<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to_________
Commission File No. 0-21974
UNITEDGLOBALCOM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STATE OF DELAWARE 84-1116217
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4643 SOUTH ULSTER STREET, #1300
DENVER, COLORADO 80237
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (303) 770-4001
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes /X/ No / /
The number of shares outstanding of the Registrant's common stock as of October
25, 2000 was:
Class A Common Stock -- 77,408,632 shares
Class B Common Stock -- 19,221,940 shares
<PAGE>
UNITEDGLOBALCOM, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of September 30, 2000 (Unaudited)
and December 31, 1999.................................................... 3
Condensed Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 2000 and 1999 (Unaudited)..................... 4
Condensed Consolidated Statement of Stockholders' Equity for the Nine
Months Ended September 30, 2000 (Unaudited).............................. 5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 (Unaudited).................................. 6
Notes to Condensed Consolidated Financial Statements (Unaudited)........... 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................. 25
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............. 38
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K....................................... 42
</TABLE>
2
<PAGE>
UNITEDGLOBALCOM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
------------ -----------
<S> <C> <C>
Current assets
Cash and cash equivalents ................................... $ 444,627 $ 1,925,915
Restricted cash ............................................. 16,052 18,217
Short-term liquid investments ............................... 929,105 629,689
Subscriber receivables, net of allowance for
doubtful accounts of $48,671 and $27,808, respectively .... 117,436 83,388
Costs to be reimbursed by affiliated companies, net ......... 12,391 13,430
Other receivables, including related party receivables
of $1,933 and $1,680, respectively ........................ 162,156 131,622
Inventory ................................................... 150,511 82,995
Deferred taxes .............................................. 2,363 2,119
Other current assets, net ................................... 138,481 98,891
----------- -----------
Total current assets ...................................... 1,973,122 2,986,266
Investments in affiliates, accounted for under the
equity method, net .......................................... 792,839 309,509
Marketable equity securities and other investments ............ 63,499 235,917
Property, plant and equipment, net of accumulated
depreciation of $752,111 and $482,524, respectively ......... 2,961,687 2,379,837
Goodwill and other intangible assets, net of accumulated
amortization of $350,516 and $170,133, respectively ......... 3,719,666 2,944,802
Deferred financing costs, net of accumulated amortization
of $32,065 and $17,062, respectively ........................ 147,171 130,704
Deferred taxes ................................................ 14,474 3,698
Other assets, net ............................................. 41,921 12,120
----------- -----------
Total assets .............................................. $ 9,714,379 $ 9,002,853
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable, including related party payables
of $194 and $390, respectively ............................ $ 334,045 $ 306,760
Accrued liabilities ......................................... 438,629 324,431
Subscriber prepayments and deposits ......................... 65,849 41,466
Short-term debt ............................................. 737,400 173,296
Current portion of other long-term debt ..................... 185,701 52,180
Other current liabilities ................................... 9,134 10,567
----------- -----------
Total current liabilities ................................. 1,770,758 908,700
Senior discount notes and senior notes ........................ 5,973,414 4,385,004
Other long-term debt .......................................... 1,333,457 1,604,451
Deferred compensation ......................................... 73,751 54,825
Deferred taxes ................................................ 16,639 17,074
Other long-term liabilities ................................... 33,519 23,603
----------- -----------
Total liabilities ......................................... 9,201,538 6,993,657
----------- -----------
Minority interests in subsidiaries ............................ 277,377 867,970
----------- -----------
Series B Convertible Preferred Stock, stated at
liquidation value, 113,983 and 116,185 shares issued
and outstanding, respectively ............................... 27,719 26,920
----------- -----------
Stockholders' equity:
Class A Common Stock, $0.01 par value, 210,000,000 shares
authorized, 82,970,942 and 81,574,815
shares issued and outstanding, respectively ............... 830 816
Class B Common Stock, $0.01 par value, 30,000,000 shares
authorized, 19,221,940 and 19,323,940 shares
issued and outstanding, respectively ...................... 192 193
Series C Convertible Preferred Stock, 425,000 shares
issued and outstanding .................................... 425,000 410,125
Series D Convertible Preferred Stock, 287,500 shares
issued and outstanding .................................... 283,867 268,773
Additional paid-in capital .................................. 1,549,639 1,416,635
Deferred compensation ....................................... (160,022) (119,996)
Treasury stock, at cost, 5,569,240 shares of
Class A Common Stock ...................................... (29,061) (29,061)
Accumulated deficit ......................................... (1,544,189) (621,941)
Other cumulative comprehensive loss ......................... (318,511) (211,238)
----------- -----------
Total stockholders' equity ................................ 207,745 1,114,306
----------- -----------
Total liabilities and stockholders' equity ................ $ 9,714,379 $ 9,002,853
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
UNITEDGLOBALCOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue ........................................................ $ 316,153 $ 206,732 $ 900,560 $ 460,646
Operating expense .............................................. (229,708) (120,321) (608,410) (251,233)
Selling, general and administrative expense .................... (184,110) (114,218) (523,002) (299,034)
Depreciation and amortization .................................. (207,519) (127,298) (566,296) (260,375)
------------ ------------ ------------ ------------
Operating loss ............................................. (305,184) (155,105) (797,148) (349,996)
Gain on issuance of common equity securities by subsidiaries ... 54,085 283,947 127,731 1,106,014
Interest income, including related party income
of $142, $142, $422 and $420, respectively ................... 31,389 12,993 101,111 22,400
Interest expense ............................................... (219,654) (116,255) (637,145) (234,712)
(Loss) gain on sale of investments in affiliates ............... (3,776) -- (3,776) 7,456
Foreign currency exchange loss, net ............................ (168,496) (4,629) (292,606) (24,834)
Other income (expense), net .................................... 6,594 2,595 1,470 (4,554)
------------ ------------ ------------ ------------
(Loss) income before other items ........................... (605,042) 23,546 (1,500,363) 521,774
Income tax benefit, net ........................................ 4,151 2,351 6,932 2,656
Minority interests in subsidiaries ............................. 291,358 52,854 692,935 127,792
Share in results of affiliates, net ............................ (44,404) (16,758) (84,345) (48,366)
------------ ------------ ------------ ------------
Net (loss) income .......................................... $ (353,937) $ 61,993 $ (884,841) $ 603,856
============ ============ ============ ============
Foreign currency translation adjustments ....................... $ (30,627) $ (17,924) $ (96,375) $ (104,493)
Unrealized holding (losses) gains arising during period ........ (40,545) (339) (10,898) 127
------------ ------------ ------------ ------------
Comprehensive (loss) income ................................ $ (425,109) $ 43,730 $ (992,114) $ 499,490
============ ============ ============ ============
Basic net (loss) income attributable to common shareholders .... $ (366,851) $ 54,071 $ (923,567) $ 594,730
============ ============ ============ ============
Diluted net (loss) income attributable to common shareholders .. $ (366,851) $ 54,556 $ (923,567) $ 603,856
============ ============ ============ ============
Net (loss) income per common share:
Basic net (loss) income .................................... $ (3.81) $ 0.66 $ (9.63) $ 7.39
============ ============ ============ ============
Diluted net (loss) income .................................. $ (3.81) $ 0.61 $ (9.63) $ 6.53
============ ============ ============ ============
Weighted-average number of common shares outstanding:
Basic ...................................................... 96,348,642 82,545,254 95,940,658 80,502,722
============ ============ ============ ============
Diluted .................................................... 96,348,642 89,670,968 95,940,658 92,510,702
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
UNITEDGLOBALCOM, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S 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
------------------- -------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------ ---------- ------ -------- -------- -------- --------
<S> <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
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 ....................... 1,031,537 10 -- -- -- -- -- --
Issuance of Class A Common Stock
in connection with Company's
401(k) plan .............................. 705 -- -- -- -- -- -- --
Conversion of Series B
Convertible Preferred Stock
into Class A Common Stock ................ 48,996 1 -- -- -- -- -- --
Accrual of dividends on
Series B, C and D
Convertible Preferred Stock ................ -- -- -- -- -- 22,313 -- 15,094
Issuance of Class A Common Stock
as dividends on Series C
Convertible Preferred Stock .............. 212,889 2 -- -- -- (7,438) -- --
Equity transactions of subsidiaries ........ -- -- -- -- -- -- -- --
Amortization of deferred compensation ...... -- -- -- -- -- -- -- --
Net loss ................................... -- -- -- -- -- -- -- --
Change in cumulative
translation adjustments .................. -- -- -- -- -- -- -- --
Change in unrealized gain on
available-for-sale securites ............. -- -- -- -- -- -- -- --
---------- ------ ---------- ------ ------- -------- ------- --------
Balances, September 30, 2000 ............... 82,970,942 $ 830 19,221,940 $ 192 425,000 $425,000 287,500 $283,867
========== ====== ========== ====== ======= ======== ======= ========
<CAPTION>
OTHER
ADDITIONAL TREASURY STOCK CUMULATIVE
PAID-IN DEFERRED ------------------- ACCUMULATED COMPREHENSIVE
CAPITAL COMPENSATION SHARES AMOUNT DEFICIT LOSS TOTAL
---------- ------------ --------- -------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1999 ................ $1,416,635 $ (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 ....................... 6,239 -- -- -- -- -- 6,249
Issuance of Class A Common Stock
in connection with Company's
401(k) plan .............................. 21 -- -- -- -- -- 21
Conversion of Series B
Convertible Preferred Stock
into Class A Common Stock ................ 519 -- -- -- -- -- 520
Accrual of dividends on
Series B, C and D
Convertible Preferred Stock ................ (1,319) -- -- -- (37,407) -- (1,319)
Issuance of Class A Common Stock
as dividends on Series C
Convertible Preferred Stock .............. 7,436 -- -- -- -- -- --
Equity transactions of subsidiaries ........ 120,108 (32,683) -- -- -- -- 87,425
Amortization of deferred compensation ...... -- (7,343) -- -- -- -- (7,343)
Net loss ................................... -- -- -- -- (884,841) -- (884,841)
Change in cumulative
translation adjustments .................. -- -- -- -- -- (96,375) (96,375)
Change in unrealized gain on
available-for-sale securites ............. -- -- -- -- -- (10,898) (10,898)
---------- ----------- ---------- -------- ----------- --------- -----------
Balances, September 30, 2000 ............... $1,549,639 $ (160,022) 5,569,240 $(29,061) $(1,544,189) $(318,511) $ 207,745
========== =========== ========== ======== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE>
UNITEDGLOBALCOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ................................................. $ (884,841) $ 603,856
Adjustments to reconcile net (loss) income to net
cash flows from operating activities:
Gain on issuance of common equity securities
by subsidiaries ............................................... (127,731) (1,106,014)
Share in results of affiliates, net ............................. 79,691 42,369
Minority interests in subsidiaries .............................. (692,935) (127,792)
Exchange rate differences in U.S.
dollar-denominated securities ................................. 263,915 21,160
Depreciation and amortization ................................... 566,296 260,375
Accretion of interest on senior notes and
amortization of deferred financing costs ...................... 334,840 152,325
Stock-based compensation expense ................................ (960) 71,702
Loss (gain) on sale of investments in affiliates ................ 3,776 (7,456)
Increase in receivables, net .................................... (119,654) (29,950)
Increase in other assets ........................................ (130,716) (7,067)
Increase in accounts payable, accrued liabilities and other ..... 186,041 82,487
----------- -----------
Net cash flows from operating activities ..................... (522,278) (44,005)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term liquid investments ......................... (2,734,064) (557,000)
Proceeds from sale of short-term liquid investments ............... 2,344,894 89,711
Restricted cash deposited, net .................................... (5) (2,816)
Investments in affiliates and other investments ................... (331,576) (144,117)
Proceeds from sale of investments in affiliated companies ......... -- 18,000
New acquisitions, net of cash acquired ............................ (1,387,548) (2,103,861)
Capital expenditures .............................................. (1,186,244) (444,140)
Other ............................................................. 13,710 (5,638)
----------- -----------
Net cash flows from investing activities ..................... (3,280,833) (3,149,861)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock by subsidiaries .......................... 102,403 1,703,471
Issuance of Series C Convertible Preferred Stock .................. -- 381,788
Issuance of common stock in connection with Company's
and subsidiary's stock option plans ............................. 11,509 24,961
Issuance of common stock in connection with exercise of warrants .. -- 15,168
Proceeds from offering of senior notes and senior discount notes .. 1,612,200 1,727,639
Retirement of existing senior notes ............................... -- (265)
Proceeds from short-term and long-term borrowings ................. 1,215,360 915,186
Deferred financing costs .......................................... (56,089) (72,640)
Repayments of short-term and long-term borrowings ................. (414,693) (1,137,040)
Payment of sellers note ........................................... -- (18,000)
Other ............................................................. -- 2,971
----------- -----------
Net cash flows from financing activities ..................... 2,470,690 3,543,239
----------- -----------
EFFECT OF EXCHANGE RATES ON CASH .................................. (148,867) (67,963)
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .................. (1,481,288) 281,410
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .................... 1,925,915 35,608
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD .......................... $ 444,627 $ 317,018
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6
<PAGE>
UNITEDGLOBALCOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(STATED IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest ................................. $ 283,943 $ 54,920
=========== =========
Cash received for interest ............................. $ 90,767 $ 17,470
=========== =========
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 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 Dutch joint venture:
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)
Cash acquired .......................................... -- 13,629
----------- ---------
Net cash paid ....................................... $ -- $(252,043)
=========== =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
7
<PAGE>
UNITEDGLOBALCOM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(STATED IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
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)
===== =========
Acquisition of remaining interest in VTR:
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)
===== =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
8
<PAGE>
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 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 September 30, 2000.
