITDA, debt service coverage, senior debt to EBITDA,
interest coverage, as well as minimum telephony revenue amounts.
NEW AUSTAR BANK FACILITY
On April 23, 1999, Austar executed a new A$400.0 million ($262.3 million)
syndicated senior secured debt facility to refinance the existing 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 existing 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 December 31, 1999, Austar has drawn
A$200.0 million under Tranche 1 and A$109.0 million under Tranche 2, for a total
outstanding balance of A$309.0 ($202.7) million.
SATURN BANK FACILITY
On July 15, 1999, Saturn closed a syndicated senior debt facility in the amount
of NZ$125.0 ($65.4) million to fund the completion of Saturn's network. As of
December 31, 1999, Saturn had drawn NZ$109.0 ($57.7) million against the
facility and expects to draw down the remaining balance by the end of fourth
quarter 2000. This debt facility's interest rate has averaged approximately
8.6%, which is 3.0% over the current base rate upon draw-down. The Saturn Bank
Facility is repayable over a five year period beginning fourth quarter 2001.
F-55
<PAGE> 188
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FAIR VALUE OF SENIOR DISCOUNT NOTES, SENIOR NOTES AND OTHER LONG-TERM DEBT
Fair value is based on market prices for the same or similar issues. Carrying
value is used when a market price is unavailable.
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
-------------- ----------
(IN THOUSANDS)
<S> <C> <C>
As of December 31, 1999:
United 1998 Notes......................................... $ 991,568 $ 880,000
United 1999 Notes......................................... 224,426 205,265
UPC USD Senior Notes due 2009............................. 759,442 775,969
UPC 10.875% Euro Senior Notes due 2009.................... 301,878 305,652
UPC USD Senior Discount Notes due 2009.................... 421,747 415,275
UPC 10.875% USD Senior Notes due 2007..................... 191,852 206,525
UPC 10.875% Euro Senior Notes due 2007.................... 100,625 102,639
UPC 11.25% USD Senior Notes due 2009...................... 239,905 262,080
UPC 11.25% Euro Senior Notes due 2009..................... 100,894 103,665
UPC 13.375% USD Senior Discount Notes due 2009............ 255,786 272,460
UPC 13.375% Euro Senior Discount Notes due 2009........... 102,847 106,669
@Entertainment 1999 Senior Discount Notes................. 141,807 146,007
@Entertainment 1998 Senior Discount Notes................. 115,984 147,948
@Entertainment 1999 Series C Senior Discount Notes........ 11,841 11,841
PCI Discount Notes........................................ 16,457 16,457
United A/P Notes.......................................... 407,945 414,008
UPC Senior Credit Facility................................ 359,720 359,720
New Telekabel Facility.................................... 256,861 256,861
A2000 Facilities.......................................... 209,132 209,132
CNBH Facility............................................. 122,317 122,317
Rhone Vision Cable Credit Facility........................ 61,360 61,360
RCF Facility.............................................. 31,852 31,852
UPC DIC Loan.............................................. 39,366 39,366
Mediareseaux Facility..................................... 45,193 45,193
Monor Facility............................................ 33,488 33,488
Videopole Facility........................................ 7,752 7,752
Other UPC................................................. 50,345 50,345
VTR Bank Facility......................................... 176,000 176,000
New Austar Bank Facility.................................. 202,703 202,703
Saturn Bank Facility...................................... 57,685 57,685
Other Asia/Pacific and Latin America...................... 2,857 2,857
---------- ----------
Total............................................. $6,041,635 $6,029,091
========== ==========
</TABLE>
F-56
<PAGE> 189
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
-------------- ----------
(IN THOUSANDS)
<S> <C> <C>
As of December 31, 1998:
United 1998 Notes......................................... $ 893,003 $ 783,750
United Old Notes.......................................... 412 412
UPC Senior Revolving Credit Facility...................... 512,179 512,179
UPC Bridge Bank Facility.................................. 60,063 60,063
Mediareseaux Facility..................................... 21,346 21,346
UPC DIC Loan.............................................. 84,214 84,214
Other UPC................................................. 3,821 3,821
United A/P Notes.......................................... 356,640 246,400
Austar Bank Facility...................................... 67,352 67,352
Other..................................................... 2,923 2,923
---------- ----------
Total............................................. $2,001,953 $1,782,460
========== ==========
</TABLE>
DEBT MATURITIES
The maturities of the Company's senior discount notes, senior notes and other
long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
Year Ended December 31, 2000............................ $ 52,180
Year Ended December 31, 2001............................ 5,492
Year Ended December 31, 2002............................ 255,430
Year Ended December 31, 2003............................ 78,662
Year Ended December 31, 2004............................ 96,839
Thereafter.............................................. 5,553,032
----------
Total......................................... $6,041,635
==========
</TABLE>
OTHER FINANCIAL INSTRUMENTS
Interest rate swap agreements are used by the Company from time to time to
manage interest rate risk on its floating rate debt facilities. Interest rate
swaps are entered into depending on the Company's assessment of the market, and
generally are used to convert 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, the
Company has four interest rate swaps to manage interest rate exposure on the New
Austar Bank Facility and one interest rate swap to manage exposure on the Saturn
Bank Facility. Two of the swap agreements on the New Austar Bank Facility expire
in 2002 and effectively convert an aggregate principal amount of A$50.0 ($32.8)
million of variable rate, long-term debt into fixed rate borrowings. The other
two swap agreements expire in 2004 and convert an aggregate principal amount of
A$100.0 ($65.6) million of variable rate, long-term debt into fixed rate
borrowings. The swap agreement on the Saturn Bank Facility effectively converts
an aggregate principal amount of NZ$60.6 ($31.7) million of variable rate,
long-term debt into fixed rate borrowings. The interest rate swap includes an
increasing fixed rate with an additional margin which is expected to decline as
the debt to EBITDA ratio declines.
F-57
<PAGE> 190
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. CONVERTIBLE PREFERRED STOCK
SERIES A
In connection with the Company's acquisition of an additional 40.0% economic
interest in Austar in 1995, the Company issued 170,513 shares of par value $0.01
per share Series A Preferred Stock. The Series A Preferred Stock had an initial
liquidation value of $175.00 per share and accrued dividends at a rate of 4.0%
per annum, compounded quarterly. Each share of Series A Preferred Stock was
convertible 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 $8.75.
During the ten months ended December 31, 1998 a total of 38,369 shares of Series
A Preferred Stock were converted into 850,914 shares of Class A Common Stock.
During the year ended December 31, 1999, the remaining 132,144 shares of Series
A Preferred Stock were converted into 3,006,404 shares of Class A Common Stock.
SERIES B
In connection with the Company's acquisition of certain assets of ECT in July
1998, and the acquisition of an additional interest in XYZ Entertainment in
September 1998, the Company issued a total of 139,031 shares of par value $0.01
per share Series B Preferred Stock. The Series B Preferred Stock had an initial
liquidation value of $212.50 per share (approximately $29.5 million) and accrues
dividends at a rate of 6.5% per annum, compounded quarterly. Each share of
Series B Preferred Stock is convertible 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 $10.63. The Company is required to redeem the Series B
Preferred Stock on June 30, 2008 at a redemption price equal to its then
liquidation value plus accrued dividends. During the year ended December 31,
1999 a total of 22,846 shares of Series B Preferred Stock were converted into
487,410 shares of Class A Common Stock. Assuming none of the remaining 116,185
shares of Series B Preferred Stock is converted prior to redemption, the total
cost to the Company upon redemption would be approximately $46.6 million. The
Company has granted certain rights to holders of the Series B Preferred Stock to
register under the Securities Act of 1933 the sale of shares of Class A Common
Stock into which the Series B Preferred Stock may be converted.
SERIES C PREFERRED STOCK
In July 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 $381.6 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. On September 30, 1999 and December
31, 1999 the holders received their quarterly payment in cash. 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
$42.15. 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 Class A 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
F-58
<PAGE> 191
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ranks senior to United's Class A Common Stock and pari passu with the Company's
existing preferred stock. The Company has registered under the Securities Act of
1933 (i) the resale by holders of the Series C Preferred Stock, (ii) the shares
of Class A Common Stock issuable in lieu of cash payment of amounts due on a
change of control, redemption and dividend payment date and (iii) the shares of
Class A Common Stock issuable upon conversion of the Series C Preferred Stock.
SERIES D PREFERRED STOCK
In December 1999, the Company issued 287,500 shares of par value $0.01 per share
Series D Preferred Stock, resulting in gross and net proceeds to the Company of
$287.5 million and $259.9 million, respectively. The purchasers of the Series D
Preferred Stock deposited $20.1 million into an account from which the holders
will be entitled to payments in an amount equal to $17.50 per preferred share
per quarter commencing on December 31, 1999 through September 30, 2000 in cash
or Class A Common Stock at United's option. On December 31, 1999 the holders
received their payment in cash. The Series D 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 December 31, 2000, payable in cash or
Class A Common Stock at the Company's option. Each share of Series D 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 $63.79. The conversion price is subject to
adjustment upon the occurrence of certain events. The Company has the right to
require conversion on or after June 30, 2001 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 December 31, 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 December 31, 2002, the Company has the
option to redeem the Series D Preferred Stock in certain circumstances in cash
or Class A common stock. The Series D Preferred Stock ranks senior to United's
common stock and pari passu with the Company's existing preferred stock. The
Company has registered under the Securities Act of 1933 (i) the resale by
holders of the Series D Preferred Stock, (ii) 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 (iii) the shares of common stock
issuable upon conversion of the Series D Preferred Stock.
12. STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
In April 1993, the Company adopted a Restated Certificate of Incorporation
pursuant to which the Company authorized the issuance of two classes of common
stock, Class A Common Stock and Class B Common Stock. Each share of Class A
Common Stock is entitled to one vote per share while each share of Class B
Common Stock is entitled to ten votes per share. Each share of Class B Common
Stock is convertible at any time at the option of the holder into one share of
Class A Common Stock. The two classes of common stock are identical in all other
respects.
COMMON STOCK SPLIT
On November 11, 1999, the Board of Directors authorized a two-for-one stock
split effected in the form of a stock dividend distributed on November 30, 1999
to shareholders of record on November 22, 1999. The effect of the stock split
has been recognized retroactively in all share and per share data in the
accompanying consolidated financial statements and notes.
F-59
<PAGE> 192
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CUMULATIVE TRANSLATION ADJUSTMENTS
During the year ended December 31, 1999, the Company recorded a negative change
in cumulative translation adjustments of $127.2 million, primarily due to (i)
the strengthening of the U.S. dollar compared to the Dutch guilder of
approximately 15.9% and (ii) the strengthening of the U.S. dollar compared to
the Chilean peso of approximately 12.1%.
TREASURY STOCK
As a result of the UPC Transaction, UPC acquired 6,338,302 shares of the
Company's Class A Common Stock, valued at cost on December 11, 1997 at $33.1
million. In November 1998, UPC used 769,062 shares to acquire an additional 5.0%
interest in certain Irish programming companies, resulting in 5,569,240 United
shares remaining in the treasury at a cost of $29.1 million.
EQUITY TRANSACTIONS OF SUBSIDIARIES
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 subsidiaries affects the equity
accounts of the Company. The following represents the effect on additional
paid-in capital and deferred compensation as a result of these equity
transactions:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------------
AUSTAR UNITED
UPC UNITED CORPORATE TOTAL
--------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Variable plan accounting for stock options... $ 338,261 $ 40,883 $ -- $ 379,144
Deferred compensation expense................ (180,757) (40,883) -- (221,640)
Amortization of deferred compensation........ 79,104 22,540 679 102,323
Issuance of warrants......................... 33,025 -- -- 33,025
Issuance of convertible debt (UPC DIC
Loan)...................................... 14,875 -- -- 14,875
--------- -------- ---- ---------
Total.............................. $ 284,508 $ 22,540 $679 $ 307,727
========= ======== ==== =========
</TABLE>
OTHER CUMULATIVE COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Foreign currency translation adjustments.................... $(217,942) $(90,788)
Unrealized gain (loss) on available-for-sale securities..... 6,704 (154)
--------- --------
Total............................................. $(211,238) $(90,942)
========= ========
</TABLE>
EMPLOYEE STOCK OPTION PLAN
In May 1993, the Company adopted a stock option plan for certain of its
employees (the "Employee Plan"). The Employee Plan is construed, interpreted and
administered by the compensation committee (the "Committee"), consisting of all
members of the Board of Directors who are not employees of the Company. Members
of the Company's Board of Directors who are not employees are not eligible to
receive option grants under the Employee Plan. The Committee has the discretion
to determine the employees and consultants to whom options are granted, the
number of shares subject to the options, the exercise price of the options, the
period over which the options become exercisable, the term of the options
(including the period after termination of employment during which an option may
be exercised) and
F-60
<PAGE> 193
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
certain other provisions relating to the option. The maximum number of shares
subject to options that may be granted to any one participant under the Employee
Plan during any calendar year is 500,000 shares. The maximum term of options
granted under the Employee Plan is ten years. Options granted may be either
incentive stock options under the Internal Revenue Code of 1986, as amended, or
non-qualified stock options. The options vest in equal monthly increments over
the four-year period following the date of grant. Vesting would be accelerated
upon a change of control in the Company as defined in the Employee Plan. Under
the Employee Plan, options to purchase a total of 9,200,000 shares of Class A
Common Stock have been authorized, of which 1,727,142 were available for grant
as of December 31, 1999.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The Company adopted a stock option plan for non-employee directors effective
June 1, 1993 (the "1993 Director Plan"). The Director Plan provides for the
grant of an option to acquire 20,000 shares of the Company's Class A Common
Stock to each member of the Board of Directors who was not also an employee of
the Company (a "non-employee director") on June 1, 1993, and to each person who
is newly elected to the Board of Directors as a non-employee director after June
1, 1993, on the date of their election. To allow for additional option grants to
non-employee directors, the Company adopted a second stock option plan for
non-employee directors effective March 20, 1998 (the "1998 Director Plan," and
together with the 1993 Director Plan, the "Director Plans"). Options under the
1998 Director Plan are granted at the discretion of the Company's Board.
The maximum term of options granted under the Director Plans is ten years. Under
the 1993 Director Plan, options vest 25% on the first anniversary of the date of
grant and the remaining 75% vests in equal monthly increments over the following
three year period. Under the 1998 Director Plan, options vest in equal monthly
installments over the four year period following the date of grant. Vesting
under both Director Plans would be accelerated upon a change in control of the
Company as defined in the respective Director Plans. Under the Director Plans,
options to purchase a total of 1,960,000 shares of Class A Common Stock have
been authorized, of which 1,029,167 were available for grant as of December 31,
1999.
FAIR VALUE OF STOCK OPTIONS
For purposes of the pro forma disclosures presented below, the Company has
computed the fair values of all options granted using the Black-Scholes
single-option pricing model and the following weighted-average assumptions:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Risk-free interest rate........................ 6.24% 4.60% 5.91%
Expected lives................................. 5 years 7 years 7 years
Expected volatility............................ 70.44% 55.34% 53.46%
Expected dividend yield........................ 0% 0% 0%
</TABLE>
The total fair value of options granted was $47.7 million, $3.7 million, and
$2.9 million for the year ended December 31, 1999, the ten months ended December
31, 1998 and the year ended February 28, 1998, respectively. These amounts are
amortized using the straight-line method over the vesting period of the options.
Cumulative compensation expense recognized in pro forma net income, with respect
to options that are forfeited prior to vesting, is adjusted as a reduction of
pro forma compensation expense in the period of forfeiture. For the year ended
December 31, 1999, the ten months ended December 31, 1998 and the year ended
February 28, 1998, stock-based compensation, net of the effect of the
forfeitures, was
F-61
<PAGE> 194
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$11.7 million, $2.7 million and $2.8 million, respectively. This stock-based
compensation had the following pro forma effect on net income (loss) (in
thousands):
<TABLE>
<CAPTION>
FOR THE TEN
FOR THE YEAR ENDED MONTHS ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 FEBRUARY 28, 1998
--------------------- --------------------- ---------------------
BASIC
NET NET INCOME NET NET LOSS NET NET LOSS
INCOME PER SHARE LOSS PER SHARE LOSS PER SHARE
-------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
As reported.......... $636,318 $7.53 $(545,532) $(7.43) $(342,532) $(4.46)
======== ===== ========= ====== ========= ======
Pro forma............ $624,619 $7.39 $(548,226) $(7.47) $(345,305) $(4.50)
======== ===== ========= ====== ========= ======
</TABLE>
The fair value method of accounting for stock-based compensation plans
recognizes the value of options granted as compensation expense over the
option's vesting period and has not been applied to options granted prior to
March 1, 1995.
A summary of stock option activity for the Employee Plan is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 FEBRUARY 28, 1998
--------------------------- -------------------------- --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
---------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 5,309,526 $ 5.53 5,894,952 $5.92 5,587,702 $5.87
Granted during the
year................... 1,467,445 $34.11 739,000 $4.94 871,250 $5.50
Cancelled during the
year................... (624,095) $ 6.75 (498,138) $9.34 (260,212) $7.41
Exercised during the
year................... (1,750,589) $ 5.67 (826,288) $5.44 (303,788) $2.62
---------- ------ --------- ----- --------- -----
Outstanding at end of
year................... 4,402,287 $14.84 5,309,526 $5.53 5,894,952 $5.92
========== ====== ========= ===== ========= =====
Exercisable at end of
year................... 2,436,077 $ 6.17 3,362,324 $5.55 4,028,140 $5.77
========== ====== ========= ===== ========= =====
</TABLE>
A summary of stock option activity for the Director Plans is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 FEBRUARY 28, 1998
------------------------- ------------------------- ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
-------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year...................... 770,000 $ 5.73 520,000 $6.08 560,000 $6.27
Granted during the year..... 150,000 $54.66 330,000 $4.94 40,000 $5.56
Cancelled during the year... (114,167) $ 4.30 -- -- (80,000) $7.13
Exercised during the year... (87,500) $ 8.47 (80,000) $4.75 -- --
-------- ------ ------- ----- ------- -----
Outstanding at end of
year...................... 718,333 $15.84 770,000 $5.73 520,000 $6.08
======== ====== ======= ===== ======= =====
Exercisable at end of
year...................... 436,874 $ 5.67 463,956 $6.29 486,666 $6.12
======== ====== ======= ===== ======= =====
</TABLE>
F-62
<PAGE> 195
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 FEBRUARY 28, 1998
----------------------------- ---------------------------- --------------------------
FAIR EXERCISE FAIR EXERCISE FAIR EXERCISE
EXERCISE PRICE NUMBER VALUE PRICE NUMBER VALUE PRICE NUMBER VALUE PRICE
-------------- --------- ------ -------- --------- ----- -------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Less than market
price.............. -- -- -- 150,000 $6.61 $5.19 6,250 $2.15 $4.75
Equal to market
price.............. 1,486,279 $27.54 $38.41 919,000 $3.00 $4.90 865,000 $3.32 $5.40
Greater than market
price.............. 131,166 $51.88 $ 8.92 -- -- -- 40,000 $1.17 $7.88
--------- ------ ------ --------- ----- ----- ------- ----- -----
Total...... 1,617,445 $29.52 $36.02 1,069,000 $3.50 $4.94 911,250 $3.21 $5.50
========= ====== ====== ========= ===== ===== ======= ===== =====
</TABLE>
The following table summarizes information about employee and director stock
options outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- --------------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
CONTRACTUAL LIFE AVERAGE AVERAGE
EXERCISE PRICE RANGE NUMBER (YEARS) EXERCISE PRICE NUMBER EXERCISE PRICE
-------------------- --------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$ 2.25-$ 4.75.............. 1,606,774 4.92 $ 4.45 1,302,190 $ 4.50
$ 5.13-$ 6.38.............. 1,545,924 7.68 $ 5.63 963,921 $ 5.69
$ 6.50-$22.06.............. 982,422 6.77 $12.13 578,174 $ 9.07
$31.00-$62.29.............. 985,500 9.81 $49.77 28,666 $31.86
--------- ---- ------ --------- ------
Total............ 5,120,620 7.05 $15.00 2,872,951 $ 6.09
========= ==== ====== ========= ======
</TABLE>
SUBSIDIARY STOCK OPTION PLANS
UPC Plan
In June 1996, UPC adopted a stock option plan (the "UPC Plan") for certain of
its employees and those of its subsidiaries. There are 18,000,000 total shares
available for the granting of options under the UPC Plan, which are held by the
Stichting Administratiekantoor UPC (the "Foundation"), which administers the UPC
Plan. Each option represents the right to acquire from the Foundation a
certificate representing the economic value of one share. Following consummation
of the initial public offering, any certificates issued to employees who have
exercised their options will be converted into UPC common stock. United appoints
the board members of the Foundation and thus controls the voting of the
Foundation's common stock. The options are granted at fair market value
determined by UPC's Supervisory Board at the time of the grant. The maximum term
that the options can be exercised is five years from the date of the grant. In
order to introduce the element of "vesting" of the options, the UPC Plan
provides that even though the options are exercisable immediately, the shares to
be issued or options granted in 1996 vest in equal monthly increments over a
three-year period from the effective date set forth in the option grant. In
March 1998, the UPC Plan was revised to increase the vesting period for any new
grants of options to four years, vesting in equal monthly increments. Upon
termination of an employee (except in the case of death, disability or the
like), all unvested options previously exercised must be resold to the
Foundation at the original purchase price, or all vested options must be
exercised, within 30 days of the termination date. The Supervisory Board may
alter these vesting schedules in its discretion. An employee has the right at
F-63
<PAGE> 196
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
any time to put his certificates or shares from exercised vested options to the
Foundation at a price equal to the fair market value. UPC can also call such
certificates or shares for a cash payment upon termination in order to avoid
dilution, except for certain awards, which cannot be called by UPC until
expiration of the underlying options. The UPC Plan also contains anti-dilution
protection and provides that, in the case of change of control, the acquiring
company has the right to require UPC to acquire all of the options outstanding
at the per share value determined in the transaction giving rise to the change
of control.
For purposes of the pro forma disclosures presented below, UPC has computed the
fair values of all options granted during the year ended December 31, 1999 using
the Black-Scholes single-option pricing model and the following weighted-average
assumptions:
<TABLE>
<S> <C>
Risk-free interest rate..................................... 5.76%
Expected life............................................... 5 years
Expected volatility......................................... 56.82%
Expected dividend yield..................................... 0%
</TABLE>
The total fair value of options granted was approximately E38.5 ($38.8) million
for the year ended December 31, 1999. This amount is amortized using the
straight-line method over the vesting period of the options. Cumulative
compensation expense recognized in pro forma net income, with respect to options
that are forfeited prior to vesting, is adjusted as a reduction of pro forma
compensation expense in the period of forfeiture. For the year ended December
31, 1999, stock-based compensation, net of the effect of forfeitures and net of
actual compensation expense recorded in the statement of operations was E5.9
($5.6) million. This stock-based compensation had the following pro forma effect
on net income (in thousands):
<TABLE>
<CAPTION>
BASIC
NET NET INCOME
INCOME PER SHARE
-------- ----------
<S> <C> <C>
As reported................................................. $636,318 $7.53
======== =====
Pro forma................................................... $630,690 $7.46
======== =====
</TABLE>
F-64
<PAGE> 197
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of stock option activity for the UPC Plan is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
---------- -------------- ---------- -------------- --------- --------------
(EUROS) (EUROS) (EUROS)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period............. 12,586,500 1.72 6,724,656 1.59 6,901,251 1.59
Granted during the
period................ 4,338,000 14.91 7,029,000 1.83 -- --
Cancelled during the
period................ (266,565) 3.44 (42,156) 1.59 (176,595) 1.59
Exercised during the
period................ (5,702,256) 1.65 (1,125,000) 1.59 -- --
---------- ----- ---------- ---- --------- ----
Outstanding at end of
period................ 10,955,679 6.94 12,586,500 1.72 6,724,656 1.59
========== ===== ========== ==== ========= ====
Exercisable at end of
period(1)............. 4,769,595 3.10 12,586,500 1.72 6,724,656 1.59
========== ===== ========== ==== ========= ====
</TABLE>
--------------------
(1) Includes certificate rights as well as options.
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1999 1998
---------------------------- ----------------------------
FAIR EXERCISE FAIR EXERCISE
EXERCISE PRICE NUMBER VALUE PRICE NUMBER VALUE PRICE
-------------- --------- ----- -------- --------- ----- --------
(EUROS) (EUROS)
<S> <C> <C> <C> <C> <C> <C>
Less than market price......... 375,000 8.94 16.12 -- -- --
Equal to market price.......... 3,963,000 8.95 14.79 7,029,000 1.83 1.83
--------- ---- ----- --------- ---- ----
Total.......................... 4,338,000 8.94 14.91 7,029,000 1.83 1.83
========= ==== ===== ========= ==== ====
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- --------------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
CONTRACTUAL LIFE AVERAGE AVERAGE
EXERCISE PRICE RANGE (EUROS) NUMBER (YEARS) EXERCISE PRICE NUMBER EXERCISE PRICE
---------------------------- ---------- ---------------- -------------- --------- --------------
(EUROS) (EUROS)
<S> <C> <C> <C> <C> <C>
1.59- 2.05................ 6,681,039 1.19 1.80 4,211,055 1.78
9.67- 9.67................ 1,212,000 3.20 9.67 231,000 9.67
11.26-11.40................ 719,640 3.22 11.40 132,483 11.40
15.67-18.17................ 1,171,500 3.56 17.51 130,188 17.46
20.08-20.08................ 1,171,500 3.78 20.08 64,869 20.08
---------- ---- ----- --------- -----
Total............ 10,955,679 2.00 6.94 4,769,595 3.10
========== ==== ===== ========= =====
</TABLE>
F-65
<PAGE> 198
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The UPC Plan was accounted for as a variable plan prior to UPC's initial public
offering in February 1999. Accordingly, compensation expense was recognized at
each financial statement date based on the difference between the grant price
and the estimated fair value of UPC's common stock. Thereafter, the UPC Plan has
been accounted for as a fixed plan. Compensation expense of E6.5 ($6.8) million,
E121.7 ($134.7) million and E2.2 ($2.5) million was recognized for the year
ended December 31, 1999, the ten months ended December 31, 1998 and the year
ended February 28, 1998, respectively.
UPC Phantom Stock Option Plan
In March 1998, UPC adopted a phantom stock option plan (the "UPC Phantom Plan")
which permits the grant of phantom stock rights in up to 7,200,000 shares of
UPC's common stock. The rights are granted at fair market value determined by
UPC's Supervisory Board at the time of grant, and generally vest in equal
monthly increments over the four-year period following the effective date of
grant and may be exercised for ten years following the effective date of grant.
The UPC Phantom Plan gives the employee the right to receive payment equal to
the difference between the fair market value of a share of UPC common stock and
the option base price for the portion of the rights vested. UPC, at its sole
discretion, may make payment in (i) cash, (ii) freely tradable shares of United
Class A Common Stock or (iii) freely tradable shares of UPC's common stock. If
UPC chooses to make a cash payment, even though its stock is publicly traded,
employees have the option to receive an equivalent number of freely tradable
shares of stock instead. The UPC Phantom Plan contains anti-dilution protection
and provides that, in certain cases of a change of control, all phantom options
outstanding become fully exercisable.
The UPC Phantom Plan is accounted for as a variable plan in accordance with its
terms, resulting in compensation expense for the difference between the grant
price and the fair market value at each financial statement date. Compensation
expense of E117.4 ($123.2) million and E23.8 ($26.3) million was recognized for
the year ended December 31, 1999 and the ten months ended December 31, 1998,
respectively.
A summary of stock option activity for the UPC Phantom Plan is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- --------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
---------- -------------- --------- --------------
(EUROS) (EUROS)
<S> <C> <C> <C> <C>
Outstanding at beginning of
period............................ 6,172,500 1.91 -- --
Granted during the period........... 585,000 9.67 6,172,500 1.91
Cancelled during the period......... (1,540,128) 2.00 -- --
Exercised during the period......... (1,072,809) 1.89 -- --
---------- ---- --------- ----
Outstanding at end of period........ 4,144,563 2.98 6,172,500 1.91
========== ==== ========= ====
Exercisable at end of period........ 1,554,813 2.47 1,411,407 1.84
========== ==== ========= ====
</TABLE>
The combined weighted-average fair values and weighted-average exercise prices
of options are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------- ----------------------------
FAIR EXERCISE FAIR EXERCISE
EXERCISE PRICE NUMBER VALUE PRICE NUMBER VALUE PRICE
-------------- ------- ----- -------- --------- ----- --------
(EUROS) (EUROS)
<S> <C> <C> <C> <C> <C> <C>
Equal to market price............ 585,000 9.67 9.67 2,057,250 1.91 1.91
</TABLE>
F-66
<PAGE> 199
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
---------------------------- -----------
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL LIFE
EXERCISE PRICE (EUROS) NUMBER (YEARS) NUMBER
---------------------- --------- ---------------- -----------
<S> <C> <C> <C>
1.82............................................ 2,606,778 7.60 1,186,092
2.05............................................ 952,785 8.74 245,907
9.67............................................ 585,000 9.16 122,814
--------- ---- ---------
Total................................. 4,144,563 8.14 1,554,813
========= ==== =========
</TABLE>
chello Phantom Stock Option Plan
In June 1998 UPC adopted a phantom stock option plan (the "chello Phantom
Plan"), which permits the grant of phantom stock rights of chello, a
wholly-owned subsidiary of UPC. The rights are granted at an option price equal
to the fair market value determined by chello's Supervisory Board at the time of
grant, and generally vest in equal monthly increments over the four-year period
following the effective date of grant and the option must be exercised, in all
cases, not more than ten years from the effective date of grant. The chello
Phantom Plan gives the employee the right to receive payment equal to the
difference between the fair market value of a share (as defined the chello
Phantom Plan) of chello and the option price for the portion of the rights
vested. UPC, at its sole discretion, may make the required payment in cash,
freely tradable shares of United Class A Common Stock, the common stock of UPC,
which shall be valued at the closing price on the day before the date the
Company makes payment to the option holder, or chello's common shares, if they
are publicly traded and freely tradeable ordinary shares. If UPC chooses to make
a cash payment, even though its stock is publicly traded, employees have the
option to receive an equivalent number of freely tradeable shares of chello's
stock instead. As of December 31, 1999 UPC recorded cumulative compensation
expense of E70.8 ($71.2) million for options granted under the chello Phantom
Plan.
A summary of stock option activity for the chello Phantom Plan is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------- ------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
--------- -------------- ------- --------------
(EUROS) (EUROS)
<S> <C> <C> <C> <C>
Outstanding at beginning of period..... 570,000 4.54 -- --
Granted during the period.............. 235,000 4.54 570,000 4.54
Granted during the period.............. 1,309,838 9.08 -- --
Granted during the period.............. 355,500 --(1) -- --
Cancelled during the period............ (128,542) 4.71 -- --
Exercised during the period............ (11,667) 4.54 -- --
--------- ---- ------- ----
Outstanding at end of period........... 2,330,129 7.54(2) 570,000 4.54
========= ==== ======= ====
Exercisable at end of period........... 414,913 6.13(2) 70,625 4.54
========= ==== ======= ====
</TABLE>
--------------------
(1) Of the total number of options granted to date, the option price with
respect to these options is the chello broadband initial public
offering price.
(2) Excluding the shares discussed in (1) above.
F-67
<PAGE> 200
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
---------------------------- -----------
WEIGHTED-AVERAGE
REMAINING
CONTRACTUAL LIFE
EXERCISE PRICE (EUROS) NUMBER (YEARS) NUMBER
---------------------- --------- ---------------- -----------
<S> <C> <C> <C>
4.54........................................... 669,791 7.05 267,188
9.08........................................... 1,304,838 9.56 144,074
--(1).......................................... 355,500 9.96 3,651
--------- ---- -------
Total................................ 2,330,129 8.93 414,913
========= ==== =======
</TABLE>
--------------------
(1) Of the total number of options granted to date, the option price in
respect of these options is the IPO price.
The chello Phantom Plan is accounted for as a variable plan in accordance with
its terms, resulting in compensation expense for the difference between the
grant price and the fair market value at each financial statement date.
Compensation expense of E69.8 ($70.3) million was recognized for the year ended
December 31, 1999. The Company's estimate of the fair value of its ordinary
stock as of December 31, 1999 utilized in recording compensation expense and
deferred compensation expense under the chello plan was E85.00 per share.
Because the Company will account for the chello Phantom Plan as a variable plan,
compensation expense will continue to be recognized subsequent to December 31,
1999. For each E1 per share increase in the estimate of the fair value per share
of its ordinary stock as of December 31, 1999, over the E85.00 used to record
stock compensation expense as of December 31, 1999, additional stock
compensation expense totaling approximately E0.9 ($0.9) million would have been
recognized in the statement of operations and deferred compensation expense
would have increased by approximately that amount as of that date.
chello Stock option plan
In June 1999, the Company adopted a stock option plan (the "chello Plan"). Under
the chello Plan, the Company's Supervisory Board may grant stock options to the
Company's employees at fair market value determined by the Company's Supervisory
Board at the time of grant. All options are exercisable upon grant and for the
period of five years. In order to introduce the element of "vesting" of the
options, the chello Plan provides that even though the options are exercisable
immediately, the shares to be issued or options to be granted are deemed to vest
1/48th per month for a four-year period from date to grant. If the employee's
employment terminates, other than in case of death, disability or the like, for
so-called "urgent reason" under Dutch law or for documented and material
non-performance, all unvested options previously exercised must be resold to the
Company at the original purchase price, and all vested options must be
exercised, within 30 days of the termination date. The Supervisory Board may
alter these vesting schedules at its discretion. The chello Plan provides that
in case of change of control, the Company has the right to require a foundation
to acquire all of the options outstanding at per share value determined in the
transaction giving rise to the change in its control.
For purposes of the pro forma disclosures presented below, the Company has
computed the fair value of all options granted during the period from inception
(March 1998) to December 31, 1999 and the twelve months ended December 31, 1999,
using the Black-Scholes single-option pricing model and the following weighted
average assumptions: expected dividend yield of 0%, expected annual standard
volatility of 95%, risk-free interest rate of 3.41% and expected life of 5
years.
F-68
<PAGE> 201
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The total value of options granted under the chello Plan was nil for the year
ended December 31, 1998 and E3.7 ($3.7) million for the year ended December 31,
1999. These pro forma amounts are amortized using the straight-line method over
the vesting period of the options. Cumulative compensation expense recognized in
pro forma net income, with respect to options that are forfeited prior to
vesting, is adjusted as a reduction of pro forma compensation expense in the
period of forfeiture. For the year ended December 31, 1998 and December 31,
1999, pro forma stock-based compensation, net of the effect of forfeitures, was
nil and E0.7 ($0.7) million respectively.
This stock-based compensation had the following pro forma effect on net income
(in thousands):
<TABLE>
<CAPTION>
NET LOSS
NET LOSS PER SHARE
-------- ---------
<S> <C> <C>
As reported................................................. $636,318 $7.53
-------- -----
Pro forma................................................... $635,587 $7.52
======== =====
</TABLE>
UAP Plan
In March 1998, UAP's Board of Directors approved a stock option plan (the "UAP
Plan") which permitted the grant of phantom stock options or the grant of stock
options to purchase up to 1,800,000 shares of UAP's Class A Common Stock. The
options vested in equal monthly increments over a four-year period following the
date of grant, and gave the employee the right with respect to vested options to
receive a cash payment equal to the difference between the fair market value of
a share of UAP stock and the option base price per share. The UAP Plan was
cancelled effective July 22, 1999. Under variable plan accounting, a total of
$17.6 million of compensation expense was recognized during 1999 by UAP through
the cancellation date.
A summary of phantom stock option activity for the UAP Plan is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- --------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
---------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
period............................ 1,779,500 $10.00 -- --
Granted during the period........... 65,000 $10.00 1,779,500 $10.00
Cancelled during the period......... (1,844,500) $10.00 -- --
Exercised during the period......... -- -- -- --
---------- ------ --------- ------
Outstanding at end of period........ -- -- 1,779,500 $10.00
========== ====== ========= ======
Exercisable at end of period........ -- -- 584,063 $10.00
========== ====== ========= ======
</TABLE>
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------- -----------------------------
FAIR EXERCISE FAIR EXERCISE
NUMBER VALUE PRICE NUMBER VALUE PRICE
------ ------ -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Exercise price equal to market
price........................ 65,000 $10.00 $10.00 1,779,500 $10.00 $10.00
</TABLE>
F-69
<PAGE> 202
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Austar United Plan
On June 17, 1999, Austar United established a stock option plan (the "Austar
United Plan"). Effective on Austar United's initial public offering date of July
27, 1999, certain employees of United and Austar United were granted options
under the Austar United Plan in direct proportion to their previous holding of
UAP options under the UAP Plan along with retroactive vesting through the
initial public offering date to reflect vesting under the UAP Plan. The maximum
term of options granted under the Austar United Plan is ten years. The options
vest in equal monthly increments over a four-year period following the date of
grant. Under the Austar United Plan, options to purchase a total of 28,760,709
shares have been authorized, of which 3,231,428 were available for grant. The
Austar United Plan was accounted for as a variable plan prior to Austar United's
initial public offering, and as a fixed plan effective July 27, 1999. For the
year ended December 31, 1999, $4.9 million of compensation expense was
recognized by Austar United in the statement of operations.
For purposes of the pro forma disclosures presented below, Austar United has
computed the fair values of all options granted during the year ended December
31, 1999 using the Black-Scholes single-option pricing model and the following
weighted-average assumptions:
<TABLE>
<S> <C>
Risk-free interest rate.................................... 5.81%
Expected life.............................................. 7 years
Expected volatility........................................ 40.44%
Expected dividend yield.................................... 0%
</TABLE>
The total fair value of options granted was approximately A$88.0 ($57.7) million
for the year ended December 31, 1999. This amount is amortized using the
straight-line method over the vesting period of the options. Cumulative
compensation expense recognized in pro forma net income, with respect to options
that are forfeited prior to vesting, is adjusted as a reduction of pro forma
compensation expense in the period of forfeiture. Stock-based compensation, net
of the effect of forfeitures and net of actual compensation expense recorded in
the statement of operations was nil for the year ended December 31, 1999.
A summary of stock option activity for the Austar United Plan is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
---------------------------
WEIGHTED-
AVERAGE
NUMBER EXERCISE PRICE
---------- --------------
(AUSTRALIAN
DOLLARS)
<S> <C> <C>
Outstanding at beginning of period.......................... -- --
Granted during the period................................... 25,631,736 2.26
Cancelled during the period................................. (102,455) 3.75
Exercised during the period................................. (684,250) 1.83
---------- ----
Outstanding at end of period................................ 24,845,031 2.27
========== ====
Exercisable at end of period................................ 11,564,416 1.90
========== ====
</TABLE>
F-70
<PAGE> 203
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The combined weighted-average fair values and weighted-average exercise prices
of options are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
-----------------------------
FAIR EXERCISE
EXERCISE PRICE NUMBER VALUE PRICE
-------------- ---------- ----- --------
(AUSTRALIAN
DOLLARS)
<S> <C> <C> <C>
Less than market price................................... 22,334,236 3.58 1.91
Equal to market price.................................... 3,222,500 2.47 4.70
Greater than market price................................ 75,000 2.43 4.70
---------- ---- ----
Total.......................................... 25,631,736 3.43 2.26
========== ==== ====
</TABLE>
The following table summarizes information about the Austar United Plan options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
----------------------------- -----------
WEIGHTED-AVERAGE
REMAINING
CONTRACTUAL LIFE
EXERCISE PRICE (AUSTRALIAN DOLLARS) NUMBER (YEARS) NUMBER
----------------------------------- ---------- ---------------- -----------
<S> <C> <C> <C>
1.80........................................ 20,813,572 9.55 11,171,494
4.70........................................ 4,031,459 9.60 392,922
---------- ---- ----------
Total............................. 24,845,031 9.56 11,564,416
========== ==== ==========
</TABLE>
ULA Plan
In April 1998, ULA's Board of Directors approved a stock option plan (the "ULA
Plan") which permits the grant of phantom stock options or the grant of stock
options to purchase up to 1,631,000 shares of ULA's Class A Common Stock. The
options vest in equal monthly increments over a four-year period following the
date of grant. Concurrent with approval of the ULA Plan, ULA's Board granted
phantom stock options to certain employees which gives the employee the right
with respect to vested options to receive a cash payment equal to the difference
between the fair market value of a share of ULA stock and the option base price
per share. The ULA Plan is accounted for as a variable plan in accordance with
its terms, resulting in compensation expense for the difference between the
grant price and the fair market value at each financial statement date. For the
year ended December 31, 1999 and the ten months ended December 31, 1998 ULA
recognized $(1.0) and $2.7 million in non-cash compensation (credit) expense
related to these phantom options, respectively. Actual cash paid upon exercise
of these phantom options was $0.6 million and $1.1 million for the year ended
December 31, 1999 and the ten months ended December 31, 1998, respectively.
A summary of phantom stock option activity for the ULA Plan is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------- --------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period... 1,188,417 $5.77 -- --
Granted during the period............ 340,000 $8.86 1,785,500 $5.63
Cancelled during the period.......... (328,647) $4.84 (317,296) $5.47
Exercised during the period.......... (137,083) $4.81 (279,787) $5.19
--------- ----- --------- -----
Outstanding at end of period......... 1,062,687 $7.17 1,188,417 $5.77
========= ===== ========= =====
Exercisable at end of period......... 381,561 $5.87 268,730 $4.86
========= ===== ========= =====
</TABLE>
F-71
<PAGE> 204
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------- ----------------------------
FAIR EXERCISE FAIR EXERCISE
NUMBER VALUE PRICE NUMBER VALUE PRICE
------- ----- -------- --------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Exercise price equal to market
price......................... 340,000 $8.86 $8.86 945,500 $5.81 $5.81
Exercise price greater than
market price.................. -- -- -- 840,000 $4.26 $5.43
------- ----- ----- --------- ----- -----
Total................. 340,000 $8.86 $8.86 1,785,500 $5.08 $5.63
======= ===== ===== ========= ===== =====
</TABLE>
The following table summarizes information about the ULA Plan phantom options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
---------------------------- -----------
WEIGHTED-AVERAGE
REMAINING
CONTRACTUAL LIFE
EXERCISE PRICE NUMBER (YEARS) NUMBER
-------------- --------- ---------------- -----------
<S> <C> <C> <C>
$4.26......................................... 312,687 7.43 197,187
$4.96......................................... 100,000 7.43 62,500
$8.81......................................... 95,000 9.40 16,249
$8.86......................................... 245,000 9.96 9,375
$8.98......................................... 310,000 8.72 96,250
--------- ---- -------
Total............................... 1,062,687 8.57 381,561
========= ==== =======
</TABLE>
13. BASIC AND DILUTED NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS
<TABLE>
<CAPTION>
FOR THE TEN
FOR THE YEAR MONTHS FOR THE YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Basic:
Net income (loss)............................... $636,318 $(545,532) $(342,532)
Accretion of Series A Convertible Preferred
Stock........................................ (220) (968) (1,271)
Accretion of Series B Convertible Preferred
Stock........................................ (1,899) (655) --
Accretion of Series C Convertible Preferred
Stock........................................ (14,875) -- --
Accretion of Series D Convertible Preferred
Stock........................................ (1,398) -- --
-------- --------- ---------
Basic net income (loss) attributable to
common shareholders................... $617,926 $(547,155) $(343,803)
-------- --------- ---------
Diluted:
Accretion of Series A Convertible Preferred
Stock........................................ 220 --(1) --(1)
Accretion of Series B Convertible Preferred
Stock........................................ 1,899 --(1) --(1)
Accretion of Series C Convertible Preferred
Stock........................................ 14,875 --(1) --(1)
Accretion of Series D Convertible Preferred
Stock........................................ 1,398 --(1) --(1)
-------- --------- ---------
Diluted net income (loss) attributable
to common shareholders................ $636,318 $(547,155) $(343,803)
======== ========= =========
</TABLE>
--------------------
(1) Excluded from the calculation of diluted net income (loss) attributable
to common shareholders because the effect is anti-dilutive.
F-72
<PAGE> 205
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. COMMITMENTS
The Company has entered into various operating lease agreements for office
space, office furniture and equipment, and vehicles. Rental expense under these
lease agreements totaled $25.9, $5.8 and $4.1 million for the year ended
December 31, 1999, the ten months ended December 31, 1998 and for the year ended
February 28, 1998, respectively.
The Company has operating lease obligations and other non-cancelable commitments
as follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000.............................. $ 88,804
Year ended December 31, 2001.............................. 88,467
Year ended December 31, 2002.............................. 69,498
Year ended December 31, 2003.............................. 51,172
Year ended December 31, 2004 and thereafter............... 190,626
--------
Total........................................... $488,567
========
</TABLE>
In September 1999, UPC agreed to form a joint venture with Microsoft Corporation
("Microsoft") and Liberty Media Corporation ("Liberty"). UPC will contribute the
5.6 million shares of Class A Common Stock of United that it owns and the other
parties will contribute 9.9 million shares of Class B Common Stock of United.
UPC will have a 50.0% interest in the new joint venture and Liberty and
Microsoft will share the other 50.0% and a $287.0 million redeemable preferred
interest in the joint venture to balance out the parties' ownership interests.
UPC, together with Liberty and Microsoft, will evaluate content and distribution
opportunities in Europe. Formation of the joint venture is still pending.
UPC has entered into an agreement for the long term lease of satellite
transponder capacity providing service from Europe to Europe, North America and
South America. The term of the agreement is 156 months, with a minimum aggregate
total cost of approximately $114.0 million payable in monthly installments based
on capacity used.
@Entertainment has entered into long-term programming agreements and agreements
for the purchase of certain exhibition or broadcast rights with a number of
third party content providers for its digital DTH and cable systems.
@Entertainment had minimum commitments related to these agreements as follows
(in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000.............................. $ 55,600
Year ended December 31, 2001.............................. 51,800
Year ended December 31, 2002.............................. 48,100
Year ended December 31, 2003.............................. 29,900
Year ended December 31, 2004 and thereafter............... 28,600
--------
Total........................................... $214,000
========
</TABLE>
As of December 31, 1999, @Entertainment had an aggregate minimum commitment
toward the purchase of DTH reception systems from Philips Business Electronics
B.V. of approximately $60.8 million over the next two years.
F-73
<PAGE> 206
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has minimum fixed MMDS license fees and programming license fees
payable annually at Austar United as follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000............................... $ 4,159
Year ended December 31, 2001............................... 4,178
Year ended December 31, 2002............................... 4,178
Year ended December 31, 2003............................... 4,179
Year ended December 31, 2004............................... 4,179
Thereafter................................................. 7,164
-------
Total............................................ $28,037
=======
</TABLE>
A subsidiary of Austar has a five-year agreement to lease a 54 MHz satellite
transponder. Pursuant to the agreement, which commenced September 1, 1997,
Austar will pay approximately $4,440 in satellite service fees annually as
follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000............................... $ 4,440
Year ended December 31, 2001............................... 4,440
Year ended December 31, 2002............................... 2,960
-------
Total............................................ $11,840
=======
</TABLE>
15. CONTINGENCIES
From time to time, the Company and/or its subsidiaries may become involved in
litigation relating to claims arising out of its operations in the normal course
of business. The Company is not a party to any material legal proceedings, nor
is it currently aware of any threatened material legal proceedings.
16. INCOME TAXES
In general, a United States corporation may claim a foreign tax credit against
its federal income tax expense for foreign income taxes paid or accrued. Because
the Company must calculate its foreign tax credit separately for dividends
received from each foreign corporation in which the Company owns 10.0% to 50.0%
of the voting stock, and because of certain other limitations, the Company's
ability to claim a foreign tax credit may be limited, particularly with respect
to dividends paid out of earnings subject to a high rate of foreign income tax.
Generally, the Company's ability to claim a foreign tax credit is limited to the
amount of U.S. taxes the Company pays with respect to its foreign source income.
In calculating its foreign source income, the Company is required to allocate
interest expense and overhead incurred in the United States between its United
States and foreign activities. Accordingly, to the extent United States
borrowings are used to finance equity contributions to its foreign subsidiaries,
the Company's ability to claim a foreign tax credit may be significantly
reduced. These limitations and the inability of the Company to offset losses in
one foreign jurisdiction against income earned in another foreign jurisdiction
could result in a high effective tax rate on the Company's earnings.
The primary differences between taxable income (loss) and net income (loss) for
financial reporting purposes relate to SAB 51 gains, the non-consolidation of
consolidated foreign subsidiaries for United States tax purposes, international
rate differences and the current non-deductibility of interest expense on United
A/P's senior notes and the United 1999 Notes. For investments in foreign
corporations accounted for under the equity method, taxable income (loss)
generated by these affiliates does not flow through to the Company for United
States federal and state tax purposes, even though the Company records its
allocable share of affiliate income (losses) for financial reporting purposes.
Accordingly, due to the indefinite reversal of such amounts in future periods,
no deferred tax asset has been established for tax
F-74
<PAGE> 207
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
basis in excess of the Company's book basis (approximately $89.2 and $163.0
million at December 31, 1999 and 1998, respectively).
The Company's United States tax net operating losses, totaling approximately
$347.8 million at December 31, 1999, expire beginning in 2014 through 2029. The
Company's tax net operating loss carryforwards of its consolidated foreign
subsidiaries as of December 31, 1999 totaled $792.0, $438.0 and $79.0 million
for UEI, UAP and ULA, respectively. The significant components of the net
deferred tax asset are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets:
Tax net operating loss carryforward of consolidated
foreign subsidiaries................................... $ 449,030 $ 183,656
Company's U.S. tax net operating loss carryforward........ 132,156 97,044
Accrued interest expense.................................. 72,345 32,885
Stock-based compensation.................................. 36,735 7,215
Foreign currency translation adjustment................... 23,113 --
Investment valuation allowance and other.................. 2,768 2,605
Basis difference in marketable equity securities.......... 3,074 3,070
Deferred compensation and severance....................... 3,398 1,175
Other..................................................... 21,082 70
--------- ---------
Total deferred tax assets......................... 743,701 327,720
Valuation allowance....................................... (723,914) (319,292)
--------- ---------
Deferred tax assets, net of valuation allowance... 19,787 8,428
--------- ---------
Deferred Tax Liabilities:
Intangible assets......................................... (18,745) (5,852)
Property, plant and equipment, net........................ (11,282) (7,156)
Other..................................................... (1,017) --
--------- ---------
Total deferred tax liabilities.................... (31,044) (13,008)
--------- ---------
Deferred tax liabilities, net..................... $ (11,257) $ (4,580)
========= =========
</TABLE>
F-75
<PAGE> 208
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Of the Company's 1999 consolidated income before income taxes and other items, a
loss of $1,027.0 million is derived from the Company's foreign operations. The
difference between income tax expense (benefit) provided in the financial
statements and the expected income tax expense (benefit) at statutory rates is
reconciled as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ -------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Expected income tax expense (benefit) at the
U.S. statutory rate of 35%.................... $ 115,913 $(172,472) $(68,727)
Tax effect of permanent and other differences:
Change in valuation allowance................. 370,004 128,420 66,519
Gain on issuance of common equity securities
by subsidiaries............................ (573,359) -- --
Non-deductible expenses....................... 77,490 49,497 566
Capitalized costs............................. (49,402) -- --
International rate differences................ 45,416 619 (515)
Book/tax basis differences associated with
foreign investments........................ 788 1,176 3,901
State tax, net of federal benefit............. 9,935 (14,783) (5,891)
Non-deductible interest accretion............. 1,693 2,148 2,145
Gain on sale of equity investment in
subsidiary................................. 5,877 -- --
Amortization of licenses...................... 923 1,516 1,312
Other......................................... (5,080) 4,489 690
--------- --------- --------
Total income tax expense.............. $ 198 $ 610 $ --
========= ========= ========
</TABLE>
During 1996, the Austrian tax authorities passed legislation which had the
effect of eliminating approximately NLG256.0 ($116.9) million of tax basis
associated with certain amounts of goodwill recorded at Telekabel Group
effective January 1, 1997. This change in tax law is expected to be challenged
on constitutional grounds. However, there can be no assurance of a successful
repeal of such legislation. Accordingly, this change caused Telekabel Group's
effective tax rate to increase from the historical effective tax rate through
December 31, 1996, due to the non-deductibility of such goodwill amortization
subsequent to January 1, 1997.
The Company through its subsidiaries maintains a presence in 23 countries. Many
of these countries maintain tax regimes that differ significantly from the
system of income taxation used in the United States, such as a value added tax
system. The Company has accounted for the effect of foreign taxes based on what
we believe is reasonably expected to apply to the Company and its subsidiaries
based on tax laws currently in effect and/or reasonable interpretations of these
laws. Because some foreign jurisdictions do not have systems of taxation that
are as well established as the system of income taxation used in the United
States or tax regimes used in other major industrialized countries, it may be
difficult to anticipate how foreign jurisdictions will tax current and future
operations of the Company and its subsidiaries.
