<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1999
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-21974
UnitedGlobalCom, Inc.
(formerly known as United International Holdings, Inc.)
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1116217
(I.R.S. Employer Identification No.)
(State or other jurisdiction of
incorporation or organization)
----------------
4643 South Ulster Street, #1300
Denver, Colorado 80237
(Address of principal executive (Zip code)
offices)
Registrant's telephone number, including area code: (303) 770-4001
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $0.01 per share
----------------
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, computed by reference to the last sales price of such stock, as of
the close of trading on March 13, 2000 was approximately $7.75 billion.
The number of shares outstanding of the Registrant's common stock as of
March 13, 2000 was:
Class A Common Stock--76,299,885 shares
Class B Common Stock--19,321,940 shares
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Annual Report, to the extent
not set forth herein, is incorporated herein by reference from the
registrant's definitive proxy statement relating to the annual meeting of
stockholders to be held in June 2000, which definitive proxy statement shall
be filed with the Securities and Exchange Commission within 120 days after the
end of the fiscal year to which this Annual Report relates.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
UnitedGlobalCom, Inc.
Annual Report on Form 10-K for the Year Ended December 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
PART I
<S> <C> <C>
Item 1. Business............................................................................... 1
Item 2. Properties............................................................................. 29
Item 3. Legal Proceedings...................................................................... 29
Item 4. Submission of Matters to a Vote of Security Holders.................................... 29
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 30
Item 6. Selected Financial Data................................................................ 31
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 32
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................. 50
Item 8. Financial Statements and Supplementary Data............................................ 53
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 53
PART III
Item 10. Directors and Executive Officers of the Registrant..................................... 53
Item 11. Executive Compensation................................................................. 53
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 53
Item 13. Certain Relationships and Related Transactions......................................... 53
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................ 54
</TABLE>
i
<PAGE>
Item 1. BUSINESS
(a) General Development of Business
UnitedGlobalCom, Inc. (formerly known as United International Holdings, Inc.,
together with its majority-owned subsidiaries, the "Company" or "United") is a
leading broadband communications provider outside the United States. We
provide multi-channel television services in 23 countries worldwide and
telephone and Internet/data services in a growing number of our international
markets. Our operations are grouped into three major geographic regions:
Europe, Asia/Pacific and Latin America. Our European operations are held
through our 53.2% owned, publicly traded subsidiary, United Pan-Europe
Communications N.V. ("UPC"), which is the largest Pan-European broadband
communications company providing multi-channel television, telephone and
Internet/data services to 12 countries in Europe and Israel. Our Asia/Pacific
operations are primarily held through our 75.4% owned, publicly traded
subsidiary, Austar United Communications, Limited ("Austar United"), which
owns the largest provider of multi-channel television services in regional
Australia, various Australian programming interests and the only full service
provider of broadband communications in New Zealand. Our primary Latin America
operation is our 100% owned VTR Global Com S.A. ("VTR"), Chile's largest
multi-channel television provider and a growing provider of telephone
services.
Our operating companies consist primarily of highly penetrated, mature
broadband systems that generate stable cash flow. We also operate a number of
earlier stage broadband businesses. Our primary goal in the majority of these
markets is to capitalize on the opportunity to increase revenues and cash
flows through the introduction of new and expanded video programming services
and the launch of telephone and Internet/data services over our broadband
communications networks. Today, we are a full-service provider of these video,
voice and Internet/data services in most of our Western European markets and
in Chile and New Zealand.
(b) Financial Information about Industry Segments
In the following tables we show certain operating and financial data for the
systems we own for each of the last two years:
1
<PAGE>
GROSS OPERATING SYSTEM DATA
<TABLE>
<CAPTION>
As of and for the Year Ended December 31, 1999
-----------------------------------------------------------------------------------------------
Homes in Two-way Basic Long-
United Service Homes Homes Subscribers/ Basic Adjusted Term
Ownership Area Passed Passed Lines Penetration Revenue EBITDA(1) Debt(2)
---------- ---------- --------- --------- ------------ ----------- -------- --------- --------
(In thousands)(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UPC (EUROPE)
Multi-channel TV
Subscribers:
The Netherlands....... 53.2% 1,714,607 1,660,171 1,376,147 1,517,432 91.4% $158,586 $ 66,869 $ --
Poland................ 53.2% 1,950,000 1,756,200 -- 1,277,914 72.8% $ 78,997 $(122,131) $ --
Hungary (UPC
Magyarorszag)........ 42.2% 901,500 655,272 83,291 518,577 79.1% $ 33,478 $ 11,098 $ --
Austria............... 50.5% 1,081,100 906,340 753,050 470,543 51.9% $ 79,648 $ 42,490 $ --
Israel................ 24.8% 660,000 608,817 380,698 424,987 69.8% $159,312 $ 70,794 $207,078
Czech Republic........ 50.3-53.2% 817,138 736,462 10,000 374,332 50.8% $ 26,680 $ 2,936 $ --
France................ 50.7-53.0% 1,265,827 927,000 95,174 334,609 36.1% $ 51,702 $ 2,446 $ --
Norway................ 53.2% 529,000 468,095 55,519 327,520 70.0% $ 46,784 $ 19,607 $ --
Slovak Republic....... 50.3-53.2% 417,813 304,360 -- 244,733 80.4% $ 7,289 $ 2,378 $ --
Sweden................ 53.2% 770,000 421,624 167,700 243,006 57.6% $ 29,990 $ 10,137 $ --
Belgium............... 53.2% 133,120 133,000 130,835 125,082 94.0% $ 14,968 $ 3,738 $ --
Romania............... 27.1-53.2% 284,320 166,394 -- 112,099 67.4% $ 2,766 $ 1,120 $ --
Malta................. 26.6% 177,000 173,503 -- 76,522 44.1% $ 15,172 $ 5,251 $ 27,669
Hungary (Monor)....... 51.7% 85,693 70,061 84,916 32,369 46.2% $ 5,774 $ 3,737 $ --
---------- --------- --------- --------- -------- --------- --------
Total................ 10,787,118 8,987,299 3,137,330 6,079,725 $711,146 $ 120,470 $234,747
---------- --------- --------- --------- -------- --------- --------
Telephone Lines:
The Netherlands....... 53.2% 1,714,607 989,364 N/A 96,996 9.8% $ 40,978 $ (22,528) $ --
Hungary (Monor)....... 51.7% 85,693 84,916 N/A 73,221 86.2% $ 13,063 $ 8,453 $ --
Austria............... 50.5% 1,081,100 585,215 N/A 40,291 6.9% $ 6,963 $ (10,843) $ --
France................ 50.7-53.0% 1,265,827 93,983 N/A 14,135 15.0% $ 2,578 $ (5,621) $ --
Norway................ 53.2% 529,000 37,025 N/A 3,991 10.8% $ 347 $ (6,762) $ --
Czech Republic........ 50.3-53.2% 817,138 10,000 N/A 3,051 30.5% $ 172 $ 51 $ --
---------- --------- --------- --------- -------- --------- --------
Total................ 5,493,365 1,800,503 N/A 231,685 $ 64,101 $ (37,250) $ --
---------- --------- --------- --------- -------- --------- --------
Data Subscribers:
Internet.............. 42.2-53.2% 6,395,154 2,616,083 N/A 121,550 4.6% $ 29,477 $ (80,455) $ --
---------- --------- --------- --------- -------- --------- --------
Programming
Subscribers:
Ireland............... 42.6% N/A N/A N/A 1,760,000 N/A $ 951 $ (4,003) $ --
Spain/Portugal........ 26.6% N/A N/A N/A 1,137,000 N/A $ 26,794 $ 11,472 $ --
---------- --------- --------- --------- -------- --------- --------
Total................ N/A N/A N/A 2,897,000 $ 27,745 $ 7,469 $ --
---------- --------- --------- --------- -------- --------- --------
AUSTAR UNITED (AUSTRALIA/NEW ZEALAND)
Multi-channel TV
Subscribers:
Australia............. 75.4% 2,085,000 2,083,108 -- 381,763 18.3% $144,643 $ (7,837) $ --
New Zealand........... 75.4% 141,000 87,029 87,029 16,723 19.2% $ 2,303 $ (3,326) $ --
---------- --------- --------- --------- -------- --------- --------
Total................ 2,226,000 2,170,137 87,029 398,486 $146,946 $ (11,163) $ --
---------- --------- --------- --------- -------- --------- --------
Telephone Lines:
New Zealand........... 75.4% 141,000 87,029 N/A 24,678 28.4% $ 7,388 $ (2,630) $ --
---------- --------- --------- --------- -------- --------- --------
Data Subscribers:
New Zealand........... 75.4% 141,000 87,029 N/A 6,772 7.8% $ 1,320 $ -- $ --
---------- --------- --------- --------- -------- --------- --------
Programming
Subscribers:
Australia............. 37.7% N/A N/A N/A 934,000 N/A $ 30,764 $ 14,207 $ --
---------- --------- --------- --------- -------- --------- --------
OTHER ASIA/PACIFIC
Multi-channel TV
Subscribers:
Philippines........... 19.6% 600,000 477,448 -- 191,521 40.1% $ 18,671 $ 6,188 $ 18,761
---------- --------- --------- --------- -------- --------- --------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
As of and for the Year Ended December 31, 1999
------------------------------------------------------------------------------------------
Homes in Two-way Basic Long-
United Service Homes Homes Subscribers/ Basic Adjusted Term
Ownership Area Passed Passed Lines Penetration Revenue EBITDA(1) Debt(2)
--------- --------- --------- ------- ------------ ----------- -------- --------- -------
(In thousands)(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LATIN AMERICA
Multi-channel TV
Subscribers:
Chile.................. 100.0% 2,350,000 1,616,141 390,126 386,967 23.9% $113,004 $ 27,725 $--
Mexico................. 49.0% 341,600 229,451 -- 59,708 26.0% $ 12,946 $ 2,018 $--
Brazil (Jundiai)....... 46.3% 70,200 66,623 -- 17,720 26.6% $ 6,172 $ 1,394 $--
Brazil (TV Show
Brasil)............... 100.0% 437,000 306,000 -- 16,100 5.3% $ 4,645 $ (1,863) $--
Peru................... 62.2% 140,000 63,735 -- 8,896 14.0% $ 2,334 $ (1,176) $--
--------- --------- ------- --------- -------- -------- ----
Total................. 3,338,800 2,281,950 390,126 489,391 $139,101 $ 28,098 $--
--------- --------- ------- --------- -------- -------- ----
Telephone Lines:
Chile.................. 100.0% 2,350,000 390,126 N/A 66,718 17.1% $ 14,467 $ (4,388) $--
--------- --------- ------- --------- -------- -------- ----
Data Subscribers:
Chile.................. 100.0% 2,350,000 390,126 N/A 998 0.3% $ -- $ -- $--
--------- --------- ------- --------- -------- -------- ----
Programming Subscribers:
Latin America.......... 50.0% N/A N/A N/A 5,120,249 N/A $ 7,374 $(12,193) $--
--------- --------- ------- --------- -------- -------- ----
</TABLE>
<TABLE>
<CAPTION>
As of and for the Year Ended December 31, 1999
----------------------------------------------------------------------------------
Homes in Two-Way Basic Long-
Service Homes Homes Subscribers/ Adjusted Term
Area Passed Passed Lines Revenue EBITDA(1) Debt(2)
---------- ---------- --------- ------------ ---------- --------- ----------
(In thousands)(3)
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL COMPANY BASED ON
GROSS DATA(4):
Multi-channel TV
Subscribers........... 16,951,918 13,916,834 3,614,485 7,159,123 $1,015,864 $ 143,593 $ 253,508
Telephone Lines........ 7,984,365 2,277,658 N/A 323,081 $ 85,956 $ (44,268) $ --
Data Subscribers....... 8,886,154 3,093,238 N/A 129,320 $ 30,797 $ (80,455) $ --
Programming
Subscribers........... N/A N/A N/A 8,951,249 $ 65,883 $ 9,483 $ --
TOTAL COMPANY BASED ON
CONSOLIDATED
SYSTEMS(5):
Multi-channel TV
Subscribers........... 15,103,118 12,360,992 3,233,787 6,388,665 $ 614,849 $ 132,422 $1,625,344
Telephone Lines........ 7,984,365 2,277,658 N/A 323,081 $ 56,594 $ (48,574) $ --
Data Subscribers....... 8,886,154 3,093,238 N/A 129,320 $ 27,240 $ (81,226) $ --
Programming
Subscribers........... N/A N/A N/A 1,760,000 $ 12,029(7) $(81,496)(7) $ --
TOTAL COMPANY BASED ON
PROPORTIONATE DATA(6):
Multi-channel TV
Subscribers........... 10,207,638 8,272,736 1,980,797 3,790,278 $ 565,137 $ 59,595 $ 62,374
Telephone Lines........ 5,329,505 1,396,250 N/A 203,199 $ 53,747 $ (26,018) $ --
Data Subscribers....... 5,727,568 1,824,166 N/A 69,630 $ 16,319 $ (42,776) $ --
Programming
Subscribers........... N/A N/A N/A 3,963,741 $ 22,817 $ 607 $ --
</TABLE>
3
<PAGE>
GROSS OPERATING SYSTEM DATA
<TABLE>
<CAPTION>
As of and for the Year Ended December 31, 1998
-------------------------------------------------------------------------------------------------
Homes in Basic Long-
United Service Homes Subscribers/ Basic Adjusted Term
Ownership Area Passed Lines Penetration Revenue EBITDA(1) Debt(2)
----------- --------- --------- ------------ ----------- ------------ ------------- ------------
(In thousands)(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UPC (EUROPE)
Multi-channel TV Subscribers:
The Netherlands....... 25.5-51.0% 1,521,527 1,487,673 1,396,867 93.9% $ 101,710 $ 28,254 $ 319,706
Austria............... 95.0% 1,073,297 900,350 454,957 50.5% $ 80,903 $ 36,997 $ --
Hungary (Kabelkom).... 79.25% 901,500 510,622 442,567 86.7% $ 11,827 $ 4,264 $ --
Israel................ 46.6% 595,000 575,976 402,355 69.9% $ 161,233 $ 89,073 $ 281,361
Norway................ 100% 529,924 463,235 323,387 69.8% $ 43,876 $ 15,647 $ --
Belgium............... 100% 133,000 133,000 127,398 95.8% $ 16,803 $ 6,059 $ --
Malta................. 50.0% 179,000 162,996 70,363 43.2% $ 14,297 $ 5,401 $ 22,333
Romania............... 51.0-100% 180,000 98,174 61,999 63.2% $ 1,004 $ 460 $ --
Czech Republic........ 100% 229,531 151,716 54,153 35.7% $ 4,032 $ (854) $ --
Hungary (Monor)....... 44.75% 85,000 68,339 30,623 44.8% $ 15,217 $ 9,626 $ 35,317
France................ 99.6% 150,000 74,623 29,107 39.0% $ 3,678 $ (2,317) $ --
Slovak Republic....... 75.0-100% 67,959 37,641 21,044 55.9% $ 693 $ (616) $ --
--------- --------- --------- ------------ ------------ ------------
Total................ 5,645,738 4,664,345 3,414,820 $ 455,273 $ 191,994 $ 658,717
--------- --------- --------- ------------ ------------ ------------
Telephone Lines:
Hungary (Monor)....... 44.75% 85,000 84,037 69,244 82.4% [Financial information is included in
The Netherlands....... 25.5-51.0% 1,521,527 541,613 41,180 7.6% multi-channel TV information above.]
--------- --------- ---------
Total................ 1,606,527 625,650 110,424
--------- --------- ---------
Data Subscribers:
Internet.............. 25.5-100.0% N/A N/A 24,338 N/A $ -- $ (7,116) $ --
--------- --------- --------- ------------ ------------ ------------
Programming
Subscribers:
Spain/Portugal........ 33.5% N/A N/A 684,000 N/A $ 17,099 $ 3,431 $ 3,500
Ireland............... 80.0% N/A N/A 597,314 N/A $ 610 $ (4,213) $ --
--------- --------- --------- ------------ ------------ ------------
Total................ N/A N/A 1,281,314 $ 17,709 $ (782) $ 3,500
--------- --------- --------- ------------ ------------ ------------
AUSTAR UNITED (AUSTRALIA/NEW ZEALAND)
Multi-channel TV
Subscribers:
Australia............. 98.0% 2,085,000 2,083,108 288,721 13.9% $ 89,263 $ (24,915) $ --
New Zealand........... 63.7% 141,000 41,914 6,010 14.3% $ 1,669 $ (9,669) $ 20,935
--------- --------- --------- ------------ ------------ ------------
Total................ 2,226,000 2,125,022 294,731 $ 90,932 $ (34,584) $ 20,935
--------- --------- --------- ------------ ------------ ------------
Telephone Lines:
[Financial information is included in
New Zealand........... 63.7% 141,000 37,292 7,360 19.7%
multi-channel TV information above.]
Programming
Subscribers:
Australia............. 49.0% N/A N/A 694,600 N/A $ 17,027 $ 1,433 $ --
--------- --------- --------- ------------ ------------ ------------
OTHER ASIA/PACIFIC
Multi-channel TV
Subscribers:
Philippines........... 19.2% 600,000 401,818 151,543 37.7% $ 13,538 $ 583 $ 3
--------- --------- --------- ------------ ------------ ------------
LATIN AMERICA
Multi-channel TV
Subscribers:
Chile................. 34.0% 2,321,000 1,567,871 393,851 25.1% $ 119,005 $ 28,022 $ 122,392
Mexico................ 49.0% 341,600 224,130 54,838 24.5% $ 10,533 $ 2,953 $ --
Brazil (Jundiai)...... 46.3% 70,200 67,845 19,714 29.1% $ 9,162 $ 2,863 $ 86
Brazil (TV Show
Brasil).............. 100.0% 437,000 306,000 13,233 4.3% $ 5,994 $ (539) $ --
Peru.................. 60.0% 140,000 57,377 10,023 17.5% $ 1,858 $ (1,117) $ --
--------- --------- --------- ------------ ------------ ------------
Total................ 3,309,800 2,223,223 491,659 $ 146,552 $ 32,182 $ 122,478
--------- --------- --------- ------------ ------------ ------------
Telephone Lines:
[Financial information is included in
Chile................. 34.0% 2,321,000 218,460 20,985 9.6%
multi-channel TV information above.]
--------- --------- ---------
Programming
Subscribers:
Latin America......... 50.0% N/A N/A 3,449,481 N/A $ 3,671 $ (10,916) $ --
--------- --------- --------- ------------ ------------ ------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
As of and for the Year Ended December 31, 1998
--------------------------------------------------------------
Homes in Basic Long-
Service Homes Subscribers/ Adjusted Term
Area Passed Lines Revenue EBITDA(1) Debt(2)
---------- --------- ------------ -------- --------- --------
(In thousands)(3)
<S> <C> <C> <C> <C> <C> <C>
TOTAL COMPANY BASED ON
GROSS DATA(4):
Multi-channel TV
Subscribers........... 11,781,538 9,414,408 4,352,753 $706,295 $190,175 $802,133
Telephone Lines........ 4,068,527 881,402 138,769 $ -- $ -- $ --
Data Subscribers....... N/A N/A 24,338 $ -- $ (7,116) $ --
Programming
Subscribers........... N/A N/A 5,425,395 $ 38,407 $(10,265) $ 3,500
TOTAL COMPANY BASED ON
CONSOLIDATED
SYSTEMS(5):
Multi-channel TV
Subscribers........... 5,927,211 4,815,846 1,826,589 $249,289 $ 13,836 $751,898
Telephone Lines........ -- -- -- $ 223 $ (4,423) $ --
Data Subscribers....... N/A N/A 24,338 $ 3,989 $ (9,505) $ --
Programming
Subscribers........... N/A N/A 597,314 $ 567 $ (3,851) $ --
TOTAL COMPANY BASED ON
PROPORTIONATE DATA(6):
Multi-channel TV
Subscribers........... 7,795,338 6,352,996 2,705,262 $430,741 $ 96,668 $321,697
Telephone Lines........ 1,545,457 313,403 58,538 $ -- $ -- $ --
Data Subscribers....... N/A N/A 15,956 $ -- $ (7,116) $ --
Programming
Subscribers........... N/A N/A 2,772,086 $ 16,395 $ (6,977) $ 1,173
</TABLE>
- -------
(1) Adjusted EBITDA represents net operating earnings before depreciation,
amortization and stock-based compensation charges. Industry analysts
generally consider Adjusted EBITDA to be a helpful way to measure the
performance of cable television operations and communications companies.
We believe Adjusted EBITDA helps investors to assess the cash flow from
our operations from period to period and thus to value our business.
Adjusted EBITDA should not, however, be considered a replacement for net
income, cash flows or for any other measure of performance or liquidity
under generally accepted accounting principles, or as an indicator of a
company's operating performance. Our presentation of Adjusted EBITDA may
not be comparable to statistics with a similar name reported by other
companies. Not all companies and analysts calculate Adjusted EBITDA in the
same manner.
(2) The amounts disclosed herein represent unconsolidated debt. Debt for
consolidated operating systems is included in the footnotes to the
consolidated financial statements.
(3) The financial information presented herein has been taken from unaudited
financial information of the respective operating companies that were
providing service as of December 31, 1999. Certain information presented
herein has been derived from financial statements prepared in accordance
with foreign generally accepted accounting principles which differ from
U.S. generally accepted accounting principles. In addition, certain
amounts have been converted to U.S. dollars using the December 31, 1999
exchange rates for the convenience translation.
(4) Summation of the gross operating system data on the previous page.
(5) 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.
(6) Summation of the gross operating system data on the previous page,
multiplied by our ownership percentage for each respective system.
(7) The consolidated financial information for @Entertainment (Poland) is
included in Programming. The financial information for @Entertainment
(Poland) within Gross Data is included in Multi-channel TV.
5
<PAGE>
(c) Narrative Description of Business
For strategic purposes and, in some cases, because of foreign ownership
restrictions, we have often initially invested in operating systems with local
strategic partners. In some cases, such as in many of our European and
Australian systems, we subsequently acquired our partners' interests in these
systems. Below is a summary of the ownership structure of our three regional
holding companies as well as our interests in our operating companies as of
December 31, 1999. Our interests in such systems are often held by various
holding companies and our voting rights and rights to participate in earnings
of such entities may differ from the interests indicated in the chart below.
<TABLE>
<CAPTION>
United
100.0% 100.0%
United Europe Inc.("UEI") United International Properties, Inc. ("UIPI")
<S> <C> <C>
53.2% 100.0% 100.0%
United Pan-Europe Communications N.V. United Asia/Pacific Communications, Inc. United Latin America, Inc.
("UPC") ("UAP") ("ULA")
100.0%
Austria: United Australia/Pacific, Inc. Brazil:
Telekabel Group 95.0% ("United A/P) TV Show Brasil 100.0%
Belgium: 75.4% Jundiai 46.3%
UPC Belgium 100.0% Austar United Communications, Limited Chile:
Czech Republic: ("Austar United") VTR 100.0%
Kabel Net 100.0% Australia: Mexico:
Kabel Plus 94.6% Austar 100.0% Megapo 49.0%(4)
France: XYZ Entertainment 50.0% Peru:
UPC France 99.6%(1) New Zealand Cable Star 62.2%
Germany: Saturn 100.0% Latin American
PrimaCom 18.2%(2) Programming:
Hungary: * Other UAP MGM Networks LA 50.0%
UPC Magyarorszag 79.3% China:
Monor 97.1% Hunan International TV 49.0%
Ireland: Philippines:
Tara 80.0% Pilipino Cable Corporation 19.6%
Israel:
Tevel 46.6%
Malta:
Melita 50.0%
The Netherlands:
UPC Nederland 100.0%
Norway:
UPC Norge 100.0%
Poland:
@Entertainment 100.0%
Romania:
UPC Romania 51.0%-100.0%
Slovak Republic:
UPC Slovak 95.0%-100.0%
Spain/Portugal:
Iberian Programming 50.0%
Sweden:
Stjarn 100.0%
United Kingdom:
Xtra Music 41.0%
Other Business Lines:
SBS 13.3%(3)
Priority Telecom 100.0%
chello broadband 100.0%
UPCtv 100.0%
</TABLE>
(1) In February 2000, UPC's interest decreased to 92.0%.
(2) Subsequent to December 31, 1999, UPC increased its interest to 24.9%.
(3) In February 2000, UPC acquired an additional 10.2% interest in SBS for
(Euro) 162.5 million.
(4) In January 2000, ULA purchased an additional 41.3% interest in Megapo for
$22.8 million.
6
<PAGE>
Europe
Our European operations are held through our 53.2% owned subsidiary, UPC,
which owns and operates the largest Pan-European group of broadband
communication networks and is one of the most innovative broadband
communications companies in Europe. UPC provides multi-channel television,
telephone, high-speed Internet/data services and programming services in 12
countries in Europe and in Israel. UPC completed an initial public offering in
February 1999 and is publicly traded on the Amsterdam Stock Exchange under the
symbol "UPC" and on The Nasdaq Stock Market, Inc. ("Nasdaq") under the symbol
"UPCOY". UPC had a market capitalization of approximately $30.2 billion based
on the closing price on Nasdaq on March 13, 2000.
UPC's western European systems are located in Vienna (Austria), Brussels
(Belgium), Paris (France), Amsterdam (The Netherlands), Oslo (Norway) and
Stockholm (Sweden). UPC recently acquired a minority interest in a German
cable television operator. UPC's Central and Eastern European systems are
located in Prague (Czech Republic), Budapest (Hungary), Warsaw (Poland),
Bucharest (Romania), and Bratislava (Slovak Republic). UPC has operations in
distinct regions in the Czech Republic, Romania and the Slovak Republic and,
in the case of Poland, in regional clusters centered around eight of the ten
major cities. UPC also has systems in Tel Aviv (Israel) and Valletta (Malta).
UPC has undertaken a significant upgrade of its cable television
infrastructure, beginning in 1994 with its western European systems. When it
upgrades, UPC replaces parts of the coaxial cable with fiber optic lines and
upgrades the remaining coaxial cable to increase transmission speed and enable
signals to be sent both to and from the subscriber's home. This upgrading
enables UPC to provide digital video, telephone and Internet/data services. As
of December 31, 1999, approximately 57.0% of the network in UPC's western
European systems had been upgraded. UPC continues to evaluate upgrading its
network in its other systems.
Video
UPC offers some of the most advanced analog video services available today and
a large choice of FM radio programs and plans to further increase its
offerings through an integrated digital set-top box. In addition, because many
of its operations are two-way capable, UPC has been able to add more
interactive services. In many systems, for example, UPC has introduced impulse
pay-per-view services, which enable subscribers to UPC's expanded basic tier
to select and purchase programming services, such as movies and special
events, directly by remote control.
UPC plans to continue increasing its revenue per subscriber by expanding its
video services program offerings in the expanded basic tier service, pay-per-
view and digital audio areas. UPC plans to continue improving its expanded
basic tier offerings by adding new channels and, where possible, migrating
popular commercial channels into an expanded basic tier service. Generally,
basic tier pricing is regulated while the expanded basic tier is not price-
regulated. In addition, UPC plans to offer subscribers additional choice by
offering thematic groupings of tiered video services in a variety of genres
and by increasing the number and time availability of pay-per-view offerings.
UPC is constructing a satellite-based pan-European digital distribution
platform that will enable digital distribution of its new channels and other
television signals to its upgraded networks. UPC is scheduled to launch its
digital distribution platform in 2000. When this digital distribution platform
is constructed, UPC will convert its impulse pay-per-view services into a near
video on demand service that would be able to provide up to 75 channels of
programming. Near video on demand is achieved by broadcasting movies as
frequently as every 15 minutes, thus enabling subscribers to choose a movie at
a convenient start time. UPC is negotiating to acquire rights to broadcast
first-run hit movies, adult programming and special events over this planned
digital distribution platform.
Full digitalization of UPC's television signals, to be made possible by UPC's
network upgrade to full two-way capability, will provide UPC's Western
European systems with substantially more channel capacity. This increased
channel capacity will enable subscribers to customize their subscriptions for
UPC's products and
7
<PAGE>
services to suit their lifestyles and personal interests. When the planned
digital distribution platform is completed, UPC intends to provide its
subscribers with customizable programming guides that would enable them to
program their favorite channels and also allow parents to restrict their
children's viewing habits. The construction of the planned digital
distribution platform will involve significant capital investment and the use
of new technologies. We cannot assure you that we will be able to complete the
construction of the digital distribution platform on the planned schedule.
Competition. In areas where UPC's cable television franchises are exclusive,
UPC's operating companies generally face competition only from digital direct-
to-home ("DTH") satellite service providers and television broadcasters. UPC
has faced the most competition from DTH providers in Amsterdam, France and
Sweden. In those areas where UPC's cable television franchises are non-
exclusive, including France, Sweden and Poland, UPC's operating companies face
competition from other cable television service providers, DTH satellite
service providers and television broadcasters. In the programming business,
UPC competes with other programming suppliers for sales to systems other than
its own.
Voice
We believe that UPC's existing customer base and upgraded network give it a
unique opportunity to provide telephone services in Europe. UPC offers local
telephone services over its cable network, under the brand name Priority
Telecom, in its Austrian, Dutch, French and Norwegian systems. UPC also has a
traditional telephone network in Hungary. UPC also provides national and
international long distance voice telephone services. UPC believes that its
fiber and broadband, coaxial cable and cable-based subscriber relationships
provide ready access to potential residential telephone subscribers. UPC
believes its networks and facilities also provide the opportunity for cost-
effective access to potential business telephone customers.
Market. We believe there are significant growth opportunities in the European
telecommunications market as a result of the January 1, 1998 liberalization of
the telephone industry in most European Union ("EU") member countries and
Norway. This liberalization allows new providers to offer telephone and other
telecommunications services in markets that have historically been dominated
by incumbent national operators. Priority Telecom will be positioned as UPC's
Pan-European competitive local exchange carrier ("CLEC") via both organic
growth and acquisitions. Priority Telecom will offer telephone services to its
residential customers and package voice and data services in the small, medium
and large business market.
Network and Equipment. Traditional telephone service is carried over twisted
copper pair in the local loop. The cable telephone technology that UPC is
using allows telephone traffic to be carried over its upgraded network without
requiring the installation of twisted copper pair. This technology only
requires the addition of equipment at the master telecom center, the
distribution hub and in the customer's home to transform voice communication
into signals capable of transmission over the fiber and coaxial cable. UPC has
installed telephone switches in its master telecom center in each of the
countries in which it has launched Priority Telecom. UPC has supply agreements
from multiple suppliers for the rest of the equipment.
Residential Market. UPC generally prices its Priority Telecom offering in the
residential market at a discount compared to services offered by incumbent
telecommunications operators. Because of the relatively high European local
tariff rates, UPC believes potential customers will be receptive to its
telephone services at this price. In addition to offering competitive pricing,
UPC offers a full complement of services to telephone subscribers including
custom local access services, "CLASS," including caller ID, call waiting, call
forwarding, call blocking, distinctive ringing and three-way calling. UPC is
also able to provide voice mail and second lines. The introduction of number
portability in some of its markets, including The Netherlands, Norway and
France, provides an even greater opportunity as potential customers will be
able to subscribe to UPC's service without having to change their existing
telephone numbers.
8
<PAGE>
Business Market. Priority Telecom offers product packages of traditional voice
and data services to small and medium sized business customers. For the large
segment, tailor-made solutions are currently offered in The Netherlands and
Priority Telecom aims at marketing these solutions on a Pan-European scale.
Carriers' Carrier Market. Priority Telecom is building a Carriers' Carrier
business through leveraging the existing AORTA backbone and the cable
footprint. UPC's extensive coverage within the local loop and termination
ability creates a strong competitive advantage for Priority Telecom compared
to other wholesale operators.
UPC intends to concentrate on building brand awareness for Priority Telecom as
a Pan-European telecommunications brand, which may be co-branded with its
existing local video services brands. UPC also plans to integrate Priority
Telecom's residential and small office/home office telephone products with its
video services and chello broadband's Internet access services, thus enabling
it to offer pricing packages designed to encourage multiple product purchases
and minimize churn.
UPC believes the residential and business market sectors represent a
significant business opportunity for Priority Telecom. Simple marketing offers
are being used to encourage rapid take-up by overcoming consumer inertia and
increasing brand awareness of our products. The approach includes, for
example, innovative offers and periodic deep discounts. Large and medium-sized
business customers are marketed through a key account management direct sales
force targeting specific industry sectors.
Interconnection Agreements. Each of UPC's operating companies that offers
telephone services has entered into an interconnection agreement with the
incumbent national telecommunications service provider. In addition, certain
of these operating companies have also entered into interconnection agreements
with other telecommunications service providers, providing alternative routes
and additional flexibility. Even though UPC has secured interconnection
arrangements, UPC may still experience difficulty operating under them. In its
Amsterdam system, for example, capacity constraints at the interconnection
have lowered the quality of its telephone service, resulting in a higher rate
of customer loss than its system has experienced before. In Austria, while UPC
secured its interconnection arrangement with the support of the Austrian
telecommunications regulator, the Austrian incumbent telecommunications
operator is challenging the arrangement in the Austrian courts.
Pan-European Backbone. UPC is developing a pan-European backbone and
telecommunications carrier business. This backbone is designed to link its
major cable and telephone networks through a combination of leased capacity
arrangements to allow it to capture more traffic between its operating areas
and to leverage UPC's national assets to lower the termination cost and
thereby create a strong competitive cost advantage relative to other carriers.
In October 1998, UPC entered into a contract with Hermes Europe Railtel for
the purchase of high speed fiber optic-based transmission capacity. The first
phase is expected to be in place for international telephone traffic by the
first half of 2000.
Competition. In the provision of telephone services, Priority Telecom and
UPC's operating companies face competition from the incumbent
telecommunications operator in each country. These operators have
substantially more experience in providing telephone services and have greater
resources to devote to the provision of telephone services. In many countries,
UPC's operating companies also face competition from other new telephone
service providers like UPC, including traditional wireline providers, other
cable telephone providers, wireless telephone providers and indirect access
providers.
Data
UPC's chello broadband subsidiary is a leading international provider of
broadband Internet services. chello broadband has long-term agreements for the
distribution of Internet services to residential and business customers using
cable television, fixed wireless and satellite infrastructure of local
operators, including our operating companies, covering 14.9 million homes in
Europe, Australia, New Zealand and Latin America. chello
9
<PAGE>
broadband currently provides its services through UPC's operating companies in
Austria, Belgium, France, The Netherlands, Norway and Sweden, and through our
operating companies in Australia and New Zealand, covering a total of
approximately 8.3 million homes.
chello broadband launched its services in March 1999, and at December 31,
1999, it had approximately 118,000 residential subscribers, as well as
approximately 3,500 business subscribers. chello broadband was voted Best
European Consumer ISP at the European ISP Awards in December 1999. In each of
its existing markets, chello broadband offers high-speed Internet access and
local language portals that integrate multimedia, locally relevant content and
services specially designed for the broadband environment.
Market. There are significant growth opportunities in the Internet market both
within and beyond Europe, and chello broadband's position as a leading
provider of broadband Internet services in Europe gives us an opportunity to
participate in one of the fastest growing and highest value-added Internet
segments. The use of the Internet in Europe has grown substantially in recent
years and while still less widespread than in the United States, Internet
usage in Europe is expected to increase and ultimately reach levels similar to
those in the United States. Today, however, the total number of Internet users
in Europe is relatively low.
Operations. chello broadband is designed to be a leading provider of broadband
Internet services to residential customers and small and medium-sized
businesses. chello broadband has taken a comprehensive approach to broadband
services that encompasses technological versatility and excellence across
platforms, compelling content, customer network support with aggressive
marketing and brand-building.
The table below shows selected information for the countries in which chello
broadband currently offers its services at December 31, 1999:
<TABLE>
<CAPTION>
Homes in Upgraded
Operator's Homes Video Homes chello Date of
Country Area Passed Subscribers Passed Subscribers Launch of Service
------- ---------- --------- ----------- --------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Europe--UPC Systems..... 5,493,654 4,516,230 3,018,192 2,578,425 121,550 April--June 1999
Europe--Non-system...... 169,000 100,000 68,000 91,000 1,050 June 1999
Other(1)................ 2,226,000 2,170,137 398,486 2,172,029 Trials Trials
--------- --------- --------- --------- -------
Total................. 7,888,654 6,786,367 3,484,678 4,841,454 122,600
========= ========= ========= ========= =======
</TABLE>
- --------
(1) chello broadband's services in Australia are provided through satellite
and fixed wireless distribution technologies. The flow of Internet data
from customers' homes to the Internet is transmitted via telephone lines.
The number of upgraded homes passed in Australia refers to those homes
passed that are able to upstream Internet data via their telephone lines.
chello broadband's services in Australia and New Zealand are being tested
with a limited number of users prior to full commercial launch.
chello broadband has agreements to launch its services on UPC's networks in
the Czech Republic, Hungary, Poland, the Slovak Republic and Chile. At
December 31, 1999, these networks had a total of 6.4 million homes in their
service areas, 5.1 million homes passed, of which 0.5 million were upgraded,
and 2.8 million video subscribers. These agreements are in addition to its
current service areas described above. At December 31, 1999, chello
broadband's total coverage rights included 14.9 million homes in the local
operators' service areas and 11.9 million homes passed (of which 5.2 million
were upgraded).
chello broadband's agreements with local operating companies cover all the
homes in their territory. Therefore, as local operating companies' networks
expand, other than through acquisitions, chello broadband's exclusive rights
to distribute its services expand as well.
Residential Subscribers. chello broadband offers one of the most compelling
consumer Internet experiences currently available in its markets. Upon
installation, each new subscriber's personal computer is configured for
10
<PAGE>
chello broadband's services, which provides easy access to the chello
broadband portals and the Internet. chello broadband offers residential
subscribers the following significant benefits:
. High-speed access;
. Flat fee;
. User friendly, always-on Internet access;
. Higher quality services; and
. Local language portals with compelling broadband content.
chello broadband has developed nine local language portals with the objective
of making them the leading broadband Internet portals in their markets. Each
of these portals brings together locally relevant content with broadband
content and is managed and supported locally by a chello office. chello
broadband plans to offer an expanding variety of multimedia programming, e-
commerce and services specifically designed to take advantage of the speed and
versatility provided by broadband access. Currently, subscribers are able to
listen to music and watch videos, news, and sporting events at near
television-quality.
Business Subscribers. chello broadband provides basic broadband Internet
access to local area networks, or LANs, designed to support between one and
twenty-five personal computers. This service, called Small LAN Connect,
currently supports over 3,500 businesses. In addition, chello broadband is
conducting trials of its service, called Remote LAN Connect, in Austria and
Norway. This service offers, among other features, enhanced two-way security,
Internet access for an unlimited number of personal computers and enhanced
email.
chello broadband Technology. The main technologies designed to deliver content
at high-speed include cable technologies using cable modems, telephone
technologies such as digital subscriber line ("DSL") and emerging fixed
wireless technologies. UPC intends to offer subscribers a number of new ways
to access chello broadband's services, including through television via
digital set-top boxes.
chello broadband's technology, network and supporting systems play a central
role in the design and delivery of its services. The primary components of the
network used to deliver chello broadband's services are its network operations
center, its backbone infrastructure named AORTA, its master and regional data
centers and UPC's local operating companies' networks. chello broadband relies
on its network operations center to monitor the quality of its services. From
this center in Amsterdam, which operates 24 hours per day, 7 days per week,
chello broadband can manage AORTA, regional data centers, regional networks,
headend facilities, servers and other components of the network
infrastructure.
AORTA allows Internet traffic to be routed or rerouted if parts of the network
are congested or impaired. The core of AORTA connects Amsterdam, Stockholm,
Vienna, Paris, Brussels and London, while additional links connect Oslo, New
York, San Jose and Sydney. chello broadband signed a capacity right of use
agreement in August 1999 with GTS for a transatlantic fiber-optic cable link,
which is to operate from London and Paris to New York. We expect this link to
be operational by January 2001. chello broadband's agreement with GTS is for a
minimum of 15 years.
chello broadband's master data center in Amsterdam, as well as its regional
and local data centers, act as service hubs for defined areas ranging from
major metropolitan areas to smaller areas of an individual local operating
companies' networks. They provide key services, including email, chat and news
to subscribers. They also provide a cost-efficient infrastructure to cache and
multicast data throughout a region and store local content and subscribers'
web pages.
Competition. In the provision of Internet access, services and online content,
chello broadband faces competition from incumbent telecommunications companies
and other telecommunications operators, other cable-based Internet service
providers, non cable-based Internet service providers and Internet portals.
The Internet services offered by these competitors include both traditional
dial-up Internet services and high-speed access services.
11
<PAGE>
Programming
UPC has been involved in several country-specific programming ventures
including those dedicated to creating channels for Spain, the Slovak Republic,
Poland, Israel and Malta. Together, these programming ventures have developed
channels in key genres including sports, children, documentaries and movies,
which are subtitled or dubbed in the local language. We believe that UPC's
programming ventures add value to its video distribution business by providing
compelling content to its subscribers.
UPC's programming operations encompass the following: a 100% interest in UPCtv
which develops and produces multiple proprietary channels of television
programming for distribution on UPC systems throughout Europe; an 80.0%
interest in Tara which provides a general entertainment channel for the United
Kingdom; and a 50.0% interest in Iberian Programming which produces a movie
channel, a documentary channel, a children's channel and a music channel
independently, as well as a history channel in joint venture with A&E Networks
for the Spanish and Portuguese markets.
As of December 31, 1999, UPC owned 13.3% of SBS. In February 2000, UPC
increased its ownership in SBS to 23.5%. UPC has recently announced its
intention to offer to acquire the remaining shares of SBS. SBS creates,
acquires, packages and distributes programming and other media content in many
of UPC's territories and elsewhere in Europe via television channels, radio
stations and the Internet. SBS owns and/or operates ten television and 16
radio stations across ten European countries in addition to various
promotional websites.
Western Europe and Israel
Austria: Telekabel Group. UPC owns 95.0% of the Telekabel Group, which
provides communications services to the Austrian cities of Vienna, Klagenfurt,
Graz, Baden and Wiener Neustadt and is the largest video distribution system
in Austria with over 40.0% of the market. Telekabel Group's largest
subsidiary, Telekabel Wien, which serves Vienna and represents approximately
87.0% of Telekabel Group's total subscribers, owns and operates one of the
larger clusters of cable systems in the world in terms of subscriber numbers
served from a single headend.
UPC is capitalizing on Telekabel Group's strong market position and positive
perception by its customers by aggressively expanding Telekabel Group's
service offerings as its network is upgraded to full two-way capability. The
upgraded network enabled Telekabel Group to launch an expanded basic tier,
impulse pay-per-view services and Internet/data services in 1997. Telekabel
Group also offers Priority Telecom cable telephone services in Vienna.
As of December 31, 1999, approximately 51.9% of the homes passed by Telekabel
Group's network subscribed to its basic cable television services. Telekabel
Group's service includes substantially all of the broadcast channels from
Austria and Germany, as well as other popular channels not available by
broadcast. Telekabel Group also offers subscribers an expanded basic tier of
additional programming as well as an impulse pay-per-view service. The pay-
per-view buy rate has grown to more than two movies per expanded basic tier
subscriber per month, although Telekabel Group expects this average to
decrease because high-demand customers subscribed early to the expanded basic
tier and later subscribers will likely have a lower demand for pay-per-view
services.
TeleKabel Group launched Priority Telecom's cable telephone service in Vienna
on a commercial basis in early 1999. As of December 31, 1999, Telekabel Group
had subscribers for approximately 40,291 telephone lines.
Telekabel Group launched an Internet access service in September 1997 and the
chello broadband service in June 1999. Telekabel Group had approximately
42,125 Internet access subscribers as of December 31, 1999. Telekabel Group is
currently averaging monthly additions of 2,625 customers for its Internet
service.
Telekabel Group consists of five Austrian corporations, each of which owns a
cable television operating system. UPC owns 95.0% of, and manages, each
Telekabel Group company. Each of the respective cities in which the operating
systems are located owns, directly or indirectly, the remaining 5.0% interest
in each company. The cities do not own any interest in UPC's Austrian chello
broadband businesses.
12
<PAGE>
Belgium: UPC Belgium. UPC Belgium, UPC's 100% owned subsidiary, provides cable
television and communications services in selected areas of Brussels and
Leuven. UPC estimates that there are at present approximately 133,100 homes
under license in UPC Belgium's franchise areas.
UPC Belgium, which currently has 94.0% penetration in its franchise areas,
plans to increase revenues through the introduction of new services that
currently are not subject to price regulations. UPC Belgium offers an expanded
basic tier cable television as well as UPC's chello broadband Internet access
service. As UPC Belgium upgrades additional portions of its network to full
two-way capability, it plans to introduce impulse pay-per-view in Brussels,
which was implemented in Leuven in November 1999. UPC Belgium intends to
provide cable telephone services beginning in the first half of 2001.
As of December 31, 1999, UPC Belgium had approximately 125,100 basic
subscribers and 6,425 expanded basic subscribers. UPC Belgium also distributes
three premium channels, two in Brussels and one in Leuven, which are provided
by Canal+.
UPC Belgium began offering internet access services in September 1997 and
introduced the chello broadband service in early 1999. As of December 31,
1999, UPC Belgium had 5,325 residential, 1,450 student and 655 business
Internet access subscribers.
France: UPC France. UPC has been constructing and operating cable television
systems in France since 1996. During 1999 UPC acquired several additional
major cable television systems and UPC France is now one of the largest cable
television providers in France. UPC currently owns 92.0% of UPC France. As of
December 31, 1999, UPC France's systems held franchises covering an aggregate
of 1,265,800 homes, of which approximately 927,000 homes were passed by
activated network. UPC France had an aggregate of 334,600 basic cable
television subscribers as of the same date. UPC France's major operations are
located in suburban Paris, the Marne-la-Vallee area east of Paris, Lyon,
Limoges and in other towns and cities throughout France.
In February 2000, UPC acquired Intercomm, a cable television operator with
about 500,000 homes in its franchise area, 80,000 of which are passed by
Intercomm's activated cable network. The purchase price was Euro36.0 million
plus an 8.0% interest in UPC's combined French system.
Mediareseaux, UPC France's initial system, has constructed its network with
technology and capacity to offer integrated video, voice and Internet/data
services. UPC is upgrading the networks of its recently acquired French
systems to be able to offer these services as well. UPC expects this upgrade
to be completed in 2002. To further expand its French operations, UPC is
pursuing potential acquisition opportunities and plans to develop these
franchises as one clustered system offering a full package of video, telephone
and Internet/data services.
Most of UPC's French systems offer various tiers of cable television service.
To increase its average monthly revenue per subscriber, Mediareseaux began
offering pay-per-view services in May 1998, and to date, the pay-per-view buy
rate is approximately 0.5 movies per expanded basic tier subscriber per month.
As UPC integrates its recent acquisitions and completes upgrading their
networks, UPC intends to offer similar revenue-generating services in these
systems as well.
In June 1998, UPC France's subsidiary, Mediareseaux, obtained a 15 year
telephone and network operator license for an area that includes 1.5 million
homes in the eastern suburbs of Paris. Mediareseaux began offering telephone
services in March 1999 within its cable television franchise area.
Mediareseaux also offers chello broadband's Internet access services via its
cable systems, and is carrying out a trial offering of broadband fixed
wireless local loop service in two towns in the eastern suburbs of Paris under
a temporary license. One of UPC's recently acquired systems began offering
Internet/data services at the end of 1997. UPC intends to launch chello
broadband's internet access service on its remaining systems in the second
quarter of 2000.
13
<PAGE>
UPC France owns between 95.0% and 100% of each of its systems. As a result of
the Intercomm transaction that closed in February 2000, UPC's interest in UPC
France is now 92.0%.
Germany: PrimaCom. Since December 1999, UPC has purchased shares totaling
approximately 24.9% of PrimaCom which owns and operates cable television
networks in Germany. As of December 31, 1998, PrimaCom reported subscribers of
approximately 877,150.
The Netherlands: UPC Nederland. UPC's Dutch systems, with 1,660,171 homes
passed and 1,517,432 basic tier subscribers as of December 31, 1999, are its
largest group of cable television systems. UPC has had operations in The
Netherlands since it was formed in 1995, but substantially all of its
operations in The Netherlands have come from acquisitions. UPC's systems are
located in the regions of Brabant, Flevoland, Friesland and Gelderland, and
include A2000, its 0.5 million subscriber system located in Amsterdam.
In August 1999, UPC won a bid to purchase the municipality-owned cable
television network in Haarlem. As of December 31, 1999, this system passed
approximately 70,000 homes and had approximately 66,000 basic cable television
subscribers. We expect the Haarlem acquisition to close during the second
quarter of 2000. In March 2000, we acquired K&T Group, which owns and operates
cable networks in Rotterdam, Dordrecht and the surrounding municipalities.
These systems had approximately 588,000 basic tier subscribers and 43,000
serviceable businesses as of December 31, 1999. In February 2000, UPC acquired
Tebecai, which operates cable television networks in the eastern regions of
the Netherlands.
UPC began upgrading a portion of its Dutch networks in 1997 and expects that
all of its network in The Netherlands will be fully upgraded by the end of
2000. Due to the large number of current subscribers located in four large
clusters in The Netherlands, UPC has constructed a fiber backbone to
interconnect these region-wide networks. In addition to cable television
services, UPC Nederland offers Internet and telephone services over its
upgraded network.
As of December 31, 1999, UPC's Dutch systems had average cable television
penetration rates of 91.4%. As a result of this high penetration and the rate
regulation of the basic tier in many of UPC Nederland's franchise areas, UPC
has focused its efforts on increasing revenue per subscriber in these systems
through the introduction of new video, telephone and Internet/data services.
Many of UPC's Dutch systems have offered an expanded basic tier since late
1996. UPC launched impulse pay-per-view services in April 1997 in A2000 and in
June 1998 in some of its other Dutch systems.
In April 1999, A2000 and the municipality of Amsterdam reached an agreement on
a large scale introduction of digital set-top boxes and a reduction of the
rate regulated basic cable television package to 15 public channels. This
agreement allows A2000 to migrate a number of popular commercial channels to
its expanded basic tier. During the period preceding the introduction of and
migration of channels to its digital platform, A2000 and the municipality of
Amsterdam have agreed to increasing A2000's current 26 channel basic package
to 32 channels with an increase in the monthly subscription fee. Once the
digital set-top boxes are introduced, the price for the rate-regulated 15
public channel basic service will be reduced and the price for the expanded
basic tier will increase over time until it becomes unregulated in 2001. The
agreement requires A2000 to provide UPC's integrated digital set-top box to
customers requesting the expanded basic tier. UPC's set-top boxes will enable
these customers to receive chello broadband Internet service over a computer
or a television. UPC expects the introduction of the digital set-top boxes to
occur in the fourth quarter of 2000. A similar agreement has been reached with
the municipality of Haarlem, where the introduction of digital set-top boxes
is planned in the fourth quarter of 2000.
UPC's Amsterdam system launched its cable telephone service in July 1997. UPC
Nederland launched Priority Telecom cable telephone service in many other
parts of its network in May 1999. UPC expects to launch these services in 2000
in some of its more recently acquired systems. As of December 31, 1999, UPC
Nederland had subscribers for 97,000 telephone lines. In Amsterdam, where it
has offered telephone services the longest, approximately 9.0% of the homes
serviceable subscribe for telephone services.
14
<PAGE>
Some of UPC's Dutch systems had Internet access services as early as 1997. UPC
launched chello broadband's Internet/data services in some of UPC Nederland's
systems in early 1999. The media launch of chello broadband services in the
remainder of UTH's service areas took place in June 1999. UPC Nederland has
been migrating all existing Internet customers to the chello broadband
service. As of December 31, 1999, UPC Nederland had 58,500 residential and
1,550 business Internet/data services customers.
Norway: UPC Norge. UPC Norge is Norway's largest cable television operator
with approximately 42.0% of the total Norwegian cable television market as of
December 31, 1999. UPC Norge's main network is located in Oslo and its other
systems are located primarily in the southeast and along the southwestern
coast. UPC Norge is upgrading its network to two-way capacity. The upgrade,
which began in 1998, is scheduled to be completed in 2002/2003. During 1999,
UPC Norge began offering subscribers chello broadband service and Priority
Telecom's cable telephone service.
Approximately 70.0% of the homes passed by UPC Norge's systems subscribe to
UPC's cable television service. UPC currently offer four tiers of video
services. Approximately 32.0% of UPC Norge's subscribers subscribe for one or
more higher tiers of service. UPC's goals for UPC Norge's cable television
business are to continue to increase its penetration rate, to improve its
revenue per subscriber generally by providing additional programming and
services and to increase average revenue per subscriber in systems in which
expanded basic tiers are more recent additions.
UPC Norge introduced Priority Telecom's cable telephone service in April 1999
in the upgraded portions of its network. As of December 31, 1999, UPC had
3,991 telephone lines in Norway.
UPC Norge launched an Internet access service in March 1998 and introduced
chello broadband service in June 1999. UPC Norge has migrated all of its
existing Internet access subscribers to chello broadband. As of December 31,
1999, UPC Norge had 3,270 residential and 3 business chello broadband
subscribers.
Sweden: Stjarn. In July 1999, UPC acquired Stjarn. Stjarn operates cable
television systems servicing the greater Stockholm area and leases a fiber
optic network with 770,000 homes and 30,000 businesses in its franchise area.
As of December 31, 1999, Stjarn provided analog television services across its
broadband network to approximately 243,000 subscribers out of a total of
approximately 421,600 homes passed. Stjarn currently offers six tiers of
programming. Upon upgrade of its network, it plans to offer additional tiers
of programming.
Stjarn launched Internet services in one area in the City of Stockholm in
April 1999 and introduced chello broadband service in November 1999. As of
December 31, 1999, Stjarn offered high speed Internet services to
approximately 167,700 connected homes, of which 5,240 homes had at that date
subscribed.
Stjarn leases the fiber optic cables it uses to link to its main headend under
agreements with Stokab, a city-controlled entity with exclusive rights to lay
ducts for cables for communications or broadcast services in the City of
Stockholm. The main part of the leased ducting and fiber optic cables is
covered by an agreement which expires in January 2019. Additional fibers are
leased under several short-term agreements, most of which have three year
terms but some of which have ten year terms.
Israel: Tevel. Tevel has exclusive cable television broadcasting franchises
for the entire Tel Aviv metropolitan area, the region of Ashdod-Ashkelon,
which is 30 miles south of Tel Aviv, and the Jezreel Valley, which is 80 miles
northeast of Tel Aviv. In April 1998, Tevel acquired 100% of Gvanim Cable
Television Ltd. and has since fully integrated Gvanim's operations with its
own. The Gvanim acquisition increased franchise area coverage to approximately
40.0% of the total homes in Israel.
Tevel is upgrading all of its systems to be able to provide additional cable
television services, as well as cable telephone and Internet/data services.
Should liberalization occur, Tevel may consider launching its own telephone
and Internet/data services. Tevel offers basic subscribers approximately 40
channels of programming, including
15
<PAGE>
a wide range of entertainment, news, sports, performing arts and educational
channels. Five pay-per-view channels are also available in all of Tevel's
areas other than the Gvanim franchise areas. Tevel has applied for a license
to provide pay-per-view services in Gvanim's franchise areas. The Israeli
Communications Ministry has indicated that it intends to change a number of
terms of Tevel's pay-per-view license, and has offered Gvanim a pay-per-view
license on terms incorporating these changes. Tevel is opposed to these term
changes and is negotiating with the Communications Ministry over the terms of
the extension of its pay-per-view license and Gvanim's pay-per-view license.
Tevel's current pay-per-view license has been extended until March 2000.
In addition to its cable operations, Tevel owns 50.0% of Globkol, a
telecommunications equipment company that designs, installs and maintains
switching systems for businesses. As of December 31, 1999, Globkol served
approximately 1,350 sites with a total of approximately 98,900 outlets. Tevel
also owns 45.0% of Netvision, one of Israel's leading Internet service
providers and has the right to increase its interest to 50.0%.
Central and Eastern Europe
Czech Republic: KabelNet and Kabel Plus. KabelNet, UPC's Czech Republic
subsidiary, provides cable and "wireless" cable television services in the
cities of Prague and Brno, the Czech Republic's second largest city. In
October 1999, UPC acquired 94.6% of Kabel Plus, the leading provider of cable
television services in the Czech Republic. Combined, these systems passed
about 736,460 homes and served about 374,300 television subscribers in the
Czech Republic as of December 31, 1999. Approximately 12.0% of these are
served by UPC's wireless MMDS network.
UPC offers a number of tiers of programming services in the Czech Republic.
UPC has no current plans to launch telephone or Internet/data services in its
Czech systems.
Hungary: UPC Magyarorszag. UPC has owned and operated systems in Hungary for
nearly a decade. In June 1998, UPC combined its Hungarian operations with
Kabeltel, Hungary's second largest operator of cable television systems,
creating Telekabel Hungary, in which UPC retains a 79.3% interest. Telekabel
Hungary's operating system, UPC Magyarorszag, passed about 655,270 homes and
served about 518,580 television subscribers as of December 31, 1999.
UPC is rebuilding its Budapest network to be able to provide new services. As
of December 31, 1999, approximately 68,970 homes were already served by the
rebuilt network. Approximately 75.0% of all subscribers passed by UPC's
upgraded network subscribe to its expanded basic tier package.
Hungary: Monor. Monor, one of UPC's Hungarian operating companies, has offered
traditional telephone services since December 1994. Monor has the exclusive,
local-loop telephone concession for the region of Monor, Hungary with a term
through 2002. Monor has 85,700 homes in its franchise area. UPC has an
economic ownership interest in Monor of approximately 97.1%.
Poland: @Entertainment, Inc. In August 1999 UPC acquired @Entertainment, which
owns and operates the largest cable television system in Poland.
@Entertainment's cable subscribers are located in regional clusters
encompassing eight of the ten largest cities in Poland. @Entertainment
expanded its distribution capacity with the launch of its DTH broadcasting
service for Poland, targeted at homes outside of its cable network coverage
area. As of December 31, 1999, @Entertainment had 1,023,800 traditional cable
subscribers and 254,100 DTH subscribers. DTH subscribers receive Wizja TV,
UPC's multi-channel Polish-language DTH service, the first such service
available in Poland. @Entertainment is also trying to sell Wizja-TV
programming to third party cable systems in Poland.
The portions of @Entertainment's cable television networks currently being
constructed are being constructed with the flexibility and capacity to be
cost-effectively reconfigured to offer an array of interactive and integrated
entertainment, telecommunications and information services. UPC intends to
upgrade selected portions of
16
<PAGE>
existing cable networks to meet similar standards. The Company has applied for
the data license for the territory of Poland and plans to start providing
Internet services during the year 2000.
@Entertainment has been able to avoid constructing its own underground
conduits in certain areas by entering into a series of agreements with TPSA
(the Polish national telephone company) which permit @Entertainment to use
TPSA's infrastructure for an indefinite period or for fixed periods up to 20
years. Over 80.0% of @Entertainment's cable television plant has been
constructed using pre-existing conduits from TPSA. A substantial portion of
these contracts to use TPSA conduit permits termination by TPSA without
penalty upon breaches of specified regulations. Any termination by TPSA of
such contracts could result in @Entertainment losing its permits, the
termination of agreements with co-op authorities and programmers, and an
inability to service customers with respect to the areas where its networks
utilize the conduits that were the subject of such TPSA contracts. In
addition, some conduit agreements with TPSA provide that cables can be
installed in the conduits only for the use of cable television. If
@Entertainment uses the cables for a purpose other than cable television, such
as data transmission, telephone, or Internet access, such use could be
considered a violation of the terms of certain conduit agreements, unless this
use is expressly authorized by TPSA. There is no guarantee that TPSA would
give its approval to permit other uses of the conduits.
@Entertainment's DTH service is encoded and transmitted, or "uplinked," from
its Maidstone, U.K. facility to geosynchronous satellites that receive,
convert and amplify the digital signals and retransmit them to earth in a
manner that allows individual subscribers to receive and be billed for the
particular programming services to which they subscribe. @Entertainment has an
eight-year contract with British Telecommunications for the provision and
maintenance of its uplink equipment at Maidstone. @Entertainment leases
transponders on Astra satellites 1E and 1F.
@Entertainment offers cable subscribers two tiers of service. Some areas are
offered a package of up to 70 channels. @Entertainment's DTH subscribers
currently receive @Entertainment's Wizja TV programming, which consists of
approximately 25 channels. For an additional monthly charge, certain of its
cable networks currently offer two premium television services, the HBO Poland
service (a Polish-language premium movie channel owned in part by Home Box
Office) and, since September 18, 1999, Wizja Sport, a Polish-language premium
sport channel. @Entertainment plans to create additional pay-per-view channels
that will also be offered to cable customers for an additional charge.
Romania. UPC is currently involved in the operations of seven cable companies
in Romania. Since 1993, when UPC first entered the Romanian market, it has
widened its customer base through acquisition and marketing activities in
conjunction with build out. UPC's Romanian systems offer subscribers three
different tiers of programming. UPC currently has plans to launch telephone or
Internet/data services in the Romanian systems.
UPC recently entered into a joint venture with the owners of two Romanian
cable television companies (collectively, "AST") to which UPC's and AST's
Romanian assets were contributed. UPC holds a 70.0% interest in the joint
venture and the former owners of AST hold the remaining 30.0%. Together, the
joint ventures systems have more than 250,000 subscribers.
Slovak Republic: UPC Slovensko. UPC entered the Slovak market in 1995 and in
June 1999 completed the acquisition of additional cable systems in Bratislava,
the capital of the Slovak Republic, and several other cities. This acquisition
made UPC the largest cable operator in the Slovak Republic. UPC offers
subscribers three tiers of cable television service. UPC plans to introduce
Internet services in Bratislava in 2000 and in other Slovak cities by 2003.
UPC intends to introduce telephone services in all systems by early 2003.
Other Systems
Malta: Melita. Melita, of which UPC owns 50.0%, operates an exclusive
franchise network in Malta. Melita currently offers general cable television
services and is upgrading its system to be able to provide Internet access and
other enhanced services. Pending litigation and recent legislation may,
however, affect UPC's ability to offer Internet/data services in Malta.
17
<PAGE>
SBS Tender Offer
UPC owns approximately 23.5% of the outstanding stock of SBS. On March 9,
2000, UPC announced its intention to commence a tender offer to acquire all
the shares of SBS that UPC does not already own. SBS owns and operates
television and radio broadcasting stations in Scandinavia and other European
markets. SBS currently owns and operates television stations that broadcast
into Norway, Sweden, Denmark, Flemish Belgium and the Netherlands, and
together with two European partners, operates the first national private
television network in Hungary. Additionally, SBS owns a minority interest in a
national television network in Italy, operates a television station in
Slovenia under the terms of a management and funding agreement and owns 50.0%
of a Swiss company which in March 1999 was awarded a national terrestrial
broadcasting license to broadcast in Switzerland. SBS also owns and operates
radio stations, which broadcast in Denmark, Sweden and Finland.
The supervisory boards of both companies have approved the transaction. UPC
has agreed to initiate an exchange offer to acquire SBS's shares at a per
share price of $40.00 in cash plus 0.57144 of a share of UPC's Ordinary Shares
A, subject to adjustment. UPC will adjust the stock portion of the purchase
price under certain circumstances so that SBS shareholders will receive not
less than $77.50 and not more than $86.00 for each SBS share exchanged, based
on UPC's average closing share price prevailing on the trading days ending
shortly prior to making the exchange offer. UPC intends that all shares not
purchased in the exchange offer will be converted into the right to receive
the same cash and stock consideration as provided in the exchange offer, in a
second step transaction following consummation of the exchange offer. This
transaction is subject to a number of conditions, including regulatory
approval.
Asia/Pacific
Our Asia/Pacific operations are primarily held through our 75.4% owned
subsidiary, Austar United, which is the fastest growing broadband
communications company in Australia and New Zealand. Austar United provides
multi-channel television, telephone, Internet/data services and programming
services through its three core businesses: Austar, XYZ Entertainment and
Saturn. Austar United completed an initial public offering in July 1999 and is
publicly traded on the Australian Stock Exchange under the symbol "AUN".
Austar United had a market capitalization of approximately $2.8 billion based
on the closing price on the Australian Stock Exchange on March 23, 2000.
Austar (Australia)
Austar is the largest provider of pay television services in regional
Australia with a service area encompassing approximately 2.1 million homes, or
approximately one-third of Australia's total homes. Austar is the only pay
television provider in substantially all of its service area. Due to the low
housing densities that characterize Austar's service area, Austar primarily
employs digital DTH satellite and wireless cable technologies to deliver its
service. These technologies have enabled Austar to deploy its services quickly
and achieve rapid subscriber growth.
Distribution Systems. Austar uses both digital DTH and wireless cable
distribution technologies in certain cities with more than 20,000 homes. In
its other service areas (except Darwin), Austar distributes its service
exclusively utilizing digital DTH. At present, approximately 72.0% of Austar's
subscribers are serviced by digital DTH, while 25.0% receive service via
wireless cable. Austar constructs and owns the MMDS transmission facilities
and installs and retains ownership of all customer premises equipment for both
its DTH and wireless cable customers.
In addition to digital DTH and wireless cable, Austar is constructing a cable
network in Darwin, a market containing approximately 29,000 serviceable homes.
Darwin is outside the satellite's footprint and dense vegetation makes
wireless cable service impractical. As of December 31, 1999, this system
passed approximately 23,000 homes and had a penetration rate of approximately
33.3%.
Programming and Pricing. Austar offers the widest range of programming
available in Australia. Its favorable programming agreements allow Austar to
establish different service levels of tiers at multiple price points. Austar
18
<PAGE>
began tiering its program offerings in October 1998. By tiering its services,
Austar permits its subscribers to select programming that is customized to
their interests, which we believe is a valuable tool in ensuring our product
meets customer value expectations. Tiering also provides customers with a
lower-priced basic service that both enhances sales opportunities and helps
reduce the level of customer churn.
Programming Agreements. Austar's programming agreement with Foxtel provides it
with the exclusive rights to distribute Showtime, Encore and TV-1 via digital
DTH and wireless cable throughout Austar's service area until December 2006.
In addition, Austar has an agreement with a News Corporation Limited
subsidiary pursuant to which Austar has the exclusive right to distribute Fox
Sports and Fox Sports Two over the same technologies throughout Austar's
service area until 2006. Austar's programming agreement for C7 Sports provides
Austar with non-exclusive Australian Football League ("AFL") coverage. Austar
has also entered into an agreement with C&W Optus that provides Austar with
non-exclusive distribution rights for the three C&W Optus movie channels,
Movie Network, Movie Greats and Movie Extra, until December 2006. Austar has
another agreement with C&W Optus giving it rights to distribute additional C&W
Optus programming.
Austar has exclusive rights in its service area to distribute via DTH and
wireless cable five channels of programming supplied by XYZ Entertainment:
Discovery Channel, Nickelodeon, The Lifestyle Channel, Channel [V] and arena.
Austar also obtains at competitive price levels additional programming from a
number of independent sources, including Time Warner, ESPN, Seven Network,
National Geographic, CMT and Sky Racing. Weather 21, the Adults Only channel
and certain pay-per-view events are sourced from entities in which we have an
interest.
Austar's rights to distribute certain programming are dependent on its
supplier's ability to provide such programming to Austar. In the event that
any of Austar's programming suppliers are unable to supply programming to
Austar, we are confident that we will be able to secure alternative sources of
programming.
Marketing, Billing and Customer Support. Austar has focused its marketing and
sales efforts to support a strategy of rapid penetration of its markets.
Austar's comprehensive marketing and sales organization consists of
approximately 250 direct sales representatives and over 250 national customer
service and telemarketing personnel at Austar's National Customer Operations
Center ("NCOC"). These sales channels are supported by an integrated marketing
program of television, radio and print advertising and extensive use of direct
mail.
Austar's 25 offices, located throughout its operating area, serve its
customers in surrounding areas and provide Austar with a local presence. These
offices perform several key functions, including responding to customer
inquires, booking installations, providing customer maintenance services,
collecting subscription fees, liaising with installation contractors and
marketing Austar's services.
Austar uses contractors to install reception equipment at the customer
premises. We believe Austar achieves significant savings through the
outsourcing of these services. Austar has established installation guidelines,
quality assurance standards and training seminars for installation
contractors. In addition, Austar's own installation teams perform quality
assurance checks on its contractors, as well as conduct difficult
installations and installations at multiple dwelling units.
The NCOC, which services all of Austar's subscribers, is a technologically
advanced, scalable, fully integrated subscriber facility that features
sophisticated subscriber management software, an automated response unit and
predictive dialer technology. It also manages Austar's digital virtual private
network. Incoming calls from Austar's service area are directed to the NCOC
where customer service representatives provide sales and service information.
The NCOC's on-site customer service professionals undergo training in all
aspects of customer support to efficiently process installation orders, handle
customer inquiries including programming and technical questions and implement
Austar's customer retention program, which includes contacting customers
immediately after installation to ensure satisfaction and monitoring
cancellation requests.
Billing services are also handled through the NCOC. Austar bills for its
services in advance on a monthly basis. Customers have several methods by
which they can pay including direct debit from their bank account, automatic
19
<PAGE>
credit card billing, in person at one of Austar's local offices or at the post
office, or by mail. Austar has implemented a number of procedures for managing
customers with delinquent accounts.
Austar's monthly churn averaged 2.9% during 1999, 3.9% during 1998 and 4.2%
during 1997. Austar believes that this ratio is likely to continue to decline
in the future, although there can be no such assurances. Factors which Austar
believes will contribute to the decline in customer churn include: the
continued enhancement of the price value relationship as more content is added
and the existing content improves, the tiering of services and tailoring
packages to customers, a further reduction in the level of product sampling in
a maturing market, the introduction in 1998 of annual and six-month subscriber
contracts and improved customer communications combined with loyalty programs.
Competition. Austar is the sole provider of pay television services in
substantially all of its service area. Its only major pay television
competitor is Foxtel, which operates a cable system in a segment of Austar's
116,000-home Gold Coast service area. As of December 31, 1999, Austar had
approximately 24,200 subscribers in the Gold Coast. Austar also experiences
limited competition from free-to-air channels.
We do not believe that Austar's market generally has sufficient housing
density to justify the construction of competitive cable systems. The majority
of Austar's market consists of small cities and towns with less than 20,000
homes and relatively low household densities of 25 to 75 homes per square
kilometer as compared to 100 to 130 homes per square kilometer in Australia's
largest cities. While we believe that household densities could support
wireline cable construction in areas representing approximately 20.0% of
Austar's total homes passed, the small size of these markets reduces the
attractiveness of such construction. Furthermore, Austar holds the exclusive
satellite and wireless cable distribution rights to key sports, movie and
other programming for its service area, thus limiting the programming that a
satellite or wireless cable competitor could offer in Austar's service area.
New Business Opportunities. Austar launched high-speed and traditional
Internet access services in markets in early 2000. These services were
delivered using both digital DTH and wireless cable technologies. Austar will
benefit from United's experience in rolling out Internet/data services. In
particular, Austar intends to use chello broadband, UPC's Internet portal and
content service, to support the deployment of its Internet/data offerings to
its service area. Austar's initial tests of these high-speed services provided
customers with downstream transmission speeds (from the Internet to the
subscriber) that were much faster than traditional dial-up modems. We believe
that the provision of Internet/data services represents a significant market
opportunity due to the combination of substantial consumer demand for Internet
access, the limited capacity of the public switched telephone network in
regional Australia and the lack of a broadband alternative.
Austar has licensed its operating system for digital set-top boxes with Open
TV, Inc. The Open TV operating system enables Austar to introduce an enhanced
electronic programming guide, interactive television applications and
transactional services such as home banking and other electronic commerce. The
introduction of these services should continue to help Austar realize its
objectives of increasing revenue and decreasing churn. Moreover, these
services should also generate incremental revenues with minimal capital
expenditures because these applications utilize existing customer premise
equipment.
Saturn (New Zealand)
Saturn is the only provider of integrated telephone, pay television and
Internet services in New Zealand. These services are currently provided in the
greater Wellington area over a hybrid fiber cable network with an overlay of
traditional telephone lines. Austar United owns 100% of Saturn, which launched
pay television service in 1996 on the initial portions of its network.
Wellington, which encompasses 141,000 homes, is New Zealand's capital and
second largest city. As of December 31, 1999, Saturn's network had 87,029
serviceable homes for pay television, telephone and Internet/data. As of that
date, Saturn had 16,723 cable television subscribers (19.2% penetration),
24,678 residential and business telephone customers (28.4% penetration), and
6,772 Internet/data subscribers (7.8% penetration). In April 1998, Saturn
launched a bundle of telephony and pay television services
20
<PAGE>
to both residential and business markets, including enhanced switch-based
services. In mid-1998, Saturn launched Internet/data services via cable modems
to the business market and began offering residential dial-up Internet/data
services in November 1998. Saturn is evaluating whether to expand into other
major New Zealand markets. In February 2000, Austar United agreed to form TSL,
a 50/50 joint venture between Saturn and Telstra's New Zealand operation. TSL
plans to create a state-of-the-art national broadband network which will
include a submarine fiber backbone linking Auckland, Wellington and
Christchurch during the next five years.
Other UAP Operations
Through UAP, we also provide multi-channel television services in the
Philippines, which are held through our approximately 19.6% economic interest
in Pilipino Cable Corporation, which operates a wireline cable service
providing service to 191,521 subscribers and passing 477,448 homes as of
December 31, 1999.
Latin America
Video. Our largest operation in Latin America is our 100% owned Chilean
operation, VTR. Through VTR we are the largest provider of wireline cable
television, MMDS and DTH technologies and a growing provider of telephone
services in Chile. Wireline cable is VTR's primary business representing
approximately 93.0% of VTR's subscribers while MMDS and DTH represent
approximately 4.0% and approximately 3.0%, respectively. VTR has an estimated
56.0% market share of cable television services throughout Chile and an
estimated 40.0% market share within Santiago, Chile's largest city. In 1998,
VTR began the wide-scale roll-out of residential cable telephone service in
six communities contained within Santiago and one major city outside Santiago
and is currently expanding its efforts to include additional areas throughout
Chile.