<TABLE>
<S> <C> <C>
UNITED
100% 100%
UNITED EUROPE, INC. ("UEI") UNITED INTERNATIONAL PROPERTIES, INC. ("UIPI")
52.6% 100% 100%
UNITED PAN-EUROPE COMMUNICATIONS N.V. UNITED ASIA/PACIFIC UNITED LATIN AMERICA, INC.
("UPC") COMMUNICATIONS, INC. ("ULA")
("UAP") *
72.3%
DISTRIBUTION 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% AUSTRALIA: VTR 100.0%
CZECH REPUBLIC: Austar 100.0% MEXICO:
Kabel Net 100.0% Austar United Broadband 100.0% Megapo 90.3%
Kabel Plus 99.9% XYZ Entertainment 50.0% PERU:
FRANCE: NEW ZEALAND: Cable Star 100.0%
UPC France (1) 92.0% Telstra Saturn 50.0% Uruguay:
GERMANY: Enalur 100.0%
PrimaCom 25.1% LATIN AMERICAN PROGRAMMING:
HUNGARY: MGM Networks LA 50.0%
UPC Magyarorszag 100.0% * OTHER UAP
Monor 98.9%
ISRAEL: CHINA:
Tevel 46.6% Hunan International TV 49.0%
MALTA: PHILIPPINES:
Melita 50.0% Pilipino Cable Corporation 19.6%
THE NETHERLANDS:
UPC Nederland (2) 100.0%
NORWAY:
UPC Norge 100.0%
ROMANIA:
UPC Romania 51.0% - 70.0%
SLOVAK REPUBLIC:
UPC Slovak 95.0% - 100.0%
SWEDEN:
UPC Sweden 100.0%
CHELLO BROADBAND 100.0%
PRIORITY TELECOM
SPAIN:
Munditelecom 50.1%
NORWAY:
El Tele Ostfold 100.0%
THE NETHERLANDS:
Priority Telecom 100.0%
MEDIA
IRELAND:
Tara 80.0%
POLAND:
UPC Polska 100.0%
SPAIN:
Iberian Programming Services 50.0%
UNITED KINGDOM:
Xtra Music 50.0%
OTHER:
SBS 23.5%
THE NETHERLANDS:
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, Telekabel Velp, K&T Group, Tebecai
and Haarlem are held through UPC Nederland.
9
<PAGE>
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 nine months
ended September 30, 2000 and/or September 30, 1999:
<TABLE>
<CAPTION>
EFFECTIVE DATE
ENTITY OF CONSOLIDATION REASON
------ ---------------- ------
<S> <C> <C>
UTH (UPC Nederland) (1) February 1, 1999 Acquisition of remaining 49.0% interest
VTR May 1, 1999 Acquisition of remaining 66.0% interest
UPC Slovensko (UPC Slovak) June 1, 1999 Acquisition
GelreVision (UPC Nederland) June 1, 1999 Acquisition
RCF June 1, 1999 Acquisition
Saturn (2) August 1, 1999 Acquisition of remaining 35.0% interest
Stjarn (UPC Sweden) August 1, 1999 Acquisition
Videopole (UPC France) August 1, 1999 Acquisition
@Entertainment (UPC Polska) August 1, 1999 Acquisition
Time Warner Cable France (UPC France) September 1, 1999 Acquisition
A2000 (UPC Nederland) September 1, 1999 Acquisition of remaining 50.0% interest
Kabel Plus October 1, 1999 Acquisition
Monor December 1, 1999 Acquisition
Intercomm (UPC France) March 1, 2000 Acquisition of 92.0% interest
Tebecai (UPC Nederland) February 1, 2000 Acquisition
El Tele Ostfold March 1, 2000 Acquisition
K&T Group (UPC Nederland) 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.
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 September 30, 2000, and the results of its operations for the
three and nine months ended September 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.
10
<PAGE>
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED 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 include 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.
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.
11
<PAGE>
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 of vested options
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,
until the options are exercised or expire.
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 stock
which is charged directly to additional paid-in capital and/or accumulated
deficit. "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 at the average rate for the period. 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 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.
UPC has entered into cross-currency swaps related to $1.55 billion of
dollar-denominated senior notes. Under SFAS 133 these cross-currency swaps will
not qualify for hedge accounting, and therefore the cross-currency swaps, as
well as the senior notes which they relate to, must be presented separately on
the balance sheet. The senior notes must be revalued at spot rates based on the
USD/euro exchange rate at each balance sheet date, with changes recorded as
foreign exchange gains/losses in the statement of operations. The cross-currency
swaps likewise must be marked to market at each balance sheet date with changes
12
<PAGE>
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
recorded in the statement of operations. If the Company were to implement
SFAS 133 to cross-currency swaps in place at September 30, 2000, the impact
for the nine months ended September 30, 2000 would be a gain of between $35.2
and $61.6 million.
In addition to cross-currency swaps, UPC is also a party to a number of other
derivative arrangements, primarily through call arrangements embedded in its
outstanding senior notes. These calls are embedded derivatives under SFAS 133
and for purposes of implementing SFAS 133 will need to be bifurcated and
accounted for separate and apart from the underlying debt. The impact of
adopting SFAS 133 on these embedded derivatives is still being evaluated.
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.
Implementation of SAB 101 is required for the fourth quarter of 2000. The
Company has assessed the effect of this new standard and does not expect it
will have a material effect on its financial position or results of operations.
13
<PAGE>
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS IN AFFILIATES, ACCOUNTED FOR UNDER THE EQUITY METHOD
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
--------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE
INVESTMENTS IN DIVIDENDS SHARE IN RESULTS TRANSLATION
AFFILIATES RECEIVED OF AFFILIATES ADJUSTMENTS TOTAL
-------------- ---------- -------------- ----------- ----------
Europe: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SBS ............................. $ 264,675 $ -- $ (26,069) $ 5,302 $ 243,908
Tevel ........................... 99,385 (6,180) (32,595) 5,122 65,732
Melita .......................... 14,062 -- 1,324 (3,760) 11,626
Iberian Programming ............. 11,947 (2,560) 4,677 1,430 15,494
Xtra Music ...................... 14,491 -- (5,587) (754) 8,150
PrimaCom ........................ 341,017 -- (17,669) (36,352) 286,996
Other ........................... 39,553 (2,060) (3,315) (8,017) 26,161
Asia/Pacific:
XYZ Entertainment ............... 44,306 (3,197) (13,206) (2,515) 25,388
Telstra Saturn .................. 66,624 -- (14,257) (6,116) 46,251
Pilipino Cable Corporation ...... 17,170 -- (3,130) (2,588) 11,452
Hunan International TV .......... 6,061 -- (2,133) 16 3,944
Other ........................... 2,879 -- (120) (454) 2,305
Latin America:
Megapo .......................... 75,420 (20,862) (3,184) (9,193) 42,181
MGM Networks LA (1) ............. 13,774 -- (13,774) -- --
Jundiai ......................... 6,032 (1,572) 221 (1,430) 3,251
---------- ---------- ---------- ---------- ----------
Total ......................... $1,017,396 $ (36,431) $ (128,817) $ (59,309) $ 792,839
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------------------------------------------
CUMULATIVE CUMULATIVE
INVESTMENTS IN DIVIDENDS SHARE IN RESULTS TRANSLATION
AFFILIATES RECEIVED OF AFFILIATES ADJUSTMENTS TOTAL
-------------- --------- ---------------- ----------- --------
(IN THOUSANDS)
Europe:
<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
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>
(1) Includes an accrued funding obligation of $2.8 and $3.0 million at
September 30, 2000 and December 31, 1999, respectively. The Company would
face significant and punitive dilution if it did not make the requested
fundings.
14
<PAGE>
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cable distribution networks ...................... $ 2,508,055 $ 1,826,781
Subscriber premises equipment and converters ..... 581,598 451,505
MMDS/DTH distribution facilities ................. 210,177 144,593
Office equipment, furniture and fixtures ......... 211,484 103,869
Buildings and leasehold improvements ............. 109,859 162,522
Other ............................................ 92,625 173,091
----------- -----------
3,713,798 2,862,361
Accumulated depreciation ....................... (752,111) (482,524)
----------- -----------
Net property, plant and equipment .............. $ 2,961,687 $ 2,379,837
=========== ===========
</TABLE>
5. GOODWILL AND OTHER INTANGIBLE ASSETS
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ -----------
Europe: (IN THOUSANDS)
<S> <C> <C>
UPC Nederland .............................. $ 1,464,669 $ 763,714
UPC Polska ................................. 890,618 935,867
UPC Sweden ................................. 378,101 430,606
UPC N.V .................................... 184,495 29,406
Telekabel Group ............................ 158,244 177,800
UPC France ................................. 153,022 117,787
UPC Magyarorszag ........................... 106,720 55,068
Kabel Plus ................................. 99,077 85,330
Priority Telecom ........................... 94,554 --
UPC Norge .................................. 68,693 85,405
El Tele Ostfold ............................ 24,374 --
Monor ...................................... 19,820 24,420
UPC Belgium ................................ 19,748 20,994
UPC Slovak ................................. 19,494 23,026
Other ...................................... 66,159 12,932
Asia/Pacific:
Austar United .............................. 93,357 114,882
Latin America:
VTR ........................................ 213,261 223,484
TV Show Brasil ............................. 8,129 8,298
Cable Star ................................. 7,138 5,916
Enalur ..................................... 509 --
----------- -----------
4,070,182 3,114,935
Accumulated amortization ................... (350,516) (170,133)
----------- -----------
Net goodwill and other intangible assets ... $ 3,719,666 $ 2,944,802
=========== ===========
</TABLE>
6. SHORT-TERM DEBT
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
UPC facilities ............... $732,017 $164,263
Other ULA and UAP ............ 5,383 9,033
-------- --------
Total short-term debt ...... $737,400 $173,296
======== ========
</TABLE>
15
<PAGE>
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SENIOR DISCOUNT NOTES AND SENIOR NOTES
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
United 1998 Notes ..................................... $1,072,571 $ 991,568
United 1999 Notes ..................................... 242,948 224,426
UPC Senior Notes July 1999 Offering:
UPC 10.875% USD Senior Notes due 2009 ............... 663,838 759,442
UPC 10.875% Euro Senior Notes due 2009 .............. 263,875 301,878
UPC 12.5% USD Senior Discount Notes due 2009 ........ 461,953 421,747
UPC Senior Notes October 1999 Offering:
UPC 10.875% USD Senior Notes due 2007 ............... 167,700 191,852
UPC 10.875% Euro Senior Notes due 2007 .............. 87,958 100,625
UPC 11.25% USD Senior Notes due 2009 ................ 209,612 239,905
UPC 11.25% Euro Senior Notes due 2009 ............... 88,242 100,894
UPC 13.375% USD Senior Discount Notes due 2009 ...... 281,807 255,786
UPC 13.375% Euro Senior Discount Notes due 2009 ..... 99,049 102,847
UPC Senior Notes January 2000 Offering:
UPC 11.25% USD Senior Notes due 2010 ................ 595,971 --
UPC 11.25% Euro Senior Notes due 2010 ............... 174,692 --
UPC 11.5% USD Senior Notes due 2010 ................. 259,193 --
UPC 13.75% Senior Discount Notes due 2010 ........... 562,334 --
@Entertainment Senior Discount Notes .................. 290,403 286,089
United A/P Notes ...................................... 451,268 407,945
---------- ----------
Total senior discount notes and senior notes ...... $5,973,414 $4,385,004
========== ==========
</TABLE>
8. OTHER LONG-TERM DEBT
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
UPC Senior Credit Facility ........ $ 561,946 $ 359,720
UPC Nederland Facilities .......... 319,504 588,310
UPC France Facilities ............. 185,688 146,157
Other UPC ......................... 55,930 123,199
VTR Bank Facility ................. 176,000 176,000
New Austar Bank Facility .......... 217,096 202,703
Other UAP ......................... 2,437 59,948
Other ULA ......................... 557 594
----------- -----------
1,519,158 1,656,631
Less current portion .......... (185,701) (52,180)
----------- -----------
Total other long-term debt .... $ 1,333,457 $ 1,604,451
=========== ===========
</TABLE>
16
<PAGE>
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. 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 condensed consolidated financial statements and notes.