F-76
<PAGE> 209
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SEGMENT INFORMATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------------
MULTICHANNEL INTERNET
TELEVISION TELEPHONE PROGRAMMING DATA OTHER TOTAL
------------ --------- ----------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Europe:
The Netherlands........ $117,026 $ 32,029 $ 1,112 $ 8,616 $ 330 $ 159,113
Austria................ 83,737 7,321 -- 13,609 -- 104,667
Belgium................ 15,737 -- -- 2,497 -- 18,234
Czech Republic......... 7,485 181 -- -- 1,042 8,708
France................. 27,522 2,710 -- 590 -- 30,822
Hungary................ 35,197 -- -- 125 -- 35,322
Norway................. 49,186 365 -- 565 -- 50,116
Poland................. 26,845 -- 10,917 -- -- 37,762
Sweden................. 13,335 -- -- 504 -- 13,839
Corporate and Other.... 8,327 -- -- -- 6,512 14,839
-------- -------- -------- -------- -------- ---------
Total Europe....... 384,397 42,606 12,029 26,506 7,884 473,422
-------- -------- -------- -------- -------- ---------
Asia/Pacific:
Australia.............. 144,632 -- -- -- -- 144,632
New Zealand............ 1,279 4,107 -- 734 -- 6,120
Corporate and Other.... -- -- -- -- 180 180
-------- -------- -------- -------- -------- ---------
Total
Asia/Pacific..... 145,911 4,107 -- 734 180 150,932
-------- -------- -------- -------- -------- ---------
Latin America:
Chile.................. 77,476 9,881 -- -- 87 87,444
Brazil................. 4,637 -- -- -- -- 4,637
Corporate and Other.... 2,428 -- -- -- 384 2,812
-------- -------- -------- -------- -------- ---------
Total
Latin America.... 84,541 9,881 -- -- 471 94,893
-------- -------- -------- -------- -------- ---------
Corporate & Other........ -- -- -- -- 277 277
-------- -------- -------- -------- -------- ---------
Total Company...... $614,849 $ 56,594 $ 12,029 $ 27,240 $ 8,812 $ 719,524
======== ======== ======== ======== ======== =========
ADJUSTED EBITDA:(1)
Europe:
The Netherlands........ $ 48,185 $(19,900) $(16,705) $(66,569) $(41,350) $ (96,339)
Austria................ 44,945 (11,470) -- 234 -- 33,709
Belgium................ 3,954 (54) -- (2,212) -- 1,688
Czech Republic......... (1,129) 54 -- -- 407 (668)
France................. (1,766) (5,946) -- (2,373) (67) (10,152)
Hungary................ 11,739 -- -- (261) -- 11,478
Norway................. 20,740 (7,153) -- (5,178) -- 8,409
Poland................. (9,363) -- (64,791) -- (3,018) (77,172)
Sweden................. 4,582 (135) -- (4,095) -- 352
Corporate and Other.... 2,123 (206) -- (725) 3,494 4,686
-------- -------- -------- -------- -------- ---------
Total Europe....... 124,010 (44,810) (81,496) (81,179) (40,534) (124,009)
-------- -------- -------- -------- -------- ---------
Asia/Pacific:
Australia.............. (4,742) -- -- -- -- (4,742)
New Zealand............ (918) (1,160) -- (47) -- (2,125)
Corporate and Other.... -- -- -- -- (4,274) (4,274)
-------- -------- -------- -------- -------- ---------
Total
Asia/Pacific..... (5,660) (1,160) -- (47) (4,274) (11,141)
-------- -------- -------- -------- -------- ---------
Latin America:
Chile.................. 17,744 (2,604) -- -- -- 15,140
Brazil................. (2,462) -- -- -- -- (2,462)
Corporate and Other.... (1,210) -- -- -- (4,609) (5,819)
-------- -------- -------- -------- -------- ---------
Total
Latin America.... 14,072 (2,604) -- -- (4,609) 6,859
-------- -------- -------- -------- -------- ---------
Corporate & Other........ -- -- -- -- 109 109
-------- -------- -------- -------- -------- ---------
Total Company...... $132,422 $(48,574) $(81,496) $(81,226) $(49,308) $(128,182)
======== ======== ======== ======== ======== =========
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------------------
LONG-
LIVED CAPITAL TOTAL
ASSETS(2) EXPENDITURES ASSETS
---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE:
Europe:
The Netherlands........ $ 774,045 $247,050 $3,157,285
Austria................ 179,652 94,240 356,337
Belgium................ 23,186 8,447 47,826
Czech Republic......... 80,347 2,491 159,806
France................. 319,454 70,666 498,776
Hungary................ 112,698 38,708 215,448
Norway................. 100,315 57,106 244,975
Poland................. 218,784 42,460 1,218,956
Sweden................. 48,182 12,495 474,899
Corporate and Other.... 63,698 38,569 77,219
---------- -------- ----------
Total Europe....... 1,920,361 612,232 6,451,527
---------- -------- ----------
Asia/Pacific:
Australia.............. 123,617 94,513 563,627
New Zealand............ 95,777 23,306 76,139
Corporate and Other.... 6,440 3,014 52,441
---------- -------- ----------
Total
Asia/Pacific..... 225,834 120,833 692,207
---------- -------- ----------
Latin America:
Chile.................. 213,146 53,120 489,638
Brazil................. 5,679 4,399 17,172
Corporate and Other.... 12,549 3,167 71,379
---------- -------- ----------
Total
Latin America.... 231,374 60,686 578,189
---------- -------- ----------
Corporate & Other........ 2,268 426 1,280,930
---------- -------- ----------
Total Company...... $2,379,837 $794,177 $9,002,853
========== ======== ==========
ADJUSTED EBITDA:(1)
Europe:
The Netherlands........
Austria................
Belgium................
Czech Republic.........
France.................
Hungary................
Norway.................
Poland.................
Sweden.................
Corporate and Other....
Total Europe.......
Asia/Pacific:
Australia..............
New Zealand............
Corporate and Other....
Total
Asia/Pacific.....
Latin America:
Chile..................
Brazil.................
Corporate and Other....
Total
Latin America....
Corporate & Other........
Total Company......
</TABLE>
F-77
<PAGE> 210
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE TEN MONTHS ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------
MULTICHANNEL INTERNET
TELEVISION TELEPHONE PROGRAMMING DATA OTHER TOTAL
------------ --------- ----------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Europe:
The Netherlands................ $ 13,854 $ 162 $ -- $ -- $ 7,274 $ 21,290
Austria........................ 71,396 61 -- 3,172 -- 74,629
Belgium........................ 13,768 -- -- 656 1,071 15,495
Czech Republic................. 3,754 -- -- -- -- 3,754
France......................... 3,395 -- -- -- -- 3,395
Hungary........................ 11,671 -- -- -- -- 11,671
Norway......................... 38,879 -- -- 161 -- 39,040
Corporate and Other............ 2,446 -- 567 -- -- 3,013
-------- ------- ------- ------- -------- --------
Total Europe............... 159,163 223 567 3,989 8,345 172,287
-------- ------- ------- ------- -------- --------
Asia/Pacific:
Australia...................... 74,209 -- -- -- -- 74,209
New Zealand.................... -- -- -- -- -- --
Corporate and Other............ 3,060 -- -- -- -- 3,060
-------- ------- ------- ------- -------- --------
Total Asia/Pacific......... 77,269 -- -- -- -- 77,269
-------- ------- ------- ------- -------- --------
Latin America:
Chile.......................... -- -- -- -- -- --
Corporate and Other............ 4,135 -- -- -- 377 4,512
-------- ------- ------- ------- -------- --------
Total Latin America........ 4,135 -- -- -- 377 4,512
-------- ------- ------- ------- -------- --------
Corporate & Other................ -- -- -- -- -- --
-------- ------- ------- ------- -------- --------
Total Company.............. $240,567 $ 223 $ 567 $ 3,989 $ 8,722 $254,068
======== ======= ======= ======= ======== ========
ADJUSTED EBITDA:(1)
Europe:
The Netherlands................ $ 8,445 $(1,303) $ (295) $(6,103) $ (4,401) $ (3,657)
Austria........................ 34,350 (1,636) -- (1,739) -- 30,975
Belgium........................ 5,755 -- -- (799) 114 5,070
Czech Republic................. (721) -- -- -- -- (721)
France......................... (954) (911) -- (77) -- (1,942)
Hungary........................ 3,820 -- -- -- -- 3,820
Norway......................... 14,015 (573) -- (806) -- 12,636
Corporate and Other............ (167) -- (3,556) 19 131 (3,573)
-------- ------- ------- ------- -------- --------
Total Europe............... 64,543 (4,423) (3,851) (9,505) (4,156) 42,608
-------- ------- ------- ------- -------- --------
Asia/Pacific:
Australia...................... (31,093) -- -- -- -- (31,093)
New Zealand.................... -- -- -- -- -- --
Corporate and Other............ -- -- -- -- (2,287) (2,287)
-------- ------- ------- ------- -------- --------
Total Asia/Pacific......... (31,093) -- -- -- (2,287) (33,380)
-------- ------- ------- ------- -------- --------
Latin America:
Chile.......................... -- -- -- -- -- --
Corporate and Other.......... (2,969) -- -- -- (7,295) (10,264)
-------- ------- ------- ------- -------- --------
Total Latin America........ (2,969) -- -- -- (7,295) (10,264)
-------- ------- ------- ------- -------- --------
Corporate & Other................ -- -- -- -- (2,907) (2,907)
-------- ------- ------- ------- -------- --------
Total Company.............. $ 30,481 $(4,423) $(3,851) $(9,505) $(16,645) $ (3,943)
======== ======= ======= ======= ======== ========
<CAPTION>
AS OF DECEMBER 31, 1998
-------------------------------------
LONG-
LIVED CAPITAL TOTAL
ASSETS(2) EXPENDITURES ASSETS
--------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE:
Europe:
The Netherlands................ $ 2,440 $ 14,734 $ 297,068
Austria........................ 140,550 43,278 341,159
Belgium........................ 27,558 11,253 57,847
Czech Republic................. 8,737 523 11,497
France......................... 40,328 28,802 51,092
Hungary........................ 26,788 7,239 86,921
Norway......................... 63,335 25,838 219,068
Corporate and Other............ 9,310 9,880 22,744
-------- -------- ----------
Total Europe............... 319,046 141,547 1,087,396
-------- -------- ----------
Asia/Pacific:
Australia...................... 110,351 71,197 181,169
New Zealand.................... -- -- 23,789
Corporate and Other............ 61 337 48,992
-------- -------- ----------
Total Asia/Pacific......... 110,412 71,534 253,950
-------- -------- ----------
Latin America:
Chile.......................... -- -- 84,975
Corporate and Other............ 11,715 3,238 73,048
-------- -------- ----------
Total Latin America........ 11,715 3,238 158,023
-------- -------- ----------
Corporate & Other................ 10,269 738 42,726
-------- -------- ----------
Total Company.............. $451,442 $217,057 $1,542,095
======== ======== ==========
ADJUSTED EBITDA:(1)
Europe:
The Netherlands................
Austria........................
Belgium........................
Czech Republic.................
France.........................
Hungary........................
Norway.........................
Corporate and Other............
Total Europe...............
Asia/Pacific:
Australia......................
New Zealand....................
Corporate and Other............
Total Asia/Pacific.........
Latin America:
Chile..........................
Corporate and Other..........
Total Latin America........
Corporate & Other................
Total Company..............
</TABLE>
F-78
<PAGE> 211
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28, 1998
-----------------------------------------------------------------------
MULTICHANNEL INTERNET
TELEVISION TELEPHONE PROGRAMMING DATA OTHER TOTAL
------------ --------- ----------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Europe:
The Netherlands........... $ -- $ -- $ -- $ -- $ -- $ --
Austria................... -- -- -- -- -- --
Belgium................... -- -- -- -- -- --
Norway.................... -- -- -- -- -- --
Corporate and Other....... 9,996 -- -- -- -- 9,996
-------- ---- ---- ---- -------- --------
Total Europe.......... 9,996 -- -- -- -- 9,996
-------- ---- ---- ---- -------- --------
Asia/Pacific:
Australia................. 64,370 -- -- -- -- 64,370
New Zealand............... 473 -- -- -- -- 473
Corporate and Other....... 4,118 -- -- -- -- 4,118
-------- ---- ---- ---- -------- --------
Total Asia/Pacific.... 68,961 -- -- -- -- 68,961
-------- ---- ---- ---- -------- --------
Latin America:
Argentina................. 17,627 -- -- -- -- 17,627
Chile..................... -- -- -- -- -- --
Corporate and Other....... 1,617 -- -- -- -- 1,617
-------- ---- ---- ---- -------- --------
Total Latin America... 19,244 -- -- -- -- 19,244
-------- ---- ---- ---- -------- --------
Corporate & Other........... -- -- -- -- 421 421
-------- ---- ---- ---- -------- --------
Total Company......... $ 98,201 $ -- $ -- $ -- $ 421 $ 98,622
======== ==== ==== ==== ======== ========
ADJUSTED EBITDA:(1)
Europe:
The Netherlands........... $ -- $ -- $ -- $ -- $ -- $ --
Austria................... -- -- -- -- -- --
Belgium................... -- -- -- -- -- --
Norway.................... -- -- -- -- -- --
Corporate and Other....... (9,204) -- -- -- -- (9,204)
-------- ---- ---- ---- -------- --------
Total Europe.......... (9,204) -- -- -- -- (9,204)
-------- ---- ---- ---- -------- --------
Asia/Pacific:
Australia................. (24,082) -- -- -- -- (24,082)
New Zealand............... (6,688) -- -- -- -- (6,688)
Corporate and Other....... (254) -- -- -- (6,938) (7,192)
-------- ---- ---- ---- -------- --------
Total Asia/Pacific.... (31,024) -- -- -- (6,938) (37,962)
-------- ---- ---- ---- -------- --------
Latin America:
Argentina................. 2,836 -- -- -- -- 2,836
Chile..................... -- -- -- -- -- --
Corporate and Other....... (952) -- -- -- (10,162) (11,114)
-------- ---- ---- ---- -------- --------
Total Latin America... 1,884 -- -- -- (10,162) (8,278)
-------- ---- ---- ---- -------- --------
Corporate & Other........... -- -- -- -- (2,921) (2,921)
-------- ---- ---- ---- -------- --------
Total Company......... $(38,344) $ -- $ -- $ -- $(20,021) $(58,365)
======== ==== ==== ==== ======== ========
<CAPTION>
AS OF FEBRUARY 28, 1998
-------------------------------------
LONG-
LIVED CAPITAL TOTAL
ASSETS(2) EXPENDITURES ASSETS
--------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE:
Europe:
The Netherlands........... $ 20,773 $ -- $ 308,907
Austria................... 115,786 -- 323,298
Belgium................... 24,526 -- 49,204
Norway.................... 51,369 -- 215,517
Corporate and Other....... 27,636 6,423 54,572
-------- -------- ----------
Total Europe.......... 240,090 6,423 951,498
-------- -------- ----------
Asia/Pacific:
Australia................. 147,871 84,375 202,325
New Zealand............... 26,484 16,258 43,349
Corporate and Other....... 8,746 502 48,871
-------- -------- ----------
Total Asia/Pacific.... 183,101 101,135 294,545
-------- -------- ----------
Latin America:
Argentina................. -- 1,329 --
Chile..................... -- -- 78,165
Corporate and Other....... 6,541 3,112 69,102
-------- -------- ----------
Total Latin America... 6,541 4,441 147,267
-------- -------- ----------
Corporate & Other........... 11,003 3,034 286,525
-------- -------- ----------
Total Company......... $440,735 $115,033 $1,679,835
======== ======== ==========
ADJUSTED EBITDA:(1)
Europe:
The Netherlands...........
Austria...................
Belgium...................
Norway....................
Corporate and Other.......
Total Europe..........
Asia/Pacific:
Australia.................
New Zealand...............
Corporate and Other.......
Total Asia/Pacific....
Latin America:
Argentina.................
Chile.....................
Corporate and Other.......
Total Latin America...
Corporate & Other...........
Total Company.........
</TABLE>
---------------
(1) Adjusted EBITDA represents 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.
(2) Represents Property, Plant and Equipment.
F-79
<PAGE> 212
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Adjusted EBITDA reconciles to the consolidated statement of operations as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net operating loss.............................. $(770,630) $(327,781) $(150,021)
Depreciation and amortization................... 418,714 159,045 91,656
Non-cash stock-based compensation expense....... 223,734 164,793 --
--------- --------- ---------
Consolidated Adjusted EBITDA.......... $(128,182) $ (3,943) $ (58,365)
========= ========= =========
</TABLE>
18. RELATED PARTY TRANSACTIONS
LOANS TO EMPLOYEES
In 1996, UPC loaned certain employees of UPC amounts for the exercise of the
employees' stock options, taxes on options exercised, or both. These recourse
loans bear interest at 5.0% per annum. The employees' liability to UPC is
presented in the consolidated financial statements net of UPC's obligation to
the employees under the plan. As of December 31, 1999 and 1998, the receivable
from employees, including accrued interest totaled $12.2 and $10.1 million,
respectively.
In September 1999, the Company loaned to Mr. Mark L. Schneider $0.7 million in
connection with the purchase of his home. The loan bears interest at 15.0% per
annum and is payable monthly. During 1999, Mr. M. Schneider paid $0.04 million
in interest on the loan. The loan is secured by all vested options Mr. M.
Schneider holds in the Company and its affiliates and by a right to a second
mortgage on his home. Payment of the loan is due upon the earlier of the sale of
the home or the date Mr. M. Schneider is no longer employed by United, UPC or
any affiliate. If Mr. M. Schneider defaults on the loan, the Company has a power
of attorney that allows it to exercise the relevant number of stock options and
sell the shares in satisfaction of Mr. M. Schneider's obligation and the Company
can also execute a second mortgage.
ACQUISITION OF INTEREST IN PRINCES HOLDINGS AND TARA
In November 1998, UPC purchased from RCL, an entity owned by a discretionary
trust for the benefit of certain members of the family of John Riordan, a
director of United, a 5.0% interest in Tara and a 5.0% interest in Princes
Holdings. The aggregate purchase price for these interests was approximately
$6.0 million. The parties agreed the purchase price would be paid in cash.
Subsequently, RCL elected to receive shares of Class A Common Stock of United.
The Company paid such purchase price by delivering to RCL 769,062 restricted
shares of Class A Common Stock held by UPC.
19. SUBSEQUENT EVENTS
UPC SENIOR NOTES AND SENIOR DISCOUNT NOTES
In January 2000, UPC completed a $1.6 billion bond offering consisting of $600.0
million and E200.0 million of ten-year 11.25% Senior Notes due 2010, $300.0
million of ten-year 11.5% Senior Notes due 2010 and $1.0 billion aggregate
principal amount of ten-year 13.75% Senior Discount Notes due 2010. The Senior
Discount Notes were sold at 51.2% of the face amount yielding gross proceeds of
$512.0 million and will accrue but not pay interest until 2005.
F-80
<PAGE> 213
UNITEDGLOBALCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACQUISITION OF INTERCOMM FRANCE HOLDING S.A.
In February 2000, UPC acquired Intercomm France Holding S.A. for E36.0 ($36.2)
million in cash and shares in UPC France. Following the transaction, UPC
controls 92.0% of UPC France.
ACQUISITION OF TEBECAI CABLE SYSTEM
In February 2000, UPC acquired 100% of Tebecai, a cable system based in the east
of Holland, for E71.2 ($71.6) million.
UPC STOCK SPLIT
In March 2000, at an extraordinary general meeting of shareholders, shareholders
of UPC approved an amendment to UPC's Articles of Association to effect a
three-for-one stock split. All share and per share amounts in the accompanying
notes to the consolidated financial statements have been adjusted to reflect
this stock split.
ACQUISITION OF ELTELE OSTFOLD AND VESTFOLD
In March 2000, UPC acquired 100% of the equity of ElTele Ostfold and Vestfold
from certain energy companies in Norway for E39.7 ($39.9) million.
ACQUISITION OF ADDITIONAL INTEREST IN SBS
In February 2000, UPC acquired an additional 10.2% of SBS for E162.5 ($163.5)
million, increasing its ownership to 23.5%.
ACQUISITION OF ENECO CABLE SYSTEM
In March 2000, UPC acquired K&T Group, the cable interests of N.V. ENECO, for
consideration of E1.2 ($1.2) billion. K&T owns and operates cable networks in
Rotterdam, Dordrecht and the surrounding municipalities in The Netherlands.
AUSTAR UNITED PUBLIC OFFERING
On March 29, 2000, Austar United announced the sale of 20.0 million shares to
the public at A$8.50 ($5.15) per share for gross proceeds to the Company of
A$170.0 ($103.0) million.
F-81
<PAGE> 214
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To UnitedGlobalCom, Inc.:
We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of UnitedGlobalCom, Inc.
included in this Form 10-K and have issued our report thereon dated March 29,
2000. Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The following schedules are
the responsibility of the Company's management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic consolidated financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements as indicated in our report with respect
thereto and, in our opinion, fairly state in all material respects the financial
data required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 29, 2000
F-82
<PAGE> 215
UNITEDGLOBALCOM, INC.
PARENT ONLY
SCHEDULE I
CONDENSED FINANCIAL POSITION OF REGISTRANT
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------------------
1999 1998
---------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 880,653 $ 7,553
Restricted cash........................................... 475 450
Short-term liquid investments............................. 354,710 38,367
Costs to be reimbursed by affiliated companies, net....... 14,163 17,430
Management fee receivables from related parties........... 1,800 --
Other receivables......................................... 709 1,354
Other current assets, net................................. 7,400 1,267
---------- -----------
Total current assets............................... 1,259,910 66,421
Notes receivable from wholly-owned subsidiaries, including
accrued interest.......................................... 447,011 200,005
Marketable equity securities and other investments.......... 2,000 --
Investments in affiliates, accounted for under the equity
method, net............................................... 630,797 --
Property, plant and equipment, net of accumulated
depreciation of $934 and $917, respectively............... 2,268 2,325
Deferred financing costs, net of accumulated amortization of
$4,628 and $1,772, respectively........................... 29,052 18,133
Other assets, net........................................... 76 74
---------- -----------
Total assets....................................... $2,371,114 $ 286,958
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable.......................................... $ 6,444 $ 264
Accrued liabilities....................................... 7,450 1,817
Losses recognized in excess of investment in
unconsolidated subsidiaries............................. -- 319,253
---------- -----------
Total current liabilities.......................... 13,894 321,334
Senior discount notes....................................... 1,215,994 893,003
---------- -----------
Total liabilities.................................. 1,229,888 1,214,337
---------- -----------
Preferred stock, $0.01 par value, 3,000,000 shares
authorized, stated at liquidation value:
Series A Convertible Preferred Stock, 0 and 132,144 shares
issued and outstanding, respectively.................... -- 26,086
---------- -----------
Series B Convertible Preferred Stock, 116,185 and 139,031
shares issued and outstanding, respectively............. 26,920 30,200
---------- -----------
Stockholders' equity (deficit):
Class A Common Stock, $0.01 par value, 210,000,000 shares
authorized, 81,574,815 and 61,349,990 shares issued and
outstanding, respectively............................... 816 614
Class B Common Stock, $0.01 par value, 30,000,000 shares
authorized 19,323,940 and 19,831,760 shares issued and
outstanding, respectively............................... 193 198
Series C Convertible Preferred Stock, 425,000 shares
authorized, 425,000 and 0 shares issued and outstanding,
respectively............................................ 410,125 --
Series D Convertible Preferred Stock, 287,500 shares
authorized, 287,500 and 0 shares issued and outstanding,
respectively............................................ 268,773 --
Additional paid-in capital................................ 1,416,635 378,191
Deferred compensation..................................... (119,996) (679)
Treasury stock, at cost, 5,569,240 shares of Class A
Common Stock............................................ (29,061) (29,061)
Accumulated deficit....................................... (621,941) (1,241,986)
Other cumulative comprehensive loss....................... (211,238) (90,942)
---------- -----------
Total stockholders' equity (deficit)............... 1,114,306 (983,665)
---------- -----------
Total liabilities and stockholders' equity
(deficit)........................................ $2,371,114 $ 286,958
========== ===========
</TABLE>
F-83
<PAGE> 216
UNITEDGLOBALCOM, INC.
PARENT ONLY
SCHEDULE I
CONDENSED INFORMATION AS TO THE OPERATIONS OF REGISTRANT
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenue................................................. $ 5,077 $ -- $ 452
Corporate general and administrative expense............ (168) (1,698) (983)
Depreciation and amortization........................... (379) (278) (366)
--------- --------- ---------
Operating loss................................ 4,530 (1,976) (897)
Interest income......................................... 17,440 5,051 5,006
Interest income, related parties, net................... 32,941 13,727 7,443
Interest expense........................................ (116,908) (76,364) (6,228)
Provision for losses on investment related costs........ -- 255 (451)
Other expense, net...................................... (3,155) (156) (202)
--------- --------- ---------
(Loss) income before other items.............. (65,152) (59,463) 4,671
Share in results of affiliates, net..................... 701,470 (486,069) (347,203)
--------- --------- ---------
Net income (loss)............................. $ 636,318 $(545,532) $(342,532)
========= ========= =========
Foreign currency translation adjustments................ $(127,154) $ (24,713) $ (50,274)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period............................................. 6,858 (505) (1,593)
Reclassification adjustment for losses included in net
income............................................. -- -- 8,013
--------- --------- ---------
Comprehensive income (loss)................... $ 516,022 $(570,750) $(386,386)
========= ========= =========
</TABLE>
F-84
<PAGE> 217
UNITEDGLOBALCOM, INC.
PARENT ONLY
SCHEDULE I
CONDENSED INFORMATION AS TO THE CASH FLOWS OF REGISTRANT
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ 636,318 $(545,532) $(342,532)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Share in results of affiliates, net..................... (701,470) 486,069 347,203
Allocation of general, administrative and other expenses
accounted for as a net capital contribution........... (12,147) (12,487) (23,232)
Depreciation and amortization........................... 379 279 366
Accretion of interest on senior notes and amortization
of deferred financing costs........................... 116,908 76,365 6,212
Provision for losses on marketable equity securities and
investment related costs.............................. -- -- 451
(Increase) decrease in other assets..................... (16,781) (8,813) (157)
(Decrease) increase in accounts payable, accrued
liabilities and other................................. 12,279 963 (2,582)
---------- --------- ---------
Net cash flows from operating activities............ 35,486 (3,156) (14,271)
---------- --------- ---------
Cash flows from investing activities:
Purchase of short-term liquid investments................. (447,387) (145,678) (77,668)
Proceeds from sale of short-term liquid investments....... 131,044 128,717 107,982
Restricted cash and short-term investments released....... (25) 385 765
Payoff of debt recorded at subsidiary level by
parent -- recorded as deemed capital contribution to
subsidiary.............................................. -- -- (531,800)
Investments in affiliates and other investments........... (59,163) (69,412) (169,333)
Increase in notes receivable from affiliates.............. (247,006) (147,333) --
Payments on note receivable from affiliates............... -- -- 37,500
Capital expenditures...................................... (426) (56) (1,841)
Distribution received from affiliated company............. -- -- 123,230
Acquisition, transaction and development costs and
other................................................... 3,266 (4,207) (2,676)
---------- --------- ---------
Net cash flows from investing activities............ (619,697) (237,584) (513,841)
---------- --------- ---------
Cash flows from financing activities:
Proceeds from offering of senior notes and senior discount
notes................................................... 208,939 -- 812,200
Deferred financing costs.................................. (13,779) (409) (19,495)
Issuance of common stock in connection with public
offerings, net of financing costs....................... 1,212,977 7,402 --
Issuance of common stock in connection with Company's
stock option plan....................................... 27,547 4,789 796
Issuance of warrants...................................... 21,627 -- --
Payments made on payable to affiliate, net................ -- -- (76,782)
---------- --------- ---------
Net cash flows from financing activities............ 1,457,311 11,782 716,719
---------- --------- ---------
Increase (decrease) in cash and cash equivalents............ 873,100 (228,958) 188,607
Cash and cash equivalents, beginning of period.............. 7,553 236,511 47,904
---------- --------- ---------
Cash and cash equivalents, end of period.................... $ 880,653 $ 7,553 $ 236,511
========== ========= =========
Non-cash investing and financing activities:
Issuance of preferred stock utilized in purchase of
Australian investments.................................. $ -- $ 29,544 $ --
========== ========= =========
Non-cash issuance of warrants by subsidiary to purchase
subsidiary stock........................................ $ -- $ -- $ 3,678
========== ========= =========
Supplemental cash flow disclosure:
Cash received for interest................................ $ 12,205 $ 5,003 $ 5,318
========== ========= =========
</TABLE>
F-85
<PAGE> 218
UNITEDGLOBALCOM, INC.
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
(IN THOUSANDS OF UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF CHARGED TO END OF
DESCRIPTION PERIOD EXPENSE ACQUISITIONS DEDUCTIONS(1) PERIOD
----------- ------------ ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful subscriber
receivables:
Year ended December 31, 1999........... 5,482 11,199 23,041 (11,914) 27,808
Ten months ended December 31, 1998..... 3,191 2,470 1,201 (1,380) 5,482
Year ended February 28, 1998........... -- 186 3,191 (186) 3,191
Allowance for costs to be reimbursed:
Year ended December 31, 1999........... -- 3,316 -- (3) 3,313
Ten months ended December 31, 1998..... 1,094 55 -- (1,149) --
Year ended February 28, 1998........... 2,369 626 -- (1,901) 1,094
Allowance for investments in affiliates:
Year ended December 31, 1999........... 4,384 -- -- (4,384) --
Ten months ended December 31, 1998..... -- 4,384 -- -- 4,384
Year ended February 28, 1998........... 2,147 -- -- (2,147) --
</TABLE>
---------------
(1) Represents uncollectible balances written off to the allowance account and
the effect of currency translation adjustments.
F-86
<PAGE> 219
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UnitedGlobalCom, Inc.:
We have audited the accompanying consolidated balance sheets of United
International Properties, Inc. (a Colorado corporation) and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, parent's deficit and cash flows for the year ended December 31,
1999, the ten months ended December 31, 1998 (see Note 2) and for the year ended
February 28, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform these
audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits, and the
report of other auditors, provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of United
International Properties, Inc. and subsidiaries as of December 31, 1999 and 1998
and the results of their operations and their cash flows for the year ended
December 31, 1999, the ten months ended December 31, 1998 and the year ended
February 28, 1998, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 29, 2000
F-87
<PAGE> 220
UNITED INTERNATIONAL PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------
1999 1998
---------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 13,382 $ 12,409
Restricted cash........................................... 500 753
Short-term liquid investments............................. 274,979 3,131
Subscriber receivables, net of allowance for doubtful
accounts of $10,949 and $634, respectively.............. 23,154 6,970
Costs to be reimbursed by affiliated companies, net....... -- 280
Other receivables, including related party receivables of
$957 and $2,064, respectively........................... 45,283 2,997
Inventory................................................. 16,176 12,617
Deferred taxes............................................ 2,119 --
Other current assets, net................................. 18,109 6,231
---------- ---------
Total current assets............................... 393,702 45,388
Investments in affiliates, accounted for under the equity
method, net............................................... 65,142 175,281
Property, plant and equipment, net of accumulated
depreciation of $286,261 and $153,860, respectively....... 460,469 130,071
Goodwill and other intangible assets, net of accumulated
amortization of $35,539 and $18,989, respectively......... 317,041 65,130
Deferred financing costs, net of accumulated amortization of
$6,460 and $3,237,
respectively.............................................. 23,304 11,675
Deferred taxes.............................................. 3,698 --
Other assets, net........................................... 10,301 4,610
---------- ---------
Total assets....................................... $1,273,657 $ 432,155
========== =========
LIABILITIES AND PARENT'S DEFICIT
Current liabilities
Accounts payable, including related party payables of
$9,959 and $2,291, respectively......................... $ 60,259 $ 11,679
Accrued liabilities....................................... 41,538 34,165
Short-term debt........................................... 9,033 59,875
Current portion of senior discount notes and other
long-term debt.......................................... 1,574 2,601
Other current liabilities................................. 10,567 3,524
---------- ---------
Total current liabilities.......................... 122,971 111,844
Notes payable to parent..................................... 446,288 107,396
Senior discount notes and senior notes...................... 407,945 356,640
Other long-term debt........................................ 437,671 68,086
Deferred compensation....................................... 1,793 --
Deferred taxes.............................................. 1,013 --
Other long-term liabilities, including due to parent of
$1,322 and $575, respectively............................. 5,470 3,016
---------- ---------
Total liabilities.................................. 1,423,151 646,982
---------- ---------
Minority interests in subsidiaries.......................... 78,279 4,983
---------- ---------
Parent's deficit:
Common Stock, $0.01 par value, 1,000 shares authorized,
100 and 100 shares issued and outstanding, respectively,
(pledged as collateral under parent's senior discount
notes).................................................. -- --
Additional paid-in capital................................ 718,517 615,712
Deferred compensation..................................... (18,343) --
Accumulated deficit....................................... (843,672) (770,620)
Other cumulative comprehensive loss....................... (84,275) (64,902)
---------- ---------
Total parent's deficit............................. (227,773) (219,810)
---------- ---------
Commitments and contingencies (Notes 13 and 14)
Total liabilities and parent's deficit............. $1,273,657 $ 432,155
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-88
<PAGE> 221
UNITED INTERNATIONAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ -------------
<S> <C> <C> <C>
Revenue................................................ $ 245,825 $ 81,781 $ 88,644
System operating expense............................... (147,973) (65,688) (62,886)
System selling, general and administrative expense..... (88,460) (48,825) (59,385)
Corporate general and administrative expense........... (36,381) (14,790) (20,250)
Depreciation and amortization.......................... (137,893) (82,217) (85,204)
--------- --------- ---------
Operating loss............................... (164,882) (129,739) (139,081)
Gain on issuance of common equity securities by
subsidiaries......................................... 248,361 -- --
Interest income, including related party income of
$561, $497 and $302, respectively.................... 7,340 1,973 2,568
Interest expense....................................... (88,579) (48,339) (116,015)
Interest expense, related party........................ (31,222) (7,536) (7,063)
Provision for losses on marketable equity securities
and investment related costs......................... (7,127) (6,810) (14,342)
Gain on sale of investments in affiliates.............. -- -- 90,020
Foreign currency exchange (loss) gain.................. (25,787) (1,657) (1,411)
Other expense, net..................................... (406) (2,239) (3,550)
--------- --------- ---------
Loss before income taxes and other items..... (62,302) (194,347) (188,874)
Income tax expense..................................... (2,091) -- --
Minority interests in subsidiaries..................... 14,540 617 1,685
Share in results of affiliates, net.................... (23,199) (28,487) (26,771)
--------- --------- ---------
Net loss before extraordinary charge......... (73,052) (222,217) (213,960)
Extraordinary charge for early retirement of debt...... -- -- (79,091)
--------- --------- ---------
Net loss..................................... $ (73,052) $(222,217) $(293,051)
========= ========= =========
Foreign currency translation adjustments............... $ (20,172) $ (20,911) $ (38,401)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period............................................ 799 (505) (1,593)
Reclassification adjustment for losses included
in net income..................................... -- -- 8,013
--------- --------- ---------
Comprehensive loss........................... $ (92,425) $(243,633) $(325,032)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-89
<PAGE> 222
UNITED INTERNATIONAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF PARENT'S DEFICIT
(STATED IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
OTHER
COMMON STOCK ADDITIONAL CUMULATIVE
--------------- PAID-IN DEFERRED ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT LOSS TOTAL
------ ------ ---------- ------------ ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, FEBRUARY 28, 1997......... 100 -- $ 65,488 $ -- $(221,939) $(11,505) $(167,956)
Issuance of warrants to purchase
common stock of subsidiary........ -- -- 3,678 -- -- -- 3,678
Gain on sale of stock by
subsidiary........................ -- -- 7,614 -- -- -- 7,614
Payoff of debt recorded at
subsidiary level by
parent -- recorded as deemed
capital contribution.............. -- -- 531,800 -- -- -- 531,800
Capital distribution to parent,
net............................... -- -- (98,621) -- -- -- (98,621)
Net loss............................ -- -- -- -- (293,051) -- (293,051)
Change in unrealized gain (loss) on
available-for-sale securities,
net............................... -- -- -- -- -- (1,593) (1,593)
Provision for loss on
available-for-sale securities..... -- -- -- -- -- 8,013 8,013
Change in cumulative translation
adjustments....................... -- -- -- -- -- (38,401) (38,401)
--- ---- -------- -------- --------- -------- ---------
BALANCES, FEBRUARY 28, 1998......... 100 -- 509,959 -- (514,990) (43,486) (48,517)
Cash contributions from parent...... -- -- 65,982 -- -- -- 65,982
Non-cash contributions from
parent............................ -- -- 39,767 -- -- -- 39,767
Distribution of net investment in
subsidiaries to parent, at cost... -- -- 4 -- -- -- 4
Elimination of historical two month
reporting difference due to change
in fiscal year end................ -- -- -- -- (33,413) -- (33,413)
Net loss............................ -- -- -- -- (222,217) -- (222,217)
Change in unrealized gain (loss) on
available-for-sale securities,
net............................... -- -- -- -- -- (505) (505)
Change in cumulative translation
adjustments....................... -- -- -- -- -- (20,911) (20,911)
--- ---- -------- -------- --------- -------- ---------
BALANCES, DECEMBER 31, 1998......... 100 -- 615,712 -- (770,620) (64,902) (219,810)
Net loss............................ -- -- -- -- (73,052) -- (73,052)
Cash contributions from parent...... -- -- 59,163 -- -- -- 59,163
Non-cash contributions from
parent............................ -- -- 2,759 -- -- -- 2,759
Equity transactions of
subsidiaries...................... -- -- 40,883 (40,883) -- -- --
Amortization of deferred
compensation...................... -- -- -- 22,540 -- -- 22,540
Change in cumulative translation.... -- -- -- -- -- (20,172) (20,172)
Change in unrealized gain on
available-for-sale securities..... -- -- -- -- -- 799 799
--- ---- -------- -------- --------- -------- ---------
BALANCES, DECEMBER 31, 1999......... 100 $ -- $718,517 $(18,343) $(843,672) $(84,275) $(227,773)
=== ==== ======== ======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-90
<PAGE> 223
UNITED INTERNATIONAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $ (73,052) $(222,217) $(293,051)
Elimination of historical two month reporting
difference due to change in fiscal year............ -- (33,413) --
Adjustments to reconcile net loss to net cash flows
from operating activities:
Gain on issuance of common equity securities by
subsidiaries..................................... (248,361) -- --
Extraordinary charge for early retirement of
debt............................................. -- -- 79,091
Share in results of affiliates, net................ 18,340 34,423 27,860
Allocation of general, administrative and other
expenses accounted for as a net contribution of
capital by parent................................ 8,752 7,899 15,910
Minority interests in subsidiaries................. (14,540) (617) (1,685)
Depreciation and amortization...................... 137,893 99,703 85,204
Accretion of interest on senior notes and
amortization of deferred financing costs......... 57,681 49,798 104,311
Stock-based compensation expense................... 21,507 2,669 --
Gain on sale of investments in affiliates.......... -- -- (90,020)
Provision for losses on marketable equity
securities and investment related costs.......... 7,127 6,342 14,342
Increase in receivables, net....................... (13,368) (3,395) (4,128)
Decrease (increase) in other assets................ 9,898 (8,723) 7,471
Increase in accounts payable, accrued liabilities
and other........................................ 60,776 26,969 9,905
--------- --------- ---------
Net cash flows from operating activities...... (27,347) (40,562) (44,790)
--------- --------- ---------
Cash flows from investing activities:
Purchase of short-term liquid investments............. (273,184) (3,923) (16,988)
Proceeds from sale of short-term liquid investments... 9,172 13,117 23,303
Restricted cash released (deposited), net............. 344 7,943 (9,115)
Investments in affiliates and other investments....... (19,490) (38,346) (64,540)
Proceeds from sale of investments in affiliated
companies.......................................... -- -- 211,125
New acquisitions, net of cash acquired................ (272,888) (9,881) --
Capital expenditures.................................. (181,519) (75,454) (106,776)
Increase in notes receivable and other................ (30,324) 953 (14,536)
--------- --------- ---------
Net cash flows from investing activities...... (767,889) (105,591) 22,473
--------- --------- ---------
Cash flows from financing activities:
Issuance of common stock by subsidiaries, net......... 292,784 -- --
Issuance of common stock in connection with
subsidiaries stock option plans.................... 807 -- --
Proceeds from offering of senior notes and senior
discount notes..................................... -- -- 29,925
Retirement of existing senior notes................... (435) -- --
Proceeds from short-term and long-term borrowings..... 290,928 39,519 233,210
Deferred financing costs.............................. (8,014) (486) (11,373)
Repayments of short-term and long-term borrowings..... (154,185) (30,183) (119,114)
Capital contribution from (distribution to) parent.... 59,193 65,982 (123,230)
Payments received on receivable from parent, net...... -- -- 76,782
</TABLE>
F-91
<PAGE> 224
UNITED INTERNATIONAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Proceeds from (payment on) note payable to parent..... 315,035 60,865 (37,500)
Payment of sellers notes.............................. -- -- (46,351)
Cash contributed from minority interest partners...... 2,971 -- 22,042
--------- --------- ---------
Net cash flows from financing activities...... 799,084 135,697 24,391
--------- --------- ---------
Effect of exchange rates on cash........................ (2,875) 101 (190)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents........ 973 (10,355) 1,884
Cash and cash equivalents, beginning of period.......... 12,409 22,764 20,880
--------- --------- ---------
Cash and cash equivalents, end of period................ $ 13,382 $ 12,409 $ 22,764
========= ========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest................................ $ 20,642 $ 6,223 $ 7,497
========= ========= =========
Cash received for interest............................ $ 3,179 $ 558 $ 2,376
========= ========= =========
Seller notes for purchase of Argentine systems........ $ -- $ -- $ 52,061
========= ========= =========
Acquisition of remaining interest in VTR:
Working capital....................................... $ (10,381) $ -- $ --
Property, plant and equipment......................... (203,154) -- --
Goodwill and other intangible assets.................. (244,981) -- --
Other long-term assets................................ (14,685) -- --
Elimination of equity investment in Chilean joint
venture............................................ 69,381 -- --
Long-term liabilities................................. 145,641 -- --
--------- --------- ---------
Total cash paid............................... (258,179) -- --
Cash acquired......................................... 5,498 -- --
--------- --------- ---------
Net cash paid................................. $(252,681) $ -- $ --
========= ========= =========
Deconsolidation of New Zealand subsidiary:
Working capital....................................... $ 10,162 $ 4,159 $ --
Property, plant and equipment......................... (80,656) (26,484) --
Elimination of investment in Saturn................... 21,974 -- --
Goodwill and other intangible assets.................. (5,737) (2,805) --
Notes payable and other debt.......................... 54,870 3,833 --
Minority interest..................................... -- 11,416 --
--------- --------- ---------
Total cash relinquished....................... $ 613 $ (9,881) $ --
========= ========= =========
Sale of Argentine Cable Systems:
Working capital, net of cash relinquished of $2,133... $ -- $ -- $ (3,319)
Investments in affiliated companies................... -- -- 83,535
Property, plant and equipment and other long-term
assets............................................. -- -- 4,560
Goodwill and other intangible assets.................. -- -- 60,727
Sellers notes (assumed by the buyers)................. -- -- (24,398)
Gain on sale.......................................... -- -- 90,020
--------- --------- ---------
Cash received from sale....................... $ -- $ -- $ 211,125
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-92
<PAGE> 225
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
United International Properties, Inc. ("UIPI" or the "Company"), a wholly-owned
subsidiary of UnitedGlobalCom, Inc. ("United") was formed on September 21, 1994
in connection with the transaction contemplated by United's offering of 14%
senior discount notes (the "Old Notes"). Under United's offering of the Old
Notes, United contributed to UIPI, United's interests in certain operating
properties and early stage projects in Latin America and Asia/Pacific. UIPI will
hold all of United's future investments and development projects in Latin
America and Asia/Pacific. The accompanying financial statements have been
prepared on a basis of reorganization accounting as though UIPI had performed
all foreign development activities and made all acquisitions of the foreign
multi-channel television interests in Latin America and Asia/Pacific since
inception. UIPI reflected all of the transfers from United as a capital
contribution from parent in the accompanying consolidated financial statements.
The following chart presents a summary of the Company's significant investments
in telecommunications as of December 31, 1999.
UIPI
<TABLE>
<CAPTION>
100% 100%
<S> <C>
United Asia/Pacific United Latin America, Inc.
Communications, Inc. ("ULA")
("UAP")*
100%
United Australia/Pacific, Inc. Brazil:
("United A/P") TV Show Brasil 100.0%
Jundial 46.3%
75.4%
Austar United Communications Limited Chile:
(Austar United") VTR 100.0%
Australia: Mexico:
Austar 100.0% Megapo 49.0%(1)
XYZ Entertainment 50.0%
New Zealand: Peru:
Saturn 100.0% Cable Star 62.2%
* Other UAP Latin American Programming:
China: MGM Networks LA 50.0%
Hunan International TV 49.0%
Philippines:
Philipino Cable Corporation 19.6%
</TABLE>
---------------
(1) In January 2000, ULA purchased an additional 41.3% interest in Megapo for
$22.8 million.
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.
F-93
<PAGE> 226
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and all subsidiaries where it exercises a controlling financial interest
through the ownership of a majority voting interest. The following illustrates
those subsidiaries for which the Company consolidated the results of operations
for only a portion of the fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
EFFECTIVE DATE OF
ENTITY CONSOLIDATION REASON
------ ----------------- ------
<S> <C> <C>
VTR............................. May 1, 1999 Acquisition of remaining 66.0% interest
Saturn(1)....................... August 1, 1999 Acquisition of remaining 35.0% interest
</TABLE>
---------------
(1) The company consolidated the results of operations of Saturn from July 1,
1996 to December 31, 1997. Effective January 1, 1998 the Company
discontinued consolidating the results of operations of Saturn because of
certain minority shareholders' rights.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
CHANGE IN FISCAL YEAR-END
Prior to the ten months ended December 31, 1998, the Company's fiscal year-end
was February 28, and it accounted for its share of the income or loss of its
operating companies based on the calendar year results of each operating
company. This created a two month delay in reporting the operating company
results in the Company's consolidated results for its fiscal year-end. On
February 24, 1999, the Company changed its fiscal year-end from the last day in
February to the last day in December, effective December 31, 1998. To effect the
transaction to the new fiscal year end, the combined results of operations of
the operating companies for January and February 1998, a loss of $33.4 million,
has been reported as a one-time adjustment to retained deficit as of March 1,
1998 in the consolidated statement of parent's deficit. Consequently, the
consolidated statement of operations presents the consolidated results of the
Company and its subsidiaries for the ten months ended December 31, 1998. For
comparative purposes, the Company's consolidated revenue, net operating loss and
net loss were $74.4 million, $115.3 million and $173.2 million, respectively,
for the ten months ended December 31, 1997, and the Company's consolidated
revenue, net operating loss and net loss were $95.5 million, $148.3 million and
$255.6 million, respectively for the year ended December 31, 1998.
CASH AND CASH EQUIVALENTS AND SHORT-TERM LIQUID INVESTMENTS
Cash and cash equivalents include cash and investments with original maturities
of less than three months. Short-term liquid investments include certificates of
deposit, commercial paper, corporate bonds and government securities which have
original maturities greater than three months but less than twelve months.
Short-term liquid investments are classified as available-for-sale and are
reported at fair market value.
RESTRICTED CASH
Cash held as collateral for letters of credit and other loans is classified
based on the expected expiration of such facilities. Cash held in escrow and
restricted to a specific use is classified based on the expected timing of such
disbursement.
F-94
<PAGE> 227
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COSTS TO BE REIMBURSED BY AFFILIATED COMPANIES
The Company incurs costs on behalf of affiliated companies, such as salaries and
benefits, travel and professional services. These costs are reimbursed by the
affiliated companies.
INVENTORY
Inventory is stated at the lower of cost (first-in, first-out basis) or market.
INVESTMENTS IN AFFILIATES, 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.
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:
<TABLE>
<S> <C>
Cable distribution networks................................. 3-20 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
</TABLE>
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.
RECOVERABILITY OF TANGIBLE AND INTANGIBLE ASSETS
The Company evaluates the carrying value of all tangible and intangible assets
whenever events or circumstances indicate the carrying value of assets may
exceed their recoverable amounts. An impairment
F-95
<PAGE> 228
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
loss is recognized when the estimated future cash flows (undiscounted and
without interest) expected to result from the use of an asset are less than the
carrying amount of the asset. Measurement of an impairment loss is based on fair
value of the asset computed using discounted cash flows if the asset is expected
to be held and used. Measurement of an impairment loss for an asset held for
sale would be based on fair market value less estimated costs to sell.
DEFERRED FINANCING COSTS
Costs to obtain debt financing are capitalized and amortized over the life of
the debt facility using the effective interest method.
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,
telephony and internet/data 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 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.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of subscriber receivables. Concentrations of
credit risk with respect to subscriber receivables are limited due to the
Company's large number of customers and their dispersion across many different
countries worldwide.
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, which
results in compensation expense for the difference between the grant price and
the fair market value at each new measurement date. Austar United and ULA have
adopted stock-based compensation plans for their employees. With respect to
certain of 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.
F-96
<PAGE> 229
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company accounts for income taxes under the asset and liability method which
requires recognition of deferred tax assets and liabilities for the expected
future income tax consequences of transactions which have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and income tax basis of assets, liabilities and loss carryforwards
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Net deferred tax assets are then reduced by a valuation
allowance if management believes it more likely than not they will not be
realized. Withholding taxes are taken into consideration in situations where the
income of subsidiaries is to be paid out as dividends in the near future. Such
withholding taxes are generally charged to income in the year in which the
dividend income is generated.
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
parent's deficit 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 on 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. 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.
NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet at fair value.
Under SFAS 133, accounting for changes in fair value of a derivative depends on
its intended use and designation. SFAS 133 is effective for fiscal years
beginning after June 15, 2000. The Company is currently assessing the effect of
this new standard.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 "Views on Selected Revenue Recognition Issues"
("SAB 101"), which provides the staff's views in applying generally accepted
accounting principles to selected revenue recognition issues. SAB 101 is
effective for the second quarter of 2000. The Company is currently assessing the
effect of SAB 101.
F-97
<PAGE> 230
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to current year
presentation.
3. ACQUISITIONS AND OTHER
VTR ACQUISITION
On April 29, 1999, an indirect wholly owned subsidiary of ULA acquired a 66.0%
interest in VTR, a company that provides telephone and multi-channel television
services to the greater Santiago, Chile area (the "VTR Acquisition"). This
acquisition, combined with the interest in VTR that is owned by another indirect
wholly owned subsidiary of the Company, gives the Company an indirect 100%
interest in VTR. The purchase price for the 66.0% interest in VTR was
approximately $258.2 million in cash. In addition, the Company provided capital
for VTR to prepay approximately $125.8 million of existing bank indebtedness and
a promissory note from the Company to one of the other shareholders of VTR.
RESTRUCTURING OF UNITED A/P ASSETS AND AUSTAR UNITED INITIAL PUBLIC OFFERING
In June 1999, the Company's interest in Austar, XYZ Entertainment and Saturn
were contributed to Austar United in exchange for new shares issued by Austar
United. On July 27, 1999, Austar United acquired from SaskTel its 35.0% interest
in Saturn in exchange for approximately 13.7 million of Austar United's shares,
thereby increasing Austar United's ownership interest in Saturn from 65.0% to
100%. In addition, Austar United successfully completed an initial public
offering selling 103.5 million shares on the Australian Stock Exchange, raising
gross and net proceeds at Australian dollar ("A$")4.70 ($3.03) per share of
A$486.5 ($313.6) million and A$453.6 ($292.8) million, respectively. Based on
the carrying value of the Company's investment in Austar United as of July 27,
1999, United recognized a gain of $248.4 million from the resulting step-up in
the carrying amount of United's investment in Austar United, 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 Austar United indefinitely. Austar
United's offering reduced the Company's ownership interest from 100% to
approximately 75.5%. As a result of employee stock option exercises subsequent
to the initial public offering date, the Company's ownership interest in Austar
United decreased to 75.4% as of December 31, 1999. Including all stock options
granted to employees that were vested as of December 31, 1999, the Company's
ownership interest in Austar United on a fully-diluted basis is approximately
73.7%.