As of December 31, 1999, VTR's systems passed approximately 1.6 million homes
throughout Chile and approximately 22.3%, or approximately 360,872 homes,
subscribed to its cable television services. VTR also served 14,923 customers
via MMDS and approximately 11,172 customers via DTH. As of December 31, 1999,
approximately 390,126 of VTR's cable homes passed were capable of using VTR's
telephone services and approximately 66,718 homes subscribed to these
services. Approximately 35.0% of VTR's telephone subscribers also subscribe to
VTR's cable services.
Programming. VTR's channel line-up consists of 50 to 65 channels segregated
into two tiers of service--a basic service with 45 to 60 channels and a
premium service with five channels. VTR offers basic tier programming similar
to the basic tier program line-up in the United States plus more premium-like
channels such as HBO, Cinemax and Cinecanal on the basic tier. As a result,
subscription to VTR's existing premium service package is limited because
VTR's basic cable package contains similar channels. In order to better
differentiate VTR's premium service and increase the number of subscribers to
premium service and, therefore, average monthly revenues per subscriber, VTR
anticipates gradually moving some channels out of its basic tier and into
premium tiers or pay-per-view events. VTR launched the Playboy channel as a
premium service in January 2000. VTR is also considering offering additional
movies and believes it may be possible to offer additional adult programming
on premium tiers in the future. For the programming services necessary to
compile its channel lineups, we rely mainly on international sources including
the United States, Europe, Argentina and Mexico. Domestic cable television
programming is only just beginning to develop around local events such as
soccer matches.
Video Competition. There is only one other major cable television provider in
Chile, Metropolis-Intercom ("Metropolis"). Metropolis overlaps approximately
60.0% of VTR's homes passed and VTR overlaps approximately 90.0% of its homes
passed. VTR's head-to-head competition with Metropolis in many areas affects
its pricing and programming flexibility. We believe that VTR's churn
(subscriber turnover) is the result, in part, of Metropolis' marketing
efforts. Due to the high capital expenditures required to build-out a new
wireline network, we believe significant barriers to entry exist. Metropolis
is the only other potential MMDS competitor, and controls the licenses for 4
of the 16 MMDS analog frequencies available in Chile but does not currently
transmit any channels. Because MMDS is only capable of providing 16 analog
channels of service in
21
<PAGE>
comparison to the wireline cable offering of 50 to 65 channels, we do not
believe analog MMDS is a viable competitor to cable as a whole. There is only
one other major DTH provider in Chile, Sky, which launched service last year.
Because wireline cable is significantly penetrated and offered at lower rates
than DTH, we do not believe that DTH poses an immediate significant threat in
Chile.
Telephone Services. VTR began marketing cable telephone services to
residential customers in several communities within Santiago in 1997. VTR
offers basic dial tone service as well as several value added services
including voice mail, caller I.D., 3-way calling, speed dial, wake up service,
call waiting, call forwarding, local bill detail, unlisted number and
directory assistance. VTR primarily provides service to residential customers
who require one or two telephone lines. VTR also provides service to small
businesses and home offices requiring up to twelve telephone lines. In
general, VTR has been able to achieve approximately 20.0% to 30.0% penetration
of its new telephone markets within the first year of marketing. As of
December 31, 1999, VTR was offering services in two additional cities outside
Santiago, and by the end of 2000, VTR plans to provide cable telephone service
to four additional cities outside Santiago and four additional communities in
Santiago.
As of December 31, 1999, approximately 24.0% of VTR's network was capable of
providing cable telephone service. Since 74.0% of VTR's network currently has
750 MHz of capacity, VTR's costs to upgrade to two-way capable architecture
are relatively low. In areas where VTR's network has less than 750 MHz of
capacity, VTR either has to retrofit existing network or rebuild the network
to upgrade to two-way capability. VTR's plan is to be technologically capable
of providing service to approximately 200,000 to 300,000 additional two-way
homes during 2000 and to be able to provide telephone service to 1.4 million
homes by 2002.
VTR has the necessary interconnect agreements with local carriers, cellular
operators and long distance carriers to allow VTR to provide its telephone
services. Interconnect agreements are mandatory for all local carriers.
Telephone Competition. CTC is VTR's only major competitor for local
residential telephone services in Chile. CTC provides telephone service to
approximately 91.0% of the total telephone lines throughout Chile. Other local
residential telephone service providers include Telefonica Manquehue S.A. and
Complejo Manufacturero de Equipos Telefonicos in Santiago. There are also two
other telephone providers in Chile who primarily serve business customers.
Because of VTR's geographically extensive cable network, VTR believes it is
the only company capable of competing with CTC for residential telephone
business. Metropolis currently leases its cable network from CTC and currently
does not provide cable telephone service. VTR believes it is in a strong
position to compete with CTC as a result of its extensive cable network, its
quality cable telephone technology and its good relationships with its
customers. In addition, VTR does not believe that wireless local loop
telephone technology will be a competitive threat to traditional or cable
telephone because the mountainous topography of Chile makes it difficult and
expensive to implement.
Data. VTR began offering Internet/data services in 1999. VTR projects that
there will be increasing demand for Internet services. Currently, there are no
providers of high-speed Internet access beyond the trial stages in Chile.
Other ULA Operations
We also provide multi-channel television services in Brazil and Mexico. We
have ownership interests in two systems in Brazil: (i) a 46.3% interest in
Jundiai, which holds nonexclusive cable television licenses for the city of
Jundiai in southern Brazil and (ii) a 100% interest in TVSB, an owner and
operator of a 31 channel exclusive license MMDS system in Fortaleza, on the
Northeast coast of Brazil. We also have a 90.3% interest in Megapo, based in
Cuernavaca, South of Mexico City.
Programming. ULA provides programming services to various Latin American
countries through its 50.0% ownership interest in MGM Networks LA. MGM
Networks LA currently produces and distributes three pan-regional channels
including: MGM Gold, a Portuguese language movie and television series channel
for Brazil; MGM, a Spanish language movie and television series channel; and
Casa Club TV, a Spanish and Portuguese language lifestyle channel dedicated to
home, food and lifestyle programming featuring a significant block of
22
<PAGE>
original productions. These three channels are currently distributed on most
major cable and satellite systems in 17 countries throughout Latin America.
Employees
As of December 31, 1999, we, together with our consolidated subsidiaries, had
approximately 10,000 employees. Certain of our operating subsidiaries,
including our Austrian, Dutch, Norwegian and Australian systems are parties to
collective bargaining agreements with some of their respective employees. We
believe that our relations with our employees are good.
Regulation
The provision of video, telephone, Internet/data and broadcasting networks and
services in the countries in which we operate is regulated. The scope of
regulation varies from country to country, although in some significant
respects regulation in UPC's Western European markets is harmonized under the
regulatory structure of the EU. Adverse regulatory developments could subject
us to a number of risks. These regulations could limit our growth plans, limit
our revenues, and limit the number and types of services we offer in different
markets. In addition, regulation may impose certain obligations on our systems
that subject them to competitive pressure, including pricing restrictions,
interconnect obligations and open-network provision obligations. Failure to
comply with current or future regulation could expose us to various penalties.
Set forth below is an overview of the types of regulation that affects our
video, telephone and Internet/data services as well as a summary of the
regulatory environment in the EU and the countries in which our more major
systems operate.
Video Services
In the provision of video services, our operating companies are generally
required to either obtain licenses or permits from or notify or register with
the relevant regulatory authorities. In some countries we pay annual franchise
fees based on the amount of our revenues.
In many countries where we operate, we are required to transmit to subscribers
certain "must carry" channels, which generally consist of public national and
local channels. Some countries may require a certain amount of local content
or impose restrictions on certain types of programming.
The regulatory authorities in many countries where we operate also impose
pricing restrictions. Generally, basic tier price increases must be approved
by the relevant local or national authority. In certain countries, price
increases will only be approved if the increase is justified by an increase in
costs associated with providing the service or if the increase is less than or
equal to the increase in the consumer price index.
Telephone
The liberalization of the telecommunications market in Europe and Chile
allowed new entrants like us to enter the telephone services market.
Generally, our operating companies are required to obtain licenses to offer
telephone services. Our operating companies have, to date, not been subject to
telephone rate regulation but would become subject to such regulation in a
number of jurisdictions upon becoming a significant market power.
Incumbent telephone providers in many market are often required to offer new
entrants into the telephone market interconnection with their networks on a
non-discriminatory basis. In some countries, including Austria, The
Netherlands and Norway, we have had to seek the intervention of the regulatory
authority in interconnection agreement negotiations with the incumbent
operators. Following regulatory intervention in Austria, the incumbent
operator brought an action in the Austrian courts seeking to revise certain
terms of its interconnection agreements with a number of other telephone
service providers. This action is still pending before the Austrian Supreme
Administrative Court.
23
<PAGE>
Internet/Data
UPC's chello broadband subsidiary and most of our operating companies must
comply with relevant laws in the provision of Internet access services and on-
line content. In several countries, including Norway and Hungary, the
provision of Internet/data services does not require any sort of license or
notification to a regulatory body. Other countries, including Austria, Belgium
and The Netherlands, require that providers of these services register with or
notify the relevant regulatory authority of the services they provide and, in
some cases, the prices charged to subscribers for such services. Our operating
companies that provide Internet services must comply with both Internet-
specific and general legislation concerning data protection, content provider
liability and electronic commerce. As regulation in this area develops, it
will likely have a significant impact on the provision of Internet services by
our operating companies.
Competition Law and Other Matters
EU directives and national consumer protection and competition laws in UPC's
Western European markets impose limitations on the pricing and marketing of
integrated packages of services, such as video, telephone and Internet/data
services. These limitations are common in developed market economies and are
designed to protect consumers and ensure a fair competitive market. While UPC
may offer our services in integrated packages in our Western European markets,
UPC is generally not permitted to make subscription to one service, such as
cable television, conditional upon subscription to another service, such as
telephone, that a subscriber might not otherwise take. In addition, we must
not abuse or enhance a dominant market position through unfair anti-
competitive behavior. For example, cross-subsidization between our business
lines that would have this effect would be prohibited. We have to be careful,
therefore, in accounting for discounts in services provided in integrated
packages.
European Union
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, The Netherlands, Portugal, Spain, Sweden and the United Kingdom
are all member states of the EU. As such, these countries are required to
enact national legislation which implements directives issued by the EU
Commission and other EU bodies. Although not an EU Member State, Norway is a
member of the European Economic Area and has generally implemented or is
implementing the same principles on the same timetable as EU member states.
The Czech Republic, Hungary, Malta, Poland, Romania and Slovak Republic, which
are in the process of negotiations of its membership into the EU, started
adjusting its regulatory system to EU requirements. As a result, most of the
European markets in which UPC operates have been significantly affected by
regulation initiated at the EU level.
On November 10, 1999, the European Commission released a report proposing new
EU policies for telecommunications regulation and requested comments on its
proposals. The proposed regulatory framework would attempt to decrease
national variations in regulations and licensing systems and further increase
market competition. The European Commission is also proposing to use
competition laws rather than regulation to prevent dominant carriers from
abusing their market power.
Video Services
Conditional Access. EU member states regulate the offering of conditional
access systems, such as program decoders used for the expanded basic tier
services offered by many of our operating companies. Providers of such
conditional access systems are required to make them available on a fair,
reasonable and non-discriminatory basis to other video service providers, such
as broadcasters.
Broadcasting. Generally, broadcasts emanating from and intended for reception
within a country have to respect the laws of that country. Other EU member
states are required to allow broadcast signals of broadcasters in other member
states to be freely transmitted within their territory so long as the
broadcaster complies with the
24
<PAGE>
law of the originating member state. An EU directive also establishes quotas
for the transmission of European-produced programming and programs made by
European producers who are independent of broadcasters.
Another major EU directive for broadcasting, requires member states to permit
a satellite broadcaster to obtain the necessary copyright license for its
programs in just one country (generally, the country in which the broadcaster
is established), rather than obtaining copyright licenses in each country in
which the broadcast is received.
Telephone and Internet/Data Services
Liberalization of Telecommunications Services and Infrastructure. A central
aim of the liberalization process has been to reduce the monopoly power of the
incumbent telecommunications operators in order to introduce competition in
the European telecommunications market. Liberalization measures have been
adopted under the EU Treaty's competition rules and harmonization measures
based on the principle that special and exclusive rights should be abolished
and that public telecommunications networks have to be made accessible on the
basis of objective, transparent, public and non-discriminatory conditions.
Many measures apply only to providers of public telecommunications networks or
services having significant market power in a particular market. The exclusive
rights of incumbent operators in the EU to provide telecommunications services
were gradually removed so that competing operators and service providers would
be entitled to offer all telecommunications services other than public voice
telephone. The incumbent telecommunications operator invariably owned the
national networks, however, and the lack of an alternative infrastructure to
provide such liberalized services operated as a major barrier to entry into
the market by competitors. In an effort to overcome this barrier, the EU
introduced a directive that required member states to remove existing
restrictions on the use of cable television networks to provide
telecommunications services. As a result of these directives, UPC's Western
European operating companies may establish and provide telecommunications
networks and/or services, including public voice telephone and Internet/data
services, through their cable networks, subject to obtaining the necessary
licenses and authorizations.
In June 1999, the European Commission adopted a directive requiring member
states to enact legislation directing certain telecommunications operators to
separate their cable television and telecommunications operations into
distinct legal entities. This directive is intended to aid the development of
the cable television sector and to encourage competition and innovation in
local telecommunications and high speed Internet access. The directive
includes competition safeguards to deter anticompetitive cross-subsidies or
discrimination by incumbent telecommunications operators as they enter into
cable television or broadband services.
Interconnection. An EU directive sets forth the general framework for
interconnection, including general obligations for telecommunications
operators to interconnect with their networks. The directive requires member
states to impose obligations on public telecommunications network operators to
negotiate interconnection agreements on a non-discriminatory basis. Public
telecommunications network operators with significant market power (which,
although it may vary, is presumed when an operator has 25.0% or more of the
relevant market) are subject to additional obligations. They must offer
interconnection without discriminating between operators that offer similar
services, and their interconnection charges must follow the principles of
transparency and be based on the actual cost of providing the interconnection.
The directive also contains provisions on collocation of facilities, number
portability with certain exceptions, supplementary charges to contribute to
the costs of universal service obligations and other interconnection
standards. As a result, if the principles in the directive are fully applied,
our operating companies in the EU and Norway should be able to interconnect
with the public fixed network and other major telecommunications networks on
reasonable terms in order to provide their services.
Licensing. EU member states are required to adopt national legislation so that
providers of telecommunications services generally require either no
authorization or a general authorization which is conditional upon "essential
requirements," such as the security and integrity of the network's operation.
Licensing conditions and procedures must be objective, transparent and non-
discriminatory. Member states may issue individual licenses in certain
25
<PAGE>
situations. For example, the provision of public voice telephone services and
the establishment or provision of public telecommunication networks may be
subject to individual licenses. In addition, telecommunications operators with
significant market power may be required by member states to hold individual
licenses carrying more burdensome conditions than the authorizations held by
other providers. Significant market power is typically 25.0% of the relevant
market. License fees can only include administrative costs except in the case
of scarce resources where additional fees are allowed.
Regulation of the Internet. Although Internet-specific regulations have not
been issued, EU policy may develop harmonized principles of "responsibility of
content" to apply to Internet access providers analogous to those applicable
to publishing companies. We do not expect such regulations to materially
adversely affect our Internet business plans.
Austria
Video Services. The city of Vienna's approval is required for changes in
subscriber rates for basic tier service.
Telephone Services. Telekabel Wien has received a license to provide public
voice telephone services in the entire Republic of Austria and a license for
the public offer of leased lines through its cable network. These licenses are
granted for an unlimited period of time.
In November 1998, Telekabel Wien entered into an interconnection agreement
with TA, the incumbent operator. Difficulty and delay in negotiations and
agreement led Telekabel Wien to seek the intervention of the Austrian
telecommunications regulator, which determined the principal terms of the
agreement. TA brought an action in the Austrian courts against some of the
major carriers to revise the terms of the interconnection arrangement. The
Supreme Constitutional Court ruled in March 1999 that the TA's
constitutionally guaranteed rights were not infringed. However, the court left
open the issue of whether the decree issued by the telecommunications
regulator was otherwise lawfully issued. The case is now pending before the
Austrian Supreme Administrative Court.
Recently, the TA brought an action before the Austrian Supreme Administrative
Court against a decision of the telecommunications regulator, which determines
the principal terms of granting Telekabel Wien direct access to telephone
customers. If the court decides in favor of TA, the telecommunications
regulator will have to make a new decision and lay down new conditions for the
direct access to the telephone customers. This may also lead to the payment of
additional costs for the direct access, even for past periods.
Although there are no voice telephone pricing regulations currently applicable
to Telekabel Wien, the Telekom Control Commission must be notified of the
tariff structure and any subsequent rate increases. In addition, if Telekabel
Wien were held to have significant market power (as defined in Austria's
Telecommunications Act) with respect to the services offered, certain matters
including tariffs would become subject to the approval of the Telekom Control
Commission.
France
Video Services. Cable television operators must obtain licenses granted by the
Conseil Superieur de l'Audiovisuel and must also enter into agreements, with
local authorities covering public service delegation and/or public domain
occupancy. Some of UPC France's agreements with local authorities require the
local authorities' approval for a change of basic rates. Cable television
operators are required to transmit particular channels as part of their basic
tier service. Various other national laws also restrict the content of
programming distributed by cable television operators.
Telephone Services. Mediareseaux holds licenses granted by the Minister of
Telecommunications for a public telecommunications network and voice telephony
services in three French departments in the Paris region. Mediareseaux has
applied for a nation-wide license. Mediareseaux was granted temporary licenses
in December 1998 and April 1999 to conduct experimental business in the field
of wireless local loop in the Champs sur Marne area. UPC France's other
operating companies do not hold any telecommunications licenses.
26
<PAGE>
The Netherlands
Video Services. Operators in The Netherlands do not require a license for the
installation, maintenance or operation of a cable network. Network operators
need only register with Dutch Telecommunications Act, the Dutch Independent
Post and Telecommunications Authority ("OPTA"). Cable television network
providers must transmit to all its subscribers at least 15 programs for
television and at least 25 programs for radio, including approximately seven
television and nine radio "must carry" channels. Our Dutch operating companies
often purchased their cable television networks from the local municipalities.
Pursuant to the terms of the agreements with the municipalities, the Dutch
operating companies were obligated to continue to provide basic tier services
of between 20 and 30 television channels, including the 15 required under the
media laws.
In April 1999, A2000 and the municipality of Amsterdam reached an agreement on
a large-scale introduction of digital decoders and a reduction of the basic
cable television package to 15 public channels. The agreement allows A2000 to
migrate a number of popular commercial channels to its expanded basic tier.
Once the digital decoders are introduced, the price for the rate regulated 15
public channel basic fee will be reduced and the price for the expanded basic
tier will increase over time until it becomes unregulated in 2001. The
agreement will initially affect approximately 390,000 customers in the greater
Amsterdam area. Negotiations with the remaining municipalities are in process.
Telephone Services. Until recently, the fixed telecommunications
infrastructure was a statutory monopoly of KPN. Cable television networks may
now be used for the provision of all telecommunications services. Number
portability was introduced in The Netherlands in 1999.
UPC Netherlands has entered into a total of three interconnection agreements
with KPN, WorldCom and Enertel networks. In a decision of November 29, 1999,
OPTA ruled that the temporary tariffs (based on KPN's expected costs) that KPN
can charge for interconnection for the period between July 1, 1999 and July 1,
2000 will be higher than the temporary tariffs that KPN was allowed to charge
for the previous period. The costs for Priority Telecom for interconnection
with KPN are therefore likely to rise. In its decision of December 16, 1999,
OPTA ruled that the temporary interconnection tariffs that it set for the
period of July 1, 1998 to July 1, 1999 will not be corrected pursuant to
calculations based upon KPN's actual costs over that period. The OPTA has
therefore decided to consider these temporary interconnection tariffs as the
definitive tariffs (although on the basis of the calculation that OPTA made,
the tariffs for this period should be higher, it decided not to allow a raise
since that would have a negative effect on the position of new entrants in the
market). In the event that this decision of OPTA is challenged and the
definitive tariffs are consequently determined on the basis of KPN's actual
costs as calculated by OPTA, Priority Telecom may have to reimburse KPN on the
basis of the difference between the temporary and the definitive tariff.
While Priority Telecom's telephone service is not currently subject to price
regulation, the prices of its competitor, KPN, are. OPTA indicated that KPN
should during 1999 reduce its end-user tariffs in accordance with principles
of cost orientation as set forth by OPTA. The fact that KPN's end-user tariffs
for all of its basic telephone services (with the exception of international
calls but including ISDN) must be cost orientated may have a negative effect
on Priority Telecom's ability to compete.
Norway
Video Services. Under Norway's Telecommunications Act, the installation and
operation of the cable infrastructure and equipment must be authorized by and
registered with the Norwegian Post and Telecommunications Authority on the
basis of certain necessary technical qualifications. Cable television
providers have "must-carry" obligations obliging them to include three
national channels and typically one local television channel in their basic
tier services.
Telephone Services. For telephone operators and service providers without
significant market power, as is currently the case with UPC Norge, no license
is required to offer voice telephone services. Such providers need only
register with the Norwegian Post and Telecommunications Authority.
27
<PAGE>
UPC Norge has entered into an interconnection agreement with Telenor.
Mediation proceedings before the Norwegian Post and Telecommunications
Authority between UPC Norge and Telenor concluded in July 1999. The mediation
related to certain changes that UPC Norge wished to make to its current
interconnection agreement with Telenor. As a result of the mediation, an
amendment protocol was added to the interconnection agreement. According to
this amendment protocol, UPC Norge and Telenor have agreed that the current
interconnection agreement will remain in force until a new interconnection
agreement has been negotiated. Negotiation of the new interconnection
agreement commenced in September 1999.
Australia
The provision of subscription television services in Australia is regulated by
the Australian federal government under various Commonwealth statutes. In
addition, State and Territory laws, including environmental and consumer
contract legislation, may impact the construction and maintenance of a
transmission system for subscription television services, the content of those
services, as well as on various aspects of the subscription television
business itself.
The Australia Broadcasting Services Act of 1992 ("BSA") regulates the
ownership and operation of all categories of television and radio services in
Australia including wireline cable, DTH, MMDS or any other means of
transmission. The BSA regulates subscription television broadcasting services
by requiring each service to have an individual license. Companies associated
with Austar hold approximately 150 television broadcasting licenses. Each
license is issued subject to certain conditions. The government may vary or
revoke license conditions or may, by written notice, specify additional
conditions.
Foreign ownership of "company interests" of pay television broadcasting
licenses is limited to 20.0% by a single foreign person and an aggregate of
35.0% by all foreign persons. The BSA licenses used for distributing Austar's
pay television services are held by Australian companies for the purposes of
the BSA.
Chile
Cable and telephone applications for concessions and permits are submitted to
the Ministry of Transportation and Telecommunications which, through the
Subsecretary of Telecommunications, is the government body responsible for
regulating, granting concessions, and registering all telecommunications.
Wireline cable television licenses are non-exclusive and granted for
indefinite terms, based on a business plan for a particular geographic area.
There is an 18.0% Value Added Tax levied on multi-channel television services
but no royalty or other charges associated with the re-transmitting of
programming from off-air broadcasting television networks. Wireless licenses
have renewable terms of 10 years. VTR has cable permits in most major and
medium sized markets in Chile. Cross ownership between cable television and
telephone is also permitted.
The General Telecommunications Law of Chile allows telecommunications
companies to provide service and develop telecommunications infrastructure
without geographic restriction or exclusive rights to serve. Chile currently
has a competitive, multi-carrier system for international and local long
distance telecommunications services. Prices for local services are currently
determined by regulatory authorities until the market is determined to be
competitive. The maximum rate structure is determined every five years. Local
service providers with concessions are obligated to provide service to all
concessionaires who are willing to pay for an extension to get service. Local
providers must also give long distance service providers equal access to their
network connections.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
For information applicable to this item, see the notes to the consolidated
financial statements contained in Item 8 "Financial Statements and
Supplementary Data".
28
<PAGE>
Item 2. PROPERTIES
We lease our executive offices in Denver, Colorado, as well as our regional
corporate offices. Our various operating companies lease or own their
respective administrative offices, headend facilities, tower sites and other
property necessary for their operations.
Item 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings, nor are we currently
aware of any threatened material legal proceedings. From time to time, we may
become involved in litigation relating to claims arising out of our operations
in the normal course of our business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no votes by security holders in the fourth quarter ended December
31, 1999.
The 2000 Annual Meeting of Stockholders will be held on or about June 27,
2000. The deadline for submitting stockholder proposals for inclusion in the
Company's proxy statement and form of proxy for the 2000 Annual Meeting of
Stockholders is April 14, 2000. Proposals received after such date will be
considered untimely.
29
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Class A Common Stock trades on Nasdaq under the symbol "UCOMA." On
November 11, 1999, the Board of Directors authorized a two-for-one stock split
effected in the form of a stock dividend distributed on November 30, 1999 to
shareholders of record on November 22, 1999. The effect of the stock split has
been recognized retroactively in all share and per share amounts in this
Annual Report on Form 10-K. The following table shows the range of high and
low sale prices reported on Nasdaq for the periods indicated:
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Year ended December 31, 1999:
First Quarter............................................... $33.00 $ 9.38
Second Quarter.............................................. $37.56 $21.75
Third Quarter............................................... $46.00 $32.00
Fourth Quarter.............................................. $72.50 $35.50
Ten months ended December 31, 1998:
First Quarter............................................... $ 9.63 $ 7.00
Second Quarter.............................................. $ 9.72 $ 5.09
Third Quarter............................................... $ 8.44 $ 3.88
December, 1998.............................................. $10.25 $ 7.94
</TABLE>
As of March 13, 2000, there were approximately 100 holders of record of our
Class A Common Stock and 27 holders of record of our Class B Common Stock.
We have never paid cash dividends on our common stock and we are currently
restricted from paying cash dividends by the terms of the indentures governing
our senior secured discount notes. See Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Item 8
"Financial Statements and Supplementary Data".
UPC's ordinary shares trade on the Amsterdam Stock Exchange and American
Depositary Shares evidencing its ordinary shares trade on Nasdaq under the
symbol "UPCOY". In March 2000, at an extraordinary general meeting of
shareholders, shareholders of UPC approved an amendment to UPC's Articles of
Association to effect a three-for-one stock split. All share and per share
amounts in this Annual Report on Form 10-K have been retroactively restated to
reflect the three-to-one share split. The following table shows the range of
high and low sales prices reported on Nasdaq since UPC's initial public
offering on February 12, 1999:
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Year ended December 31, 1999:
First Quarter (from February 12, 1999)...................... $15.00 $10.38
Second Quarter.............................................. $22.33 $12.96
Third Quarter............................................... $23.67 $18.54
Fourth Quarter.............................................. $46.83 $20.17
</TABLE>
Austar United's ordinary shares are traded on the Australian Stock Exchange
under the symbol "AUN." The following table shows the range of high and low
sales prices reported on the Australian Stock Exchange since Austar United's
initial public offering in July 1999:
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Year ended December 31, 1999:
Third Quarter (from July 1999)............................... A$5.51 A$4.46
Fourth Quarter............................................... A$6.70 A$4.35
</TABLE>
30
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected annual consolidated financial data have been derived
from our audited consolidated financial statements. Our consolidated financial
statements do not consolidate the operating results of our minority-owned
affiliates, including UPC prior to December 11, 1997. The data set forth below
is qualified by reference to, and should be read in conjunction with, our
audited consolidated financial statements and notes thereto and also with Item
7 "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
For the Years Ended
For the Year For the Ten ----------------------------------
Ended Months Ended February 28,
December 31, December 31, ---------------------- February
1999 1998 1998 1997 29, 1996
------------ ------------ ---------- ---------- ----------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue............... $ 719,524 $ 254,068 $ 98,622 $ 31,555 $ 2,870
System operating
expense.............. (452,515) (122,811) (65,631) (26,251) (4,224)
System selling,
general and
administrative
expense.............. (300,674) (105,226) (62,803) (33,655) (3,524)
Corporate general and
administrative
expense.............. (318,251) (194,767) (28,553) (20,365) (18,959)
Depreciation and
amortization......... (418,714) (159,045) (91,656) (38,961) (2,331)
---------- ---------- ---------- ---------- ----------
Operating loss.... (770,630) (327,781) (150,021) (87,677) (26,168)
Gain on issuance of
common equity
securities by
subsidiaries......... 1,508,839 -- -- -- --
Interest income....... 54,238 10,464 7,806 13,329 8,417
Interest expense...... (399,999) (163,227) (124,288) (79,659) (36,045)
Gain on sale of
investments in
affiliates........... -- -- 90,020 65,249 16,013
Other expense, net.... (61,269) (11,622) (19,881) (6,850) (5,974)
---------- ---------- ---------- ---------- ----------
Income (loss)
before income
taxes and other
items............ 331,179 (492,166) (196,364) (95,608) (43,757)
Income tax expense.... (198) (610) -- -- --
Minority interests in
subsidiaries......... 360,444 1,410 1,568 4,358 1,081
Share in results of
affiliates, net...... (55,107) (54,166) (68,645) (47,575) (48,635)
Extraordinary charge
for early retirement
of debt.............. -- -- (79,091) -- --
---------- ---------- ---------- ---------- ----------
Net income
(loss)........... $ 636,318 $ (545,532) $ (342,532) $ (138,825) $ (91,311)
========== ========== ========== ========== ==========
Net income (loss) per
common share:
Basic net income
(loss)............. $ 7.53 $ (7.43) $ (4.46) $ (1.79) $ (1.35)
========== ========== ========== ========== ==========
Diluted net income
(loss)............. $ 6.67 $ (7.43) $ (4.46) $ (1.79) $ (1.35)
========== ========== ========== ========== ==========
Weighted-average
number of common
shares outstanding:
Basic............... 82,024,077 73,644,728 77,033,786 78,071,552 68,035,320
========== ========== ========== ========== ==========
Diluted............. 95,331,929 73,644,728 77,033,786 78,071,552 68,035,320
========== ========== ========== ========== ==========
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
As of
-----------------------------------------------------------
February 28,
December 31, December 31, -------------------- February 29,
1999 1998 1998 1997 1996
------------ ------------ ---------- -------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash
equivalents,
restricted cash and
short-term liquid
investments.......... $2,573,821 $ 94,321 $ 358,122 $140,743 $161,983
Other current assets,
net.................. 412,445 94,206 52,877 28,934 32,461
Investments in
affiliates, net...... 309,509 429,490 341,252 253,108 272,205
Property, plant and
equipment, net....... 2,379,837 451,442 440,735 219,342 31,102
Goodwill and other
intangible assets,
net.................. 2,944,802 424,934 409,190 132,636 45,629
Other non-current
assets............... 382,439 47,702 77,659 45,173 36,826
---------- ---------- ---------- -------- --------
Total assets...... $9,002,853 $1,542,095 $1,679,835 $819,936 $580,206
========== ========== ========== ======== ========
Current liabilities... $ 908,700 $ 326,552 $ 291,390 $ 88,941 $ 13,255
Senior notes and other
long-term debt....... 5,989,455 1,939,289 1,702,771 675,183 371,227
Other non-current
liabilities.......... 95,502 184,928 30,204 9,116 --
---------- ---------- ---------- -------- --------
Total
liabilities...... 6,993,657 2,450,769 2,024,365 773,240 384,482
Minority interests in
subsidiaries......... 867,970 18,705 15,186 307 2,509
Preferred stock and
other................ 26,920 56,286 32,564 31,293 41,239
Stockholders' equity
(deficit)............ 1,114,306 (983,665) (392,280) 15,096 151,976
---------- ---------- ---------- -------- --------
Total liabilities
and stockholders'
equity
(deficit)........ $9,002,853 $1,542,095 $1,679,835 $819,936 $580,206
========== ========== ========== ======== ========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. These
forward-looking statements may include, among other things, statements
concerning our plans, objectives and future economic prospects, expectations,
beliefs, future plans and strategies, anticipated events or trends and similar
expressions concerning matters that are not historical facts. These forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause our actual results, performance or achievements, or
industry results, to be materially different from what we say or imply with
such forward-looking statements. These factors include, among other things,
changes in television viewing preferences and habits by our subscribers and
potential subscribers, their acceptance of new technology, programming
alternatives and new video services we may offer. They also include
subscribers' acceptance of our newer telephone and Internet/data services, our
ability to manage and grow our newer telephone and Internet/data services, our
ability to secure adequate capital to fund other system growth and
development, risks inherent in investment and operations in foreign countries,
changes in government regulation, changes in the nature of key strategic
relationships with joint venturers. 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 cover the year ended December 31, 1999, the ten months ended
December 31, 1998 and the year ended February 28, 1998 and should be read
together with our consolidated financial statements and related notes included
elsewhere herein. These consolidated financial statements provide additional
information regarding our financial activities and condition.
32
<PAGE>
Introduction
United was formed in 1989 for the purpose of developing, acquiring and
managing foreign multi-channel television, programming and telephone
operations outside the United States. Today we are a leading broadband
communications provider outside the United States. We provide multi-channel
television services in 23 countries worldwide and telephone and Internet/data
services in a growing number of our international markets. Our operations are
grouped into three major geographic regions: Europe, Asia/Pacific and Latin
America. Our European operations are held through our 53.2% owned, publicly
traded subsidiary, UPC, which is the largest Pan-European broadband
communications (multi-channel television, telephone and Internet/data)
provider in terms of the number of subscribers. Our Asia/Pacific operations
are primarily held through our 75.4% owned, publicly traded subsidiary, Austar
United, which owns the largest provider of multi-channel television services
in regional Australia, various Australian programming interests and the only
full service provider of broadband communications in New Zealand. Our primary
Latin American operation is VTR, Chile's largest multi-channel television
provider and a growing provider of telephone services.
For the year ended December 31, 1999, we consolidated the results of
operations from our systems in Austria, Belgium, Czech Republic, France,
Hungary, Ireland, The Netherlands, Norway, Poland (from August 1, 1999),
Romania, Slovak Republic, Sweden (from July 1, 1999), Australia, New Zealand
(from August 1, 1999), Chile (from May 1, 1999), Peru and Brazil (Fortaleza).
Unconsolidated systems include our interests in certain systems in Israel,
Malta, Brazil (Jundiai), Mexico, the Philippines and China and programming
interests in Spain, Australia and Latin America. We account for these
unconsolidated systems using the equity method of accounting. Under this
method, the investment, originally recorded at cost, is adjusted to recognize
our proportionate share of net earnings or losses of the affiliate, limited to
the extent of our investment in and advances to the affiliate, including any
debt guarantees or other contractual funding commitments. Our proportionate
share of net earnings or losses of each affiliate includes the amortization of
the excess of our cost over our proportionate interest in each affiliate's net
tangible assets. During the ten months ended December 31, 1998, we
consolidated certain of our Dutch systems for the period ended July 31, 1998.
Thereafter, all of our Dutch systems were accounted for using the equity
method until February 17, 1999. On December 11, 1997, we purchased the
remaining 50.0% of UPC we did not already own, and as a result began
consolidating UPC's operating results. We had historically accounted for UPC
under the equity method.
Prior to the ten months ended December 31, 1998, our fiscal year-end was the
last day of February, and we accounted for our share of the income or loss of
our operating companies based on the calendar year results of each operating
company. This created a two-month delay in reporting the operating company
results in our consolidated results for our fiscal year-end. On February 24,
1999, we changed our fiscal year-end from the last day in February to the last
day in December, effective December 31, 1998. To effect the transition to the
new fiscal year-end, the combined results of operations of the operating
companies for January and February 1998, a loss of $50.4 million, has been
reported as a one-time adjustment to our retained deficit as of March 1, 1998,
in our consolidated statement of stockholders' equity (deficit). Consequently,
the consolidated statement of operations presents the consolidated results of
the Company and its subsidiaries for the ten months ended December 31, 1998.
Services
To date, our primary source of revenue has been video entertainment services.
We believe that an increasing percentage of our future revenues will come from
telephone and Internet/data services. Within a decade, video services could
account for half of our total revenue, as our other services increase. These
are forward-looking statements and will not be fulfilled unless our new
services grow dramatically. Our capital constraints, technological
limitations, competition, lack of programming, loss of personnel, adverse
regulation and many other factors could prevent our new services from growing
as we expect. The introduction of telephone and Internet/data services had a
significant negative impact on operating income (loss) and Adjusted EBITDA
during 1999. We expected this negative impact due to the high costs associated
with obtaining subscribers, branding, and launching these new services against
the incumbent operator. This negative impact is expected to decline.
33
<PAGE>
We intend for these new businesses to be Adjusted EBITDA positive after two to
three years following introduction of the service, but there can be no
assurance this will occur.
Video. Our operating systems generally offer a range of video service
subscription packages including a basic tier and an expanded basic tier. In
some systems, we also offer mini-tiers and other premium programming.
Historically, video services revenue has increased as a result of acquisitions
of systems, subscriber growth from both well established and developing
systems, and increases in revenue per subscriber from basic rate increases and
the introduction of expanded basic tiers and pay-per-view services.
Voice. Our operating systems offer a full complement of telephone services,
including caller ID, call waiting, call forwarding, call blocking, distinctive
ringing and three-way calling. In addition, we have begun to offer business
services, including dedicated leased lines, LAN interconnection services and
cable ISDN.
Data. We are in the early stages of executing our Internet/data business, and
the profitability of both the Internet as a mass market delivery vehicle and
our business is unproven. Our expansion plans contemplate geographic coverage
across several continents, with locally tailored content and products and
services in multiple languages.
chello broadband, which launched its service in April 1999, provides high-
speed Internet access and local portal and integrated broadband content to our
local operating companies and non-affiliated operating companies through a
franchise agreement. Under the franchise agreement chello provides our non-
affiliated local operators with high-speed connectivity, caching, local
language broadband portals, and marketing support for a fee based upon a
percentage of subscription and installation revenue. In the future the
franchise agreement provides that the local operator will receive a percentage
of the revenue from chello generated e-commerce and advertising. The local
operator is responsible for the local network including the upgrade,
management and maintenance, sales and training, customer support and service,
installation and cost of customer premise equipment. During 1999,
substantially all of chello's revenues were subscription based and derived
from our local operating companies. These intercompany revenues have been
eliminated in our consolidated operating results. We believe we have an
opportunity to grow non-affiliated revenue through chello in future years,
however we cannot predict whether our products and services, including
broadband Internet services in general, will become accepted or profitable in
these markets.
Pricing
Video. We usually charge a one-time installation fee when we connect video
subscribers, a monthly subscription fee that depends on whether basic or
expanded basic tier service is offered, and incremental amounts for those
subscribers purchasing pay-per-view and premium programming, which are
generally offered only to expanded basic tier subscribers.
Voice. Revenue from residential telephone usually consists of a flat monthly
line rental and a usage charge based upon minutes. Other telephone revenue
includes IP data services to the small and medium-sized business customers,
carrier select revenue as well as lease line and other business revenue. In
order to achieve high growth from early market entry, we price our telephone
service at a discount compared to services offered by incumbent
telecommunications operators. In addition, we may waive or substantially
discount our installation fees.
Data. To date, virtually all of our revenues have been derived from monthly
subscription fees. Most local operators have chosen to waive installation
charges. In the future, we expect to generate revenues from advertising and e-
commerce as we develop our portals and our digital set-top box services.
Currently, our services are offered to residential subscribers at flat
subscription fees. Our flat fee is designed to be generally lower than the
costs associated with dial-up Internet access, including the access fees and
phone charges with dial-up access. For business subscribers to services other
than our standard broadband Internet access services, we generally agree on
the pricing with local operators on a case by case basis, depending on the
size and capacity requirements of the businesses.
34
<PAGE>
Costs of Operations
Video. Operating costs include the direct costs of programming, franchise fees
and operating expenses necessary to provide the service to the subscriber.
Direct costs of programming are variable, based on the number of subscribers.
The cost per subscriber is established by negotiation between us and the
program supplier or rates negotiated by cable associations. Franchise fees,
where applicable, are typically based upon a percentage of revenue. Other
direct operating expenses include operating personnel, service vehicles,
maintenance and plant electricity. Selling, general and administrative
expenses include personnel-related costs such as stock-based compensation
expenses, marketing, sales and commissions, legal and accounting, office
facilities and other overhead costs.
Voice. Operating costs include interconnect costs, number portability fees,
network operations, customer operations and customer care. Interconnect costs
are variable based upon usage as determined through negotiated interconnect
agreements. Selling, general and administrative expenses include branding,
marketing and customer acquisition costs, personnel-related costs such as
stock-based compensation expense, legal and accounting, human resources,
office facilities and other overhead costs.
Data. Operating costs consist primarily of leased-line and network development
and management costs, as well as portal design and development, local
connectivity costs, help desk and customer care costs. Stock-based
compensation expenses related to operations personnel are also part of our
operating costs. Selling, general and administrative expenses include
branding, customer acquisition costs, personnel-related costs, legal and
accounting, office facilities and other overhead.
35
<PAGE>
Results of Operations
The following table sets forth information from our major consolidated
operating systems for the last three years:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------------
1999 1998 1997
-------- ------- -------
(In thousands)
<S> <C> <C> <C>
UPC Revenue (Euro):
Video.......................................... 363,348 171,446 145,409
Telephone...................................... 40,273 241 --
Internet/Data.................................. 25,055 4,295 347
Programming and DTH............................ 11,370 611 45
Other.......................................... 7,455 8,989 7,239
-------- ------- -------
Total UPC Revenue............................ 447,501 185,582 153,040
======== ======= =======
UPC Adjusted EBITDA (Euro):
Video.......................................... 116,509 76,600 60,155
Telephone...................................... (42,099) (5,249) --
Internet/Data.................................. (76,267) (11,281) 174
Programming and DTH............................ (76,565) (4,570) (5,233)
Other.......................................... (41,405) (4,933) (7,678)
-------- ------- -------
Total UPC Adjusted EBITDA(1)................. (119,827) 50,567 47,418
======== ======= =======
Austar Revenue (A$):
Video.......................................... 220,493 136,072 86,470
-------- ------- -------
Total Austar Revenue......................... 220,493 136,072 86,470
======== ======= =======
Austar Adjusted EBITDA (A$):
Video.......................................... (11,946) (37,981) (26,027)
-------- ------- -------
Total Austar Adjusted EBITDA(1).............. (11,946) (37,981) (26,027)
======== ======= =======
VTR Revenue (USD):
Video.......................................... 113,004 116,488 114,423
Telephone...................................... 14,467 2,516 263
-------- ------- -------
Total VTR Revenue............................ 127,471 119,004 114,686
======== ======= =======
VTR Adjusted EBITDA (USD):
Video.......................................... 27,725 30,763 23,687
Telephone...................................... (4,388) (2,741) (1,687)
-------- ------- -------
Total VTR Adjusted EBITDA(1)................. 23,337 28,022 22,000
======== ======= =======
</TABLE>
- --------
(1) "Adjusted EBITDA" represents net operating earnings before depreciation,
amortization and stock-based compensation charges. Stock-based
compensation charges result from variable plan accounting for our
subsidiaries' phantom stock option plans and are generally non-cash
charges. Industry analysts generally consider Adjusted EBITDA to be a
helpful way to measure the performance of cable television operations and
communications companies. We believe Adjusted EBITDA helps investors to
assess the cash flow from our operations from period to period and thus to
value our business. Adjusted EBITDA should not, however, be considered a
replacement for net income, cash flows or for any other measure of
performance or liquidity under generally accepted accounting principles,
or as an indicator of a company's operating performance. Our presentation
of Adjusted EBITDA may not be comparable to statistics with a similar name
reported by other companies. Not all companies and analysts calculate
Adjusted EBITDA in the same manner.
36
<PAGE>
The spot rates and average rates for the primary currencies that impact our
financial statements are shown below per one U.S. dollar:
<TABLE>
<CAPTION>
Dutch Australian Chilean
Euro(1) Guilder Dollar Peso
------- ------- ---------- --------
<S> <C> <C> <C> <C>
Spot rate December 31, 1999.............. 0.9938 2.1900 1.5244 529.7500
Average rate 1999........................ 0.9528 2.0994 1.5488 507.8951
Spot rate December 31, 1998.............. 0.8576 1.8900 1.6332 472.5000
Average rate 1998........................ 0.9030 1.9900 1.6102 N/A
Spot rate December 31, 1997.............. 0.9166 2.0200 1.5378 N/A
Average rate 1997........................ 0.8849 1.9500 1.3584 N/A
</TABLE>
- --------
(1) The Dutch guilder is fixed to the Euro as of January 1, 1999 at a rate of
2.20371 to 1.
Revenue. Revenue increased $465.5 million, or 183.2%, during the year ended
December 31, 1999 and increased $155.4 million, or 157.6% during the ten
months ended December 31, 1998, the detail of which is as follows:
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Europe................................ $473,422 $172,287 $ 9,996
Asia/Pacific.......................... 150,932 77,269 68,961
Latin America......................... 94,893 4,512 19,244
Corporate and Other................... 277 -- 421
-------- -------- -------
Total revenue....................... $719,524 $254,068 $98,622
======== ======== =======
</TABLE>
Europe
Revenue for UPC in U.S. dollar terms increased $267.9 million, or 130.4%, from
$205.5 million for the year ended December 31, 1998 to $473.4 million for the
year ended December 31, 1999, despite a 15.9% devaluation of the Dutch guilder
to the U.S. dollar. On a functional currency basis, UPC's revenue increased
(Euro) 261.9 million, or 141.1%, from (Euro) 185.6 million for the year ended
December 31, 1998 to (Euro) 447.5 million for the year ended December 31,
1999, primarily due to an increase in cable television revenue of (Euro) 191.9
million. The increase in cable television revenue attributable to acquisitions
made during 1999 totaled (Euro) 160.8 million, or 83.8% of the total increase.
Of this increase, acquisitions in the Netherlands represent 59.3%,
acquisitions in France represent 12.7%, the acquisition in Poland represents
15.8% and acquisitions in Sweden and other represent 12.2%. The remaining
increase in cable television revenue of approximately 16.2% came from
subscriber growth, increased revenue per subscriber in Austria, Norway, UPC's
existing system in France, and UPC's systems in Eastern Europe and the
inclusion of a full year of operations in 1999 for acquisitions completed in
1998. UPC's telephone revenue increased (Euro) 40.1 million to (Euro) 40.3
million for the year ended December 31, 1999 from (Euro) 0.2 million for the
year ended December 31, 1998. During 1999, we launched local telephone
services, under the brand name Priority Telecom, in our Austrian, Dutch,
French and Norwegian systems. In addition, A2000, which we consolidated
effective September 1, 1999, had an existing telephone service from July 1997.
UPC's Internet/data revenue increased (Euro) 20.8 million to (Euro) 25.1
million for the year ended December 31, 1999 from (Euro) 4.3 million for the
year ended December 31, 1998. The increase is primarily due to the launch of
residential and business cable-modem high-speed Internet access services.
During the second quarter of 1999, we launched chello broadband on the
upgraded portion of our networks in Austria, Belgium, France, the Netherlands
(with the exception of A2000) and Norway. We launched chello broadband in
A2000 and Sweden in the fourth quarter of 1999. Internet/data revenue from
1998 primarily relates to revenue from Austria, Belgium and Norway, which
provided Internet access service from 1997.
37
<PAGE>
Revenue for UPC in U.S. dollar terms increased $32.5 million, or 18.8%, from
$173.0 million for the year ended December 31, 1997 to $205.5 million for the
year ended December 31, 1998. On a functional currency basis, UPC's revenue
increased (Euro) 32.6 million, or 21.3%, from (Euro) 153.0 million for the
year ended December 31, 1997 to (Euro) 185.6 million for the year ended
December 31, 1998, primarily due to an increase in cable television revenue of
(Euro) 26.0 million. The increase in cable television revenue resulted
primarily from the acquisition of Combivisie in January 1998 which was
consolidated through July 31, 1998 (21.6%) and the consolidation of Telekabel
Hungary effective July 1, 1998 (48.5%). The remaining increase in cable
television revenue came from subscriber growth and in revenue per subscriber
in Austria, Norway, our existing system in France, and our systems in Eastern
Europe.
We began consolidating the results of UPC effective December 11, 1997.
Accordingly, we recorded $9.9 million of revenue from UPC during the three
weeks ended December 31, 1997.
Asia/Pacific
Revenue for Austar in U.S. dollar terms increased $57.3 million, or 67.3%,
from $85.2 million for the year ended December 31, 1998 to $142.5 million for
the year ended December 31, 1999, including a positive impact of $4.3 million
due to exchange rate fluctuations. On a functional currency basis, Austar's
revenue increased A$84.4 million, or 62.0%, from A$136.1 million for the year
ended December 31, 1998 to A$220.5 million for the year ended December 31,
1999. This increase was primarily due to subscriber growth (381,763 at
December 31, 1999 compared to 288,721 at December 31, 1998) and increased
average monthly revenue per subscriber as Austar continues to expand the
content of its television service. The average monthly revenue per subscriber
increased A$6.71 ($4.40) from an average per subscriber of A$47.00 ($30.83)
for the year ended December 31, 1998 to an average of A$53.71 ($35.23) per
subscriber for the year ended December 31, 1999, a 14.3% increase.
Revenue for Austar in U.S. dollar terms increased $21.4 million, or 33.5%,
from $63.8 million for the year ended December 31, 1997 to $85.2 million for
the year ended December 31, 1998, despite a negative impact of $15.0 million
due to exchange rate fluctuations. On a functional currency basis, Austar's
revenue increased A$49.6 million, from A$86.5 million for the year ended
December 31, 1997 to A$136.1 million for the year ended December 31, 1998, a
57.3% increase. This increase was primarily due to subscriber growth (288,721
at December 31, 1998 compared to 196,205 at December 31, 1997) as Austar
continued to roll-out its services.
Latin America
We began consolidating the results of operations of VTR effective May 1, 1999.
Revenue for VTR in U.S. dollar terms increased $8.5 million, or 7.1%, from
$119.0 million for the year ended December 31, 1998 to $127.5 million for the
year ended December 31, 1999, despite a 12.1% devaluation in the Chilean peso
to the U.S. dollar. The increase in revenue primarily resulted from telephony
subscriber growth volume (66,718 at December 31, 1999 compared to 20,985 at
December 31, 1998). The average monthly revenue per subscriber for telephony
service was $18.07 for the year ended December 31, 1999, compared to $10.00
for the year ended December 31, 1998. VTR experienced increased churn and
lower sales volume than expected for its multi-channel television service
during the year ended December 31, 1999 due to an economic recession in Chile
and increased competition. The number of subscribers decreased from 393,851 as
of December 31, 1998 to 386,967 as of December 31, 1999. The average monthly
revenue per subscriber for multi-channel television was $24.34 for the year
ended December 31, 1999, compared to $24.67 for the year ended December 31,
1998.
Revenue for Cable Star in U.S. dollar terms increased $1.4 million, or 93.3%,
from $1.5 million for the year ended December 31, 1997 to $2.9 million for the
year ended December 31, 1998. The remainder of Latin America's revenue for the
year ended December 31, 1998 was attributable to our system in Brazil.
We consolidated the results of Bahia Blanca effective November 1, 1996 through
August 31, 1997. Bahia Blanca's revenue, consisting primarily of service fees,
was $17.6 million through the eight months ended August 31, 1997. The
remainder of Latin America's revenue for the year ended December 31, 1997 was
attributable to our systems in Peru.
38
<PAGE>
Adjusted EBITDA. Adjusted EBITDA decreased $124.2 million during the year
ended December 31, 1999, and increased $54.4 million during the ten months
ended December 31, 1998, the detail of which is as follows:
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Europe................................ $(124,009) $ 42,608 $ (9,204)
Asia/Pacific.......................... (11,141) (33,380) (37,962)
Latin America......................... 6,859 (10,264) (8,278)
Corporate and Other................... 109 (2,907) (2,921)
--------- -------- --------
Total Adjusted EBITDA............... $(128,182) $ (3,943) $(58,365)
========= ======== ========
</TABLE>
Europe
Adjusted EBITDA for UPC in U.S. dollar terms decreased $180.1 million from
$56.0 million for the year ended December 31, 1998 to negative $124.1 million
for the year ended December 31, 1999, despite a 15.9% devaluation of the Dutch
guilder to the U.S. dollar. On a functional currency basis, UPC's Adjusted
EBITDA decreased (Euro) 170.4 million from (Euro) 50.6 million for the year
ended December 31, 1998 to negative (Euro) 119.8 million for the year ended
December 31, 1999, primarily due to the continued introduction of its
telephone and Internet/data businesses. In addition, as a percentage of
revenue, operating expense for cable television increased 6.9% from 32.5% for
the year ended December 31, 1998 to 39.4% for the year ended December 31,
1999. This increase is primarily due to higher operating costs as a percentage
of revenue for systems we acquired during 1999. As a percentage of revenue,
operating expenses in our new acquisitions was approximately 38.3%. We expect
to reduce this percentage in future years through revenue growth and operating
efficiencies. UPC expects to incur substantial operating losses related to its
programming and DTH businesses for the next two years, while UPC develops and
expands its subscriber base. During the year ended December 31, 1999, UPC's
significant negative Adjusted EBITDA from its local telephone services was due
to the recent launch of Priority Telecom in its Austrian, Dutch, French and
Norwegian systems. During the year ended December 31, 1999, UPC's significant
negative Adjusted EBITDA from its Internet/data service was due to the launch
of chello broadband on the upgraded portion of its networks in Austria,
Belgium, France, The Netherlands (with the exception of A2000) and Norway in
the second quarter. UPC launched chello Broadband in A2000 and Sweden in the
fourth quarter of 1999.
Adjusted EBITDA for UPC in U.S. dollar terms increased $2.4 million from $53.6
million for the year ended December 31, 1997 to $56.0 million for the year
ended December 31, 1998. On a functional currency basis, UPC's Adjusted EBITDA
increased (Euro) 3.2 million from (Euro) 47.4 million for the year ended
December 31, 1997 to (Euro) 50.6 million for the year ended December 31, 1998.
Adjusted EBITDA for cable television increased as a percentage of revenue from
1997 to 1998 primarily due to lower operating costs as a percentage of revenue
for systems UPC acquired in 1998. This was offset by negative Adjusted EBITDA
from telephone services due to the launch in several markets in 1998.
Asia/Pacific
Austar's Adjusted EBITDA loss improved by $15.4 million, or 66.7%, from
negative $23.1 million for the year ended December 31, 1998 to negative $7.7
million for the year ended December 31, 1999, including a negative impact of
$0.2 million due to exchange rate fluctuations. On a functional currency
basis, Austar's Adjusted EBITDA loss improved by A$26.1 million from negative
A$38.0 million for the year ended December 31, 1998 to negative A$11.9 million
for the year ended December 31, 1999, a 68.7% improvement. The improvement in
Adjusted EBITDA loss for the comparable periods from year to year is primarily
due to Austar achieving incremental sales growth while keeping certain costs
fixed, such as the NCOC, corporate management staff and media-related
marketing costs.
39
<PAGE>
Austar's Adjusted EBITDA loss increased $3.9 million, or 20.3%, from negative
$19.2 million for the year ended December 31, 1997 to negative $23.1 million
for the year ended December 31, 1998, including a positive impact of $4.8
million due to exchange rate fluctuations. On a functional currency basis,
Austar's Adjusted EBITDA loss increased A$12.0 million from negative A$26.0
million for the year ended December 31, 1997 to negative A$38.0 million for
the year ended December 31, 1998, a 46.2% increase. Although revenue increased
compared to the same periods in the prior year, increases in operating expense
and selling, general and administrative expense outpaced the revenue increase,
primarily due to higher short-term programming costs in connection with the
receivership of Australis, Austar's previous programming supplier, and the
subsequent May 1998 joint venture with Optus Vision, as well as increases in
salaries and benefits for additional personnel necessary to support the growth
of Austar's NCOC.
Latin America
We began consolidating the results of operations of VTR effective May 1, 1999.
VTR's Adjusted EBITDA in U.S. dollar terms decreased $4.7 million, or 16.8%,
from $28.0 million for the year ended December 31, 1998 to $23.3 million for
the year ended December 31, 1999, partly due to a 12.1% devaluation in the
Chilean peso to the U.S. dollar. Although revenue increased compared to the
same periods in the prior year, increases in operating expense and selling,
general and administrative expense outpaced the revenue increases, primarily
due to the focus on the continued development of VTR's telephone services and
an increase in senior management personnel hired from the former shareholders
of VTR.
Corporate General and Administrative Expense. Corporate general and
administrative expense increased $123.5 million from $194.8 million for the
ten months ended December 31, 1998 to $318.3 million for the year ended
December 31, 1999, and increased $166.2 million from $28.6 million for the
year ended February 28, 1998 to $194.8 million for the ten months ended
December 31, 1998. This increase from 1998 to 1999 was primarily attributable
to a stock-based compensation charge of $202.2 million from UPC's phantom
stock option plans for the year ended December 31, 1999, compared to $162.1
million for the ten months ended December 31, 1998, as well as a full year of
results compared to ten months. These plans include the UPC phantom stock
option plan and the chello phantom stock option plan, which continue to
require variable plan accounting. Under this method of accounting, increases
in the fair market value of these shares result in non-cash compensation
charges to the statement of operations for vested options. In addition, UAP
and Austar United recorded a total of $22.5 million of non-cash stock-based
compensation expense for the year ended December 31, 1999 compared to nil for
the year ended December 31, 1998. The increase in the ten months ended
December 31, 1998 compared to the year ended February 28, 1998 was primarily
due to stock-based compensation expense totaling $164.8 million, $162.1
million of which was attributable to UPC's stock option plans. Corporate
general and administrative expense also increased due to the consolidation of
UPC effective December 11, 1997. These increases were offset by reporting ten
months of results in the transition period compared to twelve in the prior
year, as well as the non-recurrence of certain prior year charges.
Depreciation and Amortization. Depreciation and amortization expense increased
$259.7 million during the year ended December 31, 1999 and $67.4 million
during the ten months ended December 31, 1998 the detail of which is as
follows:
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Europe.............................. $280,442 $ 76,550 $ 6,343
Asia/Pacific........................ 104,723 79,746 80,802
Latin America....................... 32,142 1,637 3,503
Corporate and other................. 1,407 1,112 1,008
-------- -------- -------
Total depreciation and
amortization expense............. $418,714 $159,045 $91,656
======== ======== =======
</TABLE>
40
<PAGE>
Europe
UPC's depreciation and amortization expense in U.S. dollars increased $186.1
million, or 197.3%, from $94.3 million for the year ended December 31, 1998 to
$280.4 million for the year ended December 31, 1999, including a positive
impact from the 15.9% devaluation of the Dutch guilder to the U.S. dollar. On
a functional currency basis, UPC's depreciation and amortization expense
increased (Euro) 180.9 million, or 212.3%, from (Euro) 85.2 million for the
year ended December 31, 1998 to (Euro) 266.1 million for the year ended
December 31, 1999. This increase resulted primarily from acquisitions
completed during 1999 in the Netherlands and Poland, as well as additional
depreciation related to additional capital expenditures to upgrade the network
in our Western European systems and new-build for developing systems.
Depreciation and amortization expense for UPC in U.S. dollar terms increased
$26.1 million, or 38.3%, from $68.2 million for the year ended December 31,
1997 to $94.3 million for the year ended December 31, 1998. On a functional
currency basis, UPC's depreciation and amortization expense increased
(Euro) 24.9 million to (Euro) 85.2 million from (Euro) 60.3 million for the
year ended December 31, 1997, a 41.3% increase. Of this increase, (Euro) 11.9
million was attributable to the application of push-down accounting, including
goodwill created in connection with the acquisition of UPC on December 11,
1997. The remaining increase comprised of additional depreciation related to
the acquisitions of Combivisie and Telekabel Hungary, additional capital
expenditures to upgrade the network in our Western European systems and new-
build for developing systems.
We began consolidating the results of UPC effective December 11, 1997.
Accordingly, we recorded $6.1 million of depreciation and amortization expense
from UPC during the year ended February 28, 1998.
Asia/Pacific
Depreciation and amortization expense for Austar increased $2.2 million, or
2.3%, from $95.4 million for the year ended December 31, 1998 to $97.6 million
for the year ended December 31, 1999, including a negative impact of $2.8
million due to exchange rate fluctuations. On a functional currency basis,
Austar's depreciation and amortization expense increased A$3.9 million, from
A$143.0 million for the year ended December 31, 1998 to A$146.9 million for
the year ended December 31, 1999, a 2.7% increase.
Depreciation and amortization expense for Austar in U.S. dollar terms
increased $18.5 million, or 24.1%, from $76.9 million for the year ended
December 31, 1997 to $95.4 million for the year ended December 31, 1998,
including a positive impact of $15.2 million due to exchange rate
fluctuations. On a functional currency basis, Austar's depreciation and
amortization expense increased A$43.4 million, from A$99.6 million for the
year ended December 31, 1997 to A$143.0 million for the year ended December
31, 1998, a 43.6% increase. These increases were primarily due to the larger
fixed asset base due to the significant deployment of operating assets to meet
subscriber growth as well as increases related to subscriber disconnects.
Latin America
The increase in the year ended December 31, 1999 is due to consolidating the
results of operations of VTR effective May 1, 1999.
Gain on Issuance of Common Equity Securities by Subsidiaries. In February
1999, UPC successfully completed an initial public offering selling 133.8
million shares on the Amsterdam Stock Exchange and Nasdaq, raising gross and
net proceeds at NLG21.30 ($10.93) per share of NLG2,852.9 ($1,463.0) million
and NLG2,660.1 ($1,364.1) million, respectively. Concurrent with the offering,
a subsidiary of DIC exercised its option and acquired approximately 4.7
million ordinary shares of UPC, resulting in proceeds to UPC of $45.0 million.
Based on the carrying value of our investment in UPC as of February 11, 1999,
we recognized a gain of $822.1 million from the resulting step-up in the
carrying amount of our investment in UPC, in accordance with Staff Accounting
Bulletin No. 51 ("SAB 51").
In July 1999, Austar United successfully completed an initial public offering
selling 103.5 million shares on the Australian Stock Exchange, raising gross
and net proceeds at A$4.70 ($3.03) per share of A$486.5 ($313.6)
41
<PAGE>
million and A$453.6 ($292.8) million, respectively. Based on the carrying
value of our investment in Austar United as of July 27, 1999, we recognized a
gain of $248.4 million from the resulting step-up in the carrying amount of
our investment in Austar United, in accordance with SAB 51.
In August 1999, UPC partially funded the acquisition of Videopole with 2.9
million ordinary shares of UPC. Based on the carrying value of our investment
in UPC as of July 31, 1999, we recognized a gain of $34.9 million from the
resulting step-up in the carrying amount of our investment in UPC, in
accordance with SAB 51.
In October 1999, UPC completed a second public offering of 45.0 million
ordinary shares, raising gross and net proceeds at (Euro) 19.92 ($21.58) per
share of (Euro) 896.3 ($970.9) million and (Euro) 851.5 ($922.4) million,
respectively. Based on the carrying value of our investment in UPC as of
October 19, 1999, we recognized a gain of $403.4 million from the resulting
step-up in the carrying amount of our investment in UPC, in accordance with
SAB 51.
No deferred taxes were recorded related to these gains due to our intent on
holding our investment in UPC and Austar United indefinitely.
Interest Income. Interest income increased $43.8 million and $2.7 million
during the year ended December 31, 1999 and the ten months ended December 31,
1998, respectively, compared to the amounts for the corresponding periods in
the prior year. The increase in the year ended December 31, 1999 was due to
higher cash balances related to the issuance of new debt and equity in 1999
and the increase in the ten months ended December 31, 1998 was due to higher
cash balances related to the issuance of our senior notes in February 1998.
Interest Expense. Interest expense increased $236.8 million from $163.2
million during the year ended December 31, 1998 to $400.0 million during the
year ended December 31, 1999. These increases were primarily due to the
continued accretion of interest on our $1,375.0 million aggregate principal
amount 1998 senior notes, our 1999 senior notes and new debt in 1999 at UPC,
including their senior notes and new debt facilities.
Interest expense increased $38.9 million, or 31.3%, from $124.3 million during
the year ended February 28, 1998 to $163.2 million during the ten months ended
December 31, 1998. This increase was primarily due to the continued accretion
of interest on our $1,375.0 million aggregate principal amount 1998 senior
notes and continued accretion on the $492.9 million aggregate principal amount
senior notes at United A/P.
Provision for Losses on Marketable Equity Securities and Investment Related
Costs. The provision for losses on marketable equity securities and investment
related costs consists of our write-off of various non-strategic investments.
Gain on Sale of Investments in Affiliates. In October 1997, we sold all of our
Argentine multi-channel television system assets for approximately $211.1
million cash, resulting in a gain of approximately $90.0 million.
Foreign Currency Exchange (Loss) Gain. Foreign currency exchange loss
increased $41.1 million from $1.6 million gain for the ten months ended
December 31, 1998 to $39.5 million loss for the year ended December 31, 1999,
primarily due to UPC and VTR, which have notes payable that are denominated in
U.S. dollars.
Minority Interests in Subsidiaries. The minority interests' share of losses
increased $359.0 million from $1.4 million for the ten months ended December
31, 1998 to $360.4 million for the year ended December 31, 1999. The initial
public offerings of UPC (February 1999) and Austar United (July 1999) reduced
our ownership from 100% and 98.0% as of December 31, 1998 to 53.2% and 75.4%
as of December 31, 1999 for UPC and Austar United, respectively. For
accounting purposes we continue to consolidate 100% of the results of
operations of UPC and Austar United, then deduct the minority interests' share
of losses before arriving at net income. Of the $359.0 million increase for
the year ended December 31, 1999, $344.5 million related to UPC and $13.6
million related to Austar United.
42
<PAGE>
Share in Results of Affiliates. Our share in the results of affiliates totaled
a loss of $55.1 million, $54.2 million and $68.6 million for the year ended
December 31, 1999, the ten months ended December 31, 1998 and the year ended
February 28, 1998, respectively, as follows:
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Europe:
UPC............................... $ -- $ -- $(42,236)
A2000(1).......................... (16,750) (11,515) --
UTH(2)............................ (1,436) (9,850) --
Hungary........................... (41) (3,446) --
Melita, Princes Holdings and
Tevel(3)......................... -- (288) --
Tevel(3).......................... (8,402) -- --
Melita(3)......................... (687) -- --
Monor............................. 1,630 (1,848) (4,590)
Iberian Programming............... 2,455 (77) (2,348)
SBS............................... (5,557) -- --
Other............................. (3,120) (457) (195)
-------- -------- --------
(31,908) (27,481) (49,369)
-------- -------- --------
Asia/Pacific:
Saturn(4)......................... (6,262) (8,628) --
XYZ Entertainment(5).............. (5,290) 506 (2,408)
Pilipino Cable Corporation........ (55) (1,383) (656)
Hunan International TV............ (42) (2,092) (220)
-------- -------- --------
(11,649) (11,597) (3,284)
-------- -------- --------
Latin America:
VTR(6)............................ (5,507) (5,427) (7,805)
Megapo............................ (346) 253 (386)
TV Show Brasil(7)................. -- (891) (616)
MGM Networks LA................... (6,223) (9,221) (7,477)
Jundiai........................... 526 198 426
-------- -------- --------
(11,550) (15,088) (15,858)
-------- -------- --------
Other............................... -- -- (134)
-------- -------- --------
Total share in results of
affiliates......................... $(55,107) $(54,166) $(68,645)
======== ======== ========
</TABLE>
- --------
(1) Effective 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) Historically we held our interests in Melita, Princes Holdings and Tevel
through UII, a general partnership. In November 1998 we acquired our
partner's interest in Tevel and Melita and sold our interest in Princes
Holdings.
(4) 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.
(5) In September 1998, we acquired an additional 25.0% interest in XYZ
Entertainment, increasing our ownership to 50.0%.
(6) Effective May 1, 1999, we increased our ownership interest in VTR to 100%
and began consolidating its results of operations.
(7) Effective October 2, 1998, we increased our ownership interest in TV Show
Brasil to 100% and began consolidating its results of operations.
43
<PAGE>
Extraordinary Charge for Early Retirement of Debt. In connection with the
issuance of our senior notes in February 1998, we paid $531.8 million to
repurchase the existing old notes which had an accreted value of $466.2
million as of February 5, 1998. This tender premium of $65.6 million, combined
with the write off of unamortized deferred financing costs and other
transaction related costs totaling $13.5 million, resulted in an extraordinary
charge during the year ended February 28, 1998 of $79.1 million.
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 Year
Inception to Ended
United (Parent Only) December 31, 1998 December 31, 1999 Total
-------------------- ----------------- ----------------- ---------
(In millions)
<S> <C> <C> <C>
Financing Sources:
Gross bond proceeds....... $ 1,138.1 $ 208.9 $ 1,347.0
Gross equity proceeds..... 408.9 (1) 1,277.8 1,686.7
Asset sales, dividends and
note payments............ 224.4 94.7 319.1
Interest income and
other.................... 32.7 62.3 95.0
--------- -------- ---------
Total sources......... 1,804.1 1,643.7 3,447.8
--------- -------- ---------
Application of Funds:
Investment in:
UPC..................... (454.7) (4.4) (459.1)
UAP..................... (256.4)(1) (59.2) (315.6)
ULA..................... (292.3) (331.3) (623.6)
Other................... (25.8) -- (25.8)
--------- -------- ---------
Total................. (1,029.2) (394.9) (1,424.1)
Repayment of bonds........ (531.8)(2) (0.3) (532.1)
Offering costs............ (64.5) (37.7) (102.2)
Corporate equipment and
development.............. (25.7) (5.3) (31.0)
Corporate overhead and
other.................... (106.5) (16.1) (122.6)
--------- -------- ---------
Total uses............ (1,757.7) (454.3) (2,212.0)
--------- -------- ---------
Period change in cash..... 46.4 1,189.4 1,235.8
Cash, beginning of
period................... -- 46.4 --
--------- -------- ---------
Cash, end of period....... $ 46.4 $1,235.8 $ 1,235.8
========= ======== ---------
<CAPTION>
United's Subsidiaries
---------------------
<S> <C> <C> <C>
Cash, end of period:
UPC....................... 1,049.1
UAP....................... 279.4
ULA....................... 7.6
Other..................... 1.9
---------
Total United's
subsidiaries......... 1,338.0
---------
Total consolidated
cash, cash
equivalents,
restricted cash and
short-term liquid
investments.......... $ 2,573.8
=========
</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.
44
<PAGE>
United Parent
We had $1,235.8 million of cash, cash equivalents, restricted cash and short-
term liquid investments on hand as of December 31, 1999. Additional sources of
cash in 2000 may include the raising of additional private or public debt
and/or equity and/or the receipt of sales proceeds from the disposition of
non-strategic assets by certain subsidiaries. Uses of cash in the next year
will include continued funding to the Latin America region to meet the
existing growth plans of our systems in that region and corporate overhead. We
do not expect to contribute additional capital to UPC and Austar United for
their on-going operating or development requirements, as they will finance
their operating systems and development opportunities with their operating
cash flow and debt and equity financings. We estimate approximately $141.8
million of United Parent funding will be required by systems in the Latin
America region during 2000. We believe that our existing capital resources
will enable us to assist in satisfying the operating and development
requirements of our subsidiaries and cover corporate overhead for the next
year. To the extent we pursue new acquisitions or development opportunities,
we will need to raise additional capital or seek strategic partners. Because
we do not currently generate positive operating cash flow, our ability to
repay our long-term obligations will be dependent on developing one or more
additional sources of cash.
UPC
UPC had $1,049.1 million in cash, cash equivalents, restricted cash and short-
term liquid investments on hand as of December 31, 1999. 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 NLG21.30 ($10.93) per share of NLG2,852.9 ($1,463.0) million and
NLG2,660.1 ($1,364.1) million, respectively. Concurrent with the offering, a
subsidiary of DIC exercised one of its two option agreements acquiring
approximately 4.7 million shares of UPC for $45.0 million. Proceeds from the
offering and option exercise were used to repay certain debt facilities and
finance acquisitions.
In July 1999, UPC completed a $1.5 billion bond offering. Proceeds from this
bond offering were primarily used to fund acquisitions. Also in July 1999, UPC
entered into a (Euro) 1.0 billion credit facility. Proceeds from this senior
credit facility were used to refinance the existing credit facility, repay
certain intercompany debts, fund general corporate purposes and fund capital
expenditures. UPC completed another bond offering in October 1999 totaling
$1.0 billion. Proceeds from this bond offering were primarily used to fund
acquisitions.
In October 1999, UPC completed a second public offering of 45.0 million
ordinary shares, raising gross and net proceeds at (Euro) 19.92 ($21.58) per
share of (Euro) 896.3 ($970.9) million and (Euro) 851.5 ($922.4) million,
respectively. The proceeds were used to finance acquisitions.
In January 2000, UPC completed a $1.6 billion bond offering consisting of
$600.0 million and (Euro) 200.0 million of ten-year 11.25% Senior Notes due
2010, $300.0 million of ten-year 11.5% Senior Notes due 2010 and $1.0 billion
aggregate principal amount of ten-year 13.75% Senior Discount Notes due 2010.
The Senior Discount Notes were sold at 51.2% of the face amount yielding gross
proceeds of $512.0 million and will accrue but not pay interest until 2005.
The proceeds from the debt and equity offerings, in addition to borrowing
capacity on UPC's facilities at the corporate and project debt level, are
expected to be used primarily for acquisitions, capital expenditures and other
costs associated with UPC's network upgrade and the continued development of
UPC's telephone and Internet/data services businesses. UPC may need to raise
additional capital in the future to the extent UPC pursues additional
acquisitions or development opportunities or if cash flow from operations is
insufficient to satisfy UPC's liquidity requirements.