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 NINE MONTHS ENDED
SEPTEMBER 30, 2000
-------------------------------------------
AUSTAR
UPC UNITED TOTAL
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Variable plan accounting for stock options .. $ 32,683 $ -- $ 32,683
Deferred compensation expense ............... (32,683) -- (32,683)
Amortization of deferred compensation ....... (12,252) 4,909 (7,343)
Issuance of warrants by UPC ................. 59,912 -- 59,912
Issuance of shares by subsidiary of UPC ..... 27,513 -- 27,513
-------- -------- --------
Total .................................... $ 75,173 $ 4,909 $ 80,082
======== ======== ========
</TABLE>
OTHER CUMULATIVE COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Foreign currency translation adjustments ............ $(314,317) $(217,942)
Unrealized gain on available-for-sale securities .... (4,194) 6,704
--------- ---------
Total ............................................ $(318,511) $(211,238)
========= =========
</TABLE>
17
<PAGE>
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. BASIC AND DILUTED NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
BASIC: (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Net (loss) income .................................................. $(353,937) $ 61,993 $(884,841) $ 603,856
Accrual of dividends on Series A Convertible Preferred Stock ....... -- (6) -- (220)
Accrual of dividends on Series B Convertible Preferred Stock ....... (444) (479) (1,319) (1,469)
Accrual of dividends on Series C Convertible Preferred Stock ....... (7,438) (7,437) (22,313) (7,437)
Accrual of dividends on Series D Convertible Preferred Stock ....... (5,032) -- (15,094) --
--------- --------- --------- ---------
Basic net (loss) income attributable to common shareholders ...... (366,851) 54,071 (923,567) 594,730
--------- --------- --------- ---------
DILUTED:
Accrual of dividends on Series A Convertible Preferred Stock ....... -- 6 -- 220
Accrual of dividends on Series B Convertible Preferred Stock ....... -- (1) 479 -- (1) 1,469
Accrual of dividends on Series C Convertible Preferred Stock ....... -- (1) -- (1) -- (1) 7,437
Accrual of dividends on Series D Convertible Preferred Stock ....... -- (1) -- -- (1) --
--------- --------- --------- ---------
Diluted net (loss) income attributable to common shareholders .... $(366,851) $ 54,556 $(923,567) $ 603,856
========= ========= ========= =========
</TABLE>
------------------
(1) Excluded from the calculation of diluted net (loss) income attributable to
common shareholders because the effect would be anti-dilutive.
18
<PAGE>
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SEGMENT INFORMATION
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
----------------------------------------------------------------------------------------
INTERNET/
VIDEO TELEPHONE DATA PROGRAMMING OTHER TOTAL
--------- --------- --------- ----------- --------- ---------
REVENUE: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Europe:
The Netherlands ......... $ 52,090 $ 29,509 $ 10,414 $ 1,685 $ 210 $ 93,908
Austria ................. 19,104 7,678 6,545 -- -- 33,327
Belgium ................. 3,894 357 1,115 -- -- 5,366
Czech Republic .......... 6,018 234 86 -- 526 6,864
France .................. 13,118 2,282 625 -- -- 16,025
Hungary ................. 10,818 5,034 98 168 3 16,121
Norway .................. 11,035 915 736 -- -- 12,686
Poland .................. 17,003 -- -- 14,570 -- 31,573
Sweden .................. 7,423 57 1,563 -- -- 9,043
Corporate and Other ..... 7,403 -- -- 37 1,104 8,544
--------- --------- --------- --------- --------- ---------
Total Europe .......... 147,906 46,066 21,182 16,460 1,843 233,457
--------- --------- --------- --------- --------- ---------
Asia/Pacific:
Australia ............... 41,859 -- 1,225 -- 829 43,913
Corporate and Other ..... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total Asia/Pacific .... 41,859 -- 1,225 -- 829 43,913
--------- --------- --------- --------- --------- ---------
Latin America:
Chile ................... 27,534 9,157 269 -- -- 36,960
Brazil .................. 1,333 -- -- -- -- 1,333
Corporate and Other ..... 463 -- -- -- 1 464
--------- --------- --------- --------- --------- ---------
Total Latin America ... 29,330 9,157 269 -- 1 38,757
--------- --------- --------- --------- --------- ---------
Corporate & Other .......... -- -- -- -- 26 26
--------- --------- --------- --------- --------- ---------
Total Company ......... $ 219,095 $ 55,223 $ 22,676 $ 16,460 $ 2,699 $ 316,153
========= ========= ========= ========= ========= =========
ADJUSTED EBITDA: (1)
Europe:
The Netherlands ......... $ 25,725 $ (21,105) $ (37,897) $ (14,034) $ (4,079) $ (51,390)
Austria ................. 9,389 (1,167) 464 -- -- 8,686
Belgium ................. 1,140 87 (1,573) -- -- (346)
Czech Republic .......... 640 11 55 (3,881) 227 (2,948)
France .................. 3,485 (5,693) (2,252) -- 7 (4,453)
Hungary ................. 3,656 2,791 (545) (3,129) 3 2,776
Norway .................. 4,234 (2,492) (576) -- (96) 1,070
Poland .................. 362 -- (269) (11,170) (161) (11,238)
Sweden .................. 2,496 (925) (1,616) -- (90) (135)
Corporate and Other ..... 4,011 (591) 1,792 (311) (33,464) (28,563)
--------- --------- --------- --------- --------- ---------
Total Europe .......... 55,138 (29,084) (42,417) (32,525) (37,653) (86,541)
--------- --------- --------- --------- --------- ---------
Asia/Pacific:
Australia ............... 608 (777) (12,829) -- 611 (12,387)
New Zealand ............. -- -- -- -- -- --
Corporate and Other ..... -- -- -- -- 678 678
--------- --------- --------- --------- --------- ---------
Total Asia/Pacific .... 608 (777) (12,829) -- 1,289 (11,709)
--------- --------- --------- --------- --------- ---------
Latin America:
Chile ................... 9,439 (2,842) (1,299) -- (2,416) 2,882
Brazil .................. 82 -- -- -- -- 82
Corporate and Other ..... (265) -- -- -- 984 719
--------- --------- --------- --------- --------- ---------
Total Latin America ... 9,256 (2,842) (1,299) -- (1,432) 3,683
--------- --------- --------- --------- --------- ---------
Corporate & Other .......... -- -- -- -- (3,372) (3,372)
--------- --------- --------- --------- --------- ---------
Total Company ......... $ 65,002 $ (32,703) $ (56,545) $ (32,525) $ (41,168) $ (97,939)
========= ========= ========= ========= ========= =========
</TABLE>
19
<PAGE>
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
----------------------------------------------------------------------------------------
INTERNET/
VIDEO TELEPHONE DATA PROGRAMMING OTHER TOTAL
--------- --------- --------- ----------- --------- ---------
REVENUE: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Europe:
The Netherlands ......... $ 148,119 $ 71,861 $ 24,048 $ 2,830 $ 549 $ 247,407
Austria ................. 58,719 22,021 18,091 -- -- 98,831
Belgium ................. 11,260 958 2,935 -- -- 15,153
Czech Republic .......... 17,854 713 86 -- 2,235 20,888
France .................. 41,078 6,304 1,630 -- -- 49,012
Hungary ................. 33,182 15,242 220 168 10 48,822
Norway .................. 34,451 2,112 1,671 -- -- 38,234
Poland .................. 51,235 -- -- 37,420 -- 88,655
Sweden .................. 23,277 275 3,879 -- -- 27,431
Corporate and Other ..... 15,066 1,391 -- 37 1,969 18,463
--------- --------- --------- --------- --------- ---------
Total Europe .......... 434,241 120,877 52,560 40,455 4,763 652,896
--------- --------- --------- --------- --------- ---------
Asia/Pacific:
Australia ............... 124,396 -- 1,654 -- 1,866 127,916
New Zealand ............. 844 3,166 878 -- -- 4,888
Corporate and Other ..... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total Asia/Pacific .... 125,240 3,166 2,532 -- 1,866 132,804
--------- --------- --------- --------- --------- ---------
Latin America:
Chile ................... 85,722 22,970 511 -- -- 109,203
Brazil .................. 4,062 -- -- -- -- 4,062
Corporate and Other ..... 1,512 -- -- -- 5 1,517
--------- --------- --------- --------- --------- ---------
Total Latin America ... 91,296 22,970 511 -- 5 114,782
--------- --------- --------- --------- --------- ---------
Corporate & Other .......... -- -- -- -- 78 78
--------- --------- --------- --------- --------- ---------
Total Company ......... $ 650,777 $ 147,013 $ 55,603 $ 40,455 $ 6,712 $ 900,560
========= ========= ========= ========= ========= =========
ADJUSTED EBITDA: (1)
Europe:
The Netherlands ......... $ 73,222 $ (54,316) $(107,455) $ (33,510) $ (9,647) (131,706)
Austria ................. 30,692 (4,442) 955 -- -- 27,205
Belgium ................. 3,972 (159) (3,999) -- -- (186)
Czech Republic .......... 2,804 45 57 (4,073) 828 (339)
France .................. 9,891 (14,851) (6,150) -- (284) (11,394)
Hungary ................. 11,127 8,381 (2,563) (3,319) 9 13,635
Norway .................. 13,131 (8,419) (2,290) -- (219) 2,203
Poland .................. 1,788 -- (279) (42,429) (1,292) (42,212)
Sweden .................. 8,706 (2,632) (5,904) -- (93) 77
Corporate and Other ..... 7,064 (1,490) (1,510) (565) (75,069) (71,570)
--------- --------- --------- --------- --------- ---------
Total Europe .......... 162,397 (77,883) (129,138) (83,896) (85,767) (214,287)
--------- --------- --------- --------- --------- ---------
Asia/Pacific:
Australia ............... 3,830 (903) (23,190) -- (949) (21,212)
New Zealand ............. (253) (357) 248 -- (1,344) (1,706)
Corporate and Other ..... -- -- -- -- 1,626 1,626
--------- --------- --------- --------- --------- ---------
Total Asia/Pacific .... 3,577 (1,260) (22,942) -- (667) (21,292)
--------- --------- --------- --------- --------- ---------
Latin America:
Chile ................... 29,326 (8,534) (2,228) -- (6,944) 11,620
Brazil .................. (68) -- -- -- -- (68)
Corporate and Other ..... (672) -- -- -- 2,950 2,278
--------- --------- --------- --------- --------- ---------
Total Latin America ... 28,586 (8,534) (2,228) -- (3,994) 13,830
--------- --------- --------- --------- --------- ---------
Corporate & Other .......... -- -- -- -- (10,063) (10,063)
--------- --------- --------- --------- --------- ---------
Total Company ......... $ 194,560 $ (87,677) $(154,308) $ (83,896) $(100,491) $(231,812)
========= ========= ========= ========= ========= =========
</TABLE>
20
<PAGE>
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------------------------------------------------------------
INTERNET/
VIDEO TELEPHONE DATA PROGRAMMING OTHER TOTAL
--------- --------- --------- ----------- --------- ---------
REVENUE: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Europe:
The Netherlands ......... $ 32,024 $ 7,439 $ 2,010 $ 40 $ 74 $ 41,587
Austria ................. 20,868 2,128 3,720 -- -- 26,716
Belgium ................. 3,735 -- 608 -- -- 4,343
Czech Republic .......... 1,313 -- -- -- -- 1,313
France .................. 9,970 795 182 -- -- 10,947
Hungary ................. 8,783 -- 21 -- -- 8,804
Norway .................. 12,334 95 132 -- -- 12,561
Poland .................. 10,532 -- -- 3,997 -- 14,529
Sweden .................. 5,067 -- 145 -- -- 5,212
Corporate and Other ..... 2,307 -- -- 188 3,184 5,679
--------- --------- --------- --------- --------- ---------
Total Europe .......... 106,933 10,457 6,818 4,225 3,258 131,691
--------- --------- --------- --------- --------- ---------
Asia/Pacific:
Australia ............... 39,596 -- -- -- -- 39,596
New Zealand ............. 350 1,569 230 -- -- 2,149
Corporate and Other ..... -- -- -- -- (508) (508)
--------- --------- --------- --------- --------- ---------
Total Asia/Pacific .... 39,946 1,569 230 -- (508) 41,237