MGM NETWORKS LA
In May 1998, ULA entered into a joint venture with a division of
Metro-Goldwyn-Mayer, Inc. ("MGM") to form MGM Networks LA. Under the terms of
the joint venture, ULA contributed its 100% interest in a Latin American
programming venture for a 50.0% interest in MGM Networks LA, and MGM acquired a
50.0% interest in MGM Networks LA by contributing its Brazil channel (MGM Gold
Brazil) and committing to fund the first $9.9 million ($6.7 million of which was
funded at closing) required by MGM Networks LA. MGM Networks LA has also entered
into a trademark license agreement with MGM for the use of the MGM brand name
and also into a program license agreement to acquire programming from MGM.
AUSTAR
In July 1998, Austar acquired certain Australian pay television assets of East
Coast Television Pty Limited ("ECT"), an affiliate of Century Communications
Corporation ("Century"), for $6.1 million of the Company's newly-created Series
B Convertible Preferred Stock. ECT's subscription television business
F-98
<PAGE> 231
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
includes subscribers and certain MMDS licenses and transmission equipment
serving the areas in and around Newcastle, Gossford, Wollongong and Tasmania,
Australia.
XYZ ENTERTAINMENT
In September 1998, UAP acquired the Australian programming assets held by
Century, consisting of Century's 25.0% interest in XYZ Entertainment, a
programming company that owns and/or distributes five channels to the Australian
multi-channel marketplace, increasing its ownership to a total of 50.0% in XYZ
Entertainment. The purchase price consisted of $1.2 million in cash and $23.4
million of the Company's Series B Preferred Stock.
TV SHOW BRASIL
In October 1998, ULA increased its ownership interest in TV Show Brasil from
45.0% to 100% for $11.4 million, half of which was paid in cash, with the
remainder financed by the seller.
CABLE STAR
In October 1998, ULA and Arequipa Cable Vision ("ACV") each contributed their
Peruvian multi-channel television assets to Cable Star, with ULA receiving 60.0%
of the outstanding shares of Cable Star and the former shareholders of ACV
receiving the other 40.0%.
ARGENTINA
In October 1997, the Company completed the sale of all of its cable television
assets in Argentina, including the regions of Bahia Blanca, Comodoro, Trelew and
Santa Fe (the "Argentina Transaction"). The sale price for Bahia Blanca,
Comodoro, Trelew and Santa Fe collectively was $268.2 million, of which $25.3
million consisted of remaining notes payable to sellers from the original
acquisitions. From this net sales price of $242.9 million, $29.6 million was
paid directly by the buyers to other minority interest stockholders, resulting
in net proceeds to the Company of approximately $211.1 million. The payment was
received in full in cash. The Company recognized a gain on the transaction of
$90.0 million.
TARA
In October 1997, Tara issued shares to third parties in exchange for
consideration totaling $2.5 million, thereby diluting the Company's interest in
Tara from 100% to 75.0%. A gain of $1.6 million recognized on the transaction
was credited to additional paid-in capital in accordance with SAB 51.
SATURN
In July 1997, SaskTel Holdings (New Zealand), Inc. ("SaskTel") purchased a 35.0%
equity interest in Saturn by investing New Zealand dollars ("NZ$")29.9 ($19.6)
million directly into Saturn for its newly-issued shares, thereby reducing the
Company's equity interest in Saturn to 65.0%. A gain of $6.0 million recognized
on the transaction was credited to additional paid-in capital in accordance with
SAB 51.
PRO FORMA FINANCIAL INFORMATION FOR THE YEAR ENDED FEBRUARY 28, 1998
The following pro forma condensed consolidated operating results for the year
ended February 28, 1998 gives effect to the Argentina Transaction as if it had
occurred at the beginning of the period presented. This pro forma condensed
consolidated financial information and notes thereto do not purport to represent
what the Company's results of operations would actually have been if such
transaction had in fact occurred
F-99
<PAGE> 232
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on such date. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FEBRUARY 28, 1998
-------------------------
HISTORICAL PRO FORMA(1)
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Revenue..................................................... $ 88,644 $ 71,017
========= =========
Net loss before extraordinary charge........................ $(213,960) $(295,469)
========= =========
Net loss.................................................... $(293,051) $(374,560)
========= =========
</TABLE>
---------------
(1) Represents elimination of historical statement of operations balances for
the Argentina systems and elimination of the gain recorded on the Argentina
Transaction.
4. CASH AND CASH EQUIVALENTS, RESTRICTED CASH AND SHORT-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------------------------
SHORT-TERM
CASH AND CASH RESTRICTED LIQUID
EQUIVALENTS CASH INVESTMENTS TOTAL
------------- ---------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash........................................ $13,382 $500 $ -- $ 13,882
Certificates of deposit..................... -- -- 271,041 271,041
Commercial paper............................ -- -- 1,054 1,054
Corporate bonds............................. -- -- 1,005 1,005
Government securities....................... -- -- 1,879 1,879
------- ---- -------- --------
Total............................. $13,382 $500 $274,979 $288,861
======= ==== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
--------------------------------------------------
SHORT-TERM
CASH AND CASH RESTRICTED LIQUID
EQUIVALENTS CASH INVESTMENTS TOTAL
------------- ---------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash......................................... $ 1,499 $753 $ -- $ 2,252
Certificates of deposit...................... -- -- 250 250
Commercial paper............................. 10,648 -- 1,187 11,835
Corporate bonds.............................. -- -- 187 187
Government securities........................ 262 -- 1,507 1,769
------- ---- ------ -------
Total.............................. $12,409 $753 $3,131 $16,293
======= ==== ====== =======
</TABLE>
F-100
<PAGE> 233
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVESTMENTS IN AFFILIATES, ACCOUNTED FOR UNDER THE EQUITY METHOD
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE
INVESTMENTS DIVIDENDS SHARE IN RESULTS TRANSLATION VALUATION
IN AFFILIATES RECEIVED OF AFFILIATES ADJUSTMENTS ALLOWANCE TOTAL
------------- --------- ---------------- ----------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Asia/Pacific:
XYZ Entertainment.......... $ 44,306 $ -- $(18,564) $ 2,804 $ -- $28,546
Pilipino Cable
Corporation............. 14,950 -- (3,004) (2,588) -- 9,358
Hunan International TV..... 6,061 -- (2,477) 16 -- 3,600
Other...................... 350 -- -- -- -- 350
Latin America:
Megapo..................... 32,496 (1,408) (1,618) (9,382) -- 20,088
MGM Networks LA(1)......... 11,988 -- (11,988) -- -- --
Jundiai.................... 6,032 (1,572) 72 (1,334) -- 3,198
Other...................... 2 -- -- -- -- 2
-------- ------- -------- -------- ---- -------
Total.............. $116,185 $(2,980) $(37,579) $(10,484) $ -- $65,142
======== ======= ======== ======== ==== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
---------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE
INVESTMENTS DIVIDENDS SHARE IN RESULTS TRANSLATION VALUATION
IN AFFILIATES RECEIVED OF AFFILIATES ADJUSTMENTS ALLOWANCE TOTAL
------------- --------- ---------------- ----------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Europe:
Iberian Programming....... $ 14,082 $ -- $ (7,418) $ (25) $ -- $ 6,639
Asia/Pacific:
Saturn.................... 49,808 -- (23,138) (2,881) -- 23,789
XYZ Entertainment......... 44,306 -- (18,537) 111 -- 25,880
Pilipino Cable
Corporation............ 11,673 -- (2,812) (2,824) -- 6,037
Hunan International TV...... 6,073 -- (2,435) 16 -- 3,654
Telefenua................. 18,599 -- (14,215) -- (4,384) --
Other..................... 350 -- -- -- -- 350
Latin America:
VTR....................... 112,052 -- (17,203) (9,874) -- 84,975
Megapo.................... 32,496 (1,471) (1,122) (11,067) -- 18,836
MGM Networks LA(1)........ 5,687 -- (5,687) -- -- --
Jundiai................... 6,797 -- (587) (1,089) -- 5,121
-------- ------- -------- -------- ------- --------
Total............. $301,923 $(1,471) $(93,154) $(27,633) $(4,384) $175,281
======== ======= ======== ======== ======= ========
</TABLE>
--------------------
(1) Includes an accrued funding obligation of $3.0 and $2.9 million at
December 31, 1999 and 1998, respectively. The Company would face
significant and punitive dilution if it did not make the requested
fundings.
F-101
<PAGE> 234
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1999 and 1998, the Company had the following differences
related to the excess of its cost over its proportionate interest in each
affiliate's net tangible assets included in the above table. Such differences
are being amortized over 15 years.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999 AS OF DECEMBER 31, 1998
------------------------- -------------------------
BASIS ACCUMULATED BASIS ACCUMULATED
DIFFERENCE AMORTIZATION DIFFERENCE AMORTIZATION
---------- ------------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Europe:
Iberian Programming $ -- $ -- $ 2,216 $ (85)
Asia/Pacific:
XYZ Entertainment.......................... 25,791 (1,609) 23,595 --
Saturn..................................... -- -- 12,733 (1,005)
Latin America:
VTR........................................ 19,994 (1,941)
Megapo..................................... 20,518 (6,983) 19,583 (5,767)
------- ------- ------- -------
Total.............................. $46,309 $(8,592) $78,121 $(8,798)
======= ======= ======= =======
</TABLE>
VTR
Condensed financial information for VTR stated in U.S. dollars is as follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1998
--------------
(IN THOUSANDS)
<S> <C>
Cash........................................................ $ 11,254
Goodwill, net............................................... 109,464
Property, plant and equipment, net.......................... 186,660
Other Assets................................................ 33,486
--------
Total assets...................................... $340,864
========
Accounts payable and accrued liabilities.................... $ 53,877
Bank debt................................................... 88,495
Related party debt.......................................... 1,663
Shareholders' equity........................................ 196,829
--------
Total liabilities and shareholders' equity........ $340,864
========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenue..................................................... $119,005 $114,318
Operating, selling, general and administrative expense...... (90,983) (92,970)
Depreciation and amortization............................... (27,531) (22,707)
-------- --------
Net operating loss................................ 491 (1,359)
Other....................................................... (19,524) (19,252)
-------- --------
Net loss.......................................... $(19,033) $(20,611)
======== ========
</TABLE>
F-102
<PAGE> 235
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Condensed financial information for Saturn, stated in U.S. dollars, is as
follows:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1998
----------------
(IN THOUSANDS)
<S> <C>
Current assets.............................................. $ 4,071
Non-current assets.......................................... 59,242
-------
Total assets...................................... $63,313
=======
Current liabilities......................................... $33,608
Non-current liabilities..................................... 19
Shareholders' equity........................................ 29,686
-------
Total liabilities and shareholders' equity........ $63,313
=======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1998
------------------
(IN THOUSANDS)
<S> <C>
Revenue..................................................... $ 1,693
Expenses.................................................... (16,934)
--------
Net loss.......................................... $(15,241)
========
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
---------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cable distribution networks................................. $ 293,370 $ 9,095
Subscriber premises equipment and converters 297,835 181,072
MMDS/DTH distribution facilities............................ 65,328 55,532
Office equipment, furniture and fixtures.................... 30,499 10,485
Buildings and leasehold improvements........................ 16,103 3,027
Other....................................................... 43,595 24,720
--------- ---------
746,730 283,931
Accumulated depreciation.......................... (286,261) (153,860)
--------- ---------
Net property, plant and equipment................. $ 460,469 $ 130,071
========= =========
</TABLE>
7. GOODWILL AND OTHER INTANGIBLE ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Asia/Pacific:
Austar United............................................. $114,882 $ --
Austar.................................................... -- 60,071
Latin America:
VTR....................................................... 223,484 --
TV Show Brasil............................................ 8,298 16,161
Cable Star................................................ 5,916 7,887
-------- --------
352,580 84,119
Accumulated amortization.................................. (35,539) (18,989)
-------- --------
Net goodwill and other intangible assets.................. $317,041 $ 65,130
======== ========
</TABLE>
F-103
<PAGE> 236
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SHORT-TERM DEBT
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1999 1998
------- --------
(IN THOUSANDS)
<S> <C> <C>
Austar Bank Facility........................................ $ -- $36,738
Other Latin America......................................... 9,033 23,137
------ -------
Total short-term debt............................. $9,033 $59,875
====== =======
</TABLE>
Carrying value approximates fair value for these short-term facilities.
9. SENIOR DISCOUNT NOTES AND SENIOR NOTES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
United Old Notes............................................ $ -- $ 412
United A/P Notes............................................ 407,945 356,640
-------- --------
407,945 357,052
Less current portion.............................. -- (412)
-------- --------
Total senior discount notes....................... $407,945 $356,640
======== ========
</TABLE>
UNITED A/P NOTES
The 14.0% senior notes were issued by United A/P in May 1996 and September 1997
at a discount from their principal amount of $488.0 million, resulting in gross
proceeds of $255.0 million. 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.
In November 1997, pursuant to the terms of the indentures governing the United
A/P Notes, United A/P issued warrants to purchase 488,000 shares of its common
stock. The warrants are exercisable through May 15, 2006 at a price of $10.45
per share, which would result in gross proceeds of $5.1 million upon exercise.
The warrants were valued at $3.7 million and have been reflected as an
additional discount to the United A/P Notes on a pro-rata basis and as an
increase in additional paid-in capital. Warrants to acquire 50 shares were
exercised November 24, 1999.
F-104
<PAGE> 237
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. OTHER LONG-TERM DEBT
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------------
1999 1998
-------- -------
(IN THOUSANDS)
<S> <C> <C>
VTR Bank Facility........................................... $176,000 $ --
New Austar Bank Facility.................................... 202,703 67,352
Saturn Bank Facility........................................ 57,685 --
Other Asia/Pacific.......................................... 2,263 2,923
Other Latin America......................................... 594 --
-------- -------
439,245 70,275
Less current portion.............................. (1,574) (2,189)
-------- -------
Total other long-term debt........................ $437,671 $68,086
======== =======
</TABLE>
VTR BANK FACILITY
On April 29, 1999, VTR entered into a $220.0 million term loan facility in
connection with the VTR Acquisition. The VTR 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 $80.0 million. The VTR 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. The VTR
Bank Facility indenture restricts certain investments and payments, including a
ceiling on capital expenditures per fiscal year, as well as generally
prohibiting VTR from incurring additional indebtedness with the exception of a
general allowance of $15.0 million. In addition, VTR must maintain certain
financial ratios on a quarterly basis, such as total debt to EBITDA, debt
service coverage, senior debt to EBITDA, interest coverage, as well as minimum
telephony revenue amounts.
NEW AUSTAR BANK FACILITY
On April 23, 1999, Austar executed a new A$400.0 million ($262.3 million)
syndicated senior secured debt facility to refinance the existing 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 existing 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 December 31, 1999, Austar had drawn
A$200.0 million under Tranche 1 and A$109.0 million under Tranche 2, for a total
outstanding balance of A$309.0 ($202.7) million.
SATURN BANK FACILITY
On July 15, 1999, Saturn closed a syndicated senior debt facility in the amount
of NZ$125.0 ($65.4) million to fund the completion of Saturn's network. As of
December 31, 1999, Saturn had drawn NZ$109.0 ($57.7) million against the
facility and expects to draw down the remaining balance by the end of fourth
quarter 2000. This debt facility's interest rate has averaged approximately
8.6%, which is 3.0% over the current base rate upon draw-down. The Saturn Bank
Facility is repayable over a five year period beginning fourth quarter 2001.
F-105
<PAGE> 238
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF SENIOR DISCOUNT NOTES, SENIOR NOTES AND OTHER LONG-TERM DEBT
Fair value is based on market prices for the same or similar issues. Carrying
value is used when a market price is unavailable.
<TABLE>
<CAPTION>
CARRYING
VALUE FAIR VALUE
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
As of December 31, 1999:
United A/P Notes.......................................... $407,945 $414,008
VTR Bank Facility......................................... 176,000 176,000
New Austar Bank Facility.................................. 202,703 202,703
Saturn Bank Facility...................................... 57,685 57,685
Other Asia/Pacific and Latin America...................... 2,857 2,857
-------- --------
Total............................................. $847,190 $853,253
======== ========
</TABLE>
<TABLE>
<CAPTION>
CARRYING
VALUE FAIR VALUE
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
As of December 31, 1998:
United Old Notes.......................................... $ 412 $ 412
United A/P Notes.......................................... 356,640 246,400
Austar Bank Facility...................................... 67,352 67,352
Other..................................................... 2,923 2,923
-------- --------
Total............................................. $427,327 $317,087
======== ========
</TABLE>
DEBT MATURITIES
The maturities of the Company's senior discount notes, senior notes and other
long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
Year Ended December 31, 2000................................ $ 1,574
Year Ended December 31, 2001................................ 5,492
Year Ended December 31, 2002................................ 194,069
Year Ended December 31, 2003................................ 62,205
Year Ended December 31, 2004................................ 96,839
Thereafter.................................................. 487,011
--------
Total............................................. $847,190
========
</TABLE>
OTHER FINANCIAL INSTRUMENTS
Interest rate swap agreements are used by the Company from time to time to
manage interest rate risk on its floating rate debt facilities. Interest rate
swaps are entered into depending on the Company's assessment of the market, and
generally are used to convert 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, the
Company has four interest rate swaps to manage interest rate exposure on the New
Austar Bank Facility and one interest rate swap to manage exposure on the Saturn
Bank Facility. Two of the swap agreements on the New Austar Bank Facility expire
in 2002 and effectively convert one aggregate principal amount of A$50.0 ($32.8
million) of variable rate, long-term debt into fixed rate borrowings. The other
two swap agreements expire in 2004 and
F-106
<PAGE> 239
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
convert an aggregate principal amount of A$100.0 ($65.6) million of variable
rate, long-term debt into fixed rate borrowings. The swap agreement on the
Saturn Bank Facility effectively converts an aggregate principal amount of
NZ$60.0 ($31.7) million of variable rate, long-term debt into fixed rate
borrowings. The interest rate swap includes an increasing fixed rate with an
additional margin which is expected to decline as the debt to EBITDA ratio
declines.
11. NOTE PAYABLE TO PARENT
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Note payable to parent, including accrued interest of
$42,760 and $16,693, respectively......................... $446,288 $107,396
======== ========
</TABLE>
In December 1995, United loaned the Company $29.8 million in connection with the
purchase of the remaining interest of Austar. The loan accrues interest at 14.0%
per annum. Although the terms of the loan state that it is due on demand, United
does not intend to demand payment during the next fiscal year. Therefore, the
loan and related accrued interest are classified as long-term.
In March 1998, United loaned the Company $60.9 million in connection with
funding the general operations of ULA as well as repayment of a portion of the
ULA Revolving Credit Facility. The United loan accrues interest at 10.75% per
annum. Although the terms of the loan state that it is due on demand, United
does not intend to demand payment during the next fiscal year. Therefore, the
loan and related accrued interest are classified as long-term.
In February 1997, United made a bridge loan to ULA of $37.5 million. Interest on
the note accrued at LIBOR plus 6.0%. In November 1997, ULA repaid the note plus
interest with proceeds from the Argentina Transaction.
United provides certain administrative, financial reporting and other services
to the Company, which has no separate employees of its own. In addition, United
Management, Inc. ("United Management"), a wholly-owned subsidiary of the
Company, has executed technical assistance agreements with various operating
systems, pursuant to which United Management provides various management and
technical services to these operating systems for a fee equal to a percentage of
that operating system's gross revenue. United has appointed certain of its
employees to serve in senior management positions at the operating systems. The
operating systems reimburse United for certain direct costs incurred by United,
including salaries and benefits relating to these senior management positions.
12. PARENT'S DEFICIT
COMMON STOCK
Authorized capital consists of 1,000 shares of Common Stock, $.01 par value, 100
shares issued and outstanding, held by United. Such shares have been pledged as
collateral under United's 1998 Notes.
CUMULATIVE TRANSLATION ADJUSTMENTS
During the year ended December 31, 1999, the Company recorded a negative change
in cumulative translation adjustments of $20.2 primarily due to the
strengthening of the U.S. dollar to the Chilean peso of approximately 12.1%.
F-107
<PAGE> 240
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EQUITY TRANSACTIONS OF SUBSIDIARIES
Variable plan accounting for stock options and the recognition of deferred
compensation expense by the Company's subsidiaries affects the equity accounts
of the Company. The following represents the effect on additional paid-in
capital and deferred compensation as a result of these equity transactions:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31, 1999
-----------------
(IN THOUSANDS)
<S> <C>
Variable plan accounting for stock options.................. $ 40,883
Deferred compensation expense............................... (40,883)
Amortization of deferred compensation....................... 22,540
--------
Total............................................. $ 22,540
========
</TABLE>
OTHER CUMULATIVE COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Foreign currency translation adjustments.................... $(84,920) $(64,748)
Unrealized gain on available-for-sale securities............ 645 (154)
-------- --------
Total............................................. $(84,275) $(64,902)
======== ========
</TABLE>
STOCK OPTION PLANS
UAP Plan
In March 1998, UAP's Board of Directors approved a stock option plan (the "UAP
Plan") which permitted the grant of phantom stock options or the grant of stock
options to purchase up to 1,800,000 shares of UAP's Class A Common Stock. The
options vested in equal monthly increments over a four-year period following the
date of grant, and gave the employee the right with respect to vested options to
receive a cash payment equal to the difference between the fair market value of
a share of UAP stock and the option base price per share. The UAP Plan was
cancelled effective July 22, 1999. Under variable plan accounting, a total of
$17.6 million of compensation expense was recognized during 1999 by UAP through
the cancellation date.
A summary of phantom stock option activity for the UAP Plan is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- --------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
---------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
period........................... 1,779,500 $10.00 -- --
Granted during the period.......... 65,000 $10.00 1,779,500 $10.00
Cancelled during the period........ (1,844,500) $10.00 -- --
Exercised during the period........ -- -- -- --
---------- ------ --------- ------
Outstanding at end of period....... -- -- 1,779,500 $10.00
========== ====== ========= ======
Exercisable at end of period....... -- -- 584,063 $10.00
========== ====== ========= ======
</TABLE>
F-108
<PAGE> 241
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The combined weighted-average fair values and weighted-average exercise prices
of options are granted as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------- -----------------------------
FAIR EXERCISE FAIR EXERCISE
NUMBER VALUE PRICE NUMBER VALUE PRICE
------ ------ -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Exercise price equal to market
price........................ 65,000 $10.00 $10.00 1,779,500 $10.00 $10.00
</TABLE>
Austar United Plan
On June 17, 1999, Austar United established a stock option plan (the "Austar
United Plan"). Effective on Austar United's initial public offering date of July
27, 1999, certain employees of United and Austar United were granted options
under the Austar United Plan in direct proportion to their previous holding of
UAP options under the UAP Plan along with retroactive vesting through the
initial public offering date to reflect vesting under the UAP Plan. The maximum
term of options granted under the Austar United Plan is ten years. The options
vest in equal monthly increments over a four-year period following the date of
grant. Under the Austar United Plan, options to purchase a total of 28,760,709
shares have been authorized, of which 3,231,428 were available for grant. The
Austar United Plan was accounted for as a variable plan prior to Austar United's
initial public offering and as a fixed plan effective July 27, 1999. For the
year ended December 31, 1999, $4.9 million of compensation expense was
recognized by Austar United in the statement of operations.
For purposes of the proforma disclosures presented below, Austar United has
computed the fair values of all options granted during the year ended December
31, 1999 using the Black-Scholes single-option pricing model and the following
weighted-average assumptions:
<TABLE>
<S> <C>
Risk-free interest rate..................................... 5.81%
Expected life............................................... 7 years
Expected volatility......................................... 40.44%
Expected dividend yield..................................... 0%
</TABLE>
The total fair value of options granted was approximately A$88.0 ($57.7) million
for the year ended December 31, 1999. This amount is amortized using the
straight-line method over the vesting period of the options. Cumulative
compensation expense recognized in proforma net income, with respect to options
that are forfeited prior to vesting, is adjusted as a reduction of proforma
compensation expense in the period of forfeiture. Stock-based compensation, net
of the effect of forfeitures and net of actual compensation expense recorded in
the statement of operations was nil for the year ended December 31, 1999.
F-109
<PAGE> 242
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option activity for the Austar United Plan is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
---------------------------
WEIGHTED-
AVERAGE
NUMBER EXERCISE PRICE
---------- --------------
(AUSTRALIAN
DOLLARS)
<S> <C> <C>
Outstanding at beginning of period.......................... -- --
Granted during the period................................... 25,631,736 2.26
Cancelled during the period................................. (102,455) 3.75
Exercised during the period................................. (684,250) 1.83
---------- ----
Outstanding at end of period................................ 24,845,031 2.27
========== ====
Exercisable at end of period................................ 11,564,416 1.90
========== ====
</TABLE>
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
-----------------------------
FAIR EXERCISE
EXERCISE PRICE NUMBER VALUE PRICE
-------------- ---------- ----- --------
(AUSTRALIAN
DOLLARS)
<S> <C> <C> <C>
Less than market price................................... 22,334,236 3.58 1.91
Equal to market price.................................... 3,222,500 2.47 4.70
Greater than market price................................ 75,000 2.43 4.70
---------- ---- ----
25,631,736 3.43 2.26
========== ==== ====
</TABLE>
The following table summarizes information about the Austar United Plan options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS
EXERCISABLE
OPTIONS OUTSTANDING NUMBER
----------------------------- -----------
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL LIFE
EXERCISE PRICE (AUSTRALIAN DOLLARS) NUMBER (YEARS) NUMBER
----------------------------------- ---------- ---------------- -----------
<S> <C> <C> <C>
1.80......................................... 20,813,572 9.55 11,171,494
4.70......................................... 4,031,459 9.60 392,922
---------- ---- ----------
24,845,031 9.56 11,564,416
========== ==== ==========
</TABLE>
ULA Plan
In April 1998, ULA's Board of Directors approved a stock option plan (the "ULA
Plan") which permits the grant of phantom stock options or the grant of stock
options to purchase up to 1,631,000 shares of ULA's Class A Common Stock. The
options vest in equal monthly increments over a four-year period following the
date of grant. Concurrent with approval of the ULA Plan, ULA's Board granted
phantom stock options to certain employees which gives the employee the right
with respect to vested options to receive a cash payment equal to the difference
between the fair market value of a share of ULA stock and
F-110
<PAGE> 243
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the option base price per share. The ULA Plan is accounted for as a variable
plan in accordance with its terms, resulting in compensation expense for the
difference between the grant price and the fair market value at each financial
statement date. For the year ended December 31, 1999 and the ten months ended
December 31, 1998, ULA recognized $(1.0) and $2.7 million in non-cash
compensation (credit) expense related to these phantom options, respectively.
Actual cash paid upon exercise of these phantom options was $0.6 million and
$1.1 million for the year ended December 31, 1999 and the ten months ended
December 31, 1998, respectively.
A summary of phantom stock option activity for the ULA Plan is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------- --------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period... 1,188,417 $5.77 -- --
Granted during the period............ 340,000 $8.86 1,785,500 $5.63
Cancelled during the period.......... (328,647) $4.84 (317,296) $5.47
Exercised during the period.......... (137,083) $4.81 (279,787) $5.19
--------- ----- --------- -----
Outstanding at end of period......... 1,062,687 $7.17 1,188,417 $5.77
========= ===== ========= =====
Exercisable at end of period......... 381,561 $5.87 268,730 $4.86
========= ===== ========= =====
</TABLE>
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------- ----------------------------
FAIR EXERCISE FAIR EXERCISE
NUMBER VALUE PRICE NUMBER VALUE PRICE
------- ----- -------- --------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Exercise price equal to market
price......................... 340,000 $8.86 $8.86 945,500 $5.81 $5.81
Exercise price greater than
market price.................. -- -- -- 840,000 $4.26 $5.43
------- ----- ----- --------- ----- -----
Total................. 340,000 $8.86 $8.86 1,785,500 $5.08 $5.63
======= ===== ===== ========= ===== =====
</TABLE>
The following table summarizes information about the ULA Plan phantom options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
---------------------------- -----------
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL LIFE
EXERCISE PRICE NUMBER (YEARS) NUMBER
-------------- --------- ---------------- -----------
<S> <C> <C> <C>
$4.26........................................... 312,687 7.43 197,187
$4.96........................................... 100,000 7.43 62,500
$8.81........................................... 95,000 9.40 16,249
$8.86........................................... 245,000 9.96 9,375
$8.98........................................... 310,000 8.72 96,250
--------- ---- -------
Total................................. 1,062,687 8.57 381,561
========= ==== =======
</TABLE>
F-111
<PAGE> 244
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. COMMITMENTS
The Company has entered into various operating lease agreements for office
space, office furniture and equipment, and vehicles. Rental expense under these
lease agreements totaled $5.8, $2.0 and $3.5 million for the year ended December
31, 1999, the ten months ended December 31, 1998 and for the year ended February
28, 1998, respectively.
The Company has operating lease obligations and other non-cancelable commitments
as follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000................................ $3,263
Year ended December 31, 2001................................ 2,939
Year ended December 31, 2002................................ 1,282
Year ended December 31, 2003................................ 501
Year ended December 31, 2004 and thereafter................. 558
------
Total............................................. $8,543
======
</TABLE>
The Company has minimum fixed MMDS license fees and programming license fees
payable annually at Austar United as follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000................................ $ 4,159
Year ended December 31, 2001................................ 4,178
Year ended December 31, 2002................................ 4,178
Year ended December 31, 2003................................ 4,178
Year ended December 31, 2004................................ 4,178
Thereafter.................................................. 7,164
-------
Total............................................. $28,035
=======
</TABLE>
A subsidiary of Austar has a five-year agreement to lease a 54 MHz satellite
transponder. Pursuant to the agreement, which commenced September 1, 1997,
Austar will pay approximately $4,440 in satellite service fees annually as
follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000................................ $ 4,440
Year ended December 31, 2001................................ 4,440
Year ended December 31, 2002................................ 2,960
-------
Total............................................. $11,840
=======
</TABLE>
14. CONTINGENCIES
From time to time, the Company and/or its subsidiaries may become involved in
litigation relating to claims arising out of its operations in the normal course
of business. The Company is not a party to any material legal proceedings, nor
is it currently aware of any threatened material legal proceedings.
15. INCOME TAXES
In general, a United States corporation may claim a foreign tax credit against
its federal income tax expense for foreign income taxes paid or accrued. Because
the Company must calculate its foreign tax credit separately for dividends
received from each foreign corporation in which the Company owns 10.0% to 50.0%
of the voting stock, and because of certain other limitations, the Company's
ability to claim a foreign tax credit may be limited, particularly with respect
to dividends paid out of earnings subject to a high rate of foreign income tax.
Generally, the Company's ability to claim a foreign tax credit is limited to
F-112
<PAGE> 245
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the amount of U.S. taxes the Company pays with respect to its foreign source
income. In calculating its foreign source income, the Company is required to
allocate interest expense and overhead incurred in the United States between its
United States and foreign activities. Accordingly, to the extent United States
borrowings are used to finance equity contributions to its foreign subsidiaries,
the Company's ability to claim a foreign tax credit may be significantly
reduced. These limitations and the inability of the Company to offset losses in
one foreign jurisdiction against income earned in another foreign jurisdiction
could result in a high effective tax rate on the Company's earnings.
The primary differences between taxable income (loss) and net income (loss) for
financial reporting purposes relate to SAB 51 gains, the non-consolidation of
consolidated foreign subsidiaries for United States tax purposes, international
rate differences and the current non-deductibility of interest expense on United
A/P's senior notes. For investments in foreign corporations accounted for under
the equity method, taxable income (loss) generated by these affiliates does not
flow through to the Company for United States federal and state tax purposes,
even though the Company records its allocable share of affiliate income (losses)
for financial reporting purposes. Accordingly, due to the indefinite reversal of
such amounts in future periods, no deferred tax asset has been established for
tax basis in excess of the Company's book basis (approximately $69.9 and $133.0
million at December 31, 1999 and 1998, respectively).
The Company's United States tax net operating losses, totaling approximately
$175.0 million at December 31, 1999, expire beginning in 2014 through 2029. The
Company's tax net operating loss carryforwards of its consolidated foreign
subsidiaries as of December 31, 1999 totaled $438.0 million and $79.0 million
for UAP and ULA, respectively. The significant components of the net deferred
tax asset are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets:
Tax net operating loss carryforward of consolidated
foreign subsidiaries................................... $ 171,835 $ 111,152
Company's U.S. tax net operating loss carryforward........ 66,674 66,099
Accrued interest expense on the United A/P Notes.......... 52,040 32,885
Investment valuation allowance and other.................. 3,465 2,605
Basis difference in marketable equity securities.......... 3,074 3,070
Deferred compensation and severance....................... 2,103 144
Stock-based compensation.................................. 622 --
Other..................................................... 5,918 (319)
--------- ---------
Total deferred tax assets......................... 305,731 215,636
Valuation allowance....................................... (294,602) (215,636)
--------- ---------
Deferred tax assets, net of valuation allowance... 11,129 --
--------- ---------
Deferred Tax Liabilities:
Intangible assets......................................... (64) --
Property, plant and equipment, net........................ (5,245) --
Other..................................................... (1,016) --
--------- ---------
Total deferred tax liabilities.................... (6,325) --
--------- ---------
Deferred tax assets, net.......................... $ 4,804 --
========= =========
</TABLE>
F-113
<PAGE> 246
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Of the Company's 1999 consolidated loss before income taxes and other items,
$232.1 million is derived from the Company's foreign operations. The difference
between income tax expense (benefit) provided in the financial statements and
the expected income tax expense (benefit) at statutory rates is reconciled as
follows:
<TABLE>
<CAPTION>
FOR THE TEN
FOR THE YEAR MONTHS FOR THE YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Expected income tax benefit at the U.S.
statutory rate of 35%......................... $(21,806) $(68,022) $(74,886)
Tax effect of permanent and other differences:
Change in valuation allowance................. 73,334 65,588 65,257
Gain on issuance of common equity securities
by subsidiaries............................ (94,377) -- --
International rate differences................ 18,985 (855) (515)
Non-deductible expenses....................... 9,067 4,279 987
Book/tax basis differences associated with
foreign investments........................ 788 1,176 12,119
State tax, net of federal benefit............. (1,869) (5,830) (6,419)
Non-deductible interest accretion on the
United A/P Notes........................... 1,693 2,148 2,145
Amortization of licenses...................... 923 1,516 1,312
Gain on sale of equity investment in
subsidiary................................. 5,877 -- --
Other......................................... 9,476 -- --
-------- -------- --------
Total income tax expense.............. $ 2,091 $ -- $ --
======== ======== ========
</TABLE>
The Company through its subsidiaries maintains a presence in 23 countries. Many
of these countries maintain tax regimes that differ significantly from the
system of income taxation used in the United States, such as a value added tax
system. The Company has accounted for the effect of foreign taxes based on what
it believes is reasonably expected to apply to the Company and its subsidiaries
based on tax laws currently in effect and/or reasonable interpretations of these
laws. Because some foreign jurisdictions do not have systems of taxation that
are as well established as the system of income taxation used in the United
States or tax regimes used in other major industrialized countries, it may be
difficult to anticipate how foreign jurisdictions will tax current and future
operations of the Company and its subsidiaries.
F-114
<PAGE> 247
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SEGMENT AND GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------
MULTICHANNEL INTERNET
TELEVISION TELEPHONE PROGRAMMING DATA OTHER TOTAL
------------ --------- -------------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Asia/Pacific:
Australia........... $144,632 $ -- $-- $ -- $ -- $144,632
New Zealand......... 1,279 4,107 -- 734 -- 6,120
Corporate and
Other............. -- -- -- -- 180 180
-------- ------- --- ---- -------- --------
Total Asia/
Pacific....... 145,911 4,107 -- 734 180 150,932
-------- ------- --- ---- -------- --------
Latin America:
Chile............... 77,476 9,881 -- -- 87 87,444
Brazil.............. 4,637 -- -- -- -- 4,637
Corporate and
Other............. 2,428 -- -- -- 384 2,812
-------- ------- --- ---- -------- --------
Total Latin
America....... 84,541 9,881 -- -- 471 94,893
-------- ------- --- ---- -------- --------
Corporate & Other... -- -- -- -- -- --
-------- ------- --- ---- -------- --------
Total Company... $230,452 $13,988 $-- $734 $ 651 $245,825
======== ======= === ==== ======== ========
ADJUSTED EBITDA:(1)
Asia/Pacific:
Australia........... $ (4,742) $ -- $-- $ -- $ -- $ (4,742)
New Zealand......... (918) (1,160) -- (47) -- (2,125)
Corporate and Other... -- -- -- -- (5,474) (5,474)
-------- ------- --- ---- -------- --------
Total Asia/
Pacific....... (5,660) (1,160) -- (47) (5,474) (12,341)
-------- ------- --- ---- -------- --------
Latin America:
Chile............... 17,744 $(2,604) -- -- -- 15,140
Brazil.............. (2,462) -- -- -- -- (2,462)
Corporate and
Other............. (1,210) -- -- -- (4,609) (5,819)
-------- ------- --- ---- -------- --------
Total Latin
America....... 14,072 (2,604) -- -- (4,609) 6,859
-------- ------- --- ---- -------- --------
Corporate & Other..... -- -- -- -- -- --
-------- ------- --- ---- -------- --------
Total Company... $ 8,412 $(3,764) $-- $(47) $(10,083) $ (5,482)
======== ======= === ==== ======== ========
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------------
LONG-
LIVED CAPITAL TOTAL
ASSETS(2) EXPENDITURES ASSETS
--------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE:
Asia/Pacific:
Australia........... $123,617 $ 94,513 $ 563,627
New Zealand......... 95,777 23,306 76,139
Corporate and
Other............. 8,051 3,014 54,218
-------- -------- ----------
Total Asia/
Pacific....... 227,445 120,833 693,984
-------- -------- ----------
Latin America:
Chile............... 213,146 53,120 489,638
Brazil.............. 5,679 4,399 17,172
Corporate and
Other............. 14,199 3,167 72,863
-------- -------- ----------
Total Latin
America....... 233,024 60,686 579,673
-------- -------- ----------
Corporate & Other... -- -- --
-------- -------- ----------
Total Company... $460,469 $181,519 $1,273,657
======== ======== ==========
ADJUSTED EBITDA:(1)
Asia/Pacific:
Australia...........
New Zealand.........
Corporate and Other...
Total Asia/
Pacific.......
Latin America:
Chile...............
Brazil..............
Corporate and
Other.............
Total Latin
America.......
Corporate & Other.....
Total Company...
</TABLE>
F-115
<PAGE> 248
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE TEN MONTHS ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------
MULTICHANNEL INTERNET
TELEVISION TELEPHONE PROGRAMMING DATA OTHER TOTAL
------------ --------- ----------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Europe:
Corporate and other...... $ -- $-- $-- $-- $ -- $ --
-------- -- -- -- -------- --------
Asia/Pacific:
Australia................ 74,209 -- -- -- -- 74,209
New Zealand.............. -- -- -- -- -- --
Corporate and Other...... 3,060 -- -- -- -- 3,060
-------- -- -- -- -------- --------
Total Asia/Pacific... 77,269 -- -- -- -- 77,269
-------- -- -- -- -------- --------
Latin America:
Chile.................... -- -- -- -- -- --
Corporate and Other...... 4,135 -- -- -- 377 4,512
-------- -- -- -- -------- --------
Total Latin
America............ 4,135 -- -- -- 377 4,512
-------- -- -- -- -------- --------
Corporate & Other.......... -- -- -- -- -- --
-------- -- -- -- -------- --------
Total Company........ $ 81,404 $-- $-- $-- $ 377 $ 81,781
======== == == == ======== ========
ADJUSTED EBITDA:(1)
Europe:
Corporate and Other...... $ -- $-- $-- $-- $ -- $ --
-------- -- -- -- -------- --------
Asia/Pacific:
Australia................ (31,093) -- -- -- -- (31,093)
New Zealand.............. -- -- -- -- -- --
Corporate and Other...... -- -- -- -- (2,287) (2,287)
-------- -- -- -- -------- --------
Total Asia/Pacific... (31,093) -- -- -- (2,287) (33,380)
-------- -- -- -- -------- --------
Latin America:
Chile.................... -- -- -- -- -- --
Corporate and Other...... (2,969) -- -- -- (7,295) (10,264)
-------- -- -- -- -------- --------
Total Latin
America............ (2,969) -- -- -- (7,295) (10,264)
-------- -- -- -- -------- --------
Corporate & Other.......... -- -- -- -- (1,209) (1,209)
-------- -- -- -- -------- --------
Total Company........ $(34,062) $-- $-- $-- $(10,791) $(44,853)
======== == == == ======== ========
<CAPTION>
AS OF DECEMBER 31, 1998
-----------------------------------
LONG-
LIVED CAPITAL TOTAL
ASSETS(2) EXPENDITURES ASSETS
--------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE:
Europe:
Corporate and other...... $ -- $ -- $ 6,639
-------- ------- --------
Asia/Pacific:
Australia................ 110,351 71,197 181,169
New Zealand.............. -- -- 23,789
Corporate and Other...... 61 337 48,992
-------- ------- --------
Total Asia/Pacific... 110,412 71,534 253,950
-------- ------- --------
Latin America:
Chile.................... -- -- 84,975
Corporate and Other...... 11,715 3,238 73,048
-------- ------- --------
Total Latin
America............ 11,715 3,238 158,023
-------- ------- --------
Corporate & Other.......... 7,944 682 13,543
-------- ------- --------
Total Company........ $130,071 $75,454 $432,155
======== ======= ========
ADJUSTED EBITDA:(1)
Europe:
Corporate and Other......
Asia/Pacific:
Australia................
New Zealand..............
Corporate and Other......
Total Asia/Pacific...
Latin America:
Chile....................
Corporate and Other......
Total Latin
America............
Corporate & Other..........
Total Company........
</TABLE>
F-116
<PAGE> 249
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28, 1998
-----------------------------------------------------------------------
MULTICHANNEL INTERNET
TELEVISION TELEPHONE PROGRAMMING DATA OTHER TOTAL
------------ --------- ----------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
Europe:
Corporate and other....... $ -- $-- $-- $-- $ -- $ --
-------- -- -- -- -------- --------
Asia/Pacific:
Australia................. 64,370 -- -- -- -- 64,370
New Zealand............... 473 -- -- -- -- 473
Corporate and Other....... 4,118 -- -- -- -- 4,118
-------- -- -- -- -------- --------
Total Asia/Pacific.... 68,961 -- -- -- -- 68,961
-------- -- -- -- -------- --------
Latin America:
Argentina................. 17,627 -- -- -- -- 17,627
Chile..................... -- -- -- -- -- --
Corporate and Other....... 1,617 -- -- -- -- 1,617
-------- -- -- -- -------- --------
Total Latin America... 19,244 -- -- -- -- 19,244
-------- -- -- -- -------- --------
Corporate & Other........... -- -- -- -- 439 439
-------- -- -- -- -------- --------
Total Company......... $ 88,205 $-- $-- $-- $ 439 $ 88,644
======== == == == ======== ========
ADJUSTED EBITDA:(1)
Europe:
Corporate and Other....... $ -- $-- $-- $-- $ -- $ --
-------- -- -- -- -------- --------
Asia/Pacific:
Australia................. (24,082) -- -- -- -- (24,082)
New Zealand............... (6,688) -- -- -- -- (6,688)
Corporate and Other....... (254) -- -- -- (6,938) (7,192)
-------- -- -- -- -------- --------
Total Asia/Pacific.... (31,024) -- -- -- (6,938) (37,962)
-------- -- -- -- -------- --------
Latin America:
Argentina................. 2,836 -- -- -- -- 2,836
Chile..................... -- -- -- -- -- --
Corporate and Other....... (952) -- -- -- (10,162) (11,114)
-------- -- -- -- -------- --------
Total Latin America... 1,884 -- -- -- (10,162) (8,278)
-------- -- -- -- -------- --------
Corporate & Other........... -- -- -- (7,637) (7,637)
-------- -- -- -- -------- --------
Total Company......... $(29,140) $-- $-- $-- $(24,737) $(53,877)
======== == == == ======== ========
<CAPTION>
AS OF FEBRUARY 28, 1998
-----------------------------------
LONG-
LIVED CAPITAL TOTAL
ASSETS(2) EXPENDITURES ASSETS
--------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE:
Europe:
Corporate and other....... $ -- $ -- $ 14,329
-------- -------- --------
Asia/Pacific:
Australia................. 147,871 84,375 202,325
New Zealand............... 26,484 16,258 43,349
Corporate and Other....... 8,746 502 48,871
-------- -------- --------
Total Asia/Pacific.... 183,101 101,135 294,545
-------- -------- --------
Latin America:
Argentina................. -- 1,329 --
Chile..................... -- -- 78,165
Corporate and Other....... 6,541 3,112 69,102
-------- -------- --------
Total Latin America... 6,541 4,441 147,267
-------- -------- --------
Corporate & Other........... 9,042 1,200 18,288
-------- -------- --------
Total Company......... $198,684 $106,776 $474,429
======== ======== ========
ADJUSTED EBITDA:(1)
Europe:
Corporate and Other.......
Asia/Pacific:
Australia.................
New Zealand...............
Corporate and Other.......
Total Asia/Pacific....
Latin America:
Argentina.................
Chile.....................
Corporate and Other.......
Total Latin America...
Corporate & Other...........
Total Company.........
</TABLE>
---------------
(1) Adjusted EBITDA represents 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.
(2) Represents Property, Plant and Equipment.
F-117
<PAGE> 250
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Adjusted EBITDA reconciles to the consolidated statement of operations as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 FEBRUARY 28, 1998
-------------------- -------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net operating loss................... $(164,882) $(129,739) $(139,081)
Depreciation and amortization........ 137,893 82,217 85,204
Stock-based compensation expense..... 21,507 2,669 --
--------- --------- ---------
Consolidated Adjusted
EBITDA................... $ (5,482) $ (44,853) $ (53,877)
========= ========= =========
</TABLE>
17. SUBSEQUENT EVENTS
On March 29, 2000, Austar United announced the sale of 20.0 million shares to
the public at A$8.50 ($5.15) per share for gross proceeds to the Company of
A$170.0 ($103.0) million.
F-118
<PAGE> 251
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UnitedGlobalCom, Inc.:
We have audited the accompanying consolidated balance sheets of United Europe,
Inc. (a Delaware corporation) (formerly UIH Europe, Inc.) and subsidiaries as of
December 31, 1999 and 1998 and the related consolidated statements of
operations, parent's equity (deficit) and cash flows for the year ended December
31, 1999, the ten months ended December 31, 1998 (see Note 2) and the year ended
February 28, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform these
audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of United
Europe, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for the year ended December 31, 1999,
the ten months ended December 31, 1998 and the year ended February 28, 1998 in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 29, 2000
F-119
<PAGE> 252
UNITED EUROPE, INC.
CONSOLIDATED BALANCE SHEETS
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $1,031,880 $ 15,646
Restricted cash........................................... 17,242 16,012
Subscriber receivables, net of allowance for doubtful
accounts of $16,859 and $4,899, respectively............ 60,234 6,818
Costs to be reimbursed by affiliated companies............ 10,566 14,432
Other receivables......................................... 84,907 13,675
Inventory................................................. 66,819 12,762
Other current assets, net................................. 73,382 8,283
---------- ----------
Total current assets............................... 1,345,030 87,628
Investments in affiliates, accounted for under the equity
method, net............................................... 244,367 254,209
Marketable equity securities and other investments.......... 627,244 53,499
Property, plant and equipment, net of accumulated
depreciation of $195,329 and $46,406, respectively........ 1,920,361 319,046
Goodwill and other intangible assets, net of accumulated
amortization of $134,594 and $20,693, respectively........ 2,627,761 359,804
Deferred financing costs, net of accumulated amortization of
$5,974 and $4,914, respectively........................... 78,348 11,462
Other assets, net........................................... 1,743 1,748
---------- ----------
Total assets....................................... $6,844,854 $1,087,396
========== ==========
LIABILITIES AND PARENT'S EQUITY (DEFICIT)
Current liabilities
Accounts payable, including related party payables of
$2,802 and $8,281, respectively......................... $ 252,428 $ 75,078
Accrued liabilities....................................... 274,857 30,097
Subscriber prepayments and deposits....................... 41,466 24,210
Short-term debt........................................... 164,263 33,504
Note payable to parent.................................... -- 92,609
Current portion of senior discount notes and other
long-term debt.......................................... 50,606 60,063
---------- ----------
Total current liabilities.......................... 783,620 315,561
Senior discount notes and senior notes...................... 2,761,065 --
Other long-term debt........................................ 1,166,780 621,560
Deferred compensation....................................... 53,032 173,251
Deferred taxes.............................................. 16,061 4,580
Other long-term liabilities................................. 19,446 4,655
---------- ----------
Total liabilities.................................. 4,800,004 1,119,607
Minority interests in subsidiaries.......................... 789,691 13,722
---------- ----------
Parent's equity (deficit):
Common stock, $0.01 par value, 1,000 shares authorized,
100 and 100 shares issued and outstanding, respectively,
(pledged as collateral under parent's senior discount
notes).................................................. -- --
Additional paid-in capital................................ 724,797 339,074
Deferred compensation..................................... (101,653) --
Accumulated deficit....................................... 394,472 (383,651)
Other cumulative comprehensive income (loss).............. 237,543 (1,356)
---------- ----------
Total parent's equity (deficit).................... 1,255,159 (45,933)
---------- ----------
Commitments and contingencies (Note 13 and 14)
Total liabilities and parent's equity (deficit).... $6,844,854 $1,087,396
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-120
<PAGE> 253
UNITED EUROPE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenue................................................. $ 473,422 $ 172,287 $ 9,945
System operating expense................................ (309,277) (57,123) (2,754)
System selling, general and administrative expense...... (212,214) (56,401) (3,418)
Corporate general and administrative expense............ (281,702) (178,279) (7,320)
Depreciation and amortization........................... (280,442) (76,550) (6,086)
---------- --------- --------
Operating loss................................ (610,213) (196,066) (9,633)
Gain on issuance of common equity securities by
subsidiaries.......................................... 1,260,478 -- --
Interest income......................................... 29,458 3,440 --
Interest expense........................................ (194,512) (38,524) (2,045)
Interest expense, related party......................... (1,719) (6,022) --
Provision for losses on marketable equity securities and
investment related costs.............................. -- (3,131) --
Foreign currency exchange (loss) gain................... (13,714) 233 --
Other (expense) income, net............................. (7,544) 1,715 74
---------- --------- --------
Income (loss) before income taxes and other
items....................................... 462,234 (238,355) (11,604)
Income tax benefit (expense)............................ 1,893 (610) --
Minority interests in subsidiaries...................... 345,904 793 (117)
Share in results of affiliates, net..................... (31,908) (25,679) (42,431)
---------- --------- --------
Net income (loss)............................. $ 778,123 $(263,851) $(54,152)
========== ========= ========
Foreign currency translation adjustments................ $ (111,252) $ (1,787) $(11,872)
Unrealized holding gains arising during period.......... 350,151 23,350 --
---------- --------- --------
Comprehensive income (loss)................... $1,017,022 $(242,288) $(66,024)
========== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-121
<PAGE> 254
UNITED EUROPE, INC.