UAP
UAP had $279.4 million of cash, cash equivalents and short-term liquid
investments on hand as of December 31, 1999. On July 27, 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
45
<PAGE>
($313.6) million and A$453.6 ($292.8) million, respectively. These proceeds,
in addition to borrowing capacity on the New Austar Bank Facility and Saturn
Bank Facility, 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 $7.6 million of cash, cash equivalents, restricted cash and short-term
liquid investments on hand as of December 31, 1999. ULA's systems, which are
at various stages of construction and development, will generally depend on
funding from us and project financing to meet their growth needs. ULA's
Chilean system, VTR, has capacity for borrowing under the VTR Bank Facility as
of December 31, 1999. With this facility and positive operating cash flow, the
business needs an additional $115.1 million from us through 2000 to continue
to grow its telephony business. ULA anticipates continued nominal funding from
us for Latin America programming and projects in Brazil. In January 2000, we
funded $22.8 million to ULA for the purchase of an additional 41.3% interest
in Megapo. To the extent ULA pursues additional acquisitions or development
opportunities, ULA will need to raise additional capital or seek strategic
partners.
Statements of Cash Flows
We had cash and cash equivalents of $1,925.9 million as of December 31, 1999,
an increase of $1,890.3 million from $35.6 million as of December 31, 1998.
Cash and cash equivalents as of December 31, 1998 represented a decrease of
$267.8 million from $303.4 million as of February 28, 1998, and cash and cash
equivalents as of February 28, 1998 represented an increase of $234.6 million
from $68.8 million as of February 28, 1997.
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating
activities........................ $ (117,084) $ 1,988 $(60,652)
Cash flows from investing
activities........................ (4,353,364) (433,460) (73,096)
Cash flows from financing
activities........................ 6,308,415 158,815 369,089
Effect of exchange rates on cash... 52,340 4,824 (684)
----------- --------- --------
Net increase (decrease) in cash and
cash equivalents.................. 1,890,307 (267,833) 234,657
Cash and cash equivalents at
beginning of period............... 35,608 303,441 68,784
----------- --------- --------
Cash and cash equivalents at end of
period............................ $ 1,925,915 $ 35,608 $303,441
=========== ========= ========
</TABLE>
Year Ended December 31, 1999
Principal sources of cash during the year ended December 31, 1999 included
$2,540.8 million in proceeds from the issuance of senior notes and senior
discount notes by UPC, $1,409.1 million in proceeds from UPC's initial public
offering and DIC's exercise of its option to acquire shares in UPC, $922.4
million in net proceeds from UPC's second public offering of equity
securities, $571.4 million in net proceeds from the issuance of our Class A
Common Stock in a public offering, $381.6 million in net proceeds from the
issuance of our Series C Convertible Preferred Stock, $375.3 million of
borrowings on UPC's senior credit facility, $292.8 million in net proceeds
from the Austar United initial public offering, $257.2 million of borrowings
on the Telekabel Group facility, $259.9 million in net proceeds from the
issuance of our Series D Convertible Preferred Stock, $229.9 million of
borrowings on Austar's bank facility and Saturn's bank facility, $208.9
million in proceeds from the private issuance of our debt securities due 2009,
$61.0 million of borrowings on VTR's bank facility, $141.2 million of other
borrowings, $50.0 million from the exercise of stock options and warrants,
$18.0 million of proceeds from the sale of UPC's Hungarian programming assets,
$52.3 million positive exchange rate effect on cash and $3.1 million from
other investing and financing sources.
Principal uses of cash during the year ended December 31, 1999 included $848.2
million of net cash invested in short-term liquid investments, $794.2 million
of capital expenditures for system upgrade and new-build activities,
46
<PAGE>
$744.5 million for the acquisition of @Entertainment, $521.7 million for the
repayment of UPC's existing senior revolving credit facility, $306.1 million
for the repayment of an existing facility at UPC Nederland, $293.2 million for
the acquisition of Stjarn, $252.7 million for the acquisition of the
additional 66.0% interest in VTR, $252.0 million for the acquisition of the
additional 49.0% interest in UTH, $228.5 million for the acquisition of A2000,
$150.0 million for the acquisition of Kabel Plus, $109.7 million for the
acquisition of GelreVision, $291.2 million for other acquisitions, $373.5
million of investments in affiliates, including UPC's acquisition of an
interest in PrimaCom for $227.9 million and SBS for $100.2 million, $129.1
million for the repayment of Austar's existing bank facility, $320.1 million
for the repayment of other loans, $100.7 million for deferred financing costs,
$18.0 million for payment of a note, and $151.2 million for operating
activities and other investing and financing uses.
Ten Months Ended December 31, 1998
Principal sources of cash during the ten months ended December 31, 1998
included $321.2 million from short-term and long-term borrowings, primarily on
UPC's senior revolving credit facility, CNBH's major facility, the DIC Loan
and Austar's bank facility, $27.9 million from the net release of restricted
funds, primarily the Janco deposit, $20.0 million from the sale of Portugal
and other systems, $12.2 million from the issuance of our equity securities
and $6.8 million from operating activities and other investing and financing
sources.
Principal uses of cash during the ten months ended December 31, 1998 included
capital expenditures totaling $217.1 million for system upgrades and new-build
activities, $168.4 million of debt repayments, primarily on UPC's bridge bank
facility and other bank facilities, $139.0 million of funding to our operating
systems including the acquisition of additional interests in Tevel, Melita,
Janco and TVSB, $109.9 million primarily for the new acquisitions of
Combivisie (The Netherlands) and Kabelkom (Hungary) and $21.5 million for
other investing and financing uses.
Year Ended February 28, 1998
Principal sources of cash during the year ended February 28, 1998 included
gross proceeds of $812.2 million from the sale of our 1998 senior notes,
$211.1 million net cash proceeds from the sale of our Argentine cable systems,
$110.0 million of borrowings by ULA to finance acquisitions in Argentina,
$85.2 million of borrowings on Austar's bank facility, $38.0 million from
ULA's revolving credit facility, net proceeds from the net change in short-
term investments of $36.6 million, $29.9 million gross proceeds from the
issuance of United A/P senior notes in September 1997, $22.0 million from cash
contributions from minority interest partners and $1.3 million of repayments
on notes receivable and other sources.
Principal uses of cash during the year ended February 28, 1998 included
redemption of our old senior notes of $531.8 million, investments in our
affiliated companies totaling $177.6 million, repayment of debt under the
Argentina acquisition financing of $110.0 million, purchases of property,
plant and equipment totaling $115.0 million to continue the build-out of
existing projects, payments on our seller notes for Comodoro, Trelew, Santa Fe
and Bahia Blanca, Argentina totaling $46.4 million, debt financing costs of
$30.9 million, $8.4 million deposited in restricted cash, $30.8 million for
repayment of other debt and other investing and financing uses, and the
funding of operating activities of $60.7 million during the period.
New Accounting Principles
The Financial Accounting Standards Board ("FASB") recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under this statement, accounting for changes in fair value of a
derivative depends on its intended use and designation. SFAS 133 is effective
for fiscal years beginning after June 15, 2000. We are currently assessing the
effect of this new standard.
47
<PAGE>
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Views on Selected Revenue Recognition
Issues" ("SAB 101"), which provides the staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. SAB 101
is effective for the second quarter of 2000. We are currently assessing the
effect of SAB 101.
European Economic and Monetary Union
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the Euro, including The Netherlands. The participating
countries adopted the Euro as their common legal currency on that day. The
Euro trades on currency exchanges and is available for non-cash transactions
during the transition period between January 1, 1999 and January 1, 2002.
During this transition period, the existing currencies are scheduled to remain
legal tender in the participating countries as denominations of the Euro and
public and private parties may pay for goods and services using either the
Euro or the participating countries' existing currencies. During the
transition period, all UPC operating companies' billing systems will include
amounts in Euro as well as the respective country's existing currency. All of
UPC's accounting and management reporting systems currently are multi-
currency. We do not expect the introduction of the Euro to materially affect
UPC's cable television and other operations. However, we do believe the
introduction of the Euro will reduce our exposure to risk from foreign
currency and interest rate fluctuations.
Year 2000 Conversion
Our multi-channel television, programming and telephony operations are heavily
dependent upon computer systems and other technological devices with embedded
chips. Such computer systems and other technological devices did not
experience any problems related to recognizing dates of January 2000 and
thereafter. In all material respects, our multi-channel television and
telephony systems or programming services continued to operate during the
period December 31, 1999 to March 30, 2000.
Year 2000 Program. In response to possible Year 2000 problems, the Board of
Directors of United established a Task Force to assess the impact that
potential Year 2000 problems might have on company-wide operations, including
the Company and its operating companies, and to implement necessary changes to
address such problems. The Task Force reported directly to the United Board.
In creating a program to minimize Year 2000 problems, the Task Force
identified certain critical operations of our business. These critical
operations were identified as service delivery systems, field and headend
devices, customer service and billing systems and corporate management and
administrative operations (e.g., cash flow, accounts payable and accounts
receivable, payroll and building operations).
The Task Force established a three-phase program to address potential Year
2000 problems:
(a) Identification Phase: identify and evaluate computer systems and other
devices (e.g., headend devices, switches and set-top boxes) on a system by
system basis for Year 2000 compliance.
(b) Implementation Phase: establish a database and evaluate the information
obtained in the Identification Phase, determine priorities, implement
corrective procedures, define costs and ensure adequate funding.
(c) Testing Phase: test the corrective procedures to verify that all material
compliance problems will operate on and after January 1, 2000, and
develop, as necessary, contingency plans for material operations.
The Task Force completed these Phases on substantially all critical operations
prior to year-end 1999. As a result, we believe all material corporate
operations are in compliance for Year 2000 and do not require material
remediation or replacement. During the period December 31, 1999 to March 30,
2000, our worldwide operations continued to function in the ordinary course in
all material respects. We experienced no material business interruptions or
material problems, with respect to our operations arising from Year 2000
issues. We know of no remaining contingencies.
48
<PAGE>
Third-Party Dependencies. Although we believed our largest Year 2000 risk was
our dependency upon third-party products, we experienced no Year 2000 issues
as a result of such dependency. To our knowledge, no further significant
contingencies exist based on our dependency upon third-party products. We
cannot, however, give any assurance concerning compliance of our equipment
because our responses from third-party vendors have been limited and cannot be
independently verified.
Costs of Compliance. The Task Force is not able to determine the full cost of
its Year 2000 program and its related impact on our financial condition. In
the course of our business, we have made substantial capital adjustments over
the past few years in improving our systems, primarily for reasons other than
Year 2000. Because these upgrades also resulted in Year 2000 compliance,
replacement and remediation costs have been low. Therefore, the Task Force's
estimate of the cost of the Year 2000 program at $7.3 million remains
unchanged. Included in such costs is approximately $2.3 million spent on our
billing systems for Year 2000. The Task Force accelerated these expenditures
to 1999 to insure Year 2000 compliance; otherwise these costs would have been
incurred over approximately two to three years. The cost of the Year 2000
program does not, however, include internal costs because we did not
separately track the internal costs incurred for the Year 2000 program. The
costs incurred for Year 2000 compliance issues did not have a material
financial impact on the Company. We anticipate no additional significant
expenditures for the Year 2000 program.
49
<PAGE>
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Investment Portfolio
We do not use derivative financial instruments in our non-trading investment
portfolio. We place our cash and cash equivalent investments in highly liquid
instruments that meet high credit quality standards with original maturities
at the date of purchase of less than three months. We also place our short-
term investments in liquid instruments that meet high credit quality standards
with original maturities at the date of purchase of between three and twelve
months. We also limit the amount of credit exposure to any one issue, issuer
or type of instrument. These investments are subject to interest rate risk and
will fall in value if market interest rates increase. We do not expect,
however, any material loss with respect to our investment portfolio.
Impact of Foreign Currency Rate Changes
We are exposed to foreign exchange rate fluctuations related to our operating
subsidiaries' monetary assets and liabilities and the financial results of
foreign subsidiaries when their respective financial statements are translated
into U.S. dollars during consolidation. Our exposure to foreign exchange rate
fluctuations also arises from intercompany charges such as the cost of
equipment, management fees and certain other charges that are denominated in
U.S. dollars but recorded in the functional currency of the foreign
subsidiary. In addition, certain of our operating companies have notes payable
and notes receivable which are denominated in a currency other than their own
functional currency, as follows:
<TABLE>
<CAPTION>
Amount Outstanding
as of December 31, 1999
-----------------------
(In thousands)
<S> <C>
U.S. Dollar Denominated Facilities:
Stjarn Seller's Note due 2000(1)................. $ 100,000
UPC 12.5% Senior Discount Notes due 2009(1)...... $ 421,747
UPC 13.375% Senior Discount Notes due 2009....... $ 255,786
PCI Discount Notes(1)............................ $ 16,457
@Entertainment 1999 Senior Discount Notes(1)..... $ 141,807
@Entertainment 1998 Senior Discount Notes(1)..... $ 115,984
@Entertainment 1999 Series C Senior Discount
Notes(1)........................................ $ 11,841
UPC DIC Loan(1).................................. $ 39,366
Monor Facility(1)................................ $ 33,488
VTR Bank Facility(2)............................. $ 176,000
Intercompany Loan to VTR(2)...................... $ 108,000
----------
$1,420,476
==========
</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. Concurrent with the closing of the UPC
July senior notes offering, UPC entered into a cross-currency swap, swapping
the $800.0 million UPC 10.875% USD Senior Notes due 2009 into fixed and
variable rate Euro notes with a notional amount totalling (Euro) 754.7
million. Concurrent with the closing of the UPC October senior notes offering,
UPC entered into cross-currency swaps, swapping the $252.0 million UPC 11.25%
USD Senior Notes due 2009 into fixed and variable Euro notes with a notional
amount of (Euro) 240.2 million, and swapping the $200.0 million UPC 10.875%
USD Senior Notes due 2007 into fixed and variable rate Euro notes with a
notional amount of (Euro) 190.7 million.
50
<PAGE>
Interest Rate Sensitivity
The table below provides information about our primary debt obligations. The
fixed rate financial instruments are sensitive to changes in interest rates.
The information is presented in U.S. dollar equivalents, which is our
reporting currency.
<TABLE>
<CAPTION>
As of
December 31, 1999 Expected payment as of December 31,
--------------------- -------------------------------------------------
Book Value Fair Value 2000 2001 2002 2003 2004 Thereafter Total
---------- ---------- ----- ----- ---- ------- ---- ---------- --------
(U.S. dollars, in thousands, except interest
rates)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate United USD
1998 Notes.............. $991,568 $880,000 $ -- $ -- $-- $ -- $-- $991,568 $991,568
Average interest rate... 10.75% 12.55%
Fixed rate United USD
1999 Notes.............. $224,426 $205,265 $ -- $ -- $-- $ -- $-- $224,426 $224,426
Average interest rate... 10.875% 13.05%
Variable rate UPC USD
Senior Notes due 2009... $759,442 $775,969 $ -- $ -- $-- $ -- $-- $759,442 $759,442
Average interest rate... 10.875% 10.58%
Fixed rate UPC Euro
Senior Notes due 2009... $301,878 $305,652 $ -- $ -- $-- $ -- $-- $301,878 $301,878
Average interest rate... 10.875% 10.63%
Fixed rate UPC USD Senior
Discount Notes due
2009.................... $421,747 $415,275 $ -- $ -- $-- $ -- $-- $421,747 $421,747
Average interest rate... 12.50% 12.71%
Fixed rate UPC USD Senior
Notes due 2007.......... $191,852 $206,525 $ -- $ -- $-- $ -- $-- $191,852 $191,852
Average interest rate... 10.875% 10.30%
Fixed rate UPC Euro
Senior Notes due 2007... $100,625 $102,639 $ -- $ -- $-- $ -- $-- $100,625 $100,625
Average interest rate... 10.875% 10.49%
Fixed rate UPC USD Senior
Notes due 2009.......... $239,905 $262,080 $ -- $ -- $-- $ -- $-- $239,905 $239,905
Average interest rate... 11.25% 10.48%
Fixed rate UPC Euro
Senior Notes due 2009... $100,894 $103,665 $ -- $ -- $-- $ -- $-- $100,894 $100,894
Average interest rate... 11.25% 10.86%
Fixed rate UPC USD Senior
Discount Notes due
2009.................... $255,786 $272,460 $ -- $ -- $-- $ -- $-- $255,786 $255,786
Average interest rate... 13.375% 12.48%
Fixed rate UPC Euro
Senior Discount Notes
due 2009................ $102,847 $106,669 $ -- $ -- $-- $ -- $-- $102,847 $102,847
Average interest rate... 13.375% 12.86%
Fixed rate @Entertainment
USD 1999 Senior Discount
Notes................... $141,807 $146,007 $ -- $ -- $-- $ -- $-- $141,807 $141,807
Average interest rate... 14.50% 13.01%
Fixed rate @Entertainment
USD 1998 Senior Discount
Notes................... $115,984 $147,948 $ -- $ -- $-- $ -- $-- $115,984 $115,984
Average interest rate... 14.50% 13.12%
Fixed rate @Entertainment
USD 1999 Series C
Notes................... $ 11,841 $ 11,841 $ -- $ -- $-- $ -- $-- $ 11,841 $ 11,841
Average interest rate... 7.00% 7.00%
Fixed rate PCI USD
Discount Notes.......... $ 16,457 $ 16,457 $ -- $ -- $-- $16,457 $-- $ -- $ 16,457
Average interest rate... 9.875% 9.875%
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
As of
December 31, 1999 Expected payment as of December 31,
---------------------- ------------------------------------------------------------------
Book Value Fair Value 2000 2001 2002 2003 2004 Thereafter Total
---------- ---------- -------- -------- -------- -------- -------- ---------- ----------
(U.S. dollars, in thousands, except interest rates)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate United USD A/P
Notes................... $ 407,945 $ 414,008 $ -- $ -- $ -- $ -- $ -- $ 407,945 $ 407,945
Average interest rate... 14.00% 13.73%
Variable rate UPC NLG
Senior Credit Facility.. $ 359,720 $ 359,720 $ -- $ -- $ 58,971 $ 73,715 $ 92,142 $ 134,892 $ 359,720
Average interest rate... 5.67% 5.67%
Variable rate Telekabel
Euro Facility........... $ 256,861 $ 256,861 $ -- $ -- $ 12,830 $ 25,660 $ 51,319 $ 167,052 $ 256,861
Average interest rate... 4.90% 4.90%
Variable rate A2000 NLG
Facilities.............. $ 209,132 $ 209,132 $209,132 $ -- $ -- $ -- $ -- $ -- $ 209,132
Average interest rate... 5.90% 5.90%
Variable rate CNBH NLG
Facility................ $ 122,317 $ 122,317 $ 1,035 $ 8,453 $ 15,698 $ 21,735 $ 22,943 $ 52,453 $ 122,317
Average interest rate... 4.50% 4.50%
Variable rate Rhone
Vision Cable FFR Credit
Facility................ $ 61,360 $ 61,360 $ -- $ 61,360 $ -- $ -- $ -- $ -- $ 61,360
Average interest rate... 3.72% 3.72%
Variable rate RCF FFR
Facility................ $ 31,852 $ 31,852 $ 31,852 $ -- $ -- $ -- $ -- $ -- $ 31,852
Average interest rate... 4.35% 4.35%
Fixed rate UPC USD DIC
Loan.................... $ 39,366 $ 39,366 $ 39,366 $ -- $ -- $ -- $ -- $ -- $ 39,366
Average interest rate... 8.00% 8.00%
Variable rate
Mediareseaux FFR
Facility................ $ 45,193 $ 45,193 $ -- $ 45,193 $ -- $ -- $ -- $ -- $ 45,193
Average interest rate... 4.88% 4.88%
Fixed rate Monor USD
Facility................ $ 33,488 $ 33,488 $ 33,488 $ -- $ -- $ -- $ -- $ -- $ 33,488
Average interest rate... 6.66% 6.66%
Fixed rate Videopole FFR
Facility................ $ 7,752 $ 7,752 $ 7,752 $ -- $ -- $ -- $ -- $ -- $ 7,752
Average interest rate... 6.60% 6.60%
Variable rate VTR USD
Bank Facility........... $ 176,000 $ 176,000 $ -- $ -- $176,000 $ -- $ -- $ -- $ 176,000
Average interest rate... 11.41% 11.41%
Variable rate Austar A$
New Austar Bank
Facility................ $ 202,703 $ 202,703 $ -- $ -- $ 9,184 $ 50,512 $ 80,687 $ 62,320 $ 202,703
Average interest rate... 7.58% 7.58%
Variable rate Saturn NZ$
Saturn Bank Facility.... $ 57,685 $ 57,685 $ -- $ 577 $ 4,615 $ 8,307 $ 11,537 $ 32,649 $ 57,685
Average interest rate... 8.63% 8.63%
---------- ---------- -------- -------- -------- -------- -------- ---------- ----------
$5,988,433 $5,975,889 $322,625 $115,583 $277,298 $196,386 $258,628 $4,817,913 $5,988,433
========== ========== ======== ======== ======== ======== ======== ========== ==========
</TABLE>
We use interest rate swap agreements from time to time, to manage interest
rate risk on our floating rate debt facilities. Interest rate swaps are
entered into depending on our assessment of the market, and generally are used
to convert floating rate debt to fixed rate debt. Interest differentials paid
or received under these swap agreements are recognized over the life of the
contracts as adjustments to the effective yield of the underlying debt, and
related amounts payable to, or receivable from, the counterparties are
included in the consolidated balance sheet.
Currently, we have four interest rate swaps to manage interest rate exposure
on the New Austar Bank Facility. Two of these swap agreements expire in 2002
and effectively convert an aggregate principal amount of A$50.0 ($32.8)
million of variable rate, long-term debt into fixed rate borrowings. The other
two swap agreements expire in 2004 and convert
52
<PAGE>
an aggregate principal amount of A$100.0 ($65.6) million of variable rate,
long-term debt into fixed rate borrowings. In addition, we have an interest
rate swap to manage our exposure on the Saturn Bank Facility which effectively
converts an aggregate principal amount of NZ$60.6 ($31.7) million of variable
rate, long-term debt into fixed rate borrowings. The interest rate swap
includes an increasing fixed rate with an additional margin which is expected
to decline as the debt to EBITDA ratio declines.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and the financial
statement schedules and separate financial statements of collateral
subsidiaries and significant equity investees required by Regulation S-X are
filed under Item 14 "Exhibits, Financial Statement Schedules and Reports on
Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item appears in the Company's Proxy Statement
for the 2000 Annual Meeting to be filed within 30 days of the date of this
Annual Report on Form 10-K and is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears in the Company's Proxy Statement
for the 2000 Annual Meeting to be filed within 30 days of the date of this
Annual Report on Form 10-K and is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears in the Company's Proxy Statement
for the 2000 Annual Meeting to be filed within 30 days of the date of this
Annual Report on Form 10-K and is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears in the Company's Proxy Statement
for the 2000 Annual Meeting to be filed within 30 days of the date of this
Annual Report on Form 10-K and is hereby incorporated by reference.
53
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to Financial Statements
<TABLE>
<CAPTION>
Page
-----
<S> <C>
UnitedGlobalCom, Inc.
Report of Independent Public Accountants................................. F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998............. F-2
Consolidated Statements of Operations for the Year Ended December 31,
1999, the Ten Months Ended December 31, 1998 and the Year Ended February
28, 1998................................................................ F-3
Consolidated Statements of Stockholders' Equity (Deficit) for the Year
Ended December 31, 1999, the Ten Months Ended December 31, 1998 and the
Year Ended February 28, 1998............................................ F-4
Consolidated Statements of Cash Flows for the Year Ended December 31,
1999, the Ten Months Ended December 31, 1998 and the Year Ended February
28, 1998................................................................ F-7
Notes to Consolidated Financial Statements............................... F-11
UnitedGlobalCom, Inc. (Parent Only)
Report of Independent Public Accountants on Schedules.................... F-62
Condensed Financial Position of Registrant (Parent only Schedule I)...... F-63
Condensed Information as to the Operations of Registrant (Parent only
Schedule I)............................................................. F-64
Condensed Information as to the Cash Flows of Registrant (Parent only
Schedule I)............................................................. F-65
Valuation and Qualifying Accounts (Schedule II).......................... F-66
United International Properties, Inc.
Report of Independent Public Accountants................................. F-67
Consolidated Balance Sheets as of December 31, 1999 and 1998............. F-68
Consolidated Statements of Operations for the Year Ended December 31,
1999, the Ten Months Ended December 31, 1998 and the Year Ended February
28, 1998................................................................ F-69
Consolidated Statements of Parent's Deficit for the Year Ended December
31, 1999, the Ten Months Ended December 31, 1998 and the Year Ended
February 28, 1998....................................................... F-70
Consolidated Statements of Cash Flows for the Year Ended December 31,
1999, the Ten Months Ended December 31, 1998 and the Year Ended February
28, 1998................................................................ F-71
Notes to Consolidated Financial Statements............................... F-73
United Europe, Inc.
Report of Independent Public Accountants................................. F-98
Consolidated Balance Sheets as of December 31, 1999 and 1998............. F-99
Consolidated Statements of Operations for the Year Ended December 31,
1999, the Ten Months Ended December 31, 1998 and the Year Ended February
28, 1998................................................................ F-100
Consolidated Statements of Parent's Equity (Deficit) for the Year Ended
December 31, 1999, the Ten Months Ended December 31, 1998 and the Year
Ended February 28, 1998................................................. F-101
Consolidated Statements of Cash Flows for the Year Ended December 31,
1999, the Ten Months Ended December 31, 1998 and the Year Ended February
28, 1998................................................................ F-102
Notes to Consolidated Financial Statements............................... F-105
United Telekabel Holding, N.V.
Independent Auditors' Report............................................. F-136
Consolidated Balance Sheet as of December 31, 1998....................... F-137
Consolidated Statement of Operations from August 6, 1998 (commencement of
operations) until December 31, 1998..................................... F-138
Consolidated Statement of Cash Flows from August 6, 1998 (commencement of
operations) until December 31, 1998..................................... F-139
Notes to Consolidated Financial Statements............................... F-140
</TABLE>
54
<PAGE>
(b) Reports on Form 8-K
<TABLE>
<CAPTION>
Date of Report Item Reported
- -------------- -------------
<S> <C>
November 15, 1999 Item 5--Announcement of
two-for-one split of Common
Stock
</TABLE>
(c) Exhibits
<TABLE>
<C> <S>
3.1 Second Restated Certificate of Incorporation of United International
Holdings, Inc. (the "Company", or "UIH") filed June 4, 1993.(1)
3.2 Certificate of Amendment to the Certificate of Incorporation dated
February 7, 1994.(2)
3.3 Certificate of Designation with respect to Convertible Preferred Stock,
Series B of the Company.(3)
3.4 Corrected Certificate of Designation for the Company's 7% Series C
Senior Cumulative Convertible Preferred Stock.(4)
3.5 Corrected Certificate of Designation for the Company's 7% Series D
Senior Cumulative Convertible Preferred Stock.(4)
3.6 Restated Bylaws of the Company amended and restated as of May 25,
1993.(1)
4.1 Specimen of Class A Common Stock certificate of the Company.(1)
4.2 The Second Restated Certificate of Incorporation, as amended, and
Restated Bylaws of the Company are included as Exhibits 3.1-3.6.
4.1 Indenture dated as of February 5, 1998, between the Company and First
Bank of Minnesota N.A. (the "Trustee").(5)
4.2 Indenture dated as of April 29, 1999 between the Company and the
Trustee.(6)
10.1 Stockholders' Agreement dated as of April 13, 1993, among the Company,
United International Holdings (the "Partnership"), certain partners of
the Partnership and Apollo Cable Partners L.P. ("Apollo").(7)
10.2 UIH Registration Rights Agreement dated as of April 13, 1993, between
the Company and the Partnership.(1)
10.3 *1993 Stock Option Plan of the Company.(1)
10.4 *Stock Option Plan for Non-Employee Directors.(8)
10.5 Form of Indemnification Agreement between the Company and its
directors.(1)
10.6 Pledge Agreement dated as of February 5, 1998, between the Company and
the Morgan Stanley & Co.(9)
10.7 Indenture dated as of May 14, 1996, between United Australia/Pacific,
Inc. ("United A/P") and Trustee (the "1996 Indenture").(10)
10.8 Indenture dated as of September 23, 1997, between United A/P and Trustee
(the "1997 Indenture").(11)
10.9 Supplemental Indenture dated as of July 20, 1999, between United A/P and
Trustee with respect to the 1996 Indenture.(12)
10.10 Supplemental Indenture dated as of July 20, 1999, between United A/P and
Trustee with respect to the 1997 Indenture.(12)
</TABLE>
55
<PAGE>
<TABLE>
<C> <S>
10.11 Indenture dated as of July 30, 1999, between UPC and Citibank N.A, as
Trustee, with respect to UPC 10.875% Senior Notes.(13)
10.12 Indenture dated as of July 30, 1999, between UPC and Citibank N.A., as
Trustee, with respect to UPC 12.5% Senior Discount Notes.(13)
10.13 Indenture dated as of October 29, 1999, between UPC and Citibank N.A, as
Trustee, with respect to UPC 10.875% Senior Notes.(14)
10.14 Indenture dated as of October 29, 1999, between UPC and Citibank N.A, as
Trustee, with respect to UPC 11.25% Senior Notes.(14)
10.15 Indenture dated as of October 29, 1999, between UPC and Citibank N.A.,
as Trustee, with respect to UPC 13.375% Senior Discount Notes.(14)
10.16 Indenture dated as of January 20, 2000, between UPC and Citibank N.A.,
as Trustee with respect to 11 1/2% Senior Notes due 2010.(15)
10.17 Indenture dated as of January 20, 2000, between UPC and Citibank N.A.,
as Trustee with respect to 11 1/4% Senior Notes due 2010.(15)
10.18 Indenture dated as of January 20, 2000, between UPC and Citibank N.A.,
as Trustee with respect to 13 3/4% Senior Discount Notes due 2010.(15)
10.19 Loan and Note Issuance Agreement between UPC Facility B.V., Telekabel
Wien and Janco Multicom and Bank of America International Limited, CIBC
World Markets plc, Citibank N.A., MeesPierson N.V., Paribas, The Royal
Bank of Scotland plc, Toronto Dominion Bank Europe Limited, and The
Toronto-Dominion Bank, as Facility Agent and Security Agent.(13)
10.20 A $400,000,000 Syndicated Senior Secured Debt Facility Agreement dated
April 23, 1999, among Austar Entertainment Pty Limited, Chase Securities
Australia Limited, the Guarantors named herein and the financial
institutions named herein.(16)
10.21 Credit Agreement dated as of April 28, 1999, among UIH Chile Holding
S.A., the subsidiary guarantors named therein, Toronto Dominion (Texas),
Inc., TD Securities (USA), Inc. and Citibank, N.A.(6)
10.22 Promise Agreement entered into as of October 15, 1998, among UIH Latin
America, Inc., VTR S.A. and Compania Nacional de Telefonos, Telefonica
del Sur S.A.(6)
10.23 Amended and Restated Securities Purchase and Conversion Agreement dated
as of December 1, 1997, by and among Philip Media B.V., Philips Media
Network B.V., the Company, Joint Venture, Inc. and United and Philips
Communications B.V.(17)
10.24 Amended Stock Option Plan dated February 8, 1999, between UPC and
Stichting Administratie Kantoor UPC.(18)
10.25 Share Purchase Agreement dated as of January 19, 1999, among UPC,
Belmarken Holding, B.V., UPC Intermediates B.V., N.V. Nuon Energie-
Onderneming voor Gelderland, Freisland en Flevoland, N.V. Kraton, and
UTH, as amended by letter agreements dated January 19 and 25, 1999.(19)
10.26 Final Amendment to the Share Purchase Agreement dated as of February 17,
1999.(20)
10.27 Share Purchase Agreement dated June 23, 1999, between UPC and MediaOne
International B.V.(21)
10.28 Investment Agreement between SBS Broadcasting SA and UPC dated June 29,
1999.(13)
10.29 Exchange Offer Agreement, dated as of March 9, 2000, by and between UPC
and SBS Broadcasting S.A.(22)
</TABLE>
56
<PAGE>
<TABLE>
<C> <S>
10.30 Share Exchange Agreement, dated as of March 9, 2000, by and between UPC
and the shareholders named therein.(22)
10.31 Agreement and Plan of Merger among @Entertainment, Inc., United Pan-
Europe Communications N.V. and Bison Acquisition Corp. dated as of June
2, 1999.(13)
10.32 Form of Stockholders Agreement dated as of June 2, 1999 among
@Entertainment, Inc., United Pan-Europe Communications N.V., Bison
Acquisition Corp. and the other parties signatory thereto.(13)
10.33 Share Purchase Agreement between the Sellers represented by EQT
Scandinavia Limited and United Pan-Europe Communications N.V.(13)
10.34 Share Purchase Agreement, dated February 2, 2000, among Eneco Wed-
Activiteiten B.V., N.V. Eneco, UPC Nederland N.V., Belmarken Holding
B.V. and UPC.(23)
10.35 Consulting Agreement dated June 1, 1995, between the Company and Mark L.
Schneider.(24)
10.36 *Stock Option Plan for Non-Employee Directors, effective March 20, 1998.
10.37 UIH Registration Rights Agreement dated as of April 8, 1999, between UIH
and Riordan Communications Limited.
12.1 Statement re: Ratio of Combined Fixed Charges and Preferred Stock
Dividends.
21.1 Subsidiaries and Restricted Affiliates of the Company.
21.2 Unrestricted Subsidiaries of the Company.
23.1 Consent of Independent Public Accountants--Arthur Andersen LLP
(UnitedGlobalCom, Inc.).
23.2 Consent of Independent Public Accountants--Arthur Andersen LLP (United
International Properties, Inc.).
23.3 Consent of Independent Public Accountants--Arthur Andersen LLP (United
Europe, Inc.).
23.4 Consent of Independent Auditors--Arthur Andersen (United Telekabel
Holding N.V).
24.1 Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
* Management compensation plan.
(1) Incorporated by reference from Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 33-61376) filed with the
Commission on June 23, 1993.
(2) Incorporated by reference from Form 10-K for the year ended February 28,
1994 (File No. 0-21974).
(3) Incorporated by reference from Form 8-K dated July 9, 1998 (File No. 0-
21974).
(4) Incorporated by reference from the Company's Current Report on Form 8-K
filed with the Commission on January 11, 2000.
(5) Incorporated by reference from the Company's Registration Statement on
Form S-4 (File No. 333-47245) filed with the Commission on March 3, 1998.
(6) Incorporated by reference from the November 30, 1995, Form 10-Q/A dated
January 26, 1996 (File No. 0-21974).
(6) Incorporated by reference from Form 8-K dated April 29, 1999 (File No. 0-
21974).
(7) Incorporated by reference from the Company's Registration Statement on
Form S-1 (File No. 33-61376) filed with the Commission on April 21, 1993.
(8) Incorporated by reference from Amendment No. 2 to the Company's
Registration Statement on Form S-1 (File No. 33-61376) filed with the
Commission on July 19, 1993.
(9) Incorporated by reference from Form 8-K dated February 5, 1998 (File No.
0-21974).
57
<PAGE>
(10) Incorporated by reference from Form 10-K for the year ended February 29,
1996 (File No. 0-21974).
(11) Incorporated by reference from United A/P's Registration Statement on
Form S-4 filed on November 6, 1997 (File No. 333-39707).
(12) Incorporated by reference from United A/P's Form 8-K filed July 28, 1999
(File No. 333-05017).
(13) Incorporated by reference from UPC's Report on Form 8-K dated July 30,
1999 (File No. 000-25865).
(14) Incorporated by reference from UPC's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999.
(15) Incorporated by reference from UPC's Form 10-K for the year ended
December 31, 1999 (File No. 000-25865).
(16) Incorporated by reference from Form 10-K for the ten months ended
December 31, 1998 (File No. 0-21974).
(17) Incorporated by reference from Form 8-K dated December 11, 1997 (File No.
0-21974).
(18) Incorporated by reference from UPC's Form 10-K for the year ended
December 31, 1998 (File No. 000-25365).
(19) Incorporated by reference from Amendment No. 6 to Form S-1 Registration
Statement filed by UPC on February 10, 1999 (File No. 333-67895).
(20) Incorporated by reference from UPC's Form 8-K dated March 4, 1999 (File
No. 000-25365).
(21) Incorporated by reference from Amendment No. 2 to Form S-1 Registration
Statement filed by UPC on September 30, 1999 (File No. 333-84427).
(22) Incorporated by reference from UPC's Form 8-K dated March 9, 2000 (File
No. 000-25865).
(23) Incorporated by reference from UPC's Form 8-K dated February 3, 2000
(File No. 000-25365).
(24) Incorporated by reference from Amendment No. 6 to UPC's Registration
Statement on Form S-1 dated February 4, 1999 (File No. 333-67895).
(d) See index to financial statements in (a) above.
58
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UnitedGlobalCom, Inc.:
We have audited the accompanying consolidated balance sheets of
UnitedGlobalCom, Inc. (a Delaware corporation) (formerly United International
Holdings, Inc.) and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the year ended December 31, 1999, the ten months ended
December 31, 1998 (see Note 2) and the year ended February 28, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform these audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of UnitedGlobalCom, Inc. and subsidiaries as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for the year ended
December 31, 1999, the ten months ended December 31, 1998 and the year ended
February 28, 1998 in conformity with accounting principles generally accepted
in the United States.
Arthur Andersen LLP
Denver, Colorado
March 29, 2000
F-1
<PAGE>
UnitedGlobalCom, Inc.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
As of
December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......................... $1,925,915 $ 35,608
Restricted cash................................... 18,217 17,215
Short-term liquid investments..................... 629,689 41,498
Subscriber receivables, net of allowance for
doubtful accounts of $27,808 and $5,482,
respectively..................................... 83,388 13,788
Costs to be reimbursed by affiliated companies,
net.............................................. 13,430 21,232
Other receivables, including related party
receivables of $1,680 and $2,064, respectively... 131,622 17,444
Inventory......................................... 82,995 25,379
Deferred taxes.................................... 2,119 --
Other current assets, net......................... 98,891 16,363
---------- ----------
Total current assets............................ 2,986,266 188,527
Investments in affiliates, accounted for under the
equity method, net................................ 309,509 429,490
Marketable equity securities and other
investments....................................... 235,917 --
Property, plant and equipment, net of accumulated
depreciation of $482,524 and $201,183,
respectively...................................... 2,379,837 451,442
Goodwill and other intangible assets, net of
accumulated amortization of $170,133 and $39,683,
respectively...................................... 2,944,802 424,934
Deferred financing costs, net of accumulated
amortization of $17,062 and $9,923, respectively.. 130,704 41,270
Deferred taxes..................................... 3,698 --
Other assets, net.................................. 12,120 6,432
---------- ----------
Total assets.................................... $9,002,853 $1,542,095
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable, including related party
payables of $390 and $247, respectively.......... $ 306,760 $ 76,696
Accrued liabilities............................... 324,431 66,079
Subscriber prepayments and deposits............... 41,466 24,210
Short-term debt................................... 173,296 93,379
Current portion of senior discount notes and
other long-term debt............................. 52,180 62,664
Other current liabilities......................... 10,567 3,524
---------- ----------
Total current liabilities....................... 908,700 326,552
Senior discount notes and senior notes............. 4,385,004 1,249,643
Other long-term debt............................... 1,604,451 689,646
Deferred compensation.............................. 54,825 173,251
Deferred taxes..................................... 17,074 4,580
Other long-term liabilities........................ 23,603 7,097
---------- ----------
Total liabilities............................... 6,993,657 2,450,769
---------- ----------
Minority interests in subsidiaries................. 867,970 18,705
---------- ----------
Preferred stock, $0.01 par value, 3,000,000 shares
authorized, stated at liquidation value:
Series A Convertible Preferred Stock, 0 and
132,144 shares issued and outstanding,
respectively..................................... -- 26,086
---------- ----------
Series B Convertible Preferred Stock, 116,185 and
139,031 shares issued and outstanding,
respectively..................................... 26,920 30,200
---------- ----------
Stockholders' equity (deficit):
Class A Common Stock, $0.01 par value,
210,000,000 shares authorized, 81,574,815 and
61,349,990 shares issued and outstanding,
respectively..................................... 816 614
Class B Common Stock, $0.01 par value, 30,000,000
shares authorized, 19,323,940 and 19,831,760
shares issued and outstanding, respectively...... 193 198
Series C Convertible Preferred Stock, 425,000
shares authorized, 425,000 and 0 shares issued
and outstanding, respectively.................... 410,125 --
Series D Convertible Preferred Stock, 287,500
shares authorized, 287,500 and 0 shares issued
and outstanding, respectively.................... 268,773 --
Additional paid-in capital........................ 1,416,635 378,191
Deferred compensation............................. (119,996) (679)
Treasury stock, at cost, 5,569,240 shares of
Class A Common Stock............................. (29,061) (29,061)
Accumulated deficit............................... (621,941) (1,241,986)
Other cumulative comprehensive loss............... (211,238) (90,942)
---------- ----------
Total stockholders' equity (deficit)............ 1,114,306 (983,665)
---------- ----------
Commitments and contingencies (Notes 14 and 15)
Total liabilities and stockholders' equity
(deficit)...................................... $9,002,853 $1,542,095
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
UnitedGlobalCom, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
For the
Year
For the Year For the Ten Ended
Ended Months Ended February
December 31, December 31, 28,
1999 1998 1998
------------ ------------ ----------
<S> <C> <C> <C>
Revenue................................. $ 719,524 $ 254,068 $ 98,622
System operating expense................ (452,515) (122,811) (65,631)
System selling, general and
administrative expense................. (300,674) (105,226) (62,803)
Corporate general and administrative
expense................................ (318,251) (194,767) (28,553)
Depreciation and amortization........... (418,714) (159,045) (91,656)
---------- ---------- ----------
Operating loss...................... (770,630) (327,781) (150,021)
Gain on issuance of common equity
securities by subsidiaries............. 1,508,839 -- --
Interest income, including related party
income of $561, $497 and $302,
respectively........................... 54,238 10,464 7,806
Interest expense........................ (399,999) (163,227) (124,288)
Provision for losses on marketable
equity securities and investment
related costs.......................... (7,127) (9,686) (14,793)
Gain on sale of investments in
affiliates............................. -- -- 90,020
Foreign currency exchange (loss) gain... (39,501) 1,582 (1,419)
Other expense, net...................... (14,641) (3,518) (3,669)
---------- ---------- ----------
Income (loss) before income taxes
and other items.................... 331,179 (492,166) (196,364)
Income tax expense...................... (198) (610) --
Minority interests in subsidiaries...... 360,444 1,410 1,568
Share in results of affiliates, net..... (55,107) (54,166) (68,645)
---------- ---------- ----------
Income (loss) before extraordinary
charge............................. 636,318 (545,532) (263,441)
Extraordinary charge for early
retirement of debt..................... -- -- (79,091)
---------- ---------- ----------
Net income (loss)................... $ 636,318 $ (545,532) $ (342,532)
========== ========== ==========
Foreign currency translation
adjustments............................ $ (127,154) $ (24,713) $ (50,274)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period................ 6,858 (505) (1,593)
Reclassification adjustment for losses
included in net income............... -- -- 8,013
---------- ---------- ----------
Comprehensive income (loss)......... $ 516,022 $ (570,750) $ (386,386)
========== ========== ==========
Basic net income (loss) attributable to
common shareholders (Note 13).......... $ 617,926 $ (547,155) $ (343,803)
========== ========== ==========
Diluted net income (loss) attributable
to common shareholders (Note 13)....... $ 636,318 $ (547,155) $ (343,803)
========== ========== ==========
Net income (loss) per common share:
Basic income (loss) before
extraordinary charge................. $ 7.53 $ (7.43) $ (3.43)
Extraordinary charge.................. -- -- (1.03)
---------- ---------- ----------
Basic net income (loss)............... $ 7.53 $ (7.43) $ (4.46)
========== ========== ==========
Diluted income (loss) before
extraordinary charge................. $ 6.67 $ (7.43) $ (3.43)
Extraordinary charge.................. -- -- (1.03)
---------- ---------- ----------
Diluted net income (loss)............. $ 6.67 $ (7.43) $ (4.46)
========== ========== ==========
Weighted-average number of common shares
outstanding:
Basic................................. 82,024,077 73,644,728 77,033,786
========== ========== ==========
Diluted............................... 95,331,929 73,644,728 77,033,786
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
UnitedGlobalCom, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Stated in thousands, except share amounts)
<TABLE>
<CAPTION>
Class A Class B Other
Common Stock Common Stock Additional Treasury Stock Cumulative
----------------- ------------------ Paid-In Deferred ------------------ Accumulated Comprehensive
Shares Amount Shares Amount Capital Compensation Shares Amount Deficit Loss
---------- ------ ---------- ------ ---------- ------------ --------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
February 28,
1997............ 52,194,526 $523 25,943,550 $259 $340,361 $(624) -- $ -- $(303,553) $(21,870)
Issuance of
Class A Common
Stock in
connection with
Company's stock
option plan..... 303,788 3 -- -- 793 -- -- -- -- --
Issuance of
Class A Common
Stock in
connection with
Company's 401(k)
plan............ 46,968 -- -- -- 334 -- -- -- -- --
Exchange of
Class B Common
Stock for Class
A Common Stock.. 216,904 2 (216,904) (2) -- -- -- -- -- --
Accrual of
dividends on
convertible
preferred
stock........... -- -- -- -- (1,271) -- -- -- -- --
Compensation
expense related
to stock
options......... -- -- -- -- 351 -- -- -- -- --
Issuance of
warrents to
purchase common
stock of
subsidiary...... -- -- -- -- 3,678 -- -- -- -- --
Gain on sale of
stock by
subsidiaries.... -- -- -- -- 7,614 -- -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- 582 -- -- -- --
Purchase of
Class A Common
Stock by
subsidiary...... -- -- -- -- -- -- 6,338,302 (33,074) -- --
Net loss........ -- -- -- -- -- -- -- -- (342,532) --
Change in
unrealized gain
(loss) on
available-for-
sale securities,
net............. -- -- -- -- -- -- -- -- -- (1,593)
Provision for
loss on
available-for-
sale
securities...... -- -- -- -- -- -- -- -- -- 8,013
Change in
cumulative
translation
adjustments..... -- -- -- -- -- -- -- -- -- (50,274)
---------- ---- ---------- ---- -------- ----- --------- -------- --------- --------
Balances,
February 28,
1998............ 52,762,186 $528 25,726,646 $257 $351,860 $ (42) 6,338,302 $(33,074) $(646,085) $(65,724)
========== ==== ========== ==== ======== ===== ========= ======== ========= ========
<CAPTION>
Total
----------
<S> <C>
Balances,
February 28,
1997............ $ 15,096
Issuance of
Class A Common
Stock in
connection with
Company's stock
option plan..... 796
Issuance of
Class A Common
Stock in
connection with
Company's 401(k)
plan............ 334
Exchange of
Class B Common
Stock for Class
A Common Stock.. --
Accrual of
dividends on
convertible
preferred
stock........... (1,271)
Compensation
expense related
to stock
options......... 351
Issuance of
warrents to
purchase common
stock of
subsidiary...... 3,678
Gain on sale of
stock by
subsidiaries.... 7,614
Amortization of
deferred
compensation.... 582
Purchase of
Class A Common
Stock by
subsidiary...... (33,074)
Net loss........ (342,532)
Change in
unrealized gain
(loss) on
available-for-
sale securities,
net............. (1,593)
Provision for
loss on
available-for-
sale
securities...... 8,013
Change in
cumulative
translation
adjustments..... (50,274)
----------
Balances,
February 28,
1998............ $(392,280)
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
UnitedGlobalCom, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(Statement in thousands, except share amounts)
<TABLE>
<CAPTION>
Class A Class B Other
Common Stock Common Stock Additional Treasury Stock Cumulative
----------------- ------------------ Paid-In Deferred ------------------- Accumulated Comprehensive
Shares Amount Shares Amount Capital Compensation Shares Amount Deficit Loss
---------- ------ ---------- ------ ---------- ------------ --------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
February 28,
1998............ 52,762,186 $528 25,726,646 $257 $351,860 $ (42) 6,338,302 $(33,074) $ (646,085) $(65,724)
Issuance of
Class A Common
Stock in
connection with
public offering,
net of offering
costs........... 900,000 9 -- -- 7,395 -- -- -- -- --
Issuance of
Class A Common
Stock in
connection with
Company's stock
option plan..... 906,288 9 -- -- 4,779 -- -- -- -- --
Issuance of
Class A Common
Stock in
connection with
Company's 401(k)
plan............ 35,716 -- -- -- 260 -- -- -- -- --
Exchange of
Class B Common
Stock for Class
A Common Stock.. 5,894,886 59 (5,894,886) (59) -- -- -- -- -- --
Exchange of
Series A
Convertible
Preferred Stock
for Class A
Common Stock.... 850,914 9 -- -- 7,436 -- -- -- -- --
Accrual of
dividends on
convertible
preferred
stock........... -- -- -- -- (1,623) -- -- -- -- --
Repricing of
stock options... -- -- -- -- 1,380 (1,380) -- -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- 743 -- -- -- --
Gain on deemed
issuance of
stock by
subsidiary...... -- -- -- -- 5,786 -- -- -- -- --
Class A Common
Stock issued by
subsidiary for
additional
interest in
Ireland
systems......... -- -- -- -- 918 -- (769,062) 4,013 -- --
Elimination of
historical two
month reporting
difference due
to change in
fiscal year..... -- -- -- -- -- -- -- -- (50,369) --
Net loss........ -- -- -- -- -- -- -- -- (545,532) --
Change in
cumulative
translation
adjustments..... -- -- -- -- -- -- -- -- -- (24,713)
Change in
unrealized gain
(loss) on
available-for-
sale
securities...... -- -- -- -- -- -- -- -- -- (505)
---------- ---- ---------- ---- -------- ------ --------- -------- ----------- --------
Balances,
December 31,
1998............ 61,349,990 $614 19,831,760 $198 $378,191 $ (679) 5,569,240 $(29,061) $(1,241,986) $(90,942)
========== ==== ========== ==== ======== ====== ========= ======== =========== ========
<CAPTION>
Total
----------
<S> <C>
Balances,
February 28,
1998............ $(392,280)
Issuance of
Class A Common
Stock in
connection with
public offering,
net of offering
costs........... 7,404
Issuance of
Class A Common
Stock in
connection with
Company's stock
option plan..... 4,788
Issuance of
Class A Common
Stock in
connection with
Company's 401(k)
plan............ 260
Exchange of
Class B Common
Stock for Class
A Common Stock.. --
Exchange of
Series A
Convertible
Preferred Stock
for Class A
Common Stock.... 7,445
Accrual of
dividends on
convertible
preferred
stock........... (1,623)
Repricing of
stock options... --
Amortization of
deferred
compensation.... 743
Gain on deemed
issuance of
stock by
subsidiary...... 5,786
Class A Common
Stock issued by
subsidiary for
additional
interest in
Ireland
systems......... 4,931
Elimination of
historical two
month reporting
difference due
to change in
fiscal year..... (50,369)
Net loss........ (545,532)
Change in
cumulative
translation
adjustments..... (24,713)
Change in
unrealized gain
(loss) on
available-for-
sale
securities...... (505)
----------
Balances,
December 31,
1998............ $(983,665)
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
UnitedGlobalCom, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
(Stated in thousands, except share amounts)
<TABLE>
<CAPTION>
Class A Class B Series C Series D
Common Stock Common Stock Preferred Stock Preferred Stock Additional
----------------- ------------------ ---------------- ---------------- Paid-In Deferred
Shares Amount Shares Amount Shares Amount Shares Amount Capital Compensation
---------- ------ ---------- ------ ------- -------- ------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31,
1998............ 61,349,990 $614 19,831,760 $198 -- $ -- -- $ -- $ 378,191 $ (679)
Exchange of
Class B Common
Stock for Class
A Common Stock.. 507,820 5 (507,820) (5) -- -- -- -- -- --
Issuance of
Class A Common
Stock in
connection with
exercise of
warrants........ 2,883,600 29 -- -- -- -- -- -- 21,598 --
Issuance of
Class A Common
Stock in
connection with
Company's stock
option plans.... 1,838,089 18 -- -- -- -- -- -- 10,184 --
Issuance of
Class A Common
Stock in
connection with
Company's 401(k)
plan............ 1,502 -- -- -- -- -- -- -- 51 --
Exchange of
Series A
Convertible
Preferred Stock
for Class A
Common Stock.... 3,006,404 30 -- -- -- -- -- -- 26,276 --
Exchange of
Series B
Convertible
Preferred Stock
for Class A
Common Stock.... 487,410 5 -- -- -- -- -- -- 5,173 --
Issuance of
Series C
Convertible
Preferred Stock,
net of offering
costs........... -- -- -- -- 425,000 395,250 -- -- (13,642) --
Issuance of
Class A Common
Stock in
connection with
public offering,
net of offering
costs........... 11,500,000 115 -- -- -- -- -- -- 571,325 --
Issuance of
Series D
Convertible
Preferred
Stock........... -- -- -- -- -- -- 287,500 267,375 (7,446) --
Accrual of
dividends on
Series A, B, C
and D
Convertible
Preferred
Stock........... -- -- -- -- -- 14,875 -- 1,398 (2,119) --
Equity
transactions of
subsidiaries.... -- -- -- -- -- -- -- -- 427,044 (221,640)
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- -- 102,323
Net income...... -- -- -- -- -- -- -- -- -- --
Change in
cumulative
translation
adjustments..... -- -- -- -- -- -- -- -- -- --
Change in
unrealized gain
on available-
for-sale
securities...... -- -- -- -- -- -- -- -- -- --
---------- ---- ---------- ---- ------- -------- ------- -------- ---------- ---------
Balances,
December 31,
1999............ 81,574,815 $816 19,323,940 $193 425,000 $410,125 287,500 $268,773 $1,416,635 $(119,996)
========== ==== ========== ==== ======= ======== ======= ======== ========== =========
<CAPTION>
Other
Treasury Stock Cumulative
------------------- Accumulated Comprehensive
Shares Amount Deficit Loss Total
--------- --------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Balances,
December 31,
1998............ 5,569,240 $(29,061) $(1,241,986) $ (90,942) $ (983,665)
Exchange of
Class B Common
Stock for Class
A Common Stock.. -- -- -- -- --
Issuance of
Class A Common
Stock in
connection with
exercise of
warrants........ -- -- -- -- 21,627
Issuance of
Class A Common
Stock in
connection with
Company's stock
option plans.... -- -- -- -- 10,202
Issuance of
Class A Common
Stock in
connection with
Company's 401(k)
plan............ -- -- -- -- 51
Exchange of
Series A
Convertible
Preferred Stock
for Class A
Common Stock.... -- -- -- -- 26,306
Exchange of
Series B
Convertible
Preferred Stock
for Class A
Common Stock.... -- -- -- -- 5,178
Issuance of
Series C
Convertible
Preferred Stock,
net of offering
costs........... -- -- -- -- 381,608
Issuance of
Class A Common
Stock in
connection with
public offering,
net of offering
costs........... -- -- -- -- 571,440
Issuance of
Series D
Convertible
Preferred
Stock........... -- -- -- -- 259,929
Accrual of
dividends on
Series A, B, C
and D
Convertible
Preferred
Stock........... -- -- (16,273) -- (2,119)
Equity
transactions of
subsidiaries.... -- -- -- -- 205,404
Amortization of
deferred
compensation.... -- -- -- -- 102,323
Net income...... -- -- 636,318 -- 636,318
Change in
cumulative
translation
adjustments..... -- -- -- (127,154) (127,154)
Change in
unrealized gain
on available-
for-sale
securities...... -- -- -- 6,858 6,858
--------- --------- ------------ ------------- -----------
Balances,
December 31,
1999............ 5,569,240 $(29,061) $ (621,941) $(211,238) $1,114,306
========= ========= ============ ============= ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
UnitedGlobalCom, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands)
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................... $ 636,318 $(545,532) $(342,532)
Elimination of historical two month
reporting difference due to change in
fiscal year............................ -- (50,369) --
Adjustments to reconcile net income
(loss) to net cash flows from operating
activities:
Gain on issuance of common equity
securities by subsidiaries............ (1,508,839) -- --
Extraordinary charge for early
retirement of debt.................... -- -- 79,091
Share in results of affiliates, net.... 49,638 66,326 70,291
Minority interests in subsidiaries..... (360,444) (1,186) (1,568)
Depreciation and amortization.......... 418,714 192,968 91,656
Accretion of interest on senior notes
and amortization of deferred financing
costs................................. 224,569 130,803 110,633
Stock-based compensation expense....... 223,734 164,793 351
Gain on sale of investments in
affiliates............................ -- -- (90,020)
Provision for losses on marketable
equity securities and investment
related costs......................... 7,127 9,473 14,793
Increase in receivables, net........... (83,611) (12,755) (3,222)
(Increase) decrease in other assets.... (28,918) (8,528) 6,993
Increase in accounts payable, accrued
liabilities and other................. 304,628 55,995 2,882
----------- --------- ---------
Net cash flows from operating
activities............................ (117,084) 1,988 (60,652)
----------- --------- ---------
Cash flows from investing activities:
Purchase of short-term liquid
investments........................... (988,380) (149,601) (94,656)
Proceeds from sale of short-term liquid
investments........................... 140,216 141,834 131,284
Restricted cash released (deposited),
net................................... (3,259) 27,904 (8,350)
Investments in affiliates and other
investments........................... (373,526) (139,011) (177,632)
Proceeds from sale of investments in
affiliated companies.................. 18,000 19,968 211,125
New acquisitions, net of cash
acquired.............................. (2,321,799) (109,881) --
Capital expenditures................... (794,177) (217,057) (115,033)
Other.................................. (30,439) (7,616) (19,834)
----------- --------- ---------
Net cash flows from investing
activities............................ (4,353,364) (433,460) (73,096)
----------- --------- ---------
Cash flows from financing activities:
Issuance of common stock in connection
with public offerings, net of
financing costs....................... 571,440 7,402 --
Issuance of Series C Convertible
Preferred Stock....................... 381,608 -- --
Issuance of Series D Convertible
Preferred Stock....................... 259,929 -- --
Issuance of common stock in connection
with exercise of warrants............. 21,627 -- --
Issuance of common stock by
subsidiaries.......................... 2,624,306 -- --
Issuance of common stock in connection
with Company's and subsidiary's stock
option plans.......................... 28,355 4,789 796
Proceeds from offering of senior notes
and senior discount notes............. 2,749,752 -- 842,125
Retirement of existing senior notes.... (435) -- (531,800)
Proceeds from short-term and long-term
borrowings............................ 1,064,579 321,167 233,715
Deferred financing costs............... (100,679) (5,932) (30,868)
Repayments of short-term and long-term
borrowings............................ (1,277,038) (168,358) (120,570)
Payment of sellers notes............... (18,000) -- (46,351)
Cash (paid to) contributed from
minority interest partners............ 2,971 (253) 22,042
----------- --------- ---------
Net cash flows from financing
activities............................ 6,308,415 158,815 369,089
----------- --------- ---------
Effect of exchange rates on cash........ 52,340 4,824 (684)
----------- --------- ---------
Increase (decrease) in cash and cash
equivalents............................ 1,890,307 (267,833) 234,657
Cash and cash equivalents, beginning of
period................................. 35,608 303,441 68,784
----------- --------- ---------
Cash and cash equivalents, end of
period................................. $ 1,925,915 $ 35,608 $ 303,441
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
UnitedGlobalCom, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Stated in thousands)
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest................. $ 101,121 $40,929 $ 7,513
========= ======= =======
Cash received for interest............. $ 41,633 $ 9,074 $ 7,694
========= ======= =======
Issuance of preferred stock utilized in
purchase of Australian investments.... $ -- $29,544 $ --
========= ======= =======
Seller note for purchase of system in
Hungary............................... $ -- $18,000 $ --
========= ======= =======
Seller notes for purchase of Argentine
systems............................... $ -- $ -- $52,061
========= ======= =======
Acquisition of 100% of @Entertainment:
Net current assets..................... $ (51,239) $ -- $ --
Property, plant and equipment.......... (196,178) -- --
Goodwill............................... (986,814) -- --
Long-term liabilities.................. 448,566 -- --
Other.................................. (21,335) -- --
--------- ------- -------
Total cash paid........................ (807,000) -- --
Cash acquired.......................... 62,507 -- --
--------- ------- -------
Net cash paid.......................... $(744,493) $ -- $ --
========= ======= =======
Acquisition of 100% of Stjarn:
Property, plant and equipment.......... $ (43,171) $ -- $ --
Goodwill............................... (442,094) -- --
Net current liabilities................ 55,997 -- --
Long-term liabilities.................. 32,268 -- --
--------- ------- -------
Total purchase price................... (397,000) -- --
Seller's Note.......................... 100,000 -- --
--------- ------- -------
Total cash paid........................ (297,000) -- --
Cash acquired.......................... 3,792 -- --
--------- ------- -------
Net cash paid.......................... $(293,208) $ -- $ --
========= ======= =======
Acquisition of remaining 49.0% of UTH:
Property, plant and equipment.......... $(210,013) $ -- $ --
Investments in affiliated companies.... (46,830) -- --
Goodwill............................... (256,749) -- --
Net current liabilities................ 5,384 -- --
Long-term liabilities.................. 242,536 -- --
--------- ------- -------
Total cash paid........................ (265,672) -- --
Cash acquired.......................... 13,629 -- --
--------- ------- -------
Net cash paid.......................... $(252,043) $ -- $ --
========= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
UnitedGlobalCom, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Stated in thousands)
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Acquisition of remaining 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........................ $ (10,381) $ -- $ --
Property, plant and equipment.......... (203,154) -- --
Goodwill and other intangible assets... (244,981) -- --
Other long-term assets................. (14,685) -- --
Elimination of equity investment in
Chilean joint venture................. 69,381 -- --
Long-term liabilities.................. 145,641 -- --
--------- --------- --------
Total cash paid........................ (258,179) -- --
Cash acquired.......................... 5,498 -- --
--------- --------- --------
Net cash paid.......................... $(252,681) $ -- $ --
========= ========= ========
Acquisition of 100% of GelreVision:
Property, plant and equipment.......... $ (49,407) $ -- $ --
Goodwill............................... (67,335) -- --
Net current liabilities................ 2,682 -- --
Long-term liabilities.................. 4,236 -- --
--------- --------- --------
Total cash paid........................ (109,824) -- --
Cash acquired.......................... 136 -- --
--------- --------- --------
Net cash paid.......................... $(109,688) $ -- $ --
========= ========= ========
Contribution of Dutch cable systems to
new joint venture:
Working capital........................ $ -- $ (1,871) $ --
Investments in affiliated companies.... -- 96,866 --
Property, plant and equipment.......... -- 85,037 --
Goodwill and other intangible assets... -- 78,515 --
Senior secured notes and other debt.... -- (111,553) --
Other liabilities...................... -- (17,417) --
--------- --------- --------
Total net assets contributed........... $ -- $ 129,577 $ --
========= ========= ========
Acquisition of Dutch cable assets:
Property, plant and equipment and other
long-term assets...................... $ -- $ (51,632) $ --
Goodwill and other intangible assets... -- (36,416) --
--------- --------- --------
Total cash paid........................ $ -- $ (88,048) $ --
========= ========= ========
Sale of Argentine cable systems:
Working capital, net of cash
relinquished of $2,133................ $ -- $ -- $ (3,319)
Investments in affiliated companies.... -- -- 83,535
Property, plant and equipment and other
long-term assets...................... -- -- 4,560
Goodwill and other intangible assets... -- -- 60,727
Sellers notes (assumed by the buyers).. -- -- (24,398)
Gain on sale........................... -- -- 90,020
--------- --------- --------
Cash received from sale................ $ -- $ -- $211,125
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
UnitedGlobalCom, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Stated in thousands)
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Acquisition of additional 50.0% interest
in UPC:
Working capital, including cash
acquired of $50,872................... $ -- $ -- $ (7,158)
Investment in UnitedGlobalCom, Inc.
Class A Common Stock.................. -- -- (33,074)
Investments in affiliated companies.... -- -- (167,945)
Property, plant and equipment and other
long-term assets...................... -- -- (273,988)
Goodwill and other intangible assets... -- -- (383,503)
Elimination of United's equity
investment in UPC .................... -- -- 46,319
Long-term debt......................... -- -- 624,633
Other liabilities...................... -- -- 32,216
----- ----- ---------
Total cash paid........................ $ -- $ -- $(162,500)
===== ===== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Nature of Operations
UnitedGlobalCom, Inc. (formerly known as United International Holdings, Inc.,
together with its majority-owned subsidiaries, the "Company" or "United") was
formed as a Delaware corporation in May 1989, for the purpose of developing,
acquiring and managing foreign multi-channel television, programming and
telephony operations outside the United States.
The following chart presents a summary of the Company's significant
investments in telecommunications as of December 31, 1999.
<TABLE>
<CAPTION>
United
100.0% 100.0%
United Europe Inc. ("UEI") United International Properties, Inc. ("UIPI")
<S> <C> <C>
53.2% 100.0% 100.0%
United Pan-Europe United Asia/Pacific United Latin America,
Communications N.V. Communications, Inc. Inc.
("UPC") ("UAP") * ("ULA")
100.0%
Austria: United Brazil:
Telekabel Group 95.0% Australia/Pacific, Inc. TV Show Brasil 100.0%
Belgium: ("United A/P") Jundiai 46.3%
UPC Belgium 100.0% 75.4% Chile:
Czech Republic: Austar United VTR 100.0%
Kabel Net 100.0% Communications, Limited Mexico:
Kabel Plus 94.6% ("Austar United") Megapo 49.0%(4)
France: Peru:
UPC France 99.6%(1) Australia: Cable Star 62.2%
Germany: Austar 100.0% Latin American
PrimaCom 18.2%(2) XYZ Entertainment 50.0% Programming:
Hungary: New Zealand: MGM Networks LA 50.0%
UPC Magyarorszag 79.3% Saturn 100.0%
Monor 97.1%
Ireland: * Other UAP
Tara 80.0% China:
Israel: Hunan
Tevel 46.6% International TV 49.0%
Malta: Philippines:
Melita 50.0% Pilipino Cable
The Netherlands: Corporation 19.6%
UPC Nederland 100.0%
Norway:
UPC Norge 100.0%
Poland:
@Entertainment 100.0%
Romania:
UPC Romania 51.0%-100.0%
Slovak Republic:
UPC Slovak 95.0%-100.0%
Spain/Portugal:
Iberian Programming 50.0%
Sweden:
Stjarn 100.0%
United Kingdom:
Xtra Music 41.0%
Other Business Lines:
SBS 13.3%(3)
Priority Telecom 100.0%
chello broadband 100.0%
UPCtv 100.0%
</TABLE>
(1)In February 2000, UPC's interest decreased to 92.0% (See Note 19).
(2)Subsequent to December 31, 1999, UPC increased its interest to 24.9%.
(3)In February 2000, UPC acquired an additional 10.2% interest in SBS for
(Euro)162.5 ($163.5) million.
(4)In January 2000, ULA purchased an additional 41.3% interest in Megapo for
$22.8 million.
F-11
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies
Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and all subsidiaries where it exercises a controlling financial
interest through the ownership of a majority voting interest. The following
illustrates those subsidiaries for which the Company consolidated the results
of operations for only a portion of the fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
Effective Date
Entity of Consolidation Reason
- ------ ---------------- ------
<S> <C> <C>
UPC Nederland(1) February 1, 1999 Acquisition of remaining 49.0% interest in
United Telekabel Holding N.V. ("UTH")
VTR May 1, 1999 Acquisition of remaining 66.0% interest
UPC Slovensko June 1, 1999 Acquisition
(Slovak
Republic)
GelreVision (The June 1, 1999 Acquisition
Netherlands)
Reseaux Cables de June 1, 1999 Acquisition
France ("RCF")
Saturn(2) August 1, 1999 Acquisition of remaining 35.0% interest
Stjarn August 1, 1999 Acquisition
Videopole August 1, 1999 Acquisition
(France)
@Entertainment August 1, 1999 Acquisition
Time Warner Cable September 1, 1999 Acquisition
France
A2000 (The September 1, 1999 Acquisition of remaining 50.0% interest
Netherlands)
Kabel Plus October 1, 1999 Acquisition
Monor December 1, 1999 Acquisition
</TABLE>
- --------
(1) Prior to the acquisition date, the equity method of accounting was used
because of certain minority shareholder's rights.
(2) The Company consolidated the results of operations of Saturn from July 1,
1996 to December 31, 1997. Effective January 1, 1998 the Company
discontinued consolidating the results of operations of Saturn because of
certain minority shareholder's rights.
The Company began consolidating UPC upon acquisition of the remaining 50.0%
interest on December 11, 1997. Prior to December 11, 1997, the Company
accounted for its investment in UPC under the equity method. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Change in Fiscal Year-End
Prior to the ten months ended December 31, 1998, the Company's fiscal year-end
was February 28, and it accounted for its share of the income or loss of its
operating companies based on the calendar year results of each operating
company. This created a two month delay in reporting the operating company
results in the Company's consolidated results for its fiscal year-end. On
February 24, 1999, the Company changed its fiscal year-end from the last day
in February to the last day in December, effective December 31, 1998. To
effect the
F-12
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
transaction to the new fiscal year, the combined results of operations of the
operating companies for January and February 1998, a loss of $50.4 million,
has been reported as a one-time adjustment to retained deficit as of March 1,
1998 in the consolidated statement of stockholders' equity (deficit).
Consequently, the consolidated statement of operations presents the
consolidated results of the Company and its subsidiaries for the ten months
ended December 31, 1998. For comparative purposes, the Company's consolidated
revenue, net operating loss and net loss were $84.3 million, $125.4 million
and $206.4 million, respectively, for the ten months ended December 31, 1997
and the Company's consolidated revenue, net operating loss and net loss were
$298.6 million, $350.7 million and $595.9 million, respectively, for the year
ended December 31, 1998.
Cash and Cash Equivalents and Short-Term Liquid Investments
Cash and cash equivalents include cash and investments with original
maturities of less than three months. Short-term liquid investments include
certificates of deposit, commercial paper, corporate bonds and government
securities which have original maturities greater than three months but less
than twelve months. Short-term liquid investments are classified as available-
for-sale and are reported at fair market value.
Restricted Cash
Cash held as collateral for letters of credit and other loans is classified
based on the expected expiration of such facilities. Cash held in escrow and
restricted to a specific use is classified based on the expected timing of
such disbursement.
Costs to be Reimbursed by Affiliated Companies
The Company incurs costs on behalf of affiliated companies, such as salaries
and benefits, travel and professional services. These costs are reimbursed by
the affiliated companies.
Inventory
Inventory is stated at the lower of cost (first-in, first-out basis) or
market.
Investments in Affiliates, Accounted for under the Equity Method
For those investments in unconsolidated subsidiaries and companies in which
the Company's voting interest is 20.0% to 50.0%, its investments are held
through a combination of voting common stock, preferred stock, debentures or
convertible debt and/or the Company exerts significant influence through board
representation and management authority, the equity method of accounting is
used. Under this method, the investment, originally recorded at cost, is
adjusted to recognize the Company's proportionate share of net earnings or
losses of the affiliate, limited to the extent of the Company's investment in
and advances to the affiliate, including any debt guarantees or other
contractual funding commitments. The Company's proportionate share of net
earnings or losses of affiliates includes the amortization of the excess of
its cost over its proportionate interest in each affiliate's net assets.
Marketable Equity Securities and Other Investments
The cost method of accounting is used for the Company's other investments in
affiliates in which the Company's ownership interest is less than 20.0% and
where the Company does not exert significant influence, except for those
investments in marketable equity securities. The Company classifies its
investments in marketable equity securities in which its interest is less than
20.0% and where the Company does not exert significant influence as available-
for-sale and reports such investments at fair market value. Unrealized gains
and losses are charged or credited to equity, and realized gains and losses
and other-than-temporary declines in market value are included in operations.
F-13
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Additions, replacements,
installation costs and major improvements are capitalized, and costs for
normal repair and maintenance of property, plant and equipment are charged to
expense as incurred. Assets constructed incorporate overhead expense and
interest charges incurred during the period of construction; investment
subsidies are deducted. Upon disconnection of a subscriber, the remaining book
value of the subscriber equipment, excluding converters which are recovered
upon disconnection, and the capitalized labor are written off and accounted
for as an operating cost. Depreciation is calculated using the straight-line
method over the economic life of the asset.
The economic lives of property, plant and equipment at acquisition are as
follows:
<TABLE>
<S> <C>
Cable distribution networks....................................... 3-20 years
Subscriber premises equipment and converters...................... 3-10 years
MMDS/DTH distribution facilities.................................. 5-20 years
Office equipment, furniture and fixtures.......................... 3-10 years
Buildings and leasehold improvements.............................. 3-33 years
Other............................................................. 3-10 years
</TABLE>
Goodwill and Other Intangible Assets
The excess of investments in consolidated subsidiaries over the net tangible
asset value at acquisition is amortized on a straight-line basis over 15
years. Licenses in newly-acquired companies are recognized at the fair market
value of those licenses at the date of acquisition. Licenses in new franchise
areas include the capitalization of direct costs incurred in obtaining the
license. The license value is amortized on a straight-line basis over the
initial license period, up to a maximum of 20 years.
Recoverability of Tangible and Intangible Assets
The Company evaluates the carrying value of all tangible and intangible assets
whenever events or circumstances indicate the carrying value of assets may
exceed their recoverable amounts. An impairment loss is recognized when the
estimated future cash flows (undiscounted and without interest) expected to
result from the use of an asset are less than the carrying amount of the
asset. Measurement of an impairment loss is based on fair value of the asset
computed using discounted cash flows if the asset is expected to be held and
used. Measurement of an impairment loss for an asset held for sale would be
based on fair market value less estimated costs to sell.
Deferred Financing Costs
Costs to obtain debt financing are capitalized and amortized over the life of
the debt facility using the effective interest method.
Subscriber Prepayments and Deposits
Payments received in advance for multi-channel television service are deferred
and recognized as revenue when the associated services are provided. Deposits
are recorded as a liability upon receipt and refunded to the subscriber upon
disconnection.
Revenue Recognition
Revenue is primarily derived from the sale of multi-channel television,
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
F-14
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
with respect to reconnections and disconnections are recognized in the period
in which the reconnection or disconnection occurs because reconnection fees
are charged at a level equal to or less than related reconnection costs.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of subscriber receivables. Concentrations
of credit risk with respect to subscriber receivables are limited due to the
Company's large number of customers and their dispersion across many different
countries worldwide.