--------- --------- --------- --------- --------- ---------
Latin America:
Chile ................... 27,811 3,902 32 -- -- 31,745
Brazil .................. 1,182 -- -- -- -- 1,182
Corporate and Other ..... 406 -- -- -- 222 628
--------- --------- --------- --------- --------- ---------
Total Latin America ... 29,399 3,902 32 -- 222 33,555
--------- --------- --------- --------- --------- ---------
Corporate & Other .......... -- -- -- -- 249 249
--------- --------- --------- --------- --------- ---------
Total Company ......... $ 176,278 $ 15,928 $ 7,080 $ 4,225 $ 3,221 $ 206,732
========= ========= ========= ========= ========= =========
ADJUSTED EBITDA: (1)
Europe:
The Netherlands ......... $ 14,223 $ (4,759) $ (20,821) $ (2,860) $ 764 $ (13,453)
Austria ................. 11,683 (2,001) 361 -- -- 10,043
Belgium ................. 1,177 (3) (452) -- -- 722
Czech Republic .......... (75) -- -- -- -- (75)
France .................. 3,112 (1,187) (479) -- (1,366) 80
Hungary ................. 3,299 -- (8) -- -- 3,291
Norway .................. 5,102 (2,031) (1,407) -- -- 1,664
Poland .................. (980) -- -- (13,594) (1,741) (16,315)
Sweden .................. 2,710 (27) (1,006) -- -- 1,677
Corporate and Other ..... 907 12 57 (1,020) (13,456) (13,500)
--------- --------- --------- --------- --------- ---------
Total Europe .......... 41,158 (9,996) (23,755) (17,474) (15,799) (25,866)
--------- --------- --------- --------- --------- ---------
Asia/Pacific:
Australia ............... 814 -- -- -- (111) 703
New Zealand ............. (562) (246) (24) -- -- (832)
Corporate and Other ..... -- -- -- -- (1,582) (1,582)
--------- --------- --------- --------- --------- ---------
Total Asia/Pacific .... 252 (246) (24) -- (1,693) (1,711)
--------- --------- --------- --------- --------- ---------
Latin America:
Chile ................... 7,542 2,321 -- -- (2,168) 7,695
Brazil .................. (216) -- -- -- (46) (262)
Corporate and Other ..... (336) -- -- -- (1,723) (2,059)
--------- --------- --------- --------- --------- ---------
Total Latin America ... 6,990 2,321 -- -- (3,937) 5,374
--------- --------- --------- --------- --------- ---------
Corporate & Other .......... -- -- -- -- (253) (253)
--------- --------- --------- --------- --------- ---------
Total Company ......... $ 48,400 $ (7,921) $ (23,779) $ (17,474) $ (21,682) $ (22,456)
========= ========= ========= ========= ========= =========
</TABLE>
21
<PAGE>
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMER 30, 1999
----------------------------------------------------------------------------------------
INTERNET/
VIDEO TELEPHONE DATA PROGRAMMING OTHER TOTAL
--------- --------- --------- ----------- --------- ---------
REVENUE: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Europe:
The Netherlands ......... $ 74,637 $ 17,135 $ 3,236 $ 52 $ 74 $ 95,134
Austria ................. 63,674 3,241 8,859 -- -- 75,774
Belgium ................. 11,724 -- 1,620 -- -- 13,344
Czech Republic .......... 3,641 -- -- -- -- 3,641
France .................. 13,037 1,143 318 -- -- 14,498
Hungary ................. 26,041 -- 71 -- -- 26,112
Norway .................. 36,703 128 327 -- -- 37,158
Poland .................. 10,532 -- -- 3,997 -- 14,529
Sweden .................. 5,067 -- 145 -- -- 5,212
Corporate and Other ..... 4,611 -- -- 1,341 4,071 10,023
--------- --------- --------- --------- --------- ---------
Total Europe .......... 249,667 21,647 14,576 5,390 4,145 295,425
--------- --------- --------- --------- --------- ---------
Asia/Pacific:
Australia ............... 104,416 -- -- -- -- 104,416
New Zealand ............. 350 1,569 230 -- -- 2,149
Corporate and Other ..... -- -- -- -- 313 313
--------- --------- --------- --------- --------- ---------
Total Asia/Pacific .... 104,766 1,569 230 -- 313 106,878
--------- --------- --------- --------- --------- ---------
Latin America:
Chile ................... 46,717 6,010 32 -- -- 52,759
Brazil .................. 3,290 -- -- -- -- 3,290
Corporate and Other ..... 1,823 -- -- -- 222 2,045
--------- --------- --------- --------- --------- ---------
Total Latin America ... 51,830 6,010 32 -- 222 58,094
--------- --------- --------- --------- --------- ---------
Corporate & Other .......... -- -- -- -- 249 249
--------- --------- --------- --------- --------- ---------
Total Company ......... $ 406,263 $ 29,226 $ 14,838 $ 5,390 $ 4,929 $ 460,646
========= ========= ========= ========= ========= =========
ADJUSTED EBITDA: (1)
Europe:
The Netherlands ......... $ 35,265 $ (8,360) $ (41,648) $ (5,926) $ 445 $ (20,224)
Austria ................. 35,146 (7,131) 214 -- -- 28,229
Belgium ................. 3,673 (3) (1,594) -- -- 2,076
Czech Republic .......... (350) -- -- -- -- (350)
France .................. 2,997 (3,484) (1,379) -- (1,389) (3,255)
Hungary ................. 8,817 -- (21) -- -- 8,796
Norway .................. 15,801 (4,741) (3,555) -- -- 7,505
Poland .................. (996) -- -- (13,819) (1,769) (16,584)
Sweden .................. 2,755 (27) (1,023) -- -- 1,705
Corporate and Other ..... 1,583 13 (28) (3,436) (23,841) (25,709)
--------- --------- --------- --------- --------- ---------
Total Europe .......... 104,691 (23,733) (49,034) (23,181) (26,554) (17,811)
--------- --------- --------- --------- --------- ---------
Asia/Pacific:
Australia ............... (627) -- -- -- (3,636) (4,263)
New Zealand ............. (562) (246) (24) -- -- (832)
Corporate and Other ..... -- -- -- -- 196 196
--------- --------- --------- --------- --------- ---------
Total Asia/Pacific .... (1,189) (246) (24) -- (3,440) (4,899)
--------- --------- --------- --------- --------- ---------
Latin America:
Chile ................... 11,941 2,972 -- -- (3,192) 11,721
Brazil .................. (1,617) -- -- -- (46) (1,663)
Corporate and Other ..... (562) -- -- -- (4,496) (5,058)
--------- --------- --------- --------- --------- ---------
Total Latin America ... 9,762 2,972 -- -- (7,734) 5,000
--------- --------- --------- --------- --------- ---------
Corporate & Other .......... -- -- -- -- (209) (209)
--------- --------- --------- --------- --------- ---------
Total Company ......... $ 113,264 $ (21,007) $ (49,058) $ (23,181) $ (37,937) $ (17,919)
========= ========= ========= ========= ========= =========
</TABLE>
22
<PAGE>
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
TOTAL ASSETS
AS OF
-------------------------------
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
Europe: (IN THOUSANDS)
<S> <C> <C>
The Netherlands ......... $2,649,563 $3,157,285
Austria ................. 384,799 356,337
Belgium ................. 42,194 47,826
Czech Republic .......... 186,066 159,806
France .................. 691,615 498,776
Hungary ................. 310,129 215,448
Norway .................. 254,832 244,975
Poland .................. 1,147,975 1,218,956
Sweden .................. 411,165 474,899
Corporate and Other ..... 1,447,275 77,219
---------- ----------
Total Europe .......... 7,525,613 6,451,527
---------- ----------
Asia/Pacific:
Australia ............... 508,900 563,627
Corporate and Other ..... 54,964 128,580
---------- ----------
Total Asia/Pacific .... 563,864 692,207
---------- ----------
Latin America:
Chile ................... 516,728 489,638
Brazil .................. 17,491 17,172
Corporate and Other ..... 68,464 71,379
---------- ----------
Total Latin America ... 602,683 578,189
---------- ----------
Corporate & Other ............ 1,022,219 1,280,930
---------- ----------
Total Company ......... $9,714,379 $9,002,853
========== ==========
</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 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 Adjusted EBITDA reconciles to the consolidated
statement of operations as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating loss ....................... $(305,184) $(155,105) $(797,148) $(349,996)
Depreciation and amortization ........ 207,519 127,298 566,296 260,375
Stock-based compensation expense ..... (274) 5,351 (960) 71,702
--------- --------- --------- ---------
Consolidated Adjusted EBITDA ...... $ (97,939) $ (22,456) $(231,812) $ (17,919)
========= ========= ========= =========
</TABLE>
23
<PAGE>
UNITEDGLOBALCOM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENTS
UPC BANK FACILITY
In October 2000, UPC closed a Euro4.0 ($3.5) billion operating and term loan
facility with a group of banks (the "UPC Bank Facility"). The UPC Bank
Facility is guaranteed by existing cable operating companies, excluding
Polish and German assets. The UPC Bank Facility bears interest at EURIBOR
+0.75% - 4.0% depending on certain ratios, and UPC pays an annual commitment
fee of 0.5% over the undrawn amount. The UPC Bank Facility refinanced
existing operating company bank debt totaling Euro2.0 billion and will
finance further digital rollout and triple play by UPC's existing cable
companies excluding Polish and German operations. Beginning in 2004, the
available amount will decrease until final maturity in 2009.
EWT/TSS GROUP ACQUISITION
In October 2000, UPC acquired EWT/TSS Group for Euro238.4 ($209.7) million in
cash and a 49.0% interest in UPC Germany. The cash portion was funded with a
draw on the UPC Senior Credit Facility.
24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. These
forward-looking statements may include, among other things, statements
concerning our plans, objectives and future economic prospects, expectations,
beliefs, future plans and strategies, anticipated events or trends and similar
expressions concerning matters that are not historical facts. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements,
or industry results, to be materially different from what we say or imply with
such forward-looking statements. These factors include, among other things,
changes in television viewing preferences and habits by our subscribers and
potential subscribers, their acceptance of new technology, programming
alternatives and new video services we may offer. They also include subscribers'
acceptance of our newer telephone and Internet/data services, our ability to
manage and grow our newer telephone and Internet/data services, our ability to
secure adequate capital to fund other system growth and development and our
planned acquisitions, our ability to successfully close proposed transactions,
risks inherent in investment and operations in foreign countries, changes in
government regulation and changes in the nature of key strategic relationships
with joint ventures. We and our subsidiaries have announced many potential
acquisitions, many of which are subject to various conditions, some of which may
not occur. These forward-looking statements apply only as of the time of this
report, and we have no obligation or plans to provide updates or revisions to
these forward-looking statements or any other changes in events, conditions or
circumstances on which these statements are based. The following discussion and
analysis of financial condition and results of operations covers the three and
nine months ended September 30, 2000 and 1999, and should be read together with
our consolidated financial statements and related notes included elsewhere
herein. These consolidated financial statements provide additional information
regarding our financial activities and condition.
SUMMARY OPERATING DATA
The following comparative operating data reflects video subscribers, telephone
lines, programming and data subscribers, as well as selected financial
statistics of the operating systems in which we had an ownership interest as of
September 30, 2000. In addition, the following proportionate data represents
certain operating and financial results for us, multiplied by our applicable
ownership percentage.