CONSOLIDATED STATEMENTS OF PARENT'S EQUITY (DEFICIT)
(STATED IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
OTHER
COMMON STOCK ADDITIONAL CUMULATIVE
--------------- PAID-IN DEFERRED ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT INCOME (LOSS) TOTAL
------ ------ ---------- ------------ ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, February 28, 1997....... 100 $-- $159,241 $ -- $ (48,692) $(11,047) $ 99,502
Capital contributions from
parent.......................... -- -- 170,222 -- -- -- 170,222
Net loss.......................... -- -- -- -- (54,152) -- (54,152)
Change in cumulative translation
adjustments..................... -- -- -- -- -- (11,872) (11,872)
--- --- -------- --------- --------- -------- ----------
Balances, February 28, 1998....... 100 -- 329,463 -- (102,844) (22,919) 203,700
Non-cash contributions from
parent.......................... -- -- 3,825 -- -- -- 3,825
Gain on deemed issuance of stock
by subsidiary................... -- -- 5,786 -- -- -- 5,786
Elimination of historical
two-month reporting difference
due to change in fiscal year
end............................. -- -- -- -- (16,956) -- (16,956)
Net loss.......................... -- -- -- -- (263,851) -- (263,851)
Change in unrealized gain on
available-for-sale securities... -- -- -- -- -- 23,350 23,350
Change in cumulative translation
adjustments..................... -- -- -- -- -- (1,787) (1,787)
--- --- -------- --------- --------- -------- ----------
Balances, December 31, 1998....... 100 -- 339,074 -- (383,651) (1,356) (45,933)
Net income........................ -- -- -- -- 778,123 -- 778,123
Cash contributions from parent.... -- -- (17,345) -- -- -- (17,345)
Non-cash contributions from
parent.......................... -- -- 16,907 -- -- -- 16,907
Equity transactions of
subsidiaries.................... -- -- 386,161 (180,757) -- -- 205,404
Amortization of deferred
compensation.................... -- -- -- 79,104 -- -- 79,104
Change in cumulative
translation..................... -- -- -- -- -- (111,252) (111,252)
Change in unrealized gain on
available-for-sale securities... -- -- -- -- -- 350,151 350,151
--- --- -------- --------- --------- -------- ----------
Balances, December 31, 1999....... 100 $-- $724,797 $(101,653) $ 394,472 $237,543 $1,255,159
=== === ======== ========= ========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-122
<PAGE> 255
UNITED EUROPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ 778,123 $(263,851) $ (54,152)
Elimination of historical two month reporting
difference due to change in fiscal year.............. -- (16,956) --
Adjustments to reconcile net loss to net cash flows
from operating activities:
Gain on issuance of common equity securities by
subsidiaries...................................... (1,260,478) -- --
Share in results of affiliates, net.................. 31,298 31,903 42,431
Allocation of general, administrative and other
expenses accounted for as a net contribution of
capital by parent................................. 3,395 3,825 7,322
Minority interests in subsidiaries................... (345,904) (569) 117
Depreciation and amortization........................ 280,442 92,986 6,086
Accretion of interest on senior notes and
amortization of deferred financing costs.......... 49,980 4,640 109
Stock-based compensation expense..................... 202,227 162,124 --
Provision for losses on marketable equity securities
and investment related costs...................... -- 3,131 --
Increase in receivables, net......................... (78,921) (9,919) (709)
(Increase) decrease in other assets.................. (46,997) (5,364) 422
Increase in accounts payable, accrued liabilities and
other............................................. 270,760 47,705 5,574
----------- --------- ---------
Net cash flows from operating activities..... (116,075) 49,655 7,200
----------- --------- ---------
Cash flows from investing activities:
Purchase of short-term liquid investments............ (267,809) -- --
Restricted cash (deposited) released................. (3,578) 19,576 --
Investments in affiliates and other investments...... (354,036) (100,665) (111,628)
Proceeds from sale of investments in affiliated
companies......................................... 18,000 19,968 --
New acquisitions, net of cash acquired............... (2,048,911) (109,881) --
Capital expenditures................................. (612,232) (141,547) (7,461)
----------- --------- ---------
Net cash flows from investing activities..... (3,268,566) (312,549) (119,089)
----------- --------- ---------
Cash flows from financing activities:
Issuance of common stock by subsidiaries, net........ 2,331,522 -- --
Issuance of common stock in connection with
subsidiary stock option plan...................... 17,346 -- --
Proceeds from offering of senior notes and senior
discount notes.................................... 2,540,813 -- --
Proceeds from short-term and long term borrowings.... 773,651 281,648 505
Deferred financing costs............................. (78,886) (5,037) --
Repayments of short-term and long-term borrowings.... (1,122,853) (138,175) (1,456)
(Payment on) proceeds from note payable to parent.... (80,587) 86,468 --
Payment of sellers notes............................. (18,000) -- --
Capital contribution from parent..................... (17,346) -- 162,500
Cash paid to minority interest partners.............. -- (253) --
----------- --------- ---------
Net cash flows from financing activities..... 4,345,660 224,651 161,549
----------- --------- ---------
</TABLE>
F-123
<PAGE> 256
UNITED EUROPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Effect of exchange rates on cash..................... 55,215 4,723 (494)
----------- --------- ---------
Increase (decrease) in cash and cash equivalents..... 1,016,234 (33,520) 49,166
Cash and cash equivalents, beginning of period....... 15,646 49,166 --
----------- --------- ---------
Cash and cash equivalents, end of period............. $ 1,031,880 $ 15,646 $ 49,166
=========== ========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest............................... $ 80,480 $ 34,706 $ --
=========== ========= =========
Cash received for interest........................... $ 26,248 $ 3,513 $ --
=========== ========= =========
Seller note for purchase of system in Hungary........ $ -- $ 18,000 $ --
=========== ========= =========
Acquisition of 100% of @Entertainment:
Net current assets................................... $ (51,239) $ -- $ --
Property, plant and equipment........................ (196,178) -- --
Goodwill............................................. (986,814) -- --
Long-term liabilities................................ 448,566 -- --
Other................................................ (21,335) -- --
----------- --------- ---------
Total cash paid.............................. (807,000) -- --
Cash acquired........................................ 62,507 -- --
----------- --------- ---------
Net cash paid................................ $ (744,493) $ -- $ --
=========== ========= =========
Acquisition of 100% of Stjarn:
Property, plant and equipment........................ $ (43,171) $ -- $ --
Goodwill............................................. (442,094) -- --
Net current liabilities.............................. 55,997 -- --
Long-term liabilities................................ 32,268 -- --
----------- --------- ---------
Total purchase price......................... (397,000) -- --
Seller's Note........................................ 100,000 -- --
----------- --------- ---------
Total cash paid.............................. (297,000) -- --
Cash acquired........................................ 3,792 -- --
----------- --------- ---------
Net cash paid................................ $ (293,208) $ -- $ --
=========== ========= =========
Acquisition of remaining 49.0% of UTH:
Property, plant and equipment........................ $ (210,013) $ -- $ --
Investments in affiliated companies.................. (46,830) -- --
Goodwill............................................. (256,749) -- --
Net current liabilities.............................. 5,384 -- --
Long-term liabilities................................ 242,536 -- --
----------- --------- ---------
Total cash paid.............................. (265,672) -- --
Cash acquired........................................ 13,629 -- --
----------- --------- ---------
Net cash paid................................ $ (252,043) $ -- $ --
=========== ========= =========
Acquisition of remaining 50.0% of A2000:
Receivables assumed.................................. $ (13,062) $ -- $ --
Property, plant and equipment........................ (96,539) -- --
Goodwill............................................. (274,361) -- --
</TABLE>
F-124
<PAGE> 257
UNITED EUROPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(STATED IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net current liabilities.............................. 25,044 -- --
Long-term liabilities................................ 129,918 -- --
----------- --------- ---------
Total cash paid.............................. (229,000) -- --
Cash acquired........................................ 521 -- --
----------- --------- ---------
Net cash paid................................ $ (228,479) $ -- $ --
=========== ========= =========
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) $ -- $ --
=========== ========= =========
Contributions of Dutch cable systems to new joint
venture:
Working capital...................................... $ -- $ (1,871) $ --
Investments in affiliated companies.................. -- 96,866 --
Property, plant and equipment........................ -- 85,037 --
Goodwill and other intangible assets................. -- 78,515 --
Senior secured notes and other debt.................. -- (111,553) --
Other liabilities.................................... -- (17,417) --
----------- --------- ---------
Total net assets contributed................. $ -- $ 129,577 $ --
=========== ========= =========
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) $ --
=========== ========= =========
Acquisition of additional 50.0% interest in UPC:
Working capital, including cash acquired of
$50,872........................................... $ -- $ -- $ (7,158)
Investment in UnitedGlobalCom, Inc. Class A Common
Stock............................................. -- -- (33,074)
Investments in affiliated companies.................. -- -- (167,945)
Property, plant and equipment and other long-term
assets............................................ -- -- (273,988)
Goodwill and other intangible assets................. -- -- (383,503)
Elimination of United's equity investment in UPC..... -- -- 46,319
Long-term debt....................................... -- -- 624,633
Other liabilities.................................... -- -- 32,216
----------- --------- ---------
Total cash paid.............................. $ -- $ -- $(162,500)
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-125
<PAGE> 258
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
United Europe, Inc. (the "Company" or "UEI") was formed as a Delaware
corporation in September 1989, for the purpose of developing, acquiring and
managing European multi-channel television, programming and telephone
operations. The Company is a wholly owned subsidiary of UnitedGlobalCom, Inc.
("United"). The following chart presents a summary of the Company's significant
investments in telecommunications as of December 31, 1999.
UEI
53.2%
United Pan-Europe Communications N.V.
("UPC")
<TABLE>
<S> <C>
Austria:
Telekabel Group 95.0%
Belgium:
UPC Belgium 100.0%
Czech Republic:
Kabel Net 100.0%
Kabel Plus 94.6%
France:
UPC France 99.6%(1)
Germany:
PrimaCom 18.2%(2)
Hungary:
UPC Magyarorszag 79.3%
Monor 97.1%
Ireland:
Tara 80.0%
Israel:
Tevel 46.6%
Malta:
Melita 50.0%
The Netherlands:
UPC Nederland 100.0%
Norway:
UPC Norge 100.0%
Poland:
@Entertainment 100.0%
Romania:
UPC Romania 51.0%-100.0%
Slovak Republic:
UPC Slovak 95.0%-100.0%
Spain/Portugal:
Iberian Programming 50.0%
Sweden:
Stjarn 100.0%
United Kingdom
Xtra Music 41.0%
Other Business Lines:
SBS 13.3%(3)
Priority Telecom 100.0%
chello broadband 100.0%
UPC tv 100.0%
</TABLE>
---------------
(1) In February 2000, UPC's interest decreased to 92.0% (see Note 18).
(2) Subsequent to December 31, 1999, UPC increased its interest to 24.9%.
(3) In February 2000, UPC acquired an additional 10.2% interest in SBS for
E162.5 ($163.5) million.
F-126
<PAGE> 259
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 consolidated financial statements include the accounts of the
Company and all subsidiaries where it exercises a controlling financial interest
through the ownership of a majority voting interest. The following illustrates
those subsidiaries for which the Company consolidated the results of operations
for only a portion of the fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
EFFECTIVE DATE
ENTITY OF CONSOLIDATION REASON
------ ----------------- ------
<S> <C> <C>
UPC Nederland(1).......................... February 1, 1999 Acquisition of remaining 49.0%
interest in United Telekabel
Holding N.V. ("UTH")
UPC Slovensko (Slovak Republic)........... June 1, 1999 Acquisition
GelreVision (The Netherlands)............. June 1, 1999 Acquisition
Reseaux Cables de France ("RCF").......... June 1, 1999 Acquisition
Stjarn.................................... August 1, 1999 Acquisition
Videopole (France)........................ August 1, 1999 Acquisition
@Entertainment............................ August 1, 1999 Acquisition
Time Warner Cable France.................. September 1, 1999 Acquisition
A2000 (The Netherlands)................... September 1, 1999 Acquisition of remaining 50.0%
interest
Kabel Plus................................ October 1, 1999 Acquisition
Monor..................................... December 1, 1999 Acquisition
</TABLE>
---------------
(1) Prior to the acquisition date, the equity method of accounting was used
because of certain minority shareholder's rights.
The Company began consolidating UPC upon acquisition of the remaining 50.0%
interest on December 11, 1997. Prior to December 11, 1997, the Company accounted
for its investment in UPC under the equity method. All significant intercompany
accounts and transactions have been eliminated in consolidation.
CHANGE IN FISCAL YEAR-END
Prior to the ten months ended December 31, 1998, the Company's fiscal year-end
was February 28, and it accounted for its share of the income or loss of its
operating companies based on the calendar year results of each operating
company. This created a two month delay in reporting the operating company
results in the Company's consolidated results for its fiscal year-end. On
February 24, 1999, the Company changed its fiscal year-end from the last day in
February to the last day in December, effective December 31, 1998. To effect the
transaction to the new fiscal year, the combined results of operations of the
operating companies for January and February 1998, a loss of $17.0 million, has
been reported as a one-time adjustment to the retained deficit as of March 1,
1998, in the consolidated statement of parent's equity (deficit). Consequently,
the consolidated statement of operations presents the consolidated results of
the
F-127
<PAGE> 260
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company and its subsidiaries for the ten months ended December 31, 1998. For
comparative purposes, the Company's consolidated revenue, net operating loss and
net loss were $9.9 million, $2.3 million and $36.8 million, respectively, for
the ten months ended December 31, 1997, and the Company's consolidated revenue,
net operating loss and net loss were $203.1 million, $200.4 million and $280.8
million, respectively for the year ended December 31, 1998.
CASH AND CASH EQUIVALENTS AND SHORT-TERM LIQUID INVESTMENTS
Cash and cash equivalents include cash and investments with original maturities
of less than three months. Short-term liquid investments include certificates of
deposit, commercial paper, corporate bonds and government securities which have
original maturities greater than three months but less than twelve months.
Short-term liquid investments are classified as available-for-sale and are
reported at fair market value.
RESTRICTED CASH
Cash held as collateral for letters of credit and other loans is classified
based on the expected expiration of such facilities. Cash held in escrow and
restricted to a specific use is classified based on the expected timing of such
disbursement.
COSTS TO BE REIMBURSED BY AFFILIATED COMPANIES
The Company incurs costs on behalf of affiliated companies, such as salaries and
benefits, travel and professional services. These costs are reimbursed by the
affiliated companies.
INVENTORY
Inventory is stated at the lower of cost (first-in, first-out basis) or market.
INVESTMENTS IN AFFILIATES, 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.
MARKETABLE EQUITY SECURITIES AND OTHER INVESTMENTS
The cost method of accounting is used for the Company's other investments in
affiliates in which the Company's ownership interest is less than 20.0% and
where the Company does not exert significant influence, except for those
investments in marketable equity securities. The Company classifies its
investments in marketable equity securities in which its interest is less than
20.0% and where the Company does not exert significant influence as
available-for-sale and reports such investments at fair market value. Unrealized
gains and losses are charged or credited to equity, and realized gains and
losses and other-than-temporary declines in market value are included in
operations.
F-128
<PAGE> 261
UNITED EUROPE, INC.
NOTES TO 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:
<TABLE>
<S> <C>
Cable distribution networks............................. 3-20 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
</TABLE>
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.
RECOVERABILITY OF TANGIBLE AND INTANGIBLE ASSETS
The Company evaluates the carrying value of all tangible and intangible assets
whenever events or circumstances indicate the carrying value of assets may
exceed their recoverable amounts. An impairment loss is recognized when the
estimated future cash flows (undiscounted and without interest) expected to
result from the use of an asset are less than the carrying amount of the asset.
Measurement of an impairment loss is based on fair value of the asset computed
using discounted cash flows if the asset is expected to be held and used.
Measurement of an impairment loss for an asset held for sale would be based on
fair market value less estimated costs to sell.
DEFERRED FINANCING COSTS
Costs to obtain debt financing are capitalized and amortized over the life of
the debt facility using the effective interest method.
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,
telephony and Internet/data services to subscribers and is recognized in the
period the related services are provided. Initial installation
F-129
<PAGE> 262
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of subscriber receivables. Concentrations of
credit risk with respect to subscriber receivables are limited due to the
Company's large number of customers and their dispersion across many different
countries worldwide.
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, which
results in compensation expense for the difference between the grant price and
the fair market value at each new measurement date. UPC adopted stock-based
compensation plans for their employees. With respect to certain of 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.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method which
requires recognition of deferred tax assets and liabilities for the expected
future income tax consequences of transactions which have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and income tax basis of assets, liabilities and loss carryforwards
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Net deferred tax assets are then reduced by a valuation
allowance if management believes it more likely than not they will not be
realized. Withholding taxes are taken into consideration in situations where the
income of subsidiaries is to be paid out as dividends in the near future. Such
withholding taxes are generally charged to income in the year in which the
dividend income is generated.
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
F-130
<PAGE> 263
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adjustments. Cumulative translation adjustments are recorded as a separate
component of parent's equity (deficit), 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 on the consolidated
statements of cash flows will not agree to changes in the corresponding balances
on the consolidated balance sheets. The effects of exchange rate changes on cash
balances held in foreign currencies are reported as a separate line below cash
flows from financing activities.
Certain of the Company's foreign operating companies have notes payable and
notes receivable that are denominated in a currency other than their own
functional currency. 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.
NEW ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet at fair value.
Under SFAS 133, accounting for changes in fair value of a derivative depends on
its intended use and designation. SFAS 133 is effective for fiscal years
beginning after June 15, 2000. The Company is currently assessing the effect of
this new standard.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 "Views on Selected Revenue Recognition Issues"
("SAB 101"), which provides the staff's views in applying generally accepted
accounting principles to selected revenue recognition issues. SAB 101 is
effective for the second quarter of 2000. The Company is currently assessing the
effect of SAB 101.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current year
presentation.
3. ACQUISITIONS AND OTHER
UPC STOCK OFFERINGS
In February 1999, UPC successfully completed an initial public offering selling
133.8 million shares on the Amsterdam Stock Exchange and The Nasdaq Stock
Market, Inc. ("Nasdaq"), raising gross and net proceeds at Dutch guilder
("NLG")21.30 ($10.93) per share of NLG2,852.9 ($1,463.0) million and NLG2,660.1
($1,364.1) million, respectively. The proceeds were used to reduce debt
facilities and finance acquisitions. 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 59.6%.
In October 1999, UPC completed a second public offering of 45.0 million ordinary
shares, raising gross and net proceeds at Euro ("E") 19.92 ($21.58) per share of
E896.3 ($970.9) million and E851.5 ($922.4) million, respectively. The proceeds
were used to finance acquisitions. Based on the carrying value of the Company's
investment in UPC as of October 19, 1999, United recognized a gain of $403.4
million
F-131
<PAGE> 264
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. This
second offering further reduced the Company's ownership to 53.2% as of December
31, 1999.
If all of the UPC stock options and warrants outstanding as of December 31, 1999
were exercised, the Company's ownership interest would be 51.7% 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 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
E235.1 ($265.7) million. In addition, UPC repaid NUON a E15.1 ($17.1) million
subordinated loan, including accrued interest, dated December 23, 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):
<TABLE>
<S> <C>
Property, plant and equipment............................... $ 210,013
Investments in affiliated companies......................... 46,830
Goodwill.................................................... 256,749
Long-term debt liabilities.................................. (242,536)
Net current liabilities..................................... (5,384)
---------
Total cash paid................................... $ 265,672
=========
</TABLE>
The following pro forma condensed consolidated operating results for the year
ended December 31, 1999 and the ten months ended December 31, 1998 gives effect
to the UTH Transaction and the NUON Transaction as if they had occurred at the
beginning of the periods presented. This pro forma condensed consolidated
financial information does not purport to represent what the Company's results
of operations would actually have been if such transactions had in fact occurred
on such dates. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------- ------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ----------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue.................................. $473,422 $483,539 $ 172,287 $ 253,295
======== ======== ========= =========
Net income (loss)........................ $778,123 $773,428 $(263,852) $(299,708)
======== ======== ========= =========
</TABLE>
ACQUISITION OF UPC SLOVENSKO
In June 1999, UPC acquired SKT spol s.r.o. (now known as UPC Slovensko), a
company that owns and operates a cable television system in Bratislava, the
capital of the Slovak Republic, for $43.3 million.
F-132
<PAGE> 265
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACQUISITION OF GELREVISION
In June 1999, UPC acquired through UPC Netherland 100% of the GelreVision
multi-channel television systems in The Netherlands for NLG233.9 ($109.8)
million.
ACQUISITION OF RESEAUX CABLES DE FRANCE
In June 1999, UPC acquired through UPC France 95.7% of RCF, which operates cable
television systems throughout France, for French francs ("FFR")172.0 ($27.1)
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 8.5% of SBS for $75.9 million.
STJARN ACQUISITION
In July 1999, UPC acquired Stjarn for a purchase price of $397.0 million, of
which $100.0 million was paid in the form of a one-year note with interest at
8.0% per year and the balance of the purchase price was paid in cash. 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.
ACQUISITION OF VIDEOPOLE
In August 1999, UPC acquired through UPC France 100% of Videopole for a total
purchase price of $135.1 million. The purchase price was paid in cash ($69.9
million) and 2.9 million ordinary shares of UPC ($65.2 million). Based on the
carrying value of the Company's investment in UPC as of July 31, 1999, United
recognized a gain of $34.9 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.
@ENTERTAINMENT ACQUISITION
In August 1999, UPC acquired 100% of @Entertainment for $807.0 million in cash.
Details of the net assets acquired, based on a preliminary purchase price
allocation using information currently available, were as follows (in
thousands):
<TABLE>
<S> <C>
Net current assets.......................................... $ 51,239
Property, plant and equipment............................... 196,178
Goodwill.................................................... 986,814
Long-term liabilities....................................... (448,566)
Other....................................................... 21,335
---------
Total cash paid................................... $ 807,000
=========
</TABLE>
The following pro forma condensed consolidated operating results for the year
ended December 31, 1999 and the ten months ended December 31, 1998 give effect
to the acquisition of @Entertainment as if it had occurred at the beginning of
each period presented. This pro forma condensed consolidated financial
information does not purport to represent what the Company's results of
operations would actually have
F-133
<PAGE> 266
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
been if such transaction had in fact occurred on such dates. The pro forma
adjustments are based upon currently available information and upon certain
assumptions that management believes are reasonable.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE TEN MONTHS ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------- ------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ----------- ----------
(IN THOUSANDS) IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue.......................... $473,422 $520,401 $ 172,287 $ 222,665
======== ======== ========= =========
Net income (loss)................ $778,123 $585,956 $(263,852) $(443,718)
======== ======== ========= =========
</TABLE>
ACQUISITION OF TIME WARNER CABLE FRANCE
In August 1999, UPC acquired through UPC France 100% of Time Warner Cable
France, a company that operates three cable television systems in the suburbs of
Paris and Lyon and in the city of Limoges. The purchase price was $71.1 million
in cash. Simultaneous with the acquisition of Time Warner Cable France, UPC
acquired an additional 47.6% interest in one of its operating systems, Rhone
Vision Cable, in which Time Warner France had a 49.9% interest, for FFR89.3
($14.6) million, increasing UPC's ownership in that system to 97.5%.
ACQUISITION OF 50.0% OF A2000
In September 1999, UPC acquired, through UPC Nederland, the remaining 50.0% of
A2000 that it did not already own for $229.0 million and $13.1 million in cash
and assumed receivables, respectively.
KABEL PLUS ACQUISITION
In October 1999, UPC acquired a 94.6% interest in Kabel Plus for a purchase
price of $150.0 million, and took control of the Kabel Plus cable television
systems in the Czech and Slovak Republics.
ACQUISITION OF ADDITIONAL INTEREST IN MONOR
In December 1999, UPC acquired an additional 48.0% economic interest in Monor
from its partner and several small minority shareholders for $45.0 million,
increasing UPC's ownership to 97.1%. Monor's telephony system is located in the
Monor region, an area which borders Budapest in Hungary.
PURCHASE OF MINORITY INTEREST IN PRIMACOM
In December 1999, UPC purchased a total interest of 18.2% in PrimaCom, which
owns and operates cable television networks in Germany, for E226.5 ($227.9)
million. The fair value of this investment was $231.9 million as of December 31,
1999 and is reflected in "Marketable equity securities and other investments" on
the Consolidated Balance Sheet.
COMBIVISIE AND CNBH
Effective January 1, 1998, UPC acquired certain assets, including the Dutch
cable systems of Combivisie for $88.0 million. The purchase was funded with
draws on UPC's existing credit facilities. Subsequent to the transaction, the
assets and liabilities of UPC's other Dutch systems and Combivisie were merged,
forming CNBH, a wholly-owned subsidiary of UPC Netherland.
F-134
<PAGE> 267
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
HUNGARY
In June 1998, UPC acquired certain Hungarian multi-channel television system
assets for $9.5 million in cash and a non-interest bearing promissory note in
the amount of $18.0 million. These assets are now part of UPC Magyarorszag.
TEVEL AND MELITA
In November 1998, UPC (i) acquired from Tele-Communications International, Inc.
("TINTA") its indirect 23.3% and 25.0% interests in the Tevel and Melita
systems, respectively, for $91.5 million, doubling UPC's respective ownership in
these systems to 46.6% and 50.0%, respectively, (ii) purchased an additional
5.0% interest in Princes Holdings and 5.0% of Tara in consideration for 769,062
shares of United Class A Common Stock held by UPC, and (iii) sold the 5.0%
interest in Princes Holdings, together with its existing 20.0% interest, to
TINTA for $20.5 million. The net payment of $71.0 million to TINTA ($68.0
million after closing adjustments) was funded with the proceeds of a $90.0
million promissory note made by a subsidiary of UPC to its primary partners in
the Tevel system (the "UPC DIC Loan").
UPC
In July 1995, the Company and Philips Electronics N.V. ("Philips") contributed
their respective ownership interests in European and Israeli multi-channel
television systems to UPC. Philips contributed to UPC its 95.0% interest in
cable television systems in Austria, its 100% interest in cable television
systems in Belgium, its minority interests in multi-channel television systems
in Germany, The Netherlands (Eindhoven) and France. The Company contributed its
interests in multi-channel television systems in Israel, Ireland, the Czech
Republic, Malta, Norway, Hungary, Sweden and Spain. The Company also contributed
$78.2 million in cash to UPC and issued to Philips 6,338,302 shares of its Class
A Common Stock having a value of $50.0 million (at date of closing). In
addition, UPC issued to Philips $133.6 million of convertible subordinated
pay-in-kind notes (the "PIK Notes"). As a result of this transaction, the
Company and Philips each owned a 50.0% economic and voting interest in UPC.
On December 11, 1997, the Company acquired Philips' entire interest in UPC (the
"UPC Transaction"). As part of the UPC Transaction, (i) UPC purchased the
6,338,302 shares of Class A Common Stock of the Company held by Philips, (ii)
United purchased NLG169.9 ($84.3) million of the accreted amount of UPC's PIK
Notes and redeemed them for 45,540,783 shares of UPC, (iii) UPC repaid to
Philips the remaining NLG170.4 ($84.6) million accreted amount of the PIK Notes,
(iv) United purchased 39,364,812 shares of UPC directly from Philips, and (v)
UPC repurchased Philips' remaining equity interest in UPC (73,135,188 shares).
The Company effectively owned 100% of UPC as a result of the UPC Transaction,
including shares held by a foundation controlled by United which administers the
UPC stock plan for the benefit of UPC employees and management, pursuant to
UPC's equity incentive plans. The final purchase price (excluding
transaction-related costs) was $425.2 million, comprised of $168.7 million for
the purchase by the Company and repayment by UPC of UPC's PIK Notes, $33.2
million allocated to the purchase by UPC of 6,338,302 shares of the Company's
Class A Common Stock and $223.3 million allocated to the purchase of Philips'
interest in UPC. The UPC Transaction was funded by a long-term revolving credit
facility through UPC with a syndicate of banks ($151.5 million), a bridge bank
facility through a subsidiary of UPC ($111.2 million) and a cash investment by
the Company of $162.5 million.
F-135
<PAGE> 268
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Details of the net assets acquired, based on a preliminary allocation of the
purchase price, which were denominated in Dutch guilders and translated to U.S.
dollars using the exchange rate on the date of acquisition, were as follows (in
thousands):
<TABLE>
<S> <C>
Working capital, including cash acquired of $50,872......... $ (7,158)
Investment in United Class A Common Stock................... (33,074)
Investment in affiliated companies.......................... (167,945)
Property, plant and equipment and other long-term assets.... (273,988)
Goodwill and other intangible assets........................ (383,503)
Elimination of United equity investment..................... 46,319
Long-term debt.............................................. 624,633
Other liabilities........................................... 32,216
---------
Total cash paid................................... $(162,500)
=========
</TABLE>
TARA
In October 1997, Tara issued shares to third parties in exchange for
consideration totaling $2.5 million, thereby diluting the Company's interest in
Tara from 100% to 75.0%. A gain of $1.6 million recognized on the transaction
was credited to additional paid-in capital in accordance with SAB 51.
PRO FORMA FINANCIAL INFORMATION FOR THE YEAR ENDED FEBRUARY 28, 1998
The following pro forma condensed consolidated operating results for the years
ended February 28, 1998 give effect to the UPC Transaction as if it had occurred
at the beginning of the period presented. This pro forma condensed consolidated
financial information and notes thereto do not purport to represent what the
Company's results of operations would actually have been if such transaction had
in fact occurred on such dates. The pro forma adjustments are based upon
currently available information and upon certain assumptions that management
believes are reasonable.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FEBRUARY 28, 1998
-------------------------
HISTORICAL PRO FORMA(1)
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Revenue..................................................... $ 9,945 $ 173,344
======== =========
Net loss.................................................... $(54,152) $(104,925)
======== =========
</TABLE>
---------------
(1) Represents the historical amounts included in UPC's consolidated statement
of operations for the period from January 1, 1997 to December 10, 1997,
additional depreciation and amortization related to the step-up in basis in
tangible assets and additional goodwill, the net decrease in equity in
losses of affiliated companies, and the net increase in interest expense as
a result of the UPC Transaction.
F-136
<PAGE> 269
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENTS IN AFFILIATES, ACCOUNTED FOR UNDER THE EQUITY METHOD
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------------------------------------------
CUMULATIVE SHARE CUMULATIVE
INVESTMENTS IN DIVIDENDS IN RESULTS OF TRANSLATION
AFFILIATES RECEIVED AFFILIATES ADJUSTMENTS TOTAL
-------------- --------- ---------------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SBS.......................... $ 99,621 $ -- $ (5,421) $ 2,858 $ 97,058
Tevel........................ 100,679 (6,180) (12,108) 3,761 86,152
Melita....................... 14,062 -- 2,066 (2,417) 13,711
Iberian Programming.......... 11,947 -- (460) 2,828 14,315
Xtra Music................... 9,913 -- (2,476) (640) 6,797
Other........................ 27,447 -- (65) (1,048) 26,334
-------- ------- -------- ------- --------
Total.............. $263,669 $(6,180) $(18,464) $ 5,342 $244,367
======== ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
----------------------------------------------------------------------
CUMULATIVE SHARE CUMULATIVE
INVESTMENTS IN DIVIDENDS IN RESULTS OF TRANSLATION
AFFILIATES RECEIVED AFFILIATES ADJUSTMENTS TOTAL
-------------- --------- ---------------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
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
Monor........................ 11,301 -- (2,601) (7,849) 851
Xtra Music................... 5,326 -- (536) 252 5,042
Other........................ 14,532 -- (3,876) 176 10,832
-------- ------- -------- ------- --------
Total.............. $276,867 $(6,090) $(17,853) $ 1,285 $254,209
======== ======= ======== ======= ========
</TABLE>
As of December 31, 1999 and 1998, the Company had the following differences
related to the excess of its cost over its proportionate interest in each
affiliate's net tangible assets included in the above table. Such differences
are being amortized over 15 years.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999 AS OF DECEMBER 31, 1998
------------------------- -------------------------
BASIS ACCUMULATED BASIS ACCUMULATED
DIFFERENCE AMORTIZATION DIFFERENCE AMORTIZATION
---------- ------------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
SBS......................................... $109,080 $ (2,828) $ -- $ --
Tevel....................................... 82,010 (7,947) 80,644 (3,351)
Melita...................................... 11,673 (1,242) 12,898 (451)
Iberian Programming......................... 11,941 (521) -- --
Xtra Music.................................. 5,511 (246) 3,585 (73)
Other....................................... -- -- 9,985 (404)
-------- -------- -------- -------
Total............................. $220,215 $(12,784) $107,112 $(4,279)
======== ======== ======== =======
</TABLE>
F-137
<PAGE> 270
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Condensed financial information for UPC, stated in U.S. dollars, is presented
below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997(1)
--------------------
(IN THOUSANDS)
<S> <C>
Revenue..................................................... $172,951
Operating, selling, general and administrative expense...... (121,833)
Depreciation and amortization............................... (68,148)
--------
Net operating loss..................................... (17,030)
Interest, net............................................... (32,936)
Share in results of affiliated companies, net............... (10,395)
Other....................................................... (29,820)
--------
Net loss............................................... $(90,181)
========
</TABLE>
---------------
(1) The Company consolidated the results of UPC effective December 11, 1997.
5. MARKETABLE EQUITY SECURITIES OF PARENT
As a result of the UPC Transaction, UPC acquired 6,338,302 shares of United's
Class A Common Stock, valued at cost on December 11, 1997 at $33.1 million. In
November 1998, UPC used 769,062 shares to acquire an additional 5.0% interest in
Tara and Princes Holdings, resulting in 5,569,240 remaining United shares held
by UPC.
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1999 1998
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Cable distribution networks................................. $1,533,411 $246,607
Subscriber premises equipment and converters................ 153,670 71,178
MMDS/DTH distribution facilities............................ 79,265 7,340
Office equipment, furniture and fixtures.................... 72,161 18,674
Buildings and leasehold improvements........................ 144,769 6,748
Other....................................................... 132,414 14,905
---------- --------
2,115,690 365,452
Accumulated depreciation............................... (195,329) (46,406)
---------- --------
Net property, plant and equipment...................... $1,920,361 $319,046
========== ========
</TABLE>
F-138
<PAGE> 271
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. GOODWILL AND OTHER INTANGIBLE ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1999 1998
---------- --------
(IN THOUSANDS)
<S> <C> <C>
@Entertainment.............................................. $ 935,867 $ --
UPC Netherland.............................................. 763,714 --
Stjarn...................................................... 430,606 --
Telekabel Group............................................. 177,800 206,092
UPC France.................................................. 117,787 --
UPC Norge................................................... 85,405 87,563
Kabel Plus.................................................. 85,330 --
UPC Magyarorszag............................................ 55,068 51,550
UPC......................................................... 29,406 --
Monor....................................................... 24,420 --
UPC Slovak.................................................. 23,026 --
UPC Belgium................................................. 20,994 22,322
Other....................................................... 12,932 12,970
---------- --------
2,762,355 380,497
Accumulated amortization............................... (134,594) (20,693)
---------- --------
Net goodwill and other intangible assets............... $2,627,761 $359,804
========== ========
</TABLE>
8. SHORT-TERM DEBT
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1999 1998
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Stjarn Seller's Note (Note 3)............................... $100,000 $ --
Stjarn Credit Facility...................................... 39,333 --
A2000 Bank Facility (Note 10)............................... 20,575 --
Other UPC................................................... 4,355 33,504
-------- -------
Total short-term debt.................................. $164,263 $33,504
======== =======
</TABLE>
Carrying value approximates fair value for these short-term facilities.
STJARN CREDIT FACILITY
In December 1998, Stjarn's parent company entered into a Swedish Kronor
("SEK")521.0 ($61.3) million loan agreement with a bank to refinance certain
debt. The loan currently consists of an A facility, a medium term loan in the
amount of SEK371.0 ($43.6) million and a revolving credit facility in the amount
of SEK150.0 ($17.6) million. These facilities bear interest at the rate of
Stockholm Interbank Offered Rate ("STIBOR") plus a margin of 0.75% to 1.25%. As
a result of UPC's acquisition of Stjarn, both the A facility and the revolving
facility are now due on March 31, 2000.
F-139
<PAGE> 272
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SENIOR DISCOUNT NOTES AND SENIOR NOTES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1999 1998
----------- -----
(IN THOUSANDS)
<S> <C> <C>
UPC USD Senior Notes due 2009............................... $ 759,442 $ --
UPC 10.875% Euro Senior Notes due 2009...................... 301,878 --
UPC USD Senior Discount Notes due 2009...................... 421,747 --
UPC 10.875% USD Senior Notes due 2007....................... 191,852 --
UPC 10.875% Euro Senior Notes due 2007...................... 100,625 --
UPC 11.25% USD Senior Notes due 2009........................ 239,905 --
UPC 11.25% Euro Senior Notes due 2009....................... 100,894 --
UPC 13.375% USD Senior Discount Notes due 2009.............. 255,786 --
UPC 13.375% Euro Senior Discount Notes due 2009............. 102,847 --
@Entertainment 1999 Senior Discount Notes................... 141,807 --
@Entertainment 1998 Senior Discount Notes................... 115,984 --
@Entertainment 1999 Series C Senior Discount Notes.......... 11,841 --
PCI Discount Notes.......................................... 16,457 --
---------- ----
2,761,065 --
Less current portion.............................. -- --
---------- ----
Total senior discount notes....................... $2,761,065 $ --
========== ====
</TABLE>
UPC USD SENIOR NOTES DUE 2009, UPC 10.875% EURO SENIOR NOTES DUE 2009 AND UPC
USD SENIOR DISCOUNT NOTES DUE 2009 (COLLECTIVELY THE "UPC JULY 1999 NOTES")
In July 1999, UPC completed a private placement bond offering consisting of
$800.0 million ten-year 10.875% Senior Notes due 2009, E300.0 million of
ten-year 10.875% Senior Notes due 2009 and $735.0 million aggregate principal
amount of ten-year 12.5% Senior Discount Notes due 2009. The UPC Senior Discount
Notes due 2009 were sold at 54.5% of face value amount yielding gross proceeds
of approximately $400.7 million, and will accrue but not pay interest until
2005. Interest payments on the Senior Notes due 2009 will be due semi-annually,
commencing February 1, 2000. The indentures governing the UPC July 1999 Notes
place certain limitations on UPC's ability, and the ability of its subsidiaries,
to borrow money, issue capital stock, pay dividends in stock or repurchase
stock, make investments, create certain liens, engage in certain transactions
with affiliates, and sell certain assets or merge with or into other companies.
Concurrent with the closing of the UPC July 1999 Notes offering, UPC entered
into a cross-currency swap, swapping the $800.0 million UPC Senior Notes due
2009 into fixed and variable rate Euro notes with a notional amount totaling
E754.7 million. One half of the Euro notes have a fixed interest rate of 8.54%
through August 1, 2004, thereafter switching to a variable interest rate of Euro
Interbank Offered Rate ("EURIBOR") plus 4.15%, for an initial rate of 7.1%.
UPC 10.875% USD AND EURO SENIOR NOTES DUE 2007, UPC 11.25% USD AND EURO SENIOR
NOTES DUE 2009 AND UPC 13.375% USD AND EURO SENIOR DISCOUNT NOTES DUE 2009
(COLLECTIVELY THE "UPC OCTOBER 1999 NOTES")
In October 1999, UPC completed a private placement bond offering consisting of
six tranches: $200.0 million and E100.0 million of eight-year 10.875% Senior
Notes due 2007; $252.0 million and E101.0 million of ten-year 11.25% Senior
Notes due 2009; and $478.0 million and E191.0 million aggregate principal amount
of ten-year 13.375% Senior Discount Notes due 2009. The Senior Discount Notes
were sold at 52.3% of the face amount yielding gross proceeds of $250.0 million
and E100.0 million and will accrue but not pay interest until November 2004. UPC
then entered into cross-currency swaps, swapping
F-140
<PAGE> 273
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the $252.0 million 11.25% coupon into fixed and variable rate Euro notes with a
notional amount totaling E240.2 million, and swapping the $200.0 million 10.875%
coupon into fixed and variable rate Euro notes with a notional amount totaling
E190.7 million. Of the former swap, E120.1 million have a fixed interest rate of
9.9% through November 1, 2004, thereafter switching to a variable rate of
EURIBOR + 4.8%. The remaining E120.1 million have a variable interest rate of
EURIBOR + 4.80%. Of the latter swap, E95.4 million have a fixed interest rate of
9.9% through November 1, 2004, thereafter switching to a variable rate of
EURIBOR + 4.8%. The remaining E95.4 million have a variable interest rate of
EURIBOR + 4.8%.
@ENTERTAINMENT 1999 SENIOR DISCOUNT NOTES, @ENTERTAINMENT 1998 SENIOR DISCOUNT
NOTES AND @ENTERTAINMENT 1999 SERIES C SENIOR DISCOUNT NOTES (COLLECTIVELY THE
"@ENTERTAINMENT NOTES")
In January 1999, @Entertainment sold 256,800 units consisting of Senior Discount
Notes due 2009 and warrants to purchase 1,813,665 shares of @Entertainment's
common stock. The @Entertainment 1999 Senior Discount Notes were issued at a
discount to their aggregate principal amount at maturity yielding gross proceeds
of approximately $100.0 million. Cash interest on the @Entertainment 1999 Senior
Discount Notes will not accrue prior to February 1, 2004. Thereafter, cash
interest will accrue at a rate of 14.5% per annum, payable semi-annually in
arrears on August 1 and February 1 of each year, commencing August 1, 2004. In
connection with the acquisition of @Entertainment, UPC acquired all of the
existing warrants held in connection with the @Entertainment 1999 Senior
Discount Notes.
In July 1998, @Entertainment sold 252,000 units, consisting of 14.5% Senior
Discount Notes due 2008 and warrants entitling the warrant holders to purchase
1,824,514 shares of @Entertainment common stock. This offering generated
approximately $125.1 million in gross proceeds to @Entertainment. The
@Entertainment 1998 Senior Discount Notes are unsubordinated and unsecured
obligations of @Entertainment. Cash interest will not accrue prior to July 15,
2003. After that, cash interest will accrue at a rate of 14.5% per year and will
be payable semi-annually in arrears on January 15 and July 15 of each year,
beginning January 15, 2004. The @Entertainment 1998 Senior Discount Notes will
mature on July 15, 2008. In connection with the acquisition of @Entertainment,
UPC acquired all of the existing warrants held in connection with the
@Entertainment 1998 Senior Discount Notes.
Pursuant to the terms of the @Entertainment indenture, @Entertainment
repurchased $49.1 million aggregate principal amount at maturity of these notes
for $26.5 million as a result of UPC's acquisition of @Entertainment.
In January 1999, @Entertainment sold $36.0 million aggregate principal amount at
maturity of Series C Senior Discount Notes generating approximately $9.8 million
of gross proceeds. The @Entertainment 1999 Series C Senior Discount Notes are
senior unsecured obligations of @Entertainment. Original issue discount will
accrete from January 20, 1999, until maturity on July 15, 2008. Cash interest
will accrue beginning July 15, 2004 at a rate of 7.0% per year on the principal
amount at maturity, and will be payable semi-annually in arrears, on July 15 and
January 15 of each year beginning January 15, 2005.
PCI DISCOUNT NOTES
Poland Communications, Inc. ("PCI"), @Entertainment's major operating
subsidiary, sold $130.0 million of discount notes in October 1996. The PCI
Discount Notes bear interest at 9.875%, payable on May 1 and November 1 of each
year. The PCI Discount Notes mature on November 1, 2003. Pursuant to the terms
of the PCI indenture, @Entertainment repurchased a majority of the PCI Discount
Notes in November 1999 as a result of UPC's acquisition of @Entertainment.
F-141
<PAGE> 274
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. OTHER LONG-TERM DEBT
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------
1999 1998
---------- --------
(IN THOUSANDS)
<S> <C> <C>
UPC Senior Credit Facility.................................. $ 359,720 $ --
New Telekabel Facility...................................... 256,861 --
A2000 Facilities............................................ 209,132 --
CNBH Facility............................................... 122,317 --
Rhone Vision Cable Credit Facility.......................... 61,360 --
RCF Facility................................................ 31,852 --
UPC DIC Loan................................................ 39,366 84,214
Mediareseaux Facility....................................... 45,193 21,346
Monor Facility.............................................. 33,488 --
Videopole Facility.......................................... 7,752 --
Other UPC................................................... 50,345 3,821
UPC Senior Revolving Credit Facility........................ -- 512,179
UPC Bridge Bank Facility.................................... -- 60,063
---------- --------
1,217,386 681,623
Less current portion.............................. (50,606) (60,063)
---------- --------
Total other long-term debt........................ $1,166,780 $621,560
========== ========
</TABLE>
UPC SENIOR CREDIT FACILITY
On July 27, 1999, several UPC subsidiaries and a syndicate of banks executed a
Loan and Note Issuance Agreement for a E1.0 ($1.1) billion multi-currency senior
secured credit facility. The UPC Senior Credit Facility matures on July 27, 2006
and is comprised of two tranches. The E750.0 ($755.1) million Tranche A is a
senior secured reducing revolving credit facility. Tranche B is a E250.0
($251.7) million term loan credit facility. The UPC Senior Credit Facility bears
interest at EURIBOR (for borrowings in euro) and at the London Interbank Offered
Rate ("LIBOR") (for all other borrowings) plus a margin of between 0.75% and
2.0% (which shall be at least 1.5% for the first six months following closing)
plus an additional cost of funding calculation. In addition to repayment of
UPC's existing revolving credit facility, proceeds from the UPC Senior Credit
Facility were used to fund acquisitions, repay certain intercompany debts, pay
interest on funds downstreamed from the proceeds of high yield issues, general
corporate purposes, capital expenditures and other permitted distributions.
Borrowings under the UPC Senior Credit Facility are limited by financial ratio
tests. The UPC Senior Credit Facility contains change in control provisions
related to UPC's ownership in certain subsidiaries and United's ownership of
UPC. In addition, the UPC Senior Credit Facility limits acquisitions funded by
loan proceeds to E400.0 ($402.7) million over the life of the UPC Senior Credit
Facility. The UPC Senior Credit Facility contains certain financial covenants
and restrictions on UPC and its subsidiaries' ability to make dividends or other
payments to UPC, incur indebtedness, dispose of assets and merge and enter into
affiliate transactions. Net proceeds of certain disposals are required to be
used to prepay the facility.
NEW TELEKABEL FACILITY
In March 1999, UPC Nederland replaced their existing facility with a senior
facility. The New Telekabel Facility consists of a E340.0 ($342.3) million
revolving facility to N.V. Telekabel, a subsidiary of UPC Nederland, that will
convert to a term facility on December 31, 2001. The New Telekabel Facility
includes E5.0 ($5.0) million in the form of an overdraft facility that will be
available until December 31, 2007. The New Telekabel Facility bears interest at
EURIBOR plus a margin between 0.75% and 2.00% based on leverage multiples tied
to certain measures of net operating cash flow.
F-142
<PAGE> 275
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A2000 FACILITIES
In January 1996, A2000 and one of its subsidiaries entered into bank facilities
of NLG90.0 ($41.1) million and NLG375.0 ($171.2) million, respectively. In
October 1996, a subsidiary of A2000 entered into a bank facility of NLG45.0
($20.5) million. These facilities have between nine- and ten-year terms and
interest rates of Amsterdam Interbank Offered Rate ("AIBOR") plus 0.75% or AIBOR
plus 0.7% or fixed rates (fixed prior to each advance) increased by 0.7% or
0.75% per annum. The facilities also restrict the borrowers from incurring
additional indebtedness and from paying dividends and distributions, subject to
certain exceptions.
CNBH FACILITY
In February 1998, CNBH entered into a secured NLG250.0 ($114.2) million ten-year
term facility with a syndicate of banks. In January 1999, this facility was
increased to NLG274.0 ($125.1) million. The CNBH Facility bears interest at
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 ($2.3) million
ten-year term working capital facility with a bank.
RHONE VISION CABLE CREDIT FACILITY
In July 1996, Rhone Vision Cable, a subsidiary of Time Warner Cable France,
entered into a FFR680.0 ($104.4) million credit facility with a bank to finance
construction and installation of Rhone Vision Cable networks. The facility bears
interest at LIBOR plus 1.0%, payable quarterly. The facility must be repaid by
the earlier of June 30, 2002 or six months after network completion.
RCF FACILITY
In 1990, RCF and six of its subsidiaries entered into a FFR160.0 ($24.6) million
credit facility with a consortium of banks to finance working capital and
operations. In 1995 this facility was amended and extended to FFR252.4 ($38.7)
million to refinance three further credit facilities entered into by other
subsidiaries of RCF. 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 ($5.3) million beginning at the end of 1999 until
December 31, 2005.
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 UPC 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 UPC 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 4.7 million ordinary
shares of UPC. UPC repaid $45.0 million of the UPC DIC Loan and accrued interest
with proceeds received from the option exercise. The remaining option is
exercisable until September 30, 2000.
F-143
<PAGE> 276
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MEDIARESEAUX FACILITY
In July 1998, Mediareseaux entered into a 9.5 year term facility with a bank for
an amount of FFR680.0 ($104.4) million. 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 ($3.1) million overdraft
facility, subject to the same terms and conditions as the Mediareseaux Facility
except that the availability tests are not applicable.
MONOR FACILITY
In September 1997, Monor entered into a $42.0 million term loan facility with a
syndicate of banks. The proceeds of the Monor facility were used to repay
indebtedness and for capital expenditures in the build-out of Monor's network.
Monor's facility matures on December 31, 2006 and bears interest at LIBOR plus
1.5%. Monor entered into an interest rate swap agreement with a bank, swapping
the floating rate to a fixed rate of 6.7% for German marks and 7.8% for U.S.
dollars. Monor's facility is secured by a pledge over the shares of Monor and
its assets. This facility limits Monor's ability to encumber its assets, incur
indebtedness and pay dividends.
F-144
<PAGE> 277
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF SENIOR DISCOUNT NOTES, SENIOR NOTES AND OTHER LONG-TERM DEBT
Fair value is based on market prices for the same or similar issues. Carrying
value is used when a market price is unavailable.
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
-------------- ----------
(IN THOUSANDS)
<S> <C> <C>
As of December 31, 1999:
UPC USD Senior Notes due 2009............................... $ 759,442 $ 775,969
UPC 10.875% Euro Senior Discount Notes due 2009............. 301,878 305,652
UPC USD Senior Discount Notes due 2009...................... 421,747 415,275
UPC 10.875% USD Senior Notes due 2007....................... 191,852 206,525
UPC 10.875% Euro Senior Notes due 2007...................... 100,625 102,639
UPC 11.25% USD Senior Notes due 2009........................ 239,905 262,080
UPC 11.25% Euro Senior Notes due 2009....................... 100,894 103,665
UPC 13.375% USD Senior Discount Notes due 2009.............. 255,786 272,460
UPC 13.375% Euro Senior Discount Notes due 2009............. 102,847 106,669
@Entertainment 1999 Senior Discount Notes................... 141,807 146,007
@Entertainment 1998 Senior Discount Notes................... 115,984 147,948
@Entertainment 1999 Series C Senior Discount Notes.......... 11,841 11,841
PCI Discount Notes.......................................... 16,457 16,457
UPC Senior Credit Facility.................................. 359,720 359,720
New Telekabel Facility...................................... 256,861 256,861
A2000 Facilities............................................ 209,132 209,132
CNBH Facility............................................... 122,317 122,317
Rhone Vision Cable Credit Facility.......................... 61,360 61,360
RCF Facility................................................ 31,852 31,852
UPC DIC Loan................................................ 39,366 39,366
Mediareseaux Facility....................................... 45,193 45,193
Monor Facility.............................................. 33,488 33,488
Videopole Facility.......................................... 7,752 7,752
Other UPC................................................... 50,345 50,345
---------- ----------
Total............................................. $3,978,451 $4,090,573
========== ==========
As of December 31, 1998:
UPC Senior Revolving Credit Facility........................ $ 512,179 $ 512,179
UPC Bridge Bank Facility.................................... 60,063 60,063
Mediareseaux Facility....................................... 21,346 21,346
UPC DIC Loan................................................ 84,214 84,214
Other UPC................................................... 3,821 3,821
---------- ----------
Total............................................. $ 681,623 $ 681,623
========== ==========
</TABLE>
F-145
<PAGE> 278
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEBT MATURITIES
The maturities of the Company's senior discount notes, senior notes and other
long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
Year Ended December 31, 2000................................ $ 50,606
Year Ended December 31, 2001................................ --
Year Ended December 31, 2002................................ 61,361
Year Ended December 31, 2003................................ 16,457
Year Ended December 31, 2004................................ --
Thereafter.................................................. 3,850,027
----------
Total............................................. $3,978,451
==========
</TABLE>
11. NOTE PAYABLE TO PARENT
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1998
------------
<S> <C>
Note payable to parent, including accrued interest of
$6,141.................................................... $92,609
=======
</TABLE>
United loaned the Company a total of $86.5 million in connection with funding
the general operations of UPC as well as the repayment of the UPC Bridge Bank
Facility. The United loan accrued interest at 10.75% per annum. The Company
repaid $87.5 million of principal and interest in February 1999 with proceeds
from UPC's initial public offering.
12. PARENT'S EQUITY (DEFICIT)
COMMON STOCK
Authorized capital consists of 1,000 shares of common stock, $0.01 par value,
100 shares issued and outstanding, held by United. Such shares have been pledged
as collateral under United's 1998 Notes.
CUMULATIVE TRANSLATION ADJUSTMENTS
During the year ended December 31, 1999, the Company recorded a negative change
in cumulative translation adjustments of $111.3 million, primarily due to the
strengthening of the U.S. dollar compared to the Dutch guilder of approximately
15.9%.