Staff Accounting Bulletin No. 51 ("SAB 51") Accounting Policy
Gains realized as a result of stock sales by the Company's subsidiaries are
recorded in the statement of operations, except for any transactions which
must be credited directly to equity in accordance with the provisions of SAB
51.
Stock-Based Compensation
Stock-based compensation is recognized using the intrinsic value method for
the Company's stock option plans, which results in compensation expense for
the difference between the grant price and the fair market value at each new
measurement date. In addition to the Company's stock option plans, UPC, chello
broadband, ULA and Austar United have also adopted stock-based compensation
plans for their employees. With respect to certain of these plans, the rights
conveyed to employees are the substantive equivalents to stock appreciation
rights. Accordingly, compensation expense is recognized at each financial
statement date based on the difference between the grant price and the
estimated fair value of the respective subsidiary's common stock.
Income Taxes
The Company accounts for income taxes under the asset and liability method
which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of transactions which have been
included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and income tax basis of assets, liabilities
and loss carryforwards using enacted tax rates in effect for the year in which
the differences are expected to reverse. Net deferred tax assets are then
reduced by a valuation allowance if management believes it more likely than
not they will not be realized. Withholding taxes are taken into consideration
in situations where the income of subsidiaries is to be paid out as dividends
in the near future. Such withholding taxes are generally charged to income in
the year in which the dividend income is generated.
Basic and Diluted Net Income (Loss) Per Share
"Basic net income (loss) per share" is determined by dividing net income
(loss) available to common stockholders by the weighted-average number of
common shares outstanding during each period. Net income (loss) available to
common stockholders includes the accrual of dividends on convertible preferred
stock which is charged directly to additional paid-in capital. "Diluted net
income (loss) per share" includes the effects of potentially issuable common
stock, but only if dilutive. On November 11, 1999 the Board of Directors
authorized a two-for-one stock split effected in the form of a stock dividend
distributed on November 30, 1999 to stockholders of record on November 22,
1999. All historical weighted average share and per share amounts have been
restated to reflect the stock split.
Foreign Operations and Foreign Exchange Rate Risk
The functional currency for the Company's foreign operations is the applicable
local currency for each affiliate company, except for countries which have
experienced hyper-inflationary economies. For countries which have hyper-
inflationary economies, the financial statements are prepared in U.S. dollars.
Assets and liabilities of foreign subsidiaries for which the functional
currency is the local currency are translated at exchange rates in
F-15
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
effect at period-end, and the statements of operations are translated at the
average exchange rates during the period. Exchange rate fluctuations on
translating foreign currency financial statements into U.S. dollars that
result in unrealized gains or losses are referred to as translation
adjustments. Cumulative translation adjustments are recorded as a separate
component of stockholders' equity (deficit) and are included in Other
Cumulative Comprehensive Loss.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in income as unrealized (based on period-end translations)
or realized upon settlement of the transactions. Cash flows from the Company's
operations in foreign countries are translated based on their functional
currencies. As a result, amounts related to assets and liabilities reported in
the consolidated statements of cash flows will not agree to changes in the
corresponding balances in the consolidated balance sheets. The effects of
exchange rate changes on cash balances held in foreign currencies are reported
as a separate line below cash flows from financing activities.
Certain of the Company's foreign operating companies have notes payable and
notes receivable that are denominated in a currency other than their own
functional currency. Accordingly, the Company may experience economic loss and
a negative impact on earnings and equity with respect to its holdings solely
as a result of foreign currency exchange rate fluctuations.
New Accounting Principles
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 2000. The Company is currently assessing the
effect of this new standard.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Views on Selected Revenue Recognition
Issues" ("SAB 101"), which provides the staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. SAB 101
is effective for the second quarter of 2000. The Company is currently
assessing the effect of SAB 101.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. Acquisitions and Other
UPC Stock Offerings
In February 1999, UPC successfully completed an initial public offering
selling 133.8 million shares on the Amsterdam Stock Exchange and The Nasdaq
Stock Market, Inc. ("Nasdaq"), raising gross and net proceeds at Dutch guilder
("NLG")21.30 ($10.93) per share of NLG2,852.9 ($1,463.0) million and
NLG2,660.1 ($1,364.1) million, respectively. The proceeds were used to reduce
debt facilities and finance acquisitions. Based on the carrying value of the
Company's investment in UPC as of February 11, 1999, United recognized a gain
of $822.1 million from the resulting step-up in the carrying amount of
United's investment in UPC, in accordance with SAB 51. No deferred taxes were
recorded related to this gain due to the Company's intent on holding its
investment in UPC indefinitely. UPC's offering reduced the Company's ownership
interest in UPC from 100% to 59.6%.
In October 1999 UPC completed a second public offering of 45.0 million
ordinary shares, raising gross and net proceeds at Euro ("(Euro)") 19.92
($21.58) per share of (Euro) 896.3 ($970.9) million and (Euro) 851.5 ($922.4)
million,
F-16
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
respectively. The proceeds were used to finance acquisitions. Based on the
carrying value of the Company's investment in UPC as of October 19, 1999,
United recognized a gain of $403.4 million from the resulting step-up in the
carrying amount of United's investment in UPC, in accordance with SAB 51. No
deferred taxes were recorded related to this gain due to the Company's intent
on holding its investment in UPC indefinitely. This second offering further
reduced the Company's ownership to 53.2% as of December 31, 1999.
If all of the UPC stock options and warrants outstanding as of December 31,
1999 were exercised, the Company's ownership interest would be 51.7% on a
fully-diluted basis.
UTH
In August 1998, UPC merged its Dutch cable television and telecommunications
assets, consisting of its 50.0% interest in A2000 and its wholly-owned
subsidiary Cable Network Brabant Holding B.V. ("CNBH"), with those of the
Dutch energy company N.V. NUON Energie-Onderneming voor Gelderland, Friesland
en Flevoland ("NUON"), forming a new company, UTH (the "UTH Transaction"). The
transaction was accounted for as a formation of a joint venture with NUON's
and UPC's net assets recorded at their historical carrying values. Although
UPC retained a 51.0% economic and voting interest in UTH, because of joint
governance on most significant operating decisions, UPC accounted for its
investment in UTH using the equity method of accounting. On February 17, 1999,
UPC acquired the remaining 49.0% of UTH from NUON (the "NUON Transaction") for
(Euro) 235.1 ($265.7) million. In addition, UPC repaid NUON a (Euro) 15.1
($17.1) million subordinated loan, including accrued interest, dated December
23, 1998, owed by UTH to NUON. The purchase of NUON's interest and payment of
the loan were funded with proceeds from UPC's initial public offering.
Effective February 1, 1999, UPC began consolidating the results of operations
of UTH. Details of the net assets acquired, based on the preliminary purchase
price allocation, were as follows (in thousands):
<TABLE>
<S> <C>
Property, plant and equipment..................................... $ 210,013
Investments in affiliated companies............................... 46,830
Goodwill.......................................................... 256,749
Long-term liabilities............................................. (242,536)
Net current liabilities........................................... (5,384)
---------
Total cash paid................................................. $ 265,672
=========
</TABLE>
F-17
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following pro forma condensed consolidated operating results for the year
ended December 31, 1999 and the ten months ended December 31, 1998 give effect
to the UTH Transaction and the NUON Transaction as if they had occurred at the
beginning of the periods presented. This pro forma condensed consolidated
financial information does not purport to represent what the Company's results
of operations would actually have been if such transactions had in fact
occurred on such dates. The pro forma adjustments are based upon currently
available information and upon certain assumptions that management believes
are reasonable.
<TABLE>
<CAPTION>
For the Year Ended For the Ten Months Ended
December 31, 1999 December 31, 1998
----------------------- ----------------------------
Historical Pro Forma Historical Pro Forma
----------------------- -------------- -------------
(In thousands, except share and per share amounts)
<S> <C> <C> <C> <C>
Revenue................. $ 719,524 $ 729,641 $ 254,068 $ 335,076
=========== =========== ============= =============
Net income (loss)....... $ 636,318 $ 631,623 $ (545,532) $ (581,388)
=========== =========== ============= =============
Net income (loss) per
common share:
Basic net income
(loss)............... $ 7.53 $ 7.48 $ (7.43) $ (7.92)
=========== =========== ============= =============
Diluted net income
(loss)............... $ 6.67 $ 6.63 $ (7.43) $ (7.92)
=========== =========== ============= =============
Weighted-average number
of common shares
outstanding:
Basic................. 82,024,077 82,024,077 73,644,728 73,644,728
=========== =========== ============= =============
Diluted............... 95,331,929 95,331,929 73,644,728 73,644,728
=========== =========== ============= =============
</TABLE>
VTR Acquisition
On April 29, 1999, an indirect wholly-owned subsidiary of ULA acquired a 66.0%
interest in VTR, a company that provides telephony and multi-channel
television services to the greater Santiago, Chile area (the "VTR
Acquisition"). This acquisition, combined with the interest in VTR that is
owned by another indirect wholly- owned subsidiary of the Company, gives the
Company an indirect 100% interest in VTR. The purchase price for the 66.0%
interest in VTR was approximately $258.2 million in cash. In addition, the
Company provided capital for VTR to prepay approximately $125.8 million of
existing bank indebtedness and a promissory note from the Company to one of
the other shareholders of VTR.
Acquisition of UPC Slovensko
In June 1999, UPC acquired SKT spol s.r.o. (now known as UPC Slovensko), a
company that owns and operates a cable television system in Bratislava, the
capital of the Slovak Republic, for $43.3 million.
Acquisition of GelreVision
In June 1999, UPC acquired through UPC Nederland 100% of the GelreVision
multi-channel television systems in The Netherlands for NLG233.9 ($109.8)
million.
Acquisition of Reseaux Cables de France
In June 1999, UPC acquired through UPC France 95.7% of RCF, which operates
cable television systems throughout France, for French francs ("FFR")172.0
($27.1) million.
Restructuring of United A/P Assets and Austar United Initial Public Offering
In June 1999, the Company's interest in Austar, XYZ Entertainment and Saturn
were contributed to Austar United in exchange for new shares issued by Austar
United. On July 27, 1999, Austar United acquired from SaskTel its 35.0%
interest in Saturn in exchange for approximately 13.7 million of Austar
United's shares,
F-18
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
thereby increasing Austar United's ownership interest in Saturn from 65.0% to
100%. In addition, Austar United successfully completed an initial public
offering selling 103.5 million shares on the Australian Stock Exchange,
raising gross and net proceeds at Australian dollar ("A$")4.70 ($3.03) per
share of A$486.5 ($313.6) million and A$453.6 ($292.8) million, respectively.
Based on the carrying value of the Company's investment in Austar United as of
July 27, 1999, United recognized a gain of $248.4 million from the resulting
step-up in the carrying amount of United's investment in Austar United, in
accordance with SAB 51. No deferred taxes were recorded related to this gain
due to the Company's intent on holding its investment in Austar United
indefinitely. Austar United's offering reduced the Company's ownership
interest from 100% to approximately 75.5%. As a result of employee stock
option exercises subsequent to the initial public offering date, the Company's
ownership interest in Austar United decreased to 75.4% as of December 31,
1999. Including all stock options granted to employees that were vested as of
December 31, 1999, the Company's ownership interest in Austar United on a
fully-diluted basis is approximately 73.7%.
Acquisition of Interest in SBS
In July 1999, UPC purchased 4.8% of SBS for $24.3 million in cash. In August
1999, UPC acquired an additional 8.5% of SBS for $75.9 million.
Stjarn Acquisition
In July 1999, UPC acquired Stjarn for a purchase price of $397.0 million, of
which $100.0 million was paid in the form of a one-year note with interest at
8.0% per year and the balance of the purchase price was paid in cash. UPC will
have the option, at maturity of the note, to pay the note in either cash or
UPC stock. Stjarn operates cable television systems serving the greater
Stockholm area.
Acquisition of Videopole
In August 1999, UPC acquired through UPC France 100% of Videopole for a total
purchase price of $135.1 million. The purchase price was paid in cash ($69.9
million) and 2.9 million ordinary shares of UPC ($65.2 million). Based on the
carrying value of the Company's investment in UPC as of July 31, 1999, United
recognized a gain of $34.9 million from the resulting step-up in the carrying
amount of United's investment in UPC, in accordance with SAB 51. No deferred
taxes were recorded related to this gain due to the Company's intent on
holding its investment in UPC indefinitely.
@Entertainment Acquisition
In August 1999, UPC acquired 100% of @Entertainment for $807.0 million in
cash. Details of the net assets acquired, based on a preliminary purchase
price allocation using information currently available, were as follows (in
thousands):
<TABLE>
<S> <C>
Net current assets................................................ $ 51,239
Property, plant and equipment..................................... 196,178
Goodwill.......................................................... 986,814
Long-term liabilities............................................. (448,566)
Other............................................................. 21,335
---------
Total cash paid................................................. $ 807,000
=========
</TABLE>
F-19
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following pro forma condensed consolidated operating results for the year
ended December 31, 1999 and the ten months ended December 31, 1998 give effect
to the acquisition of @Entertainment as if it had occurred at the beginning of
each period presented. This pro forma condensed consolidated financial
information does not purport to represent what the Company's results of
operations would actually have been if such transaction had in fact occurred
on such dates. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable.
<TABLE>
<CAPTION>
For the Year Ended For the Ten Months Ended
December 31, 1999 December 31, 1998
--------------------- --------------------------
Historical Pro Forma Historical Pro Forma
---------- ---------- ------------ ------------
(In thousands, except share and per share
amounts)
<S> <C> <C> <C> <C>
Revenue.................. $ 719,524 $ 766,503 $ 254,068 $ 304,446
========== ========== ============ ============
Net income (loss)........ $ 636,318 $ 444,151 $ (545,532) $ (725,398)
========== ========== ============ ============
Net income (loss) per
common share:
Basic net income
(loss)................ $ 7.53 $ 5.19 $ (7.43) $ (9.87)
========== ========== ============ ============
Diluted net income
(loss)................ $ 6.67 $ 4.66 $ (7.43) $ (9.87)
========== ========== ============ ============
Weighted-average number
of common shares
outstanding:
Basic.................. 82,024,077 82,024,077 73,644,728 73,644,728
========== ========== ============ ============
Diluted................ 95,331,929 95,331,929 73,644,728 73,644,728
========== ========== ============ ============
</TABLE>
Acquisition of Time Warner Cable France
In August 1999, UPC acquired through UPC France 100% of Time Warner Cable
France, a company that operates three cable television systems in the suburbs
of Paris and Lyon and in the city of Limoges. The purchase price was $71.1
million in cash. Simultaneous with the acquisition of Time Warner Cable
France, UPC acquired an additional 47.6% interest in one of its operating
systems, Rhone Vision Cable, in which Time Warner France had a 49.9% interest,
for FFR89.3 ($14.6) million, increasing UPC's ownership in that system to
97.5%.
Acquisition of 50.0% of A2000
In September 1999, UPC acquired through UPC Nederland, the remaining 50.0% of
A2000 that it did not already own for $229.0 million and $13.1 million in cash
and assumed receivables, respectively.
Kabel Plus Acquisition
In October 1999, UPC acquired a 94.6% interest in Kabel Plus for a purchase
price of $150.0 million, and took control of the Kabel Plus cable television
systems in the Czech and Slovak Republics.
Acquisition of Additional Interest in Monor
In December 1999, UPC acquired an additional 48.0% economic interest in Monor
from its partner and several small minority shareholders for $45.0 million,
increasing UPC's ownership to 97.1%. Monor's telephony system is located in
the Monor region, an area which borders Budapest in Hungary.
Purchase of Minority Interest in PrimaCom
In December 1999, UPC purchased a total interest of 18.2% in PrimaCom, which
owns and operates cable television networks in Germany, for (Euro) 226.5
($227.9) million. The fair value of this investment was $231.9 million as of
December 31, 1999 and is reflected in "Marketable equity securities and other
investments" on the Consolidated Balance Sheet.
F-20
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Combivisie and CNBH
Effective January 1, 1998, UPC acquired certain assets, including the Dutch
cable systems of Combivisie for $88.0 million. The purchase was funded with
draws on UPC's existing credit facilities. Subsequent to the transaction, the
assets and liabilities of UPC's other Dutch systems and Combivisie were
merged, forming CNBH, a wholly-owned subsidiary of UPC Nederland.
Hungary
In June 1998, UPC acquired certain Hungarian multi-channel television system
assets for $9.5 million in cash and a non-interest bearing promissory note in
the amount of $18.0 million. These assets are now part of UPC Magyarorszag.
MGM Networks LA
In May 1998, ULA entered into a joint venture with a division of Metro-
Goldwyn-Mayer, Inc. ("MGM") to form MGM Networks LA. Under the terms of the
joint venture, ULA contributed its 100% interest in a Latin American
programming venture for a 50.0% interest in MGM Networks LA, and MGM acquired
a 50.0% interest in MGM Networks LA by contributing its Brazil channel (MGM
Gold Brazil) and committing to fund the first $9.9 million ($6.7 million of
which was funded at closing) required by MGM Networks LA. MGM Networks LA has
also entered into a trademark license agreement with MGM for the use of the
MGM brand name and also into a program license agreement to acquire
programming from MGM.
Austar
In July 1998, Austar acquired certain Australian pay television assets of East
Coast Television Pty Limited ("ECT"), an affiliate of Century Communications
Corporation ("Century"), for $6.1 million of the Company's newly-created
Series B Convertible Preferred Stock. ECT's subscription television business
includes subscribers and certain MMDS licenses and transmission equipment
serving the areas in and around Newcastle, Gossford, Wollongong and Tasmania,
Australia.
XYZ Entertainment
In September 1998, UAP acquired the Australian programming assets held by
Century, consisting of Century's 25.0% interest in XYZ Entertainment, a
programming company that owns and/or distributes five channels to the
Australian multi-channel marketplace, increasing its ownership to 50.0% in XYZ
Entertainment. The purchase price consisted of $1.2 million in cash and $23.4
million of the Company's Series B Preferred Stock.
TV Show Brasil
In October 1998, ULA increased its ownership interest in TV Show Brasil from
45.0% to 100% for $11.4 million, half of which was paid in cash, with the
remainder financed by the seller.
Cable Star
In October 1998, ULA and Arequipa Cable Vision ("ACV") each contributed their
Peruvian multi-channel television assets to Cable Star, with ULA receiving
60.0% of the outstanding shares of Cable Star and the former shareholders of
ACV receiving the other 40.0%.
Tevel and Melita
In November 1998, UPC (i) acquired from Tele-Communications International,
Inc. ("TINTA") its indirect 23.3% and 25.0% interests in the Tevel and Melita
systems, respectively for $91.5 million, doubling UPC's respective ownership
in these systems to 46.6% and 50.0%, respectively, (ii) purchased an
additional 5.0% interest in Princes Holdings and 5.0% of Tara in consideration
for 769,062 shares of United Class A Common Stock held by UPC, and (iii) sold
the 5.0% interest in Princes Holdings, together with its existing 20.0%
interest,
F-21
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
to TINTA for $20.5 million. The net payment of $71.0 million to TINTA ($68.0
million after closing adjustments) was funded with the proceeds of a $90.0
million promissory note made by a subsidiary of UPC to its primary partners in
the Tevel system (the "UPC DIC Loan").
UPC
In July 1995, the Company and Philips Electronics N.V. ("Philips") contributed
their respective ownership interests in European and Israeli multi-channel
television systems to UPC. Philips contributed to UPC its 95.0% interest in
cable television systems in Austria, its 100% interest in cable television
systems in Belgium, its minority interests in multi-channel television systems
in Germany, the Netherlands (Eindhoven) and France. The Company contributed
its interests in multi-channel television systems in Israel, Ireland, the
Czech Republic, Malta, Norway, Hungary, Sweden and Spain. The Company also
contributed $78.2 million in cash to UPC and issued to Philips 6,338,302
shares of its Class A Common Stock having a value of $50.0 million (at date of
closing). In addition, UPC issued to Philips $133.6 million of convertible
subordinated pay-in-kind notes (the "PIK Notes"). As a result of this
transaction, the Company and Philips each owned a 50.0% economic and voting
interest in UPC.
On December 11, 1997, the Company acquired Philips' entire interest in UPC
(the "UPC Transaction"). As part of the UPC Transaction, (i) UPC purchased the
6,338,302 shares of Class A Common Stock of the Company held by Philips, (ii)
United purchased NLG169.9 ($84.3) million of the accreted amount of UPC's PIK
Notes and redeemed them for 45,540,783 shares of UPC, (iii) UPC repaid to
Philips the remaining NLG170.4 ($84.6) million accreted amount of the PIK
Notes, (iv) United purchased 39,364,812 shares of UPC directly from Philips,
and (v) UPC repurchased Philips' remaining equity interest in UPC (73,135,188
shares). The Company effectively owned 100% of UPC as a result of the UPC
Transaction, including shares held by a foundation controlled by United which
administers the UPC stock plan for the benefit of UPC employees and
management, pursuant to UPC's equity incentive plans. The final purchase price
(excluding transaction-related costs) was $425.2 million, comprised of $168.7
million for the purchase by the Company and repayment by UPC of UPC's PIK
Notes, $33.2 million allocated to the purchase by UPC of 6,338,302 shares of
the Company's Class A Common Stock and $223.3 million allocated to the
purchase of Philips' interest in UPC. The UPC Transaction was funded by a
long-term revolving credit facility through UPC with a syndicate of banks
($151.5 million), a bridge bank facility through a subsidiary of UPC ($111.2
million) and a cash investment by the Company of $162.5 million.
Details of the net assets acquired, based on a preliminary allocation of the
purchase price, which were denominated in Dutch guilders and translated to
U.S. dollars using the exchange rate on the date of acquisition, were as
follows (in thousands):
<TABLE>
<S> <C>
Working capital, including cash acquired of $50,872.............. $ (7,158)
Investment in United Class A Common Stock........................ (33,074)
Investment in affiliated companies............................... (167,945)
Property, plant and equipment and other long-term assets......... (273,988)
Goodwill and other intangible assets............................. (383,503)
Elimination of United equity investment.......................... 46,319
Long-term debt................................................... 624,633
Other liabilities................................................ 32,216
---------
Total cash paid................................................ $(162,500)
=========
</TABLE>
Argentina
In October 1997, the Company completed the sale of all of its cable television
assets in Argentina, including the regions of Bahia Blanca, Comodoro, Trelew
and Santa Fe (the "Argentina Transaction"). The sale price for
F-22
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Bahia Blanca, Comodoro, Trelew and Santa Fe collectively was $268.2 million,
of which $25.3 million consisted of remaining notes payable to sellers from
the original acquisitions. From this net sales price of $242.9 million, $29.6
million was paid directly by the buyers to other minority interest
stockholders, resulting in net proceeds to the Company of approximately $211.1
million. The payment was received in full in cash. The Company recognized a
gain on the transaction of $90.0 million.
Tara
In October 1997, Tara issued shares to third parties in exchange for
consideration totaling $2.5 million, thereby diluting the Company's interest
in Tara from 100% to 75.0%. A gain of $1.6 million recognized on the
transaction was credited to additional paid-in capital in accordance with SAB
51.
Saturn
In July 1997, SaskTel Holdings (New Zealand), Inc. ("SaskTel") purchased a
35.0% equity interest in Saturn by investing New Zealand dollars ("NZ$")29.9
($19.6) million directly into Saturn for its newly-issued shares, thereby
reducing the Company's equity interest in Saturn to 65.0%. A gain of $6.0
million recognized on the transaction was credited to additional paid-in
capital in accordance with SAB 51.
Pro Forma Financial Information for the Year Ended February 28, 1998
The following pro forma condensed consolidated operating results for the year
ended February 28, 1998 give effect to the UPC Transaction and the Argentina
Transaction as if each had occurred at the beginning of the period presented.
This pro forma condensed consolidated financial information and notes thereto
do not purport to represent what the Company's results of operations would
actually have been if such transactions had in fact occurred on such date. The
pro forma adjustments are based upon currently available information and upon
certain assumptions that management believes are reasonable.
<TABLE>
<CAPTION>
For the Year Ended
February 28, 1998
-----------------------------
Historical Pro Forma(1)
------------- --------------
(In thousands, except share
and per share amounts)
<S> <C> <C>
Revenue..................................... $ 98,622 $ 244,394
============= =============
Net loss before extraordinary charge........ $ (263,441) $ (395,723)
============= =============
Net loss.................................... $ (342,532) $ (474,814)
============= =============
Net loss per common share:
Basic and diluted loss before
extraordinary charge..................... $ (3.43) $ (5.62)
Extraordinary charge...................... (1.03) (1.12)
------------- -------------
Basic and diluted net loss................ $ (4.46) $ (6.74)
============= =============
Weighted-average number of shares
outstanding................................ 77,033,786 70,695,484
============= =============
</TABLE>
--------
(1) Represents elimination of historical statement of operations
balances for the Argentina systems and elimination of the gain
recorded on the Argentina Transaction, as well as inclusion of the
historical amounts included in UPC's consolidated statement of
operations for the period from January 1, 1997 to December 10,
1997, additional depreciation and amortization related to the step-
up in basis in tangible assets and additional goodwill, the net
decrease in equity in losses of affiliated companies, and the net
increase in interest expense as a result of the UPC Transaction.
F-23
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Cash and Cash Equivalents, Restricted Cash and Short-Term Liquid Investments
<TABLE>
<CAPTION>
As of December 31, 1999
---------------------------------------------
Cash and Short-term
Cash Restricted Liquid
Equivalents Cash Investments Total
----------- ---------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Cash........................... $1,046,827 $18,217 $ -- $1,065,044
Certificates of deposit........ 52,000 -- 293,497 345,497
Commercial paper............... 803,088 -- 182,486 985,574
Corporate bonds................ 24,000 -- 126,179 150,179
Government securities.......... -- -- 27,527 27,527
---------- ------- -------- ----------
Total........................ $1,925,915 $18,217 $629,689 $2,573,821
========== ======= ======== ==========
<CAPTION>
As of December 31, 1998
---------------------------------------------
Cash and Short-term
Cash Restricted Liquid
Equivalents Cash Investments Total
----------- ---------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Cash........................... $ 18,766 $17,215 $ -- $ 35,981
Certificates of deposit........ -- -- 4,000 4,000
Commercial paper............... 16,580 -- 10,541 27,121
Corporate bonds................ -- -- 15,935 15,935
Government securities.......... 262 -- 11,022 11,284
---------- ------- -------- ----------
Total........................ $ 35,608 $17,215 $ 41,498 $ 94,321
========== ======= ======== ==========
</TABLE>
F-24
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Investments in Affiliates, Accounted for under the Equity Method
<TABLE>
<CAPTION>
As of December 31, 1999
---------------------------------------------------------------
Cumulative
Investments Share in Cumulative
in Dividends Results of Translation Valuation
Affiliates Received Affiliates Adjustments Allowance Total
----------- --------- ---------- ----------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Europe:
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>
F-25
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
As of December 31, 1998
----------------------------------------------------------------
Cumulative
Investments Share in Cumulative
in Dividends Results of Translation Valuation
Affiliates Received Affiliates Adjustments Allowance Total
----------- --------- ---------- ----------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Europe:
UTH................... $135,290 $ -- $ (11,447) $ 8,288 $ -- $132,131
Tevel................. 96,340 (6,090) (390) (306) -- 89,554
Melita................ 14,078 -- 997 724 -- 15,799
Monor................. 11,301 -- (2,601) (7,849) -- 851
Iberian Programming... 14,082 -- (7,418) (25) -- 6,639
Xtra Music............ 5,326 -- (536) 252 -- 5,042
Other................. 14,532 -- (3,876) 176 -- 10,832
Asia/Pacific:
Saturn................ 49,808 -- (23,138) (2,881) -- 23,789
XYZ Entertainment..... 44,306 -- (18,537) 111 -- 25,880
Pilipino Cable
Corporation.......... 11,673 -- (2,812) (2,824) -- 6,037
Hunan International
TV................... 6,073 -- (2,435) 16 -- 3,654
Telefenua............. 18,599 -- (14,215) -- (4,384) --
Other................. 350 -- -- -- -- 350
Latin America:
VTR................... 112,052 -- (17,203) (9,874) -- 84,975
Megapo................ 32,496 (1,471) (1,122) (11,067) -- 18,836
MGM Networks LA(1).... 5,687 -- (5,687) -- -- --
Jundiai............... 6,797 -- (587) (1,089) -- 5,121
-------- ------- --------- -------- ------- --------
Total............... $578,790 $(7,561) $(111,007) $(26,348) $(4,384) $429,490
======== ======= ========= ======== ======= ========
</TABLE>
--------
(1) Includes an accrued funding obligation of $3.0 and $2.9 million at
December 31, 1999 and 1998, respectively. The Company would face
significant and punitive dilution if it did not make the requested
fundings.
F-26
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 1999 and 1998, the Company had the following differences
related to the excess of its cost over its proportionate interest in each
affiliate's net tangible assets included in the above table. Such differences
are being amortized over 15 years.
<TABLE>
<CAPTION>
As of December 31, 1999 As of December 31, 1998
----------------------- -----------------------
Basis Accumulated Basis Accumulated
Difference Amortization Difference Amortization
---------- ------------ ---------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Europe:
SBS........................ $109,080 $ (2,828) $ -- $ --
Tevel...................... 82,010 (7,947) 80,644 (3,351)
Melita..................... 11,673 (1,242) 12,898 (451)
Iberian Programming........ 11,941 (521) 2,216 (85)
Xtra Music................. 5,511 (246) 3,585 (73)
Other...................... -- -- 9,985 (404)
Asia/Pacific:
XYZ Entertainment.......... 25,791 (1,609) 23,595 --
Saturn..................... -- -- 12,733 (1,005)
Latin America:
VTR........................ -- -- 19,994 (1,941)
Megapo..................... 20,518 (6,983) 19,583 (5,767)
-------- -------- -------- --------
Total.................... $266,524 $(21,376) $185,233 $(13,077)
======== ======== ======== ========
</TABLE>
Condensed financial information for UPC, stated in U.S. dollars, is presented
below:
<TABLE>
<CAPTION>
For the Year
Ended
December 31,
1997(1)
--------------
(In thousands)
<S> <C>
Revenue....................................................... $ 172,951
Operating, selling, general and administrative expense........ (121,833)
Depreciation and amortization................................. (68,148)
---------
Net operating loss.......................................... (17,030)
Interest, net................................................. (32,936)
Share in results of affiliated companies, net................. (10,395)
Other......................................................... (29,820)
---------
Net loss.................................................... $ (90,181)
=========
</TABLE>
--------
(1) The Company consolidated the results of UPC effective December 11,
1997.
F-27
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Property, Plant and Equipment
<TABLE>
<CAPTION>
As of December 31,
--------------------
1999 1998
---------- --------
(In thousands)
<S> <C> <C>
Cable distribution networks............................ $1,826,781 $255,702
Subscriber premises equipment and converters........... 451,505 252,250
MMDS/DTH distribution facilities....................... 144,593 62,872
Office equipment, furniture and fixtures............... 103,869 30,415
Buildings and leasehold improvements................... 162,522 11,236
Other.................................................. 173,091 40,150
---------- --------
2,862,361 652,625
Accumulated depreciation............................. (482,524) (201,183)
---------- --------
Net property, plant and equipment.................... $2,379,837 $451,442
========== ========
7. Goodwill and Other Intangible Assets
<CAPTION>
As of December 31,
--------------------
1999 1998
---------- --------
(In thousands)
<S> <C> <C>
Europe:
@Entertainment....................................... $ 935,867 $ --
UPC Nederland........................................ 763,714 --
Stjarn............................................... 430,606 --
Telekabel Group...................................... 177,800 206,092
UPC France........................................... 117,787 --
UPC Norge............................................ 85,405 87,563
Kabel Plus........................................... 85,330 --
UPC Magyarorszag..................................... 55,068 51,550
UPC.................................................. 29,406 --
Monor................................................ 24,420 --
UPC Slovak........................................... 23,026 --
UPC Belgium.......................................... 20,994 22,322
Other................................................ 12,932 12,971
Asia/Pacific:
Austar United........................................ 114,882 --
Austar............................................... -- 60,071
Latin America:
VTR.................................................. 223,484 --
TV Show Brasil....................................... 8,298 16,161
Cable Star........................................... 5,916 7,887
---------- --------
3,114,935 464,617
Accumulated amortization........................... (170,133) (39,683)
---------- --------
Net goodwill and other intangible assets........... $2,944,802 $424,934
========== ========
</TABLE>
F-28
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Short-Term Debt
<TABLE>
<CAPTION>
As of December
31,
----------------
1999 1998
-------- -------
(In thousands)
<S> <C> <C>
Stjarn Seller's Note (Note 3).............................. $100,000 $ --
Stjarn Credit Facility..................................... 39,333 --
A2000 Bank Facility (Note 10).............................. 20,575 --
Other UPC.................................................. 4,355 33,504
Other Latin America and Asia/Pacific....................... 9,033 59,875
-------- -------
Total short-term debt.................................... $173,296 $93,379
======== =======
</TABLE>
Carrying value approximates fair value for these short-term facilities.
Stjarn Credit Facility
In December 1998, Stjarn's parent company entered into a Swedish Kronor
("SEK") 521.0 ($61.3) million loan agreement with a bank to refinance certain
debt. The loan currently consists of an A facility, a medium term loan in the
amount of SEK371.0 ($43.6) million and a revolving credit facility in the
amount of SEK150.0 ($17.6) million. These facilities bear interest at the rate
of Stockholm Interbank Offered Rate ("STIBOR") plus a margin of 0.75% to
1.25%. As a result of UPC's acquisition of Stjarn, both the A facility and the
revolving facility are now due on March 31, 2000.
9. Senior Discount Notes and Senior Notes
<TABLE>
<CAPTION>
As of December 31,
---------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
United 1998 Notes.................................... $ 991,568 $ 893,003
United 1999 Notes.................................... 224,426 --
United Old Notes..................................... -- 412
UPC USD Senior Notes due 2009........................ 759,442 --
UPC 10.875% Euro Senior Notes due 2009............... 301,878 --
UPC USD Senior Discount Notes due 2009............... 421,747 --
UPC 10.875% USD Senior Notes due 2007................ 191,852 --
UPC 10.875% Euro Senior Notes due 2007............... 100,625 --
UPC 11.25% USD Senior Notes due 2009................. 239,905 --
UPC 11.25% Euro Senior Notes due 2009................ 100,894 --
UPC 13.375% USD Senior Discount Notes due 2009....... 255,786 --
UPC 13.375% Euro Senior Discount Notes due 2009...... 102,847 --
@Entertainment 1999 Senior Discount Notes............ 141,807 --
@Entertainment 1998 Senior Discount Notes............ 115,984 --
@Entertainment 1999 Series C Senior Discount Notes... 11,841 --
PCI Discount Notes................................... 16,457 --
United A/P Notes..................................... 407,945 356,640
---------- ----------
4,385,004 1,250,055
Less current portion............................... -- (412)
---------- ----------
Total senior discount notes........................ $4,385,004 $1,249,643
========== ==========
</TABLE>
F-29
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
United 1998 Notes
In February 1998, the Company sold in a private transaction $1,375.0 million
principal amount at maturity of 10.75% senior secured discount notes due 2008.
The United 1998 Notes were issued at a discount from their principal amount at
maturity, resulting in gross proceeds to United of approximately $812.2
million. The Company used approximately $531.8 million of the proceeds from
the United 1998 Notes to complete a tender offer for the Company's existing
14.0% senior secured discount notes due 1999 (collectively, the "United Old
Notes") and the consent solicitation that the Company conducted concurrently
therewith. The Company commenced the tender offer on January 7, 1998, and the
tender offer expired on February 4, 1998, with over 99.8% of the United Old
Notes being validly tendered. The Company subsequently purchased $0.5 million
principal amount at maturity of the United Old Notes on the open market,
leaving approximately $0.5 million principal amount at maturity outstanding as
of February 28, 1998. The United Old Notes redeemed had an aggregate accreted
value of approximately $466.2 million as of February 5, 1998. The tender
premium of approximately $65.6 million, combined with the write-off of
unamortized deferred financing costs and other transaction-related costs
totaling approximately $13.5 million, resulted in an extraordinary charge of
$79.1 million.
The United 1998 Notes will accrete at 10.75% per annum, compounded semi-
annually to an aggregate principal amount of $1,375.0 million on February 15,
2003, at which time cash interest will commence to accrue. Commencing August
15, 2003, cash interest on the United 1998 Notes will be payable on February
15 and August 15 of each year until maturity at a rate of 10.75% per annum.
The United 1998 Notes will mature on February 15, 2008, and will be redeemable
at the option of the Company on or after February 15, 2003.
The United 1998 Notes are senior secured obligations of the Company that rank
senior in right of payment to all future subordinated indebtedness of the
Company. The United 1998 Notes are effectively subordinated to all future
indebtedness and other liabilities and commitments of the Company's
subsidiaries. Under the terms of the indenture governing the United 1998 Notes
(the "Indenture"), the Company's subsidiaries are generally prohibited and/or
restricted from incurring any liens against their assets other than liens
incurred in the ordinary course of business, from paying dividends, and from
making investments in entities that are not "restricted" by the terms of the
Indenture. The Company has the option to invest in "unrestricted entities" in
an aggregate amount equal to the sum of $100.0 million plus the aggregate
amount of net cash proceeds from sales of equity, net of payments made on its
preferred stock plus net proceeds from certain litigation settlements. The
Indenture generally prohibits the Company from incurring additional
indebtedness with the exception of a general allowance of $75.0 million for
debt maturing on or after February 15, 2008, certain guarantees totaling $15.0
million, refinancing indebtedness, normal indebtedness to restricted
affiliates and other letters of credit in the ordinary course of business. The
Indenture also limits the amount of additional debt that its subsidiaries or
controlled affiliates may borrow, or preferred shares that they may issue.
Generally, additional borrowings, when added to existing indebtedness, must
satisfy, among other conditions, at least one of the following tests: (i) 7.0
times the borrower's consolidated operating cash flow; (ii) 1.75 times its
consolidated interest expense; or (iii) 225% of the borrower's consolidated
invested equity capital. In addition, there must be no existing default under
the Indenture at the time of the borrowing. The Indenture also restricts its
subsidiaries' ability to make certain asset sales and certain payments.
In conjunction with the United Old Notes, the Company issued 394,000 warrants,
including related put rights (the "Warrants") to purchase a total of 3,573,398
shares of Class A Common Stock at a price of $7.50 per share. At any time
between January 31, 1996 and March 1, 1996, the Warrant holders had the right
to require the Company to repurchase all or a part of the Warrants for $28.34
per Warrant. Holders of the Warrants required the Company to purchase 76,070
Warrants to purchase 689,864 shares of Class A Common Stock for a cost of $2.2
million on March 1, 1996. The remaining value assigned to the Warrants of $9.0
million was reclassified to
F-30
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
additional paid-in capital on March 1, 1996. The remaining 317,930 outstanding
Warrants (representing 2,883,600 shares of Class A Common Stock) were
exercised during 1999, resulting in proceeds of $21.6 million.
United 1999 Notes
On April 29, 1999, the Company sold in a private transaction $355.0 million
principal amount at maturity of 10.875% senior discount notes due 2009. The
United 1999 Notes were issued at a discount from their principal amount at
maturity, resulting in gross proceeds to United of approximately $208.9
million. The United 1999 Notes will accrete at 10.875% per annum, compounded
semi-annually, to an aggregate principal amount of $355.0 million on May 1,
2004. Commencing November 1, 2004, cash interest on the United 1999 Notes will
begin to accrue, payable on May 1 and November 1 of each year until maturity
at a rate of 10.875% per annum. The United 1999 Notes will mature on May 15,
2009, and are redeemable after May 1, 2004 at premiums declining to par on May
1, 2007. Additionally, subject to certain limitations, prior to May 1, 2002,
United may redeem an aggregate of 35.0% of the United 1999 Notes at the
Company's option with the net proceeds from one or more public offerings or
certain asset sales. The United 1999 Notes are senior, general, unsecured
obligations, ranking equally in right of payment to existing and future
senior, unsecured obligations, senior to all future junior obligations and
effectively junior to existing secured obligations, including the United 1998
Notes.
UPC USD Senior Notes due 2009, UPC 10.875% Euro Senior Notes due 2009 and UPC
USD Senior Discount Notes due 2009 (collectively the "UPC July 1999 Notes")
In July 1999, UPC completed a private placement bond offering consisting of
$800.0 million ten-year 10.875% Senior Notes due 2009, (Euro) 300.0 million of
ten-year 10.875% Senior Notes due 2009 and $735.0 million aggregate principal
amount of ten-year 12.5% Senior Discount Notes due 2009. The UPC Senior
Discount Notes due 2009 were sold at 54.5% of face value amount yielding gross
proceeds of approximately $400.7 million, and will accrue but not pay interest
until 2005. Interest payments on the Senior Notes due 2009 will be due semi-
annually, commencing February 1, 2000. The indentures governing the UPC July
1999 Notes place certain limitations on UPC's ability, and the ability of its
subsidiaries, to borrow money, issue capital stock, pay dividends in stock or
repurchase stock, make investments, create certain liens, engage in certain
transactions with affiliates, and sell certain assets or merge with or into
other companies. Concurrent with the closing of the UPC July 1999 Notes
offering, UPC entered into a cross-currency swap, swapping the $800.0 million
UPC Senior Notes due 2009 into fixed and variable rate Euro notes with a
notional amount totaling (Euro) 754.7 million. One half of the Euro notes have
a fixed interest rate of 8.54% through August 1, 2004, thereafter switching to
a variable interest rate of Euro Interbank Offered Rate ("EURIBOR") plus
4.15%, for an initial rate of 7.1%.
UPC 10.875% USD and Euro Senior Notes due 2007, UPC 11.25% USD and Euro Senior
Notes due 2009 and UPC 13.375% USD and Euro Senior Discount Notes due 2009
(collectively the "UPC October 1999 Notes")
In October 1999, UPC completed a private placement bond offering consisting of
six tranches: $200.0 million and (Euro) 100.0 million of eight-year 10.875%
Senior Notes due 2007; $252.0 million and (Euro) 101.0 million of ten-year
11.25% Senior Notes due 2009 and $478.0 million and (Euro) 191.0 million
aggregate principal amount of ten-year 13.375% Senior Discount Notes due 2009.
The Senior Discount Notes were sold at 52.3% of the face amount yielding gross
proceeds of $250.0 million and (Euro) 100.0 million and will accrue but not
pay interest until November 2004. UPC then entered into cross-currency swaps,
swapping the $252.0 million 11.25% coupon into fixed and variable rate Euro
notes with a notional amount totaling (Euro) 240.2 million, and swapping the
$200.0 million 10.875% coupon into fixed and variable rate Euro notes with a
notional amount totaling (Euro) 190.7 million. Of the former swap,
(Euro) 120.1 million have a fixed interest rate of 9.9% through November 1,
2004, thereafter switching to a variable rate of EURIBOR + 4.8%. The remaining
(Euro) 120.1 million have a variable interest rate of EURIBOR + 4.80%. Of the
latter swap, (Euro) 95.4 million have a fixed interest rate of 9.9% through
November 1, 2004, thereafter switching to a variable rate of EURIBOR + 4.8%.
The remaining (Euro) 95.4 million have a variable interest rate of EURIBOR +
4.8%.
F-31
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
@Entertainment 1999 Senior Discount Notes, @Entertainment 1998 Senior Discount
Notes and @Entertainment 1999 Series C Senior Discount Notes (collectively the
"@Entertainment Notes")
In January 1999, @Entertainment sold 256,800 units consisting of Senior
Discount Notes due 2009 and warrants to purchase 1,813,665 shares of
@Entertainment's common stock. The @Entertainment 1999 Senior Discount Notes
were issued at a discount to their aggregate principal amount at maturity
yielding gross proceeds of approximately $100.0 million. Cash interest on the
@Entertainment 1999 Senior Discount Notes will not accrue prior to February 1,
2004. Thereafter, cash interest will accrue at a rate of 14.5% per annum,
payable semi-annually in arrears on August 1 and February 1 of each year,
commencing August 1, 2004. In connection with the acquisition of
@Entertainment, UPC acquired all of the existing warrants held in connection
with the @Entertainment 1999 Senior Discount Notes.
In July 1998, @Entertainment sold 252,000 units, consisting of 14.5% Senior
Discount Notes due 2008 and warrants entitling the warrant holders to purchase
1,824,514 shares of @Entertainment common stock. This offering generated
approximately $125.1 million in gross proceeds to @Entertainment. The
@Entertainment 1998 Senior Discount Notes are unsubordinated and unsecured
obligations of @Entertainment. Cash interest will not accrue prior to July 15,
2003. After that, cash interest will accrue at a rate of 14.5% per year and
will be payable semi-annually in arrears on January 15 and July 15 of each
year, beginning January 15, 2004. The @Entertainment 1998 Senior Discount
Notes will mature on July 15, 2008. In connection with the acquisition of
@Entertainment, UPC acquired all of the existing warrants held in connection
with the @Entertainment 1998 Senior Discount Notes.
Pursuant to the terms of the @Entertainment indenture, @Entertainment
repurchased $49.1 million aggregate principal amount at maturity of these
notes for $26.5 million as a result of UPC's acquisition of @Entertainment.
In January 1999, @Entertainment sold $36.0 million aggregate principal amount
at maturity of Series C Senior Discount Notes generating approximately $9.8
million of gross proceeds. The @Entertainment 1999 Series C Senior Discount
Notes are senior unsecured obligations of @Entertainment. Original issue
discount will accrete from January 20, 1999, until maturity on July 15, 2008.
Cash interest will accrue beginning July 15, 2004 at a rate of 7.0% per year
on the principal amount at maturity, and will be payable semi-annually in
arrears, on July 15 and January 15 of each year beginning January 15, 2005.
PCI Discount Notes
Poland Communications, Inc. ("PCI"), @Entertainment's major operating
subsidiary, sold $130.0 million of discount notes in October 1996. The PCI
Discount Notes bear interest at 9.875%, payable on May 1 and November 1 of
each year. The PCI Discount Notes mature on November 1, 2003. Pursuant to the
terms of the PCI indenture, @Entertainment repurchased a majority of the PCI
Discount Notes in November 1999 as a result of UPC's acquisition of
@Entertainment.
United A/P Notes
The 14.0% senior notes were issued by United A/P in May 1996 and September
1997 at a discount from their principal amount of $488.0 million, resulting in
gross proceeds of $255.0 million. On and after May 15, 2001, cash interest
will accrue and will be payable semi-annually on each May 15 and November 15,
commencing November 15, 2001. The United A/P Notes are due May 15, 2006.
Effective May 16, 1997, the interest rate on these notes increased by an
additional 0.75% per annum to 14.75%. On October 14, 1998, United A/P
consummated an equity sale resulting in gross proceeds to United A/P of $70.0
million, reducing the interest rate from 14.75% to 14.0% per annum. Due to the
increase in the interest rate effective May 16, 1997 until consummation of the
equity sale, the United A/P Notes will accrete to a principal amount of $492.9
million on May 15, 2001, the date cash interest begins to accrue.
F-32
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In November 1997, pursuant to the terms of the indentures governing the United
A/P Notes, United A/P issued warrants to purchase 488,000 shares of its common
stock. The warrants are exercisable through May 15, 2006 at a price of $10.45
per share, which would result in gross proceeds of $5.1 million upon exercise.
The warrants were valued at $3.7 million and have been reflected as an
additional discount to the United A/P Notes on a pro-rata basis and as an
increase in additional paid-in capital. Warrants to acquire 50 shares were
exercised November 24, 1999.
10. Other Long-Term Debt
<TABLE>
<CAPTION>
As of December 31,
--------------------
1999 1998
---------- --------
(In thousands)
<S> <C> <C>
UPC Senior Credit Facility............................. $ 359,720 $ --
New Telekabel Facility................................. 256,861 --
A2000 Facilities....................................... 209,132 --
CNBH Facility.......................................... 122,317 --
Rhone Vision Cable Credit Facility..................... 61,360 --
RCF Facility........................................... 31,852 --
UPC DIC Loan........................................... 39,366 84,214
Mediareseaux Facility.................................. 45,193 21,346
Monor Facility......................................... 33,488 --
Videopole Facility..................................... 7,752 --
Other UPC.............................................. 50,345 3,821
UPC Senior Revolving Credit Facility................... -- 512,179
UPC Bridge Bank Facility............................... -- 60,063
VTR Bank Facility...................................... 176,000 --
New Austar Bank Facility............................... 202,703 67,352
Saturn Bank Facility................................... 57,685 --
Other Asia/Pacific..................................... 2,263 2,923
Other Latin America.................................... 594 --
---------- --------
1,656,631 751,898
Less current portion................................. (52,180) (62,252)
---------- --------
Total other long-term debt........................... $1,604,451 $689,646
========== ========
</TABLE>
UPC Senior Credit Facility
On July 27, 1999, several UPC subsidiaries and a syndicate of banks executed a
Loan and Note Issuance Agreement for a (Euro) 1.0 ($1.1) billion multicurrency
senior secured credit facility. The UPC Senior Credit Facility matures on July
27, 2006 and is comprised of two tranches. The (Euro) 750.0 ($755.1) million
Tranche A is a senior secured reducing revolving credit facility. Tranche B is
a (Euro) 250.0 ($251.7) million term loan credit facility. The UPC Senior
Credit Facility bears interest at EURIBOR (for borrowings in euro) and at the
London Interbank Offered Rate ("LIBOR") (for all other borrowings) plus a
margin of between 0.75% and 2.0% (which shall be at least 1.5% for the first
six months following closing) plus an additional cost of funding calculation.
In addition to repayment of UPC's existing revolving credit facility, proceeds
from the UPC Senior Credit Facility were used to fund acquisitions, repay
certain intercompany debts, pay interest on funds downstreamed from the
proceeds of high yield issues, general corporate purposes, capital
expenditures and other permitted distributions. Borrowings under the UPC
Senior Credit Facility are limited by financial ratio tests. The UPC Senior
Credit Facility contains change in control provisions related to UPC's
ownership in certain subsidiaries and United's ownership of UPC. In addition,
the UPC Senior Credit Facility limits acquisitions funded by loan proceeds to
(Euro) 400.0 ($402.7)
F-33
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
million over the life of the UPC Senior Credit Facility. The UPC Senior Credit
Facility contains certain financial covenants and restrictions on UPC and its
subsidiaries' ability to make dividends or other payments to UPC, incur
indebtedness, dispose of assets and merge and enter into affiliate
transactions. Net proceeds of certain disposals are required to be used to
prepay the facility.
New Telekabel Facility
In March 1999, UPC Nederland replaced their existing facility with a senior
facility. The New Telekabel Facility consists of a (Euro) 340.0 ($342.3)
million revolving facility to N.V. Telekabel, a subsidiary of UPC Nederland,
that will convert to a term facility on December 31, 2001. The New Telekabel
Facility includes (Euro) 5.0 ($5.0) million in the form of an overdraft
facility that will be available until December 31, 2007. The New Telekabel
Facility bears interest at EURIBOR plus a margin between 0.75% and 2.00% based
on leverage multiples tied to certain measures of net operating cash flow.
A2000 Facilities
In January 1996, A2000 and one of its subsidiaries entered into bank
facilities of NLG90.0 ($41.1) million and NLG375.0 ($171.2) million,
respectively. In October 1996, a subsidiary of A2000 entered into a bank
facility of NLG45.0 ($20.5) million. These facilities have between nine- and
ten-year terms and interest rates of Amsterdam Interbank Offered Rate
("AIBOR") plus 0.75% or AIBOR plus 0.7% or fixed rates (fixed prior to each
advance) increased by 0.7% or 0.75% per annum. The facilities also restrict
the borrowers from incurring additional indebtedness and from paying dividends
and distributions, subject to certain exceptions.
CNBH Facility
In February 1998, CNBH entered into a secured NLG250.0 ($114.2) million ten-
year term facility with a syndicate of banks. In January 1999, this facility
was increased to NLG274.0 ($125.1) million. The CNBH Facility bears interest
at AIBOR plus a margin between 0.7% and 0.75%. Beginning in 2001, CNBH will be
required to apply 50.0% of its excess cash flow to prepayment of its facility.
In connection with this facility, CNBH also entered into a NLG5.0 ($2.3)
million ten-year term working capital facility with a bank.
Rhone Vision Cable Credit Facility
In July 1996, Rhone Vision Cable, a subsidiary of Time Warner Cable France,
entered into a FFR680.0 ($104.4) million credit facility with a bank to
finance construction and installation of Rhone Vision Cable networks. The
facility bears interest at LIBOR plus 1.0%, payable quarterly. The facility
must be repaid by the earlier of June 30, 2002 or six months after network
completion.
RCF Facility
In 1990, RCF and six of its subsidiaries entered into a FFR160.0 ($24.6)
million credit facility with a consortium of banks to finance working capital
and operations. In 1995 this facility was amended and extended to FFR252.4
($38.7) million to refinance three further credit facilities entered into by
other subsidiaries of RCF. The loan bears interest at PIBOR (the French
interbank offer rate) plus 1.5%, payable in arrears quarterly. The loan is to
be repaid in yearly installments of FFR34.6 ($5.3) million beginning at the
end of 1999 until December 31, 2005.
UPC DIC Loan
In November 1998, a subsidiary of Discount Investment Corporation ("DIC")
loaned UPC a total of $90.0 million to acquire the additional interests in
Tevel and Melita. The UPC DIC Loan matures in November 2000 and bears interest
at 8.0% and is payable, together with 106.0% of the principal amount, on
maturity. In connection with the UPC DIC Loan, UPC granted to an affiliate of
DIC an option to acquire a total of $90.0 million, plus accrued interest, of
ordinary shares of UPC at a price equal to 90.0% of the initial public
offering price. UPC allocated the $90.0 million in loan proceeds between the
debt instrument and the equity option element on the basis of relative fair
values. In February 1999, the option agreement was amended, resulting in a
F-34
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
grant of two options of $45.0 million each to acquire ordinary shares of UPC.
DIC then exercised the first option for $45.0 million, paying in cash and
acquiring 4.7 million ordinary shares of UPC. UPC repaid $45.0 million of the
UPC DIC Loan and accrued interest with proceeds received from the option
exercise. The remaining option is exercisable until September 30, 2000.
Mediareseaux Facility
In July 1998, Mediareseaux entered into a 9.5 year term facility with a bank
for an amount of FFR680.0 ($104.4) million. The Mediareseaux Facility bears
interest at LIBOR plus a margin ranging from 0.75% to 2.0%. The availability
of the facility depends on revenue generated and debt to equity ratios. The
availability period ends at December 31, 2002. The repayment period starts
from January 1, 2003 to final maturity in 2007. During the repayment period,
Mediareseaux must apply 50.0% of its excess cash flow in prepaying the
facility. In July 1998, Mediareseaux secured a 9.5 year FFR20.0 ($3.1) million
overdraft facility, subject to the same terms and conditions as the
Mediareseaux Facility except that the availability tests are not applicable.
Monor Facility
In September 1997, Monor entered into a $42.0 million term loan facility with
a syndicate of banks. The proceeds of the Monor facility were used to repay
indebtedness and for capital expenditures in the build-out of Monor's network.
Monor's facility matures on December 31, 2006 and bears interest at LIBOR plus
1.5%. Monor entered into an interest rate swap agreement with a bank, swapping
the floating rate to a fixed rate of 6.7% for German marks and 7.8% for U.S.
dollars. Monor's facility is secured by a pledge over the shares of Monor and
its assets. This facility limits Monor's ability to encumber its assets, incur
indebtedness and pay dividends.
VTR Bank Facility
On April 29, 1999, VTR entered into a $220.0 million term loan facility in
connection with the VTR Acquisition. The VTR Bank Facility consists of two
tranches--Tranche A, with an aggregate principal amount of $140.0 million, and
Tranche B, with an aggregate principal amount of $80.0 million. The VTR Bank
Facility bears interest at LIBOR plus a margin of 5.0%, increasing by 0.5%
every three months beginning April 29, 2001 until maturity on April 29, 2002.
The VTR Bank Facility indenture restricts certain investments and payments,
including a ceiling on capital expenditures per fiscal year, as well as
generally prohibiting VTR from incurring additional indebtedness with the
exception of a general allowance of $15.0 million. In addition, VTR must
maintain certain financial ratios on a quarterly basis, such as total debt to
EBITDA, debt service coverage, senior debt to EBITDA, interest coverage, as
well as minimum telephony revenue amounts.
New Austar Bank Facility
On April 23, 1999, Austar executed a new A$400.0 million ($262.3 million)
syndicated senior secured debt facility to refinance the existing bank
facility and to fund Austar's subscriber acquisition and working capital
needs. The New Austar Bank Facility consists of two sub-facilities: (i)
A$200.0 million amortizing term facility ("Tranche 1") and (ii) A$200.0
million cash advance facility ("Tranche 2"). Tranche 1 was used to refinance
the existing bank facility, and Tranche 2 is available upon the contribution
of additional equity on a 2:1 debt-to-equity basis. The New Austar Bank
Facility bears interest at the professional market rate in Australia plus a
margin ranging from 1.75% to 2.25% based upon certain debt to cash flow
ratios. The New Austar Bank Facility is fully repayable pursuant to an
amortization schedule beginning December 31, 2002 and ending March 31, 2006.
As of December 31, 1999, Austar has drawn A$200.0 million under Tranche 1 and
A$109.0 million under Tranche 2, for a total outstanding balance of A$309.0
($202.7) million.
Saturn Bank Facility
On July 15, 1999, Saturn closed a syndicated senior debt facility in the
amount of NZ$125.0 ($65.4) million to fund the completion of Saturn's network.
As of December 31, 1999, Saturn had drawn NZ$109.0 ($57.7) million
F-35
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
against the facility and expects to draw down the remaining balance by the end
of fourth quarter 2000. This debt facility's interest rate has averaged
approximately 8.6%, which is 3.0% over the current base rate upon draw-down.
The Saturn Bank Facility is repayable over a five year period beginning fourth
quarter 2001.
Fair Value of Senior Discount Notes, Senior Notes and Other Long-Term Debt
Fair value is based on market prices for the same or similar issues. Carrying
value is used when a market price is unavailable.
<TABLE>
<CAPTION>
Carrying Value Fair Value
-------------- ----------
(In thousands)
<S> <C> <C>
As of December 31, 1999:
United 1998 Notes.............................. $ 991,568 $ 880,000
United 1999 Notes.............................. 224,426 205,265
UPC USD Senior Notes due 2009.................. 759,442 775,969
UPC 10.875% Euro Senior Notes due 2009......... 301,878 305,652
UPC USD Senior Discount Notes due 2009......... 421,747 415,275
UPC 10.875% USD Senior Notes due 2007.......... 191,852 206,525
UPC 10.875% Euro Senior Notes due 2007......... 100,625 102,639
UPC 11.25% USD Senior Notes due 2009........... 239,905 262,080
UPC 11.25% Euro Senior Notes due 2009.......... 100,894 103,665
UPC 13.375% USD Senior Discount Notes due
2009.......................................... 255,786 272,460
UPC 13.375% Euro Senior Discount Notes due
2009.......................................... 102,847 106,669
@Entertainment 1999 Senior Discount Notes...... 141,807 146,007
@Entertainment 1998 Senior Discount Notes...... 115,984 147,948
@Entertainment 1999 Series C Senior Discount
Notes......................................... 11,841 11,841
PCI Discount Notes............................. 16,457 16,457
United A/P Notes............................... 407,945 414,008
UPC Senior Credit Facility..................... 359,720 359,720
New Telekabel Facility......................... 256,861 256,861
A2000 Facilities............................... 209,132 209,132
CNBH Facility.................................. 122,317 122,317
Rhone Vision Cable Credit Facility............. 61,360 61,360
RCF Facility................................... 31,852 31,852
UPC DIC Loan................................... 39,366 39,366
Mediareseaux Facility.......................... 45,193 45,193
Monor Facility................................. 33,488 33,488
Videopole Facility............................. 7,752 7,752
Other UPC...................................... 50,345 50,345
VTR Bank Facility.............................. 176,000 176,000
New Austar Bank Facility....................... 202,703 202,703
Saturn Bank Facility........................... 57,685 57,685
Other Asia/Pacific and Latin America........... 2,857 2,857
---------- ----------
Total........................................ $6,041,635 $6,029,091
========== ==========
</TABLE>
F-36
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Carrying Value Fair Value
-------------- ----------
(In thousands)
<S> <C> <C>
As of December 31, 1998:
United 1998 Notes............................... $ 893,003 $ 783,750
United Old Notes................................ 412 412
UPC Senior Revolving Credit Facility............ 512,179 512,179
UPC Bridge Bank Facility........................ 60,063 60,063
Mediareseaux Facility........................... 21,346 21,346
UPC DIC Loan.................................... 84,214 84,214
Other UPC....................................... 3,821 3,821
United A/P Notes................................ 356,640 246,400
Austar Bank Facility............................ 67,352 67,352
Other........................................... 2,923 2,923
---------- ----------
Total......................................... $2,001,953 $1,782,460
========== ==========
</TABLE>
Debt Maturities
The maturities of the Company's senior discount notes, senior notes and other
long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
Year Ended December 31, 2000..................................... $ 52,180
Year Ended December 31, 2001..................................... 5,492
Year Ended December 31, 2002..................................... 255,430
Year Ended December 31, 2003..................................... 78,662
Year Ended December 31, 2004..................................... 96,839
Thereafter....................................................... 5,553,032
----------
Total.......................................................... $6,041,635
==========
</TABLE>
Other Financial Instruments
Interest rate swap agreements are used by the Company from time to time to
manage interest rate risk on its floating rate debt facilities. Interest rate
swaps are entered into depending on the Company's assessment of the market,
and generally are used to convert floating rate debt to fixed rate debt.
Interest differentials paid or received under these swap agreements are
recognized over the life of the contracts as adjustments to the effective
yield of the underlying debt, and related amounts payable to, or receivable
from, the counterparties are included in the consolidated balance sheet.
Currently, the Company has four interest rate swaps to manage interest rate
exposure on the New Austar Bank Facility and one interest rate swap to manage
exposure on the Saturn Bank Facility. Two of the swap agreements on the New
Austar Bank Facility expire in 2002 and effectively convert an aggregate
principal amount of A$50.0 ($32.8) million of variable rate, long-term debt
into fixed rate borrowings. The other two swap agreements expire in 2004 and
convert an aggregate principal amount of A$100.0 ($65.6) million of variable
rate, long-term debt into fixed rate borrowings. The swap agreement on the
Saturn Bank Facility effectively converts an aggregate principal amount of
NZ$60.6 ($31.7) million of variable rate, long-term debt into fixed rate
borrowings. The interest rate swap includes an increasing fixed rate with an
additional margin which is expected to decline as the debt to EBITDA ratio
declines.
F-37
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Convertible Preferred Stock
Series A
In connection with the Company's acquisition of an additional 40.0% economic
interest in Austar in 1995, the Company issued 170,513 shares of par value
$0.01 per share Series A Preferred Stock. The Series A Preferred Stock had an
initial liquidation value of $175.00 per share and accrued dividends at a rate
of 4.0% per annum, compounded quarterly. Each share of Series A Preferred Stock
was convertible into the number of shares of the Company's Class A Common Stock
equal to the liquidation value at the time of conversion divided by $8.75.
During the ten months ended December 31, 1998 a total of 38,369 shares of
Series A Preferred Stock were converted into 850,914 shares of Class A Common
Stock. During the year ended December 31, 1999, the remaining 132,144 shares of
Series A Preferred Stock were converted into 3,006,404 shares of Class A Common
Stock.
Series B
In connection with the Company's acquisition of certain assets of ECT in July
1998, and the acquisition of an additional interest in XYZ Entertainment in
September 1998, the Company issued a total of 139,031 shares of par value $0.01
per share Series B Preferred Stock. The Series B Preferred Stock had an initial
liquidation value of $212.50 per share (approximately $29.5 million) and
accrues dividends at a rate of 6.5% per annum, compounded quarterly. Each share
of Series B Preferred Stock is convertible into the number of shares of the
Company's Class A Common Stock equal to the liquidation value at the time of
conversion divided by $10.63. The Company is required to redeem the Series B
Preferred Stock on June 30, 2008 at a redemption price equal to its then
liquidation value plus accrued dividends. During the year ended December 31,
1999 a total of 22,846 shares of Series B Preferred Stock were converted into
487,410 shares of Class A Common Stock. Assuming none of the remaining 116,185
shares of Series B Preferred Stock is converted prior to redemption, the total
cost to the Company upon redemption would be approximately $46.6 million. The
Company has granted certain rights to holders of the Series B Preferred Stock
to register under the Securities Act of 1933 the sale of shares of Class A
Common Stock into which the Series B Preferred Stock may be converted.
Series C Preferred Stock
In July 1999, the Company issued 425,000 shares of par value $0.01 per share
Series C Preferred Stock, resulting in gross and net proceeds to the Company of
$425.0 million and $381.6 million, respectively. The purchasers of the Series C
Preferred Stock deposited $29.75 million into an account from which the holders
will be entitled to quarterly payments in an amount equal to $17.50 per
preferred share commencing on September 30, 1999 through June 30, 2000, in cash
or Class A Common Stock at United's option. On September 30, 1999 and December
31, 1999 the holders received their quarterly payment in cash. The Series C
Preferred Stock had an initial liquidation value of $1,000 per share, and
accrues dividends perpetually at a rate of 7.0% per annum, payable quarterly on
March 31, June 30, September 30 and December 31 of each year, commencing on
September 30, 2000, payable in cash or Class A Common Stock at the Company's
option. Each share of Series C Preferred Stock is convertible any time at the
option of the holder into the number of shares of the Company's Class A Common
Stock equal to the liquidation value at the time of conversion divided by
$42.15. The conversion price is subject to adjustment upon the occurrence of
certain events. The Company has the right to require conversion on or after
December 31, 2000 if the closing price of United's Class A Common Stock has
equaled or exceeded 150.0% of the conversion price for a certain period of
time, or on or after June 30, 2002 if the closing price of United's Common
Stock has equaled or exceeded 130.0% of the conversion price for a certain
period of time. On or after June 30, 2002, the Company has the option to redeem
the Series C Preferred Stock in certain circumstances in cash or Class A Common
Stock. The Series C Preferred Stock ranks senior to United's Class A Common
Stock and pari passu with the Company's existing preferred stock. The Company
has registered under the Securities Act of 1933 (i) the resale by holders of
the Series C Preferred Stock, (ii) the shares
F-38
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of Class A Common Stock issuable in lieu of cash payment of amounts due on a
change of control, redemption and dividend payment date and (iii) the shares
of Class A Common Stock issuable upon conversion of the Series C Preferred
Stock.
Series D Preferred Stock
In December 1999, the Company issued 287,500 shares of par value $0.01 per
share Series D Preferred Stock, resulting in gross and net proceeds to the
Company of $287.5 million and $259.9 million, respectively. The purchasers of
the Series D Preferred Stock deposited $20.1 million into an account from
which the holders will be entitled to payments in an amount equal to $17.50
per preferred share per quarter commencing on December 31, 1999 through
September 30, 2000 in cash or Class A Common Stock at United's option. On
December 31, 1999 the holders received their payment in cash. The Series D
Preferred Stock had an initial liquidation value of $1,000 per share, and
accrues dividends perpetually at a rate of 7.0% per annum, payable quarterly
on March 31, June 30, September 30 and December 31 of each year, commencing on
December 31, 2000, payable in cash or Class A Common Stock at the Company's
option. Each share of Series D Preferred Stock is convertible any time at the
option of the holder into the number of shares of the Company's Class A Common
Stock equal to the liquidation value at the time of conversion divided by
$63.79. The conversion price is subject to adjustment upon the occurrence of
certain events. The Company has the right to require conversion on or after
June 30, 2001 if the closing price of United's Common Stock has equaled or
exceeded 150.0% of the conversion price for a certain period of time, or on or
after December 31, 2002 if the closing price of United's Common Stock has
equaled or exceeded 130.0% of the conversion price for a certain period of
time. On or after December 31, 2002, the Company has the option to redeem the
Series D Preferred Stock in certain circumstances in cash or Class A Common
Stock. The Series D Preferred Stock ranks senior to United's common stock and
pari passu with the Company's existing preferred stock. The Company has
registered under the Securities Act of 1933 (i) the resale by holders of the
Series D Preferred Stock, (ii) the shares of common stock issuable in lieu of
cash payment of amounts due on a change of control, redemption and dividend
payment date and (iii) the shares of common stock issuable upon conversion of
the Series D Preferred Stock.
12. Stockholders' Equity (Deficit)
Common Stock
In April 1993, the Company adopted a Restated Certificate of Incorporation
pursuant to which the Company authorized the issuance of two classes of common
stock, Class A Common Stock and Class B Common Stock. Each share of Class A
Common Stock is entitled to one vote per share while each share of Class B
Common Stock is entitled to ten votes per share. Each share of Class B Common
Stock is convertible at any time at the option of the holder into one share of
Class A Common Stock. The two classes of common stock are identical in all
other respects.
Common Stock Split
On November 11, 1999, the Board of Directors authorized a two-for-one stock
split effected in the form of a stock dividend distributed on November 30,
1999 to shareholders of record on November 22, 1999. The effect of the stock
split has been recognized retroactively in all share and per share data in the
accompanying consolidated financial statements and notes.
Cumulative Translation Adjustments
During the year ended December 31, 1999, the Company recorded a negative
change in cumulative translation adjustments of $127.2 million, primarily due
to (i) the strengthening of the U.S. dollar compared to the Dutch guilder of
approximately 15.9% and (ii) the strengthening of the U.S. dollar compared to
the Chilean peso of approximately 12.1%.
F-39
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Treasury Stock
As a result of the UPC Transaction, UPC acquired 6,338,302 shares of the
Company's Class A Common Stock, valued at cost on December 11, 1997 at $33.1
million. In November 1998, UPC used 769,062 shares to acquire an additional
5.0% interest in certain Irish programming companies, resulting in 5,569,240
United shares remaining in the treasury at a cost of $29.1 million.
Equity Transactions of Subsidiaries
The issuance of warrants, the issuance of convertible debt with an equity
component, variable plan accounting for stock options and the recognition of
deferred compensation expense by the Company's subsidiaries affects the equity
accounts of the Company. The following represents the effect on additional
paid-in capital and deferred compensation as a result of these equity
transactions:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
----------------------------------------
Austar United
UPC United Corporate Total
--------- -------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Variable plan accounting for
stock options................... $ 338,261 $ 40,883 $-- $ 379,144
Deferred compensation expense.... (180,757) (40,883) -- (221,640)
Amortization of deferred
compensation.................... 79,104 22,540 679 102,323
Issuance of warrants............. 33,025 -- -- 33,025
Issuance of convertible debt (UPC
DIC Loan)....................... 14,875 -- -- 14,875
--------- -------- ---- ---------
Total.......................... $ 284,508 $ 22,540 $679 $ 307,727
========= ======== ==== =========
</TABLE>
Other Cumulative Comprehensive Loss
<TABLE>
<CAPTION>
As of As of
December 31, December 31,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Foreign currency translation adjustments......... $(217,942) $(90,788)
Unrealized gain (loss) on available-for-sale
securities...................................... 6,704 (154)
--------- --------
Total.......................................... $(211,238) $(90,942)
========= ========
</TABLE>
Employee Stock Option Plan
In May 1993, the Company adopted a stock option plan for certain of its
employees (the "Employee Plan"). The Employee Plan is construed, interpreted
and administered by the compensation committee (the "Committee"), consisting
of all members of the Board of Directors who are not employees of the Company.
Members of the Company's Board of Directors who are not employees are not
eligible to receive option grants under the Employee Plan. The Committee has
the discretion to determine the employees and consultants to whom options are
granted, the number of shares subject to the options, the exercise price of
the options, the period over which the options become exercisable, the term of
the options (including the period after termination of employment during which
an option may be exercised) and certain other provisions relating to the
option. The maximum number of shares subject to options that may be granted to
any one participant under the Employee Plan during any calendar year is
500,000 shares. The maximum term of options granted under the Employee Plan is
ten years. Options granted may be either incentive stock options under the
Internal Revenue Code of 1986, as amended, or non-qualified stock options. The
options vest in equal monthly increments over the four-year period following
the date of grant. Vesting would be accelerated upon a change of control in
the Company as defined in the Employee Plan. Under the Employee Plan, options
to purchase a total of 9,200,000 shares of Class A Common Stock have been
authorized, of which 1,727,142 were available for grant as of December 31,
1999.
F-40
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Non-Employee Director Stock Option Plan
The Company adopted a stock option plan for non-employee directors effective
June 1, 1993 (the "1993 Director Plan"). The Director Plan provides for the
grant of an option to acquire 20,000 shares of the Company's Class A Common
Stock to each member of the Board of Directors who was not also an employee of
the Company (a "non-employee director") on June 1, 1993, and to each person
who is newly elected to the Board of Directors as a non-employee director
after June 1, 1993, on the date of their election. To allow for additional
option grants to non-employee directors, the Company adopted a second stock
option plan for non-employee directors effective March 20, 1998 (the "1998
Director Plan", and together with the 1993 Director Plan, the "Director
Plans"). Options under the 1998 Director Plan are granted at the discretion of
the Company's Board.
The maximum term of options granted under the Director Plans is ten years.
Under the 1993 Director Plan, options vest 25% on the first anniversary of the
date of grant and the remaining 75% vests in equal monthly increments over the
following three year period. Under the 1998 Director Plan, options vest in
equal monthly installments over the four year period following the date of
grant. Vesting under both Director Plans would be accelerated upon a change in
control of the Company as defined in the respective Director Plans. Under the
Director Plans, options to purchase a total of 1,960,000 shares of Class A
Common Stock have been authorized, of which 1,029,167 were available for grant
as of December 31, 1999.