25
<PAGE>
GROSS OPERATING SYSTEM DATA
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
----------------------------------------------------------------------------------
HOMES IN TWO-WAY BASIC
UNITED SYSTEM SERVICE HOMES HOMES SUBSCRIBERS/ BASIC
OWNERSHIP OWNERSHIP AREA PASSED PASSED LINES PENETRATION
----------- --------- --------- --------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
UPC (EUROPE)
VIDEO SUBSCRIBERS:
The Netherlands ....... 52.6% 100.0% 2,552,120 2,440,632 1,963,202 2,257,508 92.5%
Poland ................ 52.6% 100.0% 1,950,000 1,811,297 84,000 1,425,720 78.7%
Germany ............... 13.2% 25.1% 1,422,826 1,422,826 30,456 919,641 64.6%
Hungary (UPC
Magyarorszag) ....... 52.6% 100.0% 915,500 753,739 164,912 580,536 77.0%
Austria ............... 50.0% 95.0% 1,080,960 913,750 904,310 474,029 51.9%
Israel ................ 24.5% 46.6% 660,000 631,420 393,187 447,092 70.8%
France ................ 48.4% 92.0% 2,518,283 1,124,583 343,746 382,133 34.0%
Czech Republic ........ 52.6% 100.0% 894,320 775,167 72,000 409,727 52.9%
Norway ................ 52.6% 100.0% 529,000 473,740 99,466 331,370 69.9%
Slovak Republic ....... 50.0-52.6% 95.0-100.0% 417,813 296,529 -- 245,320 82.7%
Sweden ................ 52.6% 100.0% 770,000 424,624 230,851 250,489 59.0%
Belgium ............... 52.6% 100.0% 530,000 152,052 152,052 123,973 81.5%
Romania ............... 26.8-36.8% 51.0-70.0% 668,519 460,016 -- 282,577 61.4%
Malta ................. 26.3% 50.0% 181,534 177,054 -- 81,577 46.1%
Hungary (Monor) ....... 52.0% 98.9% 85,561 70,587 84,916 34,200 48.5%
---------- --------- --------- ----------
Total .............. 15,176,436 11,928,016 4,523,098 8,245,892
---------- --------- --------- -----------
TELEPHONE LINES:
The Netherlands ....... 52.6% 100.0% 2,552,120 N/A N/A 201,316 N/A
Hungary (Monor) ....... 52.0% 98.9% 85,561 N/A N/A 74,361 N/A
Austria ............... 50.0% 95.0% 1,080,960 N/A N/A 85,284 N/A
France ................ 48.4% 92.0% 2,518,283 N/A N/A 31,049 N/A
Norway ................ 52.6% 100.0% 529,000 N/A N/A 14,776 N/A
Czech Republic ........ 52.6% 100.0% 894,320 N/A N/A 3,553 N/A
Spain ................. 26.4% 50.1% N/A N/A N/A 7,333 N/A
---------- --------- --------- -----------
Total .............. 7,660,244 N/A N/A 417,672
---------- --------- --------- -----------
DATA SUBSCRIBERS:
Internet .............. 13.2-52.6% 25.1-100.0% 11,213,009 N/A N/A 278,176 N/A
---------- --------- --------- -----------
PROGRAMMING SUBSCRIBERS:
Ireland ............... 42.1% 80.0% N/A N/A N/A 3,894,000 N/A
Spain/Portugal ........ 26.3% 50.0% N/A N/A N/A 1,494,000 N/A
---------- --------- --------- -----------
Total .............. N/A N/A N/A 5,388,000
---------- --------- --------- -----------
AUSTAR UNITED
(AUSTRALIA/NEW ZEALAND)
VIDEO SUBSCRIBERS:
Australia ............. 72.3% 100.0% 2,085,000 2,083,108 517,266 427,012 20.5%
New Zealand ........... 36.2% 50.0% 141,000 94,484 94,484 20,079 21.3%
---------- --------- --------- -----------
Total .............. 2,226,000 2,177,592 611,750 447,091
---------- --------- --------- -----------
TELEPHONE LINES:
New Zealand ........... 36.2% 50.0% 141,000 N/A N/A 34,268 N/A
---------- --------- --------- -----------
DATA SUBSCRIBERS:
New Zealand ........... 36.2% 50.0% 141,000 N/A N/A 40,863 N/A
Australia ............. 72.3% 100.0% N/A N/A N/A 24,859 N/A
---------- --------- --------- -----------
Total .............. 141,000 N/A N/A 65,722
---------- --------- --------- -----------
PROGRAMMING SUBSCRIBERS:
Australia ............. 36.2% 50.0% N/A N/A N/A 1,056,465 N/A
---------- --------- --------- -----------
OTHER ASIA/PACIFIC
VIDEO SUBSCRIBERS:
Philippines ........... 19.6% 19.6% 600,000 483,444 -- 193,682 40.1%
---------- --------- --------- -----------
LATIN AMERICA
VIDEO SUBSCRIBERS:
Chile ................. 100.0% 100.0% 2,350,000 1,611,140 545,501 408,491 25.4%
Mexico ................ 90.3% 90.3% 341,600 242,354 -- 65,643 27.1%
Brazil (Jundiai) ...... 46.3% 46.3% 70,200 67,527 -- 17,477 25.9%
Brazil (TV Show
Brasil) ............. 100.0% 100.0% 437,000 276,900 -- 15,309 5.5%
Peru .................. 100.0% 100.0% 140,000 63,932 -- 7,597 11.9%
---------- --------- --------- -----------
Total .............. 3,338,800 2,261,853 545,501 514,517
---------- --------- --------- -----------
TELEPHONE LINES:
Chile ................. 100.0% 100.0% 2,350,000 N/A N/A 112,807 N/A
---------- --------- --------- -----------
DATA SUBSCRIBERS:
Chile ................. 100.0% 100.0% 2,350,000 N/A N/A 5,033 N/A
---------- --------- --------- -----------
PROGRAMMING SUBSCRIBERS:
Latin America ......... 50.0% 50.0% N/A N/A N/A 6,240,434 N/A
---------- --------- --------- -----------
</TABLE>
26
<PAGE>
GROSS OPERATING SYSTEM DATA
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
--------------------------------------------------------------------------------------
HOMES IN TWO-WAY BASIC
UNITED SYSTEM SERVICE HOMES HOMES SUBSCRIBERS/ BASIC
OWNERSHIP OWNERSHIP AREA PASSED PASSED LINES PENETRATION
--------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
UPC (EUROPE)
VIDEO SUBSCRIBERS:
The Netherlands ................... 61.5% 100.0% 1,710,192 1,652,887 1,311,887 1,515,802 91.7%
Poland ............................ 61.5% 100.0% 1,950,000 1,705,569 -- 1,165,504 68.3%
Hungary (UPC Magyarorszag) ........ 48.7% 79.3% 901,500 624,898 -- 498,325 79.7%
Austria ........................... 58.4% 95.0% 1,081,710 908,030 734,440 461,589 50.8%
Israel ............................ 28.7% 46.6% 610,500 599,443 377,234 415,754 69.4%
Czech Republic .................... 61.5% 100.0% 239,484 160,558 -- 56,638 35.3%
France ............................ 58.6%-61.3% 95.6-99.6% 1,265,827 900,020 238,309 331,029 36.8%
Norway ............................ 61.5% 100.0% 529,000 466,742 44,492 324,469 69.5%
Sweden ............................ 61.5% 100.0% 770,000 421,624 72,679 241,359 57.2%
Slovak Republic ................... 58.4-61.5% 95.0-100.0% 344,343 220,399 -- 191,592 86.9%
Belgium ........................... 61.5% 100.0% 133,090 133,090 131,816 123,952 93.1%
Romania ........................... 31.4-61.5% 51.0-100.0% 240,000 143,274 -- 94,234 65.8%
Malta ............................. 30.8% 50.0% 175,000 167,744 -- 75,000 44.7%
Hungary (Monor) ................... 29.2% 47.5% 85,000 70,061 -- 32,011 45.7%
---------- --------- --------- ----------
Total .......................... 10,035,646 8,174,339 2,910,857 5,527,258
---------- --------- --------- ----------
TELEPHONE LINES:
Hungary (Monor) ................... 29.2% 47.5% 85,000 N/A N/A 72,880 N/A
The Netherlands ................... 61.5% 100.0% 1,710,192 N/A N/A 67,156 N/A
Austria ........................... 58.4% 95.0% 1,081,710 N/A N/A 17,551 N/A
France ............................ 58.6-61.3% 95.6-99.6% 1,265,827 N/A N/A 8,593 N/A
Norway ............................ 61.5% 100.0% 529,000 N/A N/A 1,928 N/A
---------- --------- --------- ----------
Total .......................... 4,671,729 N/A N/A 168,108
---------- --------- --------- ----------
DATA SUBSCRIBERS:
Internet .......................... 48.7-61.5% 79.3-100.0% N/A N/A N/A 79,039 N/A
---------- --------- --------- ----------
PROGRAMMING SUBSCRIBERS:
Ireland ........................... 49.2% 80.0% N/A N/A N/A 1,168,548 N/A
Spain/Portugal .................... 30.8% 50.0% N/A N/A N/A 1,085,000 N/A
---------- --------- --------- ----------
Total .......................... N/A N/A N/A 2,253,548
---------- --------- --------- ----------
AUSTAR UNITED (AUSTRALIA/NEW ZEALAND)
VIDEO SUBSCRIBERS:
Australia ......................... 75.5% 100.0% 2,085,000 2,083,108 -- 360,708 17.3%
New Zealand ....................... 75.5% 100.0% 141,000 83,582 83,071 13,907 16.6%
---------- --------- --------- ----------
Total .......................... 2,226,000 2,166,690 83,071 374,615
---------- --------- --------- ----------
TELEPHONE LINES:
New Zealand ....................... 75.5% 100.0% 141,000 N/A N/A 20,547 N/A
---------- --------- --------- ----------
DATA SUBSCRIBERS:
New Zealand ....................... 75.5% 100.0% N/A N/A N/A 4,826 N/A
---------- --------- --------- ----------
PROGRAMMING SUBSCRIBERS:
Australia ......................... 37.8% 50.0% N/A N/A N/A 870,972 N/A
---------- --------- --------- ----------
OTHER ASIA/PACIFIC
VIDEO SUBSCRIBERS:
Philippines ....................... 19.6% 19.6% 600,000 425,239 -- 178,153 41.9%
---------- --------- --------- ----------
LATIN AMERICA
VIDEO SUBSCRIBERS:
Chile ............................. 100.0% 100.0% 2,350,000 1,609,461 327,212 389,858 24.2%
Mexico ............................ 49.0% 49.0% 341,600 229,451 -- 57,441 25.0%
Brazil (Jundiai) .................. 46.3% 46.3% 70,200 66,563 -- 17,877 26.9%
Brazil (TV Show Brasil) ........... 100.0% 100.0% 437,000 306,000 -- 15,107 4.9%
Peru .............................. 62.2% 62.2% 140,000 61,268 -- 8,733 14.3%
---------- --------- --------- ----------
Total .......................... 3,338,800 2,272,743 327,212 489,016
---------- --------- --------- ----------
TELEPHONE LINES:
Chile ............................. 100.0% 100.0% 2,350,000 N/A N/A 56,623 N/A
---------- --------- --------- ----------
DATA SUBSCRIBERS:
Chile ............................. 100.0% 100.0% N/A N/A N/A 706 N/A
---------- --------- --------- ----------
PROGRAMMING SUBSCRIBERS:
Latin America ..................... 50.0% 50.0% N/A N/A N/A 4,775,465 N/A
---------- --------- --------- ----------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000
-----------------------------------------------------
HOMES IN TWO-WAY BASIC
SERVICE HOMES HOMES SUBSCRIBERS/
AREA PASSED PASSED LINES
---------- ------ ------- -----------
<S> <C> <C> <C> <C>
TOTAL COMPANY BASED ON
GROSS DATA (1):
Video Subscribers ........... 21,341,236 16,850,905 5,680,349 9,401,182
Telephone Lines ............. 10,151,244 N/A N/A 564,747
Data Subscribers ............ 13,704,009 N/A N/A 348,931
Programming Subscribers ..... N/A N/A N/A 12,684,899
TOTAL COMPANY BASED ON
CONSOLIDATED SYSTEMS (2):
Video Subscribers ........... 17,924,076 13,731,796 5,162,222 7,655,991
Telephone Lines ............. 10,010,244 N/A N/A 530,479
Data Subscribers ............ 12,140,183 N/A N/A 307,918
Programming Subscribers ..... N/A N/A N/A 3,894,000
TOTAL COMPANY BASED ON
PROPORTIONATE DATA (3):
Video Subscribers ........... 11,892,166 9,184,840 3,171,611 4,608,304
Telephone Lines ............. 6,295,367 N/A N/A 334,360
Data Subscribers ............ 7,604,060 N/A N/A 181,570
Programming Subscribers ..... N/A N/A N/A 5,533,646
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
---------------------------------------------------
HOMES IN TWO-WAY BASIC
SERVICE HOMES HOMES SUBSCRIBERS/
AREA PASSED PASSED LINES
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
TOTAL COMPANY BASED ON
GROSS DATA (1):
Video Subscribers .......... 16,200,446 13,039,011 3,321,140 6,569,042
Telephone Lines ............ 7,162,729 N/A N/A 245,278
Data Subscribers ........... N/A N/A N/A 84,571
Programming Subscribers .... N/A N/A N/A 7,899,985
TOTAL COMPANY BASED ON
CONSOLIDATED SYSTEMS (2):
Video Subscribers .......... 14,318,146 11,480,510 2,943,906 5,792,806
Telephone Lines ............ 7,077,729 N/A N/A 172,398
Data Subscribers ........... N/A N/A N/A 84,571
Programming Subscribers .... N/A N/A N/A 1,168,548
TOTAL COMPANY BASED ON
PROPORTIONATE DATA (3):
Video Subscribers .......... 10,595,393 8,447,497 2,033,039 3,905,627
Telephone Lines ............ 5,259,882 N/A N/A 151,448
Data Subscribers ........... N/A N/A N/A 52,041
Programming Subscribers .... N/A N/A N/A 3,625,088
</TABLE>
(1) Summation of the gross operating system data on the previous page.