F-146
<PAGE> 279
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EQUITY TRANSACTIONS OF SUBSIDIARIES
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 subsidiaries affects the equity
accounts of the Company. The following represents the effect on additional
paid-in capital and deferred compensation as a result of these equity
transactions:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
------------------
(IN THOUSANDS)
<S> <C>
Variable plan accounting for stock options.................. $ 338,261
Deferred compensation expense............................... (180,757)
Amortization of deferred compensation....................... 79,104
Issuance of warrants........................................ 33,025
Issuance of convertible debt (UPC DIC Loan)................. 14,875
---------
Total............................................. $ 284,508
=========
</TABLE>
OTHER CUMULATIVE COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Foreign currency translation adjustments............ $(135,958) $(24,706)
Unrealized gain on available-for-sale securities.... 373,501 23,350
--------- --------
Total..................................... $ 237,543 $ (1,356)
========= ========
</TABLE>
SUBSIDIARY STOCK OPTION PLANS
UPC Plan
In June 1996, UPC adopted a stock option plan (the "UPC Plan") for certain of
its employees and those of its subsidiaries. There are 18,000,000 total shares
available for the granting of options under the UPC Plan, which are held by the
Stichting Administratiekantoor UPC (the "Foundation"), which administers the UPC
Plan. Each option represents the right to acquire from the Foundation a
certificate representing the economic value of one share. Following consummation
of the initial public offering, any certificates issued to employees who have
exercised their options will be converted into UPC common stock. United appoints
the board members of the Foundation and thus controls the voting of the
Foundation's common stock. The options are granted at fair market value
determined by UPC's Supervisory Board at the time of the grant. The maximum term
that the options can be exercised is five years from the date of the grant. In
order to introduce the element of "vesting" of the options, the UPC Plan
provides that even though the options are exercisable immediately, the shares to
be issued or options granted in 1996 vest in equal monthly increments over a
three-year period from the effective date set forth in the option grant. In
March 1998, the UPC Plan was revised to increase the vesting period for any new
grants of options to four years, vesting in equal monthly increments. Upon
termination of an employee (except in the case of death, disability or the
like), all unvested options previously exercised must be resold to the
Foundation at the original purchase price, or all vested options must be
exercised, within 30 days of the termination date. The Supervisory Board may
alter these vesting schedules in its discretion. An employee has the right at
any time to put his certificates or shares from exercised vested options to the
Foundation at a price equal to the fair market value. UPC can also call such
certificates or shares for a cash payment upon termination in order to avoid
dilution, except for certain awards, which can not be called by UPC until
expiration of the underlying options. The UPC Plan also contains anti-dilution
protection and provides
F-147
<PAGE> 280
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that, in the case of change of control, the acquiring company has the right to
require UPC to acquire all of the options outstanding at the per share value
determined in the transaction giving rise to the change of control.
For purposes of the pro forma disclosures presented below, UPC has computed the
fair values of all options granted during the year ended December 31, 1999 using
the Black-Scholes single-option pricing model and the following weighted-average
assumptions:
<TABLE>
<S> <C>
Risk-free interest rate.................................... 5.76%
Expected life.............................................. 5 years
Expected volatility........................................ 56.82%
Expected dividend yield.................................... 0%
</TABLE>
The total fair value of options granted was approximately E38.5 ($38.8) million
for the year ended December 31, 1999. This amount is amortized using the
straight-line method over the vesting period of the options. Cumulative
compensation expense recognized in proforma net income, with respect to options
that are forfeited prior to vesting, is adjusted as a reduction of proforma
compensation expense in the period of forfeiture. For the year ended December
31, 1999, stock-based compensation, net of the effect of forfeitures and net of
actual compensation expense recorded in the statement of operations was E5.9
($5.6) million. This stock-based compensation had the following pro forma effect
on net income (in thousands):
<TABLE>
<CAPTION>
NET
INCOME
--------
<S> <C>
As reported.............................................. $778,123
Pro forma................................................ $772,495
</TABLE>
A summary of stock option activity for the UPC Plan is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
---------- --------- ---------- --------- --------- ---------
(EUROS) (EUROS) (EUROS)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period.................... 12,586,500 1.72 6,724,656 1.59 6,901,251 1.59
Granted during the period... 4,338,000 14.91 7,029,000 1.83 -- --
Cancelled during the
period.................... (266,565) 3.44 (42,156) 1.59 (176,595) 1.59
Exercised during the
period.................... (5,702,256) 1.65 (1,125,000) 1.59 -- --
---------- ----- ---------- ---- --------- ----
Outstanding at end of
period.................... 10,955,679 6.94 12,586,500 1.72 6,724,656 1.59
========== ===== ========== ==== ========= ====
Exercisable at end of
period(1)................. 4,769,595 3.10 12,586,500 1.72 6,724,656 1.59
========== ===== ========== ==== ========= ====
</TABLE>
---------------
(1) Includes certificate rights as well as options.
F-148
<PAGE> 281
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1999 1998
---------------------------- ----------------------------
FAIR EXERCISE FAIR EXERCISE
NUMBER VALUE PRICE NUMBER VALUE PRICE
--------- ----- -------- --------- ----- --------
(EUROS) (EUROS)
<S> <C> <C> <C> <C> <C> <C>
EXERCISE PRICE
Less than market price......... 375,000 8.94 16.12 -- -- --
Equal to market price.......... 3,963,000 8.95 14.79 7,029,000 1.83 1.83
--------- ---- ----- --------- ---- ----
Total................ 4,338,000 8.94 14.91 7,029,000 1.83 1.83
========= ==== ===== ========= ==== ====
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ----------------------------
WEIGHTED-AVERAGE
REMAINING
EXERCISE PRICE RANGE CONTRACTUAL LIFE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
(EUROS) NUMBER (YEARS) EXERCISE PRICE NUMBER EXERCISE PRICE
-------------------- ---------- ---------------- ---------------- --------- ----------------
(EUROS) (EUROS)
<S> <C> <C> <C> <C> <C>
1.59-2.05............ 6,681,039 1.19 1.80 4,211,055 1.78
9.67-9.67............ 1,212,000 3.20 9.67 231,000 9.67
11.26-11.40.......... 719,640 3.22 11.40 132,483 11.40
15.67-18.17.......... 1,171,500 3.56 17.51 130,188 17.46
20.08-20.08.......... 1,171,500 3.78 20.08 64,869 20.08
---------- ---- ----- --------- -----
Total...... 10,955,679 2.00 6.94 4,769,595 3.10
========== ==== ===== ========= =====
</TABLE>
The UPC Plan was accounted for as a variable plan prior to UPC's initial public
offering in February 1999. Accordingly, compensation expense was recognized at
each financial statement date based on the difference between the grant price
and the estimated fair value of UPC's common stock. Thereafter, the UPC Plan has
been accounted for as a fixed plan. Compensation expense of E6.5 ($6.8) million,
E121.7 ($134.7) million and E2.2 ($2.5) million was recognized for the year
ended December 31, 1999, the ten months ended December 31, 1998 and the year
ended February 28, 1998, respectively.
UPC Phantom Stock Option Plan
In March 1998, UPC adopted a phantom stock option plan (the "UPC Phantom Plan")
which permits the grant of phantom stock rights in up to 7,200,000 shares of
UPC's common stock. The rights are granted at fair market value determined by
UPC's Supervisory Board at the time of grant, and generally vest in equal
monthly increments over the four-year period following the effective date of
grant and may be exercised for ten years following the effective date of grant.
The UPC Phantom Plan gives the employee the right to receive payment equal to
the difference between the fair market value of a share of UPC common stock and
the option base price for the portion of the rights vested. UPC, at its sole
discretion, may make payment in (i) cash, (ii) freely tradable shares of United
Class A Common Stock or (iii) freely tradable shares of UPC's common stock. If
UPC chooses to make a cash payment, even though its stock is publicly traded,
employees have the option to receive an equivalent number of freely tradable
shares of stock instead. The UPC Phantom Plan contains anti-dilution protection
and provides that, in certain cases of a change of control, all phantom options
outstanding become fully exercisable.
F-149
<PAGE> 282
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The UPC Phantom Plan is accounted for as a variable plan in accordance with its
terms, resulting in compensation expense for the difference between the grant
price and the fair market value at each financial statement date. Compensation
expense of E117.4 ($123.2) million and E23.8 ($26.3) million was recognized for
the year ended December 31, 1999 and the ten months ended December 31, 1998,
respectively.
A summary of stock option activity for the UPC Phantom Plan is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------- ---------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE
---------- --------- --------- ---------
(EUROS) (EUROS)
<S> <C> <C> <C> <C>
Outstanding at beginning of period..... 6,172,500 1.91 -- --
Granted during the period.............. 585,000 9.67 6,172,500 1.91
Cancelled during the period............ (1,540,128) 2.00 -- --
Exercised during the period............ (1,072,809) 1.89 -- --
---------- ---- --------- ----
Outstanding at end of period........... 4,144,563 2.98 6,172,500 1.91
========== ==== ========= ====
Vested and exercisable at end of
period.............................. 1,554,813 2.47 1,411,407 1.84
========== ==== ========= ====
</TABLE>
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------- ----------------------------
FAIR EXERCISE FAIR EXERCISE
EXERCISE PRICE NUMBER VALUE PRICE NUMBER VALUE PRICE
-------------- ------- ----- -------- --------- ----- --------
(EUROS) (EUROS)
<S> <C> <C> <C> <C> <C> <C>
Equal to market price............ 585,000 9.67 9.67 2,057,250 1.91 1.91
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------- -------------------
WEIGHTED-AVERAGE
REMAINING
CONTRACTUAL LIFE
EXERCISE PRICE (EUROS) NUMBER (YEARS) NUMBER
---------------------- --------- ---------------- -------------------
<S> <C> <C> <C>
1.82...................................... 2,606,778 7.60 1,186,092
2.05...................................... 952,785 8.74 245,907
9.67...................................... 585,000 9.16 122,814
--------- ---- ---------
Total........................... 4,144,563 8.14 1,554,813
========= ==== =========
</TABLE>
chello Phantom Stock Option Plan
In June 1998, UPC adopted a phantom stock option plan (the "chello Phantom
Plan"), which permits the grant of phantom stock rights of chello, a
wholly-owned subsidiary of UPC. The rights are granted at an option price equal
to the fair market value determined by chello's Supervisory Board at the time of
grant, and generally vest in equal monthly increments over the four-year period
following the effective date of grant and the option must be exercised, in all
cases, not more than ten years from the effective date of grant. The chello
Phantom Plan gives the employee the right to receive payment equal to the
difference
F-150
<PAGE> 283
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
between the fair market value of a share (as defined the chello Phantom Plan) of
chello and the option price for the portion of the rights vested. UPC, at its
sole discretion, may make the required payment in cash, freely tradable shares
of United Class A Common Stock, the common stock of UPC, which shall be valued
at the closing price on the day before the date the Company makes payment to the
option holder, or the chello's common shares, if they are publicly traded and
freely tradeable ordinary shares. If UPC chooses to make a cash payment, even
though its stock is publicly traded, employees have the option to receive an
equivalent number of freely tradable shares of chello's stock instead. As of
December 31, 1999, UPC recorded cumulative compensation expense of E70.8 ($71.2)
million for options granted under the chello Phantom Plan.
A summary of stock option activity for the chello Phantom Plan is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------- ------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
--------- -------------- ------- --------------
(EUROS) (EUROS)
<S> <C> <C> <C> <C>
Outstanding at beginning of period..... 570,000 4.54 -- --
Granted during the period.............. 235,000 4.54 570,000 4.54
Granted during the period.............. 1,309,838 9.08 -- --
Granted during the period.............. 355,500 --(1) -- --
Cancelled during the period............ (128,542) 4.71 -- --
Exercised during the period............ (11,667) 4.54 -- --
--------- ---- ------- ----
Outstanding at end of period........... 2,330,129 7.54(2) 570,000 4.54
========= ==== ======= ====
Vested and exercisable at end of
period............................... 414,913 6.13(2) 70,625 4.54
========= ==== ======= ====
</TABLE>
---------------
(1) Of the total number of options granted to date, the option price with
respect to these options is the chello broadband initial public offering
("IPO") price.
(2) Excluding the shares discussed in (1) above.
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------- -------------------
WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL LIFE
EXERCISE PRICE (EUROS) NUMBER (YEARS) NUMBER
---------------------- --------- ---------------- -------------------
<S> <C> <C> <C>
4.54....................................... 669,791 7.05 267,188
9.08....................................... 1,304,838 9.56 144,074
-- (1)..................................... 355,500 9.96 3,651
--------- ---- -------
Total............................ 2,330,129 8.93 414,913
========= ==== =======
</TABLE>
---------------
(1) Of the total number of options granted to date, the option price in respect
of these options is the IPO price.
The chello Phantom Plan is accounted for as a variable plan in accordance with
its terms, resulting in compensation expense for the difference between the
grant price and the fair market value at each financial statement date.
Compensation expense of E69.8 ($70.3) million was recognized for the year
F-151
<PAGE> 284
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ended December 31, 1999. The Company's estimate of the fair value of its
ordinary stock as of December 31, 1999 utilized in recording compensation
expense and deferred compensation expense under the chello plan was E85.00 per
share. Because the Company will account for the chello Phantom Plan as a
variable plan, compensation expense will continue to be recognized subsequent to
December 31, 1999. For each E1 per share increase in the estimate of the fair
value per share of its ordinary stock as of December 31, 1999, over the E85.00
used to record stock compensation expense as of December 31, 1999, additional
stock compensation expense totalling approximately E0.9 ($0.9) million would
have been recognized in the statement of operations and deferred compensation
expense would have increased by approximately that amount as of that date.
chello Stock Option Plan
In June 1999, the Company adopted a stock option plan (the "chello Plan"). Under
the chello Plan, the Company's Supervisory Board may grant stock options to the
Company's employees at fair market value determined by the Company's Supervisory
Board at the time of grant. All options are exercisable upon grant and for the
period of five years. In order to introduce the element of "vesting" of the
options, the chello Plan provides that even though the options are exercisable
immediately, the shares to be issued or options to be granted are deemed to vest
1/48th per month for a four-year period from date to grant. If the employee's
employment terminates, other than in case of death, disability or the like, for
so-called "urgent reason" under Dutch law or for documented and material
non-performance, all unvested options previously exercised must be resold to the
Company at the original purchase price, and all vested options must be
exercised, within 30 days of the termination date. The Supervisory Board may
alter these vesting schedules at its discretion. The chello Plan provides that
in case of change of control, the Company has the right to require a foundation
to acquire all of the options outstanding at per share value determined in the
transaction giving rise to the change in its control.
For purposes of the pro forma disclosures presented below, the Company has
computed the fair value of all options granted during the year ended December
31, 1998 and the year ended December 31, 1999, using the Black-Scholes
single-option pricing model and the following weighted average assumptions:
expected dividend yield of 0%, expected annual standard volatility of 95%,
risk-free interest rate of 3.41% and expected life term of 5 years.
The total value of options granted under the chello Plan was nil for the year
ended December 31, 1998 and E3.7 ($3.7) million for the year ended December 31,
1999. These pro forma amounts are amortized using the straight-line method over
the vesting period of the options. Cumulative compensation expense recognized in
pro forma net income, with respect to options that are forfeited prior to
vesting, is adjusted as a reduction of pro forma compensation expense in the
period of forfeiture. For the year ended December 31, 1998 and December 31,
1999, pro forma stock-based compensation, net of the effect of forfeitures, was
nil and E0.7 ($0.7) million, respectively.
This stock-based compensation had the following pro forma effect on net income
(in thousands):
<TABLE>
<CAPTION>
NET LOSS
--------
<S> <C>
As reported................................................ 778,123
-------
Pro forma.................................................. 777,392
=======
</TABLE>
13. COMMITMENTS
The Company has entered into various operating lease agreements for office
space, office furniture and equipment, and vehicles. Rental expense under these
lease agreements totaled $19.5, $3.4 and $0 million
F-152
<PAGE> 285
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for the year ended December 31, 1999, the ten months ended December 31, 1998 and
for the year ended February 28, 1998, respectively.
The Company has operating lease obligations and other non-cancelable commitments
as follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000.............................. $ 84,920
Year ended December 31, 2001.............................. 84,843
Year ended December 31, 2002.............................. 67,532
Year ended December 31, 2003.............................. 50,195
Year ended December 31, 2004 and thereafter............... 190,008
--------
Total........................................... $477,498
========
</TABLE>
In September 1999, UPC agreed to form a joint venture with Microsoft Corporation
("Microsoft") and Liberty Media Corporation ("Liberty"). UPC will contribute the
5.6 million shares of Class A Common Stock of United that it owns and the other
parties will contribute 9.9 million shares of Class B Common Stock of United.
UPC will have a 50.0% interest in the new joint venture and Liberty and
Microsoft will share the other 50.0% and a $287.0 million redeemable preferred
interest in the joint venture to balance out the parties' ownership interests.
UPC, together with Liberty and Microsoft, will evaluate content and distribution
opportunities in Europe. Formation of the joint venture is still pending.
UPC has entered into an agreement for the long-term lease of satellite
transponder capacity providing service from Europe to Europe, North America and
South America. The term of the agreement is 156 months, with a minimum aggregate
total cost of approximately $114.0 million payable in monthly installments based
on capacity used.
@Entertainment has entered into long-term programming agreements and agreements
for the purchase of certain exhibition or broadcast rights with a number of
third-party content providers for its digital DTH and cable systems.
@Entertainment had minimum commitments related to these agreements as follows
(in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000.............................. $ 55,600
Year ended December 31, 2001.............................. 51,800
Year ended December 31, 2002.............................. 48,100
Year ended December 31, 2003.............................. 29,900
Year ended December 31, 2004 and thereafter............... 28,600
--------
Total........................................... $214,000
========
</TABLE>
As of December 31, 1999, @Entertainment had an aggregate minimum commitment
toward the purchase of DTH reception systems from Philips Business Electronics
B.V. of approximately $60.8 million over the next two years.
14. CONTINGENCIES
From time to time, the Company and/or its subsidiaries may become involved in
litigation relating to claims arising out of its operations in the normal course
of business. The Company is not a party to any material legal proceedings, nor
is it currently aware of any threatened material legal proceedings.
F-153
<PAGE> 286
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. INCOME TAXES
In general, a United States corporation may claim a foreign tax credit against
its federal income tax expense for foreign income taxes paid or accrued. Because
the Company must calculate its foreign tax credit separately for dividends
received from each foreign corporation in which the Company owns 10.0% to 50.0%
of the voting stock, and because of certain other limitations, the Company's
ability to claim a foreign tax credit may be limited, particularly with respect
to dividends paid out of earnings subject to a high rate of foreign income tax.
Generally, the Company's ability to claim a foreign tax credit is limited to the
amount of U.S. taxes the Company pays with respect to its foreign source income.
In calculating its foreign source income, the Company is required to allocate
interest expense and overhead incurred in the United States between its United
States and foreign activities. Accordingly, to the extent United States
borrowings are used to finance equity contributions to its foreign subsidiaries,
the Company's ability to claim a foreign tax credit may be significantly
reduced. These limitations and the inability of the Company to offset losses in
one foreign jurisdiction against income earned in another foreign jurisdiction
could result in a high effective tax rate on the Company's earnings.
The primary differences between taxable income (loss) and net income (loss) for
financial reporting purposes relate to SAB 51 gains, international rate
differences and the non-consolidation of consolidated foreign subsidiaries for
United States tax purposes. For investments in foreign corporations accounted
for under the equity method, taxable income (loss) generated by these affiliates
does not flow through to the Company for United States federal and state tax
purposes, even though the Company records its allocable share of affiliate
income (losses) for financial reporting purposes. Accordingly, due to the
indefinite reversal of such amounts in future periods, no deferred tax asset has
been established for tax basis in excess of the Company's book basis
(approximately $19.3 and $30.0 million at December 31, 1999 and 1998,
respectively).
The Company's United States tax net operating losses, totaling approximately
$9.8 million at December 31, 1999, expire beginning in 2014 through 2029. The
Company's tax net operating loss carryforwards of its consolidated foreign
subsidiaries as of December 31, 1999 totaled $801.8 million. The significant
components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets:
Tax net operating loss carryforward of consolidated
foreign subsidiaries................................... $ 277,195 $ 72,504
Company's U.S. tax net operating loss carryforward........ 3,732 3,266
Stock-based compensation.................................. 36,113 7,215
Foreign currency translation adjustment................... 23,113 --
Accrued interest expense.................................. 14,420 --
Other..................................................... 14,271 426
--------- --------
Total deferred tax assets......................... 368,844 83,411
Valuation allowance....................................... (360,186) (74,983)
--------- --------
Deferred tax assets, net of valuation allowance... 8,658 8,428
--------- --------
Deferred Tax Liabilities:
Intangible assets......................................... (18,681) (5,852)
Property, plant and equipment, net........................ (6,038) (7,156)
Other..................................................... -- --
--------- --------
Total deferred tax liabilities.................... (24,719) (13,008)
--------- --------
Deferred tax liabilities, net..................... $ (16,061) $ (4,580)
========= ========
</TABLE>
F-154
<PAGE> 287
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Of the Company's 1999 consolidated income (loss) before income taxes and other
items, $794.8 million is derived from the Company's foreign operations. The
difference between income tax expense (benefit) provided in the financial
statements and the expected income tax expense (benefit) at statutory rates is
reconciled as follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Expected income tax expense (benefit) at the
U.S. statutory rate of 35%.................... $ 161,782 $(83,638) $(4,061)
Tax effect of permanent and other differences:
Change in valuation allowance................. 256,282 40,561 4,409
Gain on issuance of common equity securities
by subsidiary.............................. (478,981) -- --
Non-deductible expenses....................... 68,400 49,382 --
Capitalized costs............................. (49,402) -- --
International rate differences................ 26,431 1,474 --
State tax, net of federal benefit............. 13,867 (7,169) (348)
Other......................................... (272) -- --
--------- -------- -------
Total income tax (benefit) expense.... $ (1,893) $ 610 $ --
========= ======== =======
</TABLE>
During 1996, the Austrian tax authorities passed legislation which had the
effect of eliminating approximately NLG256.0 ($116.9) million of tax basis
associated with certain amounts of goodwill recorded at Telekabel Group
effective January 1, 1997. This change in tax law is expected to be challenged
on constitutional grounds. However, there can be no assurance of a successful
repeal of such legislation. Accordingly, this change caused Telekabel Group's
effective tax rate to increase from the historical effective tax rate through
December 31, 1996, due to the non-deductibility of such goodwill amortization
subsequent to January 1, 1997.
The Company through its subsidiaries maintains a presence in 23 countries. Many
of these countries maintain tax regimes that differ significantly from the
system of income taxation used in the United States, such as a value added tax
system. The Company has accounted for the effect of foreign taxes based on what
it believes is reasonably expected to apply to the Company and its subsidiaries
based on tax laws currently in effect and/or reasonable interpretations of these
laws. Because some foreign jurisdictions do not have systems of taxation that
are as well established as the system of income taxation used in the United
States or tax regimes used in other major industrialized countries, it may be
difficult to anticipate how foreign jurisdictions will tax current and future
operations of the Company and its subsidiaries.
F-155
<PAGE> 288
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. SEGMENT INFORMATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------------------------
MULTICHANNEL INTERNET
TELEVISION TELEPHONE PROGRAMMING DATA OTHER TOTAL
------------ --------- ----------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Europe:
The Netherlands.... $117,026 $ 32,029 $ 1,112 $ 8,616 $ 330 $ 159,113
Austria............ 83,737 7,321 -- 13,609 -- 104,667
Belgium............ 15,737 -- -- 2,497 -- 18,234
Czech Republic..... 7,485 181 -- -- 1,042 8,708
France............. 27,522 2,710 -- 590 -- 30,822
Hungary............ 35,197 -- -- 125 -- 35,322
Norway............. 49,186 365 -- 565 -- 50,116
Poland............. 26,845 -- 10,917 -- -- 37,762
Sweden............. 13,335 -- -- 504 -- 13,839
Corporate and
other............ 8,327 -- -- -- 6,512 14,839
-------- -------- -------- -------- -------- ---------
Total Europe... $384,397 $ 42,606 $ 12,029 $ 26,506 $ 7,884 $ 473,422
======== ======== ======== ======== ======== =========
Adjusted EBITDA:(1)
Europe:
The Netherlands.... $ 48,185 $(19,900) $(16,705) $(66,569) $(41,350) $ (96,339)
Austria............ 44,945 (11,470) -- 234 -- 33,709
Belgium............ 3,954 (54) -- (2,212) -- 1,688
Czech Republic..... (1,129) 54 -- -- 407 (668)
France............. (1,766) (5,946) -- (2,373) (67) (10,152)
Hungary............ 11,739 -- -- (261) -- 11,478
Norway............. 20,740 (7,153) -- (5,178) -- 8,409
Poland............. (9,363) -- (64,791) -- (3,018) (77,172)
Sweden............. 4,582 (135) -- (4,095) -- 352
Corporate and
other............ 2,123 (206) -- (725) (41) 1,151
-------- -------- -------- -------- -------- ---------
Total Europe... $124,010 $(44,810) $(81,496) $(81,179) $(44,069) $(127,544)
======== ======== ======== ======== ======== =========
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------------------
LONG-LIVED CAPITAL TOTAL
ASSETS(2) EXPENDITURES ASSETS
---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Europe:
The Netherlands.... $ 774,045 $247,050 $3,550,612
Austria............ 179,652 94,240 356,337
Belgium............ 23,186 8,447 47,826
Czech Republic..... 80,347 2,491 159,806
France............. 319,454 70,666 498,776
Hungary............ 112,698 38,708 215,448
Norway............. 100,315 57,106 244,975
Poland............. 218,784 42,460 1,218,956
Sweden............. 48,182 12,495 474,899
Corporate and
other............ 63,698 38,569 77,219
---------- -------- ----------
Total Europe... $1,920,361 $612,232 $6,844,854
========== ======== ==========
Adjusted EBITDA:(1)
Europe:
The Netherlands....
Austria............
Belgium............
Czech Republic.....
France.............
Hungary............
Norway.............
Poland.............
Sweden.............
Corporate and
other............
Total Europe...
</TABLE>
<TABLE>
<CAPTION>
FOR THE TEN MONTHS ENDED DECEMBER 31, 1998
----------------------------------------------------------------------
MULTICHANNEL INTERNET
TELEVISION TELEPHONE PROGRAMMING DATA OTHER TOTAL
------------ --------- ----------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Europe:
The Netherlands....... $ 13,854 $ 162 $ -- $ -- $ 7,274 $ 21,290
Austria............... 71,396 61 -- 3,172 -- 74,629
Belgium............... 13,768 -- -- 656 1,071 15,495
Czech Republic........ 3,754 -- -- -- -- 3,754
France................ 3,395 -- -- -- -- 3,395
Hungary............... 11,671 -- -- -- -- 11,671
Norway................ 38,879 -- -- 161 -- 39,040
Corporate and other... 2,446 -- 567 -- -- 3,013
-------- ------- ------- ------- ------- --------
Total Europe...... $159,163 $ 223 $ 567 $ 3,989 $ 8,345 $172,287
======== ======= ======= ======= ======= ========
Adjusted EBITDA:(1)
Europe:
The Netherlands....... $ 8,445 $(1,303) $ (295) $(6,103) $(4,401) $ (3,657)
Austria............... 34,350 (1,636) -- (1,739) -- 30,975
Belgium............... 5,755 -- -- (799) 114 5,070
Czech Republic........ (721) -- -- -- -- (721)
France................ (954) (911) -- (77) -- (1,942)
Hungary............... 3,820 -- -- -- -- 3,820
Norway................ 14,015 (573) -- (806) -- 12,636
Corporate and other... (167) -- (3,556) 19 131 (3,573)
-------- ------- ------- ------- ------- --------
Total Europe...... $ 64,543 $(4,423) $(3,851) $(9,505) $(4,156) $ 42,608
======== ======= ======= ======= ======= ========
<CAPTION>
AS OF DECEMBER 31, 1998
--------------------------------------
LONG-LIVED CAPITAL TOTAL
ASSETS(2) EXPENDITURES ASSETS
---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Europe:
The Netherlands....... $ 2,440 $ 14,734 $ 297,068
Austria............... 140,550 43,278 341,159
Belgium............... 27,558 11,253 57,847
Czech Republic........ 8,737 523 11,497
France................ 40,328 28,802 51,092
Hungary............... 26,788 7,239 86,921
Norway................ 63,335 25,838 219,068
Corporate and other... 9,310 9,880 22,744
-------- -------- ----------
Total Europe...... $319,046 $141,547 $1,087,396
======== ======== ==========
Adjusted EBITDA:(1)
Europe:
The Netherlands.......
Austria...............
Belgium...............
Czech Republic........
France................
Hungary...............
Norway................
Corporate and other...
Total Europe......
</TABLE>
F-156
<PAGE> 289
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28, 1998
----------------------------------------------------------------------
MULTICHANNEL INTERNET
TELEVISION TELEPHONE PROGRAMMING DATA OTHER TOTAL
------------ --------- -------------- -------- ----- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Europe:
The Netherlands........... $ -- $ -- $ -- $ -- $ -- $ --
Austria................... -- -- -- -- -- --
Belgium................... -- -- -- -- -- --
Norway.................... -- -- -- -- -- --
Corporate and other....... 9,945 -- -- -- -- 9,945
------- ---- ---- ---- ---- -------
Total Europe.......... $ 9,945 $ -- $ -- $ -- $ -- $ 9,945
======= ==== ==== ==== ==== =======
Adjusted EBITDA:(1)
Europe:
The Netherlands........... $ -- $ -- $ -- $ -- $ -- $ --
Austria................... -- -- -- -- -- --
Belgium................... -- -- -- -- -- --
Norway.................... -- -- -- -- -- --
Corporate and other....... (3,547) -- -- -- -- (3,547)
------- ---- ---- ---- ---- -------
Total Europe.......... $(3,547) $ -- $ -- $ -- $ -- $(3,547)
======= ==== ==== ==== ==== =======
<CAPTION>
AS OF FEBRUARY 28, 1998
--------------------------------------
LONG-LIVED CAPITAL TOTAL
ASSETS(2) EXPENDITURES ASSETS
---------- -------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Europe:
The Netherlands........... $ 20,773 $ -- $308,907
Austria................... 115,786 -- 323,298
Belgium................... 24,526 -- 49,204
Norway.................... 51,369 -- 215,517
Corporate and other....... 26,998 7,461 53,007
-------- ------ --------
Total Europe.......... $239,452 $7,461 $949,933
======== ====== ========
Adjusted EBITDA:(1)
Europe:
The Netherlands...........
Austria...................
Belgium...................
Norway....................
Corporate and other.......
Total Europe..........
</TABLE>
---------------
(1) Adjusted EBITDA represents 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.
(2) Represents Property, Plant and Equipment.
Adjusted EBITDA reconciles to the consolidated statement of operations as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1999 1998 1998
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net operating loss.............................. $(610,213) $(196,066) $(9,633)
Depreciation and amortization................... 280,442 76,550 6,086
Stock-based compensation expense................ 202,227 162,124 --
--------- --------- -------
Consolidated Adjusted EBITDA.................. $(127,544) $ 42,608 $(3,547)
========= ========= =======
</TABLE>
17. RELATED PARTY TRANSACTIONS
LOANS TO EMPLOYEES
In 1996, UPC loaned certain employees of UPC amounts for the exercise of the
employees' stock options, taxes on options exercised, or both. These recourse
loans bear interest at 5.0% per annum. The employees' liability to UPC is
presented in the consolidated financial statements net of UPC's obligation to
the
F-157
<PAGE> 290
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employees under the plan. As of December 31, 1999 and 1998, the receivable from
employees, including accrued interest totaled $12.2 and $10.1 million,
respectively.
ACQUISITIONS OF INTEREST IN PRINCES HOLDINGS AND TARA
In November 1998, UPC purchased from RCL, an entity owned by a discretionary
trust for the benefit of certain members of the family of John Riordan, a
director of United, a 5.0% interest in Tara and a 5.0% interest in Princes
Holdings. The aggregate purchase price for these interests was approximately
$6.0 million. The parties agreed the purchase price would be paid in cash.
Subsequently, RCL elected to receive shares of Class A Common Stock of United.
The Company paid such purchase price by delivery to RCL 769,062 restricted
shares of Class A Common Stock held by UPC.
18. SUBSEQUENT EVENTS
UPC SENIOR NOTES AND SENIOR DISCOUNT NOTES
In January 2000, UPC completed a $1.6 billion bond offering consisting of $600.0
million and E200.0 million of ten-year 11.25% Senior Notes due 2010, $300.0
million of ten-year 11.5% Senior Notes due 2010 and $1.0 billion aggregate
principal amount of ten-year 13.75% Senior Discount Notes due 2010. The Senior
Discount Notes were sold at 51.2% of the face amount yielding gross proceeds of
$512.0 million and will accrue but not pay interest until 2005.
ACQUISITION OF INTERCOMM FRANCE HOLDING S.A.
In February 2000, UPC acquired Intercomm France Holding S.A. for E36.0 ($36.2)
million in cash and shares in UPC France. Following the transaction, UPC
controls 92.0% of UPC France.
ACQUISITION OF TEBECAI CABLE SYSTEM
In February 2000, UPC acquired 100% of Tebecai, a cable system based in the east
of Holland, for E71.2 ($71.6) million.
UPC STOCK SPLIT
In March 2000, at an extraordinary general meeting of shareholders, shareholders
of UPC approved an amendment to UPC's Articles of Association to effect a
three-for-one stock split. All share and per share amounts in the accompanying
notes to the consolidated financial statements have been adjusted to reflect
this stock split.
ACQUISITION OF ELTELE OSTFOLD AND VESTFOLD
In March 2000, UPC acquired 100% of the equity of ElTele Ostfold and Vestfold
from certain energy companies in Norway for E39.7 ($39.9) million.
ACQUISITION OF ADDITIONAL INTEREST IN SBS
In February 2000, UPC acquired and additional 10.2% of SBS for E162.5 ($163.5)
million, increasing its ownership to 23.5%.
ACQUISITION OF ENECO CABLE SYSTEM
In March 2000, UPC acquired K&T Group, the cable interests of N.V. ENECO, for
consideration of E1.2 ($1.2) billion. K&T owns and operates cable networks in
Rotterdam, Dordrecht and the surrounding municipalities in The Netherlands.
F-158
<PAGE> 291
INDEPENDENT AUDITORS' REPORT
INTRODUCTION
We have audited the consolidated financial statements of UNITED TELEKABEL
HOLDING N.V., Amsterdam, The Netherlands, for the year 1998 for purpose of
inclusion in the Form 10-K of one of its shareholders. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
SCOPE
We conducted our audit in accordance with auditing standards generally
accepted in The Netherlands, which are substantially the same as those generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
OPINION
In our opinion, the consolidated financial statements give a true and fair
view of the financial position of the company as at December 31, 1998 and of the
result for the period from commencement of operations at August 6, 1998 then
ended in accordance with accounting principles generally accepted in The
Netherlands.
Generally accepted accounting principles in The Netherlands vary in certain
significant respects from generally accepted accounting principles in the United
States of America. Application of generally accepted accounting principles in
the United States of America would have affected total assets, statement of
operations and shareholders' equity as at and for the period from commencement
of operations at August 6, 1998 ended December 31, 1998, to the extent
summarized in Note 18, to the consolidated financial statements.
ARTHUR ANDERSEN
Amstelveen, The Netherlands,
March 19, 1999
F-159
<PAGE> 292
UNITED TELEKABEL HOLDING N.V.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
(STATED IN THOUSANDS OF DUTCH GUILDERS)
<TABLE>
<S> <C>
ASSETS
Fixed assets:
Intangible fixed assets................................... 564,438
Tangible fixed assets..................................... 847,056
Affiliated companies...................................... 206,332
---------
Total fixed assets................................ 1,617,826
---------
Current assets:
Inventories............................................... 3,091
Receivables............................................... 40,638
Cash and cash equivalents................................. 10,475
---------
Total current assets.............................. 54,204
---------
Total assets...................................... 1,672,030
=========
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' Equity........................................ 635,521
Minority interest........................................... 1,104
---------
636,625
Provisions.................................................. 42,054
Long-term liabilities....................................... 232,727
Current liabilities......................................... 760,624
---------
Total shareholders' equity and liabilities........ 1,672,030
=========
</TABLE>
F-160
<PAGE> 293
UNITED TELEKABEL HOLDING N.V.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(STATED IN THOUSANDS OF DUTCH GUILDERS)
<TABLE>
<S> <C>
Total revenues.............................................. 99,122
--------
Operating expenses:
Direct operating expenses................................. (33,172)
Selling, general and administrative expenses.............. (36,096)
Depreciation and amortization............................. (39,490)
--------
Total operating expenses.......................... (108,758)
--------
Operating loss............................................ (9,636)
Financial income and expense.............................. (16,699)
--------
Loss before income taxes.......................... (26,335)
Income taxes.............................................. 1,212
--------
Loss after taxes.................................. (25,123)
Share in results of affiliated companies.................. (24,486)
--------
Group loss........................................ (49,609)
Minority interest......................................... 235
--------
Net loss.......................................... (49,374)
========
</TABLE>
F-161
<PAGE> 294
UNITED TELEKABEL HOLDING N.V.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(STATED IN THOUSANDS OF DUTCH GUILDERS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................... (49,374)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization............................. 39,490
Share in results of affiliated companies, net............. 24,486
Minority interest in subsidiaries......................... (235)
Changes in assets and liabilities:
Decrease in current assets................................ 40,098
(Decrease) in current liabilities......................... (55,186)
(Decrease) in deferred taxes and other provisions......... (1,132)
--------
Net cash flows from operating activities.......... (1,853)
--------
Cash flows from investing activities:
Capital expenditures...................................... (121,384)
Loan to affiliated companies.............................. (7,120)
Acquisitions, net of cash acquired........................ (12,588)
--------
Net cash flows from investing activities.......... (141,092)
--------
Cash flows from financing activities:
Proceeds from short-term borrowings....................... 120,705
Proceeds from long-term borrowings........................ 9,621
--------
Net cash flows from financing activities.......... 130,326
--------
Net decrease in cash and cash equivalents................... (12,619)
Cash and cash equivalents at beginning of period............ 100
Cash and cash equivalents contributed....................... 22,994
--------
Cash and cash equivalents at end of period........ 10,475
========
Supplemental cash-flow disclosures:
Cash paid for interest.................................... (19,470)
========
Non-cash investing activities:
Contribution of Dutch cable systems
Working capital........................................... (73,850)
Affiliated companies...................................... 223,698
Tangible fixed assets..................................... 764,762
Intangible fixed assets................................... 550,911
Short-term debt........................................... (544,918)
Long-term liabilities..................................... (223,106)
Provisions................................................ (35,696)
Cash and cash equivalents................................. 22,994
--------
Equity contributed................................ 684,795
========
</TABLE>
F-162
<PAGE> 295
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(STATED IN THOUSANDS OF DUTCH GUILDERS)
1. ORGANIZATION AND NATURE OF OPERATIONS
United Telekabel Holding N.V. ("UTH" or the "Company"), legally seated in
Almere, The Netherlands, was legally formed in May 1998 and commenced operations
on August 6, 1998. UTH was formed as a joint venture between United Pan-Europe
Communications N.V. ("UPC") and N.V. NUON Energie-Onderneming voor Gelderland,
Friesland en Flevoland ("NUON"). UPC became a 51% shareholder and NUON a 49%
shareholder. UTH was formed for the purpose of offering cable-based
communications through its networks in the Netherlands. UTH currently offers
cable television services and is further developing and upgrading its network to
provide digital video, voice and internet/data services in its Dutch markets.
UTH commenced operations on August 6, 1998 when both shareholders
contributed their interests in Dutch cable television operating companies to
UTH. NUON contributed its interest in N.V. Telekabel Beheer ("Telekabel") and
UPC contributed its interest in Cable Network Brabant Holding B.V. ("CNBH") and
50% of the shares in A2000 Holding N.V. ("A2000"). UTH recorded the assets
contributed at their fair market value. The table below summarizes the opening
balance sheet of UTH, based on the net assets contributed at their fair market
values by NUON and UPC as of August 6, 1998.
<TABLE>
<S> <C>
Cash and cash equivalents contributed..................... 23,094
Other current assets...................................... 83,827
Affiliated companies...................................... 223,698
Tangible fixed assets..................................... 764,762
Intangible fixed assets................................... 550,911
---------
Total assets...................................... 1,646,292
=========
Short-term debt........................................... 544,918
Other current liabilities................................. 157,677
Provisions................................................ 35,696
Long-term liabilities..................................... 223,106
Shareholders' equity...................................... 684,895
---------
Total shareholders' equity and liabilities........ 1,646,292
=========
</TABLE>
Due to the fact that operations commenced at August 6, 1998, no comparative
financial statements have been presented. Proforma information (unaudited) is
presented in note 19.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the Netherlands for
financial statements. The accounting policies followed in the preparation for
the consolidated financial statements, differ in some respects to those
generally accepted in the United States of America (US GAAP). See note 18.
The preparation of financial statements in conformity with Dutch 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. In the
opinion of management, all adjustments (consisting of normal
F-163
<PAGE> 296
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recurring accruals) have been made which are necessary to present fairly the
financial position of the Company as of December 31, 1998 and the results of its
operations for the period from commencement of operations (August 6, 1998) to
December 31, 1998.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
UTH and its group companies (the "UTH Group"). Group companies are companies or
other legal entities in which UTH has an ownership interest of more than 50% of
the issued share capital or that UTH otherwise controls. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The following chart presents a summary of UTH's significant investments in
multi-channel television, programming and telephony operations as of December
31, 1998:
<TABLE>
<CAPTION>
PERCENTAGE
NAME CITY OWNERSHIP
---- ---- ----------
<S> <C> <C>
Cable Network Brabant Holding B.V. ......................... Eindhoven 100
N.V. Telekabel Beheer....................................... Arnhem 100
A2000 Holding N.V. ......................................... Amsterdam 50(1)
Uniport Communications B.V. ................................ 80
</TABLE>
---------------
(1) Not consolidated
Foreign Currencies
Assets and liabilities denominated in foreign currencies are translated
into Dutch guilders at the year-end exchange rate. Transactions in foreign
currencies are translated at the exchange rate in effect at the time of the
transaction. The exchange results are recorded under financial income and
expense in the statement of income.
BALANCE SHEET
(a) General
Assets and liabilities are stated at face value unless indicated otherwise.
(b) Fixed assets
INTANGIBLE FIXED 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 and include the development
costs incurred prior to the date a new license was acquired. The license value
is amortized on a straight-line basis over the initial license period, up to a
maximum of 20 years. Deferred financing costs are amounts spent in connection
with financing the UTH Group. The amortization period is the period relating to
the term of the financing. When assets are fully amortized, the costs and
accumulated amortization are removed from the accounts.
TANGIBLE FIXED ASSETS
Tangible fixed assets are stated at cost. Additions, replacements,
installation costs and major improvements are capitalized, and costs for normal
repair and maintenance of tangible fixed assets are charged to expense as
incurred. Assets constructed by subsidiaries of UTH incorporate overhead expense
F-164
<PAGE> 297
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and interest charges incurred during the period of construction; investment
subsidies are deducted. Depreciation is calculated using the straight-line
method over the economic life of the asset, taking into account the residual
value. The economic lives of tangible fixed assets at acquisition are as
follows:
<TABLE>
<S> <C>
Networks.................................................... 7-20 years
Buildings and leasehold improvements........................ 20-33 years
Machinery & Other........................................... 3-10 years
</TABLE>
AFFILIATED COMPANIES
For those investments in companies in which UTH's ownership interest is 20%
to 50%, its investments are held through a combination of voting common stock,
preferred stock, debentures or convertible debt and/or UTH exerts significant
influence through board representation and management authority, or in which
majority control is deemed to be temporary, the equity method of accounting is
used. Under this method, the investment, originally recorded at fair market
value, is adjusted to recognize UTH's proportionate share of net earnings or
losses of the affiliates, limited to the extent of UTH's investment in and
advances to the affiliates, including any debt guarantees or other contractual
funding commitments. UTH'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 tangible assets or the excess of
its proportionate interest in each affiliate's net tangible assets in excess of
its cost.
(c) Receivables
Receivables are stated at face value, less an allowance for doubtful
accounts. The allowance for doubtful accounts is based upon specific
identification of overdue accounts receivable. An allowance for a percentage of
the account is established once the receivable is overdue. Upon disconnection of
the subscriber, the account is fully reserved. The allowance is maintained on
the books until receipt of payment or for a maximum of three years.
(d) Cash and Cash Equivalents
Cash and cash equivalents include cash and investments with original
maturities of less than three months.
(e) Provisions
Deferred tax liabilities arising from temporary differences between the
financial and tax bases of assets and liabilities are included in the
provisions. The principal differences arise in connection with valuation
differences of intangible fixed assets. In calculating the provision, current
tax rates are applied.
UTH accounts for income taxes under the asset and liability method, which
requires recognition of, deferred tax assets and liabilities for the expected
future income tax consequences of transactions, which have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and income tax basis of assets, liabilities and loss carry forwards
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Net deferred tax assets are then reduced by a valuation
allowance if management believes it is more likely than not they will not be
realized.
(f) Fair value of financial instruments
SFAS Statement No. 107, "Disclosures about Fair Values of Financial
Instruments" requires the disclosure of estimated fair values for all financial
instruments, both on and off balance sheet, for which it is practicable to
estimate fair value. For certain instruments, including cash and cash
equivalents,
F-165
<PAGE> 298
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
receivables, current liabilities and certain provisions, it was assumed that the
carrying amount approximated fair value due to the short maturity of those
instruments. For short and long term debt, the carrying value approximates the
fair value since all debt instruments carry a variable interest rate component
except for the convertible loans which carried a fixed interest rate. For
investments in affiliated companies carried at cost, quoted market prices for
the same or similar financial instruments were used to estimate the fair values.
UTH has adopted the principles of this statement in its financial statements.
UTH did not have any material off balance sheet financial instruments as of
December 31, 1998.
(g) Recoverability of Tangible and Intangible fixed assets
UTH evaluates the carrying value of all tangible and intangible assets
whenever events or circumstances indicate the carrying value of assets may
exceed their recoverable amounts. An impairment loss is recognized when the
estimated future cash flows (undiscounted and without interest) expected to
result from the use of an asset are less than the carrying amount of the asset.
Measurement of an impairment loss is based on the fair value of the asset
computed using discounted cash flows if the asset is expected to be held and
used. Measurement of an impairment loss for an asset held for sale would be
based on fair market value less estimated costs to sell.
(h) Concentration of Credit Risk
Financial instruments which potentially subject UTH to concentrations of
credit risk consist principally of trade receivables. Concentrations of credit
risk with respect to trade receivables are limited due to UTH's large number of
customers.
(i) Other Comprehensive Income
UTH has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which requires that an enterprise
(i) classify items of other comprehensive income by their nature in a financial
statement and (ii) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. As of December 31, 1998, UTH had
no other comprehensive income items.
Income Statement
Revenue is primarily derived from the sale of cable 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.
New Accounting Principles
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting For the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), which provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. SOP 98-1 identifies the characteristics of internal-use
software and provides examples to assist in determining when computer software
is for internal use. SOP 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998, for projects in progress and
F-166
<PAGE> 299
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prospectively, with earlier application encouraged. Management believes that the
adoption of SOP 98-1 will not have a material effect on the financial
statements.
The American Institute of Certified Public Accountants recently issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), which is required to be adopted by affected companies for fiscal
years beginning after December 15, 1998. SOP 98-5 defines start-up and
organization costs, which must be expensed as incurred. In addition, all
deferred start-up and organization costs existing as of January 1, 1999 must be
written-off and accounted for as a cumulative effect of an accounting change.
Management believes that the adoption of SOP 98-1 will not have a material
effect on the financial statements.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. Management is currently assessing the
effect of this new standard.
3. INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
BALANCE AS OF DECEMBER 31, 1998
---------------------------------
LICENSES DEFERRED
AND FINANCING
TOTAL GOODWILL COSTS
-------- --------- ----------
<S> <C> <C> <C>
Value upon contribution..................................... 550,911 547,869 3,042
Investment.................................................. 30,996 29,745 1,251
Amortization................................................ (17,469) (17,149) (320)
------- ------- -----
Book value as of December 31, 1998.......................... 564,438 560,465 3,973
======= ======= =====
</TABLE>
<TABLE>
<CAPTION>
BALANCE AS OF DECEMBER 31, 1998
---------------------------------
LICENSES DEFERRED
AND FINANCING
TOTAL GOODWILL COSTS
-------- --------- ----------
<S> <C> <C> <C>
Gross Value................................................. 581,907 577,614 4,293
Amortization................................................ (17,469) (17,149) (320)
------- ------- -----
Book value as of December 31, 1998.......................... 564,438 560,465 3,973
======= ======= =====
</TABLE>
4. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
BALANCE AS OF DECEMBER 31, 1998
-----------------------------------------
LAND AND MACHINERY
TOTAL BUILDINGS NETWORK & OTHER
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Value upon contribution............................... 764,762 6,025 745,503 13,234
Additions............................................. 104,315 130 102,023 2,162
Depreciation.......................................... (22,021) (182) (20,005) (1,834)
------- ----- ------- ------
Book value as of December 31, 1998.................... 847,056 5,973 827,521 13,562
======= ===== ======= ======
</TABLE>
F-167
<PAGE> 300
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
BALANCE AS OF DECEMBER 31, 1998
-----------------------------------------
LAND AND MACHINERY
TOTAL BUILDINGS NETWORK & OTHER
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Cost.................................................. 869,077 6,155 847,526 15,396
Depreciation.......................................... (22,021) (182) (20,005) (1,834)
------- ----- ------- ------
Book value as of December 31, 1998.................... 847,056 5,973 827,521 13,562
======= ===== ======= ======
</TABLE>
5. AFFILIATED COMPANIES
<TABLE>
<CAPTION>
BALANCE AS OF DECEMBER 31, 1998
--------------------------------
TOTAL INVESTMENTS ADVANCES
------- ----------- --------
<S> <C> <C> <C>
Balance upon contribution................................... 223,698 223,698 --
Additions................................................... 7,120 -- 7,120
Share in results............................................ (24,486) (24,486) --
------- ------- -----
Balance as of December 31, 1998............................. 206,332 199,212 7,120
======= ======= =====
</TABLE>
The investments in affiliated companies as of December 31, 1998 are:
<TABLE>
<CAPTION>
INVESTMENTS IN CUMULATIVE SHARE
% AND ADVANCES TO IN RESULTS OF
OWNERSHIP AFFILIATED COMPANIES AFFILIATED COMPANIES TOTAL
--------- -------------------- -------------------- -------
<S> <C> <C> <C> <C>
A2000......................... 50.0% 229,481 (24,449) 205,032
Interway...................... 33.0% 1,337 (37) 1,300
------- ------- -------
Total......................... 230,818 (24,486) 206,332
======= ======= =======
</TABLE>
UTH had the following differences related to the excess of cost over the
net tangible assets acquired for its equity investments. Such differences are
being amortized over 12 to 15 years:
<TABLE>
<CAPTION>
BASIS ACCUMULATED
DIFFERENCE AMORTIZATION
---------- ------------
<S> <C> <C>
A2000....................................................... 249,236 (8,200)
======= ======
</TABLE>
These differences have been presented as affiliated companies and share in
result of affiliated companies respectively.
Subsequent to year end, UPC provided a letter of support to A2000 stating
that it would continue to provide to A2000 the funding necessary to continue
operations through at least 1999.
F-168
<PAGE> 301
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summary financial information for A2000 based on Dutch generally accepted
accounting principles is as follows:
BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1998
------------------
<S> <C>
Intangible fixed assets..................................... 113,361
Tangible fixed assets....................................... 356,623
Financial fixed assets...................................... 770
Liquid assets............................................... 369
Other current assets........................................ 37,482
-------
Total assets...................................... 508,605
=======
Provisions.................................................. 1,610
Long-term debt.............................................. 467,430
Current liabilities......................................... 125,813
-------
Total liabilities................................. 594,853
-------
Total shareholders' value......................... (86,248)
=======
</TABLE>
STATEMENT OF INCOME
<TABLE>
<CAPTION>
FOR THE FIVE MONTHS
ENDED DECEMBER 31,
1998
-------------------
<S> <C>
Revenue..................................................... 53,954
Costs....................................................... (39,271)
Depreciation and amortization............................... (35,888)
Financial income/charges.................................... (11,293)
-------
Net loss.......................................... (32,498)
=======
</TABLE>
6. RECEIVABLES
Receivables as presented under current assets mature within one year and
are specified as follows:
<TABLE>
<S> <C>
Trade accounts receivable................................... 22,519
Receivables from affiliated companies....................... 1,654
Prepaid expenses and accrued income......................... 1,447
Other receivables........................................... 15,018
------
Total............................................. 40,638
======
</TABLE>
A major item under "other receivables" is current reclaimable VAT 3,676. As
of December 31, 1998 the valuation allowance on trade receivables amounted to
538.
7. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand accounts held in a bank with a
maturity of less than three months.
F-169
<PAGE> 302
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SHAREHOLDERS' EQUITY
UTH's issued share capital consists of 100,000 shares with a par value of
NLG 1 each. All issued shares are fully paid-in.
<TABLE>
<CAPTION>
BANK LOANS
----------
<S> <C>
1999........................................................ 3,220
2000........................................................ 2,353
2001........................................................ 8,404
2002........................................................ 16,948
2003........................................................ 30,104
Thereafter.................................................. 174,918
-------
Total............................................. 235,947
=======
</TABLE>
9. PROVISIONS
Provisions relate mainly to deferred taxation.
10. LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
AMOUNT
AVERAGE OUTSTANDING
RANGE OF RATE OF DECEMBER 31,
INTEREST INTEREST 1998
-------- -------- ------------
<S> <C> <C> <C>
Bank loans..................................... 5-7.625% 5.2 235,947
</TABLE>
Long-term liabilities at December 31, 1998 will be payable as follows:
<TABLE>
<CAPTION>
BANK LOANS
----------
<S> <C>
1999........................................................ 3,220
2000........................................................ 2,353
2001........................................................ 8,404
2002........................................................ 16,948
2003........................................................ 30,104
Thereafter.................................................. 174,918
-------
Total............................................. 235,947
=======
</TABLE>
On February 20, 1998 CNBH secured a 250,000 nine-year term facility, which
was amended in August 1998 to 266,000. The CNBH facility bears interest at the
applicable Amsterdam Interbank Offered Rate ("AIBOR") plus a margin ranging from
0.60% to 1.60% per annum, and is secured by, among other things, an encumbrance
over CNBH's assets and a pledge of the shares of CNBH. The facility is used to
refinance several acquisitions and will furthermore be used for the development
and exploitation of enhanced cable TV services, data services and telephony
services. As of December 31, 1998, 219,000 was outstanding on the facility.
The shares of UTH held by UPC are pledged for a certain loan of UPC.
F-170
<PAGE> 303
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. CURRENT LIABILITIES
The current liabilities relate to short-term debt and other liabilities
which are specified below:
(a) Short-term debt
<TABLE>
<S> <C>
Long-term debt repayable within one year.................. 3,220
Short-term debt to shareholders........................... 662,403
-------
Total........................................... 665,623
=======
</TABLE>
SHORT TERM DEBT TO SHAREHOLDERS AS OF DECEMBER 31, 1998
NUON's contribution to UTH included an existing 690,000-debt facility with
an outstanding balance of approximately 543,000 (as of August 6, 1998). This
facility bears an interest rate of 6.65% over the reporting period up to
November 30, 1998. As of November 30, 1998 this rate was increased with 1.5%. As
of December 31, 1998, approximately 614,000 was outstanding on the facility. The
debt facility is due March 15, 1999, with an extension period of 15 days. As
security for repayment of the debt facility, NUON received a pledge over the
shares of N.V. Telekabel Beheer (the assets contributed by NUON). UTH has
negotiated with the lenders to refinance the debt facility (see Note 20.).
SUBORDINATED LOANS
UTH entered into a subordinated loan agreement with NUON in December 1998
for an amount of NLG 33.0 million. The interest payable is 5.5% on an annually
basis. This subordinated loan was entered into for purposes of continuing
funding of incurred losses and capital expenditures. UTH entered into a
subordinated loan agreement with UPC in December 1998 for an amount of NLG 15.2
million. The interest payable is 5.5% on an annually basis. This subordinated
loan was entered into for purposes of continuing funding of incurred losses and
capital expenditures.
(b) Other Liabilities
<TABLE>
<S> <C>
Accounts payable to trade creditors....................... 47,459
Deposits by customers..................................... 197
Other short-term liabilities.............................. 39,855
Deferred income and accrued expenses...................... 7,490
-------
Total........................................... 95,001
-------
Total current liabilities....................... 760,624
=======
</TABLE>
12. INFORMATION PER GEOGRAPHICAL AREA
All operations of UTH are in The Netherlands. In addition, substantially
all operations relate to cable television services.
13. PERSONNEL
Labor cost is specified as follows:
<TABLE>
<S> <C>
Salaries and wages......................................... 9,173
Pension costs.............................................. 538
Social securities.......................................... 1,911
------
Total............................................ 11,622
======
</TABLE>
F-171
<PAGE> 304
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The information about employees by category is as follows:
<TABLE>
<S> <C>
Operating................................................... 160
Other....................................................... 184
---
Total............................................. 344
===
</TABLE>
14. FINANCIAL INCOME AND EXPENSES
<TABLE>
<S> <C>
Interest income........................................... 14
Interest expense.......................................... (16,713)
-------
Total........................................... (16,699)
=======
</TABLE>
Under interest expense an amount of 11,348 was accounted for as interest
related parties.
15. INCOME TAXES
In general, a Dutch holding company may benefit from the so-called
participation exemption. The participation exemption is a facility in Dutch
corporate tax law which under certain conditions allows a Dutch company to
exempt any dividend income and capital gains in relation with its participation
in subsidiaries. Capital losses are also exempt, apart from liquidation losses
(under stringent conditions).
For UTH the primary difference between taxable loss and net loss for
financial reporting purposes relates to the amortization of goodwill. The
consolidated financial statements have been prepared assuming partial tax basis
for license fees capitalized relating to certain acquisitions. Deferred taxes
have been provided for that portion of the licenses which management believes no
tax basis will be allowed.
The difference between income tax expense provided in the financial
statements and the expected income tax benefit at statutory rates is reconciled
as follows:
<TABLE>
<S> <C>
Expected income tax benefit at the Dutch statutory rate of
35%...................................................... (9,217)
Tax effect of permanent and other differences:
Change in valuation allowance............................ 6,541
Non-deductible expenses.................................. 1,464
------
Total income tax benefit......................... (1,212)
======
</TABLE>
The significant components of the net deferred tax liability are as
follows:
<TABLE>
<S> <C>
Deferred Tax Assets:
Tax net operating loss carried forward.................. 20,112
Valuation allowance..................................... (20,112)
-------
Deferred tax assets, net of valuation
allowance..................................... 0
-------
Deferred Tax Liabilities:
Intangible assets....................................... 33,438
Tangible fixed assets, net.............................. 962
-------
Total deferred tax liabilities.................. 34,400
-------
Deferred tax liabilities, net................... 34,400
=======
</TABLE>
The tax loss carry forwards have no expiration date.
F-172
<PAGE> 305
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. RELATED PARTIES TRANSACTIONS
UTH signed management services agreements with both of its shareholders. In
the reporting period an amount of NLG4,255 has been taken into account as
expenses. In addition UTH delivers service to NUON. These services are rendered
at arms length prices and made up 8% of the revenues over the reporting period.
As mentioned under Note 11 UTH has a short-term debt payable to NUON as well as
subordinated loans to both NUON and UPC. UPC charged an amount of 988 for
salaries and related costs for employees seconded to UTH Group.
17. COMMITMENTS AND GUARANTEES
The UTH Group has entered into various rent and lease agreements for office
space, cars, etc. The terms of the agreements call for future minimum payments
as follows:
<TABLE>
<S> <C>
1999........................................................ 4,000
2000........................................................ 3,200
2001........................................................ 2,100
2002........................................................ 1,600
2003........................................................ 1,400
</TABLE>
Subsequent to December 31, 1998, UTH provided additional funding to A2000.
In total UTH's share of the funding commitment is $15,000. As of December 31,
1998, UTH had funded $3,750 of its commitment.
18. US GAAP RECONCILIATION
General
The accounting policies followed in the preparation for the consolidated
financial statements differ in some respects to those generally accepted in the
United States of America (US GAAP).
The differences which have a material effect on net loss and/or
shareholders' equity and/or total assets are as follows:
- The fair market value of licences, goodwill, land and buildings and
networks for US GAAP purposes should be set at historical cost of the
contributor. Consequently, no step-up in asset value is allowed for the
difference between historical cost and the fair market value of the
assets contributed by both UPC and NUON.
- Deferred taxes have been established for the difference between book and
tax basis of contributed assets, if applicable.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires recognition of deferred tax assets and liabilities for the expected
future income tax consequences of transactions which have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based upon the difference between the financial and
tax bases of assets and liabilities and carryforwards using enacted tax rates in
effect for the year in which the differences are expected to reverse. UTH has
adopted the principles of this statement in its financial statements.
F-173
<PAGE> 306
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
US GAAP information
The calculation of net loss, shareholders' equity and total assets,
substantially in accordance with US GAAP, is as follows:
<TABLE>
<S> <C>
Net loss as per Consolidated Statements of income........... (49,374)
Adjustments to reported income (loss):
Amortization of goodwill.................................... 4,082
Share in results of affiliated companies.................... 747
---------
Approximate net loss in accordance with US GAAP............. (44,545)
=========
Shareholders' equity as per Consolidated balance sheets..... 635,521
Adjustments to reported equity:
Goodwill.................................................... (152,105)
Affiliated Companies........................................ (27,893)
---------
Approximate shareholders' equity in accordance with US
GAAP...................................................... 455,523
=========
Total assets as per Consolidated Balance sheets............. 1,672,030
Adjustments to reported assets:
Goodwill.................................................... (152,105)
Affiliated Companies........................................ (27,893)
---------
Approximate total assets in accordance with US GAAP......... 1,492,032
=========
</TABLE>
19. PROFORMA INFORMATION (UNAUDITED)
On August 6, 1998 both shareholders contributed their interests in the
Dutch cable market into UTH. The following pro forma condensed consolidated
information for the year ended December 31, 1997 and 1998 give effect to the UTH
Transaction as if it had occurred at the beginning of the periods presented.
This pro forma condensed consolidated information does not purport to represent
what UTH's result of operations would actually have been if such transaction had
in fact occurred on such date. The pro forma adjustments are based upon
currently available information and upon certain assumptions that management
believes are reasonable
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
------------------ ------------------
<S> <C> <C>
Total revenues..................................... 157,836 219,314
Net loss........................................... (47,194) (90,600)
</TABLE>
20. SUBSEQUENT EVENTS
Subordinated loan
UTH entered into a subordinated loan agreement with UPC in March, 1999 for
an amount of 119,000. The interest is payable on an annual basis. This
subordinated loan was entered into for purposes of continuing funding of
incurred losses and capital expenditures.
NUON Share Purchase Agreement
On February 17, 1999, UPC acquired the remaining 49% of UTH. This
transaction completed the purchase by UPC of 100% of UTH. UPC purchased the
interest from NUON for 518,100. In addition, UPC repaid NUON and assumed from
NUON a 33,300 subordinated loan, including accrued interest dated December 31,
1998, owed by UTH to NUON.
F-174
<PAGE> 307
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Refinancing
Subsequent to December 31, 1998, UTH replaced their existing 690,000
facility with a senior facility and additional shareholder loans. The senior
facility consists of a E340 million (750,000) revolving facility to N.V.
Telekabel Beheer that will convert to a term facility on December 31, 2001. Euro
5 million of this facility will be in the form of an overdraft facility that
will be available until December 31, 2007. This existing facility will be used
to repay a portion of the UTH facility and for capital expenditures. The new
facility will bear interest at the Euro Interbank Offered Rate plus a margin
between 0.75% and 2.00% based on the leverage multiples tied to N.V. Telekabel
Beheer's net operating income. The new facility will be secured by, among other
things, a pledge over shares held by the borrower and will restrict N.V.
Telekabel Beheer's ability to incur additional debt.
F-175
<PAGE> 308
LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
NEW LIBERTY GROUP
-----------------------
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
(AMOUNTS IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5 $ 6
Trade and other receivables, net.......................... 34 34
Prepaid expenses.......................................... 7 8
------ ------
Total current assets.............................. 46 48
------ ------
Investments in affiliates, accounted for under the equity
method, and related receivables, (note 2)................. 3,477 3,291
Investments in available-for-sale securities and others
(note 3).................................................. 146 --
Property and equipment, at cost............................. 88 79
Less accumulated depreciation............................. 11 8
------ ------
77 71
------ ------
Intangible assets:
Excess cost over acquired net assets...................... 62 62
Franchise costs........................................... 190 190
------ ------
252 252
Less accumulated amortization.......................... 19 11
------ ------
233 241
------ ------
$3,979 $3,651
====== ======
LIABILITIES AND COMBINED EQUITY
Current liabilities:
Accounts payable.......................................... $ 25 $ 18
Accrued liabilities....................................... 1 11
Interest payable to Liberty Media......................... 21 --
Current portion of long-term debt......................... 7 23
Due to Liberty Media (note 4)............................. 1,204 --
------ ------
Total current liabilities......................... 1,258 52
------ ------
Long-term debt.............................................. 45 45
Deferred income tax liabilities............................. 780 682
------ ------
Total liabilities................................. 2,083 779
------ ------
Combined equity (note 5):
Combined equity........................................... 1,959 2,861
Accumulated other comprehensive earnings.................. (63) 11
------ ------
Total combined equity............................. 1,896 2,872
------ ------
Total liabilities and combined equity............. $3,979 $3,651
====== ======
</TABLE>
See accompanying notes to combined financial statements.
F-176
<PAGE> 309
LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
NEW LIBERTY GROUP OLD LIBERTY GROUP
------------------------ -----------------
SIX MONTHS FOUR MONTHS TWO MONTHS
ENDED ENDED ENDED
JUNE 30, JUNE 30, FEBRUARY 28,
2000 1999 1999
---------- ----------- -----------------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
Revenue............................................... $ 60 $ 37 $ 15
Operating costs and expenses:
Operating........................................... 26 16 6
Selling, general and administrative................. 14 10 5
Depreciation and amortization....................... 12 5 4
----- ----- ----
52 31 15
----- ----- ----
Operating earnings.......................... 8 6 --
Other income (expense):
Interest expense.................................... (22) (3) (1)
Interest income..................................... 1 2 --
Share of losses of affiliates, net (note 2)......... (209) (122) (47)
Gain on sales of investments, net (note 2).......... 640 -- --
----- ----- ----
410 (123) (48)
----- ----- ----
Earnings (loss) before income taxes......... 418 (117) (48)
Income tax benefit (expense).......................... (153) 36 35
----- ----- ----
Net income (loss)........................... $ 265 $ (81) $(13)
----- ----- ----
Other comprehensive earnings, net of taxes:
Foreign currency translation adjustments............ $ (82) $ (1) $ --
Unrealized holding gain............................. 8 -- --
----- ----- ----
Comprehensive income (loss)........................... $ 191 $ (82) $(13)
===== ===== ====
</TABLE>
See accompanying notes to combined financial statements.
F-177
<PAGE> 310
LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF EQUITY
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE TOTAL
COMBINED EARNINGS COMBINED
EQUITY NET OF TAX EQUITY
-------- ------------- --------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
Balance at January 1, 2000.................................. $2,861 $ 11 $2,872
Net income................................................ 265 -- 265
Foreign currency translation adjustments.................. -- (82) (82)
Unrealized gains on available-for-sale securities......... -- 8 8
Cash contributions from Liberty Media, net................ 29 -- 29
Distribution to Liberty Media (note 4).................... (1,200) -- (1,200)
Issuance of common stock by attributed affiliate.......... 4 -- 4
------ ---- ------
Balance at June 30, 2000.................................... $1,959 $(63) $1,896
====== ==== ======
</TABLE>
See accompanying notes to combined financial statements.
F-178
<PAGE> 311
LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
OLD LIBERTY
NEW LIBERTY GROUP GROUP
------------------------ ------------
SIX MONTHS FOUR MONTHS TWO MONTHS
ENDED ENDED ENDED
JUNE 30, JUNE 30, FEBRUARY 28,
2000 1999 1999
---------- ----------- ------------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 265 $(81) $(13)
Adjustments to reconcile net earnings (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization........................ 12 5 4
Share of losses of affiliates, net................... 209 122 47
Deferred income tax expense (benefit)................ 148 (36) (26)
Gains on disposition of assets....................... (640) -- --
Non-cash interest.................................... 21 -- --
Changes in the operating assets and liabilities, net
of the effect of acquisitions and dispositions
Change in receivables.............................. -- (3) (10)
Change in payables and accruals.................... (3) 7 (5)
------- ---- ----
Net cash provided (used) by operating activities........ 18 14 (3)
------- ---- ----
</TABLE>
<TABLE>
<CAPTION>
Cash flows from investing activities:
<S> <C> <C> <C>
Capital expended for property and equipment............. (11) (9) (3)
Investments in affiliates and others.................... (13) 16 --
Other, net.............................................. (7) (3) (1)
------- ---- ----
Net cash provided (used) by investing activities..... (31) 4 (4)
------- ---- ----
Cash flows from financing activities:
Borrowings of debt...................................... 4 -- --
Repayments of debt...................................... (21) (14) (5)
Cash transfers (to) from Liberty Media.................. 29 -- (4)
------- ---- ----
Net cash used by financing activities................ 12 (14) (9)
------- ---- ----
Net increase (decrease) in cash and cash equivalents...... (1) 4 (16)
Cash and cash equivalents at beginning of period.......... 6 -- 16
------- ---- ----
Cash and cash equivalents at end of period................ $ 5 $ 4 $ --
======= ==== ====
Supplemental disclosures and non-cash activities:
Cash paid for interest.................................. $ 2 $ 3 $ 2
Cash paid for taxes..................................... -- 2 10
Distribution to Liberty Media........................... (1,200) -- --
Due to Liberty Media.................................... 1,200 -- --
</TABLE>
See accompanying notes to combined financial statements.
F-179
<PAGE> 312
LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2000
1. BASIS OF PRESENTATION
The financial statements of the Liberty Principal Transaction Assets Group
are the combination of certain consolidated subsidiaries, equity method
investees, and other investments of Liberty Media Corporation ("Liberty Media"
or "Parent") a wholly-owned subsidiary of AT&T Corp.
These combined financial statements primarily include the following
consolidated subsidiaries and equity and cost method investees (a) Liberty's
100% interest in Pramer SCA, which is a cable television programming company
located and operating primarily in Argentina, (b) Liberty's 100% interest in
Liberty Cablevision of Puerto Rico (the "Puerto Rico Subsidiary"), which
primarily provides cable television services in Puerto Rico, (c) Liberty's 28%
equity interest in Cablevision S.A. ("Cablevision"), a provider of cable
television and high speed data services in Argentina, (d) Liberty's 24.6%
interest in Telewest Communications plc ("Telewest"), which is a broadband
communications provider, including cable television, telephony and high speed
data services in the United Kingdom, (e) Liberty's 40% equity interest in
Torneos y Competencias S.A., an Argentinean company distributing soccer
programming and rights, (f) Liberty's 37% equity interest in Flextech plc
("Flextech"), which provides cable television programming in the United Kingdom
and continental Europe, (g) Liberty's 20% equity interest in Premium Movie
Partnership, which is a cable television programming company operating in
Australia, (h) Liberty's 16% equity interest in Crown Media Holdings, Inc.,
which provides cable television programming services, (i) Liberty's 43% equity
interest in Digital Latin America LLC, which will operate a digital network, via
satellite transmissions, to transport digital video, audio and other services,
and (j) Liberty's 40.9% equity interest in Grupo Portatel, which is a wireless
service provider in Mexico.
On March 9, 1999, AT&T acquired Tele-Communications, Inc. ("TCI"), the
former owner of Liberty, in a merger transaction (the "AT&T Merger"). The AT&T
Merger has been accounted for using the purchase method. Accordingly, The
Liberty Group's assets and liabilities have been recorded at their respective
fair market values therefore, creating a new cost basis. For financial reporting
purposes the AT&T Merger is deemed to have occurred on March 1, 1999.
Accordingly, for periods prior to March 1, 1999 the assets and liabilities
attributed to The Liberty Principal Transaction Assets Group and the related
combined financial statements are sometimes referred to herein as "The Old
Liberty Group," and for periods subsequent to February 28, 1999 the assets and
liabilities attributed to The Liberty Principal Transaction Assets Group and the
related combined financial statements are sometimes referred to herein as "The
New Liberty Group." The "Group" and "The Liberty Group" refer to both The New
Liberty Group and The Old Liberty Group.
The accompanying interim combined financial statements are unaudited but,
in the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the results for such
periods. The results of operations for any interim period are not necessarily
indicative of results for the full year. These combined financial statements
should be read in conjunction with the combined financial statements and notes
thereto contained for the year ended December 31, 1999 contained elsewhere in
this proxy statement/prospectus.
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 at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
F-180
<PAGE> 313
LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVESTMENTS IN AFFILIATES ACCOUNTED FOR UNDER THE EQUITY METHOD
Liberty Group has various investments accounted for under the equity
method. The following table includes Liberty Group's carrying amount and
percentage ownership of the more significant investments in affiliates at June
30, 2000 and the carrying amount at December 31, 1999:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
--------------------- -----------------
PERCENTAGE CARRYING CARRYING
OWNERSHIP AMOUNT AMOUNT
---------- -------- -----------------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
Telewest......................................... 24.6% $3,045 $1,992
Flextech......................................... -- 727
Cablevision...................................... 28.3% 239 256
Other............................................ Various 193 316
------ ------
$3,477 $3,291
------ ------
</TABLE>
The following table reflects Liberty Group's share of earnings (losses) of
affiliates:
<TABLE>
<CAPTION>
SIX MONTHS FOUR MONTHS TWO MONTHS
ENDED ENDED ENDED
JUNE 30, JUNE 30, FEBRUARY 28,
2000 1999 1999
---------- ----------- ------------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
Telewest.......................................... $(167) $ (97) $(38)
Flextech.......................................... (18) (13) (5)
Cablevision....................................... (20) (8) (3)
Other............................................. (4) (4) (1)
----- ----- ----
$(209) $(122) $(47)
===== ===== ====
</TABLE>
Summarized unaudited combined financial information for affiliates is as
follows:
<TABLE>
<CAPTION>
SIX MONTHS FOUR MONTHS TWO MONTHS
ENDED ENDED ENDED
JUNE 30, JUNE 30, FEBRUARY 28,
2000 1999 1999
---------- ----------- ------------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
Consolidated Operations
Revenue......................................... $ 1,263 $ 743 $ 355
Operating expenses.............................. (1,011) (553) (263)
Depreciation and amortization................... (466) (245) (120)
------- ----- -----
Operating loss............................... (214) (55) (28)
Interest expense................................ (380) (190) (144)
Other, net...................................... (27) (67) (12)
------- ----- -----
Net loss..................................... $ (621) $(312) $(184)
======= ===== =====
</TABLE>
In April 2000, Telewest acquired Flextech. As a result, each share of
Flextech was exchanged for 3.78 new Telewest shares. Prior to the acquisition,
Liberty Group owned an approximate 37% equity interest in Flextech and a 22%
equity interest in Telewest. As a result of the acquisition, Liberty Group owns
an approximate 25% equity interest in Telewest. Liberty Group recognized a $649
million gain (excluding related tax expense of $227 million) on the acquisition
during the second quarter of 2000 based on the difference between the carrying
value of Liberty Group's interest in Flextech and the fair value of the Telewest
shares received. At June 30, 2000, Liberty Group owned 724 million of the issued
and
F-181
<PAGE> 314
LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding Telewest ordinary shares. Telewest's ordinary shares reported a
closing price on the London Stock Exchange of $3.46 per share on June 30, 2000.
In May 2000, Pramer acquired a 50% equity interest in Gems International TV
("Gems") for $7.5 million.
In May 2000, Crown Media Holdings, Inc. ("Crown Media") purchased one of
the Company's equity investments in conjunction with the Crown Media initial
public offering. As a result of this transaction, Liberty Group received
9,154,930 shares of Crown Media and realized a $9 million loss on the sale.
Following the contribution and the Crown Media IPO, Liberty owns approximately
16% of Crown Media.
3. INVESTMENT IN AVAILABLE-FOR-SALE SECURITIES
Liberty Group's investment in available-for-sale securities consists of its
approximate 16% ownership in Crown Media. The fair value of the investment
totaled $146 million at June 30, 2000. Unrealized holding gains on the
investment totaled $8 million as of June 30, 2000.
4. DUE TO LIBERTY MEDIA
On May 18, 2000, the Liberty Group declared a distribution of combined
equity in the amount of $1.2 billion in the form of notes payable, secured by
the assets of the underlying investments of Liberty Group. A portion of the
notes payable, totaling $200 million, bear interest at 14% per annum, increasing
to 18% in May 2001, and mature in November 2001. The remaining notes bear
interest at 14% per annum and are due in May 2001. Interest on the notes is
payable semi-annually commencing in September 2000. During the period ended June
30, 2000, Liberty Group recorded interest expense to Liberty Media in the amount
of $21 million.
In addition, Liberty Media advanced an additional $4 million in the form of
a non-interest bearing note receivable, which is due on demand.
5. COMBINED EQUITY
Transactions with Related Parties
The Puerto Rico Subsidiary purchases programming services from AT&T. The
charges, which approximate AT&T's cost and are based on the aggregate number of
subscribers served by the Puerto Rico Subsidiary, aggregated $4 million, $2
million and $1 million during the six month period ended June 30, 2000, the four
month period ended June 30 1999, and the two months ended February 28, 1999,
respectively, and are included in operating expenses in the accompanying
combined statements of operations and comprehensive loss.
6. COMMITMENTS AND CONTINGENCIES
Under the terms of the purchase agreement between the sellers and the
purchasers of Pramer and Liberty Group, the sellers are required to reimburse
Liberty Group for 50% of any losses subsequent to the purchase date arising from
loss contingencies or unrecorded liabilities (as defined in the purchase
agreement) attributable to circumstances existing prior to that date.
Flextech has undertaken to finance the working capital requirements of a
joint venture that it has formed with BBC Worldwide Limited, and is obligated to
provide this joint venture with a primary credit facility of L88 million and,
subject to certain restrictions, a standby credit facility of L30 million. As of
June 30, 2000, this joint venture had borrowed L66 million under the primary
credit facility. If Flextech defaults in its funding obligation to the joint
venture and fails to cure the default within 42 days after
F-182
<PAGE> 315
LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
receipt of notice from BBC Worldwide, BBC Worldwide is entitled, within the
following 90 days, to require that Liberty Group assume all of Flextech's
funding obligations to the joint venture.
The Group has contingent liabilities related to legal proceedings and other
matters arising in the ordinary course of business. In the opinion of
management, it is expected that amounts, if any, which may be required to
satisfy such contingencies will not be material in relation to the accompanying
financial statements.
7. INFORMATION ABOUT LIBERTY GROUP'S OPERATING SEGMENTS
Liberty Group is a combination of subsidiaries and investments owned by
Liberty Media. For the ten months ended December 31, 1999, Liberty Group
presents three operating segments: Pramer, the Puerto Rico subsidiary and Equity
Method Affiliates and Other.
The accounting policies of the segments that are also consolidated
subsidiaries are the same as those described in the summary of significant
accounting policies. Liberty Group presents revenue, operating income and share
of losses of affiliates as performance measures of these segments. Liberty Group
generally accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current prices.
<TABLE>
<CAPTION>
PUERTO EQUITY METHOD
RICO AFFILIATES AND
PRAMER SUBSIDIARY OTHER TOTAL
------ ---------- -------------- ------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
Performance Measures:
Six months ended June 30, 2000
Revenue............................................ $ 36 $ 24 $ -- $ 60
Operating income................................... 7 1 -- 8
Share of losses of affiliates...................... -- -- (209) (209)
Balance Sheet Information:
As of June 30, 2000
Segment assets..................................... 124 260 3,595 3,979
Investments in affiliates.......................... -- -- 3,477 3,477
Performance Measures:
Four months ended June 30, 1999
Revenue............................................ 23 14 -- 37
Operating income................................... 4 2 -- 6
Share of losses of affiliates...................... -- -- (122) (122)
----------------------------------------------------------------------------------------------------
Two months ended February 28, 1999
Revenue............................................ 10 5 -- 15
Operating income (loss)............................ 1 (1) -- --
Share of losses of affiliates...................... -- -- (47) (47)
</TABLE>
8. SALE OF BUSINESS
On June 26, 2000, Liberty and UnitedGlobalCom, Inc. ("United") announced an
agreement under which United will acquire certain of Liberty's international
broadband distribution and programming assets (Liberty Group) in exchange for
cash and shares of United. Consummation of the transaction is subject to, among
other matters, regulatory approvals. There can be no assurance such transaction
will be consummated.
F-183
<PAGE> 316
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Liberty Media Corporation:
We have audited the accompanying combined balance sheets of The Liberty
Principal Transaction Assets Group ("New Liberty Group" or "Successor") as of
December 31, 1999 and of The Liberty Principal Transaction Assets Group ("Old
Liberty Group" or "Predecessor") as of December 31, 1998, and the related
combined statements of operations and comprehensive loss, equity and cash flows
for the period from March 1, 1999 to December 31, 1999 (Successor period) and
for the period from January 1, 1999 to February 28, 1999 and for each of the
years in the two year period ended December 31, 1998 (Predecessor periods).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned Successor combined financial statements
present fairly, in all material respects, the financial position of the New
Liberty Group as of December 31, 1999, and the results of its operations and its
cash flows for the Successor period, in conformity with generally accepted
accounting principles. Further, in our opinion, the aforementioned Predecessor
combined financial statements present fairly, in all material respects, the
financial position of the Old Liberty Group as of December 31, 1998, and the
results of its operations and its cash flows for the Predecessor periods, in
conformity with generally accepted accounting principles.
As discussed in note 1, effective March 9, 1999, AT&T Corp., the owner of
the assets comprising the New Liberty Group, acquired Tele-Communications, Inc.,
the owner of the assets comprising the Old Liberty Group, in a business
combination accounted for as a purchase. As a result of the acquisition, the
combined financial information for the periods after the acquisition is
presented on a different cost basis than that for the periods before the
acquisition and, therefore, is not comparable.
KPMG LLP
Denver, Colorado
February 29, 2000
F-184
<PAGE> 317
THE LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
THE NEW THE OLD
LIBERTY GROUP LIBERTY GROUP
------------- -------------
1999 1998
------------- -------------
(AMOUNTS IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6 $ 16
Trade and other receivables, net.......................... 34 10
Prepaid expenses.......................................... 8 4
------ ------
Total current assets.............................. 48 30
------ ------
Investments in affiliates, accounted for under the equity
method, and related receivables (note 4).................. 3,291 1,299
------ ------
Property and equipment, at cost............................. 79 91
Less accumulated depreciation............................. 8 37
------ ------
71 54
------ ------
Intangible assets:
Excess cost over acquired net assets...................... 62 173
Franchise costs........................................... 190 78
------ ------
252 251
Less accumulated amortization.......................... 11 14
------ ------
241 237
------ ------
Total assets...................................... $3,651 $1,620
====== ======
LIABILITIES AND COMBINED EQUITY
Current liabilities:
Accounts payable.......................................... $ 18 $ 14
Accrued liabilities....................................... 11 4
Current portion of long-term debt......................... 23 40
------ ------
Total current liabilities......................... 52 58
------ ------
Long-term debt (note 6)..................................... 45 113
Deferred income tax liabilities (note 7).................... 682 17
------ ------
Total liabilities................................. 779 188
------ ------
Combined equity (note 8):
Combined equity........................................... 2,861 1,414
Accumulated other comprehensive earnings.................. 11 18
------ ------
Total combined equity............................. 2,872 1,432
------ ------
Total liabilities and combined equity............. $3,651 $1,620
====== ======
</TABLE>
See accompanying notes to combined financial statements.
F-185
<PAGE> 318
THE LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
THE NEW
LIBERTY
GROUP THE OLD LIBERTY GROUP
------------ ----------------------------
TEN MONTHS TWO MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
DECEMBER 31, FEBRUARY 28, -------------
1999 1999 1998 1997
------------ ------------ ----- -----
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
Revenue.............................................. $ 94 $ 15 $ 62 $ 213
Operating costs and expenses:
Operating.......................................... 40 6 20 70
Selling, general and administrative................ 23 5 16 61
Depreciation and amortization...................... 17 4 11 50
----- ---- ----- -----
80 15 47 181
----- ---- ----- -----
Operating earnings......................... 14 -- 15 32
Other income (expense):
Interest expense................................... (6) (1) (5) (12)
Interest income.................................... 3 -- 2 3
Share of losses of affiliates, net (note 4)........ (317) (47) (177) (160)
Minority interests in earnings of subsidiaries..... -- -- -- (9)
Gains on dispositions, net (note 4)................ -- -- 4 29
Gains on issuance of equity by affiliates and
subsidiaries (note 4)........................... -- -- 66 20
----- ---- ----- -----
(320) (48) (110) (129)
----- ---- ----- -----
Loss before income taxes............................. (306) (48) (95) (97)
Income tax benefit (note 7).......................... 103 35 30 27
----- ---- ----- -----
Net loss................................... (203) (13) (65) (70)
----- ---- ----- -----
Other comprehensive earnings, net of taxes:
Foreign currency translation adjustments........... $ 11 $(11) $ -- $ (13)
----- ---- ----- -----
Comprehensive loss................................... $(192) $(24) $ (65) $ (83)
===== ==== ===== =====
</TABLE>
See accompanying notes to combined financial statements.
F-186
<PAGE> 319
THE LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE TOTAL
COMBINED EARNINGS, COMBINED
EQUITY NET OF TAXES EQUITY
-------- ------------- --------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1997.................................. $1,045 $ 31 $1,076
Net loss.................................................. (70) -- (70)
Foreign currency translation adjustment................... -- (13) (13)
Cash distributions to Liberty Media Corporation ("Liberty
Media"), net........................................... (55) -- (55)
Deconsolidation and issuance of stock by Flextech plc.
(note 4)............................................... 99 -- 99
------ ---- ------
BALANCE AT DECEMBER 31, 1997................................ 1,019 18 1,037
Net loss.................................................. (65) -- (65)
Application of purchase accounting adjustments relating to
Parent's minority interest buyout of
Tele-Communications International, Inc. ............... 262 -- 262
Cash contributions by Liberty Media, net.................. 198 -- 198
------ ---- ------
BALANCE AT DECEMBER 31, 1998................................ $1,414 $ 18 $1,432
Net loss.................................................. (13) -- (13)
Foreign currency translation adjustments.................. -- (11) (11)
Cash distributions to Liberty Media, net.................. (4) -- (4)
------ ---- ------
BALANCE ON FEBRUARY 28, 1999................................ $1,397 $ 7 $1,404
------ ---- ------
-------------------------------------------------------------------------------------------------
BALANCE AT MARCH 1, 1999 (NOTE 1)........................... $2,849 $ -- $2,849
Net loss.................................................. (203) -- (203)
Foreign currency translation adjustments.................. -- 11 11
Issuance of stock by affiliate............................ 8 -- 8
Utilization of net operating losses of Liberty Principal
Transactions Assets Group by Liberty Media............. (29) -- (29)
Cash contributions by Liberty Media, net.................. 236 -- 236
------ ---- ------
BALANCE AT DECEMBER 31, 1999................................ $2,861 $ 11 $2,872
====== ==== ======
</TABLE>
See accompanying notes to combined financial statements.
F-187
<PAGE> 320
THE LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THE NEW
LIBERTY GROUP THE OLD LIBERTY GROUP
------------- ----------------------------
TEN MONTHS TWO MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
DECEMBER 31, FEBRUARY 28, -------------
1999 1999 1998 1997
------------- ------------ ----- -----
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(203) $(13) $ (65) $ (70)
Adjustments to reconcile net losses to net cash
provided (used) by operating activities:
Depreciation and amortization.................. 17 4 11 50
Share of losses of affiliates, net............. 317 47 177 160
Deferred income tax benefit (note 7)........... (102) (26) (31) (57)
Minority interests in losses of subsidiaries... -- -- -- 9
Gains on issuance of equity by affiliates and
subsidiaries................................. -- -- (66) (20)
Gains on disposition of assets, net............ -- -- (4) (29)
Changes in the operating assets and
liabilities, net of the effect of
acquisitions and dispositions
Change in receivables........................ (12) (10) 1 --
Change in prepaid expenses................... (4) (3)
Change in payables and accruals.............. 17 (5) (6) (22)
----- ---- ----- -----
Net cash provided (used) by operating
activities.............................. 30 (3) 17 18
----- ---- ----- -----
Cash flows from investing activities:
Capital expended for property and equipment....... (23) (3) (11) (50)
Cash balances of deconsolidated subsidiaries...... -- -- -- (39)
Cash received on disposition of interest in
Cablevision.................................... -- -- -- 120
Cash paid for acquisitions, net of cash acquired
(Note 5)....................................... -- -- (23) --
Investments in and loans to affiliates and
others......................................... (157) -- (187) (39)
Purchase of net assets of consolidated
subsidiaries................................... -- -- (15) (23)
Collections on loans to affiliates and others..... -- -- -- 2
Cash proceeds from dispositions................... 12 1
Other............................................. -- (1) -- --
----- ---- ----- -----
Net cash provided (used) by investing activities.... (180) (4) (224) (28)
----- ---- ----- -----
Cash flows from financing activities:
Cash contributions from (to) Liberty Media, net... 236 (4) 198 (55)
Borrowings of debt................................ -- -- 45 206
Repayments of debt................................ (80) (5) (19) (183)
----- ---- ----- -----
Net cash provided (used) by financing
activities................................... 156 (9) 224 (32)
----- ---- ----- -----
Net increase (decrease) in cash and cash
equivalents.................................. 6 (16) 17 (42)
Cash and cash equivalents at beginning of period.... -- 16 (1) 41
----- ---- ----- -----
Cash and cash equivalents at end of period.......... $ 6 $ -- $ 16 $ (1)
===== ==== ===== =====
</TABLE>
See accompanying notes to combined financial statements.
F-188
<PAGE> 321
THE LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
(A COMBINATION OF CERTAIN ASSETS, AS DEFINED IN NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(1) BASIS OF PRESENTATION
The financial statements of the Liberty Principal Transaction Assets Group are
the combination of certain consolidated subsidiaries and equity method investees
of Liberty Media Corporation a wholly-owned subsidiary of AT&T Corp.
These combined financial statements primarily include the following consolidated
subsidiaries and equity method investees (a) Liberty's 100% interest in Pramer
SCA ("Pramer"), which is a cable television programming company located and
operating primarily in Argentina, (b) Liberty's 100% interest in Liberty
Cablevision of Puerto Rico, which primarily provides primarily cable television
services in Puerto Rico ("Puerto Rico Subsidiary"), (c) Liberty's 28% equity
interest in Cablevision S.A. ("Cablevision"), a provider of cable television and
high speed data services in Argentina, (d) Liberty's 22% interest in Telewest
Communications plc ("Telewest"), which is a broadband communications provider,
including cable television, telephony and high speed data services in the United
Kingdom, (e) Liberty's 40% equity interest in Torneos y Competencias S.A., an
Argentinean company distributing soccer programming and rights, (f) Liberty's
37% equity interest in Flextech plc ("Flextech"), which provides cable
television programming in the United Kingdom and continental Europe, (g)
Liberty's 20% equity interest in Premium Movie Partnership, which is a cable
television programming company operating in Australia and, (h) Liberty's 33%
equity interest in Odyssey, which provides cable television programming
services.
On March 9, 1999, AT&T acquired Tele-Communications, Inc. ("TCI"), the former
owner of Liberty, in a merger transaction (the "AT&T Merger"). The AT&T Merger
has been accounted for using the purchase method. Accordingly, The Liberty
Group's assets and liabilities have been recorded at their respective fair
market values therefore, creating a new cost basis. For financial reporting
purposes the AT&T Merger is deemed to have occurred on March 1, 1999.
Accordingly, for periods prior to March 1, 1999 the assets and liabilities
attributed to The Liberty Principal Transaction Assets Group and the related
combined financial statements are sometimes referred to herein as "The Old
Liberty Group," and for periods subsequent to February 28, 1999 the assets and
liabilities attributed to The Liberty Principal Transaction Assets Group and the
related combined financial statements are sometimes referred to herein as "The
New Liberty Group." The "Group" and "The Liberty Group" refer to both The New
Liberty Group and The Old Liberty Group.
F-189
<PAGE> 322
THE LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The following table represents the summary balance sheet of The Old Liberty
Group at February 28, 1999, prior to the AT&T Merger and the opening summary
balance sheet of The New Liberty Group subsequent to the AT&T Merger.
<TABLE>
<CAPTION>
THE OLD THE NEW
LIBERTY LIBERTY
GROUP GROUP
------- -------
(AMOUNTS IN
MILLIONS)
<S> <C> <C>
ASSETS:
Current assets.............................................. $ 25 $ 25
Deferred income taxes....................................... 15 --
Investments in affiliates................................... 1,234 3,424
Property and equipment, net................................. 56 56
Intangibles and other assets................................ 235 252
------ ------
$1,565 $3,757
====== ======
LIABILITIES AND EQUITY:
Current liabilities......................................... $ 13 $ 13
Deferred tax liability...................................... -- 747
Long-term debt.............................................. 148 148
------ ------
Total liabilities................................. 161 908
------ ------
Combined equity............................................. 1,404 2,849
------ ------
$1,565 $3,757
====== ======
</TABLE>
The following table reflects the capitalization resulting from the AT&T Merger
(amounts in millions):
<TABLE>
<S> <C>
Combined equity of The Old Liberty Group................... $1,404
Purchase accounting adjustments............................ 1,445
------
Initial combined equity of The New Liberty Group subsequent
to the AT&T Merger....................................... $2,849
======
</TABLE>
The following unaudited condensed results of operations for the years ended
December 31, 1999 and 1998 were prepared assuming the AT&T Merger occurred on
January 1, 1998. These pro forma amounts are not necessarily indicative of
operation results that would have occurred if the AT&T Merger had occurred on
January 1, 1998.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------
1999 1998
----- -----
(AMOUNTS IN
MILLIONS)
<S> <C> <C>
Revenue..................................................... $ 109 $ 62
Net loss.................................................... $(228) $(136)
</TABLE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of investments which are readily convertible
into cash and have maturities of three months or less at the time of
acquisition.
F-190
<PAGE> 323
THE LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
RECEIVABLES
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at December 31, 1999 and 1998 was not material.
INVESTMENTS
The Group accounts for its investments in affiliates using the equity method.
Under this method, the investment, originally recorded at cost, is adjusted to
recognize the Group's share of net earnings or losses of the affiliates as they
occur rather than as dividends or other distributions are received, limited to
the extent of the Group's investment in, advances to and commitments for the
investee The Group's share of net earnings or losses of affiliates includes the
amortization of the difference between the Group's investment and its share of
the net assets of the investee. Recognition of gains on sales of properties to
affiliates accounted for under the equity method is deferred in proportion to
the Group's ownership interest in such affiliates.
Subsequent to the AT&T Merger, changes in the group's proportionate share of the
underlying equity of a subsidiary or equity method investee, which result from
the issuance of additional equity securities by such subsidiary or equity
investee, generally are recognized as gains or losses in the Group's combined
statements of combined equity.
PROPERTY AND EQUIPMENT
Property and equipment, including significant improvements, is stated at cost.
Depreciation is computed on a straight-line basis using estimated useful lives
of 3 to 20 years for support equipment and 10 to 40 years for buildings and
improvements.
EXCESS COST OVER ACQUIRED NET ASSETS
Excess cost over acquired net assets consists of the difference between the cost
of acquiring non-cable entities and amounts assigned to their tangible assets.
Such amounts are generally amortized on a straight-line basis over 20 years.
FRANCHISE COSTS
Franchises costs generally include the difference between the cost of acquiring
cable companies and amounts allocated to their tangible assets. Such amounts are
amortized on a straight-line basis over 20 years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Liberty Group periodically reviews the carrying amounts of property, plant
and equipment and its intangible assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary, such loss is measured by the amount that the
carrying value of such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets, accordingly, actual
results could vary significantly from such estimates. Assets to be disposed of
are carried at the lower of their financial statement carrying amount or fair
value less costs to sell.
MINORITY INTERESTS
Recognition of minority interests' share of losses of subsidiaries is generally
limited to the amount of such minority interests' allocable portion of the
common equity of those subsidiaries. Further, the minority
F-191
<PAGE> 324
THE LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
interests' share of losses is not recognized if the minority holders of common
equity of subsidiaries have the right to cause the Group to repurchase such
holders' common equity.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Group is the United States ("U.S.") dollar. The
functional currency of the Group's foreign operations generally is the
applicable local currency for each foreign subsidiary and foreign equity method
investee. In this regard, the function currency of certain of the Group's
foreign subsidiaries and foreign equity investees is the Argentine peso, the
United Kingdom ("UK") pound sterling and the Australian dollar. Assets and
liabilities of foreign subsidiaries and foreign equity investees are translated
at the spot rate in effect at the applicable reporting date, and the combined
statements of operations and the Group's share of the results of operations of
its foreign equity affiliates are translated at the average exchange rates in
effect during the applicable period. The resulting unrealized cumulative
translation adjustment, net of applicable income taxes, is recorded as a
component of accumulated other comprehensive earnings in combined equity.
Transactions denominated in currencies other than the functional 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 the accompanying consolidated statements of operations and
comprehensive earnings as unrealized (based on the applicable period end
exchange rate) or realized upon settlement of the transactions.
Unless otherwise indicated, convenience translations of foreign currencies into
U.S. dollars are calculated using the applicable spot rate at December 31, 1999,
as published in the Wall Street Journal.
REVENUE RECOGNITION
Programming revenue is recognized in the period during which programming is
provided, pursuant to affiliation agreements. Advertising revenue is recognized,
net of agency commissions, in the period during which underlying advertisements
are broadcast. Cable revenue is recognized in the period that services are
rendered. Cable installation revenue is recognized in the period the related
services are provided to the extent of direct selling costs. Any remaining
amount is deferred and recognized over the estimated average period that
customers are expected to remain connected to the cable distribution system.
ESTIMATES
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 at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
(3) SUPPLEMENTAL DISCLOSURES TO COMBINED STATEMENTS OF CASH FLOWS
Cash paid for interest was $6 million, $2 million, $5 million and $1 million for
the ten months ended December 31, 1999, the two months ended February 28, 1999
and the years ended December 31, 1998 and 1997, respectively. Cash paid for
income taxes during the ten months ended December 31, 1999, the
F-192
<PAGE> 325
THE LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
two months ended February 28, 1999 and the years ended December 31, 1998 and
1997 was not significant.
<TABLE>
<CAPTION>
OLD LIBERTY GROUP
YEAR ENDED
DECEMBER 31
1998
(AMOUNTS IN MILLIONS)
----------------------
<S> <C>
Cash paid for acquisitions
Fair value of assets acquired.................. $25
Net liabilities assumed........................ (4)
Debt issued to related parties and others...... (82)
Excess consideration paid over carryover basis
of net assets acquired from related party... 84
---
Cash paid for acquisitions, net of cash
acquired....................................... $23
===
</TABLE>
Liberty Group ceased to include Flextech p.l.c. ("Flextech") and Cablevision
S.A. ("Cablevision") in its combined financial results and began to account for
Flextech and Cablevision using the equity method of accounting effective January
1, 1997 and October 1, 1997, respectively. The effects of changing the method of
accounting for Liberty Group's ownership interests in these investments from the
consolidation method to the equity method are summarized below:
<TABLE>
<CAPTION>
OLD LIBERTY GROUP
YEAR ENDED
DECEMBER 31
1997
(AMOUNTS IN MILLIONS)
---------------------
<S> <C>
Assets (other than cash and cash equivalents)
reclassified to investments in affiliates...... $(596)
Liabilities reclassified to investments in
affiliates..................................... 484
Minority interests in equity of attributed
subsidiaries reclassified to investments in
affiliates..................................... 151
-----
Decrease in cash and cash equivalents............ $ 39
=====
</TABLE>
(4) INVESTMENTS IN AFFILIATES ACCOUNTED FOR UNDER THE EQUITY METHOD
Liberty Group has various investments accounted for under the equity method. The
following table includes Liberty Group's carrying amount and percentage
ownership of the more significant investments in affiliates at December 31, 1999
and the carrying amount at December 31, 1998:
<TABLE>
<CAPTION>
THE NEW THE OLD
LIBERTY GROUP LIBERTY GROUP
--------------------- -----------------
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------- -----------------
PERCENTAGE CARRYING CARRYING
OWNERSHIP AMOUNT AMOUNT
---------- -------- -----------------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
Telewest......................................... 22% $1,992 $ 515
Flextech......................................... 37% 727 320
Cablevision...................................... 28% 256 332
Other............................................ Various 316 132
------ ------
$3,291 $1,299
====== ======
</TABLE>
F-193
<PAGE> 326
THE LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The following table reflects Liberty Group's share of losses, net of affiliates:
<TABLE>
<CAPTION>
THE NEW
LIBERTY GROUP THE OLD LIBERTY GROUP
------------- ----------------------------
TEN MONTHS TWO MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
DECEMBER 31, FEBRUARY 28, -------------
1999 1999 1998 1997
------------- ------------ ----- -----
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
Telewest.................................... $(225) $(38) $(135) $(145)
Flextech.................................... (41) (5) (21) (16)
Cablevision................................. (28) (3) (23) (3)
Other....................................... (23) (1) 2 4
----- ---- ----- -----
$(317) $(47) $(177) $(160)
===== ==== ===== =====
</TABLE>
Summarized unaudited combined financial information for affiliates is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
-------- -------
(AMOUNTS IN MILLIONS)
<S> <C> <C>
Combined Financial Position:
Investments............................................... $ 496 $ 545
Property and equipment, net............................... 4,912 4,419
Intangibles, net.......................................... 3,832 3,303
Other assets, net......................................... 1,049 1,077
------- ------
Total assets...................................... $10,289 $9,344
======= ======
Debt...................................................... $ 6,325 $4,921
Other liabilities......................................... 1,302 1,487
Combined equity........................................... 2,662 2,936
------- ------
Total liabilities and equity...................... $10,289 $9,344
======= ======
</TABLE>
<TABLE>
<CAPTION>
TEN MONTHS TWO MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
DECEMBER 31, FEBRUARY 28, ----------------
1999 1999 1998 1997
------------- ------------ ------- -----
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
Combined Operations:
Revenue......................................... $ 1,794 $ 355 $ 1,803 $ 991
Operating expenses.............................. (1,395) (263) (1,354) (867)
Depreciation and amortization................... (604) (120) (585) (365)
------- ----- ------- -----
Operating loss.......................... (205) (28) (136) (241)
Interest expense.................................. (479) (144) (421) (232)
Other, net........................................ (168) (12) (93) (90)
------- ----- ------- -----
Net loss................................ $ (852) $(184) $ (650) $(563)
======= ===== ======= =====
</TABLE>
Telewest currently operates and constructs cable television and telephone
systems in the UK. At December 31, 1999 Liberty Group indirectly owned 506
million of the issued and outstanding Telewest ordinary shares. The reported
closing price on the London Stock Exchange of Telewest Ordinary shares was $5.34
per share at December 31, 1999.
F-194
<PAGE> 327
THE LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Effective September 1, 1998, Telewest and General Cable PLC ("General Cable")
consummated a merger (the "General Cable Merger") in which holders of General
Cable received New Telewest shares and cash. Based upon Telewest's closing price
of $1.51 per share on April 14, 1998, the General Cable Merger was valued at
approximately $1.1 billion. The cash portion of the General Cable Merger was
financed through an offer to qualifying Telewest shareholders for the purchase
of approximately 261 million New Telewest shares at a price of $1.57 per share
the "Telewest Offer"). Liberty Group subscribed to 85 million Telewest ordinary
shares at an aggregate cost of $133 million in connection with the Telewest
Offer. In connection with the General Cable Merger, Liberty Group converted its
entire holdings of Telewest convertible preference shares (133 million shares)
into Telewest ordinary shares. As a result of the General Cable Merger, Liberty
Group's ownership interest in Telewest decreased to 22%. In connection with the
increase in Telewest's equity, net of the dilution of Liberty Group's interest
in Telewest, that resulted from the General Cable Merger, Liberty Group recorded
a non-cash gain of $60 million during 1998.
At December 31, 1999, Liberty Group indirectly owned 58 million Flextech
ordinary shares. The reported closing price on the London Stock Exchange of the
Flextech ordinary shares was $18.58 per share at December 31, 1999.
In April 1997, Flextech and BBC Worldwide Limited ("BBC Worldwide") formed two
separate joint ventures (the "BBC Joint Ventures") and entered into certain
related transactions. The consummation of the BBC Joint Ventures and related
transactions resulted in, among other things, a reduction of Liberty's economic
ownership interest in Flextech from 46.2% to 36.8%. Liberty Group continues to
maintain a voting interest in Flextech of approximately 50%. As a result of such
dilution, Liberty Group recorded a $99 million increase to the carrying amount
of Liberty Group's investment in Flextech, net of a $53 million increase to
deferred income tax liability. No gain was recognized in the consolidated
statement of operations and comprehensive earnings due primarily to certain
contingent obligations of Liberty Group with respect to one of the BBC Joint
Ventures.
On October 9, 1997, Liberty Group sold a portion of its 51% interest in
Cablevision to unaffiliated third parties for cash proceeds of $120 million. In
connection with such sale and certain related transactions, Liberty Group
recognized a gain of $49 million. On October 13, 1998, one of the Cablevision
shareholders exercised a put right representing a 7.2% interest in Cablevision.
Consequently, on December 22, 1998, Liberty Group's parent purchased its
pro-rata portion of such shareholder's interest for $25 million, $8 million of
which was paid at closing and the remaining amount (including accrued interest
thereon) will be paid in four equal semi-annual installments. Liberty Group's
parent contributed the equity interest and the associated debt to the Liberty
Group. As of December 31, 1999, the Liberty Group has a 28% equity interest in
Cablevision.