Fair Value of Stock Options
For purposes of the pro forma disclosures presented below, the Company has
computed the fair values of all options granted using the Black-Scholes
single-option pricing model and the following weighted-average assumptions:
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Risk-free interest rate............... 6.24% 4.60% 5.91%
Expected lives........................ 5 years 7 years 7 years
Expected volatility................... 70.44% 55.34% 53.46%
Expected dividend yield............... 0% 0% 0%
</TABLE>
The total fair value of options granted was $47.7 million, $3.7 million, and
$2.9 million for the year ended December 31, 1999, the ten months ended
December 31, 1998 and the year ended February 28, 1998, respectively. These
amounts are amortized using the straight-line method over the vesting period
of the options. Cumulative compensation expense recognized in pro forma net
income, with respect to options that are forfeited prior to vesting, is
adjusted as a reduction of pro forma compensation expense in the period of
forfeiture. For the year ended December 31, 1999, the ten months ended
December 31, 1998 and the year ended February 28, 1998, stock-based
compensation, net of the effect of the forfeitures, was $11.7 million, $2.7
million and $2.8 million, respectively. This stock-based compensation had the
following pro forma effect on net income (loss) (in thousands):
<TABLE>
<CAPTION>
For the Ten
For the Year Ended Months Ended For the Year Ended
December 31, 1999 December 31, 1998 February 28, 1998
------------------- -------------------- --------------------
Basic
Net Net Income Net Net Loss Net Net Loss
Income Per Share Loss Per Share Loss Per Share
-------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
As reported... $636,318 $7.53 $(545,532) ($7.43) $(342,532) ($4.46)
Pro forma..... $624,619 $7.39 $(548,226) ($7.47) $(345,305) ($4.50)
</TABLE>
F-41
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The fair value method of accounting for stock-based compensation plans
recognizes the value of options granted as compensation expense over the
option's vesting period and has not been applied to options granted prior to
March 1, 1995.
A summary of stock option activity for the Employee Plan is as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Ten Months Ended For the Year Ended
December 31, 1999 December 31, 1998 February 28, 1998
-------------------------- ------------------------- -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Number Exercise Price Number Exercise Price Number Exercise Price
---------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 5,309,526 $ 5.53 5,894,952 $5.92 5,587,702 $5.87
Granted during the
year................... 1,467,445 $34.11 739,000 $4.94 871,250 $5.50
Cancelled during the
year................... (624,095) $ 6.75 (498,138) $9.34 (260,212) $7.41
Exercised during the
year................... (1,750,589) $ 5.67 (826,288) $5.44 (303,788) $2.62
---------- ------ --------- ----- --------- -----
Outstanding at end of
year................... 4,402,287 $14.84 5,309,526 $5.53 5,894,952 $5.92
========== ====== ========= ===== ========= =====
Exercisable at end of
year................... 2,436,077 $ 6.17 3,362,324 $5.55 4,028,140 $5.77
========== ====== ========= ===== ========= =====
A summary of stock option activity for the Director Plans is as follows:
<CAPTION>
For the Year Ended For the Ten Months Ended For the Year Ended
December 31, 1999 December 31, 1998 February 28, 1998
-------------------------- ------------------------- -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Number Exercise Price Number Exercise Price Number Exercise Price
---------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 770,000 $ 5.73 520,000 $6.08 560,000 $6.27
Granted during the
year................... 150,000 $54.66 330,000 $4.94 40,000 $5.56
Cancelled during the
year................... (114,167) $ 4.30 -- -- (80,000) $7.13
Exercised during the
year................... (87,500) $ 8.47 (80,000) $4.75 -- --
---------- ------ --------- ----- --------- -----
Outstanding at end of
year................... 718,333 $15.84 770,000 $5.73 520,000 $6.08
========== ====== ========= ===== ========= =====
Exercisable at end of
year................... 436,874 $ 5.67 463,956 $6.29 486,666 $6.12
========== ====== ========= ===== ========= =====
</TABLE>
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Ten Months Ended For the Year Ended
December 31, 1999 December 31, 1998 February 28, 1998
------------------------- ------------------------ ----------------------
Fair Exercise Fair Exercise Fair Exercise
Exercise Price Number Value Price Number Value Price Number Value Price
-------------- --------- ------ -------- --------- ----- -------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Less than market price.. -- -- -- 150,000 $6.61 $5.19 6,250 $2.15 $4.75
Equal to market price... 1,486,279 $27.54 $38.41 919,000 $3.00 $4.90 865,000 $3.32 $5.40
Greater than market
price.................. 131,166 $51.88 $ 8.92 -- -- -- 40,000 $1.17 $7.88
--------- ------ ------ --------- ----- ----- ------- ----- -----
Total................. 1,617,445 $29.52 $36.02 1,069,000 $3.50 $4.94 911,250 $3.21 $5.50
========= ====== ====== ========= ===== ===== ======= ===== =====
</TABLE>
F-42
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes information about employee and director stock
options outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ -----------------------
Weighted-Average Weighted- Weighted-
Remaining Average Average
Contractual Life Exercise Exercise
Exercise Price Range Number (Years) Price Number Price
-------------------- --------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 2.25-$ 4.75........... 1,606,774 4.92 $ 4.45 1,302,190 $ 4.50
$ 5.13-$ 6.38........... 1,545,924 7.68 $ 5.63 963,921 $ 5.69
$ 6.50-$22.06........... 982,422 6.77 $12.13 578,174 $ 9.07
$31.00-$62.29........... 985,500 9.81 $49.77 28,666 $31.86
--------- ---- ------ --------- ------
Total................. 5,120,620 7.05 $15.00 2,872,951 $ 6.09
========= ==== ====== ========= ======
</TABLE>
Subsidiary Stock Option Plans
UPC Plan
In June 1996, UPC adopted a stock option plan (the "UPC Plan") for certain of
its employees and those of its subsidiaries. There are 18,000,000 total shares
available for the granting of options under the UPC Plan, which are held by
the Stichting Administratiekantoor UPC (the "Foundation"), which administers
the UPC Plan. Each option represents the right to acquire from the Foundation
a certificate representing the economic value of one share. Following
consummation of the initial public offering, any certificates issued to
employees who have exercised their options will be converted into UPC common
stock. United appoints the board members of the Foundation and thus controls
the voting of the Foundation's common stock. The options are granted at fair
market value determined by UPC's Supervisory Board at the time of the grant.
The maximum term that the options can be exercised is five years from the date
of the grant. In order to introduce the element of "vesting" of the options,
the UPC Plan provides that even though the options are exercisable
immediately, the shares to be issued or options granted in 1996 vest in equal
monthly increments over a three-year period from the effective date set forth
in the option grant. In March 1998, the UPC Plan was revised to increase the
vesting period for any new grants of options to four years, vesting in equal
monthly increments. Upon termination of an employee (except in the case of
death, disability or the like), all unvested options previously exercised must
be resold to the Foundation at the original purchase price, or all vested
options must be exercised, within 30 days of the termination date. The
Supervisory Board may alter these vesting schedules in its discretion. An
employee has the right at any time to put his certificates or shares from
exercised vested options to the Foundation at a price equal to the fair market
value. UPC can also call such certificates or shares for a cash payment upon
termination in order to avoid dilution, except for certain awards, which can
not be called by UPC until expiration of the underlying options. The UPC Plan
also contains anti-dilution protection and provides that, in the case of
change of control, the acquiring company has the right to require UPC to
acquire all of the options outstanding at the per share value determined in
the transaction giving rise to the change of control.
For purposes of the pro forma disclosures presented below, UPC has computed
the fair values of all options granted during the year ended December 31, 1999
using the Black-Scholes single-option pricing model and the following
weighted-average assumptions:
<TABLE>
<S> <C>
Risk-free interest rate.............................................. 5.76%
Expected life........................................................ 5 years
Expected volatility.................................................. 56.82%
Expected dividend yield.............................................. 0%
</TABLE>
F-43
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The total fair value of options granted was approximately (Euro) 38.5 ($38.8)
million for the year ended December 31, 1999. This amount is amortized using
the straight-line method over the vesting period of the options. Cumulative
compensation expense recognized in pro forma net income, with respect to
options that are forfeited prior to vesting, is adjusted as a reduction of pro
forma compensation expense in the period of forfeiture. For the year ended
December 31, 1999, stock-based compensation, net of the effect of forfeitures
and net of actual compensation expense recorded in the statement of operations
was (Euro) 5.9 ($5.6) million. This stock-based compensation had the following
pro forma effect on net income (in thousands):
<TABLE>
<CAPTION>
Basic
Net Net Income
Income Per Share
-------- ----------
<S> <C> <C>
As reported.............................................. $636,318 $7.53
======== =====
Pro forma................................................ $630,690 $7.46
======== =====
</TABLE>
A summary of stock option activity for the UPC Plan is as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------------------------------------
1999 1998 1997
-------------------------- -------------------------- -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Number Exercise Price Number Exercise Price Number Exercise Price
---------- -------------- ---------- -------------- --------- --------------
(Euros) (Euros) (Euros)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 12,586,500 1.72 6,724,656 1.59 6,901,251 1.59
Granted during the
period................. 4,338,000 14.91 7,029,000 1.83 -- --
Cancelled during the
period................. (266,565) 3.44 (42,156) 1.59 (176,595) 1.59
Exercised during the
period................. (5,702,256) 1.65 (1,125,000) 1.59 -- --
---------- ----- ---------- ---- --------- ----
Outstanding at end of
period................. 10,955,679 6.94 12,586,500 1.72 6,724,656 1.59
========== ===== ========== ==== ========= ====
Exercisable at end of
period(1).............. 4,769,595 3.10 12,586,500 1.72 6,724,656 1.59
========== ===== ========== ==== ========= ====
</TABLE>
- --------
(1) Includes certificate rights as well as options.
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------
1999 1998
------------------------ ------------------------
Fair Exercise Fair Exercise
Exercise Price Number Value Price Number Value Price
-------------- --------- ----- -------- --------- ----- --------
(Euros) (Euros)
<S> <C> <C> <C> <C> <C> <C>
Less than market price.... 375,000 8.94 16.12 -- -- --
Equal to market price..... 3,963,000 8.95 14.79 7,029,000 1.83 1.83
--------- ---- ----- --------- ---- ----
Total..................... 4,338,000 8.94 14.91 7,029,000 1.83 1.83
========= ==== ===== ========= ==== ====
</TABLE>
F-44
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- -------------------
Weighted-
Average
Remaining Weighted- Weighted-
Contractual Average Average
Exercise Price Range Life Exercise Exercise
(Euros) Number (Years) Price Number Price
-------------------- ---------- ----------- --------- --------- ---------
(Euros) (Euros)
<S> <C> <C> <C> <C> <C>
1.59-- 2.05............ 6,681,039 1.19 1.80 4,211,055 1.78
9.67-- 9.67............ 1,212,000 3.20 9.67 231,000 9.67
11.26--11.40............ 719,640 3.22 11.40 132,483 11.40
15.67--18.17............ 1,171,500 3.56 17.51 130,188 17.46
20.08--20.08............ 1,171,500 3.78 20.08 64,869 20.08
---------- ---- ----- --------- -----
Total................. 10,955,679 2.00 6.94 4,769,595 3.10
========== ==== ===== ========= =====
</TABLE>
The UPC Plan was accounted for as a variable plan prior to UPC's initial
public offering in February 1999. Accordingly, compensation expense was
recognized at each financial statement date based on the difference between
the grant price and the estimated fair value of UPC's common stock.
Thereafter, the UPC Plan has been accounted for as a fixed plan. Compensation
expense of (Euro) 6.5 ($6.8) million, (Euro) 121.7 ($134.7) million and
(Euro) 2.2 ($2.5) million was recognized for the year ended December 31, 1999,
the ten months ended December 31, 1998 and the year ended February 28, 1998,
respectively.
UPC Phantom Stock Option Plan
In March 1998, UPC adopted a phantom stock option plan (the "UPC Phantom
Plan") which permits the grant of phantom stock rights in up to 7,200,000
shares of UPC's common stock. The rights are granted at fair market value
determined by UPC's Supervisory Board at the time of grant, and generally vest
in equal monthly increments over the four-year period following the effective
date of grant and may be exercised for ten years following the effective date
of grant. The UPC Phantom Plan gives the employee the right to receive payment
equal to the difference between the fair market value of a share of UPC common
stock and the option base price for the portion of the rights vested. UPC, at
its sole discretion, may make payment in (i) cash, (ii) freely tradable shares
of United Class A Common Stock or (iii) freely tradable shares of UPC's common
stock. If UPC chooses to make a cash payment, even though its stock is
publicly traded, employees have the option to receive an equivalent number of
freely tradable shares of stock instead. The UPC Phantom Plan contains anti-
dilution protection and provides that, in certain cases of a change of
control, all phantom options outstanding become fully exercisable.
The UPC Phantom Plan is accounted for as a variable plan in accordance with
its terms, resulting in compensation expense for the difference between the
grant price and the fair market value at each financial statement date.
Compensation expense of (Euro) 117.4 ($123.2) million and (Euro) 23.8 ($26.3)
million was recognized for the year ended December 31, 1999 and the ten months
ended December 31, 1998, respectively.
F-45
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of stock option activity for the UPC Phantom Plan is as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
-------------------------- ------------------------
Weighted- Weighted-
Average Average
Number Exercise Price Number Exercise Price
---------- -------------- --------- --------------
(Euros) (Euros)
<S> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 6,172,500 1.91 -- --
Granted during the
period................. 585,000 9.67 6,172,500 1.91
Cancelled during the
period................. (1,540,128) 2.00 -- --
Exercised during the
period................. (1,072,809) 1.89 -- --
---------- ---- --------- ----
Outstanding at end of
period................. 4,144,563 2.98 6,172,500 1.91
========== ==== ========= ====
Exercisable at end of
period................. 1,554,813 2.47 1,411,407 1.84
========== ==== ========= ====
</TABLE>
The combined weighted-average fair values and weighted-average exercise prices
of options are as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
---------------------- ------------------------
Fair Exercise Fair Exercise
Exercise Price Number Value Price Number Value Price
-------------- ------- ----- -------- --------- ----- --------
(Euros) (Euros)
<S> <C> <C> <C> <C> <C> <C>
Equal to market price........ 585,000 9.67 9.67 2,057,250 1.91 1.91
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
-------------------------- -----------
Weighted-Average
Remaining
Contractual Life
Exercise Price (Euros) Number (Years) Number
---------------------- --------- ---------------- -----------
<S> <C> <C> <C>
1.82.................................. 2,606,778 7.60 1,186,092
2.05.................................. 952,785 8.74 245,907
9.67.................................. 585,000 9.16 122,814
--------- ---- ---------
Total............................... 4,144,563 8.14 1,554,813
========= ==== =========
</TABLE>
chello Phantom Stock Option Plan
In June 1998 UPC adopted a phantom stock option plan (the "chello Phantom
Plan"), which permits the grant of phantom stock rights of chello, a wholly-
owned subsidiary of UPC. The rights are granted at an option price equal to
the fair market value determined by chello's Supervisory Board at the time of
grant, and generally vest in equal monthly increments over the four-year
period following the effective date of grant and the option must be exercised,
in all cases, not more than ten years from the effective date of grant. The
chello Phantom Plan gives the employee the right to receive payment equal to
the difference between the fair market value of a share (as defined the chello
Phantom Plan) of chello and the option price for the portion of the rights
vested. UPC, at its sole discretion, may make the required payment in cash,
freely tradable shares of United Class A Common Stock, the common stock of
UPC, which shall be valued at the closing price on the day before the date the
Company makes payment to the option holder, or chello's common shares, if they
are publicly traded and freely tradeable ordinary shares. If UPC chooses to
make a cash payment, even though its stock is publicly traded,
F-46
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
employees have the option to receive an equivalent number of freely tradeable
shares of chello's stock instead. As of December 31, 1999 UPC recorded
cumulative compensation expense of (Euro) 70.8 ($71.2) million for options
granted under the chello Phantom Plan.
A summary of stock option activity for the chello Phantom Plan is as follows:
<TABLE>
<CAPTION>
For the Year
For the Year Ended Ended December
December 31, 1999 31, 1998
-------------------- -----------------
Weighted- Weighted-
Average Average
Exercise Exercise
Number Price Number Price
--------- --------- ------- ---------
(Euros) (Euros)
<S> <C> <C> <C> <C>
Outstanding at beginning of
period........................... 570,000 4.54 -- --
Granted during the period......... 235,000 4.54 570,000 4.54
Granted during the period......... 1,309,838 9.08 -- --
Granted during the period......... 355,500 -- (1) -- --
Cancelled during the period....... (128,542) 4.71 -- --
Exercised during the period....... (11,667) 4.54 -- --
--------- ---- ------- ----
Outstanding at end of period...... 2,330,129 7.54(2) 570,000 4.54
========= ==== ======= ====
Exercisable at end of period...... 414,913 6.13(2) 70,625 4.54
========= ==== ======= ====
</TABLE>
--------
(1) Of the total number of options granted to date, the option price with
respect to these options is the chello broadband initial public
offering price.
(2) Excluding the shares discussed in (1) above.
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
-------------------------- -----------
Weighted-Average
Remaining
Contractual Life
Exercise Price (Euros) Number (Years) Number
---------------------- --------- ---------------- -----------
<S> <C> <C> <C>
4.54.................................. 669,791 7.05 267,188
9.08.................................. 1,304,838 9.56 144,074
--(1)................................. 355,500 9.96 3,651
--------- ---- -------
Total............................... 2,330,129 8.93 414,913
========= ==== =======
</TABLE>
--------
(1) Of the total number of options granted to date, the option price in
respect of these options is the IPO price.
The chello Phantom Plan is accounted for as a variable plan in accordance with
its terms, resulting in compensation expense for the difference between the
grant price and the fair market value at each financial statement date.
Compensation expense of (Euro) 69.8 ($70.3) million was recognized for the
year ended December 31, 1999. The Company's estimate of the fair value of its
ordinary stock as of December 31, 1999 utilized in recording compensation
expense and deferred compensation expense under the chello plan was
(Euro) 85.00 per share. Because the Company will account for the chello
Phantom Plan as a variable plan, compensation expense will continue to be
recognized subsequent to December 31, 1999. For each (Euro) 1 per share
increase in the estimate of the fair value per share of its ordinary stock as
of December 31, 1999, over the (Euro) 85.00 used to record stock compensation
expense as of December 31, 1999, additional stock compensation expense
totaling approximately
F-47
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Euro) 0.9 ($0.9) million would have been recognized in the statement of
operations and deferred compensation expense would have increased by
approximately that amount as of that date.
chello Stock option plan
In June 1999, the Company adopted a stock option plan (the "chello Plan").
Under the chello Plan, the Company's Supervisory Board may grant stock options
to the Company's employees at fair market value determined by the Company's
Supervisory Board at the time of grant. All options are exercisable upon grant
and for the period of five years. In order to introduce the element of
"vesting" of the options, the chello Plan provides that even though the
options are exercisable immediately, the shares to be issued or options to be
granted are deemed to vest 1/48th per month for a four-year period from date
to grant. If the employee's employment terminates, other than in case of
death, disability or the like, for so-called "urgent reason" under Dutch law
or for documented and material non-performance, all unvested options
previously exercised must be resold to the Company at the original purchase
price, and all vested options must be exercised, within 30 days of the
termination date. The Supervisory Board may alter these vesting schedules at
its discretion. The chello Plan provides that in case of change of control,
the Company has the right to require a foundation to acquire all of the
options outstanding at per share value determined in the transaction giving
rise to the change in its control.
For purposes of the pro forma disclosures presented below, the Company has
computed the fair value of all options granted during the period from
inception (March 1998) to December 31, 1999 and the twelve months ended
December 31, 1999, using the Black-Scholes single-option pricing model and the
following weighted average assumptions: expected dividend yield of 0%,
expected annual standard volatility of 95%, risk-free interest rate of 3.41%
and expected life of 5 years.
The total value of options granted under the chello Plan was nil for the year
ended December 31, 1998 and (Euro) 3.7 ($3.7) million for the year ended
December 31, 1999. These pro forma amounts are amortized using the straight-
line method over the vesting period of the options. Cumulative compensation
expense recognized in pro forma net income, with respect to options that are
forfeited prior to vesting, is adjusted as a reduction of pro forma
compensation expense in the period of forfeiture. For the year ended December
31, 1998 and December 31, 1999, pro forma stock-based compensation, net of the
effect of forfeitures, was nil and (Euro) 0.7 ($0.7) million respectively.
This stock-based compensation had the following pro forma effect on net income
(in thousands):
<TABLE>
<CAPTION>
Net Loss
Net Loss Per Share
-------- ---------
<S> <C> <C>
As reported............................................... $636,318 $7.53
-------- -----
Pro forma................................................. $635,587 $7.52
======== =====
</TABLE>
UAP Plan
In March 1998, UAP's Board of Directors approved a stock option plan (the "UAP
Plan") which permitted the grant of phantom stock options or the grant of
stock options to purchase up to 1,800,000 shares of UAP's Class A Common
Stock. The options vested in equal monthly increments over a four-year period
following the date of grant, and gave the employee the right with respect to
vested options to receive a cash payment equal to the difference between the
fair market value of a share of UAP stock and the option base price per share.
The UAP Plan was cancelled effective July 22, 1999. Under variable plan
accounting, a total of $17.6 million of compensation expense was recognized
during 1999 by UAP through the cancellation date.
F-48
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of phantom stock option activity for the UAP Plan is as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Ten Months Ended
December 31, 1999 December 31, 1998
-------------------------- ------------------------
Weighted- Weighted-
Average Average
Number Exercise Price Number Exercise Price
---------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 1,779,500 $10.00 -- --
Granted during the
period................. 65,000 $10.00 1,779,500 $10.00
Cancelled during the
period................. (1,844,500) $10.00 -- --
Exercised during the
period................. -- -- -- --
---------- ------ --------- ------
Outstanding at end of
period................. -- -- 1,779,500 $10.00
========== ====== ========= ======
Exercisable at end of
period................. -- -- 584,063 $10.00
========== ====== ========= ======
</TABLE>
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Ten Months Ended
December 31, 1999 December 31, 1998
---------------------- -------------------------
Fair Exercise Fair Exercise
Number Value Price Number Value Price
------ ------ -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Exercise price equal to
market price............ 65,000 $10.00 $10.00 1,779,500 $10.00 $10.00
</TABLE>
Austar United Plan
On June 17, 1999, Austar United established a stock option plan (the "Austar
United Plan"). Effective on Austar United's initial public offering date of
July 27, 1999, certain employees of United and Austar United were granted
options under the Austar United Plan in direct proportion to their previous
holding of UAP options under the UAP Plan along with retroactive vesting
through the initial public offering date to reflect vesting under the UAP
Plan. The maximum term of options granted under the Austar United Plan is ten
years. The options vest in equal monthly increments over a four-year period
following the date of grant. Under the Austar United Plan, options to purchase
a total of 28,760,709 shares have been authorized, of which 3,231,428 were
available for grant. The Austar United Plan was accounted for as a variable
plan prior to Austar United's initial public offering, and as a fixed plan
effective July 27, 1999. For the year ended December 31, 1999, $4.9 million of
compensation expense was recognized by Austar United in the statement of
operations.
For purposes of the pro forma disclosures presented below, Austar United has
computed the fair values of all options granted during the year ended December
31, 1999 using the Black-Scholes single-option pricing model and the following
weighted-average assumptions:
<TABLE>
<S> <C>
Risk-free interest rate.............................................. 5.81%
Expected life........................................................ 7 years
Expected volatility.................................................. 40.44%
Expected dividend yield.............................................. 0%
</TABLE>
The total fair value of options granted was approximately A$88.0 ($57.7)
million for the year ended December 31, 1999. This amount is amortized using
the straight-line method over the vesting period of the options. Cumulative
compensation expense recognized in pro forma net income, with respect to
options that are forfeited prior to vesting, is adjusted as a reduction of pro
forma compensation expense in the period of forfeiture. Stock-based
compensation, net of the effect of forfeitures and net of actual compensation
expense recorded in the statement of operations was nil for the year ended
December 31, 1999.
F-49
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of stock option activity for the Austar United Plan is as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1999
--------------------------------
Weighted-
Average
Number Exercise Price
---------- --------------------
(Australian dollars)
<S> <C> <C>
Outstanding at beginning of period.......... -- --
Granted during the period................... 25,631,736 2.26
Cancelled during the period................. (102,455) 3.75
Exercised during the period................. (684,250) 1.83
---------- ----
Outstanding at end of period................ 24,845,031 2.27
========== ====
Exercisable at end of period................ 11,564,416 1.90
========== ====
</TABLE>
The combined weighted-average fair values and weighted-average exercise prices
of options are as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1999
-------------------------
Fair Exercise
Number Value Price
---------- ----- --------
Exercise Price (Australian
-------------- dollars)
<S> <C> <C> <C>
Less than market price............................. 22,334,236 3.58 1.91
Equal to market price.............................. 3,222,500 2.47 4.70
Greater than market price.......................... 75,000 2.43 4.70
---------- ---- ----
Total............................................ 25,631,736 3.43 2.26
========== ==== ====
</TABLE>
The following table summarizes information about the Austar United Plan
options outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
--------------------------- -----------
Weighted-Average
Remaining
Exercise Price (Australian Contractual Life
dollars) Number (Years) Number
-------------------------- ---------- ---------------- -----------
<S> <C> <C> <C>
1.80...................... 20,813,572 9.55 11,171,494
4.70...................... 4,031,459 9.60 392,922
---------- ---- ----------
Total................... 24,845,031 9.56 11,564,416
========== ==== ==========
</TABLE>
ULA Plan
In April 1998, ULA's Board of Directors approved a stock option plan (the "ULA
Plan") which permits the grant of phantom stock options or the grant of stock
options to purchase up to 1,631,000 shares of ULA's Class A Common Stock. The
options vest in equal monthly increments over a four-year period following the
date of grant. Concurrent with approval of the ULA Plan, ULA's Board granted
phantom stock options to certain employees which gives the employee the right
with respect to vested options to receive a cash payment equal to the
difference between the fair market value of a share of ULA stock and the
option base price per share. The ULA Plan is accounted for as a variable plan
in accordance with its terms, resulting in compensation expense for the
difference between the grant price and the fair market value at each financial
statement date. For the year
F-50
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ended December 31, 1999 and the ten months ended December 31, 1998 ULA
recognized $(1.0) and $2.7 million in non-cash compensation (credit) expense
related to these phantom options, respectively. Actual cash paid upon exercise
of these phantom options was $0.6 million and $1.1 million for the year ended
December 31, 1999 and the ten months ended December 31, 1998, respectively.
A summary of phantom stock option activity for the ULA Plan is as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Ten Months Ended
December 31, 1999 December 31, 1998
------------------------- -------------------------
Weighted- Weighted-
Average Average
Number Exercise Price Number Exercise Price
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 1,188,417 $5.77 -- --
Granted during the
period................. 340,000 $8.86 1,785,500 $5.63
Cancelled during the
period................. (328,647) $4.84 (317,296) $5.47
Exercised during the
period................. (137,083) $4.81 (279,787) $5.19
--------- ----- --------- -----
Outstanding at end of
period................. 1,062,687 $7.17 1,188,417 $5.77
========= ===== ========= =====
Exercisable at end of
period................. 381,561 $5.87 268,730 $4.86
========= ===== ========= =====
</TABLE>
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Ten Months Ended
December 31, 1999 December 31, 1998
---------------------- ------------------------
Fair Exercise Fair Exercise
Number Value Price Number Value Price
------- ----- -------- --------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Exercise price equal to
market price.............. 340,000 $8.86 $8.86 945,500 $5.81 $5.81
Exercise price greater than
market price.............. -- -- -- 840,000 $4.26 $5.43
------- ----- ----- --------- ----- -----
Total.................... 340,000 $8.86 $8.86 1,785,500 $5.08 $5.63
======= ===== ===== ========= ===== =====
</TABLE>
The following table summarizes information about the ULA Plan phantom options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
-------------------------- -----------
Weighted-Average
Remaining
Contractual Life
Exercise Price Number (Years) Number
-------------- --------- ---------------- -----------
<S> <C> <C> <C>
$4.26................................. 312,687 7.43 197,187
$4.96................................. 100,000 7.43 62,500
$8.81................................. 95,000 9.40 16,249
$8.86................................. 245,000 9.96 9,375
$8.98................................. 310,000 8.72 96,250
--------- ---- -------
Total............................... 1,062,687 8.57 381,561
========= ==== =======
</TABLE>
F-51
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Basic and Diluted Net Income (Loss) Attributable to Common Shareholders
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Basic:
Net income (loss)............ $636,318 $(545,532) $(342,532)
Accretion of Series A
Convertible Preferred
Stock....................... (220) (968) (1,271)
Accretion of Series B
Convertible Preferred
Stock....................... (1,899) (655) --
Accretion of Series C
Convertible Preferred
Stock....................... (14,875) -- --
Accretion of Series D
Convertible Preferred
Stock....................... (1,398) -- --
-------- --------- ---------
Basic net income (loss)
attributable to common
shareholders.............. $617,926 $(547,155) $(343,803)
-------- --------- ---------
Diluted:
Accretion of Series A
Convertible Preferred
Stock....................... 220 -- (1) -- (1)
Accretion of Series B
Convertible Preferred
Stock....................... 1,899 -- (1) -- (1)
Accretion of Series C
Convertible Preferred
Stock....................... 14,875 -- (1) -- (1)
Accretion of Series D
Convertible Preferred
Stock....................... 1,398 -- (1) -- (1)
-------- --------- ---------
Diluted net income (loss)
attributable to common
shareholders.............. $636,318 $(547,155) $(343,803)
======== ========= =========
</TABLE>
--------
(1) Excluded from the calculation of diluted net income (loss) attributable
to common shareholders because the effect is anti-dilutive.
14. Commitments
The Company has entered into various operating lease agreements for office
space, office furniture and equipment, and vehicles. Rental expense under
these lease agreements totaled $25.9, $5.8 and $4.1 million for the year ended
December 31, 1999, the ten months ended December 31, 1998 and for the year
ended February 28, 1998, respectively.
The Company has operating lease obligations and other non-cancelable
commitments as follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000....................................... $ 88,804
Year ended December 31, 2001....................................... 88,467
Year ended December 31, 2002....................................... 69,498
Year ended December 31, 2003....................................... 51,172
Year ended December 31, 2004 and thereafter........................ 190,626
--------
Total............................................................ $488,567
========
</TABLE>
In September 1999, UPC agreed to form a joint venture with Microsoft
Corporation ("Microsoft") and Liberty Media Corporation ("Liberty"). UPC will
contribute the 5.6 million shares of Class A Common Stock of United that it
owns and the other parties will contribute 9.9 million shares of Class B
Common Stock of United. UPC will have a 50.0% interest in the new joint
venture and Liberty and Microsoft will share the other 50.0% and a $287.0
million redeemable preferred interest in the joint venture to balance out the
parties' ownership interests. UPC, together with Liberty and Microsoft, will
evaluate content and distribution opportunities in Europe. Formation of the
joint venture is still pending.
F-52
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
UPC has entered into an agreement for the long term lease of satellite
transponder capacity providing service from Europe to Europe, North America
and South America. The term of the agreement is 156 months, with a minimum
aggregate total cost of approximately $114.0 million payable in monthly
installments based on capacity used.
@Entertainment has entered into long-term programming agreements and
agreements for the purchase of certain exhibition or broadcast rights with a
number of third party content providers for its digital DTH and cable systems.
@Entertainment had minimum commitments related to these agreements as follows
(in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000....................................... $ 55,600
Year ended December 31, 2001....................................... 51,800
Year ended December 31, 2002....................................... 48,100
Year ended December 31, 2003....................................... 29,900
Year ended December 31, 2004 and thereafter........................ 28,600
--------
Total............................................................ $214,000
========
</TABLE>
As of December 31, 1999, @Entertainment had an aggregate minimum commitment
toward the purchase of DTH reception systems from Philips Business Electronics
B.V. of approximately $60.8 million over the next two years.
The Company has minimum fixed MMDS license fees and programming license fees
payable annually at Austar United as follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000........................................ $ 4,159
Year ended December 31, 2001........................................ 4,178
Year ended December 31, 2002........................................ 4,178
Year ended December 31, 2003........................................ 4,179
Year ended December 31, 2004........................................ 4,179
Thereafter.......................................................... 7,164
-------
Total............................................................. $28,037
=======
</TABLE>
A subsidiary of Austar has a five-year agreement to lease a 54 MHz satellite
transponder. Pursuant to the agreement, which commenced September 1, 1997,
Austar will pay approximately $4,440 in satellite service fees annually as
follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000........................................ $ 4,440
Year ended December 31, 2001........................................ 4,440
Year ended December 31, 2002........................................ 2,960
-------
Total............................................................. $11,840
=======
</TABLE>
15. Contingencies
From time to time, the Company and/or its subsidiaries may become involved in
litigation relating to claims arising out of its operations in the normal
course of business. The Company is not a party to any material legal
proceedings, nor is it currently aware of any threatened material legal
proceedings.
F-53
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Income Taxes
In general, a United States corporation may claim a foreign tax credit against
its federal income tax expense for foreign income taxes paid or accrued.
Because the Company must calculate its foreign tax credit separately for
dividends received from each foreign corporation in which the Company owns
10.0% to 50.0% of the voting stock, and because of certain other limitations,
the Company's ability to claim a foreign tax credit may be limited,
particularly with respect to dividends paid out of earnings subject to a high
rate of foreign income tax. Generally, the Company's ability to claim a
foreign tax credit is limited to the amount of U.S. taxes the Company pays
with respect to its foreign source income. In calculating its foreign source
income, the Company is required to allocate interest expense and overhead
incurred in the United States between its United States and foreign
activities. Accordingly, to the extent United States borrowings are used to
finance equity contributions to its foreign subsidiaries, the Company's
ability to claim a foreign tax credit may be significantly reduced. These
limitations and the inability of the Company to offset losses in one foreign
jurisdiction against income earned in another foreign jurisdiction could
result in a high effective tax rate on the Company's earnings.
The primary differences between taxable income (loss) and net income (loss)
for financial reporting purposes relate to SAB 51 gains, the non-consolidation
of consolidated foreign subsidiaries for United States tax purposes,
international rate differences and the current non-deductibility of interest
expense on United A/P's senior notes and the United 1999 Notes. For
investments in foreign corporations accounted for under the equity method,
taxable income (loss) generated by these affiliates does not flow through to
the Company for United States federal and state tax purposes, even though the
Company records its allocable share of affiliate income (losses) for financial
reporting purposes. Accordingly, due to the indefinite reversal of such
amounts in future periods, no deferred tax asset has been established for tax
basis in excess of the Company's book basis (approximately $89.2 and $163.0
million at December 31, 1999 and 1998, respectively).
F-54
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company's United States tax net operating losses, totaling approximately
$347.8 million at December 31, 1999, expire beginning in 2014 through 2029.
The Company's tax net operating loss carryforwards of its consolidated foreign
subsidiaries as of December 31, 1999 totaled $792.0, $438.0 and $79.0 million
for UEI, UAP and ULA, respectively. The significant components of the net
deferred tax asset are as follows:
<TABLE>
<CAPTION>
As of
December 31,
--------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Deferred Tax Assets:
Tax net operating loss carryforward of consolidated
foreign subsidiaries.............................. $ 449,030 $ 183,656
Company's U.S. tax net operating loss
carryforward...................................... 132,156 97,044
Accrued interest expense........................... 72,345 32,885
Stock-based compensation........................... 36,735 7,215
Foreign currency translation adjustment............ 23,113 --
Investment valuation allowance and other........... 2,768 2,605
Basis difference in marketable equity securities... 3,074 3,070
Deferred compensation and severence................ 3,398 1,175
Other.............................................. 21,082 70
--------- ---------
Total deferred tax assets........................ 743,701 327,720
Valuation allowance................................ (723,914) (319,292)
--------- ---------
Deferred tax assets, net of valuation allowance.. 19,787 8,428
--------- ---------
Deferred Tax Liabilities:
Intangible assets.................................. (18,745) (5,852)
Property, plant and equipment, net................. (11,282) (7,156)
Other.............................................. (1,017) --
--------- ---------
Total deferred tax liabilities................... 31,044 (13,008)
--------- ---------
Deferred tax liabilities, net.................... $ (11,257) $ (4,580)
========= =========
</TABLE>
F-55
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Of the Company's 1999 consolidated income before income taxes and other items,
a loss of $1,027.0 million is derived from the Company's foreign operations.
The difference between income tax expense (benefit) provided in the financial
statements and the expected income tax expense (benefit) at statutory rates is
reconciled as follows:
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Expected income tax expense
(benefit) at the U.S. statutory
rate of 35%....................... $ 115,913 $(172,472) $(68,727)
Tax effect of permanent and other
differences:
Change in valuation allowance.... 370,004 128,420 66,519
Gain on issuance of common equity
securities by subsidiaries...... (573,359) -- --
Non-deductible expenses.......... 77,490 49,497 566
Capitalized costs................ (49,402) -- --
International rate differences... 45,416 619 (515)
Book/tax basis differences
associated with foreign
investments..................... 788 1,176 3,901
State tax, net of federal
benefit......................... 9,935 (14,783) (5,891)
Non-deductible interest accretion
................................ 1,693 2,148 2,145
Gain on sale of equity investment
in subsidiary................... 5,877 -- --
Amortization of licenses......... 923 1,516 1,312
Other............................ (5,080) 4,489 690
--------- --------- --------
Total income tax expense....... $ 198 $ 610 $ --
========= ========= ========
</TABLE>
During 1996, the Austrian tax authorities passed legislation which had the
effect of eliminating approximately NLG256.0 ($116.9) million of tax basis
associated with certain amounts of goodwill recorded at Telekabel Group
effective January 1, 1997. This change in tax law is expected to be challenged
on constitutional grounds. However, there can be no assurance of a successful
repeal of such legislation. Accordingly, this change caused Telekabel Group's
effective tax rate to increase from the historical effective tax rate through
December 31, 1996, due to the non-deductibility of such goodwill amortization
subsequent to January 1, 1997.
The Company through its subsidiaries maintains a presence in 23 countries.
Many of these countries maintain tax regimes that differ significantly from
the system of income taxation used in the United States, such as a value added
tax system. The Company has accounted for the effect of foreign taxes based on
what we believe is reasonably expected to apply to the Company and its
subsidiaries based on tax laws currently in effect and/or reasonable
interpretations of these laws. Because some foreign jurisdictions do not have
systems of taxation that are as well established as the system of income
taxation used in the United States or tax regimes used in other major
industrialized countries, it may be difficult to anticipate how foreign
jurisdictions will tax current and future operations of the Company and its
subsidiaries.
F-56
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Segment Information
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999 As of December 31, 1999
----------------------------------------------------------------- ----------------------------------
Long-
Multichannel Internet Lived Capital Total
Television Telephone Programming Data Other Total Assets(2) Expenditures Assets
------------ --------- ----------- -------- -------- --------- ---------- ------------ ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Europe:
The Netherlands... $117,026 $ 32,029 $ 1,112 $ 8,616 $ 330 $ 159,113 $ 774,045 $247,050 $3,157,285
Austria........... 83,737 7,321 -- 13,609 -- 104,667 179,652 94,240 356,337
Belgium........... 15,737 -- -- 2,497 -- 18,234 23,186 8,447 47,826
Czech Republic.... 7,485 181 -- -- 1,042 8,708 80,347 2,491 159,806
France............ 27,522 2,710 -- 590 -- 30,822 319,454 70,666 498,776
Hungary........... 35,197 -- -- 125 -- 35,322 112,698 38,708 215,448
Norway............ 49,186 365 -- 565 -- 50,116 100,315 57,106 244,975
Poland............ 26,845 -- 10,917 -- -- 37,762 218,784 42,460 1,218,956
Sweden............ 13,335 -- -- 504 -- 13,839 48,182 12,495 474,899
Corporate and
Other............ 8,327 -- -- -- 6,512 14,839 63,698 38,569 77,219
-------- -------- -------- -------- -------- --------- ---------- -------- ----------
Total Europe..... 384,397 42,606 12,029 26,506 7,884 473,422 1,920,361 612,232 6,451,527
-------- -------- -------- -------- -------- --------- ---------- -------- ----------
Asia/Pacific:
Australia......... 144,632 -- -- -- -- 144,632 123,617 94,513 563,627
New Zealand....... 1,279 4,107 -- 734 -- 6,120 95,777 23,306 76,139
Corporate and
Other............ -- -- -- -- 180 180 6,440 3,014 52,441
-------- -------- -------- -------- -------- --------- ---------- -------- ----------
Total
Asia/Pacific.... 145,911 4,107 -- 734 180 150,932 225,834 120,833 692,207
-------- -------- -------- -------- -------- --------- ---------- -------- ----------
Latin America:
Chile............. 77,476 9,881 -- -- 87 87,444 213,146 53,120 489,638
Brazil............ 4,637 -- -- -- -- 4,637 5,679 4,399 17,172
Corporate and
Other............ 2,428 -- -- -- 384 2,812 12,549 3,167 71,379
-------- -------- -------- -------- -------- --------- ---------- -------- ----------
Total Latin
America......... 84,541 9,881 -- -- 471 94,893 231,374 60,686 578,189
-------- -------- -------- -------- -------- --------- ---------- -------- ----------
Corporate &
Other............ -- -- -- -- 277 277 2,268 426 1,280,930
-------- -------- -------- -------- -------- --------- ---------- -------- ----------
Total Company.... $614,849 $ 56,594 $ 12,029 $ 27,240 $ 8,812 $ 719,524 $2,379,837 $794,177 $9,002,853
======== ======== ======== ======== ======== ========= ========== ======== ==========
Adjusted EBITDA:(1)
Europe:
The Netherlands... $ 48,185 $(19,900) $(16,705) $(66,569) $(41,350) $ (96,339)
Austria........... 44,945 (11,470) -- 234 -- 33,709
Belgium........... 3,954 (54) -- (2,212) -- 1,688
Czech Republic.... (1,129) 54 -- -- 407 (668)
France............ (1,766) (5,946) -- (2,373) (67) (10,152)
Hungary........... 11,739 -- -- (261) -- 11,478
Norway............ 20,740 (7,153) -- (5,178) -- 8,409
Poland............ (9,363) -- (64,791) -- (3,018) (77,172)
Sweden............ 4,582 (135) -- (4,095) -- 352
Corporate and
Other............ 2,123 (206) -- (725) 3,494 4,686
-------- -------- -------- -------- -------- ---------
Total Europe..... 124,010 (44,810) (81,496) (81,179) (40,534) (124,009)
-------- -------- -------- -------- -------- ---------
Asia/Pacific:
Australia......... (4,742) -- -- -- -- (4,742)
New Zealand....... (918) (1,160) -- (47) -- (2,125)
Corporate and
Other............ -- -- -- -- (4,274) (4,274)
-------- -------- -------- -------- -------- ---------
Total
Asia/Pacific.... (5,660) (1,160) -- (47) (4,274) (11,141)
-------- -------- -------- -------- -------- ---------
Latin America:
Chile............. 17,744 (2,604) -- -- -- 15,140
Brazil............ (2,462) -- -- -- -- (2,462)
Corporate and
Other............ (1,210) -- -- -- (4,609) (5,819)
-------- -------- -------- -------- -------- ---------
Total Latin
America......... 14,072 (2,604) -- -- (4,609) 6,859
-------- -------- -------- -------- -------- ---------
Corporate &
Other............ -- -- -- -- 109 109
-------- -------- -------- -------- -------- ---------
Total Company.... $132,422 $(48,574) $(81,496) $(81,226) $(49,308) $(128,182)
======== ======== ======== ======== ======== =========
</TABLE>
F-57
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
For the Ten Months Ended December 31, 1998 As of December 31, 1998
--------------------------------------------------------------- ---------------------------------
Long-
Multichannel Internet Lived Capital Total
Television Telephone Programming Data Other Total Assets(2) Expenditures Assets
------------ --------- ----------- -------- -------- -------- --------- ------------ ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Europe:
The Netherlands...... $ 13,854 $ 162 $ -- $ -- $ 7,274 $ 21,290 $ 2,440 $ 14,734 $ 297,068
Austria.............. 71,396 61 -- 3,172 -- 74,629 140,550 43,278 341,159
Belgium.............. 13,768 -- -- 656 1,071 15,495 27,558 11,253 57,847
Czech Republic....... 3,754 -- -- -- -- 3,754 8,737 523 11,497
France............... 3,395 -- -- -- -- 3,395 40,328 28,802 51,092
Hungary.............. 11,671 -- -- -- -- 11,671 26,788 7,239 86,921
Norway............... 38,879 -- -- 161 -- 39,040 63,335 25,838 219,068
Corporate and Other.. 2,446 -- 567 -- -- 3,013 9,310 9,880 22,744
-------- ------- ------- ------- -------- -------- -------- -------- ----------
Total Europe........ 159,163 223 567 3,989 8,345 172,287 319,046 141,547 1,087,396
-------- ------- ------- ------- -------- -------- -------- -------- ----------
Asia/Pacific:
Australia............ 74,209 -- -- -- -- 74,209 110,351 71,197 181,169
New Zealand.......... -- -- -- -- -- -- -- -- 23,789
Corporate and Other.. 3,060 -- -- -- -- 3,060 61 337 48,992
-------- ------- ------- ------- -------- -------- -------- -------- ----------
Total Asia/Pacific.. 77,269 -- -- -- -- 77,269 110,412 71,534 253,950
-------- ------- ------- ------- -------- -------- -------- -------- ----------
Latin America:
Chile................ -- -- -- -- -- -- -- -- 84,975
Corporate and Other.. 4,135 -- -- -- 377 4,512 11,715 3,238 73,048
-------- ------- ------- ------- -------- -------- -------- -------- ----------
Total Latin
America............ 4,135 -- -- -- 377 4,512 11,715 3,238 158,023
-------- ------- ------- ------- -------- -------- -------- -------- ----------
Corporate & Other.... -- -- -- -- -- -- 10,269 738 42,726
-------- ------- ------- ------- -------- -------- -------- -------- ----------
Total Company....... $240,567 $ 223 $ 567 $ 3,989 $ 8,722 $254,068 $451,442 $217,057 $1,542,095
======== ======= ======= ======= ======== ======== ======== ======== ==========
Adjusted EBITDA:(1)
Europe:
The Netherlands...... $ 8,445 $(1,303) $ (295) $(6,103) $ (4,401) $ (3,657)
Austria.............. 34,350 (1,636) -- (1,739) -- 30,975
Belgium.............. 5,755 -- -- (799) 114 5,070
Czech Republic....... (721) -- -- -- -- (721)
France............... (954) (911) -- (77) -- (1,942)
Hungary.............. 3,820 -- -- -- -- 3,820
Norway............... 14,015 (573) -- (806) -- 12,636
Corporate and Other.. (167) -- (3,556) 19 131 (3,573)
-------- ------- ------- ------- -------- --------
Total Europe........ 64,543 (4,423) (3,851) (9,505) (4,156) 42,608
-------- ------- ------- ------- -------- --------
Asia/Pacific:
Australia............ (31,093) -- -- -- -- (31,093)
New Zealand.......... -- -- -- -- -- --
Corporate and Other.. -- -- -- -- (2,287) (2,287)
-------- ------- ------- ------- -------- --------
Total Asia/Pacific.. (31,093) -- -- -- (2,287) (33,380)
-------- ------- ------- ------- -------- --------
Latin America:
Chile................ -- -- -- -- -- --
Corporate and Other.. (2,969) -- -- -- (7,295) (10,264)
-------- ------- ------- ------- -------- --------
Total Latin
America............ (2,969) -- -- -- (7,295) (10,264)
-------- ------- ------- ------- -------- --------
Corporate & Other.... -- -- -- -- (2,907) (2,907)
-------- ------- ------- ------- -------- --------
Total Company....... $ 30,481 $(4,423) $(3,851) $(9,505) $(16,645) $ (3,943)
======== ======= ======= ======= ======== ========
</TABLE>
F-58
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
For the Year Ended February 28, 1998 As of February 28, 1998
-------------------------------------------------------------- ---------------------------------
Long-
Multichannel Internet Lived Capital Total
Television Telephone Programming Data Other Total Assets(2) Expenditures Assets
------------ --------- ----------- -------- -------- -------- --------- ------------ ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Europe:
The Netherlands...... $ -- $ -- $ -- $ -- $ -- $ -- $ 20,773 $ -- $ 308,907
Austria.............. -- -- -- -- -- -- 115,786 -- 323,298
Belgium.............. -- -- -- -- -- -- 24,526 -- 49,204
Norway............... -- -- -- -- -- -- 51,369 -- 215,517
Corporate and Other.. 9,996 -- -- -- -- 9,996 27,636 6,423 54,572
-------- ----- ----- ----- -------- -------- -------- -------- ----------
Total Europe........ 9,996 -- -- -- -- 9,996 240,090 6,423 951,498
-------- ----- ----- ----- -------- -------- -------- -------- ----------
Asia/Pacific:
Australia............ 64,370 -- -- -- -- 64,370 147,871 84,375 202,325
New Zealand.......... 473 -- -- -- -- 473 26,484 16,258 43,349
Corporate and Other.. 4,118 -- -- -- -- 4,118 8,746 502 48,871
-------- ----- ----- ----- -------- -------- -------- -------- ----------
Total Asia/Pacific.. 68,961 -- -- -- -- 68,961 183,101 101,135 294,545
-------- ----- ----- ----- -------- -------- -------- -------- ----------
Latin America:
Argentina............ 17,627 -- -- -- -- 17,627 -- 1,329 --
Chile................ -- -- -- -- -- -- -- -- 78,165
Corporate and Other.. 1,617 -- -- -- -- 1,617 6,541 3,112 69,102
-------- ----- ----- ----- -------- -------- -------- -------- ----------
Total Latin
America............ 19,244 -- -- -- -- 19,244 6,541 4,441 147,267
-------- ----- ----- ----- -------- -------- -------- -------- ----------
Corporate & Other.... -- -- -- -- 421 421 11,003 3,034 286,525
-------- ----- ----- ----- -------- -------- -------- -------- ----------
Total Company....... $ 98,201 $ -- $ -- $ -- $ 421 $ 98,622 $440,735 $115,033 $1,679,835
======== ===== ===== ===== ======== ======== ======== ======== ==========
Adjusted EBITDA:(1)
Europe:
The Netherlands...... $ -- $ -- $ -- $ -- $ -- $ --
Austria.............. -- -- -- -- -- --
Belgium.............. -- -- -- -- -- --
Norway............... -- -- -- -- -- --
Corporate and Other.. (9,204) -- -- -- -- (9,204)
-------- ----- ----- ----- -------- --------
Total Europe........ (9,204) -- -- -- -- (9,204)
-------- ----- ----- ----- -------- --------
Asia/Pacific:
Australia............ (24,082) -- -- -- -- (24,082)
New Zealand.......... (6,688) -- -- -- -- (6,688)
Corporate and Other.. (254) -- -- -- (6,938) (7,192)
-------- ----- ----- ----- -------- --------
Total Asia/Pacific.. (31,024) -- -- -- (6,938) (37,962)
-------- ----- ----- ----- -------- --------
Latin America:
Argentina............ 2,836 -- -- -- -- 2,836
Chile................ -- -- -- -- -- --
Corporate and Other.. (952) -- -- -- (10,162) (11,114)
-------- ----- ----- ----- -------- --------
Total Latin
America............ 1,884 -- -- -- (10,162) (8,278)
-------- ----- ----- ----- -------- --------
Corporate & Other.... -- -- -- -- (2,921) (2,921)
-------- ----- ----- ----- -------- --------
Total Company....... $(38,344) $ -- $ -- $ -- $(20,021) $(58,365)
======== ===== ===== ===== ======== ========
</TABLE>
- --------
(1) Adjusted EBITDA represents earnings before depreciation, amortization and
stock based compensation charges. Industry analysts generally consider
Adjusted EBITDA to be a helpful way to measure the performance of cable
television operations and communications companies. Management believes
Adjusted EBITDA helps investors to assess the cash flow from operations
from period to period and thus to value the Company's business. Adjusted
EBITDA should not, however, be considered a replacement for net income,
cash flows or for any other measure of performance or liquidity under
generally accepted accounting principles, or as an indicator of a company's
operating performance. The presentation of Adjusted EBITDA may not be
comparable to statistics with a similar name reported by other companies.
Not all companies and analysts calculate Adjusted EBITDA in the same
manner.
(2)Represents Property, Plant and Equipment.
F-59
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Adjusted EBITDA reconciles to the consolidated statement of operations as
follows:
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Net operating loss..................... $(770,630) $(327,781) $(150,021)
Depreciation and amortization.......... 418,714 159,045 91,656
Non-cash stock-based compensation
expense............................... 223,734 164,793 --
--------- --------- ---------
Consolidated Adjusted EBITDA......... $(128,182) $ (3,943) $ (58,365)
========= ========= =========
</TABLE>
18. Related Party Transactions
Loans to Employees
In 1996, UPC loaned certain employees of UPC amounts for the exercise of the
employees' stock options, taxes on options exercised, or both. These recourse
loans bear interest at 5.0% per annum. The employees' liability to UPC is
presented in the consolidated financial statements net of UPC's obligation to
the employees under the plan. As of December 31, 1999 and 1998, the receivable
from employees, including accrued interest totaled $12.2 and $10.1 million,
respectively.
In September 1999, the Company loaned to Mr. Mark L. Schneider $0.7 million in
connection with the purchase of his home. The loan bears interest at 15.0% per
annum and is payable monthly. During 1999, Mr. M. Schneider paid $0.04 million
in interest on the loan. The loan is secured by all vested options Mr. M.
Schneider holds in the Company and its affiliates and by a right to a second
mortgage on his home. Payment of the loan is due upon the earlier of the sale
of the home or the date Mr. M. Schneider is no longer employed by United, UPC
or any affiliate. If Mr. M. Schneider defaults on the loan, the Company has a
power of attorney that allows it to exercise the relevant number of stock
options and sell the shares in satisfaction of Mr. M. Schneider's obligation
and the Company can also execute a second mortgage.
Acquisition of Interest in Princes Holdings and Tara
In November 1998, UPC purchased from RCL, an entity owned by a discretionary
trust for the benefit of certain members of the family of John Riordan, a
director of United, a 5.0% interest in Tara and a 5.0% interest in Princes
Holdings. The aggregate purchase price for these interests was approximately
$6.0 million. The parties agreed the purchase price would be paid in cash.
Subsequently, RCL elected to receive shares of Class A Common Stock of United.
The Company paid such purchase price by delivering to RCL 769,062 restricted
shares of Class A Common Stock held by UPC.
19. Subsequent Events
UPC Senior Notes and Senior Discount Notes
In January 2000, UPC completed a $1.6 billion bond offering consisting of
$600.0 million and (Euro) 200.0 million of ten-year 11.25% Senior Notes due
2010, $300.0 million of ten-year 11.5% Senior Notes due 2010 and $1.0 billion
aggregate principal amount of ten-year 13.75% Senior Discount Notes due 2010.
The Senior Discount Notes were sold at 51.2% of the face amount yielding gross
proceeds of $512.0 million and will accrue but not pay interest until 2005.
Acquisition of Intercomm France Holding S.A.
In February 2000, UPC acquired Intercomm France Holding S.A. for (Euro) 36.0
($36.2) million in cash and shares in UPC France. Following the transaction,
UPC controls 92.0% of UPC France.
F-60
<PAGE>
UnitedGlobalCom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Acquisition of Tebecai Cable System
In February 2000, UPC acquired 100% of Tebecai, a cable system based in the
east of Holland, for (Euro) 71.2 ($71.6) million.
UPC Stock Split
In March 2000, at an extraordinary general meeting of shareholders,
shareholders of UPC approved an amendment to UPC's Articles of Association to
effect a three-for-one stock split. All share and per share amounts in the
accompanying notes to the consolidated financial statements have been adjusted
to reflect this stock split.
Acquisition of ElTele Ostfold and Vestfold
In March 2000, UPC acquired 100% of the equity of ElTele Ostfold and Vestfold
from certain energy companies in Norway for (Euro)39.7 ($39.9) million.
Acquisition of Additional Interest in SBS
In February 2000, UPC acquired an additional 10.2% of SBS for (Euro)162.5
($163.5) million, increasing its ownership to 23.5%.
Acquisition of ENECO Cable System
In March 2000, UPC acquired K&T Group, the cable interests of N.V. ENECO, for
consideration of (Euro)1.2 ($1.2) billion. K&T owns and operates cable
networks in Rotterdam, Dordrecht and the surrounding municipalities in The
Netherlands.
Austar United Public Offering
On March 29, 2000, Austar United announced the sale of 20.0 million shares to
the public at A$8.50 ($5.15) per share for gross proceeds to the Company of
A$170.0 ($103.0) million.
F-61
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To UnitedGlobalCom, Inc.:
We have audited, in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of UnitedGlobalCom,
Inc. included in this Form 10-K and have issued our report thereon dated March
29, 2000. Our audit was made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The following
schedules are the responsibility of the Company's management and are presented
for purposes of complying with the Securities and Exchange Commission's rules
and are not part of the basic consolidated financial statements. These
schedules have been subjected to the auditing procedures applied in the audit
of the basic consolidated financial statements as indicated in our report with
respect thereto and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Denver, Colorado
March 29, 2000
F-62
<PAGE>
UnitedGlobalCom, Inc.
PARENT ONLY
SCHEDULE I
Condensed Financial Position of Registrant
(Stated in thousands)
<TABLE>
<CAPTION>
As of
December 31,
-----------------------
1999 1998
---------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................ $ 880,653 $ 7,553
Restricted cash.................................. 475 450
Short-term liquid investments.................... 354,710 38,367
Costs to be reimbursed by affiliated companies,
net............................................. 14,163 17,430
Management fee receivables from related parties.. 1,800 --
Other receivables................................ 709 1,354
Other current assets, net........................ 7,400 1,267
---------- -----------
Total current assets............................. 1,259,910 66,421
Notes receivable from wholly-owned subsidiaries,
including accrued interest ...................... 447,011 200,005
Marketable equity securities and other
investments...................................... 2,000 --
Investments in affiliates, accounted for under the
equity method, net............................... 630,797 --
Property, plant and equipment, net of accumulated
depreciation of $934 and $917, respectively...... 2,268 2,325
Deferred financing costs, net of accumulated
amortization of $4,628 and $1,772, respectively.. 29,052 18,133
Other assets, net................................. 76 74
---------- -----------
Total assets..................................... $2,371,114 $ 286,958
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable................................. $ 6,444 $ 264
Accrued liabilities.............................. 7,450 1,817
Losses recognized in excess of investment in
unconsolidated subsidiaries..................... -- 319,253
---------- -----------
Total current liabilities........................ 13,894 321,334
Senior discount notes............................. 1,215,994 893,003
---------- -----------
Total liabilities................................ 1,229,888 1,214,337
---------- -----------
Preferred stock, $0.01 par value, 3,000,000 shares
authorized, stated at liquidation value:
Series A Convertible Preferred Stock, 0 and
132,144 shares issued and outstanding,
respectively.................................... -- 26,086
---------- -----------
Series B Convertible Preferred Stock, 116,185 and
139,031 shares issued and outstanding,
respectively.................................... 26,920 30,200
---------- -----------
Stockholders' equity (deficit):
Class A Common Stock, $0.01 par value,
210,000,000 shares authorized, 81,574,815 and
61,349,990 shares issued and outstanding,
respectively.................................... 816 614
Class B Common Stock, $0.01 par value, 30,000,000
shares authorized 19,323,940 and 19,831,760
shares issued and outstanding, respectively..... 193 198
Series C Convertible Preferred Stock, 425,000
shares authorized, 425,000 and 0 shares issued
and outstanding, respectively................... 410,125 --
Series D Convertible Preferred Stock, 287,500
shares authorized, 287,500 and 0 shares issued
and outstanding, respectively................... 268,773 --
Additional paid-in capital....................... 1,416,635 378,191
Deferred compensation............................ (119,996) (679)
Treasury stock, at cost, 5,569,240 shares of
Class A Common Stock............................ (29,061) (29,061)
Accumulated deficit.............................. (621,941) (1,241,986)
Other cumulative comprehensive loss.............. (211,238) (90,942)
---------- -----------
Total stockholders' equity (deficit)............. 1,114,306 (983,665)
---------- -----------
Total liabilities and stockholders' equity
(deficit)....................................... $2,371,114 $ 286,958
========== ===========
</TABLE>
F-63
<PAGE>
UnitedGlobalCom, Inc.
PARENT ONLY
SCHEDULE I
Condensed Information as to the Operations of Registrant
(Stated in thousands)
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenue................................. $ 5,077 $ -- $ 452
Corporate general and administrative
expense................................ (168) (1,698) (983)
Depreciation and amortization........... (379) (278) (366)
--------- --------- ---------
Operating loss...................... 4,530 (1,976) (897)
Interest income......................... 17,440 5,051 5,006
Interest income, related parties, net... 32,941 13,727 7,443
Interest expense........................ (116,908) (76,364) (6,228)
Provision for losses on investment
related costs.......................... -- 255 (451)
Other expense, net...................... (3,155) (156) (202)
--------- --------- ---------
(Loss) income before other items.... (65,152) (59,463) 4,671
Share in results of affiliates, net..... 701,470 (486,069) (347,203)
--------- --------- ---------
Net income (loss)................... $ 636,318 $(545,532) $(342,532)
========= ========= =========
Foreign currency translation
adjustments............................ $(127,154) $ (24,713) $ (50,274)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period................ 6,858 (505) (1,593)
Reclassification adjustment for losses
included in net income............... -- -- 8,013
--------- --------- ---------
Comprehensive income (loss)......... $ 516,022 $(570,750) $(386,386)
========= ========= =========
</TABLE>
F-64
<PAGE>
UnitedGlobalCom, Inc.
PARENT ONLY
SCHEDULE I
Condensed Information as to Cash Flows of Registrant
(Stated in thousands)
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................ $ 636,318 $(545,532) $(342,532)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Share in results of affiliates, net.... (701,470) 486,069 347,203
Allocation of general, administrative
and other expenses accounted for as a
net capital contribution.............. (12,147) (12,487) (23,232)
Depreciation and amortization.......... 379 279 366
Accretion of interest on senior notes
and amortization of deferred financing
costs................................. 116,908 76,365 6,212
Provision for losses on marketable
equity securities and investment
related costs......................... -- -- 451
(Increase) decrease in other assets.... (16,781) (8,813) (157)
(Decrease) increase in accounts
payable, accrued liabilities and
other................................. 12,279 963 (2,582)
---------- --------- ---------
Net cash flows from operating
activities............................ 35,486 (3,156) (14,271)
---------- --------- ---------
Cash flows from investing activities:
Purchase of short-term liquid
investments........................... (447,387) (145,678) (77,668)
Proceeds from sale of short-term liquid
investments........................... 131,044 128,717 107,982
Restricted cash and short-term
investments released.................. (25) 385 765
Payoff of debt recorded at subsidiary
level by parent--recorded as deemed
capital contribution to subsidiary.... -- -- (531,800)
Investments in affiliates and other
investments........................... (59,163) (69,412) (169,333)
Increase in notes receivable from
affiliates............................ (247,006) (147,333) --
Payments on note receivable from
affiliates............................ -- -- 37,500
Capital expenditures................... (426) (56) (1,841)
Distribution received from affiliated
company............................... -- -- 123,230
Acquisition, transaction and
development costs and other........... 3,266 (4,207) (2,676)
---------- --------- ---------
Net cash flows from investing
activities............................ (619,697) (237,584) (513,841)
---------- --------- ---------
Cash flows from financing activities:
Proceeds from offering of senior notes
and senior discount notes............. 208,939 -- 812,200
Deferred financing costs............... (13,779) (409) (19,495)
Issuance of common stock in connection
with public offerings, net of
financing costs....................... 1,212,977 7,402 --
Issuance of common stock in connection
with Company's stock option plan...... 27,547 4,789 796
Issuance of warrants................... 21,627 -- --
Payments made on payable to affiliate,
net................................... -- -- (76,782)
---------- --------- ---------
Net cash flows from financing
activities............................ 1,457,311 11,782 716,719
---------- --------- ---------
Increase (decrease) in cash and cash
equivalents............................ 873,100 (228,958) 188,607
Cash and cash equivalents, beginning of
period................................. 7,553 236,511 47,904
---------- --------- ---------
Cash and cash equivalents, end of
period................................. $ 880,653 $ 7,553 $ 236,511
========== ========= =========
Non-cash investing and financing
activities:
Issuance of preferred stock utilized in
purchase of Australian investments.... $ -- $ 29,544 $ --
========== ========= =========
Non-cash issuance of warrants by
subsidiary to purchase subsidiary
stock................................. $ -- $ -- $ 3,678
========== ========= =========
Supplemental cash flow disclosure:
Cash received for interest............. $ 12,205 $ 5,003 $ 5,318
========== ========= =========
</TABLE>
F-65
<PAGE>
UnitedGlobalCom, Inc.
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
(In thousands of United States Dollars)
<TABLE>
<CAPTION>
Balance at Balance at
Beginning of Charged to End of
Description Period Expense Acquisitions Deductions(1) Period
- ------------------------ ------------ ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
subscriber receivables:
Year ended December
31, 1999............. 5,482 11,199 23,041 (11,914) 27,808
Ten months ended
December 31, 1998.... 3,191 2,470 1,201 (1,380) 5,482
Year ended February
28, 1998............. -- 186 3,191 (186) 3,191
Allowance for costs to
be reimbursed:
Year ended December
31, 1999............. -- 3,316 -- (3) 3,313
Ten months ended
December 31, 1998.... 1,094 55 -- (1,149) --
Year ended February
28, 1998............. 2,369 626 -- (1,901) 1,094
Allowance for
investments in
affiliates:
Year ended December
31, 1999............. 4,384 -- -- (4,384) --
Ten months ended
December 31, 1998.... -- 4,384 -- -- 4,384
Year ended February
28, 1998............. 2,147 -- -- (2,147) --
</TABLE>
- --------
(1) Represents uncollectible balances written off to the allowance account and
the effect of currency translation adjustments.
F-66
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UnitedGlobalCom, Inc.:
We have audited the accompanying consolidated balance sheets of United
International Properties, Inc. (a Colorado corporation) and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, parent's deficit and cash flows for the year ended December 31,
1999, the ten months ended December 31, 1998 (see Note 2) and for the year
ended February 28, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform these audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits, and the report of other auditors,
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of United International Properties, Inc. and subsidiaries as of December 31,
1999 and 1998 and the results of their operations and their cash flows for the
year ended December 31, 1999, the ten months ended December 31, 1998 and the
year ended February 28, 1998, in conformity with accounting principles
generally accepted in the United States.
Arthur Andersen LLP
Denver, Colorado
March 29, 2000
F-67
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
As of
December 31,
--------------------- ---
1999 1998
---------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................... $ 13,382 $ 12,409
Restricted cash.................................... 500 753
Short-term liquid investments...................... 274,979 3,131
Subscriber receivables, net of allowance for
doubtful accounts of $10,949 and $634,
respectively...................................... 23,154 6,970
Costs to be reimbursed by affiliated companies,
net............................................... -- 280
Other receivables, including related party
receivables of $957 and $2,064, respectively...... 45,283 2,997
Inventory.......................................... 16,176 12,617
Deferred taxes..................................... 2,119 --
Other current assets, net.......................... 18,109 6,231
---------- ---------
Total current assets............................... 393,702 45,388
Investments in affiliates, accounted for under the
equity method, net................................. 65,142 175,281
Property, plant and equipment, net of accumulated
depreciation of $286,261 and $153,860,
respectively....................................... 460,469 130,071
Goodwill and other intangible assets, net of
accumulated amortization of $35,539 and $18,989,
respectively....................................... 317,041 65,130
Deferred financing costs, net of accumulated
amortization of $6,460 and $3,237, respectively.... 23,304 11,675
Deferred taxes...................................... 3,698 --
Other assets, net................................... 10,301 4,610
---------- ---------
Total assets....................................... $1,273,657 $ 432,155
========== =========
LIABILITIES AND PARENT'S DEFICIT
Current liabilities
Accounts payable, including related party payables
of $9,959 and $2,291, respectively................ $ 60,259 $ 11,679
Accrued liabilities................................ 41,538 34,165
Short-term debt.................................... 9,033 59,875
Current portion of senior discount notes and other
long-term debt.................................... 1,574 2,601
Other current liabilities.......................... 10,567 3,524
---------- ---------
Total current liabilities.......................... 122,971 111,844
Notes payable to parent............................. 446,288 107,396
Senior discount notes and senior notes.............. 407,945 356,640
Other long-term debt................................ 437,671 68,086
Deferred compensation............................... 1,793 --
Deferred taxes...................................... 1,013 --
Other long-term liabilities, including due to parent
of $1,322 and $575, respectively................... 5,470 3,016
---------- ---------
Total liabilities.................................. 1,423,151 646,982
---------- ---------
Minority interests in subsidiaries.................. 78,279 4,983
---------- ---------
Parent's deficit:
Common Stock, $0.01 par value, 1,000 shares
authorized, 100 and 100 shares issued and
outstanding, respectively, (pledged as collateral
under parent's senior discount notes)............. -- --
Additional paid-in capital......................... 718,517 615,712
Deferred compensation.............................. (18,343) --
Accumulated deficit................................ (843,672) (770,620)
Other cumulative comprehensive loss................ (84,275) (64,902)
---------- ---------
Total parent's deficit............................. (227,773) (219,810)
---------- ---------
Commitments and contingencies (Notes 13 and 14)
Total liabilities and parent's deficit............. $1,273,657 $ 432,155
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-68
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands)
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenue................................ $ 245,825 $ 81,781 $ 88,644
System operating expense............... (147,973) (65,688) (62,886)
System selling, general and
administrative expense................ (88,460) (48,825) (59,385)
Corporate general and administrative
expense............................... (36,381) (14,790) (20,250)
Depreciation and amortization.......... (137,893) (82,217) (85,204)
--------- --------- ---------
Operating loss..................... (164,882) (129,739) (139,081)
Gain on issuance of common equity
securities by subsidiaries............ 248,361 -- --
Interest income, including related
party income of $561, $497 and $302,
respectively.......................... 7,340 1,973 2,568
Interest expense....................... (88,579) (48,339) (116,015)
Interest expense, related party........ (31,222) (7,536) (7,063)
Provision for losses on marketable
equity securities and investment
related costs......................... (7,127) (6,810) (14,342)
Gain on sale of investments in
affiliates............................ -- -- 90,020
Foreign currency exchange (loss) gain.. (25,787) (1,657) (1,411)
Other expense, net..................... (406) (2,239) (3,550)
--------- --------- ---------
Loss before income taxes and other
items............................. (62,302) (194,347) (188,874)
Income tax expense..................... (2,091) -- --
Minority interests in subsidiaries..... 14,540 617 1,685
Share in results of affiliates, net.... (23,199) (28,487) (26,771)
--------- --------- ---------
Net loss before extraordinary
charge............................ (73,052) (222,217) (213,960)
Extraordinary charge for early
retirement of debt.................... -- -- (79,091)
--------- --------- ---------
Net loss........................... $ (73,052) $(222,217) $(293,051)
========= ========= =========
Foreign currency translation
adjustments........................... $ (20,172) $ (20,911) $ (38,401)
Unrealized gains (losses) on
securities:
Unrealized holding gains (losses)
arising during period............... 799 (505) (1,593)
Reclassification adjustment for
losses included in net income....... -- -- 8,013
--------- --------- ---------
Comprehensive loss................. $ (92,425) $(243,633) $(325,032)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-69
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF PARENT'S DEFICIT
(Stated in thousands, except share amounts)
<TABLE>
<CAPTION>
Other
Common Stock Additional Cumulative
------------- Paid-In Deferred Accumulated Comprehensive
Shares Amount Capital Compensation Deficit Loss Total
------ ------ ---------- ------------ ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, February 28,
1997................... 100 -- $ 65,488 $ -- $(221,939) $(11,505) $(167,956)
Issuance of warrants to
purchase common stock
of subsidiary.......... -- -- 3,678 -- -- -- 3,678
Gain on sale of stock by
subsidiary............. -- -- 7,614 -- -- -- 7,614
Payoff of debt recorded
at subsidiary level by
parent--recorded as
deemed capital
contribution........... -- -- 531,800 -- -- -- 531,800
Capital distribution to
parent, net............ -- -- (98,621) -- -- -- (98,621)
Net loss................ -- -- -- -- (293,051) -- (293,051)
Change in unrealized
gain (loss) on
available-for-sale
securities, net........ -- -- -- -- -- (1,593) (1,593)
Provision for loss on
available-for-sale
securities............. -- -- -- -- -- 8,013 8,013
Change in cumulative
translation
adjustments............ -- -- -- -- -- (38,401) (38,401)
--- ---- -------- -------- --------- -------- ---------
Balances, February 28,
1998................... 100 -- 509,959 -- (514,990) (43,486) (48,517)
Cash contributions from
parent................. -- -- 65,982 -- -- -- 65,982
Non-cash contributions
from parent............ -- -- 39,767 -- -- -- 39,767
Distribution of net
investment in
subsidiaries to parent,
at cost................ -- -- 4 -- -- -- 4
Elimination of
historical two month
reporting difference
due to change in fiscal
year end............... -- -- -- -- (33,413) -- (33,413)
Net loss................ -- -- -- -- (222,217) -- (222,217)
Change in unrealized
gain (loss) on
available-for-sale
securities, net........ -- -- -- -- -- (505) (505)
Change in cumulative
translation
adjustments............ -- -- -- -- -- (20,911) (20,911)
--- ---- -------- -------- --------- -------- ---------
Balances, December 31,
1998................... 100 -- 615,712 -- (770,620) (64,902) (219,810)
Net loss................ -- -- -- -- (73,052) -- (73,052)
Cash contributions from
parent................. -- -- 59,163 -- -- -- 59,163
Non-cash contributions
from parent............ -- -- 2,759 -- -- -- 2,759
Equity transactions of
subsidiaries........... -- -- 40,883 (40,883) -- -- --
Amortization of deferred
compensation........... -- -- -- 22,540 -- -- 22,540
Change in cumulative
translation............ -- -- -- -- -- (20,172) (20,172)
Change in unrealized
gain on available-for-
sale securities........ -- -- -- -- -- 799 799
--- ---- -------- -------- --------- -------- ---------
Balances, December 31,
1999................... 100 $-- $718,517 $(18,343) $(843,672) $(84,275) $(227,773)
=== ==== ======== ======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-70
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands)
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................ $ (73,052) $(222,217) $(293,051)
Elimination of historical two month
reporting difference due to change in
fiscal year............................ -- (33,413) --
Adjustments to reconcile net loss to net
cash flows from operating activities:
Gain on issuance of common equity
securities by subsidiaries............ (248,361) -- --
Extraordinary charge for early
retirement of debt.................... -- -- 79,091
Share in results of affiliates, net.... 18,340 34,423 27,860
Allocation of general, administrative
and other expenses accounted for as a
net contribution of capital by
parent................................ 8,752 7,899 15,910
Minority interests in subsidiaries..... (14,540) (617) (1,685)
Depreciation and amortization.......... 137,893 99,703 85,204
Accretion of interest on senior notes
and amortization of deferred financing
costs................................. 57,681 49,798 104,311
Stock-based compensation expense....... 21,507 2,669 --
Gain on sale of investments in
affiliates............................ -- -- (90,020)
Provision for losses on marketable
equity securities and investment
related costs......................... 7,127 6,342 14,342
Increase in receivables, net........... (13,368) (3,395) (4,128)
Decrease (increase) in other assets.... 9,898 (8,723) 7,471
Increase in accounts payable, accrued
liabilities and other................. 60,776 26,969 9,905
--------- --------- ---------
Net cash flows from operating
activities............................ (27,347) (40,562) (44,790)
--------- --------- ---------
Cash flows from investing activities:
Purchase of short-term liquid
investments........................... (273,184) (3,923) (16,988)
Proceeds from sale of short-term liquid
investments........................... 9,172 13,117 23,303
Restricted cash released (deposited),
net................................... 344 7,943 (9,115)
Investments in affiliates and other
investments........................... (19,490) (38,346) (64,540)
Proceeds from sale of investments in
affiliated companies.................. -- -- 211,125
New acquisitions, net of cash
acquired.............................. (272,888) (9,881) --
Capital expenditures................... (181,519) (75,454) (106,776)
Increase in notes receivable and
other................................. (30,324) 953 (14,536)
--------- --------- ---------
Net cash flows from investing
activities............................ (767,889) (105,591) 22,473
--------- --------- ---------
Cash flows from financing activities:
Issuance of common stock by
subsidiaries, net..................... 292,784 -- --
Issuance of common stock in connection
with subsidiaries stock option plans.. 807 -- --
Proceeds from offering of senior notes
and senior discount notes............. -- -- 29,925
Retirement of existing senior notes.... (435) -- --
Proceeds from short-term and long-term
borrowings............................ 290,928 39,519 233,210
Deferred financing costs............... (8,014) (486) (11,373)
Repayments of short-term and long-term
borrowings............................ (154,185) (30,183) (119,114)
Capital contribution from (distribution
to) parent............................ 59,193 65,982 (123,230)
Payments received on receivable from
parent, net........................... -- -- 76,782
Proceeds from (payment on) note payable
to parent............................. 315,035 60,865 (37,500)
Payment of sellers notes............... -- -- (46,351)
Cash contributed from minority interest
partners.............................. 2,971 -- 22,042
--------- --------- ---------
Net cash flows from financing
activities............................ 799,084 135,697 24,391
--------- --------- ---------
Effect of exchange rates on cash........ (2,875) 101 (190)
--------- --------- ---------
Increase (decrease) in cash and cash
equivalents............................ 973 (10,355) 1,884
Cash and cash equivalents, beginning of
period................................. 12,409 22,764 20,880
--------- --------- ---------
Cash and cash equivalents, end of
period................................. $ 13,382 $ 12,409 $ 22,764
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-71
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Stated in thousands)
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest................ $ 20,642 $ 6,223 $ 7,497
========= ======== ========
Cash received for interest............ $ 3,179 $ 558 $ 2,376
========= ======== ========
Seller notes for purchase of Argentine
systems.............................. $ -- $ -- $ 52,061
========= ======== ========
Acquisition of remaining interest in
VTR:
Working capital....................... $ (10,381) $ -- $ --
Property, plant and equipment......... (203,154) -- --
Goodwill and other intangible assets.. (244,981) -- --
Other long-term assets................ (14,685) -- --
Elimination of equity investment in
Chilean joint venture................ 69,381 -- --
Long-term liabilities................. 145,641 -- --
--------- -------- --------
Total cash paid..................... (258,179) -- --
Cash acquired......................... 5,498 -- --
--------- -------- --------
Net cash paid....................... $(252,681) $ -- $ --
========= ======== ========
Deconsolidation of New Zealand
subsidiary:
Working capital....................... $ 10,162 $ 4,159 $ --
Property, plant and equipment......... (80,656) (26,484) --
Elimination of investment in Saturn... 21,974 -- --
Goodwill and other intangible assets.. (5,737) (2,805) --
Notes payable and other debt.......... 54,870 3,833 --
Minority interest..................... -- 11,416 --
--------- -------- --------
Total cash relinquished............. $ 613 $ (9,881) $ --
========= ======== ========
Sale of Argentine Cable Systems:
Working capital, net of cash
relinquished of $2,133............... $ -- $ -- $ (3,319)
Investments in affiliated companies... -- -- 83,535
Property, plant and equipment and
other long-term assets............... -- -- 4,560
Goodwill and other intangible assets.. -- -- 60,727
Sellers notes (assumed by the
buyers).............................. -- -- (24,398)
Gain on sale.......................... -- -- 90,020
--------- -------- --------
Cash received from sale............. $ -- $ -- $211,125
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-72
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Nature of Operations
United International Properties, Inc. ("UIPI" or the "Company"), a wholly-
owned subsidiary of UnitedGlobalCom, Inc. ("United") was formed on September
21, 1994 in connection with the transaction contemplated by United's offering
of 14% senior discount notes (the "Old Notes").