(2) Summation of the gross operating system data on the previous page, for
those systems that we consolidate in our financial statements due to
majority ownership and control.
(3) Summation of the gross operating system data on the previous page,
multiplied by our ownership percentage for each respective system.
28
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth information from our major consolidated operating
systems (in thousands of U.S. dollars):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
UPC Revenue:
Video .......................................... $ 147,906 $ 106,933 $ 434,241 $ 249,667
Telephone ...................................... 46,066 10,457 120,877 21,647
Internet/data .................................. 21,182 6,818 52,560 14,576
Programming and DTH ............................ 16,460 4,225 40,455 5,390
Other .......................................... 1,843 3,258 4,763 4,145
--------- --------- --------- ---------
Total UPC Revenue ........................... $ 233,457 $ 131,691 $ 652,896 $ 295,425
========= ========= ========= =========
UPC Adjusted EBITDA:
Video .......................................... $ 55,138 $ 41,158 $ 162,397 $ 104,691
Telephone ...................................... (29,084) (9,996) (77,883) (23,733)
Internet/data .................................. (42,417) (23,755) (129,138) (49,034)
Programming and DTH ............................ (32,525) (17,474) (83,896) (23,181)
Other .......................................... (38,525) (16,065) (89,221) (27,607)
--------- --------- --------- ---------
Total UPC Adjusted EBITDA (1) ............... $ (87,413) $ (26,132) $(217,741) $ (18,864)
========= ========= ========= =========
Austar United Revenue (2):
Video .......................................... $ 41,859 $ 39,596 $ 124,396 $ 104,416
Telephone ...................................... -- -- -- --
Internet/data .................................. 1,225 -- 1,654 --
Other .......................................... 829 -- 1,866 --
--------- --------- --------- ---------
Total Austar United Revenue ................. $ 43,913 $ 39,596 $ 127,916 $ 104,416
========= ========= ========= =========
Austar United Adjusted EBITDA:
Video .......................................... $ 608 $ 814 $ 3,830 $ (627)
Telephone ...................................... (777) -- (903) --
Internet/data .................................. (12,829) -- (23,190) --
Other .......................................... 611 (111) (949) (3,636)
--------- --------- --------- ---------
Total Austar United Adjusted EBITDA (1) ..... $ (12,387) $ 703 $ (21,212) $ (4,263)
========= ========= ========= =========
VTR Revenue:
Video .......................................... $ 27,534 $ 27,811 $ 85,722 $ 76,742
Telephone ...................................... 9,157 3,902 22,970 16,012
Internet/data .................................. 269 32 511 32
--------- --------- --------- ---------
Total VTR Revenue ........................... $ 36,960 $ 31,745 $ 109,203 $ 92,786
========= ========= ========= =========
VTR Adjusted EBITDA:
Video .......................................... $ 9,439 $ 7,542 $ 29,326 $ 17,522
Telephone ...................................... (2,842) 2,321 (8,534) 2,171
Internet/data .................................. (1,299) -- (2,228) --
Other .......................................... (2,416) (2,168) (6,944) (3,192)
--------- --------- --------- ---------
Total VTR Adjusted EBITDA (1) ............... $ 2,882 $ 7,695 $ 11,620 $ 16,501
========= ========= ========= =========
</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 considered a replacement for net
income, cash flows or for any other measure of performance or liquidity
under generally accepted accounting principles, or as an indicator of a
company's operating performance. Our presentation of Adjusted EBITDA may
not be comparable to statistics with a similar name reported by other
companies. Not all companies and analysts calculate Adjusted EBITDA in the
same manner.
(2) Not including the results of operations of Saturn, which was consolidated
from August 1, 1999 until March 31, 2000.
29
<PAGE>
The following rates for the primary currencies that impact our financial
statements are shown below per one U.S. dollar:
<TABLE>
<CAPTION>
AUSTRALIAN CHILEAN
EURO DOLLAR PESO
------ ---------- --------
<S> <C> <C> <C>
Average rate three months ended September 30, 2000 .... 1.1046 1.7408 552.9413
Average rate three months ended September 30, 1999 .... 0.9531 1.5399 517.5685
Average rate nine months ended September 30, 2000 ..... 1.0654 1.6822 528.7113
Average rate nine months ended September 30, 1999 ..... 0.9376 1.5336 497.5459
</TABLE>
REVENUE. Revenue increased $109.5 million, or 53.0%, from $206.7 million for the
three months ended September 30, 1999 to $316.2 million for the three months
ended September 30, 2000. Revenue increased $440.0 million, or 95.5%, from
$460.6 million for the nine months ended September 30, 1999 to $900.6 million
for the nine months ended September 30, 2000.
EUROPE. Revenue for UPC in U.S. dollar terms increased $101.8 million, or 77.3%,
from $131.7 million for the three months ended September 30, 1999 to $233.5
million for the three months ended September 30, 2000, despite a 15.9%
devaluation of the Euro to the U.S. dollar from period to period. Revenue for
UPC in U.S. dollar terms increased $357.5 million, or 121.0%, from $295.4
million for the nine months ended September 30, 1999 to $652.9 million for the
nine months ended September 30, 2000, despite a 13.6% devaluation of the Euro to
the U.S. dollar from period to period.
Video revenue for UPC increased primarily due to acquisitions. Video revenue for
the three months ended September 30, 2000 compared to the same period in 1999
attributable to acquisitions is 66.7% of the total increase. Of this,
acquisitions in The Netherlands represent 56.4%, the acquisition in Poland
represents 21.7%, the acquisition in the Czech Republic represents 13.6% and the
acquisition in Sweden represents 8.3%. Video revenue for the nine months ended
September 30, 2000 compared to the same period in 1999 attributable to
acquisitions totaled 67.5% of the total increase. Of this increase, acquisitions
in The Netherlands represent 46.0%, the acquisition in Poland represents 28.8%,
the acquisition in Sweden represents 12.9% and the acquisition in the Czech
Republic represents 12.3%. The remaining increase in video revenue came from
organic subscriber growth and increased revenue per subscriber.
The increase in UPC's telephone revenue for both the three and nine months ended
September 30, 2000 compared to the prior periods in 1999 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 1999 and Sweden in 2000.
In addition, UPC began consolidating telephone revenue from its acquisitions of
A2000 (September 1999), Kabel Plus (November 1999) and Monor (December 1999).
The increase in UPC's Internet/data revenue for both the three and nine months
ended September 30, 2000 compared to the prior periods in 1999 is primarily due
to the launch of residential and business cable-modem high-speed Internet access
services, branded 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 in A2000 and 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. Through this
acquisition, UPC obtained both a DTH platform serving the Polish marketplace and
a Polish-language programming business under the brand name Wizja TV,
subsequently rebranded UPC Broadcast Centre.
ASIA/PACIFIC. Revenue for Austar United increased $4.3 million, or 10.9%, from
$39.6 million for the three months ended September 30, 1999 to $43.9 million for
the three months ended September 30, 2000, despite a 13.0% devaluation of the
Australian dollar to the U.S. dollar from period to period. Austar United's
revenue increased $23.5 million, or 22.5%, from $104.4 million for the nine
months ended September 30, 1999 to $127.9 million for the nine months ended
September 30, 2000, despite a 9.7% devaluation of the Australian dollar to the
U.S. dollar from period to period.
The increase in revenue from period to period was primarily due to Austar's
video subscriber growth (427,012 at September 30, 2000 compared to 360,708 at
September 30, 1999) as well as growth in premium tiers, resulting in an average
revenue per subscriber of A$56.58 and A$55.78 for the three and nine months
ended September 30, 2000, respectively, compared to A$53.50 and A$51.45 for the
same periods in the prior year.
LATIN AMERICA. We began consolidating the results of operations of VTR effective
May 1, 1999. Revenue for VTR in U.S. dollar terms increased $5.3 million, or
16.7%, from $31.7 million for the three months ended September 30, 1999 to $37.0
million for the three months ended September 30, 2000, despite a 6.8%
devaluation of the Chilean peso to the U.S. dollar from period to period.
Revenue for VTR in U.S. dollar terms increased $16.4 million, or 17.7%, from
$92.8 million for the nine months ended September
30
<PAGE>
30, 1999 to $109.2 million for the nine months ended September 30, 2000, despite
a 6.3% devaluation of the Chilean peso to the U.S. dollar from period to period.
Video revenue increased $9.0 million, or 11.7%, for the nine months ended
September 30, 2000 compared to the same period in the prior year, despite the
devaluation of the Chilean Peso and economic recession in Chile. The number of
subscribers increased from 389,858 as of September 30, 1999 to 408,491 as of
September 30, 2000. The average monthly revenue per subscriber for video was
$24.33 for the nine months ended September 30, 2000, compared to $21.86 for the
nine months ended September 30, 1999.
The increase in telephone revenue of $5.3 and $7.0 million for the three and
nine months ended September 30, 2000 compared to the prior periods resulted
primarily from telephone subscriber growth (112,807 at September 30, 2000
compared to 56,623 at September 30, 1999).
ADJUSTED EBITDA. Adjusted EBITDA decreased $75.5 million during the three months
ended September 30, 2000 compared to the three months ended September 30, 1999.
Adjusted EBITDA decreased $213.9 million during the nine months ended September
30, 2000 compared to the nine months ended September 30, 1999.
EUROPE. Adjusted EBITDA for UPC in U.S. dollar terms decreased $61.3 million,
from a negative $26.1 million for the three months ended September 30, 1999 to
negative $87.4 million for the three months ended September 30, 2000. Adjusted
EBITDA for UPC in U.S. dollar terms decreased $198.8 million, from a negative
$18.9 million for the nine months ended September 30, 1999 to negative $217.7
million for the nine months ended September 30, 2000.
Video Adjusted EBITDA increased 34.0% and 55.1% for the three and nine months
ended September 30, 2000 compared to the same periods in the prior year, while
video revenue increased 38.3% and 73.9%, respectively. As a percentage of
revenue, video operating expense increased 3.6% from 38.7% for the three months
ended September 30, 1999 to 42.3% for the three months ended September 30, 2000,
and increased 5.6% from 34.6% for the nine months ended September 30, 1999 to
40.2% for the nine months ended September 30, 2000. These increases were
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.
The increase in UPC's negative Adjusted EBITDA from its local telephone service
for both the three and nine months ended September 30, 2000 compared to the
prior periods in 1999 was due to the recent launch of priority telecom in its
Austrian, Dutch, French and Norwegian systems in 1999 and Sweden in 2000. 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 is also continuing to incur increased costs related to the development of
the priority telecom brand.
The increase in UPC's negative Adjusted EBITDA from its Internet/data service
for both the three and nine months ended September 30, 2000 compared to the
prior periods in 1999 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 decreased by $13.1 million, from
$0.7 million for the three months ended September 30, 1999 to negative $12.4
million for the three months ended September 30, 2000. Austar United's Adjusted
EBITDA decreased by $16.9 million, from negative $4.3 million for the nine
months ended September 30, 1999 to negative $21.2 million for the nine months
ended September 30, 2000. These decreases are primarily due to the increased
expenses associated with the launch of Austar United Broadband's Internet
business. Video Adjusted EBITDA improved for the nine months ended September 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.