The aggregate excess of Liberty Group's aggregate carrying amount in its
affiliates over Liberty Group's proportionate share of its affiliates' net
assets of $2,527 million is being amortized over an estimated useful life of 20
years.
Certain of Liberty Group's affiliates are general partnerships and, as such, are
liable as a matter of partnership law for all debts (other than non-recourse
debts) of that partnership in the event liabilities of that partnership were to
exceed its assets.
(5) ACQUISITIONS
On August 24, 1998, Liberty Group purchased 100% of the issued and outstanding
common stock of Pramer SCA ("Pramer"), an Argentine programming company, for a
total purchase price of $80 million, which was satisfied by $15 million in cash
and the issuance of notes payable in the amount of $65 million. Such transaction
was accounted for under the purchase method. Accordingly, the results of
operations of
F-195
<PAGE> 328
THE LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Pramer have been consolidated with those of Liberty Group since August 24, 1998.
The $80 million excess cost over acquired net assets is being amortized over 20
years.
(6) LONG-TERM DEBT
Debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1999 1998
----- -----
(AMOUNTS IN
MILLIONS)
<S> <C> <C>
Bank Credit Facilities(a)................................... $45 $ 90
Senior Notes(b)............................................. 15 47
Other(c).................................................... 8 16
--- ----
68 153
Less current portion........................................ 23 40
--- ----
Long-term debt.............................................. $45 $113
=== ====
</TABLE>
(a) Liberty Cablevision of Puerto Rico has entered into a credit agreement with
a commercial bank acting as Administrative Agent for a group of lenders
which provides credits, in a declining maximum aggregate principal amount
not to exceed initially $100 million ($45 million at December 31, 1999).
Interest is charged at the lower of LIBOR plus a stipulated variable margin
or a base rate (defined as the higher of (a) the interest rate most
recently established by the Administrative Agent as its base rate for
dollar loans in the United States, and (b) the federal funds rate most
recently determined by the Administrative Agent plus 1/4 of 1 percent).
Interest is due on specified dates including (a) the stated maturity date
of a draw; (b) the date of payment or prepayment of a loan; (c) with
respect to Base Rate Loans, on each quarterly payment date occurring after
the initial borrowing; (d) with respect to LIBOR Rate Loans, the last day
of each applicable interest period; and (e) on that portion of any loans,
the stated maturity date of which is accelerated immediately upon such
acceleration.
Beginning with the year ending on December 31, 2000, the commitment under
the Credit Agreement is reduced annually by the stipulated percentages
until it reaches zero on March 31, 2006. Consequently, loans outstanding in
excess of the authorized reduced maximum commitment during the period from
2000 to March 31, 2006, require mandatory repayments equal to the amount
outstanding in excess of the outstanding maximum commitment. During the
predecessor periods and until March 9, 1999, the Company pays an annual
commitment fee equal to 3/8 of one percent on the sum of the average daily
unused portion of the commitment amount.
At December 31, 1999, the amount outstanding under this credit agreement is
$45 million, which bears interest at LIBOR plus .5 percent, payable
monthly.
(b) In conjunction with the acquisition of Pramer, Liberty Group's parent
issued secured promissory notes totaling $65 million. An initial payment of
$11 million was made on October 1, 1998. The remainder of the notes are due
in 20 equal monthly installments beginning October 15, 1998. The notes
accrue interest at 9.25 percent per annum. At December 31, 1999, the amount
outstanding on the notes totaled $15 million.
(c) In addition, Liberty Group's parent entered into a note payable with a
shareholder of Cablevision for his remaining interest in Cablevision,
pursuant to the shareholder's agreement. The note payable totaled $16
million, including interest. An initial payment of $8 million was made in
December 1998. The remainder of the notes are due in 4 semi-annual
installments of $4.2 million, including interest. At December 31, 1999, the
amount outstanding on the notes totaled $8 million.
F-196
<PAGE> 329
THE LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES
Subsequent to the AT&T Merger, the operations of Liberty Media Group are
included in the consolidated federal income tax return of AT&T and Liberty
Group's parent is a party to a tax sharing agreement with AT&T (the "AT&T Tax
Sharing Agreement"). The Liberty Group calculates its respective tax liability
on a separate return basis. The income tax provision for the Liberty Group is
calculated based on the increase or decrease in the tax liability of the AT&T
consolidated group resulting from the inclusion of those items in the
consolidated tax return of AT&T which are attributable to the Liberty Group.
Prior to the AT&T Merger, the Liberty Group was included in TCI's consolidated
tax return and was a party to the TCI Tax Sharing Agreements.
Income tax benefit (expense) consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
Ten months ended December 31, 1999:
State and local income tax benefit (expense), including
intercompany tax allocation............................ $ (1) $ -- $ (1)
Federal income tax benefit, including intercompany tax
allocation............................................. 2 102 104
---- ---- ----
$ 1 $102 $103
==== ==== ====
------------------------------------------------------------------------------------------
Two months ended February 28, 1999:
Federal income tax benefit, including intercompany tax
allocation............................................. $ 9 $ 26 $ 35
---- ---- ----
$ 9 $ 26 $ 35
==== ==== ====
Year ended December 31, 1998:
Federal income tax benefit (expense), including
intercompany tax allocation............................ $ (1) $ 31 $ 30
---- ---- ----
$ (1) $ 31 $ 30
==== ==== ====
Year ended December 31, 1997:
State and local income tax expense, including intercompany
tax allocation......................................... $ (2) $ -- $ (2)
Federal income tax benefit (expense), including
intercompany tax allocation............................ (28) 57 29
---- ---- ----
$(30) $ 57 $ 27
==== ==== ====
</TABLE>
Income tax benefit differs from the amounts computed by applying the U.S.
federal income tax rate of 35% to pre-tax losses as a result of the following:
<TABLE>
<CAPTION>
THE NEW
LIBERTY GROUP THE OLD LIBERTY GROUP
------------- ----------------------------
TEN MONTHS TWO MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
DECEMBER 31, FEBRUARY 28, -------------
1999 1999 1998 1997
------------- ------------ ----- -----
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
Computed expected tax benefit........................... $107 $17 $33 $34
Foreign taxes........................................... (4) (1) -- --
Minority interest in equity of subsidiaries............. -- -- -- (3)
Other, net.............................................. -- 19 (3) (4)
---- --- --- ---
$103 $35 $30 $27
==== === === ===
</TABLE>
F-197
<PAGE> 330
THE LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax liabilities at December 31, 1999 and 1998 are presented
below:
<TABLE>
<CAPTION>
THE NEW THE OLD
LIBERTY GROUP LIBERTY GROUP
------------- -------------
DECEMBER 31,
-------------------------------
1999 1998
------------- -------------
(AMOUNTS IN MILLIONS)
<S> <C> <C>
Deferred tax assets:
Net operating and capital loss carryforwards.............. $ 2 $ 28
----- ----
Deferred tax assets............................... 2 28
----- ----
Deferred tax liabilities:
Investments in affiliates, due principally to the
application of purchase accounting and losses of
affiliates recognized for income tax purposes in excess
of losses recognized for financial statement
purposes............................................... (676) (16)
Property and equipment, net............................... (7) (7)
Intangibles, net.......................................... (1) (22)
----- ----
Deferred tax liabilities.......................... (684) (45)
----- ----
Net deferred tax liabilities...................... $(682) $(17)
===== ====
</TABLE>
(8) COMBINED EQUITY
TRANSACTIONS WITH RELATED PARTIES
The Puerto Rico Subsidiary purchases programming services from AT&T. The
charges, which approximate AT&T's cost and are based on the aggregate number of
subscribers served by the Puerto Rico Subsidiary, aggregated $6 million and $1
million during the ten months ended December 31, 1999, and the two months ended
February 28, 1999, respectively, and aggregated $6 million for each of the years
ended December 31, 1998 and 1997, and are included in operating expenses in the
accompanying combined statements of operations and comprehensive loss.
During 1997, Cablevision purchased programming services from certain Liberty
affiliates. The related charges generally were based upon the number of
Cablevision's subscribers that receive the respective services. During the year
ended December 31, 1997, such charges aggregated $12 million. Additionally,
during 1997, certain of Cablevision's general and administrative functions were
provided by Liberty. The related charges which generally are based upon the cost
of providing such functions, aggregated $2 million during the year ended
December 31, 1997. The above-described programming and general and
administrative charges were included in operating costs and expenses in the
accompanying combined statements of operations and comprehensive loss. In
addition, Cablevision purchases programming services from certain other
affiliates of Liberty Group.
(9) COMMITMENTS AND CONTINGENCIES
Under the terms of the purchase agreement between the sellers of Pramer and
Liberty Group, the sellers are required to reimburse Liberty Group for 50% of
any losses subsequent to the purchase date arising from loss contingencies or
unrecorded liabilities (as defined in the purchase agreement) attributable to
circumstances existing prior to that date.
Flextech has undertaken to finance the working capital requirements of a joint
venture (the "Principal Joint Venture") formed with BBC Worldwide, and is
obligated to provide the Principal Joint Venture with a primary credit facility
of L88 million and, subject to certain restrictions, a standby credit facility
of L30 million. As of December 31, 1999, the Principal Joint Venture had
borrowed L53 million under the
F-198
<PAGE> 331
THE LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
primary credit facility. If Flextech defaults in its funding obligation to the
Principal Joint Venture and fails to cure within 42 days after receipt of notice
from BBC Worldwide, BBC Worldwide is entitled, within the following 90 days, to
require that Liberty Group assume all of Flextech's funding obligations to the
Principal Joint Venture.
The Group has contingent liabilities related to legal proceedings and other
matters arising in the ordinary course of business. In the opinion of
management, it is expected that amounts, if any, which may be required to
satisfy such contingencies will not be material in relation to the accompanying
financial statements.
(10) INFORMATION ABOUT LIBERTY GROUP'S OPERATING SEGMENTS
Liberty Group is a combination of subsidiaries and investments operating owned
by Liberty Media. For the ten months ended December 31, 1999, Liberty Group
presents three operating segments: Pramer, the Puerto Rico Subsidiary and Equity
Method Affiliates and Other.
The accounting policies of the segments that are also consolidated subsidiaries
are the same as those described in the summary of significant accounting
policies. Liberty Group presents revenue, operating income and share of losses
of affiliates as performance measures of these segments. Liberty Group generally
accounts for intersegment sales and transfers as if the sales or transfers were
to third parties, that is, at current prices.
<TABLE>
<CAPTION>
EQUITY METHOD
PUERTO RICO INVESTMENTS
PRAMER SUBSIDIARY AND OTHER TOTAL
------ ----------- ------------- ------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C>
Performance Measures:
Ten months ended December 31, 1999
Revenue............................................ $ 55 39 -- 94
Operating income................................... 10 4 -- 14
Share of losses of affiliates...................... -- -- (317) (317)
-----------------------------------------------------------------------------------------------------
Two months ended February 28, 1999
Revenue............................................ $ 10 5 -- 15
Operating income (loss)............................ 1 (1) -- --
Share of losses of affiliates...................... -- -- (47) (47)
Year ended December 31, 1998
Revenue............................................ 17 45 -- 62
Operating income................................... 7 8 -- 15
Share of losses of affiliates...................... -- -- (177) (177)
Year ended December 31, 1997
Revenue............................................ -- 40 173 213
Operating income................................... -- 6 26 32
Share of losses of affiliates...................... -- -- (160) (160)
Balance Sheet Information:
As of December 31, 1999
Segments assets.................................... 113 266 3,272 3,651
Investments in affiliates.......................... -- -- 3,291 3,291
As of December 31, 1998
Segments assets.................................... 90 132 1,398 1,620
Investments in affiliates.......................... -- -- 1,299 1,299
</TABLE>
F-199
<PAGE> 332
THE LIBERTY PRINCIPAL TRANSACTION ASSETS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(11) SUBSEQUENT EVENT (UNAUDITED)
On June 26, 2000, Liberty and UnitedGlobalCom, Inc. ("United") announced an
agreement under which United will acquire certain of Liberty's international
broadband distribution and programming assets (Liberty Group) in exchange for
cash and shares of United. Consummation of the transaction is subject to, among
other matters, regulatory approvals. There can be no assurance such transaction
will be consummated.
F-200
<PAGE> 333
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Telewest Communications plc
We have audited the accompanying consolidated balance sheets of Telewest
Communications plc and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United Kingdom and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Telewest Communications plc and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles in the United States of America.
KPMG AUDIT PLC
Chartered Accountants
Registered Auditor
London, England
20 April 2000
F-201
<PAGE> 334
TELEWEST COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
(NOTE 2)
1999 1999 1998 1997
NOTES $M LM LM LM
----- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue
Cable television............................. 417.2 258.3 201.9 160.0
Telephony -- residential..................... 538.8 333.7 232.5 166.6
Telephony -- business........................ 285.2 176.5 84.2 43.9
Other (L0.3, L3.3 and L3.5 in 1999, 1998 and
1997, respectively, from related
parties).................................. 27.4 17.0 20.6 16.0
-------- ------- ------- -------
1,268.6 785.5 539.2 386.5
-------- ------- ------- -------
Operating Costs and Expenses
Programming.................................. (213.0) (131.9) (103.0) (93.4)
Telephony.................................... (255.2) (158.0) (82.3) (50.1)
Selling, general and administrative
(including L0.1, L2.0 and L1.2 in 1999,
1998 and 1997, respectively, to related
parties).................................. (496.1) (307.2) (207.9) (193.3)
Depreciation................................. (493.1) (305.3) (223.6) (177.3)
Amortization of goodwill..................... (99.5) (61.6) (36.2) (26.4)
-------- ------- ------- -------
(1,556.9) (964.0) (653.0) (540.5)
-------- ------- ------- -------
Operating Loss................................. (288.3) (178.5) (113.8) (154.0)
Other Income/(Expense)
Interest income (including L2.7, L3.1 and
L3.2 in 1999, 1998 and 1997, respectively,
from related parties)..................... 11.5 7.2 15.0 8.0
Interest expense............................. (473.5) (293.2) (206.0) (141.7)
Foreign exchange losses, net................. (79.7) (49.3) (11.9) (23.5)
Share of net losses of affiliates............ (9.9) (6.2) (18.7) (21.7)
(Loss)/gain on disposal of assets............ (1.1) (0.7) 1.6 0.9
Minority interests in loss/(profits) of
consolidated subsidiaries, net............ (0.1) (0.1) 1.1 (0.3)
-------- ------- ------- -------
Loss Before Income Taxes....................... (841.1) (520.8) (332.7) (332.3)
Income tax benefit/(expense)................. 14 -- -- -- (0.1)
-------- ------- ------- -------
Net Loss Before Extraordinary Item............. (841.1) (520.8) (332.7) (332.4)
Extraordinary loss on extinguishment of
debt...................................... 13 (32.5) (20.1) -- --
-------- ------- ------- -------
Net Loss............................. (873.6) (540.9) (332.7) (332.4)
======== ======= ======= =======
Basic and Diluted Loss Per Ordinary Share
Weighted average number of ordinary shares
outstanding as restated for the dilutive
effect of the 1999 rights issue and 1998
pre-emptive issue (millions).............. 2,197.0 2,197.0 1,422.3 1,040.7
-------- ------- ------- -------
Basic and Diluted Loss Per Ordinary Share
Net loss before extraordinary item........... $ (0.38) L(0.24) L(0.23) L(0.32)
Extraordinary loss........................... $ (0.01) L(0.01) -- --
Net loss..................................... $ (0.39) L(0.25) L(0.23) L(0.32)
-------- ------- ------- -------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-202
<PAGE> 335
TELEWEST COMMUNICATIONS PLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
(NOTE 2)
1999 1999 1998
NOTES $M LM LM
----- --------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.................................. 105.2 65.2 40.9
Secured cash deposits restricted for more than one year.... 17 19.4 12.0 187.4
Trade receivables (net of allowance for doubtful accounts
of L13.1 and L14.3)...................................... 132.6 82.1 77.3
Other receivables.......................................... 7 100.1 62.0 30.0
Prepaid expenses........................................... 12.3 7.6 17.9
Investments in affiliates, accounted for under the equity
method, and related receivables.......................... 8 6.5 4.0 26.6
Property and equipment (less accumulated depreciation of
L989.1 and L695.3)....................................... 9 4,551.2 2,818.1 2,457.1
Goodwill (less accumulated amortization of L162.1 and
L100.5).................................................. 2,381.2 1,474.4 1,095.8
Other assets (less accumulated amortization of L22.6 and
L12.0)................................................... 11 68.0 42.1 44.7
-------- -------- --------
Total Assets..................................... 7,376.5 4,567.5 3,977.7
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable........................................... 66.6 41.2 41.1
Other liabilities.......................................... 12 492.0 304.6 268.8
Debt....................................................... 13 5,055.9 3,130.6 2,325.7
Capital lease obligations.................................. 17 222.5 137.8 300.6
-------- -------- --------
Total Liabilities................................ 5,837.0 3,614.2 2,936.2
-------- -------- --------
Minority Interests......................................... 0.8 0.5 0.4
-------- -------- --------
Shareholders Equity........................................ 15
Convertible preference shares, 10p par value; nil and
164.9 million shares authorized; and no shares issued
and outstanding in 1999 and 1998, respectively........ -- -- --
Ordinary shares, 10p par value; 3,561.0 million and
2,900.0 million shares authorized; 2,281.0 million and
2,139.3 million issued and outstanding in 1999 and
1998, respectively.................................... 368.3 228.1 213.9
Limited voting shares 10p par value; 300.0 million
authorized and 62.5 million issued and outstanding in
1999.................................................. 10.0 6.2 --
Additional paid-in capital............................... 3,761.0 2,328.8 1,896.8
Accumulated deficit...................................... (2,597.2) (1,608.2) (1,067.3)
-------- -------- --------
1,542.1 954.9 1,043.4
Ordinary shares held in trust for the Telewest Restricted
Share Scheme and the Telewest Long-Term Incentive Plan... 16 (3.4) (2.1) (2.3)
-------- -------- --------
Total Shareholders' Equity....................... 1,538.7 952.8 1,041.1
-------- -------- --------
Commitments and contingencies.............................. 17
Total Liabilities and Shareholders' Equity....... 7,376.5 4,567.5 3,977.7
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-203
<PAGE> 336
TELEWEST COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
(NOTE 2)
1999 1999 1998 1997
$M LM LM LM
--------- ------ ------ ------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net loss.................................................. (873.6) (540.9) (332.7) (332.4)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.............................................. 493.1 305.3 223.6 177.3
Amortization of goodwill.................................. 99.5 61.6 36.2 26.4
Amortization of deferred financing costs and issue
discount on senior discount debentures.................. 238.2 147.5 88.0 77.5
Unrealized loss on foreign currency translation........... 79.2 49.0 14.1 23.5
Non-cash accrued share based compensation cost............ 42.6 26.4 -- --
Termination of sale and leaseback......................... 14.4 8.9 -- --
Extraordinary loss on extinguishment of debt.............. 32.5 20.1 -- --
Share of net losses of affiliates......................... 9.9 6.2 18.7 21.7
Gain on disposals of assets............................... 1.1 0.7 (1.6) (1.1)
Minority interests in (loss)/profits of consolidated
subsidiaries............................................ 0.1 0.1 (1.1) 0.3
Changes in operating assets and liabilities, net of effect
of acquisition of subsidiaries:
Change in receivables..................................... (31.2) (19.4) 28.2 (4.2)
Change in other assets.................................... (32.5) (20.1) -- --
Change in prepaid expenses................................ 17.7 10.9 (10.3) (2.5)
Change in accounts payable................................ (36.4) (22.5) (6.4) (7.1)
Change in other liabilities............................... 56.2 34.8 (36.4) 23.6
--------- ------ ------ ------
Net Cash Provided by Operating Activities.......... 110.8 68.6 20.3 3.0
--------- ------ ------ ------
Cash Flows from Investing Activities
Cash paid for property and equipment...................... (756.0) (468.1) (257.1) (435.0)
Cash paid for acquisition of subsidiaries................. (638.4) (395.3) (394.0) (0.6)
Cash acquired with subsidiary undertakings................ 3.6 2.2 16.9 --
Additional investments in and loans to affiliates......... (3.9) (2.4) (5.7) (9.0)
Proceeds from disposals of assets......................... 7.6 4.7 6.1 6.0
--------- ------ ------ ------
Net Cash Used in Investing Activities.............. (1,387.1) (858.9) (633.8) (438.6)
--------- ------ ------ ------
Cash Flows from Financing Activities
Cash paid for credit facility arrangement costs........... (26.3) (16.3) (5.9) --
Repayment of borrowings................................... (72.8) (45.1) (0.4) (2.4)
Proceeds from pre-emptive issue........................... -- -- 241.1 --
Proceeds from rights issue................................ 671.0 415.5 -- --
Proceeds from exercise of share options................... 20.1 12.5 0.6 --
Proceeds from bridge loan................................. -- -- 136.6 --
Share issue costs......................................... (4.0) (2.5) (3.3) --
Proceeds from issue of senior notes....................... -- -- 210.3 --
Proceeds from senior discount notes....................... 644.7 399.2 -- --
Proceeds from issue of senior convertible notes........... 484.5 300.0 -- --
Repayment of bridge loan.................................. -- -- (138.5) --
Debenture issue costs..................................... (28.8) (17.8) (5.5) --
Release of restricted deposits (net)...................... 283.3 175.4 5.5 --
Net (repayments)/proceeds from borrowings under old bank
facilities.............................................. (869.7) (538.5) 206.1 392.5
Repayment of old facilities upon refinancing.............. (964.2) (597.0) -- --
Net proceeds from borrowings under new bank facility...... 1,535.9 951.0 -- --
Capital element of finance lease repayments............... (358.2) (221.8) (21.8) (4.0)
--------- ------ ------ ------
Net Cash Provided by Financing Activities.......... 1,315.5 814.6 624.8 386.1
--------- ------ ------ ------
Net Increase/(Decrease) in Cash and Cash Equivalents........ 39.2 24.3 11.3 (49.5)
Cash and Cash Equivalents at Beginning of Year.............. 66.0 40.9 29.6 79.1
--------- ------ ------ ------
Cash and Cash Equivalents at End of Year.................... 105.2 65.2 40.9 29.6
========= ====== ====== ======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-204
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TELEWEST COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE LIMITED SHARES ADDITIONAL
PREFERENCE ORDINARY VOTING HELD IN PAID-IN ACCUMULATED
SHARES SHARES SHARES TRUST CAPITAL DEFICIT TOTAL
LM LM LM LM LM LM LM
----------- -------- ------- -------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996.......... 49.6 92.8 -- (2.4) 1,332.9 (402.1) 1,070.8
Accrued employee compensation
relating to the Telewest
Restricted Share Scheme........... -- -- -- 0.4 -- -- 0.4
Net loss............................ -- -- -- -- -- (332.5) (332.5)
----- ----- --- ---- ------- -------- -------
BALANCE AT DECEMBER 31, 1997.......... 49.6 92.8 -- (2.0) 1,332.9 (734.6) 738.7
Ordinary shares issued in exercise
of share options.................. -- -- -- -- 0.6 -- 0.6
Ordinary shares issued under the
pre-emptive issue................. -- 26.1 -- -- 215.0 -- 241.1
Ordinary shares issued to General
Cable shareholders................ -- 45.4 -- -- 348.3 -- 393.7
Conversion of preference shares..... (49.6) 49.6 -- -- -- -- --
Accrued employee compensation
relating to the Telewest
Restricted Share Scheme........... -- -- -- (0.3) -- -- (0.3)
Net loss............................ -- -- -- -- -- (332.7) (332.7)
----- ----- --- ---- ------- -------- -------
BALANCE AT DECEMBER 31, 1998.......... -- 213.9 -- (2.3) 1,896.8 (1,067.3) 1,041.1
Ordinary shares issued in exercise
of share options.................. -- 0.9 -- -- 11.6 -- 12.5
Redesignation of ordinary shares.... -- (5.7) 5.7 -- -- -- --
Shares issued under the rights issue
to fund acquisition of Cable
London PLC........................ -- 19.0 0.5 -- 393.5 -- 413.0
Ordinary shares issued on conversion
of Senior Convertible Notes
2007.............................. -- -- -- -- 0.5 -- 0.5
Accrued employee compensation
relating to the Telewest
Restricted Share Scheme........... -- -- -- 0.2 -- -- 0.2
Accrued share based compensation
cost.............................. -- -- -- -- 26.4 -- 26.4
Net loss............................ -- -- -- -- -- (540.9) (540.9)
----- ----- --- ---- ------- -------- -------
BALANCE AT DECEMBER 31, 1999.......... -- 228.1 6.2 (2.1) 2,328.8 (1,608.2) 952.8
===== ===== === ==== ======= ======== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-205
<PAGE> 338
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF BUSINESS
Telewest Communications plc ("the Company") is a cable television and telephony
operator which offers these services to business and residential customers in
the United Kingdom ("UK"). The Company derives its cable television revenues
from installation fees, monthly basic and premium service fees and advertising
charges. The Company derives its telephony revenues from connection charges,
monthly line rentals, call charges, special residential service charges and
interconnection fees payable by other operators. The cable television and
telephony services account in 1999 for approximately 33% and 65%, respectively,
of the Company's revenue. This revenue is predominantly derived from
residential, rather than business, customers.
2. BASIS OF PREPARATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America ("US
GAAP"). The preparation of financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported
amounts of 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.
The economic environment in which the Company operates is the UK and hence its
reporting currency is Pounds Sterling(L). Certain financial information for the
year ended December 31, 1999 has been translated into US Dollars, with such US
Dollar amounts being unaudited and presented solely for the convenience of the
reader, at the rate of $1.615 = L1.00, the Noon Buying Rate of the Federal
Reserve Bank of New York on December 31, 1999. The presentation of the US Dollar
amounts should not be construed as a representation that the Pounds Sterling
amounts could be so converted into US Dollars at the rate indicated or at any
other rate.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
those of all majority-owned subsidiaries. All significant inter-company accounts
and transactions have been eliminated upon consolidation.
All acquisitions have been accounted for under the purchase method of
accounting. Under this method, the results of subsidiaries and affiliates
acquired in the year are included in the consolidated statement of operations
from the date of acquisition.
The Company applies the principle of Statement of Financial Accounting Standard
No. 121 (SFAS 121), "Accounting for Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of". SFAS 121 requires that long-lived assets
and certain identifiable intangibles, including goodwill, to be held and used by
an entity, be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company believes that no material impairment existed at
December 31, 1999.
Goodwill arising on consolidation (representing the excess of the fair value of
the consideration given over the fair value of the identifiable net assets
acquired) is amortized over the acquisition's useful life or over a maximum
period of 40 years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through projected undiscounted future operating
cash flows of the acquired operations. The assessment of
F-206
<PAGE> 339
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the recoverability of goodwill will be impacted if projected future operating
cash flows are not achieved. The amount of goodwill impairment, if any, is
measured based on the projected discounted future operating cash flows using a
discount rate reflecting the Company's cost of funds.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly-liquid investments with original
maturities of three months or less that are readily convertible into cash.
FINANCIAL INSTRUMENTS
The Company uses foreign currency option contracts which permit, but do not
require, the Company to exchange foreign currencies at a future date with
another party at a contracted exchange rate. The Company also enters into
combined foreign currency and interest rate swap contracts ("Foreign Currency
Swaps"). Such contracts are used to mitigate against adverse changes in foreign
currency exchange rates associated with obligations denominated in foreign
currency. Foreign exchange forward contracts are used to reduce the exchange
rate risk on certain foreign currency borrowings.
The foreign currency option, Foreign Currency Swaps and the foreign exchange
forward contracts are recorded on the balance sheet in other assets or other
liabilities at their fair value at the end of each reporting period with changes
in their fair value during the reporting period being reported as part of the
foreign exchange gain or loss in the consolidated statement of operations. Such
gains and losses are offset against foreign exchange gains and losses on the
obligations denominated in foreign currencies which have been hedged.
Interest rate swap agreements which are used to manage interest rate risk on the
Company's borrowings are accounted for using the accruals method. Net income or
expense resulting from the differential between exchanging floating and fixed
rate interest payments is recorded on an accruals basis. To the extent that the
interest rate swap agreements are delayed starting, net income or expense is not
recognized until the effective date of the agreement.
Other interest rate swaps which do not qualify for hedge accounting treatment
are recorded in the consolidated balance sheet at their fair value at the end of
each reporting period with changes in their fair value being recorded as gains
and losses in the consolidated statement of operations.
An interest rate cap agreement which is designated as a hedge (i.e. to limit
interest cost) of long-term debt is accounted for on an accruals basis. Amounts
receivable under the agreement are recognised when due. The premium paid on the
interest rate cap agreement is amortized over its term.
The cost of cancelling interest rate swaps is recognised in the period of
cancellation.
INVESTMENTS
Investments in partnerships, joint ventures and subsidiaries in which the
Company's voting interest is 20% to 50%, and others where the Company has
significant influence, are accounted for using the equity method. Investments
which do not have a readily determinable fair value, in which the Company's
voting interest is less than 20%, and in which the Company does not have
significant influence, are carried at cost and written down to the extent that
there has been an other-than-temporary diminution in value.
ADVERTISING COSTS
Advertising costs are expensed as incurred. The amount of advertising costs
expensed was L27.3 million, L20.5 million and L25.9 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
F-207
<PAGE> 340
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Except during the prematurity period
as described below, depreciation is provided to write off the cost, less
estimated residual value, of property and equipment by equal instalments over
their estimated useful economic lives as follows:
<TABLE>
<S> <C>
Freehold and long leasehold buildings....................... 50 years
Cable and ducting........................................... 20 years
Electronic equipment
- System electronics...................................... 8 years
- Switching equipment..................................... 8 years
- Subscriber electronics.................................. 5 years
- Headend, studio and playback facilities................. 5 years
Other equipment
- Office furniture and fittings........................... 5 years
- Motor vehicles.......................................... 4 years
</TABLE>
During the prematurity period, depreciation of cable and ducting and system
electronics is charged monthly to write off the estimated cost at the end of the
prematurity phase over a useful life of 20 and eight years, respectively. In
accordance with Statement of Financial Accounting Standard ("SFAS") No. 51,
"Financial Reporting by Cable Television Companies", the monthly charge is
adjusted by a ratio of average customers in the current period to the estimated
customer base at the end of the prematurity period. The prematurity period
covers the period between connecting the first customer and substantial
completion of the network.
Preconstruction costs which are included within cable and ducting are amortized
over the life of the franchise from the date of the first customer.
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its cable systems under SFAS No. 51.
In 1997, the treatment of activation costs was reviewed. With effect from
January 1, 1997, activation labour was reclassified from "cable and ducting" to
"electronics" to be consistent with the classification of activation materials.
The assets are now depreciated over eight years rather than 20 years.
The remaining useful lives of analogue assets were reassessed, with effect from
January 1, 2000, from 5 years to 2 years. The net book values of these assets
are being written off over their revised estimated remaining lives.
FRANCHISE COSTS
Expenditure incurred on successful applications for franchise licenses is
included in property and equipment and is amortized over the remaining life of
the original franchise term. Costs relating to unsuccessful applications are
charged to the consolidated statement of operations.
DEFERRED FINANCING COSTS
Costs incurred in raising debt are deferred and recorded on the consolidated
balance sheet in other assets. The costs are amortized to the consolidated
statement of operations at a constant rate to the carrying value of the debt
over the life of the obligation.
F-208
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TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MINORITY INTERESTS
Recognition of the minority interests' share of losses of consolidated
subsidiaries is limited to the amount of such minority interests' allocable
portion of the equity of those consolidated subsidiaries.
FOREIGN CURRENCIES
Transactions in foreign currencies are recorded using the rate of exchange in
effect at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange
prevailing at the balance sheet date and the gains or losses on translation are
included in the consolidated statement of operations.
REVENUE RECOGNITION
Revenue is recognized as services are delivered. Other revenues include
connection fees which are recognized in the period of connection to the extent
that the fee is offset by direct selling costs. The remainder is recognized over
the estimated average period that customers are expected to remain connected to
the system.
SALE OF SPARE CAPACITY
The Company sells spare capacity on the Telewest National Network to third
parties under leasing contracts. Substantially all the risks and rewards of
ownership accrue to the grantees for a significant proportion of the total life
of the network asset. As is common in the telecoms industry, the Company has
recognised the income on these contracts as revenue.
PENSION COSTS
The Company operates a defined-contribution scheme or contributes up to
specified limits to third-party schemes on behalf of the employees. The amount
included in losses in 1999, 1998 and 1997 of L4.8 million, L3.0 million and L2.8
million, respectively, represents the contributions payable to the selected
schemes in respect of the relevant accounting periods.
INCOME TAXES
Under the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered.
SHARE-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but does
not require, companies to record compensation cost for share-based employee
compensation plans at fair value. The Company has chosen to continue to account
for share-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, compensation cost for share
options is measured as the excess, if any, of the quoted market price of the
Company's shares at the date of the grant over the amount an employee must pay
to acquire the shares.
Shares purchased by trustees in connection with the Telewest Restricted Share
Scheme, are valued at the market price on the date on which they are purchased
and are reflected as a reduction of shareholders'
F-209
<PAGE> 342
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
equity in the consolidated balance sheet. This equity account is reduced when
the shares are awarded to employees based on the original cost of the shares to
the trustees. The value of awards of ordinary shares to be made to employees in
future years is charged to the consolidated statement of operations to the
extent that the awards have been awarded to and earned by employees in the
current accounting period. The value of shares which have been awarded to, but
have not been earned by employees, is included as deferred compensation expense
within other assets.
EARNINGS PER SHARE
Basic earnings per share has been computed by dividing net income available to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period. Diluted earnings per share is computed by
adjusting the weighted average number of ordinary shares outstanding during the
period for all dilutive potential ordinary shares outstanding during the period
and adjusting the net loss for any changes in income or loss that would result
from the conversion of such potential ordinary shares. There is no difference in
net income and number of shares used for basic and diluted net income per
ordinary share, as potential ordinary share equivalents are not included in the
computation as their effect would be to decrease the loss per share.
NEW STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
SFAS 133 -- ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
This statement, issued in June 1998 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
statement as amended by SFAS No. 137 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Group is evaluating the effect
of this pronouncement on the consolidated financial statements.
4. FINANCIAL INSTRUMENTS
FOREIGN CURRENCY OPTION CONTRACT
At December 31, 1998, the Company held a Pounds Sterling put option ("Foreign
Currency Option") to purchase $1.5 billion to reduce its exposure to adverse
fluctuations in exchange rates on that part of the principal amount at maturity
of its US Dollar-denominated Senior Discount Debentures due 2007. The expiration
date of this option contract is September 28, 2000. The put option has a strike
price at expiration of L1.00:$1.4520. During 1999 the Company sold $1.0 billion
principal of the option at fair market value, leaving a balance held by the
Company at December 31, 1999 of $0.5 billion. The foreign currency option has
been included in other assets at its fair value on December 31, 1999.
FOREIGN CURRENCY SWAP
The Company has entered into a series of foreign currency swap to reduce its
exposure to adverse fluctuations in exchange rates on the principal amount of
its US Dollar-denominated Senior Debentures due 2006 ("Senior Debentures"). The
terms of these contracts provided for the Company to make an initial exchange of
principal of $300.0 million in exchange for L196.1 million. On expiration on
October 1, 2000, the initial principal amounts will be re-exchanged. The
interest element of the Foreign Currency Swap requires the Company to make
Pounds Sterling fixed-rate interest payments and to receive US Dollar fixed-rate
interest payments on the initial exchange amounts on a semi-annual basis. The
Foreign Currency Swap contract has been included in other liabilities at its
fair value on December 31, 1999.
F-210
<PAGE> 343
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOREIGN EXCHANGE FORWARD CONTRACTS
The Company has also entered into a series of foreign exchange forward contracts
to reduce its exposure to adverse fluctuations in exchange rates on the interest
payment dates of its Senior Notes due 2008 through November 3, 2003. The
aggregate notional amount is $350.0 million. The result of these foreign
exchange forward contracts is that during the term of the agreement the Company
is to make the equivalent of sterling fixed rate interest payments and receive
the equivalent US Dollar fixed rate interest payments at a rate of $1.64:L1.
The Company has entered into a foreign exchange forward contract through April
15, 2004 to reduce its exposure to fluctuations in exchange rates on the
principal amount of its US Dollar denominated Senior Discount Notes due 2009.
The aggregate notional principal amount is $532.1 million including the call
premium. The terms of the contract allow for the Company to purchase the call
amount of US Dollars on the call date at a fixed rate of $1.58:L1.
The above foreign exchange forward contracts have been included in other
liabilities at their fair value on December 31, 1999.
After the year end the Company entered into a foreign exchange forward contract
through February 1, 2005, to hedge its exposure to adverse fluctuations in
exchange rates on the interest payment dates of its US Dollar-denominated Senior
Notes 2010, issued January 19, 2000. The aggregate notional amount is $367.3
million including the call premium. The result of this foreign exchange forward
contract is that during the term of the agreement the Company is to make the
equivalent of sterling fixed rate interest payments and receive the equivalent
US Dollar fixed rate interest payments at a rate of $1.646:L1.
The Company has also entered into a foreign exchange forward contract through
February 1, 2005 to reduce its exposure to fluctuations in exchange rates on the
principal amount of its US Dollar denominated Senior Discount Notes due 2010
also issued on January 19, 2000. The aggregate notional principal amount is
$475.6 million including the call premium. The terms of the contract allow for
the Company to purchase the call amount at a fixed rate of $1.60:L1.
The Company has entered into Foreign Exchange Forward contracts with a number of
banks, expiring on October 2, 2000, to reduce its exposure to adverse
fluctuations in exchange rates on that part of the principal amount at maturity
of its US Dollar-denominated Senior Discount Debentures due 2007. The terms of
the contracts provide for the Company to purchase $500.0 million at expiry at an
average rate of $1.5725:L1. These Foreign Exchange Forwards have been included
in other liabilities at their fair value on December 31, 1999.
The Company has also entered into Foreign Exchange Contingent Forward contracts
with a number of banks, expiring on October 2, 2000, to reduce its exposure to
adverse fluctuations in exchange rates on the final $500.0 million of the
principal amount at maturity of its US Dollar-denominated Senior Discount
Debentures due 2007. The terms of the contracts provide for the Company to
purchase $500.0 million at expiry at the spot rate up to a maximum rate of
$1.70:L1 and minimum rate of $1.57:L1, so long as the exchange rate has not
traded above $1.70 during the period of the transaction. If the barrier is
breached the Company is able to purchase $500.0 million at an average rate of
$1.57:L1. These Foreign Exchange Forward Contracts have been included in other
liabilities at their fair value on December 31, 2000.
The Company has entered into two Foreign Exchange Forward Contracts, expiring on
October 2, 2000, to reduce its exposure to adverse fluctuations in exchange
rates on part of the principal amount of the Senior Notes due 2008. The terms of
the Contracts provide for the Company to purchase $200.0 million at expiry at a
rate of $1.65:L1. The Company has also entered into a Foreign Exchange Boosted
Forward Contract, expiring on October 2, 2000, to reduce its exposure to adverse
fluctuations in exchange rates on the remaining principal amount of the Senior
Notes due 2008. The terms of the Contracts provide for the
F-211
<PAGE> 344
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company to purchase $150.0 million at expiry at a rate of $1.65:L1 provided the
exchange rate has not traded through upper and lower barriers at any time up to
expiry. If these barriers are broken, the Company is able to purchase $150.0
million at expiry at a rate of $1.5925:L1. These three Foreign Exchange Forward
Contracts have been included in other liabilities at their fair value on
December 31, 1999.
INTEREST RATE SWAPS
The Company has also entered into certain interest rate swap agreements
("Interest Rate Swaps") in order to manage interest rate risk on its three
senior secured facilities ("Senior Secured Facilities") as follows:
<TABLE>
<CAPTION>
TELEWEST NOTIONAL
COUNTERPARTY EFFECTIVE DATES MATURITIES PRINCIPAL RECEIVES PAYS
------------ --------------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Telewest........................... 1/2/1997- 12/31/2001- L750m 6-month 7.175%-
3/31/1997 3/31/2004 LIBOR 7.910%
12/23/1996 12/23/2001 L248m 3-month 7.7825%-
LIBOR 7.79%
Cable London....................... 6/2/1997 7/7/2001 L79m 6-month 7.34%-
LIBOR 7.344%
</TABLE>
INTEREST RATE COLLAR
Cable London PLC ("Cable London") has entered into an interest rate collar
agreement (the "Interest Rate Collar") over a principal amount of L40.3 million
to hedge against adverse fluctuations in interest rates. The agreement entitles
Cable London to receive interest at the six-month LIBOR rate and pay a fixed
interest of 6% for LIBOR fixings below 6%, and receive interest at the six-month
LIBOR rate and pay a fixed interest of 9% for LIBOR fixings above 9%. The
effective date is June 2, 1997, and the agreement matures on July 9, 2001.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 119 "Disclosures about Derivative Financial Instruments and Fair Value
of Financial Instruments" requires disclosure of an estimate of the fair values
of certain financial instruments.
SFAS No. 119 defines the fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction between willing
parties other than in a forced sale. Fair value estimates are made at a specific
point in time, based upon relevant market information and information about the
financial instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment, and therefore cannot be
determined precisely. Changes in assumptions could significantly affect the
estimates.
At December 31, 1999, the Company's significant financial instruments include
cash and cash equivalents, trade receivables, a foreign currency option
contract, the Foreign Currency Swap, Interest Rate Swaps, foreign exchange
forward contracts, Interest Rate Cap, trade payables and long-term borrowings.
The following table summarizes the fair value of certain instruments held by and
obligations of the Company. The fair value of the other financial instruments
held by the Company approximates their recorded
F-212
<PAGE> 345
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
carrying amount due to the short maturity of these instruments and these
instruments are not presented in the following table.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999 AT DECEMBER 31, 1998
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
LM LM LM LM
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial Instruments -- Assets:
Foreign currency option contract..................... 1.1 1.1 9.0 9.0
Financial Instruments -- Liabilities:
Interest rate swap agreements........................ -- (17.0) -- (73.8)
Foreign exchange forward contracts................... (22.5) (21.3) -- (0.3)
Foreign Currency Swap................................ (13.5) (13.5) (22.1) (22.1)
Debt Obligations:
Senior Discount Debentures 2007...................... 894.7 885.9 766.3 763.3
Senior Debentures 2006............................... 185.8 185.8 180.4 188.1
Senior Notes 2008.................................... 215.4 229.7 210.5 235.2
Senior Convertible Notes 2007........................ 299.5 344.4 -- --
Senior Discount Notes 2009........................... 431.5 390.4 -- --
Senior Secured facility.............................. 950.0 950.0 657.5 657.5
Cable London facility................................ 126.0 126.0 -- --
Other debt........................................... 27.7 27.7 33.3 33.3
General Cable facility............................... -- -- 325.0 325.0
Birmingham Cable facility............................ -- -- 153.0 153.0
</TABLE>
The estimated fair values of the financial instruments specified above are based
on quotations received from independent, third-party financial institutions and
represent the net amount receivable or payable to terminate the position, taking
into consideration market rates and counterparty credit risk. The estimated fair
values of the debentures and notes are also based on quotations from independent
third-party financial institutions and are based on discounting the future cash
flows to net present values using appropriate market interest rates prevailing
at the year end. The fair value of the bank facilities and other debt
approximates the carrying values due to the short period to maturity.
MARKET RISK AND CONCENTRATIONS OF CREDIT RISK
Market risk is the sensitivity of the value of the financial instruments to
changes in related currency and interest rates. Generally, the Company is not
exposed to such market risk because gains and losses on the financial
instruments are offset by gains and losses on the underlying assets and
liabilities.
The Company may be exposed to potential losses due to the credit risk of
non-performance by the counterparties to its foreign currency option contract,
Interest Rate Swaps, the Foreign Exchange Forward Contracts and Foreign Currency
Swap, however such losses are not anticipated as these counterparties are major
international financial institutions.
Temporary cash investments also potentially expose the Company to concentrations
of credit risk, as defined by SFAS No. 105 "Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risks". The Company places its temporary cash
investments with major international financial institutions and limits the
amount of credit exposure to any one financial institution. Concentrations of
credit risk with respect to trade receivables are limited due to the large
number of customers comprising the Company's customer base.
At December 31, 1999, the Company had no significant concentration of credit
risk.
F-213
<PAGE> 346
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. BUSINESS COMBINATIONS
On November 23, 1999 the Company acquired the remaining 50% of the issued share
capital of Cable London PLC which it did not already own, for cash consideration
of L389.0 million plus acquisition costs of L4.6 million and assumption of debt
of L39.0 million. The acquisition has been accounted for using the purchase
method of accounting. The goodwill arising on acquisition was L438.5 million and
is being amortised on a straight-line basis over 20 years.
The following unaudited proforma information presents the consolidated results
of the operations of the Company as if the acquisition of Cable London had
occurred at the beginning of the applicable period, after giving effect to
certain adjustments including the amortization of goodwill arising as a result
of the acquisition.
<TABLE>
<CAPTION>
1999 1998
LM LM
------- -------
<S> <C> <C>
Revenue................................................... 857.9 606.2
Net loss.................................................. (574.5) (354.7)
Loss per share............................................ L (0.26) L (0.25)
</TABLE>
On September 1, 1998 the Company acquired the entire issued share capital of
General Cable PLC, a company which holds cable television and telephony
interests in the UK, in exchange for 454,763,792 ordinary shares of 10p each and
L267,840,000 in cash. The Company's interest in Birmingham Cable Corporation Ltd
increased to 72.42% as a result of acquiring General Cable PLC which held 44.95%
of Birmingham Cable Corporation Ltd.
The value attributed to the shares issued in exchange for the issued shares of
General Cable was 87.3p, being the average share market price for a five day
period around April 15, 1998, the day the terms of the acquisitions were agreed
to and announced. The fair value of the share consideration using this share
price was L397.0 million. The aggregate cost of the acquisition was L664.8
million including the expenses of acquisition. The acquisition has been
accounted for using the purchase method of accounting. The goodwill arising on
acquisition was L547.5 million and is being amortized on a straight-line basis
over 20 years.
On October 28, 1998, the Company purchased the remaining minority interests in
Birmingham Cable Corporation Ltd in exchange for L126.1 million in cash. The
acquisition has been accounted for using the purchase method of accounting. The
goodwill arising on the acquisition was L118.5 million and is being amortized
over 20 years on a straight-line basis.
F-214
<PAGE> 347
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash paid for interest was L123.8 million, L119.4 million and L63.5 million for
the years ended December 31, 1999, 1998 and 1997, respectively.
Significant non-cash investing activities of the Company are described below.
The amounts stated for 1998 represent the purchase of General Cable PLC and the
Birmingham Cable Corporation Ltd as described in note 5 to the consolidated
financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
LM LM LM
------ ------ ----
<S> <C> <C> <C>
Purchase/contribution of cable interests:
Assets................................................... 179.5 988.3 --
Liabilities assumed...................................... (117.2) (364.9) --
Debt assumed............................................. (125.7) (464.5) --
------ ------ --
Net assets/(liabilities) acquired/contributed.... (63.4) 158.9 --
Less:
Minority interest in Birmingham Cable arising............ -- (8.8) --
Less:
Previously accounted for
-- equity investment in Cable London.................. (32.0) -- --
-- equity investment in The Cable Corporation......... -- (19.7) --
-- equity investment in Birmingham Cable.............. -- (38.3) --
-- Share of cumulative losses of Cable London......... 50.5 -- --
-- Share of cumulative losses of Birmingham Cable..... -- 24.9 --
Goodwill arising......................................... 438.5 547.8 --
------ ------ --
393.6 664.8 --
====== ====== ==
Share consideration/capital contribution................... -- 397.0 --
Purchase of shares......................................... 389.0 243.9 --
Costs of acquisition....................................... 4.6 23.9 --
------ ------ --
393.6 664.8 --
====== ====== ==
</TABLE>
The Company redesignated 57.3 million ordinary shares into the equivalent number
of limited voting convertible ordinary shares and entered into capital lease
obligations with a total capital value of L25.6 million.
7. OTHER RECEIVABLES
<TABLE>
<CAPTION>
AT
DECEMBER 31,
------------
1999 1998
LM LM
---- ----
<S> <C> <C>
Value Added Tax refund...................................... 3.7 3.3
Interconnection receivables................................. 2.1 1.3
Interest receivable......................................... 7.1 2.5
Accrued income.............................................. 25.0 10.0
Prepaid expenses............................................ -- 5.7
Other....................................................... 24.1 7.2
---- ----
62.0 30.0
==== ====
</TABLE>
F-215
<PAGE> 348
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accrued income primarily represents telephone calls made by subscribers that
have not been billed as at the accounting period end.
8. INVESTMENTS
The Company has investments in affiliates accounted for under the equity method
at December 31, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP
AT DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cable London................................................ -- 50.00%
Front Row Television Limited................................ 53.00% 53.00%
London Interconnect Limited................................. 16.67% 16.67%
</TABLE>
Summarized combined financial information for such affiliates which operate
principally in the cable television and telephony industries is as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------
1999 1998
COMBINED FINANCIAL POSITION LM LM
--------------------------- ----- ------
<S> <C> <C>
Property and equipment, net................................. 0.5 192.2
Intangible assets, net...................................... -- 4.2
Other assets, net........................................... 3.7 14.1
--- -----
Total assets...................................... 4.2 210.5
=== =====
Debt........................................................ -- 172.0
Other liabilities........................................... 3.3 61.4
Owners' equity.............................................. 0.9 (22.9)
--- -----
Total liabilities and equity...................... 4.2 210.5
=== =====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1999 1998
COMBINED OPERATIONS LM LM
------------------- ---- -----
<S> <C> <C>
Revenue..................................................... 9.7 72.8
Operating expenses.......................................... (9.4) (80.5)
---- -----
Operating profit/(loss)..................................... 0.3 (7.7)
Interest expense............................................ -- (15.4)
---- -----
Net profit/(loss)................................. 0.3 (23.1)
==== =====
</TABLE>
The Company's investments in affiliates are comprised as follows:
<TABLE>
<CAPTION>
AT
DECEMBER 31,
------------
1999 1998
LM LM
---- ----
<S> <C> <C>
Loans....................................................... 4.0 26.6
</TABLE>
Any excess of the purchase cost over the value of the net assets acquired is
treated as goodwill and amortized over 20 years on a straight-line basis.
F-216
<PAGE> 349
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
CABLE AND ELECTRONIC OTHER
LAND BUILDINGS DUCTING EQUIPMENT EQUIPMENT TOTAL
LM LM LM LM LM LM
---- --------- --------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1999............ 5.9 82.7 1,966.2 873.5 224.1 3,152.4
Reclassification...................... -- -- (13.9) (1.0) 14.9 --
On acquisition........................ -- 4.7 92.4 60.6 9.3 167.0
Additions............................. 0.2 12.5 221.8 135.1 130.5 500.1
Disposals............................. -- -- -- (5.1) (7.2) (12.3)
--- ---- ------- ------- ----- -------
Balance at December 31, 1999........ 6.1 99.9 2,266.5 1,063.1 371.6 3,807.2
--- ---- ------- ------- ----- -------
ACCUMULATED DEPRECIATION
Balance at January 1, 1999............ -- 18.7 260.3 317.2 99.1 695.3
Reclassification...................... -- -- (4.8) -- 4.8 --
Charge for the year................... -- 8.8 142.7 96.7 57.1 305.3
Disposals............................. -- -- -- (5.1) (6.4) (11.5)
--- ---- ------- ------- ----- -------
Balance at December 31, 1999........ -- 27.5 398.2 408.8 154.6 989.1
--- ---- ------- ------- ----- -------
1999 Net book value................... 6.1 72.4 1,868.3 654.3 217.0 2,818.1
=== ==== ======= ======= ===== =======
ACQUISITION COSTS
Balance at January 1, 1998............ 4.2 54.6 1,264.3 708.4 155.5 2,187.0
Reclassification...................... -- 5.0 1.6 -- (6.6) --
On acquisition........................ 1.5 20.5 567.6 80.7 43.2 713.5
Additions............................. 0.2 3.6 134.5 87.6 40.3 266.2
Disposals............................. -- (1.0) (1.8) (3.2) (8.3) (14.3)
--- ---- ------- ------- ----- -------
Balance at December 31, 1998........ 5.9 82.7 1,966.2 873.5 224.1 3,152.4
--- ---- ------- ------- ----- -------
ACCUMULATED DEPRECIATION
Balance at January 1, 1998............ -- 11.2 167.5 231.6 71.2 481.5
Reclassification...................... -- 2.0 -- -- (2.0) --
Charge for the year................... -- 5.6 93.0 88.5 36.5 223.6
Disposals............................. -- (0.1) (0.2) (2.9) (6.6) (9.8)
--- ---- ------- ------- ----- -------
Balance at December 31, 1998........ -- 18.7 260.3 317.2 99.1 695.3
--- ---- ------- ------- ----- -------
1998 Net book value................... 5.9 64.0 1,705.9 556.3 125.0 2,457.1
=== ==== ======= ======= ===== =======
</TABLE>
Cable and ducting consists principally of civil engineering and fiber optic
costs. In addition, cable and ducting includes net book value of preconstruction
and franchise costs of L17.8 million and L21.2 million as of December 31,1999
and 1998, respectively. Electronic equipment includes the Company's switching,
headend and converter equipment. Other equipment consists principally of motor
vehicles, office furniture and fixtures and leasehold improvements.