Under United's offering of the Old Notes, United contributed to UIPI, United's
interests in certain operating properties and early stage projects in Latin
America and Asia/Pacific. UIPI will hold all of United's future investments
and development projects in Latin America and Asia/Pacific. The accompanying
financial statements have been prepared on a basis of reorganization
accounting as though UIPI had performed all foreign development activities and
made all acquisitions of the foreign multi-channel television interests in
Latin America and Asia/Pacific since inception. UIPI reflected all of the
transfers from United as a capital contribution from parent in the
accompanying consolidated financial statements.
The following chart presents a summary of the Company's significant
investments in telecommunications as of December 31, 1999.
United
100%
UIPI
-------------------------------
100% 100%
United Asia/Pacific United Latin America, Inc.
Communications, Inc. ("ULA")
("UAP")*
100%
Brazil:
United Australia/Pacific, TV Show Brasil 100.0%
Inc. Jundiai 46.3%
("United A/P") Chile:
VTR 100.0%
Mexico:
75.4% Megapo 49.0%(1)
Peru:
Austar United Cable Star 62.2%
Communications Limited Latin American Programming:
("Austar United") MGM Networks LA 50.0%
Australia:
Austar 100.0%
XYZ Entertainment 50.0%
New Zealand:
Saturn 100.0%
* Other UAP
China:
Hunan International
TV 49.0%
Philippines:
Pilipino Cable
Corporation 19.6%
- --------
(1) In January 2000, ULA purchased an additional 41.3% interest in Megapo for
$22.8 million.
F-73
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies
Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and all subsidiaries where it exercises a controlling financial
interest through the ownership of a majority voting interest. The following
illustrates those subsidiaries for which the Company consolidated the results
of operations for only a portion of the fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
Effective Date
Entity of Consolidation Reason
------ ---------------- ------
<S> <C> <C>
VTR................ May 1, 1999 Acquisition of remaining 66.0% interest
Saturn(1).......... August 1, 1999 Acquisition of remaining 35.0% interest
</TABLE>
--------
(1) The company consolidated the results of operations of Saturn from July
1, 1996 to December 31, 1997. Effective January 1, 1998 the Company
discontinued consolidating the results of operations of Saturn because
of certain minority shareholders' rights.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Change in Fiscal Year-End
Prior to the ten months ended December 31, 1998, the Company's fiscal year-end
was February 28, and it accounted for its share of the income or loss of its
operating companies based on the calendar year results of each operating
company. This created a two month delay in reporting the operating company
results in the Company's consolidated results for its fiscal year-end. On
February 24, 1999, the Company changed its fiscal year-end from the last day
in February to the last day in December, effective December 31, 1998. To
effect the transaction to the new fiscal year end, the combined results of
operations of the operating companies for January and February 1998, a loss of
$33.4 million, has been reported as a one-time adjustment to retained deficit
as of March 1, 1998 in the consolidated statement of parent's deficit.
Consequently, the consolidated statement of operations presents the
consolidated results of the Company and its subsidiaries for the ten months
ended December 31, 1998. For comparative purposes, the Company's consolidated
revenue, net operating loss and net loss were $74.4 million, $115.3 million
and $173.2 million, respectively, for the ten months ended December 31, 1997,
and the Company's consolidated revenue, net operating loss and net loss were
$95.5 million, $148.3 million and $255.6 million, respectively for the year
ended December 31, 1998.
Cash and Cash Equivalents and Short-Term Liquid Investments
Cash and cash equivalents include cash and investments with original
maturities of less than three months. Short-term liquid investments include
certificates of deposit, commercial paper, corporate bonds and government
securities which have original maturities greater than three months but less
than twelve months. Short-term liquid investments are classified as available-
for-sale and are reported at fair market value.
F-74
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restricted Cash
Cash held as collateral for letters of credit and other loans is classified
based on the expected expiration of such facilities. Cash held in escrow and
restricted to a specific use is classified based on the expected timing of
such disbursement.
Costs to be Reimbursed by Affiliated Companies
The Company incurs costs on behalf of affiliated companies, such as salaries
and benefits, travel and professional services. These costs are reimbursed by
the affiliated companies.
Inventory
Inventory is stated at the lower of cost (first-in, first-out basis) or
market.
Investments in Affiliates, Accounted for under the Equity Method
For those investments in unconsolidated subsidiaries and companies in which
the Company's voting interest is 20.0% to 50.0%, its investments are held
through a combination of voting common stock, preferred stock, debentures or
convertible debt and/or the Company exerts significant influence through board
representation and management authority, the equity method of accounting is
used. Under this method, the investment, originally recorded at cost, is
adjusted to recognize the Company's proportionate share of net earnings or
losses of the affiliate, limited to the extent of the Company's investment in
and advances to the affiliate, including any debt guarantees or other
contractual funding commitments. The Company's proportionate share of net
earnings or losses of affiliates includes the amortization of the excess of
its cost over its proportionate interest in each affiliate's net assets.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Additions, replacements,
installation costs and major improvements are capitalized, and costs for
normal repair and maintenance of property, plant and equipment are charged to
expense as incurred. Assets constructed incorporate overhead expense and
interest charges incurred during the period of construction; investment
subsidies are deducted. Upon disconnection of a subscriber, the remaining book
value of the subscriber equipment, excluding converters which are recovered
upon disconnection, and the capitalized labor are written off and accounted
for as an operating cost. Depreciation is calculated using the straight-line
method over the economic life of the asset.
The economic lives of property, plant and equipment at acquisition are as
follows:
<TABLE>
<S> <C>
Cable distribution networks....................................... 3-20 years
Subscriber premises equipment and converters...................... 3-10 years
MMDS/DTH distribution facilities.................................. 5-20 years
Office equipment, furniture and fixtures.......................... 3-10 years
Buildings and leasehold improvements.............................. 3-33 years
Other............................................................. 3-10 years
</TABLE>
Goodwill and Other Intangible Assets
The excess of investments in consolidated subsidiaries over the net tangible
asset value at acquisition is amortized on a straight-line basis over 15
years. Licenses in newly-acquired companies are recognized at the fair market
value of those licenses at the date of acquisition. Licenses in new franchise
areas include the capitalization of direct costs incurred in obtaining the
license. The license value is amortized on a straight-line basis over the
initial license period, up to a maximum of 20 years.
F-75
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Recoverability of Tangible and Intangible Assets
The Company evaluates the carrying value of all tangible and intangible assets
whenever events or circumstances indicate the carrying value of assets may
exceed their recoverable amounts. An impairment loss is recognized when the
estimated future cash flows (undiscounted and without interest) expected to
result from the use of an asset are less than the carrying amount of the
asset. Measurement of an impairment loss is based on fair value of the asset
computed using discounted cash flows if the asset is expected to be held and
used. Measurement of an impairment loss for an asset held for sale would be
based on fair market value less estimated costs to sell.
Deferred Financing Costs
Costs to obtain debt financing are capitalized and amortized over the life of
the debt facility using the effective interest method.
Subscriber Prepayments and Deposits
Payments received in advance for multi-channel television service are deferred
and recognized as revenue when the associated services are provided. Deposits
are recorded as a liability upon receipt and refunded to the subscriber upon
disconnection.
Revenue Recognition
Revenue is primarily derived from the sale of multi-channel television,
telephony and internet/data services to subscribers and is recognized in the
period the related services are provided. Initial installation fees are
recognized as revenue in the period in which the installation occurs, to the
extent installation fees are equal to or less than direct selling costs, which
are expensed. To the extent installation fees exceed direct selling costs, the
excess are deferred and amortized over the average contract period. All
installation fees and related costs with respect to reconnections and
disconnections are recognized in the period in which the reconnection or
disconnection occurs because reconnection fees are charged at a level equal to
or less than related reconnection costs.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of subscriber receivables. Concentrations
of credit risk with respect to subscriber receivables are limited due to the
Company's large number of customers and their dispersion across many different
countries worldwide.
Staff Accounting Bulletin No. 51 ("SAB 51") Accounting Policy
Gains realized as a result of stock sales by the Company's subsidiaries are
recorded in the statement of operations, except for any transactions which
must be credited directly to equity in accordance with the provisions of SAB
51.
Stock-Based Compensation
Stock-based compensation is recognized using the intrinsic value method, which
results in compensation expense for the difference between the grant price and
the fair market value at each new measurement date. Austar United and ULA have
adopted stock-based compensation plans for their employees. With respect to
certain of these plans, the rights conveyed to employees are the substantive
equivalents to stock appreciation rights. Accordingly, compensation expense is
recognized at each financial statement date based on the difference between
the grant price and the estimated fair value of the respective subsidiary's
common stock.
Income Taxes
The Company accounts for income taxes under the asset and liability method
which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of transactions which have
F-76
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
been included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and income tax basis of assets, liabilities
and loss carryforwards using enacted tax rates in effect for the year in which
the differences are expected to reverse. Net deferred tax assets are then
reduced by a valuation allowance if management believes it more likely than
not they will not be realized. Withholding taxes are taken into consideration
in situations where the income of subsidiaries is to be paid out as dividends
in the near future. Such withholding taxes are generally charged to income in
the year in which the dividend income is generated.
Foreign Operations and Foreign Exchange Rate Risk
The functional currency for the Company's foreign operations is the applicable
local currency for each affiliate company, except for countries which have
experienced hyper-inflationary economies. For countries which have hyper-
inflationary economies, the financial statements are prepared in U.S. dollars.
Assets and liabilities of foreign subsidiaries for which the functional
currency is the local currency are translated at exchange rates in effect at
period-end, and the statements of operations are translated at the average
exchange rates during the period. Exchange rate fluctuations on translating
foreign currency financial statements into U.S. dollars that result in
unrealized gains or losses are referred to as translation adjustments.
Cumulative translation adjustments are recorded as a separate component of
parent's deficit and are included in Other Cumulative Comprehensive Loss.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in income as unrealized (based on period-end translations)
or realized upon settlement of the transactions. Cash flows from the Company's
operations in foreign countries are translated based on their functional
currencies. As a result, amounts related to assets and liabilities reported on
the consolidated statements of cash flows will not agree to changes in the
corresponding balances in the consolidated balance sheets. The effects of
exchange rate changes on cash balances held in foreign currencies are reported
as a separate line below cash flows from financing activities.
Certain of the Company's foreign operating companies have notes payable and
notes receivable that are denominated in a currency other than their own
functional currency. Accordingly, the Company may experience economic loss and
a negative impact on earnings and equity with respect to its holdings solely
as a result of foreign currency exchange rate fluctuations.
New Accounting Principles
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 2000. The Company is currently assessing the
effect of this new standard.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 "Views on Selected Revenue Recognition
Issues" ("SAB 101"), which provides the staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. SAB 101
is effective for the second quarter of 2000. The Company is currently
assessing the effect of SAB 101.
Reclassification
Certain prior year amounts have been reclassified to conform to current year
presentation.
F-77
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Acquisitions and Other
VTR Acquisition
On April 29, 1999, an indirect wholly owned subsidiary of ULA acquired a 66.0%
interest in VTR, a company that provides telephone and multi-channel
television services to the greater Santiago, Chile area (the "VTR
Acquisition"). This acquisition, combined with the interest in VTR that is
owned by another indirect wholly owned subsidiary of the Company, gives the
Company an indirect 100% interest in VTR. The purchase price for the 66.0%
interest in VTR was approximately $258.2 million in cash. In addition, the
Company provided capital for VTR to prepay approximately $125.8 million of
existing bank indebtedness and a promissory note from the Company to one of
the other shareholders of VTR.
Restructuring of United A/P Assets and Austar United Initial Public Offering
In June 1999, the Company's interest in Austar, XYZ Entertainment and Saturn
were contributed to Austar United in exchange for new shares issued by Austar
United. On July 27, 1999, Austar United acquired from SaskTel its 35.0%
interest in Saturn in exchange for approximately 13.7 million of Austar
United's shares, thereby increasing Austar United's ownership interest in
Saturn from 65.0% to 100%. In addition, Austar United successfully completed
an initial public offering selling 103.5 million shares on the Australian
Stock Exchange, raising gross and net proceeds at Australian dollar ("A$")4.70
($3.03) per share of A$486.5 ($313.6) million and A$453.6 ($292.8) million,
respectively. Based on the carrying value of the Company's investment in
Austar United as of July 27, 1999, United recognized a gain of $248.4 million
from the resulting step-up in the carrying amount of United's investment in
Austar United, in accordance with SAB 51. No deferred taxes were recorded
related to this gain due to the Company's intent on holding its investment in
Austar United indefinitely. Austar United's offering reduced the Company's
ownership interest from 100% to approximately 75.5%. As a result of employee
stock option exercises subsequent to the initial public offering date, the
Company's ownership interest in Austar United decreased to 75.4% as of
December 31, 1999. Including all stock options granted to employees that were
vested as of December 31, 1999, the Company's ownership interest in Austar
United on a fully-diluted basis is approximately 73.7%.
MGM Networks LA
In May 1998, ULA entered into a joint venture with a division of Metro-
Goldwyn-Mayer, Inc. ("MGM") to form MGM Networks LA. Under the terms of the
joint venture, ULA contributed its 100% interest in a Latin American
programming venture for a 50.0% interest in MGM Networks LA, and MGM acquired
a 50.0% interest in MGM Networks LA by contributing its Brazil channel (MGM
Gold Brazil) and committing to fund the first $9.9 million ($6.7 million of
which was funded at closing) required by MGM Networks LA. MGM Networks LA has
also entered into a trademark license agreement with MGM for the use of the
MGM brand name and also into a program license agreement to acquire
programming from MGM.
Austar
In July 1998, Austar acquired certain Australian pay television assets of East
Coast Television Pty Limited ("ECT"), an affiliate of Century Communications
Corporation ("Century"), for $6.1 million of the Company's newly-created
Series B Convertible Preferred Stock. ECT's subscription television business
includes subscribers and certain MMDS licenses and transmission equipment
serving the areas in and around Newcastle, Gossford, Wollongong and Tasmania,
Australia.
XYZ Entertainment
In September 1998, UAP acquired the Australian programming assets held by
Century, consisting of Century's 25.0% interest in XYZ Entertainment, a
programming company that owns and/or distributes five channels to the
Australian multi-channel marketplace, increasing its ownership to a total of
50.0% in XYZ Entertainment. The purchase price consisted of $1.2 million in
cash and $23.4 million of the Company's Series B Preferred Stock.
F-78
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
TV Show Brasil
In October 1998, ULA increased its ownership interest in TV Show Brasil from
45.0% to 100% for $11.4 million, half of which was paid in cash, with the
remainder financed by the seller.
Cable Star
In October 1998, ULA and Arequipa Cable Vision ("ACV") each contributed their
Peruvian multi-channel television assets to Cable Star, with ULA receiving
60.0% of the outstanding shares of Cable Star and the former shareholders of
ACV receiving the other 40.0%.
Argentina
In October 1997, the Company completed the sale of all of its cable television
assets in Argentina, including the regions of Bahia Blanca, Comodoro, Trelew
and Santa Fe (the "Argentina Transaction"). The sale price for Bahia Blanca,
Comodoro, Trelew and Santa Fe collectively was $268.2 million, of which $25.3
million consisted of remaining notes payable to sellers from the original
acquisitions. From this net sales price of $242.9 million, $29.6 million was
paid directly by the buyers to other minority interest stockholders, resulting
in net proceeds to the Company of approximately $211.1 million. The payment
was received in full in cash. The Company recognized a gain on the transaction
of $90.0 million.
Tara
In October 1997, Tara issued shares to third parties in exchange for
consideration totaling $2.5 million, thereby diluting the Company's interest
in Tara from 100% to 75.0%. A gain of $1.6 million recognized on the
transaction was credited to additional paid-in capital in accordance with SAB
51.
Saturn
In July 1997, SaskTel Holdings (New Zealand), Inc. ("SaskTel") purchased a
35.0% equity interest in Saturn by investing New Zealand dollars ("NZ$")29.9
($19.6) million directly into Saturn for its newly-issued shares, thereby
reducing the Company's equity interest in Saturn to 65.0%. A gain of $6.0
million recognized on the transaction was credited to additional paid-in
capital in accordance with SAB 51.
Pro Forma Financial Information for the Year Ended February 28, 1998
The following pro forma condensed consolidated operating results for the year
ended February 28, 1998 gives effect to the Argentina Transaction as if it had
occurred at the beginning of the period presented. This pro forma condensed
consolidated financial information and notes thereto do not purport to
represent what the Company's results of operations would actually have been if
such transaction had in fact occurred on such date. The pro forma adjustments
are based upon currently available information and upon certain assumptions
that management believes are reasonable.
<TABLE>
<CAPTION>
For the Year Ended
February 28, 1998
------------------------
Historical Pro Forma(1)
---------- ------------
(In thousands)
<S> <C> <C>
Revenue............................................. $ 88,644 $ 71,017
========= =========
Net loss before extraordinary charge................ $(213,960) $(295,469)
========= =========
Net loss............................................ $(293,051) $(374,560)
========= =========
</TABLE>
--------
(1) Represents elimination of historical statement of operations balances
for the Argentina systems and elimination of the gain recorded on the
Argentina Transaction.
F-79
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Cash and Cash Equivalents, Restricted Cash and Short-Term Investments
<TABLE>
<CAPTION>
As of December 31, 1999
---------------------------------------------
Short-term
Cash and Cash Restricted Liquid
Equivalents Cash Investments Total
------------- ---------- ----------- --------
(In thousands)
<S> <C> <C> <C> <C>
Cash........................... $13,382 $500 $ -- $ 13,882
Certificates of deposit........ -- -- 271,041 271,041
Commercial paper............... -- -- 1,054 1,054
Corporate bonds................ -- -- 1,005 1,005
Government securities.......... -- -- 1,879 1,879
------- ---- -------- --------
Total........................ $13,382 $500 $274,979 $288,861
======= ==== ======== ========
<CAPTION>
As of December 31, 1998
---------------------------------------------
Short-term
Cash and Cash Restricted Liquid
Equivalents Cash Investments Total
------------- ---------- ----------- --------
(In thousands)
<S> <C> <C> <C> <C>
Cash........................... $ 1,499 $753 $ -- $ 2,252
Certificates of deposit........ -- -- 250 250
Commercial paper............... 10,648 -- 1,187 11,835
Corporate bonds................ -- -- 187 187
Government securities.......... 262 -- 1,507 1,769
------- ---- -------- --------
Total........................ $12,409 $753 $ 3,131 $ 16,293
======= ==== ======== ========
</TABLE>
F-80
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Investments in Affiliates, Accounted for under the Equity Method
<TABLE>
<CAPTION>
As of December 31, 1999
------------------------------------------------------------------------
Cumulative Cumulative
Investments in Dividends Share in Results Translation Valuation
Affiliates Received of Affiliates Adjustments Allowance Total
-------------- --------- ---------------- ----------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Asia/Pacific:
XYZ Entertainment..... $ 44,306 $ -- $(18,564) $ 2,804 $ -- $ 28,546
Pilipino Cable
Corporation.......... 14,950 -- (3,004) (2,588) -- 9,358
Hunan International
TV................... 6,061 -- (2,477) 16 -- 3,600
Other................. 350 -- -- -- -- 350
Latin America:
Megapo................ 32,496 (1,408) (1,618) (9,382) -- 20,088
MGM Networks LA(1).... 11,988 -- (11,988) -- -- --
Jundiai............... 6,032 (1,572) 72 (1,334) -- 3,198
Other................. 2 -- -- -- -- 2
-------- ------- -------- -------- ------- --------
Total............... $116,185 $(2,980) $(37,579) $(10,484) $ -- $ 65,142
======== ======= ======== ======== ======= ========
<CAPTION>
As of December 31, 1998
------------------------------------------------------------------------
Cumulative Cumulative
Investments in Dividends Share in Results Translation Valuation
Affiliates Received of Affiliates Adjustments Allowance Total
-------------- --------- ---------------- ----------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Europe:
Iberian Programming... $ 14,082 $ -- $ (7,418) $ (25) $ -- $ 6,639
Asia/Pacific:
Saturn................ 49,808 -- (23,138) (2,881) -- 23,789
XYZ Entertainment..... 44,306 -- (18,537) 111 -- 25,880
Pilipino Cable
Corporation.......... 11,673 -- (2,812) (2,824) -- 6,037
Hunan International
TV................... 6,073 -- (2,435) 16 -- 3,654
Telefenua............. 18,599 -- (14,215) -- (4,384) --
Other................. 350 -- -- -- -- 350
Latin America:
VTR................... 112,052 -- (17,203) (9,874) -- 84,975
Megapo................ 32,496 (1,471) (1,122) (11,067) -- 18,836
MGM Networks LA(1).... 5,687 -- (5,687) -- -- --
Jundiai............... 6,797 -- (587) (1,089) -- 5,121
-------- ------- -------- -------- ------- --------
Total............... $301,923 $(1,471) $(93,154) $(27,633) $(4,384) $175,281
======== ======= ======== ======== ======= ========
</TABLE>
--------
(1) Includes an accrued funding obligation of $3.0 and $2.9 million at
December 31, 1999 and 1998, respectively. The Company would face
significant and punitive dilution if it did not make the requested
fundings.
F-81
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 1999 and 1998, the Company had the following differences
related to the excess of its cost over its proportionate interest in each
affiliate's net tangible assets included in the above table. Such differences
are being amortized over 15 years.
<TABLE>
<CAPTION>
As of December 31, 1999 As of December 31, 1998
----------------------- -----------------------
Basis Accumulated Basis Accumulated
Difference Amortization Difference Amortization
---------- ------------ ---------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Europe:
Iberian Programming........ $ -- $ -- $ 2,216 $ (85)
Asia/Pacific:
XYZ Entertainment.......... 25,791 (1,609) 23,595 --
Saturn..................... -- -- 12,733 (1,005)
Latin America:
VTR........................ 19,994 (1,941)
Megapo..................... 20,518 (6,983) 19,583 (5,767)
------- ------- ------- -------
Total.................... $46,309 $(8,592) $78,121 $(8,798)
======= ======= ======= =======
</TABLE>
VTR
Condensed financial information for VTR stated in U.S. dollars is as follows:
<TABLE>
<CAPTION>
As of
December 31,
1998
--------------
(In thousands)
<S> <C>
Cash.......................................................... $ 11,254
Goodwill, net................................................. 109,464
Property, plant and equipment, net............................ 186,660
Other Assets.................................................. 33,486
--------
Total assets................................................ $340,864
========
Accounts payable and accrued liabilities...................... $ 53,877
Bank debt..................................................... 88,495
Related party debt............................................ 1,663
Shareholders' equity.......................................... 196,829
--------
Total liabilities and shareholders' equity.................. $340,864
========
</TABLE>
<TABLE>
<CAPTION>
For the Years
Ended December
------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Revenue................................................ $119,005 $114,318
Operating, selling, general and administrative
expense............................................... (90,983) (92,970)
Depreciation and amortization.......................... (27,531) (22,707)
-------- --------
Net operating loss................................... 491 (1,359)
Other.................................................. (19,524) (19,252)
-------- --------
Net loss............................................. $(19,033) $(20,611)
======== ========
</TABLE>
F-82
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed financial information for Saturn, stated in U.S. dollars, is as
follows:
<TABLE>
<CAPTION>
As of
December 31, 1998
-----------------
(In thousands)
<S> <C>
Current assets............................................. $ 4,071
Non-current assets......................................... 59,242
-------
Total assets............................................. $63,313
=======
Current liabilities........................................ $33,608
Non-current liabilities.................................... 19
Shareholders' equity....................................... 29,686
-------
Total liabilities and shareholders' equity............... $63,313
=======
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1998
------------------
(In thousands)
<S> <C>
Revenue................................................... $ 1,693
Expenses.................................................. (16,934)
--------
Net loss................................................ $(15,241)
========
</TABLE>
6. Property, Plant and Equipment
<TABLE>
<CAPTION>
As of
December 31,
--------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Cable distribution networks........................ $ 293,370 $ 9,095
Subscriber premises equipment and converters....... 297,835 181,072
MMDS/DTH distribution facilities................... 65,328 55,532
Office equipment, furniture and fixtures........... 30,499 10,485
Buildings and leasehold improvements............... 16,103 3,027
Other.............................................. 43,595 24,720
--------- ---------
746,730 283,931
Accumulated depreciation......................... (286,261) (153,860)
--------- ---------
Net property, plant and equipment................ $ 460,469 $ 130,071
========= =========
</TABLE>
F-83
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Goodwill and Other Intangible Assets
<TABLE>
<CAPTION>
As of
December 31,
------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Asia/Pacific:
Austar United...................................... $114,882 $ --
Austar............................................. -- 60,071
Latin America:
VTR................................................ 223,484 --
TV Show Brasil..................................... 8,298 16,161
Cable Star......................................... 5,916 7,887
-------- --------
352,580 84,119
Accumulated amortization........................... (35,539) (18,989)
-------- --------
Net goodwill and other intangible assets........... $317,041 $ 65,130
======== ========
8. Short-Term Debt
<CAPTION>
As of
December 31,
------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Austar Bank Facility................................. $ -- $ 36,738
Other Latin America.................................. 9,033 23,137
-------- --------
Total short-term debt.............................. $ 9,033 $ 59,875
======== ========
Carrying value approximates fair value for these short-term facilities.
9. Senior Discount Notes and Senior Notes
<CAPTION>
As of
December 31,
------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
United Old Notes..................................... $ -- $ 412
United A/P Notes..................................... 407,945 356,640
-------- --------
407,945 357,052
Less current portion............................... -- (412)
-------- --------
Total senior discount notes........................ $407,945 $356,640
======== ========
</TABLE>
United A/P Notes
The 14.0% senior notes were issued by United A/P in May 1996 and September
1997 at a discount from their principal amount of $488.0 million, resulting in
gross proceeds of $255.0 million. On and after May 15, 2001, cash interest
will accrue and will be payable semi-annually on each May 15 and November 15,
commencing November 15, 2001. The United A/P Notes are due May 15, 2006.
Effective May 16, 1997, the interest rate on these notes increased by an
additional 0.75% per annum to 14.75%. On October 14, 1998, United A/P
consummated an equity sale resulting in gross proceeds to United A/P of $70.0
million, reducing the interest rate from 14.75% to 14.0% per annum. Due to the
increase in the interest rate effective May 16, 1997 until consummation of the
equity sale, the United A/P Notes will accrete to a principal amount of $492.9
million on May 15, 2001, the date cash interest begins to accrue.
F-84
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In November 1997, pursuant to the terms of the indentures governing the United
A/P Notes, United A/P issued warrants to purchase 488,000 shares of its common
stock. The warrants are exercisable through May 15, 2006 at a price of $10.45
per share, which would result in gross proceeds of $5.1 million upon exercise.
The warrants were valued at $3.7 million and have been reflected as an
additional discount to the United A/P Notes on a pro-rata basis and as an
increase in additional paid-in capital. Warrants to acquire 50 shares were
exercised November 24, 1999.
10. Other Long-Term Debt
<TABLE>
<CAPTION>
As of
December 31,
-----------------
1999 1998
-------- -------
(In thousands)
<S> <C> <C>
VTR Bank Facility......................................... $176,000 $ --
New Austar Bank Facility.................................. 202,703 67,352
Saturn Bank Facility...................................... 57,685 --
Other Asia/Pacific........................................ 2,263 2,923
Other Latin America....................................... 594 --
-------- -------
439,245 70,275
Less current portion.................................... (1,574) (2,189)
-------- -------
Total other long-term debt.............................. $437,671 $68,086
======== =======
</TABLE>
VTR Bank Facility
On April 29, 1999, VTR entered into a $220.0 million term loan facility in
connection with the VTR Acquisition. The VTR Bank Facility consists of two
tranches--Tranch A, with an aggregate principal amount of $140.0 million, and
Tranche B, with an aggregate principal amount of $80.0 million. The VTR Bank
Facility bears interest at LIBOR plus a margin of 5.0%, increasing by 0.5%
every three months beginning April 29, 2001 until maturity on April 29, 2002.
The VTR Bank Facility indenture restricts certain investments and payments,
including a ceiling on capital expenditures per fiscal year, as well as
generally prohibiting VTR from incurring additional indebtedness with the
exception of a general allowance of $15.0 million. In addition, VTR must
maintain certain financial ratios on a quarterly basis, such as total debt to
EBITDA, debt service coverage, senior debt to EBITDA, interest coverage, as
well as minimum telephony revenue amounts.
New Austar Bank Facility
On April 23, 1999, Austar executed a new A$400.0 million ($262.3 million)
syndicated senior secured debt facility to refinance the existing bank
facility and to fund Austar's subscriber acquisition and working capital
needs. The New Austar Bank Facility consists of two sub-facilities: (i)
A$200.0 million amortizing term facility ("Tranche 1") and (ii) A$200.0
million cash advance facility ("Tranche 2"). Tranche 1 was used to refinance
the existing bank facility, and Tranche 2 is available upon the contribution
of additional equity on a 2:1 debt-to-equity basis. The New Austar Bank
Facility bears interest at the professional market rate in Australia plus a
margin ranging from 1.75% to 2.25% based upon certain debt to cash flow
ratios. The New Austar Bank Facility is fully repayable pursuant to an
amortization schedule beginning December 31, 2002 and ending March 31, 2006.
As of December 31, 1999, Austar had drawn A$200.0 million under Tranche 1 and
A$109.0 million under Tranche 2, for a total outstanding balance of A$309.0
($202.7) million.
Saturn Bank Facility
On July 15, 1999, Saturn closed a syndicated senior debt facility in the
amount of NZ$125.0 ($65.4) million to fund the completion of Saturn's network.
As of December 31, 1999, Saturn had drawn NZ$109.0 ($57.7) million against the
facility and expects to draw down the remaining balance by the end of fourth
quarter 2000.
F-85
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
This debt facility's interest rate has averaged approximately 8.6%, which is
3.0% over the current base rate upon draw-down. The Saturn Bank Facility is
repayable over a five year period beginning fourth quarter 2001.
Fair Value of Senior Discount Notes, Senior Notes and Other Long-term Debt
Fair value is based on market prices for the same or similar issues. Carrying
value is used when a market price is unavailable.
<TABLE>
<CAPTION>
Carrying Fair
Value Value
-------- --------
(In thousands)
<S> <C> <C>
As of December 31, 1999:
United A/P Notes........................................ $407,945 $414,008
VTR Bank Facility....................................... 176,000 176,000
New Austar Bank Facility................................ 202,703 202,703
Saturn Bank Facility.................................... 57,685 57,685
Other Asia/Pacific and Latin America.................... 2,857 2,857
-------- --------
Total................................................. $847,190 $853,253
======== ========
<CAPTION>
Carrying Fair
Value Value
-------- --------
(In thousands)
<S> <C> <C>
As of December 31, 1998:
United Old Notes........................................ $ 412 $ 412
United A/P Notes........................................ 356,640 246,400
Austar Bank Facility.................................... 67,352 67,352
Other................................................... 2,923 2,923
-------- --------
Total................................................. $427,327 $317,087
======== ========
</TABLE>
Debt Maturities
The maturities of the Company's senior discount notes, senior notes and other
long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
Year Ended December 31, 2000....................................... $ 1,574
Year Ended December 31, 2001....................................... 5,492
Year Ended December 31, 2002....................................... 194,069
Year Ended December 31, 2003....................................... 62,205
Year Ended December 31, 2004....................................... 96,839
Thereafter......................................................... 487,011
--------
Total............................................................ $847,190
========
</TABLE>
Other Financial Instruments
Interest rate swap agreements are used by the Company from time to time to
manage interest rate risk on its floating rate debt facilities. Interest rate
swaps are entered into depending on the Company's assessment of the market,
and generally are used to convert floating rate debt to fixed rate debt.
Interest differentials paid or received under these swap agreements are
recognized over the life of the contracts as adjustments to the effective
yield of the underlying debt, and related amounts payable to, or receivable
from, the counterparties are included in the consolidated balance sheet.
Currently, the Company has four interest rate swaps to manage interest rate
exposure on the New Austar Bank Facility and one interest rate swap to manage
exposure on the Saturn Bank Facility. Two of the swap agreements on the New
Austar Bank Facility expire in 2002 and effectively convert
F-86
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
one aggregate principal amount of A$50.0 ($32.8 million) of variable rate,
long-term debt into fixed rate borrowings. The other two swap agreements
expire in 2004 and convert an aggregate principal amount of A$100.0 ($65.6)
million of variable rate, long-term debt into fixed rate borrowings. The swap
agreement on the Saturn Bank Facility effectively converts an aggregate
principal amount of NZ$60.0 ($31.7) million of variable rate, long-term debt
into fixed rate borrowings. The interest rate swap includes an increasing
fixed rate with an additional margin which is expected to decline as the debt
to EBITDA ratio declines.
11. Note Payable to Parent
<TABLE>
<CAPTION>
As of As of
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Note payable to parent, including accrued
interest of $42,760 and $16,693, respectively.. $446,288 $107,396
======== ========
</TABLE>
In December 1995, United loaned the Company $29.8 million in connection with
the purchase of the remaining interest of Austar. The loan accrues interest at
14.0% per annum. Although the terms of the loan state that it is due on
demand, United does not intend to demand payment during the next fiscal year.
Therefore, the loan and related accrued interest are classified as long-term.
In March 1998, United loaned the Company $60.9 million in connection with
funding the general operations of ULA as well as repayment of a portion of the
ULA Revolving Credit Facility. The United loan accrues interest at 10.75% per
annum. Although the terms of the loan state that it is due on demand, United
does not intend to demand payment during the next fiscal year. Therefore, the
loan and related accrued interest are classified as long-term.
In February 1997, United made a bridge loan to ULA of $37.5 million. Interest
on the note accrued at LIBOR plus 6.0%. In November 1997, ULA repaid the note
plus interest with proceeds from the Argentina Transaction.
United provides certain administrative, financial reporting and other services
to the Company, which has no separate employees of its own. In addition,
United Management, Inc. ("United Management"), a wholly-owned subsidiary of
the Company, has executed technical assistance agreements with various
operating systems, pursuant to which United Management provides various
management and technical services to these operating systems for a fee equal
to a percentage of that operating system's gross revenue. United has appointed
certain of its employees to serve in senior management positions at the
operating systems. The operating systems reimburse United for certain direct
costs incurred by United, including salaries and benefits relating to these
senior management positions.
12. Parent's Deficit
Common Stock
Authorized capital consists of 1,000 shares of Common Stock, $.01 par value,
100 shares issued and outstanding, held by United. Such shares have been
pledged as collateral under United's 1998 Notes.
Cumulative Translation Adjustments
During the year ended December 31, 1999, the Company recorded a negative
change in cumulative translation adjustments of $20.2 primarily due to the
strengthening of the U.S. dollar to the Chilean peso of approximately 12.1%.
F-87
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Equity Transactions of Subsidiaries
Variable plan accounting for stock options and the recognition of deferred
compensation expense by the Company's subsidiaries affects the equity accounts
of the Company. The following represents the effect on additional paid-in
capital and deferred compensation as a result of these equity transactions:
<TABLE>
<CAPTION>
For the Year
Ended
December 31, 1999
-----------------
(In thousands)
<S> <C>
Variable plan accounting for stock options................. $ 40,883
Deferred compensation expense.............................. (40,883)
Amortization of deferred compensation...................... 22,540
--------
Total.................................................... $ 22,540
========
</TABLE>
Other Cumulative Comprehensive Loss
<TABLE>
<CAPTION>
As of
December 31,
------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Foreign currency translation adjustments................ $(84,920) $(64,748)
Unrealized gain on available-for-sale securities........ 645 (154)
-------- --------
Total................................................. $(84,275) $(64,902)
======== ========
</TABLE>
Stock Option Plans
UAP Plan
In March 1998, UAP's Board of Directors approved a stock option plan (the "UAP
Plan") which permitted the grant of phantom stock options or the grant of
stock options to purchase up to 1,800,000 shares of UAP's Class A Common
Stock. The options vested in equal monthly increments over a four-year period
following the date of grant, and gave the employee the right with respect to
vested options to receive a cash payment equal to the difference between the
fair market value of a share of UAP stock and the option base price per share.
The UAP Plan was cancelled effective July 22, 1999. Under variable plan
accounting, a total of $17.6 million of compensation expense was recognized
during 1999 by UAP through the cancellation date.
A summary of phantom stock option activity for the UAP Plan is as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Ten Months Ended
December 31, 1999 December 31, 1998
-------------------------- ------------------------
Weighted- Weighted-
Average Average
Number Exercise Price Number Exercise Price
---------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 1,779,500 $10.00 -- --
Granted during the
period................. 65,000 $10.00 1,779,500 $10.00
Cancelled during the
period................. (1,844,500) $10.00 -- --
Exercised during the
period................. -- -- -- --
---------- ------ --------- ------
Outstanding at end of
period................. -- -- 1,779,500 $10.00
========== ====== ========= ======
Exercisable at end of
period................. -- -- 584,063 $10.00
========== ====== ========= ======
</TABLE>
F-88
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The combined weighted-average fair values and weighted-average exercise prices
of options are granted as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Ten Months Ended
December 31, 1999 December 31, 1998
---------------------- -------------------------
Fair Exercise Fair Exercise
Number Value Price Number Value Price
------ ------ -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Exercise price equal to
market price............ 65,000 $10.00 $10.00 1,779,500 $10.00 $10.00
</TABLE>
Austar United Plan
On June 17, 1999, Austar United established a stock option plan (the "Austar
United Plan"). Effective on Austar United's initial public offering date of
July 27, 1999, certain employees of United and Austar United were granted
options under the Austar United Plan in direct proportion to their previous
holding of UAP options under the UAP Plan along with retroactive vesting
through the initial public offering date to reflect vesting under the UAP
Plan. The maximum term of options granted under the Austar United Plan is ten
years. The options vest in equal monthly increments over a four-year period
following the date of grant. Under the Austar United Plan, options to purchase
a total of 28,760,709 shares have been authorized, of which 3,231,428 were
available for grant. The Austar United Plan was accounted for as a variable
plan prior to Austar United's initial public offering and as a fixed plan
effective July 27, 1999. For the year ended December 31, 1999, $4.9 million of
compensation expense was recognized by Austar United in the statement of
operations.
For purposes of the proforma disclosures presented below, Austar United has
computed the fair values of all options granted during the year ended December
31, 1999 using the Black-Scholes single-option pricing model and the following
weighted-average assumptions:
<TABLE>
<S> <C>
Risk-free interest rate.............................................. 5.81%
Expected life........................................................ 7 years
Expected volatility.................................................. 40.44%
Expected dividend yield.............................................. 0%
</TABLE>
The total fair value of options granted was approximately A$88.0 ($57.7)
million for the year ended December 31, 1999. This amount is amortized using
the straight-line method over the vesting period of the options. Cumulative
compensation expense recognized in proforma net income, with respect to
options that are forfeited prior to vesting, is adjusted as a reduction of
proforma compensation expense in the period of forfeiture. Stock-based
compensation, net of the effect of forfeitures and net of actual compensation
expense recorded in the statement of operations was nil for the year ended
December 31, 1999.
A summary of stock option activity for the Austar United Plan is as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1999
--------------------------
Weighted-
Average
Number Exercise Price
---------- --------------
(Australian
dollars)
<S> <C> <C>
Outstanding at beginning of period................ -- --
Granted during the period......................... 25,631,736 2.26
Cancelled during the period....................... (102,455) 3.75
Exercised during the period....................... (684,250) 1.83
---------- ----
Outstanding at end of period...................... 24,845,031 2.27
========== ====
Exercisable at end of period...................... 11,564,416 1.90
========== ====
</TABLE>
F-89
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1999
-------------------------
Fair Exercise
Exercise Price Number Value Price
-------------- ---------- ----- --------
(Australian
dollars)
<S> <C> <C> <C>
Less than market price............................. 22,334,236 3.58 1.91
Equal to market price.............................. 3,222,500 2.47 4.70
Greater than market price.......................... 75,000 2.43 4.70
---------- ---- ----
25,631,736 3.43 2.26
========== ==== ====
</TABLE>
The following table summarizes information about the Austar United Plan
options outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options
Options Outstanding Exerciseable
--------------------------- ------------
Weighted-Average
Remaining
Exercise Price (Australian Contractual Life
dollars) Number (Years) Number
-------------------------- ---------- ---------------- ------------
<S> <C> <C> <C>
1.80............................. 20,813,572 9.55 11,171,494
4.70............................. 4,031,459 9.60 392,922
---------- ---- ----------
24,845,031 9.56 11,564,416
========== ==== ==========
</TABLE>
ULA Plan
In April 1998, ULA's Board of Directors approved a stock option plan (the "ULA
Plan") which permits the grant of phantom stock options or the grant of stock
options to purchase up to 1,631,000 shares of ULA's Class A Common Stock. The
options vest in equal monthly increments over a four-year period following the
date of grant. Concurrent with approval of the ULA Plan, ULA's Board granted
phantom stock options to certain employees which gives the employee the right
with respect to vested options to receive a cash payment equal to the
difference between the fair market value of a share of ULA stock and the
option base price per share. The ULA Plan is accounted for as a variable plan
in accordance with its terms, resulting in compensation expense for the
difference between the grant price and the fair market value at each financial
statement date. For the year ended December 31, 1999 and the ten months ended
December 31, 1998, ULA recognized $(1.0) and $2.7 million in non-cash
compensation (credit) expense related to these phantom options, respectively.
Actual cash paid upon exercise of these phantom options was $0.6 million and
$1.1 million for the year ended December 31, 1999 and the ten months ended
December 31, 1998, respectively.
F-90
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of phantom stock option activity for the ULA Plan is as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Ten Months Ended
December 31, 1999 December 31, 1998
------------------------- -------------------------
Weighted- Weighted-
Average Average
Number Exercise Price Number Exercise Price
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 1,188,417 $5.77 -- --
Granted during the
period................. 340,000 $8.86 1,785,500 $5.63
Cancelled during the
period................. (328,647) $4.84 (317,296) $5.47
Exercised during the
period................. (137,083) $4.81 (279,787) $5.19
--------- ----- --------- -----
Outstanding at end of
period................. 1,062,687 $7.17 1,188,417 $5.77
========= ===== ========= =====
Exercisable at end of
period................. 381,561 $5.87 268,730 $4.86
========= ===== ========= =====
</TABLE>
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Ten Months Ended
December 31, 1999 December 31, 1998
---------------------- ------------------------
Fair Exercise Fair Exercise
Number Value Price Number Value Price
------- ----- -------- --------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Exercise price equal to
market price.............. 340,000 $8.86 $8.86 945,500 $5.81 $5.81
Exercise price greater than
market price.............. -- -- -- 840,000 $4.26 $5.43
------- ----- ----- --------- ----- -----
Total.................... 340,000 $8.86 $8.86 1,785,500 $5.08 $5.63
======= ===== ===== ========= ===== =====
</TABLE>
The following table summarizes information about the ULA Plan phantom options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
-------------------------- -----------
Weighted-Average
Remaining
Contractual Life
Exercise Price Number (Years) Number
-------------- --------- ---------------- -----------
<S> <C> <C> <C>
$4.26................................. 312,687 7.43 197,187
$4.96................................. 100,000 7.43 62,500
$8.81................................. 95,000 9.40 16,249
$8.86................................. 245,000 9.96 9,375
$8.98................................. 310,000 8.72 96,250
--------- ---- -------
Total............................... 1,062,687 8.57 381,561
========= ==== =======
</TABLE>
13. Commitments
The Company has entered into various operating lease agreements for office
space, office furniture and equipment, and vehicles. Rental expense under
these lease agreements totaled $5.8, $2.0 and $3.5 million for the year ended
December 31, 1999, the ten months ended December 31, 1998 and for the year
ended February 28, 1998, respectively.
F-91
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company has operating lease obligations and other non-cancelable
commitments as follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000......................................... $3,263
Year ended December 31, 2001......................................... 2,939
Year ended December 31, 2002......................................... 1,282
Year ended December 31, 2003......................................... 501
Year ended December 31, 2004 and thereafter.......................... 558
------
Total.............................................................. $8,543
======
</TABLE>
The Company has minimum fixed MMDS license fees and programming license fees
payable annually at Austar United as follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000........................................ $ 4,159
Year ended December 31, 2001........................................ 4,178
Year ended December 31, 2002........................................ 4,178
Year ended December 31, 2003........................................ 4,178
Year ended December 31, 2004........................................ 4,178
Thereafter.......................................................... 7,164
-------
Total............................................................. $28,035
=======
</TABLE>
A subsidiary of Austar has a five-year agreement to lease a 54 MHz satellite
transponder. Pursuant to the agreement, which commenced September 1, 1997,
Austar will pay approximately $4,440 in satellite service fees annually as
follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000........................................ $ 4,440
Year ended December 31, 2001........................................ 4,440
Year ended December 31, 2002........................................ 2,960
-------
Total............................................................. $11,840
=======
</TABLE>
14. Contingencies
From time to time, the Company and/or its subsidiaries may become involved in
litigation relating to claims arising out of its operations in the normal
course of business. The Company is not a party to any material legal
proceedings, nor is it currently aware of any threatened material legal
proceedings.
15. Income Taxes
In general, a United States corporation may claim a foreign tax credit against
its federal income tax expense for foreign income taxes paid or accrued.
Because the Company must calculate its foreign tax credit separately for
dividends received from each foreign corporation in which the Company owns
10.0% to 50.0% of the voting stock, and because of certain other limitations,
the Company's ability to claim a foreign tax credit may be limited,
particularly with respect to dividends paid out of earnings subject to a high
rate of foreign income tax. Generally, the Company's ability to claim a
foreign tax credit is limited to the amount of U.S. taxes the Company pays
with respect to its foreign source income. In calculating its foreign source
income, the Company is required to allocate interest expense and overhead
incurred in the United States between its United States and foreign
activities. Accordingly, to the extent United States borrowings are used to
finance equity contributions to its foreign subsidiaries, the Company's
ability to claim a foreign tax credit may be significantly reduced. These
limitations and the inability of the Company to offset losses in one foreign
jurisdiction against income earned in another foreign jurisdiction could
result in a high effective tax rate on the Company's earnings.
F-92
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The primary differences between taxable income (loss) and net income (loss)
for financial reporting purposes relate to SAB 51 gains, the non-consolidation
of consolidated foreign subsidiaries for United States tax purposes,
international rate differences and the current non-deductibility of interest
expense on United A/P's senior notes. For investments in foreign corporations
accounted for under the equity method, taxable income (loss) generated by
these affiliates does not flow through to the Company for United States
federal and state tax purposes, even though the Company records its allocable
share of affiliate income (losses) for financial reporting purposes.
Accordingly, due to the indefinite reversal of such amounts in future periods,
no deferred tax asset has been established for tax basis in excess of the
Company's book basis (approximately $69.9 and $133.0 million at December 31,
1999 and 1998, respectively).
The Company's United States tax net operating losses, totaling approximately
$175.0 million at December 31, 1999, expire beginning in 2014 through 2029.
The Company's tax net operating loss carryforwards of its consolidated foreign
subsidiaries as of December 31, 1999 totaled $438.0 million and $79.0 million
for UAP and ULA, respectively. The significant components of the net deferred
tax asset are as follows:
<TABLE>
<CAPTION>
As of December 31,
--------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Deferred Tax Assets:
Tax net operating loss carryforward of consolidated
foreign subsidiaries.................................. $ 171,835 $ 111,152
Company's U.S. tax net operating loss carryforward..... 66,674 66,099
Accrued interest expense on the United A/P Notes....... 52,040 32,885
Investment valuation allowance and other............... 3,465 2,605
Basis difference in marketable equity securities....... 3,074 3,070
Deferred compensation and severence.................... 2,103 144
Stock-based compensation............................... 622 --
Other.................................................. 5,918 (319)
--------- ---------
Total deferred tax assets............................ 305,731 215,636
Valuation allowance.................................... (294,602) (215,636)
--------- ---------
Deferred tax assets, net of valuation allowance...... 11,129 --
--------- ---------
Deferred Tax Liabilities:
Intangible assets...................................... (64) --
Property, plant and equipment, net..................... (5,245) --
Other.................................................. (1,016) --
--------- ---------
Total deferred tax liabilities....................... (6,325) --
--------- ---------
Deferred tax assets, net............................. $ 4,804 $ --
========= =========
</TABLE>
F-93
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Of the Company's 1999 consolidated loss before income taxes and other items,
$232.1 million is derived from the Company's foreign operations. The
difference between income tax expense (benefit) provided in the financial
statements and the expected income tax expense (benefit) at statutory rates is
reconciled as follows:
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Expected income tax benefit at the
U.S. statutory rate of 35%......... $(21,806) $(68,022) $(74,886)
Tax effect of permanent and other
differences:
Change in valuation allowance..... 73,334 65,588 65,257
Gain on issuance of common equity
securities by subsidiaries....... (94,377) -- --
International rate differences.... 18,985 (855) (515)
Non-deductible expenses........... 9,067 4,279 987
Book/tax basis differences
associated with foreign
investments...................... 788 1,176 12,119
State tax, net of federal
benefit.......................... (1,869) (5,830) (6,419)
Non-deductible interest accretion
on the United A/P Notes.......... 1,693 2,148 2,145
Amortization of licenses.......... 923 1,516 1,312
Gain on sale of equity investment
in subsidiary.................... 5,877 -- --
Other............................. 9,476 -- --
-------- -------- --------
Total income tax expense........ $ 2,091 $ -- $ --
======== ======== ========
</TABLE>
The Company through its subsidiaries maintains a presence in 23 countries.
Many of these countries maintain tax regimes that differ significantly from
the system of income taxation used in the United States, such as a value added
tax system. The Company has accounted for the effect of foreign taxes based on
what it believes is reasonably expected to apply to the Company and its
subsidiaries based on tax laws currently in effect and/or reasonable
interpretations of these laws. Because some foreign jurisdictions do not have
systems of taxation that are as well established as the system of income
taxation used in the United States or tax regimes used in other major
industrialized countries, it may be difficult to anticipate how foreign
jurisdictions will tax current and future operations of the Company and its
subsidiaries.
F-94
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Segment and Geographic Information
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999 As of December 31, 1999
----------------------------------------------------------------- -----------------------------------
Long-
Multichannel Internet Lived Capital Total
Television Telephone Programming Data Other Total Assets(2) Expenditures Assets
------------ --------- -------------- -------- -------- -------- --------- -------------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Asia/Pacific:
Australia........ $144,632 $ -- $-- $-- $ -- $144,632 $123,617 $ 94,513 $ 563,627
New Zealand...... 1,279 4,107 -- 734 -- 6,120 95,777 23,306 76,139
Corporate and
Other........... -- -- -- -- 180 180 8,051 3,014 54,218
-------- ------- ---- ---- -------- -------- -------- -------- ----------
Total
Asia/Pacific... 145,911 4,107 -- 734 180 150,932 227,445 120,833 693,984
-------- ------- ---- ---- -------- -------- -------- -------- ----------
Latin America:
Chile............ 77,476 9,881 -- -- 87 87,444 213,146 53,120 489,638
Brazil........... 4,637 -- -- -- -- 4,637 5,679 4,399 17,172
Corporate and
Other........... 2,428 -- -- -- 384 2,812 14,199 3,167 72,863
-------- ------- ---- ---- -------- -------- -------- -------- ----------
Total Latin
America........ 84,541 9,881 -- -- 471 94,893 233,024 60,686 579,673
-------- ------- ---- ---- -------- -------- -------- -------- ----------
Corporate &
Other........... -- -- -- -- -- -- -- -- --
-------- ------- ---- ---- -------- -------- -------- -------- ----------
Total Company... $230,452 $13,988 $-- $734 $ 651 $245,825 $460,469 $181,519 $1,273,657
======== ======= ==== ==== ======== ======== ======== ======== ==========
Adjusted
EBITDA:(1)
Asia/Pacific:
Australia........ $ (4,742) $ -- $-- $-- $ -- $ (4,742)
New Zealand...... (918) (1,160) -- (47) -- (2,125)
Corporate and
Other........... -- -- -- -- (5,474) (5,474)
-------- ------- ---- ---- -------- --------
Total
Asia/Pacific... (5,660) (1,160) -- (47) (5,474) (12,341)
-------- ------- ---- ---- -------- --------
Latin America:
Chile............ 17,744 $(2,604) -- -- -- 15,140
Brazil........... (2,462) -- -- -- -- (2,462)
Corporate and
Other........... (1,210) -- -- -- (4,609) (5,819)
-------- ------- ---- ---- -------- --------
Total Latin
America........ 14,072 (2,604) -- -- (4,609) 6,859
-------- ------- ---- ---- -------- --------
Corporate &
Other........... -- -- -- -- -- --
-------- ------- ---- ---- -------- --------
Total Company... $ 8,412 $(3,764) $-- $(47) $(10,083) $ (5,482)
======== ======= ==== ==== ======== ========
</TABLE>
F-95
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
For the Ten Months Ended December 31, 1998 As of December 31, 1998
-------------------------------------------------------------- -------------------------------
Long-
Multichannel Internet Lived Capital Total
Television Telephone Programming Data Other Total Assets(2) Expenditures Assets
------------ --------- ----------- -------- -------- -------- --------- ------------ --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Europe:
Corporate and other... $ -- $-- $-- $-- $ -- $ -- $ -- $ -- $ 6,639
-------- ---- ---- ---- -------- -------- -------- ------- --------
Asia/Pacific:
Australia............. 74,209 -- -- -- -- 74,209 110,351 71,197 181,169
New Zealand........... -- -- -- -- -- -- -- -- 23,789
Corporate and Other... 3,060 -- -- -- -- 3,060 61 337 48,992
-------- ---- ---- ---- -------- -------- -------- ------- --------
Total Asia/Pacific... 77,269 -- -- -- -- 77,269 110,412 71,534 253,950
-------- ---- ---- ---- -------- -------- -------- ------- --------
Latin America:
Chile................. -- -- -- -- -- -- -- -- 84,975
Corporate and Other... 4,135 -- -- -- 377 4,512 11,715 3,238 73,048
-------- ---- ---- ---- -------- -------- -------- ------- --------
Total Latin America.. 4,135 -- -- -- 377 4,512 11,715 3,238 158,023
-------- ---- ---- ---- -------- -------- -------- ------- --------
Corporate & Other..... -- -- -- -- -- -- 7,944 682 13,543
-------- ---- ---- ---- -------- -------- -------- ------- --------
Total Company........ $ 81,404 $-- $-- $-- $ 377 $ 81,781 $130,071 $75,454 $432,155
======== ==== ==== ==== ======== ======== ======== ======= ========
Adjusted EBITDA:(1)
Europe:
Corporate and Other... $ -- $-- $-- $-- $ -- $ --
-------- ---- ---- ---- -------- --------
Asia/Pacific:
Australia............. (31,093) -- -- -- -- (31,093)
New Zealand........... -- -- -- -- -- --
Corporate and Other... -- -- -- -- (2,287) (2,287)
-------- ---- ---- ---- -------- --------
Total Asia/Pacific... (31,093) -- -- -- (2,287) (33,380)
-------- ---- ---- ---- -------- --------
Latin America:
Chile................. -- -- -- -- -- --
Corporate and Other... (2,969) -- -- -- (7,295) (10,264)
-------- ---- ---- ---- -------- --------
Total Latin America.. (2,969) -- -- -- (7,295) (10,264)
-------- ---- ---- ---- -------- --------
Corporate & Other..... -- -- -- -- (1,209) (1,209)
-------- ---- ---- ---- -------- --------
Total Company........ $(34,062) $-- $-- $-- $(10,791) $(44,853)
======== ==== ==== ==== ======== ========
</TABLE>
F-96
<PAGE>
UNITED INTERNATIONAL PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
For the Year Ended February 28, 1998 As of February 28, 1998
----------------------------------------------------------------- ---------------------------------
Long-
Multichannel Internet Lived Capital Total
Television Telephone Programming Data Other Total Assets(2) Expenditures Assets
------------ --------- -------------- -------- -------- -------- --------- -------------- --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Europe :
Corporate and
other............ $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 14,329
-------- ----- ----- ----- -------- -------- -------- -------- --------
Asia/Pacific:
Australia......... 64,370 -- -- -- -- 64,370 147,871 84,375 202,325
New Zealand....... 473 -- -- -- -- 473 26,484 16,258 43,349
Corporate and
Other............ 4,118 -- -- -- -- 4,118 8,746 502 48,871
-------- ----- ----- ----- -------- -------- -------- -------- --------
Total
Asia/Pacific.... 68,961 -- -- -- -- 68,961 183,101 101,135 294,545
-------- ----- ----- ----- -------- -------- -------- -------- --------
Latin America:
Argentina......... 17,627 -- -- -- -- 17,627 -- 1,329 --
Chile............. -- -- -- -- -- -- -- -- 78,165
Corporate and
Other............ 1,617 -- -- -- -- 1,617 6,541 3,112 69,102
-------- ----- ----- ----- -------- -------- -------- -------- --------
Total Latin
America......... 19,244 -- -- -- -- 19,244 6,541 4,441 147,267
-------- ----- ----- ----- -------- -------- -------- -------- --------
Corporate &
Other............ -- -- -- -- 439 439 9,042 1,200 18,288
-------- ----- ----- ----- -------- -------- -------- -------- --------
Total Company.... $ 88,205 $ -- $ -- $ -- $ 439 $ 88,644 $198,684 $106,776 $474,429
======== ===== ===== ===== ======== ======== ======== ======== ========
Adjusted EBITDA:(1)
Europe:
Corporate and
Other............ $ -- $ -- $ -- $ -- $ -- $ --
-------- ----- ----- ----- -------- --------
Asia/Pacific:
Australia......... (24,082) -- -- -- -- (24,082)
New Zealand....... (6,688) -- -- -- -- (6,688)
Corporate and
Other............ (254) -- -- -- (6,938) (7,192)
-------- ----- ----- ----- -------- --------
Total
Asia/Pacific.... (31,024) -- -- -- (6,938) (37,962)
-------- ----- ----- ----- -------- --------
Latin America:
Argentina......... 2,836 -- -- -- -- 2,836
Chile............. -- -- -- -- -- --
Corporate and
Other............ (952) -- -- -- (10,162) (11,114)
-------- ----- ----- ----- -------- --------
Total Latin
America......... 1,884 -- -- -- (10,162) (8,278)
-------- ----- ----- ----- -------- --------
Corporate &
Other............ -- -- -- (7,637) (7,637)
-------- ----- ----- ----- -------- --------
Total Company.... $(29,140) $ -- $ -- $ -- $(24,737) $(53,877)
======== ===== ===== ===== ======== ========
</TABLE>
- -------
(1) Adjusted EBITDA represents earnings before depreciation, amortization and
stock based compensation charges. Industry analysts generally consider
Adjusted EBITDA to be a helpful way to measure the performance of cable
television operations and communications companies. Management believes
Adjusted EBITDA helps investors to assess the cash flow from operations
from period to period and thus to value the Company's business. Adjusted
EBITDA should not, however, be considered a replacement for net income,
cash flows or for any other measure of performance or liquidity under
generally accepted accounting principles, or as an indicator of a
company's operating performance. The presentation of Adjusted EBITDA may
not be comparable to statistics with a similar name reported by other
companies. Not all companies and analysts calculate Adjusted EBITDA in the
same manner.
(2) Represents Property, Plant and Equipment.
Adjusted EBITDA reconciles to the consolidated statement of operations as
follows:
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, 1999 December 31, 1998 February 28, 1998
----------------- ----------------- -----------------
(In thousands)
<S> <C> <C> <C>
Net operating loss...... $(164,882) $(129,739) $(139,081)
Depreciation and
amortization........... 137,893 82,217 85,204
Stock-based compensation
expense................ 21,507 2,669 --
--------- --------- ---------
Consolidated Adjusted
EBITDA............... $ (5,482) $ (44,853) $ (53,877)
========= ========= =========
</TABLE>
17. Subsequent Events
On March 29, 2000, Austar United announced the sale of 20.0 million shares to
the public at A$8.50 ($5.15) per share for gross proceeds to the Company of
A$170.0($103.0) million.
F-97
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UnitedGlobalCom, Inc.:
We have audited the accompanying consolidated balance sheets of United Europe,
Inc. (a Delaware corporation) (formerly UIH Europe, Inc.) and subsidiaries as
of December 31, 1999 and 1998 and the related consolidated statements of
operations, parent's equity (deficit) and cash flows for the year ended
December 31, 1999, the ten months ended December 31, 1998 (see Note 2) and the
year ended February 28, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform these audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of United Europe, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for the year ended
December 31, 1999, the ten months ended December 31, 1998 and the year ended
February 28, 1998 in conformity with accounting principles generally accepted
in the United States.
Arthur Andersen LLP
Denver, Colorado
March 29, 2000
F-98
<PAGE>
UNITED EUROPE, INC.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
As of December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................. $1,031,880 $ 15,646
Restricted cash....................................... 17,242 16,012
Subscriber receivables, net of allowance for doubtful
accounts of $16,859 and $4,899, respectively......... 60,234 6,818
Costs to be reimbursed by affiliated companies........ 10,566 14,432
Other receivables..................................... 84,907 13,675
Inventory............................................. 66,819 12,762
Other current assets, net............................. 73,382 8,283
---------- ----------
Total current assets.................................. 1,345,030 87,628
Investments in affiliates, accounted for under the
equity method, net.................................... 244,367 254,209
Marketable equity securities and other investments..... 627,244 53,499
Property, plant and equipment, net of accumulated
depreciation of $195,329 and $46,406, respectively.... 1,920,361 319,046
Goodwill and other intangible assets, net of
accumulated amortization of $134,594 and $20,693,
respectively.......................................... 2,627,761 359,804
Deferred financing costs, net of accumulated
amortization of $5,974 and $4,914, respectively....... 78,348 11,462
Other assets, net...................................... 1,743 1,748
---------- ----------
Total assets.......................................... $6,844,854 $1,087,396
========== ==========
LIABILITIES AND PARENT'S EQUITY (DEFICIT)
Current liabilities
Accounts payable, including related party payables of
$2,802 and $8,281, respectively...................... $ 252,428 $ 75,078
Accrued liabilities................................... 274,857 30,097
Subscriber prepayments and deposits................... 41,466 24,210
Short-term debt....................................... 164,263 33,504
Note payable to parent................................ -- 92,609
Current portion of senior discount notes and other
long-term debt....................................... 50,606 60,063
---------- ----------
Total current liabilities............................. 783,620 315,561
Senior discount notes and senior notes................. 2,761,065 --
Other long-term debt................................... 1,166,780 621,560
Deferred compensation.................................. 53,032 173,251
Deferred taxes......................................... 16,061 4,580
Other long-term liabilities............................ 19,446 4,655
---------- ----------
Total liabilities..................................... 4,800,004 1,119,607
Minority interests in subsidiaries..................... 789,691 13,722
---------- ----------
Parent's equity (deficit):
Common stock, $0.01 par value, 1,000 shares
authorized, 100 and 100 shares issued and
outstanding, respectively, (pledged as collateral
under parent's senior discount notes)................ -- --
Additional paid-in capital............................ 724,797 339,074
Deferred compensation................................. (101,653) --
Accumulated deficit................................... 394,472 (383,651)
Other cumulative comprehensive income (loss).......... 237,543 (1,356)
---------- ----------
Total parent's equity (deficit)....................... 1,255,159 (45,933)
---------- ----------
Commitments and contingencies (Note 13 and 14)
Total liabilities and parent's equity (deficit)....... $6,844,854 $1,087,396
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-99
<PAGE>
UNITED EUROPE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenue................................ $ 473,422 $ 172,287 $ 9,945
System operating expense............... (309,277) (57,123) (2,754)
System selling, general and
administrative expense................ (212,214) (56,401) (3,418)
Corporate general and administrative
expense............................... (281,702) (178,279) (7,320)
Depreciation and amortization.......... (280,442) (76,550) (6,086)
---------- --------- --------
Operating loss....................... (610,213) (196,066) (9,633)
Gain on issuance of common equity
securities by subsidiaries............ 1,260,478 -- --
Interest income........................ 29,458 3,440 --
Interest expense....................... (194,512) (38,524) (2,045)
Interest expense, related party........ (1,719) (6,022) --
Provision for losses on marketable
equity securities and investment
related costs......................... -- (3,131) --
Foreign currency exchange (loss) gain.. (13,714) 233 --
Other (expense) income, net............ (7,544) 1,715 74
---------- --------- --------
Income (loss) before income taxes and
other items......................... 462,234 (238,355) (11,604)
Income tax benefit (expense)........... 1,893 (610) --
Minority interests in subsidiaries..... 345,904 793 (117)
Share in results of affiliates, net.... (31,908) (25,679) (42,431)
---------- --------- --------
Net income (loss).................... $ 778,123 $(263,851) $(54,152)
========== ========= ========
Foreign currency translation
adjustments........................... $ (111,252) $ (1,787) $(11,872)
Unrealized holding gains arising during
period................................ 350,151 23,350 --
---------- --------- --------
Comprehensive income (loss).......... $1,017,022 $(242,288) $(66,024)
========== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-100
<PAGE>
UNITED EUROPE, INC.