31
<PAGE>
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 $4.8 million,
or 62.3%, from $7.7 million for the three months ended September 30, 1999 to
$2.9 million for the three months ended September 30, 2000. VTR's Adjusted
EBITDA in U.S. dollar terms decreased $4.9 million, or 29.7% from $16.5 million
for the nine months ended September 30, 1999 to $11.6 million for the nine
months ended September 30, 2000. VTR's Adjusted EBITDA from its video business
increased for the three and nine months ended September 30, 2000 compared to the
prior periods 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 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. Stock-based compensation expense decreased for the three and nine
months ended September 30, 2000 compared to the same periods in the prior year,
due to a credit of $0.3 million and $1.0 million for the three and nine months
ended September 30, 2000, respectively, compared to a charge of $5.4 million and
$71.7 million for the same periods in 1999. These plans include the UPC phantom
stock option plan, the chello 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 vested options result in
non-cash compensation charges to the statement of operations, while decreases in
the fair market value of these vested options will cause a reversal of previous
charges taken.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
$80.2 million and $305.9 million during the three and nine months ended
September 30, 2000 compared to the three and nine months ended September 30,
1999, respectively, as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Europe ......................................... $169,651 $ 91,457 $447,386 $164,556
Asia/Pacific ................................... 24,844 25,086 79,642 75,031
Latin America .................................. 12,644 10,370 38,136 19,781
Corporate and other ............................ 380 385 1,132 1,007
-------- -------- -------- --------
Total depreciation and amortization expense .... $207,519 $127,298 $566,296 $260,375
======== ======== ======== ========
</TABLE>
EUROPE. UPC's depreciation and amortization expense in U.S. dollar terms
increased $78.2 million, from $91.5 million for the three months ended September
30, 1999 to $169.7 million for the three months ended September 30, 2000. UPC's
depreciation and amortization expense in U.S. dollar terms increased $282.8
million, from $164.6 million for the nine months ended September 30, 1999 to
$447.4 million for the nine months ended September 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.
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 UPC.
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 $249.0 million from
the resulting step-up in the carrying amount of our investment in Austar United.
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.
32
<PAGE>
In February 2000, we recorded a gain in accordance with SAB 51 of $6.8 million
related to the UPC France transaction.
In March 2000, Austar United sold 20.0 million shares in a second public
offering 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 August 2000, Stjarn exercised its option to convert its $100.0 million note
into 4.1 million ordinary shares of UPC. Based on the carrying value of our
investment in UPC as of August 23, 2000, we recognized a gain of $54.1 million
from the resulting step-up in the carrying amount of our investment in UPC.
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 during the three and nine months
ended September 30, 2000 compared to the corresponding periods in the prior year
due to higher cash balances related to the issuance of new debt and equity in
late 1999.
INTEREST EXPENSE. Interest expense increased $103.4 million, from $116.3 million
during the three months ended September 30, 1999 to $219.7 million during the
three months ended September 30, 2000. Interest expense increased $402.4
million, from $234.7 million during the nine months ended September 30, 1999 to
$637.1 million during the nine months ended September 30, 2000. These increases
were 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 our $1.4 billion aggregate principal amount 1998 senior
notes and our 1999 senior notes.
FOREIGN CURRENCY EXCHANGE LOSS. Foreign currency exchange loss increased $163.9
million from $4.6 million for the three months ended September 30, 1999 to
$168.5 million for the three months ended September 30, 2000. Foreign currency
exchange loss increased $267.8 million from $24.8 million for the nine months
ended September 30, 1999 to $292.6 million for the nine months ended September
30, 2000. These increases were primarily due to UPC, which has senior notes that
are denominated in U.S. dollars. Of the total increase for the three and nine
months ended September 30, 2000, $152.9 million and $267.2 million related to
UPC, respectively, $8.7 million and a gain of $0.6 million related to VTR,
respectively, and $2.3 million and $1.2 million related to other subsidiaries,
respectively.
MINORITY INTERESTS IN SUBSIDIARIES. The minority interests' share of losses
increased $238.5 million from $52.9 million for the three months ended September
30, 1999 to $291.4 million for the three months ended September 30, 2000.
Minority interests' share of losses increased $565.1 million from $127.8 million
for the nine months ended September 30, 1999 to $692.9 million for the nine
months ended September 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 52.6% and 72.3% as of
September 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 three and nine
months ended September 30, 2000, $233.4 million and $538.9 million related to
UPC, respectively, and $5.4 million and $26.7 million related to Austar United,
respectively.
33
<PAGE>
SHARE IN RESULTS OF AFFILIATED COMPANIES. Our share in results of affiliates
totaled losses of $44.4 million and $16.8 million for the three months ended
September 30, 2000 and 1999, respectively, and losses of $84.3 million and $48.4
million for the nine months ended September 30, 2000 and 1999, respectively, as
follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2000 1999 2000 1999
-------- -------- -------- --------
Europe: (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
A2000 (1) ............................ $ -- $ (3,974) $ -- $(16,787)
UTH (2) .............................. -- -- -- (2,757)
Tevel ................................ (17,339) (3,085) (20,717) (4,915)
Melita ............................... (261) (793) (735) (960)
Monor ................................ -- 129 -- 980
Iberian Programming .................. 522 1,050 2,501 1,240
SBS .................................. (9,397) (3,706) (20,794) (3,706)
PrimaCom ............................. (6,493) -- (17,486) --
Other ................................ (3,821) (422) (9,711) (420)
-------- -------- -------- --------
(36,789) (10,801) (66,942) (27,325)
-------- -------- -------- --------
Asia/Pacific:
Saturn (3) ........................... (6,470) (2,742) (14,257) (6,324)
XYZ Entertainment .................... 302 (2,138) (112) (6,531)
Pilipino Cable Corporation ........... (80) (20) (24) (84)
Hunan International TV ............... (143) (41) 344 160
Other ................................ (31) -- (196) --
-------- -------- -------- --------
(6,422) (4,941) (14,245) (12,779)
-------- -------- -------- --------
Latin America:
VTR (4) .............................. -- -- -- (3,962)
Megapo ............................... (839) 103 (1,522) 341
MGM Networks LA ...................... (387) (1,155) (1,785) (4,801)
Jundiai .............................. 33 36 149 160
-------- -------- -------- --------
(1,193) (1,016) (3,158) (8,262)
-------- -------- -------- --------
Total share in results of affiliates ... $(44,404) $(16,758) $(84,345) $(48,366)
======== ======== ======== ========
</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.
34
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES
We have financed our acquisitions and funding of our video, voice and data
systems in the three main regions of the world in which we operate primarily
through public and private debt and equity as well as cash received from the
sale of non-strategic assets by certain subsidiaries. These resources have also
been used to refinance certain debt instruments and facilities as well as to
cover corporate overhead. The following table outlines the sources and uses of
cash, cash equivalents, restricted cash and short-term liquid investments (for
purposes of this table only, "cash") for United (parent only) from inception to
date:
<TABLE>
<CAPTION>
FOR THE NINE
INCEPTION TO MONTHS ENDED
UNITED (PARENT ONLY) DECEMBER 31, 1999 SEPTEMBER 30, 2000 TOTAL
-------------- ------------------ ----------
Financing Sources: (IN MILLIONS)
<S> <C> <C> <C>
Gross bond proceeds ............................ $ 1,347.0 $ -- $ 1,347.0
Gross equity proceeds .......................... 1,686.7(1) 6.1 1,692.8
Asset sales, dividends and note payments ....... 319.1 50.8 369.9
Interest income and other ...................... 95.0 56.0 151.0
---------- ---------- ----------
Total sources .......................... 3,447.8 112.9 3,560.7
---------- ---------- ----------
Application of Funds:
Investment in:
UPC ......................................... (459.1) (200.0) (659.1)
UAP ......................................... (315.6)(1) (1.0) (316.6)
ULA ......................................... (623.6) (140.9) (764.5)
Other ....................................... (25.8) (12.0) (37.8)
---------- ---------- ----------
Total .................................. (1,424.1) (353.9) (1,778.0)
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) (23.9) (146.5)
---------- ---------- ----------
Total uses ............................. (2,212.0) (377.8) (2,589.8)
---------- ---------- ----------
Period change in cash .......................... 1,235.8 (264.9) 970.9
Cash, beginning of period ...................... -- 1,235.8 --
---------- ---------- ----------
Cash, end of period ............................ $ 1,235.8 $ 970.9 970.9
========== ========== ==========
UNITED'S SUBSIDIARIES
Cash, end of period:
UPC ............................................ 175.1
UAP ............................................ 234.0
ULA ............................................ 4.2
Other .......................................... 5.6
----------
Total United's subsidiaries ............ 418.9
----------
Total consolidated cash, cash
equivalents, restricted cash
and short-term liquid investments .... $ 1,389.8
==========
</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.
35
<PAGE>
UNITED PARENT. We had $970.9 million of cash, cash equivalents, restricted cash
and short-term liquid investments on hand as of September 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 funding to UPC and continued funding to the Latin America
region to meet existing growth plans of our systems. We believe that our
existing capital resources will enable us to assist in satisfying the operating
and development requirements of our other subsidiaries and cover corporate
overhead for the remainder of the year. To the extent we pursue new acquisitions
or development opportunities, we may 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 $175.1 million of cash, cash equivalents, restricted cash and
short-term liquid investments on hand as of September 30, 2000. In October
2000, UPC closed a Euro4.0 ($3.5) billion operating and term loan facility
with a group of banks. The UPC Bank Facility is guaranteed by existing cable
operating companies, excluding Polish and German assets. The UPC Bank
Facility bears interest at EURIBOR +0.75% - 4.0% depending on certain ratios,
and UPC pays an annual commitment fee of 0.5% over the undrawn amount. The
UPC Bank Facility refinanced existing operating company bank debt totaling
Euro2.0 billion and will finance further digital rollout and triple play by
UPC's existing cable companies excluding Polish and German operations,
subject to availability. Beginning in 2004, the available amount will
decrease until final maturity in 2009. In addition to this facility, UPC has
agreed to sell $1.24 billion of convertible preferred shares to a group of
investors, including us ($250.0 million). We expect the sale to close in
December 2000.
UAP. UAP had $234.0 million of cash, cash equivalents and short-term liquid
investments on hand as of September 30, 2000. This cash will be used to expand
Austar United's customer base, complete the build-out of its network and
introduce new services such as telephone and Internet/data.
ULA. ULA had $4.2 million of cash, cash equivalents, restricted cash and
short-term liquid investments on hand as of September 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. To
the extent ULA pursues additional acquisitions or development opportunities, ULA
may need to raise additional capital or seek strategic partners.
STATEMENTS OF CASH FLOWS
We had cash and cash equivalents of $444.6 million as of September 30, 2000, a
decrease of $1,481.3 million from $1,925.9 million as of December 31, 1999. Cash
and cash equivalents of $317.0 million as of September 30, 1999 represented an
increase of $281.4 million from $35.6 million as of December 31, 1998.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities ..................... $ (522,278) $ (44,005)
Cash flows from investing activities ..................... (3,280,833) (3,149,861)
Cash flows from financing activities ..................... 2,470,690 3,543,239
Effect of exchange rates on cash ......................... (148,867) (67,963)
----------- -----------
Net (decrease) increase in cash and cash equivalents ..... (1,481,288) 281,410
Cash and cash equivalents at beginning of period ......... 1,925,915 35,608
----------- -----------
Cash and cash equivalents at end of period ............... $ 444,627 $ 317,018
=========== ===========
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 2000
Principal sources of cash during the nine months ended September 30, 2000
included $1,612.2 million in proceeds from the issuance of senior notes and
senior discount notes by UPC and $1,215.4 million of borrowings on various
subsidiary facilities, including $469.3 million under a UPC bridge loan, $264.1
million under the UPC Senior Credit Facility, $138.9 million from the new UPC
France facility and $217.2 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, $11.5 million from the exercise of stock
options and $13.7 million from affiliate dividends and other investing and
financing sources.
36
<PAGE>
Principal uses of cash during the nine months ended September 30, 2000 included
$1,006.0 million for the acquisition of the K&T Group in The Netherlands, $381.5
million for other acquisitions, $1,186.2 million of capital expenditures for
system upgrade and new-build activities, $389.2 million of net cash invested in
short-term liquid investments, $414.7 million for repayments of debt, $160.6
million for an additional investment in SBS, $122.1 million for shares in
Primacom AG, $48.9 million of other investments in affiliates, $148.9 million
negative exchange rate effect on cash, $56.1 million for deferred financing
costs and $522.3 million for operating activities.