F-217
<PAGE> 350
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
ACQUISITION CHARGED TO
BALANCE AT OF COSTS AND BALANCE AT
JANUARY 1, SUBSIDIARIES EXPENSES DEDUCTIONS DECEMBER 31,
LM LM LM LM LM
---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
1999
Deferred tax valuation allowances... 369.4 38.6 82.9 -- 490.9
Allowance for doubtful accounts..... 14.3 2.1 14.2 (17.5) 13.1
1998
Deferred tax valuation allowances... 247.4 -- 122.0 -- 369.4
Allowances for doubtful accounts.... 6.5 9.6 9.2 (11.0) 14.3
1997
Deferred tax valuation allowances... 175.2 -- 72.2 -- 247.4
Allowance for doubtful accounts..... 5.4 -- 8.8 (7.7) 6.5
</TABLE>
11. OTHER ASSETS
The components of other assets, net of amortization, are as follows:
<TABLE>
<CAPTION>
AT
DECEMBER 31,
------------
1999 1998
LM LM
---- ----
<S> <C> <C>
Deferred financing costs of debentures...................... 24.2 14.9
Deferred financing costs of Senior Secured facility......... 15.9 20.3
Foreign currency option contract............................ 1.1 9.0
Other....................................................... 0.9 0.5
---- ----
42.1 44.7
==== ====
</TABLE>
12. OTHER LIABILITIES
Other liabilities are summarized as follows:
<TABLE>
<CAPTION>
AT
DECEMBER 31,
-------------
1999 1998
LM LM
----- -----
<S> <C> <C>
Amounts due to affiliated or other related parties.......... 2.5 0.1
Accrued interest............................................ 22.8 18.8
Accrued construction costs.................................. 24.9 22.1
Accrued expenses and deferred income........................ 214.6 166.3
Foreign Currency Swap....................................... 13.5 22.1
Other liabilities........................................... 26.3 39.4
----- -----
304.6 268.8
===== =====
</TABLE>
F-218
<PAGE> 351
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. DEBT
Debt is summarized as follows at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST RATE 1999 1998
1999 1998 LM LM
----- ------------- ------ ------
<S> <C> <C> <C> <C>
Senior Debentures 2006................................... 9.625% 9.625% 185.8 180.4
Senior Discount Debentures 2007.......................... 11.00% 11.000% 894.7 766.3
Senior Notes 2008........................................ 11.25% 11.25% 215.4 210.5
Senior Convertible Notes 2007............................ 5.25% -- 299.5 --
Senior Discount Notes 2009............................... 9.25% -- 216.6 --
Senior Discount Notes 2009............................... 9.875% -- 214.9 --
Senior Secured facility.................................. 8.777% 9.499% 950.0 657.5
Cable London facility.................................... 6.864% -- 126.0 --
General Cable facility................................... -- 9.79% -- 325.0
Birmingham Cable facility................................ -- 9.23% -- 153.0
Other debt............................................... 7.5% 7.5% 27.7 33.0
------ ------
3,130.6 2,325.7
====== ======
</TABLE>
SENIOR DEBENTURES 2006
In October 1995, the Company issued $300.0 million principal amount of Senior
Debentures with a yield to maturity of 9.625%. The cash consideration received
at the date of issue was L188.7 million. The Senior Debentures mature on October
1, 2006. Interest on the Senior Debentures accrues semi-annually and is payable
in arrears. The Senior Debentures are redeemable, in whole or in part, at the
option of the Company at any time on or after October 1, 2000, at the redemption
price of 104.813% of the principal amount during the year commencing October 1,
2000, 102.406% of the principal amount during the year commencing October 1,
2001, and thereafter at 100% of the principal amount plus accrued and unpaid
interest.
The Senior Debentures and the Senior Discount Debentures, which are described
below, were issued to finance working capital, capital expenditure, foreign
currency swap and options to hedge against adverse fluctuations in exchange
rates, and additional investments in affiliated companies. A portion of the net
proceeds of the issue also was used to repay the L157.9 million indebtedness
outstanding under the loan facility held by SBCC CableComms (UK) at the date
that it was acquired by the Company.
The indenture under which the Senior Debentures were issued contains various
covenants which, among other things, restrict the ability of the Company to
incur additional indebtedness, pay dividends, create certain liens, enter into
certain transactions with shareholders or affiliates, or sell certain assets.
The Company was in compliance with the covenants at December 31, 1999.
The Company has entered into a Foreign Currency Swap to reduce its exposure to
adverse fluctuations in exchange rates on the principal amount which will be
outstanding on October 1, 2000, the earliest redemption date, and the associated
interest payments of the Senior Debentures. The terms of the Foreign Currency
Swap are described in note 4 to the consolidated financial statements.
The Senior Debentures are unsecured liabilities of the Company.
F-219
<PAGE> 352
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SENIOR DISCOUNT DEBENTURES 2007
In October 1995, the Company issued $1,536.4 million principal amount at
maturity of Senior Discount Debentures with a yield to maturity of 11%. The cash
consideration received at the date of issue was L566.1 million ($900.0 million).
At December 31, 1999, the unamortized portion of the discount on issue was L73.3
million ($118.4 million). The Senior Discount Debentures mature on October 1,
2007. The discounted amount of the Senior Discount Debentures accretes at an
annual rate of 11% compounded semi-annually to October 1, 2000. Thereafter,
interest on the Senior Discount Debentures accrues semi-annually. Cash interest
will not accrue on the Senior Discount Debentures prior to October 1, 2000, and
is thereafter payable in arrears on April 1 and October 1 of each year at a rate
of 11% per annum. The Senior Discount Debentures are redeemable, in whole or in
part, at the option of the Company at any time on or after October 1, 2000, at
the redemption price of 100% of the principal amount plus accrued and unpaid
interest.
The indenture under which the Senior Discount Debentures were issued contains
various covenants as set out for the Senior Debentures above and the Company was
in compliance with such covenants at December 31, 1999.
As described in note 4, the Company has a five year Pounds Sterling put option
to purchase $537.0 million and entered into various foreign exchange forwards to
reduce its exposure to adverse fluctuations in exchange rates on the principal
amount which will be outstanding on October 1, 2000, the earliest redemption
date of the Senior Discount Debentures. The terms of the foreign currency
contracts are described in note 4 to the consolidated financial statements.
The Senior Discount Debentures are unsecured liabilities of the Company.
SENIOR NOTES 2008
On November 9, 1998 the Company issued $350.0 million principal amount of Senior
Notes (the "Senior Notes") with a yield to maturity of 11.25%. Cash
consideration received at the date of issue was L210.3 million. The Senior Notes
mature on November 1, 2008. Interest on the Senior Notes accrues semi-annually
and is payable in arrears. The Senior Notes are redeemable, in whole or in part,
at the option of the Company at any time on or after November 1, 2003 at the
redemption price of 107.625% of the principal amount during the year commencing
November 1, 2003; 106.100% of the principal amount during the year commencing
November 1, 2004; 104.575% of the principal amount during the year commencing
November 1, 2005; 103.050% of the principal amount during the year commencing
November 1, 2006; 101.525% of the principal amount during the year commencing
November 1, 2007; and thereafter at 100% of the principal amount plus accrued
and unpaid interest.
The Senior Notes were issued primarily to finance repayment of Bridge Notes
which were issued on October 28, 1998 to fund the acquisition of the outstanding
27.4% of shares in Birmingham Cable not already owned by the Company. A portion
of the net proceeds was also raised to fund general corporate purposes.
The indenture under which the Senior Notes were issued contains various
covenants which, among other things, restrict the ability of the Company to
incur additional indebtedness, pay dividends, create certain liens, enter into
certain transactions with shareholders or affiliates, or sell certain assets.
The Company was in compliance with the covenants at December 31, 1999.
The Company has entered into a series of forward exchange contracts to hedge its
exposure to adverse fluctuations in exchange rates on interest payment dates.
The Company also entered into two forward exchange contracts to purchase $200.0
million on October 2, 2000 and a foreign exchange forward contract, expiring on
October 2, 2000, to purchase $150.0 million to reduce its exposure to adverse
F-220
<PAGE> 353
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
fluctuations in exchange rates on the principal amounts of the Senior Debentures
2008. The terms of these contracts are described in note 4 to the consolidated
financial statements.
The Senior Notes are unsecured liabilities of the Company.
SENIOR CONVERTIBLE NOTES 2007
On February 19, 1999 the Company issued L300.0 million principal amount of
Senior Convertible Notes (the "Convertible Notes") with a yield to maturity of
5.25%. The Convertible Notes mature on February 19, 2007 with interest accruing
semi-annually payable in arrears. The Convertible Notes are convertible into the
ordinary shares of the Company after May 1, 1999 and up to the close of business
on February 2, 2007 at a conversion price of 325p per ordinary share. The
Convertible Notes are redeemable, in whole (but not in part) at the option of
the Company at 100% of their principal amount plus accrued interest at any time
on or after March 9, 2003 or at any time when at least 90% of the notes issued
have been purchased by the Company and cancelled or converted.
During the year L0.5 million principal amount was converted into 0.1 million
ordinary shares.
The Convertible Notes were issued to temporarily repay indebtedness under
certain revolving credit facilities.
The Convertible Notes are unsecured liabilities of the Company.
SENIOR DISCOUNT NOTES 2009
On April 15, 1999, the Company issued L325.0 million principal amount at
maturity of Senior Discount Notes with a yield to maturity of 9.875% and $500.0
million principal amount at maturity of Senior Discount Notes with a yield to
maturity of 9.25%. The cash consideration received at the date of issue was
L390.3 million ($625.4 million). At December 31, 1999, the unamortized portion
of the discount on issue was L209.6 million. The Senior Discount Notes mature on
April 15, 2009. The discounted amount of the Senior Discount Notes accretes at
an annual rate of 9.875% and 9.25% for sterling and US dollars respectively,
compounded semi-annually to April 15, 2004. Thereafter, interest on the Senior
Discount Notes accrues semi-annually and is payable in arrears on April 15 and
October 15 of each year. The Senior Discount Notes are redeemable, in whole or
in part, at the option of the Company at any time on or after April 15, 2004.
The Senior Discount Notes were issued to temporarily repay indebtedness under
certain revolving credit facilities.
The indenture under which the Senior Discount Notes were issued contains various
covenants. The Company was in compliance with these covenants at December 31,
1999.
The Company has entered into foreign exchange forward contracts to reduce its
exposure to adverse fluctuations in exchange rates on the principal amount of
the US Dollar Notes that will be outstanding on April 15, 2004, the earliest
redemption date. The terms of the contracts are described in note 4 to the
consolidated financial statements.
The Senior Discount Notes are unsecured liabilities of the Company.
SENIOR NOTES AND SENIOR DISCOUNT NOTES 2010
On January 19, 2000, the Company issued L180.0 million principal amount of
Senior Notes with a yield to maturity of 9.875%, $350.0 million principal amount
of Senior Notes with a yield to maturity of 9.875%, and $450.0 million principal
amount at maturity of Senior Discount Notes with a yield to maturity of 11.375%.
The cash consideration received at the date of issue was L534.4 million ($879.7
million). The
F-221
<PAGE> 354
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Senior Notes and Senior Discount Notes mature on February 1, 2010. The
discounted amount of the Senior Discount Notes accretes at an annual rate of
11.375%, compounded semi-annually to February 1, 2005. Thereafter, interest on
the Senior Discount Notes accrues semi-annually and is payable in arrears on
February 1 and August 1 of each year. Interest on the Senior Notes accrues
semi-annually and is payable in arrears commencing August 1, 2000. The Senior
Notes and Senior Discount Notes are redeemable, in whole or in part, at the
option of the Company at any time on or after February 1, 2005.
The Senior Notes and Senior Discount Notes were issued to finance the
accelerated roll-out of the digital platform and high-speed internet projects,
and also to repay other indebtedness acquired as part of the Cable London
transaction.
The Company has entered into foreign exchange forward contracts to reduce its
exposure to adverse fluctuations in exchange rates on the principal amount of
the US Dollar Notes and Discount Notes which will be outstanding on February 1,
2005, the earliest redemption date. The terms of the foreign exchange forward
contracts are described in note 4 to the consolidated financial statements.
The Senior Notes and Senior Discount Notes are unsecured liabilities of the
Company.
SENIOR SECURED FACILITY
On May 17, 1999 the Group entered into a new L1.5 billion senior secured credit
facility (the "Senior Secured facility") with a syndicate of banks. The first
drawdown under the facility was used to repay the old Group facility, negotiated
in May 1996, and the General Cable and Birmingham Cable facilities. As a result
of the new financing arrangements unamortized facility costs relating to the old
Telewest, General Cable and Birmingham Cable facilities were written off
resulting in an extraordinary loss of L20.1 million.
The Senior Secured facility is divided into three facilities: Facility A is a
L300.0 million revolving credit facility which automatically reduces to L150.0
million on December 31, 2005; Facility B is a L900.0 million revolving credit
facility converting to a term loan facility on December 31, 2001; and Facility C
is a L300.0 million term loan facility. The facilities are available for an
amount up to six times the quarterly annualised consolidated net operating cash
flow, gradually reducing throughout the period of the facility to three times by
January 1, 2002. At December 31, 1999, L650.0 million was outstanding under
Facility B and L300.0 million under Facility C.
Borrowings under the Senior Secured facility are secured by the assets of the
Group, including the partnership interests and shares of subsidiaries, and bear
interest at between 0.5% and 1.5% above LIBOR (depending on the ratio of
borrowings to quarterly annualised consolidated net operating cash flow).
In September 1996, the Group entered into certain delayed-starting interest rate
swap arrangements in order to manage interest rate risk on the Senior Secured
facility. The terms of the swap agreements are described in note 4 to the
consolidated financial statements.
The Group's ability to borrow under the facility is subject to, among other
things, its compliance with the financial and other covenants and borrowing
conditions contained therein.
The Company was in compliance with the covenants at December 31, 1999.
At December 31, 1999 the Company had undrawn available committed borrowings of
L250.0 million. Commitment fees charged amounted to L1.8 million.
GENERAL CABLE FACILITY
All borrowings under the General Cable facility were repaid in the year and the
facility cancelled following the negotiation of the new Telewest L1.5 billion
Senior Secured facility.
F-222
<PAGE> 355
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As a result of repayment of the facility, the pre-existing interest rate swap
agreements entered into to manage interest rate risk on the General Cable
facility were assigned to Telewest at no cost to the Company. The effective
dates of the interest rate swap agreements are December 23, 1996 and the
agreements mature on December 23, 2001. The aggregate notional principal amount
of the swaps is L248.0 million. In accordance with the swap agreements, the
Group receives interest at the three-month LIBOR rate and pays six-monthly a
fixed interest rate in the range of 7.7825% -- 7.79%.
BIRMINGHAM CABLE FACILITY
All borrowings under the Birmingham Cable facility were repaid in the year and
the facility cancelled following the negotiation of the new Telewest L1.5
billion Senior Secured facility.
Existing interest rate swap agreements entered into to manage interest rate risk
on the Birmingham Cable facility were cancelled in the year as they were no
longer required under the new financing arrangements. The cost of cancellation
was L1.9 million.
CABLE LONDON FACILITY
Following the Group's acquisition of Cable London, the Group took over an
existing Senior Secured credit facility with a syndicate of banks. The amount
outstanding under the facility at December 31, 1999 was L126.0 million. On
January 25, 2000, all borrowings under the facility were repaid from the
proceeds of the January 2000 high yield bond issue, and the facility was
cancelled.
In June 1997, Cable London entered into certain interest rate swap agreements
and an interest rate collar in order to manage interest rate risk on its Senior
Secured facility. The terms of the swap and collar agreements are described in
note 4 to the consolidated financial statements.
The Company was in compliance with the facility covenants at December 31, 1999.
Following cancellation of the Cable London Senior Secured facility in January
2000, the above interest rate swaps and interest rate collar were assigned to
Telewest at no cost to the Company and retained within the Group.
OTHER DEBT
Other debt includes property loans which are secured on freehold land and
buildings held by the Company which mature from 1998 onwards. The property loans
bear interest at a rate of between 1.00% and 1.50% above LIBOR.
Other debts also includes L100.0 million 6.0568% preference shares, issued by a
subsidiary and guaranteed by General Cable PLC pursuant to a put option. L90.0
million has been deposited with the parent company of the preference shareholder
(an authorised banking institution) which has, in these consolidated financial
statements, been set against the put option with respect to the guaranteed
preference shares under a legal right of offset. Interest receivable on the
deposit has also been set against the dividend payable on the preference shares
in the consolidated statement of operations.
In addition, a subsidiary has a standby credit facility of L12 million made
available by Vivendi S.A., a former shareholder of General Cable PLC, which
reduces by L5 million every six months until April 19, 2001. The loan carries
interest at 1% over LIBOR.
F-223
<PAGE> 356
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Maturity Profile of the Company's long-term debt is as follows:
<TABLE>
<CAPTION>
1999
-------
<S> <C>
2000........................................................ 147.0
2001........................................................ 2.5
2002........................................................ 48.7
2003........................................................ 190.0
2004........................................................ 332.7
2005 and thereafter......................................... 2,404.7
-------
3,125.6
=======
</TABLE>
14. INCOME TAXES
Loss before income taxes is solely attributable to the UK. The provisions for
income taxes follow:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1999 1998 1997
LM LM LM
----- ----- ------
<S> <C> <C> <C>
Benefit/(expense)........................................... -- -- (0.1)
== == =====
</TABLE>
A reconciliation of income taxes determined using the statutory UK rate of
30.25% (1998: 31%) to the effective rate of income tax is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1999 1998 1997
% % %
------- ----- ------
<S> <C> <C> <C>
Corporate tax at UK statutory rates......................... (30.25) (31) (31.5)
Permanent differences....................................... 0.30 -- 0.5
Valuation allowance and other temporary differences......... 29.95 31 29
Share of losses of affiliates............................... -- -- 2
------ --- -----
-- -- --
====== === =====
</TABLE>
Deferred income tax assets and liabilities at December 31, 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
LM LM
------ ------
<S> <C> <C>
Deferred tax assets relating to:
Fixed assets.............................................. 183.8 116.4
Net operating loss carried forward........................ 308.4 261.5
Other..................................................... 0.3 1.0
------ ------
Deferred tax asset.......................................... 492.5 378.9
Valuation allowance......................................... (490.9) (369.4)
------ ------
1.6 9.5
------ ------
Deferred tax liabilities.................................... (1.6) (9.5)
------ ------
Deferred tax asset per balance sheet........................ -- --
====== ======
</TABLE>
At December 31, 1999 the Company estimates that it has, subject to Inland
Revenue agreement, net operating losses ("NOLs") of L1,028.0 million available
to relieve against future profits. This excludes capital allowances on assets
which are available to the Company, but have not been claimed.
F-224
<PAGE> 357
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Due to a history of operating losses the Company has established a valuation
allowance with respect to deferred tax assets, except to the extent of deferred
tax liabilities.
The NOLs have an unlimited carry forward period under UK tax law, but are
limited to their use to the type of business which has generated the loss.
15. SHAREHOLDERS' EQUITY
MOVEMENTS IN SHARE CAPITAL
On July 28, 1998, the authorized share capital of the Company was increased to
L356.1 million, being 2.9 billion ordinary shares of 10 pence each and 661.0
million convertible preference shares of 10 pence each.
During 1998 the Company issued 260.7 million ordinary shares of 10 pence each
for L241.1 million and 454.8 million shares of 10 pence each in consideration
for the entire issued share capital of General Cable PLC, and 0.4 million
ordinary shares of 10 pence each in consideration of L0.6 million on exercise of
employee share options.
On September 8, 1998 all 496.1 million convertible preference shares of 10 pence
each were converted into the same number of ordinary shares of 10 pence each.
On November 23, 1999, the Company completed its acquisition of the 50% of Cable
London PLC ("Cable London") not already owned from NTL (Bermuda) Limited, a
subsidiary of NTL Communications Corporation. The acquisition was mainly funded
by the proceeds of a rights issue to existing Telewest shareholders. Under the
terms of the rights issue shareholders were able to acquire one new ordinary
share for every 11 shares held, at a price of 213 pence per new share. Under the
rights issue 190 million ordinary shares and 5 million Limited Voting Shares
were issued.
CREATION OF LIMITED VOTING CONVERTIBLE ORDINARY SHARES
The Company previously reported that on May 6, 1999, MediaOne Group, Inc.
("MediaOne") and AT&T Corporation ("AT&T") announced that they had entered into
a definitive merger agreement pursuant to which MediaOne will merge with and
into a subsidiary of AT&T. The consummation of this merger is subject to various
conditions, including shareholder and regulatory approval. On October 4, 1999,
MediaOne and Microsoft Corporation ("Microsoft") entered into an agreement for
the acquisition, subject to certain conditions, by members of the Microsoft
Group of MediaOne's interest in the Company. The consummation of either of these
transactions might have constituted a change of control under the Senior
Debentures due 2006 and the Senior Discount Debentures due 2007, and, in respect
of the acquisition by Microsoft of MediaOne's interest in us, the Senior
Discount Notes due 2008, the Senior Convertible Notes due 2007 and the Senior
Discount Notes due 2009 (together, with the Senior Debentures due 2006 and the
Senior Discount Debentures due 2007, "the Notes").
The indentures governing the Notes provide generally that, in the event of a
change of control of the Company and the occurrence within six months thereafter
of a specified decline in the credit rating of the Notes, then the Company is
required to make an offer to repurchase such Notes at 100% or 101% of their
accreted value or principal amount (as applicable). A change of control
involves, inter alia, the acquisition by any person or group (subject to certain
exceptions) of beneficial ownership of more than 50% of the shares entitled to
vote for the election of the Company's Directors (i.e. ordinary shares).
The Company received advice that, if Microsoft had purchased all of the ordinary
shares now held indirectly by MediaOne, then this, coupled with Microsoft's
entry into the New Relationship Agreement with Liberty Media, could have
constituted a change of control of the Company for the purposes of the Notes.
F-225
<PAGE> 358
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Owing to the provisions of the indentures described above the Company, MediaOne,
the MediaOne Affiliates and TW Holdings agreed to re-designate (as described
below) 57.3 million ordinary shares held by MediaOne as limited voting
convertible ordinary shares. This re-designation was approved by shareholders on
October 27, 1999. These limited voting convertible ordinary shares, along with
the balance of the ordinary shares now comprising MediaOne's interest in the
Company, will be acquired by members of the Microsoft Group upon completion of
their acquisition of MediaOne's interest in the Company.
The ordinary shares and the limited voting convertible ordinary shares have the
same rights, except that the limited voting convertible ordinary shares do not
confer the right to vote on resolutions to appoint, re-appoint, elect or remove
Directors of Telewest. No application will be made for the limited voting
convertible ordinary shares to be listed or dealt in on any stock exchange and,
immediately prior to the re-designation, the Company applied to the London Stock
Exchange for the cancellation of the listing of those ordinary shares that were
re-designated. Holders of limited voting convertible ordinary shares are
entitled to convert all or some of their limited voting convertible ordinary
shares into fully paid ordinary shares, provided that the conversion would not
result in a change of control of the Company for the purposes of the indentures
governing the Notes. The limited voting convertible ordinary shares will be
convertible into ordinary shares at our option at any time, subject to certain
conditions.
In addition, a special resolution was approved by shareholders to allow members
of the Liberty Media Group and/or the Microsoft Group to re-designate all or any
of their ordinary shares into limited voting convertible ordinary shares. This
is to ensure that, on any future purchase of ordinary shares by members of the
Microsoft Group and/or members of the Liberty Media Group, they will, at that
time, be able to re-designate such number of their then existing holding of
ordinary shares so as to avoid a change of control of the Company for the
purposes of the Notes.
Future purchases of ordinary shares and/or limited voting convertible ordinary
shares by members of the Liberty Media Group and/or Microsoft Group will,
however, be subject to Rule 9 of the UK's City Code on Takeovers and Mergers
because both classes of shares are treated as voting shares for that purpose.
Under Rule 9, when any person acquires, whether by a series of transactions over
a period of time or not, shares which (taken together with shares held or
acquired by persons acting in concert with him) carry 30% or more (but less than
50%) of the voting rights of a public company, that person is normally required
to make a general offer to shareholders for the entire share capital of the
company then in issue. Any person, or group of persons acting in concert, owning
shares carrying 50% or more of the voting rights of a public company, subject to
their own individual limits, is free to acquire further shares in that public
company without giving rise to the requirement to make a general offer for the
entire issued share capital of that company. Therefore, assuming that, upon the
acquisition of MediaOne's interest by Microsoft, the concert party of Microsoft
and Liberty Media controls over 50% of the voting rights for City Code purposes
only, each of Liberty Media and Microsoft will be free to increase its
respective interest only up to 29.9% of the Company's total issued share capital
without incurring an obligation to make a general offer under Rule 9.
CONVERTIBLE PREFERENCE SHARES
In 1998 the convertible preference shares were convertible into fully paid-up
ordinary shares at any time on the basis of one ordinary share for every
convertible preference share provided that, immediately following the
conversion, the percentage of the issued ordinary share capital of the Company
held by members of the public, as defined by the listing rules of the London
Stock Exchange, did not fall below 25%. The ordinary shares arising on
conversion ranked pari passu in all respects with the ordinary shares then in
issue.
F-226
<PAGE> 359
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The holders of the convertible preference shares were entitled to receive a
dividend of such amount as declared and paid in relation to each ordinary share,
subject to the dividend to be paid not exceeding 20 pence per share net of any
associated tax credit.
In the event of a winding-up of the Company or other return of capital, the
assets of the Company available for distribution were to be paid first to the
holders of the convertible preference shares up to the sum of capital paid-up or
credited as paid-up unless the right of election upon a winding-up of the
Company has been exercised in respect of the convertible preference shares ("the
Elected Shares"). If the election had been exercised, the holders of the
ordinary shares and the Elected Shares would have received any surplus in
accordance with the amount paid-up or credited as paid-up on the shares held.
The holders of the convertible preference shares were not entitled to vote at
any general meeting of the Company unless the meeting included the consideration
of a resolution for winding up the Company or a resolution modifying the rights
or privileges attaching to the convertible preference shares.
16. SHARE-BASED COMPENSATION PLANS
At December 31, 1999, the Company operated five types of share-based
compensation plans: the Telewest Executive Share Option Schemes, the Telewest
Sharesave Schemes, and the Telewest Restricted Share Scheme, as replaced in 1997
by the Telewest Long-Term Incentive Plan ("LTIP") and an Equity Participation
Plan ("EPP").
The Company applies APB Opinion Bulletin No. 25 and related interpretations in
accounting for its share-based compensation plans. Compensation cost is
recognized over the estimated service period in respect of performance based
share option grants to the extent that the market value of the Company's
ordinary shares exceeds the exercise price at the earlier of the date the
options become exercisable or the Balance Sheet date. Compensation cost is
recognized for awards over ordinary shares made under the Telewest Restricted
Share Scheme since the awards have no exercise price. Compensation cost is
recognized over the estimated service period in respect of the LTIP and
Executive Option Scheme to the extent that the market value of the Company's
ordinary shares exceeds the exercise price at the earlier of the vesting date or
the balance sheet date. The compensation cost recognised in respect of the EPP
is the cost of the EPP matching awards spread over the vesting period.
Compensation cost recognized for share option grants and awards is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
LM LM LM
---- ---- ----
<S> <C> <C> <C>
Restricted Share Scheme..................................... 0.1 0.1 0.5
LTIP........................................................ 1.0 0.5 --
Executive Option Schemes.................................... 22.9 3.5 --
EPP......................................................... 0.4 0.2 --
---- --- ---
24.4 4.3 0.5
==== === ===
</TABLE>
If compensation cost for share option grants and for awards under the Telewest
Restricted Share Scheme, LTIP, Executive Option Schemes and EPP had been
determined based on their fair value at the date of grant for 1999, 1998 and
1997 consistent with the method prescribed by SFAS 123, the Company's net loss
and basic and diluted loss per share would have been adjusted to the pro forma
amounts set out below:
F-227
<PAGE> 360
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
LM LM LM
------ ------ ------
<S> <C> <C> <C>
Net loss after extraordinary loss
-- As reported........................................... (540.9) (332.7) (332.4)
-- Pro forma............................................. (519.0) (340.0) (336.7)
------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
L L L
------ ------ ------
<S> <C> <C> <C>
Basic and diluted loss per share after extraordinary loss
-- As reported........................................... (0.25) (0.23) (0.33)
-- Pro forma............................................. (0.24) (0.24) (0.33)
------ ------ ------
</TABLE>
The fair value of each option grant in all plans was estimated as at the date of
grant using a Black-Scholes option-pricing model. The model used a
weighted-average, risk-free interest rate of 6.8%, 5.4% and 6.9% for grants in
1999, 1998 and 1997, respectively, and an expected volatility of between 25% to
45%. The Company does not expect to pay a dividend on its ordinary shares at any
time during the expected life of any outstanding option.
PERFORMANCE-BASED SHARE OPTION COMPENSATION PLANS
The Company has two performance-based share option plans: the Telewest 1995 (No.
1) Executive Share Option Scheme and the Telewest 1995 (No. 2) Executive Share
Option Scheme. Under both plans, certain officers and key employees are granted
options to purchase ordinary shares of the Company. The exercise price of each
option generally equals the market price of the Company's ordinary shares on the
date of grant. The options are exercisable between three and ten years after the
date of the grant with exercise conditional on the Company's shares
out-performing by price the FTSE 100 Index over any three-year period preceding
exercise. The Company may grant options for up to 92.0 million ordinary shares.
A summary of the status of the Company's performance-based share option plans as
at December 31, 1999, 1998 and 1997 and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year...................... 26,165,744 118.9p 19,028,431 120.6p 11,238,852 153.0p
Adjustments during year..... 1,365,978 105.0p -- -- -- --
Granted..................... 1,163,027 265.4p 8,643,845 114.7p 8,994,654 83.7p
Exercised................... (8,566,437) 136.0p -- -- -- --
Forfeited................... (3,099,690) 108.4p (1,506,532) 115.7p (1,205,075) 147.1p
---------- ------ ---------- ------ ---------- ------
Outstanding at end of
year...................... 17,028,622 110.0p 26,165,744 118.9p 19,028,431 120.6p
========== ====== ========== ====== ========== ======
Options exercisable at year
end....................... 2,386,230 116.8p 5,289,415 143.0p 3,375,739 152.3p
Weighted average fair value
of options granted during
the year.................. 201.4p -- 99.2p -- 50.4p --
========== ====== ========== ====== ========== ======
</TABLE>
The adjustments during the year compensate option holders for the dilutive
effect of the rights issue.
F-228
<PAGE> 361
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about the Company's performance-based
share option plans outstanding at December 31, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED -------------------------
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1999 LIFE PRICE 1999 PRICE
------------------------ -------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
65.7- 67.5p.......................... 2,390,328 5.4 yrs 67.1p 118,967 67.5p
76.3- 76.8p.......................... 3,638,514 5.6 yrs 76.6p 493,643 76.7p
84.6- 88.3p.......................... 3,467,945 5.4 yrs 88.1p 320,388 88.3p
108.7-109.1p.......................... 828,028 7.2 yrs 108.7p -- --
120.2-125.1p.......................... 2,880,122 6.4 yrs 124.2p 192,423 124.4p
130.4-132.0p.......................... 338,308 6.4 yrs 130.5p 315,577 130.4p
133.5-142.9p.......................... 2,020,814 4.8 yrs 136.7p 694,474 142.9p
156.6-160.5p.......................... 351,806 6.1 yrs 159.5p 250,758 160.5p
231.7-249.4p.......................... 276,668 9.6 yrs 239.0p -- --
274.3-276.5p.......................... 381,810 9.4 yrs 276.3p -- --
289.0-294.8p.......................... 454,279 9.9 yrs 291.1p -- --
---------- ------- ------ --------- ------
65.7-294.8p.......................... 17,028,622 5.9 yrs 110.0p 2,386,230 116.8p
========== ======= ====== ========= ======
</TABLE>
FIXED SHARE OPTION COMPENSATION PLANS
The Company also operates the Telewest Sharesave Scheme, a fixed share option
compensation scheme. Under this plan, the Company grants options to employees to
purchase ordinary shares at a 20% discount to market price. These options can be
exercised only with funds saved by employees over time in a qualified savings
account. The options are exercisable between 37 and 66 months after the date of
grant.
A summary of the status of the Company's fixed share option plans as of December
31, 1999, 1998, and 1997, and the changes during the years ended on those dates
is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year...................... 9,460,336 84.7p 6,968,175 72.1p 4,076,635 119.8p
Adjustments during year..... 469,470 67.9p -- -- -- --
Granted..................... 2,775,602 236.5p 4,155,655 105.5p 5,341,783 58.0p
Exercised................... (30,719) 88.8p -- -- -- --
Forfeited................... (995,400) 88.2p (1,663,494) 83.9p (2,450,243) 120.7p
---------- ------ ---------- ------ ---------- ------
Outstanding at end of
year...................... 11,679,289 116.9p 9,460,336 84.7p 6,968,175 72.1p
========== ====== ========== ====== ========== ======
Options exercisable at year
end....................... -- -- -- -- -- --
Weighted average fair value
of options granted during
the year.................. 153.4p -- 88.4p -- 42.7p --
========== ====== ========== ====== ========== ======
</TABLE>
The adjustments during the year compensate option holders for the dilutive
effect of the rights issue.
F-229
<PAGE> 362
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about the Company's fixed share
options outstanding at December 31, 1999.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------
WEIGHTED
NUMBER AVERAGE
OUTSTANDING AT REMAINING
DECEMBER 31, CONTRACTUAL
EXERCISE PRICE 1999 LIFE
-------------- -------------- -----------
<C> <S> <C> <C>
53.6p ................................................ 4,453,676 1.6yrs
94.8p ................................................ 358,843 0.6yrs
103.9p ................................................ 3,658,914 2.6yrs
123.9p ................................................ 251,643 1.6yrs
138.7p ................................................ 184,707 0.6yrs
236.5p ................................................ 2,771,506 3.6yrs
---------- ------
53.6-236.5p ................................................ 11,679,289 2.3yrs
========== ======
</TABLE>
TELEWEST RESTRICTED SHARE SCHEME
The Company operates the Telewest Restricted Share Scheme in conjunction with an
employment trust, the Telewest Employees Share Ownership Plan Trust (the
"Telewest ESOP"), which has been designed to provide incentives to executives of
the Company based on the performance of the Company. Under the Telewest
Restricted Share Scheme, executives may be granted awards over ordinary shares
of the Company based on a percentage of salary. The awards are made for no
consideration. The awards generally vest three years after the date of the award
and are exercisable for up to seven years after the date when they vest. Awards
granted under the Telewest Restricted Share Scheme may be made over a maximum of
4,000,000 ordinary shares of the Company.
The fair value of each award is the share price of the ordinary shares on the
date the award was made.
A summary of the status of the Company's Restricted Share Scheme at December 31,
1999, 1998, and 1997 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
NUMBER OF NUMBER OF NUMBER OF
SHARES SHARES SHARES
--------- ---------- ----------
<S> <C> <C> <C>
Outstanding at beginning of year.................. 416,186 1,747,162 2,648,433
Adjustments during year........................... 21,612 -- --
Granted........................................... 447,532 -- 377,975
Exercised......................................... (122,157) (1,306,853) (1,123,324)
Forfeited......................................... (186,840) (24,123) (155,922)
-------- ---------- ----------
Outstanding at end of year........................ 576,333 416,186 1,747,162
======== ========== ==========
Awards exercisable at year end.................... 33,283 250,157 924,008
======== ========== ==========
Weighted average fair value of awards granted
during the year................................. L2.18 -- L1.25
-------- ---------- ----------
</TABLE>
The adjustments during the year compensate option holders for the dilutive
effect of the rights issue.
At December 31, 1999, the 576,333 awards outstanding and the 33,283 awards
exercisable have weighted average remaining contractual lives of 9.1 years and
5.6 years respectively.
F-230
<PAGE> 363
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LONG-TERM INCENTIVE PLAN ("LTIP")
The Company also operates a Long-Term Incentive Plan ("LTIP") which provides for
share awards to executive Directors and senior executives. Under the LTIP, an
executive will be awarded the provisional right to receive, for no payment, a
number of Telewest shares with a value equating to a percentage of base salary.
The shares will not vest unless certain performance criteria, based on total
shareholder return assessed over a three-year period, are met. The percentage of
salary will be determined by the Remuneration Committee and will be up to 100%
of base salary for executive Directors.
<TABLE>
<CAPTION>
1999 1998 1997
NUMBER OF NUMBER OF NUMBER OF
SHARES SHARES SHARES
--------- --------- ---------
<S> <C> <C> <C>
Outstanding at beginning of year.................... 3,796,733 574,309 --
Adjustments during year............................. 188,468 -- --
Granted............................................. 196,139 4,101,826 574,309
Exercised........................................... -- -- --
Forfeited........................................... (176,265) (879,402) --
--------- --------- -------
Outstanding at end of year.......................... 4,005,075 3,796,733 574,309
========= ========= =======
Awards exercisable at year end...................... -- -- --
========= ========= =======
Weighted average fair value of awards granted during
the year.......................................... L1.93 L1.14 L0.81
--------- --------- -------
</TABLE>
The adjustments during the year compensate option holders for the dilutive
effect of the rights issue.
At December 31, 1999, the 4,005,075 awards outstanding have weighted average
remaining contractual lives of 8.3 years.
EQUITY PARTICIPATION PLAN ("EPP")
The Remuneration Committee has provided that, under the EPP, an employee with
two years' service or at manager level or above, can use up to 100% of the
pre-tax or post-tax Short-Term Incentive Plan ("STIP") bonus payable to the
employee to acquire Telewest shares ("bonus shares"). The employee must deposit
the bonus shares with the Trustee of the existing Telewest ESOP. In return, the
employee is provisionally allocated for no payment a matching number of Telewest
shares. Provided the bonus shares are retained for three years and the employee
remains employed by the Company for three years, the bonus and matching shares
would thereafter be released to the employee.
F-231
<PAGE> 364
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of the Company's EPP at December 31, 1999 and 1998 and
the movements during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
1999 1998
NUMBER OF NUMBER OF
SHARES SHARES
--------- ---------
<S> <C> <C>
Outstanding at beginning of year............................ 676,504 --
Adjustments during year..................................... 57,664 --
Granted..................................................... 495,964 725,992
Exercised................................................... (67,336) (30,053)
Forfeited................................................... (88,646) (19,435)
--------- -------
Outstanding at end of year.................................. 1,074,150 676,504
========= =======
Awards exercisable at year end.............................. 312,718 338,252
========= =======
Weighted average fair value of awards granted during the
year...................................................... L1.83 L1.07
--------- -------
</TABLE>
The adjustments during the year compensate option holders for the dilutive
effect of the rights issue.
At December 31, 1999, the 1,074,150 awards outstanding have weighted average
remaining contractual lives of 5.6 years.
17. COMMITMENTS AND CONTINGENCIES
THE CABLE CORPORATION AND YORKSHIRE CABLE FINANCING ARRANGEMENTS
In February 1996, The Cable Corporation and certain of its subsidiaries entered
into sale and leaseback arrangements covering a maximum amount of equipment with
a purchase price of up to L92 million. The Cable Corporation's obligations under
the arrangements are secured by guarantees and cash collateralized letter of
credit facilities.
In December 1996, Yorkshire Cable and certain of its subsidiaries entered into
sale and leaseback arrangements covering a maximum amount of equipment with a
purchase price of up to L206 million. Yorkshire Cable's obligations under the
arrangements are also secured by guarantees and cash collateralized letter of
credit facilities.
Total cash restricted as to use by providing backing for security to lessors
amounted to L12.0 million and L187.4 million at December 31, 1999 and 1998
respectively, which has been classified as secured cash deposits restricted for
more than one year. In the event that security provided to the lessors under The
Cable Corporation and Yorkshire Cable's leasing arrangements is inadequate
General Cable has the ability to provide acceptable additional security. If such
additional security is not provided, this constitutes an event of default under
the leases. The leasing agreements may be terminated at either of the parties'
option.
On March 31, 1999 the sale and leaseback arrangements were terminated at the
request of the Group. This was part of the overall refinancing of the Company.
As part of the cost of terminating the sale and leaseback arrangements, secured
cash deposits amounting to L187.4 million were transferred to the lessor
companies together with a termination fee of L20.0 million.
F-232
<PAGE> 365
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CAPITAL AND OPERATING LEASES
The Company leases a number of assets under arrangements accounted for as
capital leases, as follows:
<TABLE>
<CAPTION>
ACQUISITION ACCUMULATED NET BOOK
COSTS DEPRECIATION VALUE
LM LM LM
----------- ------------ --------
<S> <C> <C> <C>
AT DECEMBER 31, 1999
Electronic equipment................................. 73.6 (33.7) 39.9
Other equipment...................................... 79.3 (32.7) 46.6
AT DECEMBER 31, 1998
Electronic equipment................................. 258.5 (91.4) 167.1
Other equipment...................................... 60.6 (20.2) 40.4
</TABLE>
Depreciation charged on these assets was L21.4 million and L18.1 million for the
years ended December 31, 1999 and 1998, respectively.
The Company leases business offices and uses certain equipment under lease
arrangements accounted for as operating leases. Minimum rental expense under
such arrangements amounted to L7.1 million, L4.1 million and L3.2 million for
the years ended December 31, 1999, 1998 and 1997, respectively.
Future minimum lease payments under capital and operating leases are summarized
as follows as at December 31, 1999:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
L'000 L'000
------- ---------
<S> <C> <C>
2000........................................................ 34.7 3.7
2001........................................................ 30.1 3.3
2002........................................................ 24.5 3.1
2003........................................................ 20.3 3.0
2004........................................................ 19.7 2.4
2005 and thereafter......................................... 40.8 18.2
----- ----
170.1
Imputed interest............................................ (32.3)
-----
Total............................................. 137.8
=====
</TABLE>
It is expected that, in the normal course of business, expiring leases will be
renewed or replaced.
CONTINGENT LIABILITIES
The Company is a party to various legal proceedings in the ordinary course of
business which it does not believe will result, in aggregate, in a material
adverse effect on its financial condition or results of operations.
The Company has provided cash surety for tax contingent liabilities of former
lessors of L12.0 million (1998: L1.3 million) of the Cable Corporation Ltd. In
addition the Company has provided performance bonds in respect of its national
license and to local authorities up to a maximum amount of L7.3 million (1998:
L6.1 million).
F-233
<PAGE> 366
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. RELATED PARTY TRANSACTIONS
The Company, in the normal course of providing cable television services,
purchases certain of its programming from UK affiliates of TCI(2). Such
programming is purchased on commercially-available terms. Total purchases in the
years ended December 31, 1999, 1998 and 1997 amounted to L9.0 million, L11.3
million and L9.7 million respectively.
The Company has management agreements with TCI(2) and MediaOne under which
amounts are paid by the Company relating to TCI(2) and MediaOne employees who
have been seconded to the Company. For the years ended December 31, 1999, 1998
and 1997, fees charged to the Company under the agreements were L0.4 million,
L1.6 million, and L1.0 million, respectively. The Company had similar management
agreements with Cox Communications, Inc. and SBC Communications, Inc which were
terminated in 1999. For the years ended December 31, 1999, 1998 and 1997, fees
charged to the Company under these agreements were Lnil, L0.1 million and L0.2
million respectively.
Birmingham Cable Corporation had a consultancy agreement with Comcast UK
Consulting Inc. (a subsidiary undertaking of Comcast UK Cable Partners Limited).
Charges under this agreement amounted to Lnil and L0.2 million in 1999 and 1998,
respectively. This agreement was terminated in 1998.
The Company has entered into consulting agreements with certain of its
affiliates pursuant to which the Company provides consulting services related to
telephony operations. Under the agreements, the Company receives an annual fee
from each affiliate based upon the affiliate's revenues. Fees received for the
years ended December 31, 1999, 1998 and 1997, were L0.1 million, L1.8 million
and L0.8 million respectively. The affiliate banking agreements contain certain
deferred payment arrangements for these fees. The Company also receives a fee
for providing switching support services, comprising a fixed element based on a
number of switches and a variable element based on a number of lines. Fees
received for the years ended December 31, 1999, 1998 and 1997, were L0.2
million, L1.3 million and L0.7 million respectively. The Company also made sales
of cable publications to affiliates. For the years ended December 31, 1999, 1998
and 1997, sales were Lnil, L0.3 million and L0.1 million, respectively.
The Company has also made loans to affiliates. Interest charged on these loans
in the years ended December 31, 1999, 1998 and 1997 was L2.7 million, L3.1
million and L3.2 million.
F-234
<PAGE> 367
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1999
----------------------------------------------
FOURTH THIRD SECOND FIRST
TOTAL QUARTER QUARTER QUARTER QUARTER
LM LM LM LM LM
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue........................................... 785.5 209.2 196.1 192.6 187.6
Operating loss.................................... (178.5) (65.1) (29.8) (34.0) (49.6)
Finance expenses, net............................. (336.0) (76.7) (73.5) (83.7) (102.1)
Net loss before extraordinary loss................ (520.8) (142.6) (104.8) (119.6) (153.8)
Extraordinary loss................................ (20.1) -- -- (20.1) --
Net loss after extraordinary loss................. (540.9) (142.9) (104.8) (139.7) (153.5)
Basic and diluted loss per ordinary share
-- before extraordinary loss.................... (24p) (6p) (5p) (6p) (7p)
Extraordinary loss................................ (1p) -- -- (1p) --
Basic and diluted loss per ordinary share
-- after extraordinary loss..................... (25p) (6p) (5p) (7p) (7p)
</TABLE>
<TABLE>
<CAPTION>
1998
----------------------------------------------
FOURTH THIRD SECOND FIRST
TOTAL QUARTER QUARTER QUARTER QUARTER
LM LM LM LM LM
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue............................................. 539.2 175.2 138.1 115.5 110.4
Operating loss...................................... (113.8) (33.5) (27.2) (25.5) (27.6)
Finance expenses, net............................... (201.3) (86.1) (34.2) (46.5) (34.5)
Net loss............................................ (332.7) (121.9) (65.7) (76.4) (68.7)
Basic and diluted loss per ordinary share........... (23p) (5p) (5p) (7p) (6p)
</TABLE>
Finance expenses include foreign exchange gains and losses on the retranslation
or valuation of non sterling denominated financial instruments using period end
exchange rates and market valuations.
20. SEGMENTAL INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," during the fourth quarter of 1998. SFAS No. 131
established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services, and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The Company's
chief operating decision making group is the Board of Directors. The operating
segments are managed separately because each operating segment represents a
strategic business unit that offers different products and services different
markets. The Company's reportable operating segments include Cable Television,
Residential Cable Telephony, Business Cable Telephony and Other. The Other
segment comprises primarily the sale of internet subscriptions to Telewest's
ISP, CableInet, the sale of cable publications and sales of advertising airtime.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on operating segment contribution which represents
revenue less programming and telephony expenses. All of the Company's
F-235
<PAGE> 368
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
products and services are delivered via the Company's national network and
accordingly segmental information for total assets, capital expenditures and
depreciation and amortization is not meaningful.
<TABLE>
<CAPTION>
1999 1998 1997
LM LM LM
------ ------ ------
<S> <C> <C> <C>
Revenue from third parties
Cable television.......................................... 258.3 201.9 160.0
Cable telephony -- residential............................ 333.7 232.5 166.6
Cable telephony -- business............................... 176.5 84.2 43.9
All other................................................. 17.0 20.6 16.0
------ ------ ------
Consolidated third party revenue....................... 785.5 539.2 386.5
------ ------ ------
Contribution
Cable television.......................................... 126.4 98.8 66.5
Cable telephony -- residential............................ 230.4 175.9 128.3
Cable telephony -- business............................... 121.8 58.6 32.1
All other................................................. 8.4 5.3 4.1
------ ------ ------
Segmental contribution................................. 487.0 338.6 231.0
Less:
Operating expenses........................................ (298.6) (192.6) (181.3)
Depreciation.............................................. (305.3) (223.6) (177.3)
Amortization.............................................. (61.6) (36.2) (26.4)
------ ------ ------
Consolidated operating loss....................... (178.5) (113.8) (154.0)
====== ====== ======
</TABLE>
21. SUBSEQUENT EVENTS
On January 19, 2000, the Company issued $450.0 million principal amount of
Senior Discount Notes and L180.0 million and $350.0 million principal amount of
Senior Notes.
On January 27, 2000 the Boards of Telewest and Flextech announced that they had
agreed the terms of a proposed merger to be effected by a recommended offer for
the outstanding share capital of Flextech, comprising 3.78 new Telewest shares
for each Flextech share. As quoted in the Disclosure Document issued to
shareholders, based on Telewest's closing price on March 2, 2000 of 456 pence,
the offer values Flextech at approximately L2.8 billion. At an Extraordinary
General Meeting held on March 31, 2000, Telewest's shareholders approved the
resolutions required for the Offer to proceed. The Offer became unconditional on
April 19, 2000.
The Company has taken an equity stake in a new joint venture with Andersen
Consulting to give the Company direct access to leading edge technology in
broadband solutions, at a cost of L2.0 million.
F-236
<PAGE> 369
TELEWEST COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
COMPANY
1999 1998(2) 1997 1996 1995(1)
LM LM LM LM LM
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance sheet data
Property and equipment (net)................... 2,818.1 2,457.1 1,705.5 1,447.2 1,063.8
Total assets................................... 4,567.5 3,977.7 2,413.4 2,241.9 2,289.7
Investment in affiliates....................... 4.0 26.6 59.7 69.4 80.7
Total debt and capital leases(3)............... 3,268.4 2,626.3 1,448.6 933.7 822.6
Equity......................................... 952.8 1,041.1 738.8 1,070.8 1,322.7
Income statement data
Revenue
Cable television............................... 258.3 201.9 160.0 121.2 64.7
Telephony -- residential....................... 333.7 232.5 166.6 125.0 57.6
Telephony -- business.......................... 176.5 84.2 43.9 34.6 17.5
Other.......................................... 17.0 20.6 16.0 9.5 5.0
------- ------- ------- ------- -------
Total revenue.................................. 785.5 539.2 386.5 290.3 144.8
------- ------- ------- ------- -------
Operating costs and expenses
Programming.................................... (131.9) (103.0) (93.4) (69.9) (32.2)
Telephony...................................... (158.0) (82.3) (50.1) (52.6) (29.5)
Selling, general and administrative............ (307.2) (207.9) (193.3) (167.3) (105.4)
Depreciation................................... (305.3) (223.6) (177.3) (129.7) (60.0)
Amortization................................... (61.6) (36.2) (26.4) (26.2) (7.9)
------- ------- ------- ------- -------
Operating loss................................. (178.5) (113.8) (154.0) (155.4) (90.2)
------- ------- ------- ------- -------
Share of loss of affiliates.................... (6.2) (18.7) (21.7) (16.0) (12.8)
Financial expenses, net........................ (336.0) (201.3) (156.3) (90.8) (34.6)
Extraordinary loss............................. (20.1) -- -- -- --
Net loss....................................... (540.9) (332.7) (332.4) (262.4) (137.5)
Basic and diluted loss:
Before extraordinary loss.................... (24p) (23p) (32p) (26p) (15p)
Extraordinary loss........................... (1p) -- -- -- --
Loss......................................... (25p) (23p) (32p) (26p) (15p)
======= ======= ======= ======= =======
</TABLE>
---------------
(1) Includes results with respect to SBCC beginning October 3, 1995 (the date it
was acquired by the Company).
(2) Includes results with respect to General Cable and Birmingham Cable
beginning September 1, 1998 (the date Telewest acquired General Cable and
its interest in Birmingham Cable).
(3) See note 13 (Debt) and note 17 (Commitments and contingencies) to the US
GAAP Consolidated Financial Statements.
F-237
<PAGE> 370
APPENDIX A
MERGER AND CONTRIBUTION AGREEMENT
[TO COME]
A-1
<PAGE> 371
APPENDIX B
FAIRNESS OPINION OF
[TO COME]
B-1
<PAGE> 372
APPENDIX C
CERTIFICATE OF INCORPORATION OF NEW UNITED
[TO COME]
C-1
<PAGE> 373
APPENDIX D
DELAWARE GENERAL CORPORATION LAW SECTION 262
[TO COME]
D-1
<PAGE> 374
[UNITEDGLOGALCOM LOGO]