CONSOLIDATED STATEMENTS OF PARENT'S EQUITY (DEFICIT)
(Stated in thousands, except share amounts)
<TABLE>
<CAPTION>
Other
Common Stock Additional Cumulative
------------- Paid-In Deferred Accumulated Comprehensive
Shares Amount Capital Compensation Deficit Income (Loss) Total
------ ------ ---------- ------------ ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, February 28,
1997................... 100 $-- $159,241 $ -- $ (48,692) $ (11,047) $ 99,502
Capital contributions
from parent............ -- -- 170,222 -- -- -- 170,222
Net loss................ -- -- -- -- (54,152) -- (54,152)
Change in cumulative
translation
adjustments............ -- -- -- -- -- (11,872) (11,872)
--- ---- -------- --------- --------- --------- ----------
Balances, February 28,
1998................... 100 -- 329,463 -- (102,844) (22,919) 203,700
Non-cash contributions
from parent............ -- -- 3,825 -- -- -- 3,825
Gain on deemed issuance
of stock by
subsidiary............. -- -- 5,786 -- -- -- 5,786
Elimination of
historical two-month
reporting difference
due to change in fiscal
year end............... -- -- -- -- (16,956) -- (16,956)
Net loss................ -- -- -- -- (263,851) -- (263,851)
Change in unrealized
gain on available-for-
sale securities........ -- -- -- -- -- 23,350 23,350
Change in cumulative
translation
adjustments............ -- -- -- -- -- (1,787) (1,787)
--- ---- -------- --------- --------- --------- ----------
Balances, December 31,
1998................... 100 -- 339,074 -- (383,651) (1,356) (45,933)
Net income.............. -- -- -- -- 778,123 -- 778,123
Cash contributions from
parent................. -- -- (17,345) -- -- -- (17,345)
Non-cash contributions
from parent............ -- -- 16,907 -- -- -- 16,907
Equity transactions of
subsidiaries........... -- -- 386,161 (180,757) -- -- 205,404
Amortization of deferred
compensation........... -- -- -- 79,104 -- -- 79,104
Change in cumulative
translation............ -- -- -- -- -- (111,252) (111,252)
Change in unrealized
gain on available-for-
sale securities........ -- -- -- -- -- 350,151 350,151
--- ---- -------- --------- --------- --------- ----------
Balances, December 31,
1999................... 100 $-- $724,797 $(101,653) $ 394,472 $ 237,543 $1,255,159
=== ==== ======== ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-101
<PAGE>
UNITED EUROPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands)
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................... $ 778,123 $(263,851) $ (54,152)
Elimination of historical two month
reporting difference due to change in
fiscal year............................ -- (16,956) --
Adjustments to reconcile net loss to net
cash flows from operating activities:
Gain on issuance of common equity
securities by subsidiaries........... (1,260,478) -- --
Share in results of affiliates, net... 31,298 31,903 42,431
Allocation of general, administrative
and other expenses accounted for as a
net contribution of capital by
parent............................... 3,395 3,825 7,322
Minority interests in subsidiaries.... (345,904) (569) 117
Depreciation and amortization......... 280,442 92,986 6,086
Accretion of interest on senior notes
and amortization of deferred
financing costs...................... 49,980 4,640 109
Stock-based compensation expense...... 202,227 162,124 --
Provision for losses on marketable
equity securities and investment
related costs........................ -- 3,131 --
Increase in receivables, net.......... (78,921) (9,919) (709)
(Increase) decrease in other assets... (46,997) (5,364) 422
Increase in accounts payable, accrued
liabilities and other................ 270,760 47,705 5,574
----------- --------- ---------
Net cash flows from operating
activities......................... (116,075) 49,655 7,200
----------- --------- ---------
Cash flows from investing activities:
Purchase of short-term liquid
investments.......................... (267,809) -- --
Restricted cash (deposited) released.. (3,578) 19,576 --
Investments in affiliates and other
investments.......................... (354,036) (100,665) (111,628)
Proceeds from sale of investments in
affiliated companies................. 18,000 19,968 --
New acquisitions, net of cash
acquired............................. (2,048,911) (109,881) --
Capital expenditures.................. (612,232) (141,547) (7,461)
----------- --------- ---------
Net cash flows from investing
activities......................... (3,268,566) (312,549) (119,089)
----------- --------- ---------
Cash flows from financing activities:
Issuance of common stock by
subsidiaries, net.................... 2,331,522 -- --
Issuance of common stock in connection
with subsidiary stock option plan.... 17,346 -- --
Proceeds from offering of senior notes
and senior discount notes............ 2,540,813 -- --
Proceeds from short-term and long term
borrowings........................... 773,651 281,648 505
Deferred financing costs.............. (78,886) (5,037) --
Repayments of short-term and long-term
borrowings........................... (1,122,853) (138,175) (1,456)
(Payment on) proceeds from note
payable to parent.................... (80,587) 86,468 --
Payment of sellers notes.............. (18,000) -- --
Capital contribution from parent...... (17,346) -- 162,500
Cash paid to minority interest
partners............................. -- (253) --
----------- --------- ---------
Net cash flows from financing
activities......................... 4,345,660 224,651 161,549
----------- --------- ---------
Effect of exchange rates on cash...... 55,215 4,723 (494)
----------- --------- ---------
Increase (decrease) in cash and cash
equivalents.......................... 1,016,234 (33,520) 49,166
Cash and cash equivalents, beginning
of period............................ 15,646 49,166 --
----------- --------- ---------
Cash and cash equivalents, end of
period............................... $ 1,031,880 $ 15,646 $ 49,166
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-102
<PAGE>
UNITED EUROPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Stated in thousands)
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest................ $ 80,480 $34,706 $ --
========= ======= =======
Cash received for interest............ $ 26,248 $ 3,513 $ --
========= ======= =======
Seller note for purchase of system in
Hungary.............................. $ -- $18,000 $ --
========= ======= =======
Acquisition of 100% of @Entertainment:
Net current assets.................... $ (51,239) $ -- $ --
Property, plant and equipment......... (196,178) -- --
Goodwill.............................. (986,814) -- --
Long-term liabilities................. 448,566 -- --
Other................................. (21,335) -- --
--------- ------- -------
Total cash paid..................... (807,000) -- --
Cash acquired......................... 62,507 -- --
--------- ------- -------
Net cash paid....................... $(744,493) $ -- $ --
========= ======= =======
Acquisition of 100% of Stjarn:
Property, plant and equipment......... $ (43,171) $ -- $ --
Goodwill.............................. (442,094) -- --
Net current liabilities............... 55,997 -- --
Long-term liabilities................. 32,268 -- --
--------- ------- -------
Total purchase price................ (397,000) -- --
Seller's Note......................... 100,000 -- --
--------- ------- -------
Total cash paid..................... (297,000) -- --
Cash acquired......................... 3,792 -- --
--------- ------- -------
Net cash paid....................... $(293,208) $ -- $ --
========= ======= =======
Acquisition of remaining 49.0% of UTH:
Property, plant and equipment......... $(210,013) $ -- $ --
Investments in affiliated companies... (46,830) -- --
Goodwill.............................. (256,749) -- --
Net current liabilities............... 5,384 -- --
Long-term liabilities................. 242,536 -- --
--------- ------- -------
Total cash paid..................... (265,672) -- --
Cash acquired......................... 13,629 -- --
--------- ------- -------
Net cash paid....................... $(252,043) $ -- $ --
========= ======= =======
Acquisition of remaining 50.0% of A2000:
Receivables assumed................... $ (13,062) $ -- $ --
Property, plant and equipment......... (96,539) -- --
Goodwill.............................. (274,361) -- --
Net current liabilities............... 25,044 -- --
Long-term liabilities................. 129,918 -- --
--------- ------- -------
Total cash paid..................... (229,000) -- --
Cash acquired......................... 521 -- --
--------- ------- -------
Net cash paid....................... $(228,479) $ -- $ --
========= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-103
<PAGE>
UNITED EUROPE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Stated in thousands)
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Acquisition of 100% of GelreVision:
Property, plant and equipment......... $ (49,407) $ -- $ --
Goodwill.............................. (67,335) -- --
Net current liabilities............... 2,682 -- --
Long-term liabilities................. 4,236 -- --
--------- -------- ---------
Total cash paid..................... (109,824) -- --
Cash acquired......................... 136 -- --
--------- -------- ---------
Net cash paid....................... $(109,688) $ -- $ --
========= ======== =========
Contributions of Dutch cable systems to
new joint venture:
Working capital....................... $ -- $ (1,871) $ --
Investments in affiliated companies... -- 96,866 --
Property, plant and equipment......... -- 85,037 --
Goodwill and other intangible assets.. -- 78,515 --
Senior secured notes and other debt... -- (111,553) --
Other liabilities..................... -- (17,417) --
--------- -------- ---------
Total net assets contributed........ $ -- $129,577 $ --
========= ======== =========
Acquisition of Dutch cable assets:
Property, plant and equipment and
other long-term assets............... $ -- $(51,632) $ --
Goodwill and other intangible assets.. -- (36,416) --
--------- -------- ---------
Total cash paid..................... $ -- $(88,048) $ --
========= ======== =========
Acquisition of additional 50.0% interest
in UPC:
Working capital, including cash
acquired of $50,872.................. $ -- $ -- $ (7,158)
Investment in UnitedGlobalCom, Inc.
Class A Common Stock................. -- -- (33,074)
Investments in affiliated companies... -- -- (167,945)
Property, plant and equipment and
other long-term assets............... -- -- (273,988)
Goodwill and other intangible assets.. -- -- (383,503)
Elimination of United's equity
investment in UPC.................... -- -- 46,319
Long-term debt........................ -- -- 624,633
Other liabilities..................... -- -- 32,216
--------- -------- ---------
Total cash paid..................... $ -- $ -- $(162,500)
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-104
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Nature of Operations
United Europe, Inc. (the "Company" or "UEI") was formed as a Delaware
corporation in September 1989, for the purpose of developing, acquiring and
managing European multi-channel television, programming and telephony
operations. The Company is a wholly-owned subsidiary of UnitedGlobalCom, Inc.
("United").
The following chart presents a summary of the Company's significant
investments in telecommunications as of December 31, 1999.
United
100%
UEI
53.2%
United Pan-Europe Communications N.V.
("UPC")
<TABLE>
<S> <C>
Austria:
Telekabel Group 95.0%
Belgium:
UPC Belgium 100.0%
Czech Republic:
Kabel Net 100.0%
Kabel Plus 94.6%
France:
UPC France 99.6%(1)
Germany:
PrimaCom 18.2%(2)
Hungary:
UPC Magyarorszag 79.3%
Monor 97.1%
Ireland:
Tara 80.0%
Israel:
Tevel 46.6%
Malta:
Melita 50.0%
The Netherlands:
UPC Nederland 100.0%
Norway:
UPC Norge 100.0%
Poland:
@Entertainment 100.0%
Romania:
UPC Romania 51.0%-100.0%
Slovak Republic:
UPC Slovak 95.0%-100.0%
Spain/Portugal:
Iberian Programming 50.0%
Sweden:
Stjarn 100.0%
United Kingdom:
Xtra Music 41.0%
Other Business Lines:
SBS 13.3%(3)
Priority Telecom 100.0%
chello broadband 100.0%
UPC tv 100.0%
</TABLE>
(1) In February 2000, UPC's interest decreased to 92.0% (see Note 18).
(2) Subsequent to December 31, 1999, UPC increased its interest to 24.9%.
(3) In February 2000, UPC acquired an additional 10.2% interest in SBS for
(Euro)162.5 ($163.5) million.
F-105
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies
Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and all subsidiaries where it exercises a controlling financial
interest through the ownership of a majority voting interest. The following
illustrates those subsidiaries for which the Company consolidated the results
of operations for only a portion of the fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
Effective Date
Entity of Consolidation Reason
- ------ ---------------- ------
<S> <C> <C>
UPC Nederland (1) February 1, 1999 Acquisition of remaining 49.0% interest in
United Telekabel Holding N.V. ("UTH")
UPC Slovensko (Slovak
Republic) June 1, 1999 Acquisition
GelreVision (The
Netherlands) June 1, 1999 Acquisition
Reseaux Cables de France
("RCF") June 1, 1999 Acquisition
Stjarn August 1, 1999 Acquisition
Videopole (France) August 1, 1999 Acquisition
@Entertainment August 1, 1999 Acquisition
Time Warner Cable France September 1, 1999 Acquisition
A2000 (The Netherlands) September 1, 1999 Acquisition of remaining 50.0% interest
Kabel Plus October 1, 1999 Acquisition
Monor December 1, 1999 Acquisition
</TABLE>
- --------
(1) Prior to the acquisition date, the equity method of accounting was used
because of certain minority shareholder's rights.
The Company began consolidating UPC upon acquisition of the remaining 50.0%
interest on December 11, 1997. Prior to December 11, 1997, the Company
accounted for its investment in UPC under the equity method. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Change in Fiscal Year-End
Prior to the ten months ended December 31, 1998, the Company's fiscal year-end
was February 28, and it accounted for its share of the income or loss of its
operating companies based on the calendar year results of each operating
company. This created a two month delay in reporting the operating company
results in the Company's consolidated results for its fiscal year-end. On
February 24, 1999, the Company changed its fiscal year-end from the last day
in February to the last day in December, effective December 31, 1998. To
effect the transaction to the new fiscal year, the combined results of
operations of the operating companies for January and February 1998, a loss of
$17.0 million, has been reported as a one-time adjustment to the retained
deficit as of March 1, 1998, in the consolidated statement of parent's equity
(deficit). Consequently, the consolidated statement of operations presents the
consolidated results of the Company and its subsidiaries for the ten months
ended December 31, 1998. For comparative purposes, the Company's consolidated
revenue, net operating loss and net loss were $9.9 million, $2.3 million and
$36.8 million, respectively, for the ten months ended December 31, 1997, and
the Company's consolidated revenue, net operating loss and net loss were
$203.1 million, $200.4 million and $280.8 million, respectively for the year
ended December 31, 1998.
F-106
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash and Cash Equivalents and Short-Term Liquid Investments
Cash and cash equivalents include cash and investments with original
maturities of less than three months. Short-term liquid investments include
certificates of deposit, commercial paper, corporate bonds and government
securities which have original maturities greater than three months but less
than twelve months. Short-term liquid investments are classified as available-
for-sale and are reported at fair market value.
Restricted Cash
Cash held as collateral for letters of credit and other loans is classified
based on the expected expiration of such facilities. Cash held in escrow and
restricted to a specific use is classified based on the expected timing of
such disbursement.
Costs to be Reimbursed by Affiliated Companies
The Company incurs costs on behalf of affiliated companies, such as salaries
and benefits, travel and professional services. These costs are reimbursed by
the affiliated companies.
Inventory
Inventory is stated at the lower of cost (first-in, first-out basis) or
market.
Investments in Affiliates, Accounted for under the Equity Method
For those investments in unconsolidated subsidiaries and companies in which
the Company's voting interest is 20.0% to 50.0%, its investments are held
through a combination of voting common stock, preferred stock, debentures or
convertible debt and/or the Company exerts significant influence through board
representation and management authority, the equity method of accounting is
used. Under this method, the investment, originally recorded at cost, is
adjusted to recognize the Company's proportionate share of net earnings or
losses of the affiliate, limited to the extent of the Company's investment in
and advances to the affiliate, including any debt guarantees or other
contractual funding commitments. The Company's proportionate share of net
earnings or losses of affiliates includes the amortization of the excess of
its cost over its proportionate interest in each affiliate's net assets.
Marketable Equity Securities and Other Investments
The cost method of accounting is used for the Company's other investments in
affiliates in which the Company's ownership interest is less than 20.0% and
where the Company does not exert significant influence, except for those
investments in marketable equity securities. The Company classifies its
investments in marketable equity securities in which its interest is less than
20.0% and where the Company does not exert significant influence as available-
for-sale and reports such investments at fair market value. Unrealized gains
and losses are charged or credited to equity, and realized gains and losses
and other-than-temporary declines in market value are included in operations.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Additions, replacements,
installation costs and major improvements are capitalized, and costs for
normal repair and maintenance of property, plant and equipment are charged to
expense as incurred. Assets constructed incorporate overhead expense and
interest charges incurred during the period of construction; investment
subsidies are deducted. Upon disconnection of a subscriber, the remaining book
value of the subscriber equipment, excluding converters which are recovered
upon disconnection, and the capitalized labor are written off and accounted
for as an operating cost. Depreciation is calculated using the straight-line
method over the economic life of the asset.
F-107
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The economic lives of property, plant and equipment at acquisition are as
follows:
<TABLE>
<S> <C>
Cable distribution networks....................................... 3-20 years
Subscriber premises equipment and converters...................... 3-10 years
MMDS/DTH distribution facilities.................................. 5-20 years
Office equipment, furniture and fixtures.......................... 3-10 years
Buildings and leasehold improvements.............................. 3-33 years
Other............................................................. 3-10 years
</TABLE>
Goodwill and Other Intangible Assets
The excess of investments in consolidated subsidiaries over the net tangible
asset value at acquisition is amortized on a straight-line basis over 15
years. Licenses in newly-acquired companies are recognized at the fair market
value of those licenses at the date of acquisition. Licenses in new franchise
areas include the capitalization of direct costs incurred in obtaining the
license. The license value is amortized on a straight-line basis over the
initial license period, up to a maximum of 20 years.
Recoverability of Tangible and Intangible Assets
The Company evaluates the carrying value of all tangible and intangible assets
whenever events or circumstances indicate the carrying value of assets may
exceed their recoverable amounts. An impairment loss is recognized when the
estimated future cash flows (undiscounted and without interest) expected to
result from the use of an asset are less than the carrying amount of the
asset. Measurement of an impairment loss is based on fair value of the asset
computed using discounted cash flows if the asset is expected to be held and
used. Measurement of an impairment loss for an asset held for sale would be
based on fair market value less estimated costs to sell.
Deferred Financing Costs
Costs to obtain debt financing are capitalized and amortized over the life of
the debt facility using the effective interest method.
Subscriber Prepayments and Deposits
Payments received in advance for multi-channel television service are deferred
and recognized as revenue when the associated services are provided. Deposits
are recorded as a liability upon receipt and refunded to the subscriber upon
disconnection.
Revenue Recognition
Revenue is primarily derived from the sale of multi-channel television,
telephony and Internet/data services to subscribers and is recognized in the
period the related services are provided. Initial installation fees are
recognized as revenue in the period in which the installation occurs, to the
extent installation fees are equal to or less than direct selling costs, which
are expensed. To the extent installation fees exceed direct selling costs, the
excess fees are deferred and amortized over the average contract period. All
installation fees and related costs with respect to reconnections and
disconnections are recognized in the period in which the reconnection or
disconnection occurs because reconnection fees are charged at a level equal to
or less than related reconnection costs.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of subscriber receivables. Concentrations
of credit risk with respect to subscriber receivables are limited due to the
Company's large number of customers and their dispersion across many different
countries worldwide.
F-108
<PAGE>
UNITED EUROPE, INC.
NOTES TO 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, which
results in compensation expense for the difference between the grant price and
the fair market value at each new measurement date. UPC adopted stock-based
compensation plans for their employees. With respect to certain of these
plans, the rights conveyed to employees are the substantive equivalents to
stock appreciation rights. Accordingly, compensation expense is recognized at
each financial statement date based on the difference between the grant price
and the estimated fair value of the respective subsidiary's common stock.
Income Taxes
The Company accounts for income taxes under the asset and liability method
which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of transactions which have been
included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and income tax basis of assets, liabilities
and loss carryforwards using enacted tax rates in effect for the year in which
the differences are expected to reverse. Net deferred tax assets are then
reduced by a valuation allowance if management believes it more likely than
not they will not be realized. Withholding taxes are taken into consideration
in situations where the income of subsidiaries is to be paid out as dividends
in the near future. Such withholding taxes are generally charged to income in
the year in which the dividend income is generated.
Foreign Operations and Foreign Exchange Rate Risk
The functional currency for the Company's foreign operations is the applicable
local currency for each affiliate company, except for countries which have
experienced hyper-inflationary economies. For countries which have hyper-
inflationary economies, the financial statements are prepared in U.S. dollars.
Assets and liabilities of foreign subsidiaries for which the functional
currency is the local currency are translated at exchange rates in effect at
period-end, and the statements of operations are translated at the average
exchange rates during the period. Exchange rate fluctuations on translating
foreign currency financial statements into U.S. dollars that result in
unrealized gains or losses are referred to as translation adjustments.
Cumulative translation adjustments are recorded as a separate component of
parent's equity (deficit), included in Other Cumulative Comprehensive Loss.
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in income as unrealized (based on period-end translations)
or realized upon settlement of the transactions. Cash flows from the Company's
operations in foreign countries are translated based on their functional
currencies. As a result, amounts related to assets and liabilities reported on
the consolidated statements of cash flows will not agree to changes in the
corresponding balances on the consolidated balance sheets. The effects of
exchange rate changes on cash balances held in foreign currencies are reported
as a separate line below cash flows from financing activities.
Certain of the Company's foreign operating companies have notes payable and
notes receivable that are denominated in a currency other than their own
functional currency. Accordingly, the Company may experience economic loss and
a negative impact on earnings and equity with respect to its holdings solely
as a result of foreign currency exchange rate fluctuations.
F-109
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
New Accounting Principles
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 2000. The Company is currently assessing the
effect of this new standard.
In December 1999, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 "Views on Selected Revenue Recognition
Issues" ("SAB 101"), which provides the staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. SAB 101
is effective for the second quarter of 2000. The Company is currently
assessing the effect of SAB 101.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year
presentation.
3. Acquisitions and Other
UPC Stock Offerings
In February 1999, UPC successfully completed an initial public offering
selling 133.8 million shares on the Amsterdam Stock Exchange and The Nasdaq
Stock Market, Inc. ("Nasdaq"), raising gross and net proceeds at Dutch guilder
("NLG")21.30 ($10.93) per share of NLG2,852.9 ($1,463.0) million and
NLG2,660.1 ($1,364.1) million, respectively. The proceeds were used to reduce
debt facilities and finance acquisitions. Based on the carrying value of the
Company's investment in UPC as of February 11, 1999, United recognized a gain
of $822.1 million from the resulting step-up in the carrying amount of
United's investment in UPC, in accordance with SAB 51. No deferred taxes were
recorded related to this gain due to the Company's intent on holding its
investment in UPC indefinitely. UPC's offering reduced the Company's ownership
interest from 100% to 59.6%.
In October 1999, UPC completed a second public offering of 45.0 million
ordinary shares, raising gross and net proceeds at Euro ("(Euro)") 19.92
($21.58) per share of (Euro) 896.3 ($970.9) million and (Euro) 851.5 ($922.4)
million, respectively. The proceeds were used to finance acquisitions. Based
on the carrying value of the Company's investment in UPC as of October 19,
1999, United recognized a gain of $403.4 million from the resulting step-up in
the carrying amount of United's investment in UPC, in accordance with SAB 51.
No deferred taxes were recorded related to this gain due to the Company's
intent on holding its investment in UPC indefinitely. This second offering
further reduced the Company's ownership to 53.2% as of December 31, 1999.
If all of the UPC stock options and warrants outstanding as of December 31,
1999 were exercised, the Company's ownership interest would be 51.7% on a
fully-diluted basis.
UTH
In August 1998, UPC merged its Dutch cable television and telecommunications
assets, consisting of its 50.0% interest in A2000 and its wholly-owned
subsidiary Cable Network Brabant Holding B.V. ("CNBH"), with those of the
Dutch energy company N.V. NUON Energie-Onderneming voor Gelderland, Friesland
en Flevoland ("NUON"), forming a new company, UTH (the "UTH Transaction"). The
transaction was accounted for as a formation of a joint venture with NUON's
and UPC's net assets recorded at their historical carrying values. Although
UPC retained a 51.0% economic and voting interest in UTH, because of joint
governance on most significant operating decisions, UPC accounted for its
investment in UTH using the equity method of accounting. On February 17, 1999,
UPC acquired the remaining 49.0% of UTH from NUON (the "NUON Transaction") for
F-110
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Euro) 235.1 ($265.7) million. In addition, UPC repaid NUON a (Euro) 15.1
($17.1) million subordinated loan, including accrued interest, dated December
23, 1998, owed by UTH to NUON. The purchase of NUON's interest and payment of
the loan were funded with proceeds from UPC's initial public offering.
Effective February 1, 1999, UPC began consolidating the results of operations
of UTH. Details of the net assets acquired, based on the preliminary purchase
price allocation, were as follows (in thousands):
<TABLE>
<S> <C>
Property, plant and equipment...................................... $210,013
Investments in affiliated companies................................ 46,830
Goodwill........................................................... 256,749
Long-term debt liabilities......................................... (242,536)
Net current liabilities............................................ (5,384)
--------
Total cash paid.................................................. $265,672
========
</TABLE>
The following pro forma condensed consolidated operating results for the year
ended December 31, 1999 and the ten months ended December 31, 1998 gives
effect to the UTH Transaction and the NUON Transaction as if they had occurred
at the beginning of the periods presented. This pro forma condensed
consolidated financial information does not purport to represent what the
Company's results of operations would actually have been if such transactions
had in fact occurred on such dates. The pro forma adjustments are based upon
currently available information and upon certain assumptions that management
believes are reasonable.
<TABLE>
<CAPTION>
For the Year Ended For the Ten Months Ended
December 31, 1999 December 31, 1998
-------------------- ---------------------------
Historical Pro Forma Historical Pro Forma
---------- --------- ------------ ------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Revenue..................... $473,422 $483,539 $ 172,287 $ 253,295
======== ======== ============ ============
Net income (loss)........... $778,123 $773,428 $ (263,852) $ (299,708)
======== ======== ============ ============
</TABLE>
Acquisition of UPC Slovensko
In June 1999, UPC acquired SKT spol s.r.o. (now known as UPC Slovensko), a
company that owns and operates a cable television system in Bratislava, the
capital of the Slovak Republic, for $43.3 million.
Acquisition of GelreVision
In June 1999, UPC acquired through UPC Netherland 100% of the GelreVision
multi-channel television systems in The Netherlands for NLG233.9 ($109.8)
million.
Acquisition of Reseaux Cables de France
In June 1999, UPC acquired through UPC France 95.7% of RCF, which operates
cable television systems throughout France, for French francs ("FFR")172.0
($27.1) million.
Acquisition of Interest in SBS
In July 1999, UPC purchased 4.8% of SBS for $24.3 million in cash. In August
1999, UPC acquired an additional 8.5% of SBS for $75.9 million.
Stjarn Acquisition
In July 1999, UPC acquired Stjarn for a purchase price of $397.0 million, of
which $100.0 million was paid in the form of a one-year note with interest at
8.0% per year and the balance of the purchase price was paid in cash. UPC will
have the option, at maturity of the note, to pay the note in either cash or
UPC stock. Stjarn operates cable television systems serving the greater
Stockholm area.
F-111
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Acquisition of Videopole
In August 1999, UPC acquired through UPC France 100% of Videopole for a total
purchase price of $135.1 million. The purchase price was paid in cash ($69.9
million) and 2.9 million ordinary shares of UPC ($65.2 million). Based on the
carrying value of the Company's investment in UPC as of July 31, 1999, United
recognized a gain of $34.9 million from the resulting step-up in the carrying
amount of United's investment in UPC, in accordance with SAB 51. No deferred
taxes were recorded related to this gain due to the Company's intent on
holding its investment in UPC indefinitely.
@Entertainment Acquisition
In August 1999, UPC acquired 100% of @Entertainment for $807.0 million in
cash. Details of the net assets acquired, based on a preliminary purchase
price allocation using information currently available, were as follows (in
thousands):
<TABLE>
<S> <C>
Net current assets................................................ $ 51,239
Property, plant and equipment..................................... 196,178
Goodwill.......................................................... 986,814
Long-term liabilities............................................. (448,566)
Other............................................................. 21,335
---------
Total cash paid................................................. $ 807,000
=========
</TABLE>
The following pro forma condensed consolidated operating results for the year
ended December 31, 1999 and the ten months ended December 31, 1998 give effect
to the acquisition of @Entertainment as if it had occurred at the beginning of
each period presented. This pro forma condensed consolidated financial
information does not purport to represent what the Company's results of
operations would actually have been if such transaction had in fact occurred
on such dates. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable.
<TABLE>
<CAPTION>
For the Ten Months
For the Year Ended Ended
December 31, 1999 December 31, 1998
-------------------- ---------------------
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Revenue........................... $473,422 $520,401 $ 172,287 $ 222,665
======== ======== ========= =========
Net income (loss)................. $778,123 $585,956 $(263,852) $(443,718)
======== ======== ========= =========
</TABLE>
Acquisition of Time Warner Cable France
In August 1999, UPC acquired through UPC France 100% of Time Warner Cable
France, a company that operates three cable television systems in the suburbs
of Paris and Lyon and in the city of Limoges. The purchase price was $71.1
million in cash. Simultaneous with the acquisition of Time Warner Cable
France, UPC acquired an additional 47.6% interest in one of its operating
systems, Rhone Vision Cable, in which Time Warner France had a 49.9% interest,
for FFR89.3 ($14.6) million, increasing UPC's ownership in that system to
97.5%.
Acquisition of 50.0% of A2000
In September 1999, UPC acquired, through UPC Nederland, the remaining 50.0% of
A2000 that it did not already own for $229.0 million and $13.1 million in cash
and assumed receivables, respectively.
Kabel Plus Acquisition
In October 1999, UPC acquired a 94.6% interest in Kabel Plus for a purchase
price of $150.0 million, and took control of the Kabel Plus cable television
systems in the Czech and Slovak Republics.
F-112
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Acquisition of Additional Interest in Monor
In December 1999, UPC acquired an additional 48.0% economic interest in Monor
from its partner and several small minority shareholders for $45.0 million,
increasing UPC's ownership to 97.1%. Monor's telephony system is located in
the Monor region, an area which borders Budapest in Hungary.
Purchase of Minority Interest in PrimaCom
In December 1999, UPC purchased a total interest of 18.2% in PrimaCom, which
owns and operates cable television networks in Germany, for (Euro) 226.5
($227.9) million. The fair value of this investment was $231.9 million as of
December 31, 1999 and is reflected in "Marketable equity securities and other
investments" on the Consolidated Balance Sheet.
Combivisie and CNBH
Effective January 1, 1998, UPC acquired certain assets, including the Dutch
cable systems of Combivisie for $88.0 million. The purchase was funded with
draws on UPC's existing credit facilities. Subsequent to the transaction, the
assets and liabilities of UPC's other Dutch systems and Combivisie were
merged, forming CNBH, a wholly-owned subsidiary of UPC Netherland.
Hungary
In June 1998, UPC acquired certain Hungarian multi-channel television system
assets for $9.5 million in cash and a non-interest bearing promissory note in
the amount of $18.0 million. These assets are now part of UPC Magyarorszag.
Tevel and Melita
In November 1998, UPC (i) acquired from Tele-Communications International,
Inc. ("TINTA") its indirect 23.3% and 25.0% interests in the Tevel and Melita
systems, respectively, for $91.5 million, doubling UPC's respective ownership
in these systems to 46.6% and 50.0%, respectively, (ii) purchased an
additional 5.0% interest in Princes Holdings and 5.0% of Tara in consideration
for 769,062 shares of United Class A Common Stock held by UPC, and (iii) sold
the 5.0% interest in Princes Holdings, together with its existing 20.0%
interest, to TINTA for $20.5 million. The net payment of $71.0 million to
TINTA ($68.0 million after closing adjustments) was funded with the proceeds
of a $90.0 million promissory note made by a subsidiary of UPC to its primary
partners in the Tevel system (the "UPC DIC Loan").
UPC
In July 1995, the Company and Philips Electronics N.V. ("Philips") contributed
their respective ownership interests in European and Israeli multi-channel
television systems to UPC. Philips contributed to UPC its 95.0% interest in
cable television systems in Austria, its 100% interest in cable television
systems in Belgium, its minority interests in multi-channel television systems
in Germany, The Netherlands (Eindhoven) and France. The Company contributed
its interests in multi-channel television systems in Israel, Ireland, the
Czech Republic, Malta, Norway, Hungary, Sweden and Spain. The Company also
contributed $78.2 million in cash to UPC and issued to Philips 6,338,302
shares of its Class A Common Stock having a value of $50.0 million (at date of
closing). In addition, UPC issued to Philips $133.6 million of convertible
subordinated pay-in-kind notes (the "PIK Notes"). As a result of this
transaction, the Company and Philips each owned a 50.0% economic and voting
interest in UPC.
On December 11, 1997, the Company acquired Philips' entire interest in UPC
(the "UPC Transaction"). As part of the UPC Transaction, (i) UPC purchased the
6,338,302 shares of Class A Common Stock of the Company held by Philips, (ii)
United purchased NLG169.9 ($84.3) million of the accreted amount of UPC's PIK
Notes and redeemed them for 45,540,783 shares of UPC, (iii) UPC repaid to
Philips the remaining NLG170.4 ($84.6)
F-113
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
million accreted amount of the PIK Notes, (iv) United purchased 39,364,812
shares of UPC directly from Philips, and (v) UPC repurchased Philips'
remaining equity interest in UPC (73,135,188 shares). The Company effectively
owned 100% of UPC as a result of the UPC Transaction, including shares held by
a foundation controlled by United which administers the UPC stock plan for the
benefit of UPC employees and management, pursuant to UPC's equity incentive
plans. The final purchase price (excluding transaction-related costs) was
$425.2 million, comprised of $168.7 million for the purchase by the Company
and repayment by UPC of UPC's PIK Notes, $33.2 million allocated to the
purchase by UPC of 6,338,302 shares of the Company's Class A Common Stock and
$223.3 million allocated to the purchase of Philips' interest in UPC. The UPC
Transaction was funded by a long-term revolving credit facility through UPC
with a syndicate of banks ($151.5 million), a bridge bank facility through a
subsidiary of UPC ($111.2 million) and a cash investment by the Company of
$162.5 million.
Details of the net assets acquired, based on a preliminary allocation of the
purchase price, which were denominated in Dutch guilders and translated to
U.S. dollars using the exchange rate on the date of acquisition, were as
follows (in thousands):
<TABLE>
<S> <C>
Working capital, including cash acquired of $50,872.............. $ (7,158)
Investment in United Class A Common Stock........................ (33,074)
Investment in affiliated companies............................... (167,945)
Property, plant and equipment and other long-term assets......... (273,988)
Goodwill and other intangible assets............................. (383,503)
Elimination of United equity investment.......................... 46,319
Long-term debt................................................... 624,633
Other liabilities................................................ 32,216
---------
Total cash paid................................................ $(162,500)
=========
</TABLE>
Tara
In October 1997, Tara issued shares to third parties in exchange for
consideration totaling $2.5 million, thereby diluting the Company's interest
in Tara from 100% to 75.0%. A gain of $1.6 million recognized on the
transaction was credited to additional paid-in capital in accordance with SAB
51.
Pro Forma Financial Information for the Year Ended February 28, 1998
The following pro forma condensed consolidated operating results for the years
ended February 28, 1998 give effect to the UPC Transaction as if it had
occurred at the beginning of the period presented. This pro forma condensed
consolidated financial information and notes thereto do not purport to
represent what the Company's results of operations would actually have been if
such transaction had in fact occurred on such dates. The pro forma adjustments
are based upon currently available information and upon certain assumptions
that management believes are reasonable.
<TABLE>
<CAPTION>
For the Year Ended
February 28, 1998
-----------------------
Historical Pro Forma(1)
---------- ------------
(In thousands)
<S> <C> <C>
Revenue.............................................. $ 9,945 $ 173,344
======== =========
Net loss............................................. $(54,152) $(104,925)
======== =========
</TABLE>
- --------
(1) Represents the historical amounts included in UPC's consolidated statement
of operations for the period from January 1, 1997 to December 10, 1997,
additional depreciation and amortization related to the step-up in basis
in tangible assets and additional goodwill, the net decrease in equity in
losses of affiliated companies, and the net increase in interest expense
as a result of the UPC Transaction.
F-114
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Investments in Affiliates, Accounted for under the Equity Method
<TABLE>
<CAPTION>
As of December 31, 1999
-----------------------------------------------------------------
Cumulative Cumulative
Investments in Dividends Share in Results of Translation
Affiliates Received Affiliates Adjustments Total
-------------- --------- ------------------- ----------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
SBS..................... $ 99,621 $ -- $ (5,421) $ 2,858 $ 97,058
Tevel................... 100,679 (6,180) (12,108) 3,761 86,152
Melita.................. 14,062 -- 2,066 (2,417) 13,711
Iberian Programming..... 11,947 -- (460) 2,828 14,315
Xtra Music.............. 9,913 -- (2,476) (640) 6,797
Other................... 27,447 -- (65) (1,048) 26,334
-------- ------- -------- ------- --------
Total................. $263,669 $(6,180) $(18,464) $ 5,342 $244,367
======== ======= ======== ======= ========
<CAPTION>
As of December 31, 1998
-----------------------------------------------------------------
Cumulative Cumulative
Investments in Dividends Share in Results of Translation
Affiliates Received Affiliates Adjustments Total
-------------- --------- ------------------- ----------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
UTH..................... $135,290 $ -- $(11,447) $ 8,288 $132,131
Tevel................... 96,340 (6,090) (390) (306) 89,554
Melita.................. 14,078 -- 997 724 15,799
Monor................... 11,301 -- (2,601) (7,849) 851
Xtra Music.............. 5,326 -- (536) 252 5,042
Other................... 14,532 -- (3,876) 176 10,832
-------- ------- -------- ------- --------
Total................. $276,867 $(6,090) $(17,853) $ 1,285 $254,209
======== ======= ======== ======= ========
</TABLE>
As of December 31, 1999 and 1998, the Company had the following differences
related to the excess of its cost over its proportionate interest in each
affiliate's net tangible assets included in the above table. Such differences
are being amortized over 15 years.
<TABLE>
<CAPTION>
As of December 31, 1999 As of December 31, 1998
----------------------- -----------------------
Basis Accumulated Basis Accumulated
Difference Amortization Difference Amortization
---------- ------------ ---------- ------------
(In thousands)
<S> <C> <C> <C> <C>
SBS.......................... $109,080 $ (2,828) $ -- $ --
Tevel........................ 82,010 (7,947) 80,644 (3,351)
Melita....................... 11,673 (1,242) 12,898 (451)
Iberian Programming.......... 11,941 (521) -- --
Xtra Music................... 5,511 (246) 3,585 (73)
Other........................ -- -- 9,985 (404)
-------- -------- -------- -------
Total...................... $220,215 $(12,784) $107,112 $(4,279)
======== ======== ======== =======
</TABLE>
F-115
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Condensed financial information for UPC, stated in U.S. dollars, is presented
below:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1997(1)
--------------------
(In thousands)
<S> <C>
Revenue............................................... $ 172,951
Operating, selling, general and administrative ex-
pense................................................ (121,833)
Depreciation and amortization......................... (68,148)
---------
Net operating loss.................................. (17,030)
Interest, net......................................... (32,936)
Share in results of affiliated companies, net......... (10,395)
Other................................................. (29,820)
---------
Net loss............................................ $ (90,181)
=========
</TABLE>
- --------
(1) The Company consolidated the results of UPC effective December 11, 1997.
5. Marketable Equity Securities of Parent
As a result of the UPC Transaction, UPC acquired 6,338,302 shares of United's
Class A Common Stock, valued at cost on December 11, 1997 at $33.1 million. In
November 1998, UPC used 769,062 shares to acquire an additional 5.0% interest
in Tara and Princes Holdings, resulting in 5,569,240 remaining United shares
held by UPC.
6. Property, Plant and Equipment
<TABLE>
<CAPTION>
As of December 31,
--------------------
1999 1998
---------- --------
(In thousands)
<S> <C> <C>
Cable distribution networks............................ $1,533,411 $246,607
Subscriber premises equipment and converters........... 153,670 71,178
MMDS/DTH distribution facilities....................... 79,265 7,340
Office equipment, furniture and fixtures............... 72,161 18,674
Buildings and leasehold improvements................... 144,769 6,748
Other.................................................. 132,414 14,905
---------- --------
2,115,690 365,452
Accumulated depreciation............................. (195,329) (46,406)
---------- --------
Net property, plant and equipment.................... $1,920,361 $319,046
========== ========
</TABLE>
F-116
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Goodwill and Other Intangible Assets
<TABLE>
<CAPTION>
As of December 31,
--------------------
1999 1998
---------- --------
(In thousands)
<S> <C> <C>
@Entertainment......................................... $ 935,867 $ --
UPC Netherland......................................... 763,714 --
Stjarn................................................. 430,606 --
Telekabel Group........................................ 177,800 206,092
UPC France............................................. 117,787 --
UPC Norge.............................................. 85,405 87,563
Kabel Plus............................................. 85,330 --
UPC Magyarorszag....................................... 55,068 51,550
UPC.................................................... 29,406 --
Monor.................................................. 24,420 --
UPC Slovak............................................. 23,026 --
UPC Belgium............................................ 20,994 22,322
Other.................................................. 12,932 12,970
---------- --------
2,762,355 380,497
Accumulated amortization............................. (134,594) (20,693)
---------- --------
Net goodwill and other intangible assets............. $2,627,761 $359,804
========== ========
</TABLE>
8. Short-Term Debt
<TABLE>
<CAPTION>
As of December
31,
----------------
1999 1998
-------- -------
(In thousands)
<S> <C> <C>
Stjarn Seller's Note (Note 3).............................. $100,000 $ --
Stjarn Credit Facility..................................... 39,333 --
A2000 Bank Facility (Note 10).............................. 20,575 --
Other UPC.................................................. 4,355 33,504
-------- -------
Total short-term debt.................................... $164,263 $33,504
======== =======
</TABLE>
Carrying value approximates fair value for these short-term facilities.
Stjarn Credit Facility
In December 1998, Stjarn's parent company entered into a Swedish Kronor
("SEK")521.0 ($61.3) million loan agreement with a bank to refinance certain
debt. The loan currently consists of an A facility, a medium term loan in the
amount of SEK371.0 ($43.6) million and a revolving credit facility in the
amount of SEK150.0 ($17.6) million. These facilities bear interest at the rate
of Stockholm Interbank Offered Rate ("STIBOR") plus a margin of 0.75% to
1.25%. As a result of UPC's acquisition of Stjarn, both the A facility and the
revolving facility are now due on March 31, 2000.
F-117
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Senior Discount Notes and Senior Notes
<TABLE>
<CAPTION>
As of December 31,
--------------------
1999 1998
---------- ---------
(In thousands)
<S> <C> <C>
UPC USD Senior Notes due 2009.......................... $ 759,442 $ --
UPC 10.875% Euro Senior Notes due 2009................. 301,878 --
UPC USD Senior Discount Notes due 2009................. 421,747 --
UPC 10.875% USD Senior Notes due 2007.................. 191,852 --
UPC 10.875% Euro Senior Notes due 2007................. 100,625 --
UPC 11.25% USD Senior Notes due 2009................... 239,905 --
UPC 11.25% Euro Senior Notes due 2009.................. 100,894 --
UPC 13.375% USD Senior Discount Notes due 2009......... 255,786 --
UPC 13.375% Euro Senior Discount Notes due 2009........ 102,847 --
@Entertainment 1999 Senior Discount Notes.............. 141,807 --
@Entertainment 1998 Senior Discount Notes.............. 115,984 --
@Entertainment 1999 Series C Senior Discount Notes..... 11,841 --
PCI Discount Notes..................................... 16,457 --
---------- ---------
2,761,065 --
Less current portion................................. -- --
---------- ---------
Total senior discount notes.......................... $2,761,065 $ --
========== =========
</TABLE>
UPC USD Senior Notes due 2009, UPC 10.875% Euro Senior Notes due 2009 and UPC
USD Senior Discount Notes due 2009 (collectively the "UPC July 1999 Notes")
In July 1999, UPC completed a private placement bond offering consisting of
$800.0 million ten-year 10.875% Senior Notes due 2009, (Euro) 300.0 million of
ten-year 10.875% Senior Notes due 2009 and $735.0 million aggregate principal
amount of ten-year 12.5% Senior Discount Notes due 2009. The UPC Senior
Discount Notes due 2009 were sold at 54.5% of face value amount yielding gross
proceeds of approximately $400.7 million, and will accrue but not pay interest
until 2005. Interest payments on the Senior Notes due 2009 will be due semi-
annually, commencing February 1, 2000. The indentures governing the UPC July
1999 Notes place certain limitations on UPC's ability, and the ability of its
subsidiaries, to borrow money, issue capital stock, pay dividends in stock or
repurchase stock, make investments, create certain liens, engage in certain
transactions with affiliates, and sell certain assets or merge with or into
other companies. Concurrent with the closing of the UPC July 1999 Notes
offering, UPC entered into a cross-currency swap, swapping the $800.0 million
UPC Senior Notes due 2009 into fixed and variable rate Euro notes with a
notional amount totaling (Euro) 754.7 million. One half of the Euro notes have
a fixed interest rate of 8.54% through August 1, 2004, thereafter switching to
a variable interest rate of Euro Interbank Offered Rate ("EURIBOR") plus
4.15%, for an initial rate of 7.1%.
UPC 10.875% USD and Euro Senior Notes due 2007, UPC 11.25% USD and Euro Senior
Notes due 2009 and UPC 13.375% USD and Euro Senior Discount Notes due 2009
(collectively the "UPC October 1999 Notes")
In October 1999, UPC completed a private placement bond offering consisting of
six tranches: $200.0 million and (Euro) 100.0 million of eight-year 10.875%
Senior Notes due 2007; $252.0 million and (Euro) 101.0 million of ten-year
11.25% Senior Notes due 2009; and $478.0 million and (Euro) 191.0 million
aggregate principal amount of ten-year 13.375% Senior Discount Notes due 2009.
The Senior Discount Notes were sold at 52.3% of the face amount yielding gross
proceeds of $250.0 million and (Euro) 100.0 million and will accrue but not
pay interest until November 2004. UPC then entered into cross-currency swaps,
swapping the $252.0 million 11.25% coupon into fixed and variable rate Euro
notes with a notional amount totaling (Euro) 240.2 million, and swapping the
$200.0
F-118
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
million 10.875% coupon into fixed and variable rate Euro notes with a notional
amount totaling (Euro) 190.7 million. Of the former swap, (Euro) 120.1 million
have a fixed interest rate of 9.9% through November 1, 2004, thereafter
switching to a variable rate of EURIBOR + 4.8%. The remaining (Euro) 120.1
million have a variable interest rate of EURIBOR + 4.80%. Of the latter swap,
(Euro) 95.4 million have a fixed interest rate of 9.9% through November 1,
2004, thereafter switching to a variable rate of EURIBOR + 4.8%. The remaining
(Euro) 95.4 million have a variable interest rate of EURIBOR + 4.8%.
@Entertainment 1999 Senior Discount Notes, @Entertainment 1998 Senior Discount
Notes and
@Entertainment 1999 Series C Senior Discount Notes (collectively the
"@Entertainment Notes")
In January 1999, @Entertainment sold 256,800 units consisting of Senior
Discount Notes due 2009 and warrants to purchase 1,813,665 shares of
@Entertainment's common stock. The @Entertainment 1999 Senior Discount Notes
were issued at a discount to their aggregate principal amount at maturity
yielding gross proceeds of approximately $100.0 million. Cash interest on the
@Entertainment 1999 Senior Discount Notes will not accrue prior to February 1,
2004. Thereafter, cash interest will accrue at a rate of 14.5% per annum,
payable semi-annually in arrears on August 1 and February 1 of each year,
commencing August 1, 2004. In connection with the acquisition of
@Entertainment, UPC acquired all of the existing warrants held in connection
with the @Entertainment 1999 Senior Discount Notes.
In July 1998, @Entertainment sold 252,000 units, consisting of 14.5% Senior
Discount Notes due 2008 and warrants entitling the warrant holders to purchase
1,824,514 shares of @Entertainment common stock. This offering generated
approximately $125.1 million in gross proceeds to @Entertainment. The
@Entertainment 1998 Senior Discount Notes are unsubordinated and unsecured
obligations of @Entertainment. Cash interest will not accrue prior to July 15,
2003. After that, cash interest will accrue at a rate of 14.5% per year and
will be payable semi-annually in arrears on January 15 and July 15 of each
year, beginning January 15, 2004. The @Entertainment 1998 Senior Discount
Notes will mature on July 15, 2008. In connection with the acquisition of
@Entertainment, UPC acquired all of the existing warrants held in connection
with the @Entertainment 1998 Senior Discount Notes.
Pursuant to the terms of the @Entertainment indenture, @Entertainment
repurchased $49.1 million aggregate principal amount at maturity of these
notes for $26.5 million as a result of UPC's acquisition of @Entertainment.
In January 1999, @Entertainment sold $36.0 million aggregate principal amount
at maturity of Series C Senior Discount Notes generating approximately $9.8
million of gross proceeds. The @Entertainment 1999 Series C Senior Discount
Notes are senior unsecured obligations of @Entertainment. Original issue
discount will accrete from January 20, 1999, until maturity on July 15, 2008.
Cash interest will accrue beginning July 15, 2004 at a rate of 7.0% per year
on the principal amount at maturity, and will be payable semi-annually in
arrears, on July 15 and January 15 of each year beginning January 15, 2005.
PCI Discount Notes
Poland Communications, Inc. ("PCI"), @Entertainment's major operating
subsidiary, sold $130.0 million of discount notes in October 1996. The PCI
Discount Notes bear interest at 9.875%, payable on May 1 and November 1 of
each year. The PCI Discount Notes mature on November 1, 2003. Pursuant to the
terms of the PCI indenture, @Entertainment repurchased a majority of the PCI
Discount Notes in November 1999 as a result of UPC's acquisition of
@Entertainment.
F-119
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Other Long-Term Debt
<TABLE>
<CAPTION>
As of December 31,
--------------------
1999 1998
---------- --------
(In thousands)
<S> <C> <C>
UPC Senior Credit Facility............................. $ 359,720 $ --
New Telekabel Facility................................. 256,861 --
A2000 Facilities....................................... 209,132 --
CNBH Facility.......................................... 122,317 --
Rhone Vision Cable Credit Facility..................... 61,360 --
RCF Facility........................................... 31,852 --
UPC DIC Loan........................................... 39,366 84,214
Mediareseaux Facility.................................. 45,193 21,346
Monor Facility......................................... 33,488 --
Videopole Facility..................................... 7,752 --
Other UPC.............................................. 50,345 3,821
UPC Senior Revolving Credit Facility................... -- 512,179
UPC Bridge Bank Facility............................... -- 60,063
---------- --------
1,217,386 681,623
Less current portion................................. (50,606) (60,063)
---------- --------
Total other long-term debt........................... $1,166,780 $621,560
========== ========
</TABLE>
UPC Senior Credit Facility
On July 27, 1999, several UPC subsidiaries and a syndicate of banks executed a
Loan and Note Issuance Agreement for a (Euro)1.0 ($1.1) billion multi-currency
senior secured credit facility. The UPC Senior Credit Facility matures on July
27, 2006 and is comprised of two tranches. The (Euro) 750.0 ($755.1) million
Tranche A is a senior secured reducing revolving credit facility. Tranche B is
a (Euro) 250.0 ($251.7) million term loan credit facility. The UPC Senior
Credit Facility bears interest at EURIBOR (for borrowings in euro) and at the
London Interbank Offered Rate ("LIBOR") (for all other borrowings) plus a
margin of between 0.75% and 2.0% (which shall be at least 1.5% for the first
six months following closing) plus an additional cost of funding calculation.
In addition to repayment of UPC's existing revolving credit facility, proceeds
from the UPC Senior Credit Facility were used to fund acquisitions, repay
certain intercompany debts, pay interest on funds downstreamed from the
proceeds of high yield issues, general corporate purposes, capital
expenditures and other permitted distributions. Borrowings under the UPC
Senior Credit Facility are limited by financial ratio tests. The UPC Senior
Credit Facility contains change in control provisions related to UPC's
ownership in certain subsidiaries and United's ownership of UPC. In addition,
the UPC Senior Credit Facility limits acquisitions funded by loan proceeds to
(Euro) 400.0 ($402.7) million over the life of the UPC Senior Credit Facility.
The UPC Senior Credit Facility contains certain financial covenants and
restrictions on UPC and its subsidiaries' ability to make dividends or other
payments to UPC, incur indebtedness, dispose of assets and merge and enter
into affiliate transactions. Net proceeds of certain disposals are required to
be used to prepay the facility.
New Telekabel Facility
In March 1999, UPC Nederland replaced their existing facility with a senior
facility. The New Telekabel Facility consists of a (Euro) 340.0 ($342.3)
million revolving facility to N.V. Telekabel, a subsidiary of UPC Nederland,
that will convert to a term facility on December 31, 2001. The New Telekabel
Facility includes (Euro) 5.0 ($5.0) million in the form of an overdraft
facility that will be available until December 31, 2007. The New Telekabel
Facility bears interest at EURIBOR plus a margin between 0.75% and 2.00% based
on leverage multiples tied to certain measures of net operating cash flow.
F-120
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A2000 Facilities
In January 1996, A2000 and one of its subsidiaries entered into bank
facilities of NLG90.0 ($41.1) million and NLG375.0 ($171.2) million,
respectively. In October 1996, a subsidiary of A2000 entered into a bank
facility of NLG45.0 ($20.5) million. These facilities have between nine- and
ten-year terms and interest rates of Amsterdam Interbank Offered Rate
("AIBOR") plus 0.75% or AIBOR plus 0.7% or fixed rates (fixed prior to each
advance) increased by 0.7% or 0.75% per annum. The facilities also restrict
the borrowers from incurring additional indebtedness and from paying dividends
and distributions, subject to certain exceptions.
CNBH Facility
In February 1998, CNBH entered into a secured NLG250.0 ($114.2) million ten-
year term facility with a syndicate of banks. In January 1999, this facility
was increased to NLG274.0 ($125.1) million. The CNBH Facility bears interest
at AIBOR plus a margin between 0.7% and 0.75%. Beginning in 2001, CNBH will be
required to apply 50.0% of its excess cash flow to prepayment of its facility.
In connection with this facility, CNBH also entered into a NLG5.0 ($2.3)
million ten-year term working capital facility with a bank.
Rhone Vision Cable Credit Facility
In July 1996, Rhone Vision Cable, a subsidiary of Time Warner Cable France,
entered into a FFR680.0 ($104.4) million credit facility with a bank to
finance construction and installation of Rhone Vision Cable networks. The
facility bears interest at LIBOR plus 1.0%, payable quarterly. The facility
must be repaid by the earlier of June 30, 2002 or six months after network
completion.
RCF Facility
In 1990, RCF and six of its subsidiaries entered into a FFR160.0 ($24.6)
million credit facility with a consortium of banks to finance working capital
and operations. In 1995 this facility was amended and extended to FFR252.4
($38.7) million to refinance three further credit facilities entered into by
other subsidiaries of RCF. The loan bears interest at PIBOR (the French
interbank offer rate) plus 1.5%, payable in arrears quarterly. The loan is to
be repaid in yearly installments of FFR34.6 ($5.3) million beginning at the
end of 1999 until December 31, 2005.
UPC DIC Loan
In November 1998, a subsidiary of Discount Investment Corporation ("DIC")
loaned UPC a total of $90.0 million to acquire the additional interests in
Tevel and Melita. The UPC DIC Loan matures in November 2000 and bears interest
at 8.0% and is payable, together with 106.0% of the principal amount, on
maturity. In connection with the UPC DIC Loan, UPC granted to an affiliate of
DIC an option to acquire a total of $90.0 million, plus accrued interest, of
ordinary shares of UPC at a price equal to 90.0% of the initial public
offering price. UPC allocated the $90.0 million in loan proceeds between the
debt instrument and the equity option element on the basis of relative fair
values. In February 1999, the option agreement was amended, resulting in a
grant of two options of $45.0 million each to acquire ordinary shares of UPC.
DIC then exercised the first option for $45.0 million, paying in cash and
acquiring 4.7 million ordinary shares of UPC. UPC repaid $45.0 million of the
UPC DIC Loan and accrued interest with proceeds received from the option
exercise. The remaining option is exercisable until September 30, 2000.
Mediareseaux Facility
In July 1998, Mediareseaux entered into a 9.5 year term facility with a bank
for an amount of FFR680.0 ($104.4) million. The Mediareseaux Facility bears
interest at LIBOR plus a margin ranging from 0.75% to 2.0%. The availability
of the facility depends on revenue generated and debt to equity ratios. The
availability period ends at December 31, 2002. The repayment period starts
from January 1, 2003 to final maturity in 2007. During the repayment period,
Mediareseaux must apply 50.0% of its excess cash flow in prepaying the
facility. In July
F-121
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1998, Mediareseaux secured a 9.5 year FFR20.0 ($3.1) million overdraft
facility, subject to the same terms and conditions as the Mediareseaux
Facility except that the availability tests are not applicable.
Monor Facility
In September 1997, Monor entered into a $42.0 million term loan facility with
a syndicate of banks. The proceeds of the Monor facility were used to repay
indebtedness and for capital expenditures in the build-out of Monor's network.
Monor's facility matures on December 31, 2006 and bears interest at LIBOR plus
1.5%. Monor entered into an interest rate swap agreement with a bank, swapping
the floating rate to a fixed rate of 6.7% for German marks and 7.8% for U.S.
dollars. Monor's facility is secured by a pledge over the shares of Monor and
its assets. This facility limits Monor's ability to encumber its assets, incur
indebtedness and pay dividends.
Fair Value of Senior Discount Notes, Senior Notes and Other Long-Term Debt
Fair value is based on market prices for the same or similar issues. Carrying
value is used when a market price is unavailable.
<TABLE>
<CAPTION>
Carrying Value Fair Value
-------------- ----------
(In thousands)
<S> <C> <C>
As of December 31, 1999:
UPC USD Senior Notes due 2009.................... $ 759,442 $ 775,969
UPC 10.875% Euro Senior Discount Notes due 2009.. 301,878 305,652
UPC USD Senior Discount Notes due 2009........... 421,747 415,275
UPC 10.875% USD Senior Notes due 2007............ 191,852 206,525
UPC 10.875% Euro Senior Notes due 2007........... 100,625 102,639
UPC 11.25% USD Senior Notes due 2009............. 239,905 262,080
UPC 11.25% Euro Senior Notes due 2009............ 100,894 103,665
UPC 13.375% USD Senior Discount Notes due 2009... 255,786 272,460
UPC 13.375% Euro Senior Discount Notes due 2009.. 102,847 106,669
@Entertainment 1999 Senior Discount Notes........ 141,807 146,007
@Entertainment 1998 Senior Discount Notes........ 115,984 147,948
@Entertainment 1999 Series C Senior Discount
Notes........................................... 11,841 11,841
PCI Discount Notes............................... 16,457 16,457
UPC Senior Credit Facility....................... 359,720 359,720
New Telekabel Facility........................... 256,861 256,861
A2000 Facilities................................. 209,132 209,132
CNBH Facility.................................... 122,317 122,317
Rhone Vision Cable Credit Facility............... 61,360 61,360
RCF Facility..................................... 31,852 31,852
UPC DIC Loan..................................... 39,366 39,366
Mediareseaux Facility............................ 45,193 45,193
Monor Facility................................... 33,488 33,488
Videopole Facility............................... 7,752 7,752
Other UPC........................................ 50,345 50,345
---------- ----------
Total........................................ $3,978,451 $4,090,573
========== ==========
As of December 31, 1998:
UPC Senior Revolving Credit Facility............. $ 512,179 $ 512,179
UPC Bridge Bank Facility......................... 60,063 60,063
Mediareseaux Facility............................ 21,346 21,346
UPC DIC Loan..................................... 84,214 84,214
Other UPC........................................ 3,821 3,821
---------- ----------
Total........................................ $ 681,623 $ 681,623
========== ==========
</TABLE>
F-122
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Debt Maturities
The maturities of the Company's senior discount notes, senior notes and other
long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
Year Ended December 31, 2000..................................... $ 50,606
Year Ended December 31, 2001..................................... --
Year Ended December 31, 2002..................................... 61,361
Year Ended December 31, 2003..................................... 16,457
Year Ended December 31, 2004..................................... --
Thereafter....................................................... 3,850,027
----------
Total.......................................................... $3,978,451
==========
</TABLE>
11. Note Payable to Parent
<TABLE>
<CAPTION>
As of
December 31,
1998
------------
<S> <C>
Note payable to parent,
including accrued in-
terest of $6,141...... $92,609
=======
</TABLE>
United loaned the Company a total of $86.5 million in connection with funding
the general operations of UPC as well as the repayment of the UPC Bridge Bank
Facility. The United loan accrued interest at 10.75% per annum. The Company
repaid $87.5 million of principal and interest in February 1999 with proceeds
from UPC's initial public offering.
12. Parent's Equity (Deficit)
Common Stock
Authorized capital consists of 1,000 shares of common stock, $0.01 par value,
100 shares issued and outstanding, held by United. Such shares have been
pledged as collateral under United's 1998 Notes.
Cumulative Translation Adjustments
During the year ended December 31, 1999, the Company recorded a negative
change in cumulative translation adjustments of $111.3 million, primarily due
to the strengthening of the U.S. dollar compared to the Dutch guilder of
approximately 15.9%.
Equity Transactions of Subsidiaries
The issuance of warrants, the issuance of convertible debt with an equity
component, variable plan accounting for stock options and the recognition of
deferred compensation expense by the Company's subsidiaries affects the equity
accounts of the Company. The following represents the effect on additional
paid-in capital and deferred compensation as a result of these equity
transactions:
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1999
------------------
(In thousands)
<S> <C>
Variable plan accounting for stock options................ $ 338,261
Deferred compensation expense............................. (180,757)
Amortization of deferred compensation..................... 79,104
Issuance of warrants...................................... 33,025
Issuance of convertible debt (UPC DIC Loan)............... 14,875
---------
Total................................................... $ 284,508
=========
</TABLE>
F-123
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Cumulative Comprehensive Income (Loss)
<TABLE>
<CAPTION>
As of As of
December 31, December 31,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Foreign currency transla-
tion adjustments......... $(135,958) $(24,706)
Unrealized gain on avail-
able-for-sale securi-
ties..................... 373,501 23,350
--------- --------
Total................... $ 237,543 $ (1,356)
========= ========
</TABLE>
Subsidiary Stock Option Plans
UPC Plan
In June 1996, UPC adopted a stock option plan (the "UPC Plan") for certain of
its employees and those of its subsidiaries. There are 18,000,000 total shares
available for the granting of options under the UPC Plan, which are held by
the Stichting Administratiekantoor UPC (the "Foundation"), which administers
the UPC Plan. Each option represents the right to acquire from the Foundation
a certificate representing the economic value of one share. Following
consummation of the initial public offering, any certificates issued to
employees who have exercised their options will be converted into UPC common
stock. United appoints the board members of the Foundation and thus controls
the voting of the Foundation's common stock. The options are granted at fair
market value determined by UPC's Supervisory Board at the time of the grant.
The maximum term that the options can be exercised is five years from the date
of the grant. In order to introduce the element of "vesting" of the options,
the UPC Plan provides that even though the options are exercisable
immediately, the shares to be issued or options granted in 1996 vest in equal
monthly increments over a three-year period from the effective date set forth
in the option grant. In March 1998, the UPC Plan was revised to increase the
vesting period for any new grants of options to four years, vesting in equal
monthly increments. Upon termination of an employee (except in the case of
death, disability or the like), all unvested options previously exercised must
be resold to the Foundation at the original purchase price, or all vested
options must be exercised, within 30 days of the termination date. The
Supervisory Board may alter these vesting schedules in its discretion. An
employee has the right at any time to put his certificates or shares from
exercised vested options to the Foundation at a price equal to the fair market
value. UPC can also call such certificates or shares for a cash payment upon
termination in order to avoid dilution, except for certain awards, which can
not be called by UPC until expiration of the underlying options. The UPC Plan
also contains anti-dilution protection and provides that, in the case of
change of control, the acquiring company has the right to require UPC to
acquire all of the options outstanding at the per share value determined in
the transaction giving rise to the change of control.
For purposes of the pro forma disclosures presented below, UPC has computed
the fair values of all options granted during the year ended December 31, 1999
using the Black-Scholes single-option pricing model and the following
weighted-average assumptions:
<TABLE>
<S> <C>
Risk-free interest rate.............................................. 5.76%
Expected life........................................................ 5 years
Expected volatility.................................................. 56.82%
Expected dividend yield.............................................. 0%
</TABLE>
The total fair value of options granted was approximately (Euro) 38.5 ($38.8)
million for the year ended December 31, 1999. This amount is amortized using
the straight-line method over the vesting period of the options. Cumulative
compensation expense recognized in proforma net income, with respect to
options that are forfeited prior to vesting, is adjusted as a reduction of
proforma compensation expense in the period of forfeiture. For the year ended
December 31, 1999, stock-based compensation, net of the effect of forfeitures
and net of
F-124
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
actual compensation expense recorded in the statement of operations was
(Euro) 5.9 ($5.6) million. This stock-based compensation had the following pro
forma effect on net income (in thousands):
<TABLE>
<CAPTION>
Net
Income
--------
<S> <C>
As reported......................................................... $778,123
Pro forma........................................................... $772,495
</TABLE>
A summary of stock option activity for the UPC Plan is as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
---------- --------- ---------- --------- --------- ---------
(Euros) (Euros) (Euros)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 12,586,500 1.72 6,724,656 1.59 6,901,251 1.59
Granted during the
period................. 4,338,000 14.91 7,029,000 1.83 -- --
Cancelled during the
period................. (266,565) 3.44 (42,156) 1.59 (176,595) 1.59
Exercised during the
period................. (5,702,256) 1.65 (1,125,000) 1.59 -- --
---------- ----- ---------- ---- --------- ----
Outstanding at end of
period................. 10,955,679 6.94 12,586,500 1.72 6,724,656 1.59
========== ===== ========== ==== ========= ====
Exercisable at end of
period(1).............. 4,769,595 3.10 12,586,500 1.72 6,724,656 1.59
========== ===== ========== ==== ========= ====
</TABLE>
- --------
(1) Includes certificate rights as well as options.
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------
1999 1998
------------------------ ------------------------
Fair Exercise Fair Exercise
Number Value Price Number Value Price
--------- ----- -------- --------- ----- --------
(Euros) (Euros)
Exercise Price
--------------
<S> <C> <C> <C> <C> <C> <C>
Less than market price..... 375,000 8.94 16.12 -- -- --
Equal to market price...... 3,963,000 8.95 14.79 7,029,000 1.83 1.83
--------- ---- ----- --------- ---- ----
Total.................... 4,338,000 8.94 14.91 7,029,000 1.83 1.83
========= ==== ===== ========= ==== ====
</TABLE>
F-125
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- -------------------
Weighted-Average Weighted- Weighted-
Remaining Average Average
Contractual Life Exercise Exercise
Number (Years) Price Number Price
---------- ---------------- --------- --------- ---------
(Euros) (Euros)
Exercise Price Range
(Euros)
--------------------
<S> <C> <C> <C> <C> <C>
1.59- 2.05............. 6,681,039 1.19 1.80 4,211,055 1.78
9.67- 9.67............. 1,212,000 3.20 9.67 231,000 9.67
11.26-11.40............. 719,640 3.22 11.40 132,483 11.40
15.67-18.17............. 1,171,500 3.56 17.51 130,188 17.46
20.08-20.08............. 1,171,500 3.78 20.08 64,869 20.08
---------- ---- ----- --------- -----
Total................. 10,955,679 2.00 6.94 4,769,595 3.10
========== ==== ===== ========= =====
</TABLE>
The UPC Plan was accounted for as a variable plan prior to UPC's initial
public offering in February 1999. Accordingly, compensation expense was
recognized at each financial statement date based on the difference between
the grant price and the estimated fair value of UPC's common stock. Therafter,
the UPC Plan has been accounted for as a fixed plan. Compensation expense of
(Euro) 6.5 ($6.8) million, (Euro) 121.7 ($134.7) million and (Euro) 2.2 ($2.5)
million was recognized for the year ended December 31, 1999, the ten months
ended December 31, 1998 and the year ended February 28, 1998, respectively.
UPC Phantom Stock Option Plan
In March 1998, UPC adopted a phantom stock option plan (the "UPC Phantom
Plan") which permits the grant of phantom stock rights in up to 7,200,000
shares of UPC's common stock. The rights are granted at fair market value
determined by UPC's Supervisory Board at the time of grant, and generally vest
in equal monthly increments over the four-year period following the effective
date of grant and may be exercised for ten years following the effective date
of grant. The UPC Phantom Plan gives the employee the right to receive payment
equal to the difference between the fair market value of a share of UPC common
stock and the option base price for the portion of the rights vested. UPC, at
its sole discretion, may make payment in (i) cash, (ii) freely tradable shares
of United Class A Common Stock or (iii) freely tradable shares of UPC's common
stock. If UPC chooses to make a cash payment, even though its stock is
publicly traded, employees have the option to receive an equivalent number of
freely tradable shares of stock instead. The UPC Phantom Plan contains anti-
dilution protection and provides that, in certain cases of a change of
control, all phantom options outstanding become fully exercisable.
The UPC Phantom Plan is accounted for as a variable plan in accordance with
its terms, resulting in compensation expense for the difference between the
grant price and the fair market value at each financial statement date.
Compensation expense of (Euro) 117.4 ($123.2) million and (Euro) 23.8 ($26.3)
million was recognized for the year ended December 31, 1999 and the ten months
ended December 31, 1998, respectively.
F-126
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of stock option activity for the UPC Phantom Plan is as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
--------------------- -------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Number Price Number Price
---------- --------- --------- ---------
(Euros) (Euros)
<S> <C> <C> <C> <C>
Outstanding at beginning of peri-
od.............................. 6,172,500 1.91 -- --
Granted during the period........ 585,000 9.67 6,172,500 1.91
Cancelled during the period...... (1,540,128) 2.00 -- --
Exercised during the period...... (1,072,809) 1.89 -- --
---------- ---- --------- ----
Outstanding at end of period..... 4,144,563 2.98 6,172,500 1.91
========== ==== ========= ====
Vested and exercisable at end of
period.......................... 1,554,813 2.47 1,411,407 1.84
========== ==== ========= ====
</TABLE>
The combined weighted-average fair values and weighted-average exercise prices
of options granted are as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
---------------------- ------------------------
Fair Exercise Fair Exercise
Number Value Price Number Value Price
------- ----- -------- --------- ----- --------
(Euros) (Euros)
Exercise Price
--------------
<S> <C> <C> <C> <C> <C> <C>
Equal to market price........ 585,000 9.67 9.67 2,057,250 1.91 1.91
</TABLE>
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------- -------------------
Weighted-Average
Remaining
Contractual Life
Exercise Price (Euros) Number (Years) Number
---------------------- --------- ---------------- -------------------
<S> <C> <C> <C>
1.82.......................... 2,606,778 7.60 1,186,092
2.05.......................... 952,785 8.74 245,907
9.67.......................... 585,000 9.16 122,814
--------- ---- ---------
Total....................... 4,144,563 8.14 1,554,813
========= ==== =========
</TABLE>
chello Phantom Stock Option Plan
In June 1998, UPC adopted a phantom stock option plan (the "chello Phantom
Plan"), which permits the grant of phantom stock rights of chello, a wholly-
owned subsidiary of UPC. The rights are granted at an option price equal to
the fair market value determined by chello's Supervisory Board at the time of
grant, and generally vest in equal monthly increments over the four-year
period following the effective date of grant and the option must be exercised,
in all cases, not more than ten years from the effective date of grant. The
chello Phantom Plan gives the employee the right to receive payment equal to
the difference between the fair market value of a share (as defined the chello
Phantom Plan) of chello and the option price for the portion of the rights
vested. UPC, at its sole discretion, may make the required payment in cash,
freely tradable shares of United Class A Common Stock, the common stock of
UPC, which shall be valued at the closing price on the day before the date the
Company makes payment to the option holder, or the chello's common shares, if
they are publicly traded and freely tradeable ordinary shares. If UPC chooses
to make a cash payment, even though its stock is publicly
F-127
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
traded, employees have the option to receive an equivalent number of freely
tradable shares of chello's stock instead. As of December 31, 1999, UPC
recorded cumulative compensation expense of (Euro) 70.8 ($71.2) million for
options granted under the chello Phantom Plan.
A summary of stock option activity for the chello Phantom Plan is as follows:
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
------------------------- ----------------------
Weighted- Weighted-
Average Average
Number Exercise Price Number Exercise Price
--------- -------------- ------- --------------
(Euros) (Euros)
<S> <C> <C> <C> <C>
Outstanding at beginning
of period................ 570,000 4.54 -- --
Granted during the peri-
od....................... 235,000 4.54 570,000 4.54
Granted during the peri-
od....................... 1,309,838 9.08 -- --
Granted during the peri-
od....................... 355,500 -- (1) -- --
Cancelled during the peri-
od....................... (128,542) 4.71 -- --
Exercised during the peri-
od....................... (11,667) 4.54 -- --
--------- ---- ------- ----
Outstanding at end of pe-
riod..................... 2,330,129 7.54(2) 570,000 4.54
========= ==== ======= ====
Vested and exercisable at
end of period............ 414,913 6.13(2) 70,625 4.54
========= ==== ======= ====
</TABLE>
--------
(1) Of the total number of options granted to date, the option price with
respect to these options is the chello broadband initial public
offering ("IPO") price.
(2) Excluding the shares discussed in (1) above.
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------- -------------------
Weighted-Average
Remaining
Contractual Life
Exercise Price (Euros) Number (Years) Number
---------------------- --------- ---------------- -------------------
<S> <C> <C> <C>
4.54......................... 669,791 7.05 267,188
9.08......................... 1,304,838 9.56 144,074
--(1)........................ 355,500 9.96 3,651
--------- ---- -------
Total....................... 2,330,129 8.93 414,913
========= ==== =======
</TABLE>
--------
(1)Of the total number of options granted to date, the option price in
respect of these options is the IPO price.
The chello Phantom Plan is accounted for as a variable plan in accordance with
its terms, resulting in compensation expense for the difference between the
grant price and the fair market value at each financial statement date.
Compensation expense of (Euro) 69.8 ($70.3) million was recognized for the
year ended December 31, 1999. The Company's estimate of the fair value of its
ordinary stock as of December 31, 1999 utilized in recording compensation
expense and deferred compensation expense under the chello plan was
(Euro) 85.00 per share. Because the Company will account for the chello
Phantom Plan as a variable plan, compensation expense will continue to be
recognized subsequent to December 31, 1999. For each (Euro) 1 per share
increase in the estimate of the fair value per share of its ordinary stock as
of December 31, 1999, over the (Euro) 85.00 used to record stock compensation
expense as of December 31, 1999, additional stock compensation expense
totalling approximately (Euro)0.9 ($0.9) million would have been recognized in
the statement of operations and deferred compensation expense would have
increased by approximately that amount as of that date.
F-128
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
chello Stock option plan
In June 1999, the Company adopted a stock option plan (the "chello Plan").
Under the chello Plan, the Company's Supervisory Board may grant stock options
to the Company's employees at fair market value determined by the Company's
Supervisory Board at the time of grant. All options are exercisable upon grant
and for the period of five years. In order to introduce the element of
"vesting" of the options, the chello Plan provides that even though the
options are exercisable immediately, the shares to be issued or options to be
granted are deemed to vest 1/48th per month for a four-year period from date
to grant. If the employee's employment terminates, other than in case of
death, disability or the like, for so-called "urgent reason" under Dutch law
or for documented and material non-performance, all unvested options
previously exercised must be resold to the Company at the original purchase
price, and all vested options must be exercised, within 30 days of the
termination date. The Supervisory Board may alter these vesting schedules at
its discretion. The chello Plan provides that in case of change of control,
the Company has the right to require a foundation to acquire all of the
options outstanding at per share value determined in the transaction giving
rise to the change in its control.
For purposes of the pro forma disclosures presented below, the Company has
computed the fair value of all options granted during the year ended December
31, 1998 and the year ended December 31, 1999, using the Black-Scholes single-
option pricing model and the following weighted average assumptions: expected
dividend yield of 0%, expected annual standard volatility of 95%, risk-free
interest rate of 3.41% and expected life term of 5 years.
The total value of options granted under the chello Plan was nil for the year
ended December 31, 1998 and (Euro)3.7 ($3.7) million for the year ended
December 31, 1999. These pro forma amounts are amortized using the straight-
line method over the vesting period of the options. Cumulative compensation
expense recognized in pro forma net income, with respect to options that are
forfeited prior to vesting, is adjusted as a reduction of pro forma
compensation expense in the period of forfeiture. For the year ended December
31, 1998 and December 31, 1999, pro forma stock-based compensation, net of the
effect of forfeitures, was nil and (Euro)0.7 ($0.7) million, respectively.
This stock-based compensation had the following pro forma effect on net income
(in thousands):
<TABLE>
<CAPTION>
Net
Loss
-------
<S> <C>
As reported.......................................................... 778,123
-------
Pro forma............................................................ 777,392
=======
</TABLE>
13. Commitments
The Company has entered into various operating lease agreements for office
space, office furniture and equipment, and vehicles. Rental expense under
these lease agreements totaled $19.5, $3.4 and $0 million for the year ended
December 31, 1999, the ten months ended December 31, 1998 and for the year
ended February 28, 1998, respectively.
The Company has operating lease obligations and other non-cancelable
commitments as follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000....................................... 84,920
Year ended December 31, 2001....................................... 84,843
Year ended December 31, 2002....................................... 67,532
Year ended December 31, 2003....................................... 50,195
Year ended December 31, 2004 and thereafter........................ 190,008
--------
Total............................................................ $477,498
========
</TABLE>
F-129
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In September 1999, UPC agreed to form a joint venture with Microsoft
Corporation ("Microsoft") and Liberty Media Corporation ("Liberty"). UPC will
contribute the 5.6 million shares of Class A Common Stock of United that it
owns and the other parties will contribute 9.9 million shares of Class B
Common Stock of United. UPC will have a 50.0% interest in the new joint
venture and Liberty and Microsoft will share the other 50.0% and a $287.0
million redeemable preferred interest in the joint venture to balance out the
parties' ownership interests. UPC, together with Liberty and Microsoft, will
evaluate content and distribution opportunities in Europe. Formation of the
joint venture is still pending.