NINE MONTHS ENDED SEPTEMBER 30, 1999
Principal sources of cash during the nine months ended September 30, 1999
included $1,518.7 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, $381.8 million in net proceeds from the issuance of United's
Series C Convertible Preferred Stock, $299.2 million of borrowings on the UPC
Senior Credit Facility, $294.3 million in net proceeds from the Austar United
initial public offering, $261.3 million of borrowings on other UPC facilities,
$208.9 million in proceeds from the issuance of the United 1999 Notes, $198.1
million of borrowings on the New Austar Bank Facility and Saturn's bank
facility, $45.0 million of borrowings on the VTR Bank Facility, $111.6 million
of other borrowings, $40.1 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 $3.0 million from other investing and financing sources.
Principal uses of cash during the nine months ended September 30, 1999 included
$744.5 million for the acquisition of @Entertainment, $521.7 million for the
repayment of UPC's existing senior revolving credit facility, $467.3 million of
net cash invested in short-term investments, $444.1 million of capital
expenditures for system upgrade and new-build activities, $306.1 million for the
repayment of the 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, $109.7
million for the acquisition of GelreVision, $223.3 million for other
acquisitions, $144.1 million of funding to our affiliates, including UPC's
acquisition of an interest in SBS for $100.2 million, $129.1 million for the
repayment of Austar's old bank facility, $56.1 million for the repayment of
UPC's old bridge bank facility, $124.3 million for the repayment of other loans,
$72.6 million for deferred financing costs, $68.0 million negative exchange rate
effect on cash, $18.0 million for payment of a note, and $52.4 million for
operating activities and other investing and financing uses.
37
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INVESTMENT PORTFOLIO
We do not use derivative financial instruments in our non-trading investment
portfolio. We place our cash and cash equivalent investments in highly liquid
instruments that meet high credit quality standards with original maturities at
the date of purchase of less than three months. We also place our short-term
investments in liquid instruments that meet high credit quality standards with
original maturities at the date of purchase of between three and twelve months.
We also limit the amount of credit exposure to any one issue, issuer or type of
instrument. These investments are subject to interest rate risk and will fall in
value if market interest rates increase. We do not expect, however, any material
loss with respect to our investment portfolio.
IMPACT OF FOREIGN CURRENCY EXCHANGE RATES
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 SEPTEMBER 30, 2000
------------------------
U.S. Dollar Denominated Facilities: (IN THOUSANDS)
<S> <C>
UPC 12.5% Senior Discount Notes due 2009 (1) ..... $ 461,953
UPC 13.375% Senior Discount Notes due 2009 (1) ... 281,807
UPC 13.75% Senior Discount Notes due 2010 (1) .... 562,334
UPC 11.25% Senior Notes due 2010 (1) ............. 595,971
@Entertainment Senior Discount Notes (1) ........ 290,403
UPC DIC Loan (1) ................................. 47,007
Intercompany Loan to UPC (1) ..................... 200,000
VTR Bank Facility (2) ............................ 176,000
Intercompany Loan to VTR (2) ..................... 181,591
----------
$2,797,066
==========
</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.
38
<PAGE>
INTEREST RATE SENSITIVITY
The table below provides information about our primary debt obligations. The
variable rate financial instruments are sensitive to changes in interest
rates. The information is presented in thousands of U.S. dollars, which is
our reporting currency.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000 EXPECTED PAYMENT AS OF DECEMBER 31,
------------------------ -----------------------------------------------------------
BOOK VALUE FAIR VALUE 2000 2001 2002 2003 2004 THEREAFTER TOTAL
---------- ---------- ---- ---- ---- ---- ---- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate United USD 1998 Notes .... $1,072,571 $941,875 $-- $-- $-- $-- $-- $1,072,571 $1,072,571
Average interest rate .......... 10.75% 12.94%
Fixed rate United USD 1999 Notes .... $ 242,948 $223,410 $-- $-- $-- $-- $-- $ 242,948 $ 242,948
Average interest rate .......... 10.875% 13.34%
Fixed rate UPC USD Senior Notes
due 2009 .......................... $ 663,838 $685,506 $-- $-- $-- $-- $-- $ 663,838 $ 663,838
Average interest rate .......... 10.875% 13.92%
Fixed rate UPC Euro Senior Notes
due 2009 .......................... $ 263,875 $224,294 $-- $-- $-- $-- $-- $ 263,875 $ 263,875
Average interest rate .......... 10.875% 13.75%
Fixed rate UPC USD Senior Discount
Notes due 2009 .................... $ 461,953 $349,125 $-- $-- $-- $-- $-- $ 461,953 $ 461,953
Average interest rate .......... 12.50% 16.59%
Fixed rate UPC USD Senior Notes
due 2007 .......................... $ 167,700 $176,000 $-- $-- $-- $-- $-- $ 167,700 $ 167,700
Average interest rate .......... 10.875% 13.81%
Fixed rate UPC Euro Senior Notes
due 2007 .......................... $ 87,958 $ 77,184 $-- $-- $-- $-- $-- $ 87,958 $ 87,958
Average interest rate .......... 10.875% 13.68%
Fixed rate UPC USD Senior Notes
due 2009 .......................... $ 209,612 $218,238 $-- $-- $-- $-- $-- $ 209,612 $ 209,612
Average interest rate .......... 11.25% 14.13%
Fixed rate UPC Euro Senior Notes
due 2009 .......................... $ 88,242 $ 76,623 $-- $-- $-- $-- $-- $ 88,242 $ 88,242
Average interest rate .......... 11.25% 13.86%
Fixed rate UPC USD Senior Discount
Notes due 2009 .................... $ 281,807 $227,050 $-- $-- $-- $-- $-- $ 281,807 $ 281,807
Average interest rate .......... 13.375% 17.09%
Fixed rate UPC Euro Senior
Discount Notes due 2009 ........... $ 99,049 $ 80,640 $-- $-- $-- $-- $-- $ 99,049 $ 99,049
Average interest rate .......... 13.375% 16.06%
Fixed rate UPC USD Senior Notes
due 2010 .......................... $ 595,971 $517,500 $-- $-- $-- $-- $-- $ 595,971 $ 595,971
Average interest rate .......... 11.25% 13.76%
Fixed rate UPC Euro Senior Notes
due 2010 .......................... $ 174,692 $153,927 $-- $-- $-- $-- $-- $ 174,692 $ 174,692
Average interest rate .......... 11.25% 13.71%
Fixed rate UPC USD Senior Notes
due 2010 .......................... $ 259,193 $259,500 $-- $-- $-- $-- $-- $ 259,193 $ 259,193
Average interest rate .......... 11.50% 14.03%
Fixed rate UPC USD Senior Discount
Notes due 2010 .................... $ 562,334 $470,000 $-- $-- $-- $-- $-- $ 562,334 $ 562,334
Average interest rate .......... 13.75% 16.73%
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2000 EXPECTED PAYMENT AS OF DECEMBER 31,
------------------------ -------------------------------------------------
BOOK VALUE FAIR VALUE 2000 2001 2002 2003 2004
---------- ---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate UPC USD DIC Loan ....... $ 47,007 $ 47,007 $ 47,007 $-- $ -- $ -- $ --
Average interest rate ........ 8.0% 8.0%
Fixed rate @Entertainment
Senior Discount Notes ........... $ 290,403 $ 255,901 $ -- $-- $ -- $14,509 $ --
Average interest rate ........ 7.0%-14.5% 7.0%-17.69%
Fixed rate United USD A/P Notes ... $ 451,268 $ 455,902 $ -- $-- $ -- $ -- $ --
Average interest rate ........ 14.0% 13.8%
Variable rate UPC Senior
Credit Facility (1) ............. $ 561,946 $ 561,946 $ 561,946 $-- $ -- $ -- $ --
Average interest rate ........ 7.5% 7.5%
Variable rate Telekabel
Euro Facility (1) ............... $ 198,039 $ 198,039 $ 198,039 $-- $ -- $ -- $ --
Average interest rate ........ 6.0% 6.0%
Variable rate CNBH NLG
Facility (1) .................... $ 106,498 $ 106,498 $ 106,498 $-- $ -- $ -- $ --
Average interest rate ........ 5.4% 5.4%
Variable rate New A2000
Facility (1) .................... $ 203,561 $ 203,561 $ 203,561 $-- $ -- $ -- $ --
Average interest rate ........ 4.8% 4.8%
Variable rate Rhone Vision
Cable FFR Credit Facility (1) ... $ 53,619 $ 53,619 $ 53,619 $-- $ -- $ -- $ --
Average interest rate ........ 5.02% 5.02%
Variable rate UPC NL Bridge
Loan (1) ........................ $ 439,792 $ 439,792 $ 439,792 $-- $ -- $ -- $ --
Average interest rate ........ 6.6% 6.6%
Variable rate France Facility (1) . $ 130,136 $ 130,136 $ 130,136 $-- $ -- $ -- $ --
Average interest rate ........ 7.21% 7.21%
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 ............ $ 217,096 $ 217,096 $ -- $-- $ 6,972 $38,343 $ 61,250
Average interest rate ........ 7.6% 7.6%
---------- ---------- ---------- --- -------- ------- ----------
$8,107,108 $7,526,369 $1,740,598 $-- $182,972 $52,852 $ 61,250
========== ========== ========== === ======== ======= ==========
<CAPTION>
EXPECTED PAYMENT AS
OF DECEMBER 31,
------------------------
THEREAFTER TOTAL
---------- ----------
<S> <C> <C>
Fixed rate UPC USD DIC Loan ....... $ -- $ 47,007
Average interest rate ........
Fixed rate @Entertainment
Senior Discount Notes ........... $ 275,894 $ 290,403
Average interest rate ........
Fixed rate United USD A/P Notes ... $ 451,268 $ 451,268
Average interest rate ........
Variable rate UPC Senior
Credit Facility (1) ............. $ -- $ 561,946
Average interest rate ........
Variable rate Telekabel
Euro Facility (1) ............... $ -- $ 198,039
Average interest rate ........
Variable rate CNBH NLG
Facility (1) .................... $ -- $ 106,498
Average interest rate ........
Variable rate New A2000
Facility (1) .................... $ -- $ 203,561
Average interest rate ........
Variable rate Rhone Vision
Cable FFR Credit Facility (1) ... $ -- $ 53,619
Average interest rate ........
Variable rate UPC NL Bridge
Loan (1) ........................ $ -- $ 439,792
Average interest rate ........
Variable rate France Facility (1) . $ -- $ 130,136
Average interest rate ........
Variable rate VTR USD Bank
Facility ........................ $ -- $ 176,000
Average interest rate ........
Variable rate Austar A$ New
Austar Bank Facility ............ $ 110,531 $ 217,096
Average interest rate ........
---------- ----------
$6,069,436 $8,107,108
========== ==========
</TABLE>
(1) Subsequent to September 30, 2000, UPC repaid this facility/loan with the
proceeds from the Euro 4 billion financing.
40
<PAGE>
We use interest rate swap agreements from time to time, to manage interest rate
risk on our floating rate debt facilities. Interest rate swaps are entered into
depending on our assessment of the market, and generally are used to convert the
floating rate debt to fixed rate debt. Interest differentials paid or received
under these swap agreements are recognized over the life of the contracts as
adjustments to the effective yield of the underlying debt, and related amounts
payable to, or receivable from, the counterparties are included in the
consolidated balance sheet.
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.
41
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Euro3.5 billion facility, Euro95.0 million facility, $347.5
million facility between UPC Distribution Holding B.V., UPC
Financing Partnership and TD Bank Europe Limited Toronto
Dominion (Texas) Inc. as Facility Agents, dated October 26,
2000. (1)
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter
<TABLE>
<CAPTION>
DATE OF FILING DATE OF EVENT ITEM REPORTED
<S> <C> <C>
July 31, 2000 July 18, 2000 Item 5 - Proposed merger, subject to regulatory approvals,
consents and financing of UPC's chello broadband subsidiary with
Excite@Home's International operations.
</TABLE>
-------------------
(1) Incorporated by reference from UPC's Form 10-Q dated November 14, 2000.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 14th day of
November 2000.
UnitedGlobalCom, Inc.
a Delaware corporation
By: /s/ Valerie L. Cover
--------------------------
Valerie L. Cover
Controller and Vice President
(a Duly Authorized Officer and
Principal Financial Officer)
43