UPC has entered into an agreement for the long-term lease of satellite
transponder capacity providing service from Europe to Europe, North America
and South America. The term of the agreement is 156 months, with a minimum
aggregate total cost of approximately $114.0 million payable in monthly
installments based on capacity used.
@Entertainment has entered into long-term programming agreements and
agreements for the purchase of certain exhibition or broadcast rights with a
number of third-party content providers for its digital DTH and cable systems.
@Entertainment had minimum commitments related to these agreements as follows
(in thousands):
<TABLE>
<S> <C>
Year ended December 31, 2000.......................................... $ 55,600
Year ended December 31, 2001.......................................... 51,800
Year ended December 31, 2002.......................................... 48,100
Year ended December 31, 2003.......................................... 29,900
Year ended December 31, 2004 and thereafter........................... 28,600
--------
Total............................................................... $214,000
========
</TABLE>
As of December 31, 1999, @Entertainment had an aggregate minimum commitment
toward the purchase of DTH reception systems from Philips Business Electronics
B.V. of approximately $60.8 million over the next two years.
14. Contingencies
From time to time, the Company and/or its subsidiaries may become involved in
litigation relating to claims arising out of its operations in the normal
course of business. The Company is not a party to any material legal
proceedings, nor is it currently aware of any threatened material legal
proceedings.
15. Income Taxes
In general, a United States corporation may claim a foreign tax credit against
its federal income tax expense for foreign income taxes paid or accrued.
Because the Company must calculate its foreign tax credit separately for
dividends received from each foreign corporation in which the Company owns
10.0% to 50.0% of the voting stock, and because of certain other limitations,
the Company's ability to claim a foreign tax credit may be limited,
particularly with respect to dividends paid out of earnings subject to a high
rate of foreign income tax. Generally, the Company's ability to claim a
foreign tax credit is limited to the amount of U.S. taxes the Company pays
with respect to its foreign source income. In calculating its foreign source
income, the Company is required to allocate interest expense and overhead
incurred in the United States between its United States and foreign
activities. Accordingly, to the extent United States borrowings are used to
finance equity contributions to its foreign subsidiaries, the Company's
ability to claim a foreign tax credit may be significantly reduced. These
limitations and the inability of the Company to offset losses in one foreign
jurisdiction against income earned in another foreign jurisdiction could
result in a high effective tax rate on the Company's earnings.
F-130
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The primary differences between taxable income (loss) and net income (loss)
for financial reporting purposes relate to SAB 51 gains, international rate
differences and the non-consolidation of consolidated foreign subsidiaries for
United States tax purposes. For investments in foreign corporations accounted
for under the equity method, taxable income (loss) generated by these
affiliates does not flow through to the Company for United States federal and
state tax purposes, even though the Company records its allocable share of
affiliate income (losses) for financial reporting purposes. Accordingly, due
to the indefinite reversal of such amounts in future periods, no deferred tax
asset has been established for tax basis in excess of the Company's book basis
(approximately $19.3 and $30.0 million at December 31, 1999 and 1998,
respectively).
The Company's United States tax net operating losses, totaling approximately
$9.8 million at December 31, 1999, expire beginning in 2014 through 2029. The
Company's tax net operating loss carryforwards of its consolidated foreign
subsidiaries as of December 31, 1999 totaled $801.8 million. The significant
components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
As of As of
December 31, December 31,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
Deferred Tax Assets:
Tax net operating loss carryforward of
consolidated foreign subsidiaries............. $ 277,195 $ 72,504
Company's U.S. tax net operating loss
carryforward.................................. 3,732 3,266
Stock-based compensation....................... 36,113 7,215
Foreign currency translation adjustment........ 23,113 --
Accrued interest expense....................... 14,420 --
Other.......................................... 14,271 426
--------- --------
Total deferred tax assets.................... 368,844 83,411
Valuation allowance............................ (360,186) (74,983)
--------- --------
Deferred tax assets, net of valuation
allowance................................... 8,658 8,428
--------- --------
Deferred Tax Liabilities:
Intangible assets.............................. (18,681) (5,852)
Property, plant and equipment, net............. (6,038) (7,156)
Other.......................................... -- --
--------- --------
Total deferred tax liabilities............... (24,719) (13,008)
--------- --------
Deferred tax liabilities, net................ $ (16,061) $ (4,580)
========= ========
</TABLE>
F-131
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Of the Company's 1999 consolidated income (loss) before income taxes and other
items, $794.8 million is derived from the Company's foreign operations. The
difference between income tax expense (benefit) provided in the financial
statements and the expected income tax expense (benefit) at statutory rates is
reconciled as follows:
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Expected income tax expense
(benefit) at the U.S. statutory
rate of 35%....................... $ 161,782 $(83,638) $(4,061)
Tax effect of permanent and other
differences:
Change in valuation allowance.... 256,282 40,561 4,409
Gain on issuance of common equity
securities by subsidiary........ (478,981) -- --
Non-deductible expenses.......... 68,400 49,382 --
Capitalized costs................ (49,402) -- --
International rate differences... 26,431 1,474 --
State tax, net of federal
benefit......................... 13,867 (7,169) (348)
Other............................ (272) -- --
--------- -------- -------
Total income tax (benefit)
expense....................... $ (1,893) $ 610 $ --
========= ======== =======
</TABLE>
During 1996, the Austrian tax authorities passed legislation which had the
effect of eliminating approximately NLG256.0 ($116.9) million of tax basis
associated with certain amounts of goodwill recorded at Telekabel Group
effective January 1, 1997. This change in tax law is expected to be challenged
on constitutional grounds. However, there can be no assurance of a successful
repeal of such legislation. Accordingly, this change caused Telekabel Group's
effective tax rate to increase from the historical effective tax rate through
December 31, 1996, due to the non-deductibility of such goodwill amortization
subsequent to January 1, 1997.
The Company through its subsidiaries maintains a presence in 23 countries.
Many of these countries maintain tax regimes that differ significantly from
the system of income taxation used in the United States, such as a value added
tax system. The Company has accounted for the effect of foreign taxes based on
what it believes is reasonably expected to apply to the Company and its
subsidiaries based on tax laws currently in effect and/or reasonable
interpretations of these laws. Because some foreign jurisdictions do not have
systems of taxation that are as well established as the system of income
taxation used in the United States or tax regimes used in other major
industrialized countries, it may be difficult to anticipate how foreign
jurisdictions will tax current and future operations of the Company and its
subsidiaries.
F-132
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Segment Information
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999 As of December 31, 1999
----------------------------------------------------------------- ----------------------------------
Long-
Multichannel Internet Lived Capital Total
Television Telephone Programming Data Other Total Assets(2) Expenditures Assets
------------ --------- ----------- -------- -------- --------- ---------- ------------ ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Europe:
The Netherlands... $117,026 $ 32,029 $ 1,112 $ 8,616 $ 330 $ 159,113 $ 774,045 $247,050 $3,550,612
Austria........... 83,737 7,321 -- 13,609 -- 104,667 179,652 94,240 356,337
Belgium........... 15,737 -- -- 2,497 -- 18,234 23,186 8,447 47,826
Czech Republic.... 7,485 181 -- -- 1,042 8,708 80,347 2,491 159,806
France............ 27,522 2,710 -- 590 -- 30,822 319,454 70,666 498,776
Hungary........... 35,197 -- -- 125 -- 35,322 112,698 38,708 215,448
Norway............ 49,186 365 -- 565 -- 50,116 100,315 57,106 244,975
Poland............ 26,845 -- 10,917 -- -- 37,762 218,784 42,460 1,218,956
Sweden............ 13,335 -- -- 504 -- 13,839 48,182 12,495 474,899
Corporate and
other............ 8,327 -- -- -- 6,512 14,839 63,698 38,569 77,219
-------- -------- -------- -------- -------- --------- ---------- -------- ----------
Total Europe..... $384,397 $ 42,606 $ 12,029 $ 26,506 $ 7,884 $ 473,422 $1,920,361 $612,232 $6,844,854
======== ======== ======== ======== ======== ========= ========== ======== ==========
Adjusted EBITDA:(1)
Europe:
The Netherlands... $ 48,185 $(19,900) $(16,705) $(66,569) $(41,350) $ (96,339)
Austria........... 44,945 (11,470) -- 234 -- 33,709
Belgium........... 3,954 (54) -- (2,212) -- 1,688
Czech Republic.... (1,129) 54 -- -- 407 (668)
France............ (1,766) (5,946) -- (2,373) (67) (10,152)
Hungary........... 11,739 -- -- (261) -- 11,478
Norway............ 20,740 (7,153) -- (5,178) -- 8,409
Poland............ (9,363) -- (64,791) -- (3,018) (77,172)
Sweden............ 4,582 (135) -- (4,095) -- 352
Corporate and
other............ 2,123 (206) -- (725) (41) 1,151
-------- -------- -------- -------- -------- ---------
Total Europe..... $124,010 $(44,810) $(81,496) $(81,179) $(44,069) $(127,544)
======== ======== ======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
For the Ten Months Ended December 31, 1998 As of December 31, 1998
-------------------------------------------------------------- ---------------------------------
Long-
Multichannel Internet Lived Capital Total
Television Telephone Programming Data Other Total Assets(2) Expenditures Assets
------------ --------- ----------- -------- ------- -------- --------- ------------ ----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Europe:
The Netherlands....... $ 13,854 $ 162 $ -- $ -- $ 7,274 $ 21,290 $ 2,440 $ 14,734 $ 297,068
Austria............... 71,396 61 -- 3,172 -- 74,629 140,550 43,278 341,159
Belgium............... 13,768 -- -- 656 1,071 15,495 27,558 11,253 57,847
Czech Republic........ 3,754 -- -- -- -- 3,754 8,737 523 11,497
France................ 3,395 -- -- -- -- 3,395 40,328 28,802 51,092
Hungary............... 11,671 -- -- -- -- 11,671 26,788 7,239 86,921
Norway................ 38,879 -- -- 161 -- 39,040 63,335 25,838 219,068
Corporate and Other... 2,446 -- 567 -- -- 3,013 9,310 9,880 22,744
-------- ------- ------- ------- ------- -------- -------- -------- ----------
Total Europe......... $159,163 $ 223 $ 567 $ 3,989 $ 8,345 $172,287 $319,046 $141,547 $1,087,396
======== ======= ======= ======= ======= ======== ======== ======== ==========
Adjusted EBITDA:(1)
Europe:
The Netherlands....... $ 8,445 $(1,303) $ (295) $(6,103) $(4,401) $ (3,657)
Austria............... 34,350 (1,636) -- (1,739) -- 30,975
Belgium............... 5,755 -- -- (799) 114 5,070
Czech Republic........ (721) -- -- -- -- (721)
France................ (954) (911) -- (77) -- (1,942)
Hungary............... 3,820 -- -- -- -- 3,820
Norway................ 14,015 (573) -- (806) -- 12,636
Corporate and Other... (167) -- (3,556) 19 131 (3,573)
-------- ------- ------- ------- ------- --------
Total Europe......... $ 64,543 $(4,423) $(3,851) $(9,505) $(4,156) $ 42,608
======== ======= ======= ======= ======= ========
</TABLE>
F-133
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
For the Year Ended February 28, 1998 As of February 28, 1998
--------------------------------------------------------- -------------------------------
Long-
Multichannel Internet Lived Capital Total
Television Telephone Programming Data Other Total Assets(2) Expenditures Assets
------------ --------- ----------- -------- ----- ------- --------- ------------ --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Europe:
The Netherlands........ $ -- $-- $-- $-- $-- $ -- $ 20,773 $ -- $308,907
Austria................ -- -- -- -- -- -- 115,786 -- 323,298
Belgium................ -- -- -- -- -- -- 24,526 -- 49,204
Norway................. -- -- -- -- -- -- 51,369 -- 215,517
Corporate and other.... 9,945 -- -- -- -- 9,945 26,998 7,461 53,007
------- ---- ---- ---- ---- ------- -------- ------ --------
Total Europe.......... $ 9,945 $-- $-- $-- $-- $ 9,945 $239,452 $7,461 $949,933
======= ==== ==== ==== ==== ======= ======== ====== ========
Adjusted EBITDA:(1)
Europe:
The Netherlands........ $ -- $-- $-- $-- $-- $ --
Austria................ -- -- -- -- -- --
Belgium................ -- -- -- -- -- --
Norway................. -- -- -- -- -- --
Corporate and other.... (3,547) -- -- -- -- (3,547)
------- ---- ---- ---- ---- -------
Total Europe.......... $(3,547) $-- $-- $-- $-- $(3,547)
======= ==== ==== ==== ==== =======
</TABLE>
- --------
(1) Adjusted EBITDA represents earnings before depreciation, amortization and
stock based compensation charges. Industry analysts generally consider
Adjusted EBITDA to be a helpful way to measure the performance of cable
television operations and communications companies. Management believes
Adjusted EBITDA helps investors to assess the cash flow from operations
from period to period and thus to value the Company's business. Adjusted
EBITDA should not, however, be considered a replacement for net income,
cash flows or for any other measure of performance or liquidity under
generally accepted accounting principles, or as an indicator of a
company's operating performance. The presentation of Adjusted EBITDA may
not be comparable to statistics with a similar name reported by other
companies. Not all companies and analysts calculate Adjusted EBITDA in the
same manner.
(2) Represents Property, Plant and Equipment.
Adjusted EBITDA reconciles to the consolidated statement of operations as
follows:
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Ended Months Ended Ended
December 31, December 31, February 28,
1999 1998 1998
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Net operating loss................... $(610,213) $(196,066) $(9,633)
Depreciation and amortization........ 280,442 76,550 6,086
Stock-based compensation expense..... 202,227 162,124 --
--------- --------- -------
Consolidated Adjusted EBITDA....... $(127,544) $ 42,608 $(3,547)
========= ========= =======
</TABLE>
17. Related Party Transactions
Loans to Employees
In 1996, UPC loaned certain employees of UPC amounts for the exercise of the
employees' stock options, taxes on options exercised, or both. These recourse
loans bear interest at 5.0% per annum. The employees' liability to UPC is
presented in the consolidated financial statements net of UPC's obligation to
the employees under the
F-134
<PAGE>
UNITED EUROPE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
plan. As of December 31, 1999 and 1998, the receivable from employees,
including accrued interest totaled $12.2 and $10.1 million, respectively.
Acquisitions of Interest in Princes Holdings and Tara
In November 1998, UPC purchased from RCL, an entity owned by a discretionary
trust for the benefit of certain members of the family of John Riordan, a
director of United, a 5.0% interest in Tara and a 5.0% interest in Princes
Holdings. The aggregate purchase price for these interests was approximately
$6.0 million. The parties agreed the purchase price would be paid in cash.
Subsequently, RCL elected to receive shares of Class A Common Stock of United.
The Company paid such purchase price by delivery to RCL 769,062 restricted
shares of Class A Common Stock held by UPC.
18. Subsequent Events
UPC Senior Notes and Senior Discount Notes
In January 2000, UPC completed a $1.6 billion bond offering consisting of
$600.0 million and (Euro) 200.0 million of ten-year 11.25% Senior Notes due
2010, $300.0 million of ten-year 11.5% Senior Notes due 2010 and $1.0 billion
aggregate principal amount of ten-year 13.75% Senior Discount Notes due 2010.
The Senior Discount Notes were sold at 51.2% of the face amount yielding gross
proceeds of $512.0 million and will accrue but not pay interest until 2005.
Acquisition of Intercomm France Holding S.A.
In February 2000, UPC acquired Intercomm France Holding S.A. for (Euro) 36.0
($36.2) million in cash and shares in UPC France. Following the transaction,
UPC controls 92.0% of UPC France.
Acquisition of Tebecai Cable System
In February 2000, UPC acquired 100% of Tebecai, a cable system based in the
east of Holland, for (Euro) 71.2 ($71.6) million.
UPC Stock Split
In March 2000, at an extraordinary general meeting of shareholders,
shareholders of UPC approved an amendment to UPC's Articles of Association to
effect a three-for-one stock split. All share and per share amounts in the
accompanying notes to the consolidated financial statements have been adjusted
to reflect this stock split.
Acquisition of ElTele Ostfold and Vestfold
In March 2000, UPC acquired 100% of the equity of ElTele Ostfold and Vestfold
from certain energy companies in Norway for (Euro) 39.7 ($39.9) million.
Acquisition of Additional Interest in SBS
In February 2000, UPC acquired and additional 10.2% of SBS for (Euro) 162.5
($163.5) million, increasing its ownership to 23.5%.
Acquisition of ENECO Cable System
In March 2000, UPC acquired K&T Group, the cable interests of N.V. ENECO, for
consideration of (Euro) 1.2 ($1.2) billion. K&T owns and operates cable
networks in Rotterdam, Dordrecht and the surrounding municipalities in The
Netherlands.
F-135
<PAGE>
INDEPENDENT AUDITORS' REPORT
Introduction
We have audited the consolidated financial statements of UNITED TELEKABEL
HOLDING N.V., Amsterdam, The Netherlands, for the year 1998 for purpose of
inclusion in the Form 10-K of one of its shareholders. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
Scope
We conducted our audit in accordance with auditing standards generally
accepted in The Netherlands, which are substantially the same as those
generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair
view of the financial position of the company as at December 31, 1998 and of
the result for the period from commencement of operations at August 6, 1998
then ended in accordance with accounting principles generally accepted in The
Netherlands.
Generally accepted accounting principles in The Netherlands vary in certain
significant respects from generally accepted accounting principles in the
United States of America. Application of generally accepted accounting
principles in the United States of America would have affected total assets,
statement of operations and shareholders' equity as at and for the period from
commencement of operations at August 6, 1998 ended December 31, 1998, to the
extent summarized in Note 18. to the consolidated financial statements.
Arthur Andersen
Amstelveen, The Netherlands,
March 19, 1999
F-136
<PAGE>
UNITED TELEKABEL HOLDING N.V.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
<TABLE>
<S> <C>
ASSETS
Fixed assets:
Intangible fixed assets............................................. 564,438
Tangible fixed assets............................................... 847,056
Affiliated companies................................................ 206,332
---------
Total fixed assets................................................ 1,617,826
---------
Current assets:
Inventories......................................................... 3,091
Receivables......................................................... 40,638
Cash and cash equivalents........................................... 10,475
---------
Total current assets.............................................. 54,204
---------
Total assets...................................................... 1,672,030
=========
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' Equity.................................................. 635,521
Minority interest..................................................... 1,104
---------
636,625
Provisions............................................................ 42,054
Long-term liabilities................................................. 232,727
Current liabilities................................................... 760,624
---------
Total shareholders' equity and liabilities........................ 1,672,030
=========
</TABLE>
F-137
<PAGE>
UNITED TELEKABEL HOLDING N.V.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
<TABLE>
<S> <C>
Total revenues........................................................ 99,122
--------
Operating expenses:
Direct operating expenses........................................... (33,172)
Selling, general and administrative expenses........................ (36,096)
Depreciation and amortization....................................... (39,490)
--------
Total operating expenses.......................................... (108,758)
--------
Operating loss...................................................... (9,636)
Financial income and expense........................................ (16,699)
--------
Loss before income taxes.......................................... (26,335)
Income taxes........................................................ 1,212
--------
Loss after taxes.................................................. (25,123)
Share in results of affiliated companies............................ (24,486)
--------
Group loss........................................................ (49,609)
Minority interest................................................... 235
--------
Net loss.......................................................... (49,374)
========
</TABLE>
F-138
<PAGE>
UNITED TELEKABEL HOLDING N.V.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss............................................................ (49,374)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Depreciation and amortization..................................... 39,490
Share in results of affiliated companies, net..................... 24,486
Minority interest in subsidiaries................................. (235)
Changes in assets and liabilities:
Decrease in current assets........................................ 40,098
(Decrease) in current liabilities................................. (55,186)
(Decrease) in deferred taxes and other provisions................. (1,132)
--------
Net cash flows from operating activities........................ (1,853)
--------
Cash flows from investing activities:
Capital expenditures.............................................. (121,384)
Loan to affiliated companies...................................... (7,120)
Acquisitions, net of cash acquired................................ (12,588)
--------
Net cash flows from investing activities........................ (141,092)
--------
Cash flows from financing activities:
Proceeds from short-term borrowings............................... 120,705
Proceeds from long-term borrowings................................ 9,621
--------
Net cash flows from financing activities........................ 130,326
--------
Net decrease in cash and cash equivalents........................... (12,619)
Cash and cash equivalents at beginning of period.................... 100
Cash and cash equivalents contributed............................... 22,994
--------
Cash and cash equivalents at end of period...................... 10,475
========
Supplemental cash-flow disclosures:
Cash paid for interest............................................ (19,470)
========
Non-cash investing activities:
Contribution of Dutch cable systems
Working capital................................................... (73,850)
Affiliated companies.............................................. 223,698
Tangible fixed assets............................................. 764,762
Intangible fixed assets........................................... 550,911
Short-term debt................................................... (544,918)
Long-term liabilities............................................. (223,106)
Provisions........................................................ (35,696)
Cash and cash equivalents......................................... 22,994
--------
Equity contributed.............................................. 684,795
========
</TABLE>
F-139
<PAGE>
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
1. Organization and Nature of Operations
United Telekabel Holding N.V. ("UTH" or the "Company"), legally seated in
Almere, The Netherlands, was legally formed in May 1998 and commenced
operations on August 6, 1998. UTH was formed as a joint venture between United
Pan-Europe Communications N.V. ("UPC") and N.V. NUON Energie-Onderneming voor
Gelderland, Friesland en Flevoland ("NUON"). UPC became a 51% shareholder and
NUON a 49% shareholder. UTH was formed for the purpose of offering cable-based
communications through its networks in the Netherlands. UTH currently offers
cable television services and is further developing and upgrading its network
to provide digital video, voice and internet/data services in its Dutch
markets.
UTH commenced operations on August 6, 1998 when both shareholders
contributed their interests in Dutch cable television operating companies to
UTH. NUON contributed its interest in N.V. Telekabel Beheer ("Telekabel") and
UPC contributed its interest in Cable Network Brabant Holding B.V. ("CNBH")
and 50% of the shares in A2000 Holding N.V. ("A2000"). UTH recorded the assets
contributed at their fair market value. The table below summarizes the opening
balance sheet of UTH, based on the net assets contributed at their fair market
values by NUON and UPC as of August 6, 1998.
<TABLE>
<S> <C>
Cash and cash equivalents contributed.............................. 23,094
Other current assets............................................... 83,827
Affiliated companies............................................... 223,698
Tangible fixed assets.............................................. 764,762
Intangible fixed assets............................................ 550,911
---------
Total assets..................................................... 1,646,292
=========
Short-term debt.................................................... 544,918
Other current liabilities.......................................... 157,677
Provisions......................................................... 35,696
Long-term liabilities.............................................. 223,106
Shareholders' equity............................................... 684,895
---------
Total shareholders' equity and liabilities....................... 1,646,292
=========
</TABLE>
Due to the fact that operations commenced at August 6, 1998, no comparative
financial statements have been presented. Proforma information (unaudited) is
presented in note 19.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the Netherlands
for financial statements. The accounting policies followed in the preparation
for the consolidated financial statements, differ in some respects to those
generally accepted in the United States of America (US GAAP). See note 18.
The preparation of financial statements in conformity with Dutch generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported
F-140
<PAGE>
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. In the opinion of management, all
adjustments (consisting of normal recurring accruals) have been made which are
necessary to present fairly the financial position of the Company as of
December 31, 1998 and the results of its operations for the period from
commencement of operations (August 6, 1998) to December 31, 1998.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
UTH and its group companies (the "UTH Group"). Group companies are companies
or other legal entities in which UTH has an ownership interest of more than
50% of the issued share capital or that UTH otherwise controls. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The following chart presents a summary of UTH's significant investments in
multi-channel television, programming and telephony operations as of December
31, 1998:
<TABLE>
<CAPTION>
Percentage
Name City Ownership
---- ---- ----------
<S> <C> <C>
Cable Network Brabant Holding B.V. ..................... Eindhoven 100
N.V. Telekabel Beheer................................... Arnhem 100
A2000 Holding N.V. ..................................... Amsterdam 50(1)
Uniport Communications B.V.............................. 80
</TABLE>
--------
(1) Not consolidated
Foreign Currencies
Assets and liabilities denominated in foreign currencies are translated into
Dutch guilders at the year-end exchange rate. Transactions in foreign
currencies are translated at the exchange rate in effect at the time of the
transaction. The exchange results are recorded under financial income and
expense in the statement of income.
Balance Sheet
(a) General
Assets and liabilities are stated at face value unless indicated otherwise.
(b) Fixed assets
Intangible fixed assets
The excess of investments in consolidated subsidiaries over the net tangible
asset value at acquisition is amortized on a straight-line basis over 15
years. Licenses in newly acquired companies are recognized at the fair market
value of those licenses at the date of acquisition and include the development
costs incurred prior to the date a new license was acquired. The license value
is amortized on a straight-line basis over the initial license period, up to a
maximum of 20 years. Deferred financing costs are amounts spent in connection
with financing the UTH Group. The amortization period is the period relating
to the term of the financing. When assets are fully amortized, the costs and
accumulated amortization are removed from the accounts.
F-141
<PAGE>
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
Tangible fixed assets
Tangible fixed assets are stated at cost. Additions, replacements,
installation costs and major improvements are capitalized, and costs for
normal repair and maintenance of tangible fixed assets are charged to expense
as incurred. Assets constructed by subsidiaries of UTH incorporate overhead
expense and interest charges incurred during the period of construction;
investment subsidies are deducted. Depreciation is calculated using the
straight-line method over the economic life of the asset, taking into account
the residual value. The economic lives of tangible fixed assets at acquisition
are as follows:
<TABLE>
<S> <C>
Networks......................................................... 7-20 years
Buildings and leasehold improvements............................. 20-33 years
Machinery & Other................................................ 3-10 years
</TABLE>
Affiliated Companies
For those investments in companies in which UTH's ownership interest is 20%
to 50%, its investments are held through a combination of voting common stock,
preferred stock, debentures or convertible debt and/or UTH exerts significant
influence through board representation and management authority, or in which
majority control is deemed to be temporary, the equity method of accounting is
used. Under this method, the investment, originally recorded at fair market
value, is adjusted to recognize UTH's proportionate share of net earnings or
losses of the affiliates, limited to the extent of UTH's investment in and
advances to the affiliates, including any debt guarantees or other contractual
funding commitments. UTH's proportionate share of net earnings or losses of
affiliates includes the amortization of the excess of its cost over its
proportionate interest in each affiliate's net tangible assets or the excess
of its proportionate interest in each affiliate's net tangible assets in
excess of its cost.
(c) Receivables
Receivables are stated at face value, less an allowance for doubtfull
accounts. The allowance for doubtful accounts is based upon specific
identification of overdue accounts receivable. An allowance for a percentage
of the account is established once the receivable is overdue. Upon
disconnection of the subscriber, the account is fully reserved. The allowance
is maintained on the books until receipt of payment or for a maximum of three
years.
(d) Cash and Cash Equivalents
Cash and cash equivalents include cash and investments with original
maturities of less than three months.
(e) Provisions
Deferred tax liabilities arising from temporary differences between the
financial and tax bases of assets and liabilities are included in the
provisions. The principal differences arise in connection with valuation
differences of intangible fixed assets. In calculating the provision, current
tax rates are applied.
UTH accounts for income taxes under the asset and liability method, which
requires recognition of, deferred tax assets and liabilities for the expected
future income tax consequences of transactions, which have been included in
the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are
F-142
<PAGE>
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
determined based on the difference between the financial statement and income
tax basis of assets, liabilities and loss carry forwards using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Net deferred tax assets are then reduced by a valuation allowance if
management believes it is more likely than not they will not be realized.
(f) Fair value of financial instruments
SFAS Statement No. 107, "Disclosures about Fair Values of Financial
Instruments" requires the disclosure of estimated fair values for all
financial instruments, both on and off balance sheet, for which it is
practicable to estimate fair value. For certain instruments, including cash
and cash equivalents, receivables, current liabilities and certain provisions,
it was assumed that the carrying amount approximated fair value due to the
short maturity of those instruments. For short and long term debt, the
carrying value approximates the fair value since all debt instruments carry a
variable interest rate component except for the convertible loans which
carried a fixed interest rate. For investments in affiliated companies carried
at cost, quoted market prices for the same or similar financial instruments
were used to estimate the fair values. UTH has adopted the principles of this
statement in its financial statements. UTH did not have any material off
balance sheet financial instruments as of December 31, 1998.
(g) Recoverability of Tangible and Intangible fixed assets
UTH evaluates the carrying value of all tangible and intangible assets
whenever events or circumstances indicate the carrying value of assets may
exceed their recoverable amounts. An impairment loss is recognized when the
estimated future cash flows (undiscounted and without interest) expected to
result from the use of an asset are less than the carrying amount of the
asset. Measurement of an impairment loss is based on the fair value of the
asset computed using discounted cash flows if the asset is expected to be held
and used. Measurement of an impairment loss for an asset held for sale would
be based on fair market value less estimated costs to sell.
(h) Concentration of Credit Risk
Financial instruments which potentially subject UTH to concentrations of
credit risk consist principally of trade receivables. Concentrations of credit
risk with respect to trade receivables are limited due to UTH's large number
of customers.
(i) Other Comprehensive Income
UTH has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which requires that an
enterprise (i) classify items of other comprehensive income by their nature in
a financial statement and (ii) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. As of
December 31, 1998, UTH had no other comprehensive income items.
Income Statement
Revenue is primarily derived from the sale of cable television services to
subscribers and is recognized in the period the related services are provided.
Initial installation fees are recognized as revenue in the period in which the
installation occurs, to the extent installation fees are equal to or less than
direct selling costs, which are expensed. To the extent installation fees
exceed direct selling costs, the excess fees are deferred and amortized over
the average contract period. All installation fees and related costs with
respect to reconnections and disconnections are recognized in the period in
which the reconnection or disconnection occurs.
F-143
<PAGE>
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
New Accounting Principles
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting For the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), which provides guidance
on accounting for the costs of computer software developed or obtained for
internal use. SOP 98-1 identifies the characteristics of internal-use software
and provides examples to assist in determining when computer software is for
internal use. SOP 98-1 is effective for financial statements for fiscal years
beginning after December 15, 1998, for projects in progress and prospectively,
with earlier application encouraged. Management believes that the adoption of
SOP 98-1 will not have a material effect on the financial statements.
The American Institute of Certified Public Accountants recently issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), which is required to be adopted by affected companies for fiscal
years beginning after December 15, 1998. SOP 98-5 defines start-up and
organization costs, which must be expensed as incurred. In addition, all
deferred start-up and organization costs existing as of January 1, 1999 must
be written-off and accounted for as a cumulative effect of an accounting
change. Management believes that the adoption of SOP 98-1 will not have a
material effect on the financial statements.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. Management is currently assessing the
effect of this new standard.
3. Intangible fixed assets
<TABLE>
<CAPTION>
Balance as of December 31, 1998
---------------------------------------
Licenses Deferred
and Financing
Total Goodwill Costs
----------- ----------- ------------
<S> <C> <C> <C>
Value upon contribution............ 550,911 547,869 3,042
Investment......................... 30,996 29,745 1,251
Amortization....................... (17,469) (17,149) (320)
----------- ----------- ---------
Book value as of December 31,
1998.............................. 564,438 560,465 3,973
=========== =========== =========
<CAPTION>
Balance as of December 31, 1998
-------------------------------------------
Licenses Deferred
and Financing
Total Goodwill Costs
----------- ----------- ------------
<S> <C> <C> <C>
Gross Value........................ 581,907 577,614 4,293
Amortization....................... (17,469) (17,149) (320)
----------- ----------- ---------
Book value as of December 31,
1998.............................. 564,438 560,465 3,973
=========== =========== =========
</TABLE>
F-144
<PAGE>
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
4. Tangible fixed assets
<TABLE>
<CAPTION>
Balance as of December 31, 1998
-------------------------------------
Land and Machinery
Total Buildings Network & Other
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Value upon contribution............... 764,762 6,025 745,503 13,234
Additions............................. 104,315 130 102,023 2,162
Depreciation.......................... (22,021) (182) (20,005) (1,834)
------- ----- ------- ------
Book value as of December 31, 1998.... 847,056 5,973 827,521 13,562
======= ===== ======= ======
</TABLE>
<TABLE>
<CAPTION>
Balance as of December 31, 1998
-------------------------------------
Land and Machinery
Total Buildings Network & Other
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Cost.................................. 869,077 6,155 847,526 15,396
Depreciation.......................... (22,021) (182) (20,005) (1,834)
------- ----- ------- ------
Book value as of December 31, 1998.... 847,056 5,973 827,521 13,562
======= ===== ======= ======
</TABLE>
5. Affiliated companies
<TABLE>
<CAPTION>
Balance as of December 31, 1998
--------------------------------------
Total Investments Advances
----------- ------------- ----------
<S> <C> <C> <C>
Balance upon contribution............ 223,698 223,698 --
Additions............................ 7,120 -- 7,120
Share in results..................... (24,486) (24,486) --
----------- ----------- ---------
Balance as of December 31, 1998...... 206,332 199,212 7,120
=========== =========== =========
</TABLE>
The investments in affiliated companies as of December 31, 1998 are:
<TABLE>
<CAPTION>
Investments in Cumulative Share
% and Advances to In Results of
Ownership Affiliated Companies Affiliated Companies Total
--------- -------------------- -------------------- -------
<S> <C> <C> <C> <C>
A2000........... 50.0% 229,481 (24,449) 205,032
Interway........ 33.0% 1,337 (37) 1,300
------- ------- -------
Total........... 230,818 (24,486) 206,332
======= ======= =======
</TABLE>
UTH had the following differences related to the excess of cost over the net
tangible assets acquired for its equity investments. Such differences are being
amortized over 12 to 15 years:
<TABLE>
<CAPTION>
Basis Accumulated
Difference Amortization
---------- ------------
<S> <C> <C>
A2000................................................ 249,236 (8,200)
======= ======
</TABLE>
These differences have been presented as affiliated companies and share in
result of affiliated companies respectively.
Subsequent to year end, UPC provided a letter of support to A2000 stating
that it would continue to provide to A2000 the funding necessary to continue
operations through at least 1999.
F-145
<PAGE>
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
Summary financial information for A2000 based on Dutch generally accepted
accounting principles is as follows:
Balance Sheet
<TABLE>
<CAPTION>
As of December 31,
1998
------------------
<S> <C>
Intangible fixed assets................................... 113,361
Tangible fixed assets..................................... 356,623
Financial fixed assets.................................... 770
Liquid assets............................................. 369
Other current assets...................................... 37,482
-------
Total assets............................................ 508,605
=======
Provisions................................................ 1,610
Long-term debt............................................ 467,430
Current liabilities....................................... 125,813
-------
Total liabilities....................................... 594,853
-------
Total shareholders' value............................... (86,248)
=======
</TABLE>
Statement of income
<TABLE>
<CAPTION>
For the Five Months
Ended December 31,
1998
-------------------
<S> <C>
Revenue.................................................. 53,954
Costs.................................................... (39,271)
Depreciation and amortization............................ (35,888)
Financial income/charges................................. (11,293)
-------
Net loss............................................... (32,498)
=======
</TABLE>
6. Receivables
Receivables as presented under current assets mature within one year and are
specified as follows:
<TABLE>
<S> <C>
Trade accounts receivable............................................. 22,519
Receivables from affiliated companies................................. 1,654
Prepaid expenses and accrued income................................... 1,447
Other receivables..................................................... 15,018
------
Total................................................................. 40,638
======
</TABLE>
A major item under "other receivables" is current reclaimable VAT 3,676. As
of December 31, 1998 the valuation allowance on trade receivables amounted to
538.
7. Cash and cash equivalents
Cash and cash equivalents include demand accounts held in a bank with a
maturity of less than three months.
F-146
<PAGE>
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
8. Shareholders' Equity
UTH's issued share capital consists of 100,000 shares with a par value of
NLG 1 each. All issued shares are fully paid-in.
<TABLE>
<CAPTION>
Bank Loans
----------
<S> <C>
1999.............................................................. 3,220
2000.............................................................. 2,353
2001.............................................................. 8,404
2002.............................................................. 16,948
2003.............................................................. 30,104
Thereafter........................................................ 174,918
-------
Total........................................................... 235,947
=======
</TABLE>
9. Provisions
Provisions relate mainly to deferred taxation.
10. Long-term liabilities
<TABLE>
<CAPTION>
Amount
Average Outstanding
Range of Rate of December 31,
Interest Interest 1998
-------- -------- ------------
<S> <C> <C> <C>
Bank loans.................................... 5-7.625% 5.2 235,947
</TABLE>
Long-term liabilities at December 31, 1998 will be payable as follows:
<TABLE>
<CAPTION>
Bank Loans
----------
<S> <C>
1999.............................................................. 3,220
2000.............................................................. 2,353
2001.............................................................. 8,404
2002.............................................................. 16,948
2003.............................................................. 30,104
Thereafter........................................................ 174,918
-------
Total........................................................... 235,947
=======
</TABLE>
On February 20, 1998 CNBH secured a 250,000 nine-year term facility, which
was amended in August 1998 to 266,000. The CNBH facility bears interest at the
applicable Amsterdam Interbank Offered Rate ("AIBOR") plus a margin ranging
from 0.60% to 1.60% per annum, and is secured by, among other things, an
encumbrance over CNBH's assets and a pledge of the shares of CNBH. The
facility is used to refinance several acquisitions and will furthermore be
used for the development and exploitation of enhanced cable TV services, data
services and telephony services. As of December 31, 1998, 219,000 was
outstanding on the facility.
The shares of UTH held by UPC are pledged for a certain loan of UPC.
F-147
<PAGE>
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
11. Current Liabilities
The current liabilities relate to short-term debt and other liabilities
which are specified below:
(a)Short-term debt
<TABLE>
<S> <C>
Long-term debt repayable within one year............................. 3,220
Short-term debt to shareholders...................................... 662,403
-------
Total................................................................ 665,623
=======
</TABLE>
Short term debt to shareholders as of December 31, 1998
NUON's contribution to UTH included an existing 690,000-debt facility with
an outstanding balance of approximately 543,000 (as of August 6, 1998). This
facility bears an interest rate of 6.65% over the reporting period up to
November 30, 1998. As of November 30, 1998 this rate was increased with 1.5%.
As of December 31, 1998, approximately 614,000 was outstanding on the
facility. The debt facility is due March 15, 1999, with an extension period of
15 days. As security for repayment of the debt facility, NUON received a
pledge over the shares of N.V. Telekabel Beheer (the assets contributed by
NUON). UTH has negotiated with the lenders to refinance the debt facility (see
Note 20.).
Subordinated loans
UTH entered into a subordinated loan agreement with NUON in December 1998
for an amount of NLG 33.0 million. The interest payable is 5.5% on an annually
basis. This subordinated loan was entered into for purposes of continuing
funding of incurred losses and capital expenditures. UTH entered into a
subordinated loan agreement with UPC in December 1998 for an amount of NLG
15.2 million. The interest payable is 5.5% on an annually basis. This
subordinated loan was entered into for purposes of continuing funding of
incurred losses and capital expenditures.
(b)Other Liabilities
<TABLE>
<S> <C>
Accounts payable to trade creditors.................................. 47,459
Deposits by customers................................................ 197
Other short-term liabilities......................................... 39,855
Deferred income and accrued expenses................................. 7,490
-------
Total................................................................ 95,001
-------
Total current liabilities............................................ 760,624
=======
</TABLE>
12. Information per geographical area
All operations of UTH are in The Netherlands. In addition, substantially all
operations relate to cable television services.
13. Personnel
Labor cost is specified as follows:
<TABLE>
<S> <C>
Salaries and wages.................................................... 9,173
Pension costs......................................................... 538
Social securities..................................................... 1,911
------
Total............................................................... 11,622
======
</TABLE>
F-148
<PAGE>
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
The information about employees by category is as follows:
<TABLE>
<S> <C>
Operating................................................................ 160
Other.................................................................... 184
---
Total.................................................................. 344
===
</TABLE>
14. Financial income and expenses
<TABLE>
<S> <C>
Interest income..................................................... 14
Interest expense.................................................... (16,713)
-------
Total............................................................. (16,699)
=======
</TABLE>
Under interest expense an amount of 11,348 was accounted for as interest
related parties.
15. Income taxes
In general, a Dutch holding company may benefit from the so-called
participation exemption. The participation exemption is a facility in Dutch
corporate tax law which under certain conditions allows a Dutch company to
exempt any dividend income and capital gains in relation with its
participation in subsidiaries. Capital losses are also exempt, apart from
liquidation losses (under stringent conditions).
For UTH the primary difference between taxable loss and net loss for
financial reporting purposes relates to the amortization of goodwill. The
consolidated financial statements have been prepared assuming partial tax
basis for license fees capitalized relating to certain acquisitions. Deferred
taxes have been provided for that portion of the licenses which management
believes no tax basis will be allowed.
The difference between income tax expense provided in the financial
statements and the expected income tax benefit at statutory rates is
reconciled as follows:
<TABLE>
<S> <C>
Expected income tax benefit at the Dutch statutory rate of 35%....... (9,217)
Tax effect of permanent and other differences:
Change in valuation allowance...................................... 6,541
Non-deductible expenses............................................ 1,464
------
Total income tax benefit......................................... (1,212)
======
</TABLE>
The significant components of the net deferred tax liability are as follows:
<TABLE>
<S> <C>
Deferred Tax Assets:
Tax net operating loss carried forward................................. 20,112
Valuation allowance.................................................... (20,112)
-------
Deferred tax assets, net of valuation allowance...................... 0
-------
Deferred Tax Liabilities:
Intangible assets...................................................... 33,438
Tangible fixed assets, net............................................. 962
-------
Total deferred tax liabilities......................................... 34,400
-------
Deferred tax liabilities, net........................................ 34,400
=======
</TABLE>
The tax loss carry forwards have no expiration date.
F-149
<PAGE>
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
16. Related parties transactions
UTH signed management services agreements with both of its shareholders. In
the reporting period an amount of NLG4,255 has been taken into account as
expenses. In addition UTH delivers service to NUON. These services are
rendered at arms length prices and made up 8% of the revenues over the
reporting period. As mentioned under Note 11 UTH has a short-term debt payable
to NUON as well as subordinated loans to both NUON and UPC. UPC charged an
amount of 988 for salaries and related costs for employees seconded to UTH
Group.
17. Commitments and Guarantees
The UTH Group has entered into various rent and lease agreements for office
space, cars, etc. The terms of the agreements call for future minimum payments
as follows:
<TABLE>
<S> <C>
1999................................................................... 4,000
2000................................................................... 3,200
2001................................................................... 2,100
2002................................................................... 1,600
2003................................................................... 1,400
</TABLE>
Subsequent to December 31, 1998, UTH provided additional funding to A2000.
In total UTH's share of the funding commitment is $15,000. As of December 31,
1998, UTH had funded $3,750 of its commitment.
18. US GAAP Reconciliation
General
The accounting policies followed in the preparation for the consolidated
financial statements differ in some respects to those generally accepted in
the United States of America (US GAAP).
The differences which have a material effect on net loss and/or
shareholders' equity and/or total assets are as follows:
--The fair market value of licences, goodwill, land and buildings and
networks for US GAAP purposes should be set at historical cost of the
contributor. Consequently, no step-up in asset value is allowed for the
difference between historical cost and the fair market value of the assets
contributed by both UPC and NUON.
--Deferred taxes have been established for the difference between book and
tax basis of contributed assets, if applicable.
Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires recognition of deferred tax assets and liabilities for the expected
future income tax consequences of transactions which have been included in the
financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based upon the difference between the financial
and tax bases of assets and liabilities and carryforwards using enacted tax
rates in effect for the year in which the differences are expected to reverse.
UTH has adopted the principles of this statement in its financial statements.
F-150
<PAGE>
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
US GAAP information
The calculation of net loss, shareholders' equity and total assets,
substantially in accordance with US GAAP, is as follows:
<TABLE>
<S> <C>
Net loss as per Consolidated Statements of income................. (49,374)
Adjustments to reported income (loss):
Amortization of goodwill.......................................... 4,082
Share in results of affiliated companies.......................... 747
---------
Approximate net loss in accordance with US GAAP................... (44,545)
=========
Shareholders' equity as per Consolidated balance sheets........... 635,521
Adjustments to reported equity:
Goodwill.......................................................... (152,105)
Affiliated Companies.............................................. (27,893)
---------
Approximate shareholders' equity in accordance with US GAAP....... 455,523
=========
Total assets as per Consolidated Balance sheets................... 1,672,030
Adjustments to reported assets:
Goodwill.......................................................... (152,105)
Affiliated Companies.............................................. (27,893)
---------
Approximate total assets in accordance with US GAAP............... 1,492,032
=========
</TABLE>
19. Proforma information (unaudited)
On August 6, 1998 both shareholders contributed their interests in the Dutch
cable market into UTH. The following pro forma condensed consolidated
information for the year ended December 31, 1997 and 1998 give effect to the
UTH Transaction as if it had occurred at the beginning of the periods
presented. This pro forma condensed consolidated information does not purport
to represent what UTH's result of operations would actually have been if such
transaction had in fact occurred on such date. The pro forma adjustments are
based upon currently available information and upon certain assumptions that
management believes are reasonable.
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1997 December 31, 1998
------------------ ------------------
<S> <C> <C>
Total revenues......................... 157,836 219,314
Net loss............................... (47,194) (90,600)
</TABLE>
20. Subsequent events
Subordinated loan
UTH entered into a subordinated loan agreement with UPC in March, 1999 for
an amount of 119,000. The interest is payable on an annual basis. This
subordinated loan was entered into for purposes of continuing funding of
incurred losses and capital expenditures.
F-151
<PAGE>
UNITED TELEKABEL HOLDING N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
NUON Share Purchase Agreement
On February 17, 1999, UPC acquired the remaining 49% of UTH. This
transaction completed the purchase by UPC of 100% of UTH. UPC purchased the
interest from NUON for 518,100. In addition, UPC repaid NUON and assumed from
NUON a 33,300 subordinated loan, including accrued interest dated December 31,
1998, owed by UTH to NUON.
Refinancing
Subsequent to December 31, 1998, UTH replaced their existing 690,000
facility with a senior facility and additional shareholder loans. The senior
facility consists of a euro340 million (750,000) revolving facility to N.V.
Telekabel Beheer that will convert to a term facility on December 31, 2001.
Euro 5 million of this facility will be in the form of an overdraft facility
that will be available until December 31, 2007. This existing facility will be
used to repay a portion of the UTH facility and for capital expenditures. The
new facility will bear interest at the Euro Interbank Offered Rate plus a
margin between 0.75% and 2.00% based on the leverage multiples tied to N.V.
Telekabel Beheer's net operating income. The new facility will be secured by,
among other things, a pledge over shares held by the borrower and will
restrict N.V. Telekabel Beheer's ability to incur additional debt.
F-152
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Denver, State of Colorado, on this 29th day of March, 2000.
UnitedGlobalCom, Inc.
a Delaware corporation
/s/ Valerie L. Cover
By: _________________________________
Valerie L. Cover
Controller and Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this Report to be signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Title of Position
Signature Held With the Registrant Date
--------- ------------------------ ----
<S> <C> <C>
* Chairman of the Board and March 29, 2000
______________________________________ Chief Executive Officer
Gene W. Schneider
* Director March 29, 2000
______________________________________
Albert M. Carollo
* Director March 29, 2000
______________________________________
John P. Cole, Jr.
/s/ Valerie L. Cover Controller (Principal March 29, 2000
______________________________________ Accounting Officer) and
Valerie L. Cover Vice President
* Director March 29, 2000
______________________________________
Lawrence J. DeGeorge
* Director, President and March 29, 2000
______________________________________ Chief Operating Officer
Michael T. Fries
* Director March 29, 2000
______________________________________
John C. Malone
* Director March 29, 2000
______________________________________
John F. Riordan
* Director March 29, 2000
______________________________________
Curtis W. Rochelle
* Director March 29, 2000
______________________________________
Mark L. Schneider
* Director March 29, 2000
______________________________________
Henry P. Vigil
* Director and Senior Vice March 29, 2000
______________________________________ President
Tina M. Wildes
/s/ Valerie L. Cover
*By: _________________________________
Valerie L. Cover
Attorney-in-fact
</TABLE>
<PAGE>
EXHIBIT 10.36
==============================================================================
UNITED INTERNATIONAL HOLDINGS, INC.
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
(Effective March 20, 1998)
==============================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I - GENERAL ................................................... 1
1.1 Definition ..................................................... 1
1.2 Nature of Options .............................................. 1
ARTICLE II - OPTIONS .................................................. 1
2.1 Participation .................................................. 1
2.2 Grant .......................................................... 1
2.3 Terms .......................................................... 2
ARTICLE III - AUTHORIZED STOCK ........................................ 4
3.1 The Stock ...................................................... 4
3.2 Adjustments for Stock Split, Stock Dividend, Etc. .............. 4
3.3 Adjustments for Certain Distributions of Property .............. 4
3.4 Distributions of Capital Stock and Indebtedness ................ 5
3.5 No Rights as Stockholder ....................................... 5
3.6 Fractional Shares .............................................. 5
ARTICLE IV - CORPORATE REORGANIZATION; CHANGE OF CONTROL .............. 5
4.1 Reorganization ................................................. 5
4.2 Required Notice ................................................ 5
4.3 Acceleration of Exercisability ................................. 6
4.4 Change of Control .............................................. 6
ARTICLE V - GENERAL PROVISIONS ........................................ 6
5.1 Expiration ..................................................... 6
5.2 Amendments, Etc. ............................................... 6
5.3 Treatment of Proceeds .......................................... 7
5.4 Effectiveness .................................................. 7
5.5 Fair Market Value .............................................. 7
5.6 Section Headings ............................................... 7
5.7 Severability ................................................... 7
5.8 Rule 16b-3 ..................................................... 7
<PAGE>
UNITED INTERNATIONAL HOLDINGS, INC.
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
The Board of Directors (the "Board") of United International Holdings,
Inc., a Delaware Corporation (the "Company"), hereby establishes the United
International Holdings, Inc. Stock Option Plan for Non-Employee Directors (the
"Plan"), effective March 20, 1998 (the "Effective Date").
PURPOSES
--------
The purposes of the Plan are to provide to certain directors of the Company
who are not also employees of the Company added incentive to continue in the
service of the Company and a more direct interest in the future success of the
operations of the Company by granting to such directors options ("Options") to
purchase shares of the $.01 par value Class A common stock (the "Stock") of the
Company upon the terms and conditions described below.
ARTICLE I
GENERAL
-------
1.1 Definition. For purposes of the Plan and as used herein, a "non-
----------
employee director" is an individual who (a) is a member of the Board and (b) is
not an employee of the Company. For purposes of the Plan, an employee is an
individual whose wages are subject to the withholding of federal income tax
under section 3401 of the Internal Revenue Code of 1986, as amended from time to
time (the "Code"). A non-employee director to whom an Option is granted is
referred to herein as a "Holder."
1.2 Nature of Options. The Options granted hereunder shall be options
-----------------
that do not satisfy the requirements of section 422 of the Code.
ARTICLE II
OPTIONS
-------
2.1 Participation. Each non-employee director on the Effective Date and
-------------
each non-employee director elected thereafter shall be eligible to receive
Options to purchase Stock in accordance with Section 2.2 on the terms and
conditions herein described.
2.2 Grant.
-----
(a) Grant. The Board, in its sole discretion, may grant Options to
-----
individual non-employee directors. The Board shall have full discretion as to
the number and date of the
1
<PAGE>
grant of Options and may grant Options covering different numbers of shares of
Stock to different directors.
(b) Date of Grant. The date on which a non-employee director receives
an Option hereunder is referred to as the date of grant of such Option.
(c) Option Certificates. Each Option granted under the Plan shall be
evidenced by a written stock option certificate (an "Option Certificate") issued
in the name of the non-employee director to whom the Option is granted. The
Option Certificate shall incorporate and conform to the terms and conditions set
forth herein.
2.3 Terms. Options issued pursuant to the Plan shall have the following
-----
terms and conditions in addition to those set forth elsewhere herein:
(a) Number. Each non-employee director shall receive under the Plan
Options to purchase the number of shares of Stock determined by the Board,
subject to adjustment as provided in Article III. Such grants shall be
effective at the times specified in Section 2.2.
(b) Price. The price at which each share of Stock covered by the
Option may be purchased by each non-employee director shall be the Fair Market
Value (as defined in Section 5.5) of the Stock on the date of grant, subject to
adjustment as provided in Article III.
(c) Duration of Options. The period within which each Option may be
exercised shall expire ten years from the date the Option is granted (the
"Option Period"), unless terminated sooner pursuant to subsection (d) below or
fully exercised prior to the end of such period.
(d) Termination of Service, Death, Etc. The Option shall terminate in
the following circumstances if the Holder ceases to be a director of the
Company:
(i) If the Holder is removed as a director of the Company during
the Option Period for cause, the Option shall be void thereafter for all
purposes.
(ii) If the Holder ceases to be a director of the Company on
account of disability within the meaning of Section 22(e)(3) of the Code,
the Option may be exercised by the Holder (or, in case of death thereafter,
by the persons specified in Section 2.3(d)(iii)) within one year following
the date on which the Holder ceased to be a director (if otherwise within
the Option Period), but not thereafter. In any such case, the Option may
be exercised as to all shares of Stock specified therein, notwithstanding
Section 2.3(g).
(iii) If the Holder dies during the Option Period while still
serving as a director or within the three-month period referred to in
Section 2.3(d)(iv) below, the Option may be exercised by those entitled to
do so under the Holder's will or by the laws of descent and distribution
within one year following the Holder's death (if otherwise
2
<PAGE>
within the Option Period), but not thereafter. In any such case, the Option
may be exercised as to all shares of Stock specified therein,
notwithstanding Section 2.3(g).
(iv) If the Holder ceases to be a director within the Option
Period for any reason other than removal for cause, disability or death,
the Option may be exercised by the Holder within three months following the
date of such termination (if otherwise within the Option Period), but not
thereafter. In any such case, the Option may be exercised only as to the
shares as to which the Option had become exercisable on or before the date
the Holder ceased to be a director.
(e) Transferability, Exercisability. Each Option granted under the
Plan shall not be transferable by a Holder other than by will or the laws of
descent and distribution and shall be exercisable during the Holder's lifetime
only by the Holder or, in the event of disability or incapacity, by the Holder's
guardian or legal representative. Notwithstanding any other provision of the
Plan, no Option may be exercised unless and until the Plan is approved by the
stockholders of the Company in accordance with Section 5.4.
(f) Exercise, Payments, Etc.
(i) The method for exercising each Option granted shall be by
delivery to the Company of written notice specifying the number of shares
with respect to which the Option is exercised. The purchase of Stock
pursuant to the Option shall take place at the principal office of the
Company within thirty days following delivery of such notice, at which time
the purchase price of the Stock shall be paid in full by any of the methods
set forth in Section 2.3(f)(ii) or a combination thereof. If the purchase
price is paid by means of a broker's loan transaction as described in
clause (C) of Section 2.3(f)(ii), in whole or in part, the closing of the
purchase of the Stock under the Option shall take place on the date on
which, and only if, the sale of Stock upon which the broker's loan was
based has been closed and settled, unless the Holder makes an irrevocable
written election, at the time of exercise of the Option, to have the
exercise treated as fully effective for all purposes upon receipt of the
purchase price by the Company regardless of whether or not the sale of the
Stock by the broker is closed and settled. A properly executed certificate
or certificates representing the Stock shall be delivered to the Holder
upon payment therefore. If Options on less than all shares evidenced by an
Option Certificate are exercised, the Company shall deliver a new Option
Certificate evidencing the Option on the remaining shares on delivery of
the outstanding Option Certificate for the Option being exercised.
(ii) The exercise price shall be paid by any of the following
methods or any combination of such methods, at the option of the Holder:
(A) cash; (B) certified, cashier's or other check acceptable to the
Company, payable to the order of the Company; or (C) delivery to the
Company of irrevocable instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds required to pay the purchase
price of the Stock; or (D) delivery to the Company of certificates
representing the number of shares of Stock then owned by the Holder, the
Fair Market Value of which (determined as of the date the notice of
exercise is delivered to the Company) equals the price of the
3
<PAGE>
Stock to be purchased pursuant to the Option, properly endorsed for
transfer to the Company. No Option may be exercised by delivery to the
Company of certificates representing Stock that has been held by the Option
Holder for less than six months or such other period as shall be sufficient
for the Company to avoid, if possible, the recognition of expense with
respect to the Option for accounting purposes.
(g) Service Required for Exercise. Except as set forth in Sections
2.3(d), 4.3, 4.4 and 5.4, each Option shall become exercisable in increments of
1/48th of the total number of shares covered by the Option after each month of
continuous service by the Holder as a non-employee director of the Company
following the date of grant, unless the Board specifies otherwise at the time of
grant of the Option or subsequently modifies the Option. Except as set forth in
Sections 2.3(d), 4.3 and 4.4, the Option shall not be exercisable as to any
shares as to which any such requirement has not been satisfied, regardless of
the circumstances under which the Holder ceased to be a director. The number of
shares as to which the Option may be exercised shall be cumulative, so that once
the Option becomes exercisable as to any shares it shall continue to be
exercisable as to those shares until expiration or termination of the Option as
provided in the Plan.
ARTICLE III
AUTHORIZED STOCK
----------------
3.1 The Stock. The total number of shares of Stock as to which Options
---------
may be granted pursuant to the Plan shall be 500,000 in the aggregate. The
number of shares of Stock authorized for grant hereunder shall be adjusted in
accordance with the provisions of Section 3.2. Shares of Stock underlying
expired or cancelled and unexercised Options shall again be available for grant
under the Plan. The Company shall at all times reserve a sufficient number of
shares of Stock, or otherwise assure itself of its ability to perform its
obligations hereunder.
3.2 Adjustments for Stock Split, Stock Dividend, Etc. If the Company
------------------------------------------------
shall at any time increase or decrease the number of its outstanding Shares by
means of payment of a stock dividend or any other distribution upon such Shares
payable in Stock, or through a stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving the Stock, or change
in any way the rights and privileges of such Shares, then the numbers, rights
and privileges of the following shall be increased, decreased or changed in like
manner as if the corresponding Shares had been issued and outstanding, fully
paid and nonassessable at the time of such occurrence: (a) the Shares as to
which Options may be granted under the Plan; and (b) the Shares then subject to
each outstanding Option. Upon any occurrence described in this Section 3.2, the
total Option Price under each then outstanding Option shall remain unchanged but
shall be apportioned ratably over the increased or decreased number of Shares
subject to the Option.
3.3 Adjustments for Certain Distributions of Property. If the Company
-------------------------------------------------
shall at any time distribute with respect to its Stock assets or securities of
other persons (excluding cash dividends or distributions payable out of capital
surplus and dividends or other distributions referred to in Sections 3.2 or
3.4), then the Option Price of outstanding Options shall be adjusted to reflect
the fair market value of the assets or securities distributed, the Company shall
provide for the delivery upon exercise of such Options of cash in an amount
equal to the fair market
4
<PAGE>
value of the assets or securities distributed or a combination of such actions
shall be taken, all as determined by the Committee in its discretion. Fair
market value of the assets or securities distributed for this purpose shall be
as determined by the Committee.
3.4 Distributions of Capital Stock and Indebtedness. If the Company shall
-----------------------------------------------
at any time distribute with respect to its Stock shares of its capital stock
(other than Stock) or evidences of indebtedness, then a proportionate part of
such capital stock and evidences of indebtedness shall be set aside for each
outstanding Option and, upon the exercise of such Option, delivered to the
Option Holder.
3.5 No Rights as Stockholder. An Option Holder shall have none of the
------------------------
rights of a stockholder with respect to the Shares subject to an Option until
such Shares are transferred to the Option Holder upon the exercise of such
Option. Except as provided in this Article III, no adjustment shall be made for
dividends, rights or other property distributed to stockholders (whether
ordinary or extraordinary) for which the record date is prior to the date such
Shares are so transferred.
3.6 Fractional Shares. No adjustment or substitution provided for in this
-----------------
Article III shall require the Company to issue a fractional share. The total
substitution or adjustment with respect to each Option shall be limited by
deleting any fractional share.
ARTICLE IV
CORPORATE REORGANIZATION; CHANGE OF CONTROL
-------------------------------------------
4.1 Reorganization. Upon the occurrence of any of the following events,
--------------
if the notice required by Section 4.2 shall have first been given, the Plan and
all Options then outstanding hereunder shall automatically terminate and be of
no further force and effect whatsoever, without the necessity for any additional
notice or other action by the Board or the Company: (a) the merger or
consolidation of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or change of outstanding shares of
Stock); or (b) the sale or conveyance of the property of the Company as an
entirety or substantially as an entirety (other than a sale or conveyance in
which the Company continues as a holding company of an entity or entities that
conduct the business or businesses formerly conducted by the Company); or (c)
the dissolution or liquidation of the Company.
4.2 Required Notice. At least 30 days' prior written notice of any event
---------------
described in Section 4.1 shall be given by the Company to each Holder, unless in
the case of the events described in clauses (a) or (b) of Section 4.1, the
Company, or the successor or purchaser, as the case may be, shall make adequate
provision for the assumption of the outstanding Options or the substitution of
new options for the outstanding Options on terms comparable to the outstanding
Options except that the Holder of each Option then outstanding shall have the
right thereafter to purchase the kind and amount of shares of stock or other
securities or property or cash receivable upon such merger, consolidation, sale
or conveyance by a holder of the number of shares of Stock that would have been
receivable upon exercise of the Option immediately prior to such
5
<PAGE>
merger, consolidation, sale or conveyance (assuming such holder of Stock failed
to exercise any rights of election and received per share the kind and amount
received per share by a majority of the non-electing shares). The provisions of
this Article IV shall similarly apply to successive mergers, consolidations,
sales or conveyances. Such notice shall be deemed to have been given when
delivered personally to a Holder or when mailed to a Holder by registered or
certified mail, postage prepaid, at such Holder's address last known to the
Company.
4.3 Acceleration of Exercisability. Subject to Section 5.4, Holders
------------------------------
notified in accordance with Section 4.2 may exercise their Options at any time
before the occurrence of the event requiring the giving of notice (but subject
to occurrence of such event), regardless of whether all conditions of exercise
relating to length of service as a director have been satisfied.
4.4 Change of Control. If a Change in Control (as defined below) occurs,
-----------------
all Options shall become exercisable in full, regardless of whether all
conditions of exercise relating to continuous service have been satisfied. A
"Change in Control" is deemed to have occurred if (a) a person (as such term is
used in Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange
Act")) becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) of shares of the Company or the Company's successor having 30% or more of
the total number of votes that may be cast for the election of directors of the
Company without the prior approval of at least a majority of the members of the
Board unaffiliated with such person, or (b) individuals who constitute the
directors of the Company at the beginning of a 24-month period cease to
constitute at least two-thirds of all directors at any time during such period,
unless the election of any new or replacement directors was approved by a vote
of at least a majority of the members of the Board in office immediately prior
to such period and of the new and replacement directors so approved.
Notwithstanding anything to the contrary in this Section 4.4, no Option will
become exercisable by virtue of the occurrence of a Change in Control if the
Holder of that Option or any group of which that Holder is a member is the
person whose acquisition constituted the Change in Control.
ARTICLE V
GENERAL PROVISIONS
------------------
5.1 Expiration. The Plan shall terminate whenever the Board adopts a
----------
resolution to that effect. After termination, no additional Options shall be
granted under the Plan, but the Company shall continue to recognize Options
previously granted.
5.2 Amendments, Etc. The Board may from time to time amend, modify,
---------------
suspend or terminate the Plan. Nevertheless, no such amendment, modification,
suspension or termination shall impair any Option theretofore granted under the
Plan or deprive any Holder of any shares of Stock that he may have acquired
through or as a result of the Plan without the consent of the Holder. The
Company shall obtain the approval of stockholders to any amendment or
modification of the Plan to the extent required by Rule 16b-3 under the Exchange
Act ("Rule 16b-3") (or any successor applicable rule) or by the listing
requirements of the National Association of Securities Dealers, Inc. or any
stock exchange on which the Company's securities are quoted or listed for
trading.
6
<PAGE>
5.3 Treatment of Proceeds. Proceeds from the sale of Stock pursuant to
---------------------
Options granted under the Plan shall constitute general funds of the Company.
5.4 Effectiveness. This Plan shall be effective on the Effective Date,
-------------
subject to approval by the stockholders of the Company in accordance with
applicable law and as may be required to meet any applicable requirement of
NASDAQ or any stock exchange or any governmental agency.
5.5 Fair Market Value. The "Fair Market Value" of a share of Stock shall
-----------------
be the last reported sale price of the Stock on the NASDAQ National Market
System on the day the determination is to be made, or if no sale took place on
such day, the average of the closing bid and asked prices of the Stock on the
NASDAQ National Market System on such day, or if the market is closed on such
day, the last day prior to the date of determination on which the market was
open for the transaction of business, as reported by NASDAQ. If, however, the
Stock should be listed or admitted for trading on a national securities
exchange, the Fair Market Value of a share of the Stock shall be the last sales
price, or if no sales took place, the average of the closing bid and asked
prices on the day the determination is to be made, or if the market is closed on
such day, the last day prior to the date of determination on which the market
was open for the transaction of business, as reported in the principal
consolidated transaction reporting system for the principal national securities
exchange on which the Stock is listed or admitted for trading. If the Stock is
not listed or traded on NASDAQ or on any national securities exchange, the Fair
Market Value for purposes of the grant of Options under the Plan shall be
determined by the Committee in good faith in its sole discretion.
5.6 Section Headings. The Section headings are included herein only for
----------------
convenience, and they shall have no effect on the interpretation of the Plan.
5.7 Severability. If any article, section, subsection or specific
------------
provision is found to be illegal or invalid for any reason, such illegality or
invalidity shall not affect the remaining provisions of the Plan, and the Plan
shall be construed and enforced as if such illegal and invalid provision had
never been set forth in the Plan.
5.8 Rule 16b-3. This Plan is intended to comply with the requirements of
----------
Rule 16b-3 and any successor applicable rule so that grants under the Plan will
not affect the status of non-employee directors as disinterested persons for
purposes of Rule 16b-3 and that such grants will otherwise satisfy the
requirements of Rule 16b-3. To the extent the Plan does not conform to such
requirements, it shall be deemed amended to so conform without any further
action on the part of the Board of Directors or stockholders.
UNITED INTERNATIONAL HOLDINGS, INC.
ATTEST:
/s/ Ellen P. Spangler By:/s/ Michael T. Fries
- --------------------- --------------------
Secretary President
7
<PAGE>
EXHIBIT 10.37
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of April 8,
1999, by and between United International Holdings, Inc., a Delaware corporation
(the "Company"), and Riordan Communications Limited (the "Stockholder," and
together with any permitted transferees party hereto pursuant to Section 12
hereof, the "Stockholders").
Recitals
--------
A. This Agreement is made with respect to the 384,531 shares of Common
Stock (as defined below) held on the date hereof by the Stockholder (the
"Shares").
B. The Company and the Stockholder desire to enter into this Agreement
pursuant to which, among other things, the Stockholder has the right to cause
the Company, upon request, to register with the Commission (as defined below) an
offering and sale of shares of Common Stock held by the Stockholder, subject to
the terms of this Agreement.
Agreement
---------
1. Definitions. As used in this Agreement, the following capitalized
-----------
terms shall have the following respective meanings:
(a) Affiliate. Any Person that, directly or indirectly, through one
---------
or more intermediaries, controls, or is controlled by, or is under common
control with, the Stockholder.
(b) Commission. The United States Securities and Exchange Commission
----------
or any other Federal agency at the time administering the Securities Act.
(c) Common Stock. The Class A Common Stock, $.01 par value per share,
------------
of the Company.
(d) Exchange Act. The Securities Exchange Act of 1934, as amended, or
------------
any successor Federal statute, and the rules and regulations of the Commission
thereunder.
(e) Person. Any individual, corporation, partnership, trust,
------
organization, association, governmental body or agency.
(f) Registrable Securities. The (i) Shares and (ii) any shares of
----------------------
Common Stock which may be issued or distributed in respect thereof by way of
stock dividend or stock split or other distribution, recapitalization, merger,
consolidation or reclassification or other reorganization or otherwise. A
Registrable Security shall cease to be a Registrable Security when: (A) a
registration
<PAGE>
statement with respect to the sale of such security shall have become effective
under the Securities Act and such security shall have been disposed of in
accordance with such registration statement; (B) such security shall have been
otherwise transferred and new certificates for such security not bearing a
legend restricting further transfer shall have been delivered by the Company; or
(C) such security shall have ceased to be outstanding.
(g) Registration Expenses. As set forth in Section 8 hereof.
---------------------
(h) Securities Act. The Securities Act of 1933, as amended, or any
--------------
successor Federal statute, and the rules and regulations of the Commission
thereunder.
2. Demand Registration.
-------------------
(a) Upon the written request of Stockholders holding an aggregate of
50% of the outstanding Registrable Securities requesting that the Company effect
the registration under the Securities Act of all or part of the Registrable
Securities owned by such Stockholders and specifying the intended method of
disposition thereof, but subject to the limitations set forth herein, the
Company will promptly (but in no event more than five business days after the
receipt of such request) give written notice of such requested registration to
all other Stockholders, and the Company shall file with the Commission as
promptly as practicable after sending such notice, and use its best efforts to
cause to become effective, a registration statement under the Securities Act
registering the offering and sale of:
(i) the Registrable Securities which the Company has been so
requested to register by the Stockholders, and
(ii) all other Registrable Securities which the Company has been
requested to register by any other Stockholder by written request given to
the Company within 30 days after the giving of such written notice by the
Company (which request shall specify the intended method of disposition of
such Registrable Securities),
all to the extent necessary to permit the disposition (in accordance with the
intended method thereof as aforesaid) of the Registrable Securities so to be
registered (a "Demand Registration"); provided, that (A) the Company shall not
be obligated to file a registration statement pursuant to this Section 2(a) with
respect to more than an aggregate of two registrations, and (B) the Company
shall not be obligated to file a registration statement pursuant to this Section
2(a) unless the aggregate amount of Registrable Securities that any Stockholders
seek to register pursuant to such Section constitutes at least 50% of all
Registrable Securities held by Stockholders.
(b) If in accordance with Section 10 hereof a requested registration
pursuant to this Section 2 is to be in the form of an underwritten offering
through underwriters, the Company shall designate as underwriters investment
banking firms of national reputation that are satisfactory
2
<PAGE>
to the Stockholders holding a majority of the Registrable Securities to be
included in such registration. If a requested registration pursuant to this
Section 2 involves an underwritten offering and the managing underwriter advises
the Company in writing that, in its opinion, the number of securities requested
to be included in such registration (including securities of the Company which
are not Registrable Securities) exceeds the number which can be sold in such
offering without a significant adverse effect on the price, timing or
distribution of the Registrable Securities offered, the Company will (subject to
the last sentence of this paragraph) include in such registration only the
Registrable Securities requested to be included in such registration. In the
event that the number of Registrable Securities requested to be included in such
registration exceeds the number which, in the opinion of such managing
underwriter, can be sold, then the Company will include in such registration
only the number of Registrable Securities which, in the opinion of the managing
underwriter, can be sold, such number to be allocated pro rata among all
requesting Stockholders on the basis of the relative number of shares of
Registrable Securities then held by each such holder (provided, that any shares
thereby allocated to any such holder that exceed such holder's request shall be
reallocated among the remaining requesting holders of Registrable Securities in
like manner). In the event that the number of Registrable Securities requested
to be included in such registration is less than the number which, in the
opinion of the managing underwriter, can be sold, the Company may include in
such registration the securities the Company or any other holder of the
Company's securities proposes to sell up to the number of securities that, in
the opinion of the managing underwriter, can be sold without an adverse effect
on the price, timing or distribution of the Registrable Securities offered.
(c) The Company shall be entitled to postpone for a reasonable period
of time (not to exceed 120 days, which may not thereafter be extended) the
filing of any registration statement otherwise required to be prepared and filed
by it pursuant to Section 2(a) hereof if, at the time it receives a request for
such registration, the Board of Directors of the Company determines in good
faith that such offering will materially interfere with a pending or
contemplated financing, merger, sale of assets, recapitalization or other
similar corporate action of the Company, in which case the Company shall have
furnished to holders of Registrable Securities requesting such registration an
officers' certificate to that effect. After such period of postponement the
Company shall effect such registration as promptly as practicable without
further request from the holders of Registrable Securities, unless such request
has been withdrawn.
3. Piggy-back Registration.
-----------------------
(a) If the Company shall at any time propose to file a registration
statement under the Securities Act for an offering of securities of the Company
for resale by holders of the Company's securities other than Registrable
Securities (the "Requesting Holders"), the Company shall provide prompt written
notice of such proposal, in any event, not less than 15 days before the
anticipated filing date, to all Stockholders of its intention to do so and of
such Stockholders' rights under this Section 3. The Company shall use its best
efforts to include such number of Registrable Securities in such registration
statement which the Company has been so requested to register by any Requesting
Holder (a "Piggy-back Registration"), which request shall be made to the Company
3
<PAGE>
within 15 days after such Stockholders receive notice from the Company of such
proposed registration; provided, that (i) if, at any time after giving written
notice of its intention to register any securities and prior to the effective
date of the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register such securities, the
Company may, at its election, give written notice of such determination to each
Stockholder and, thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with such registration, and (ii) if such
registration involves an underwritten offering, all holders of Registrable
Securities requesting to be included in the registration must sell their
Registrable Securities to the underwriters on the same terms and conditions as
apply to the Requesting Holders, with such differences, including any with
respect to indemnification and liability insurance, as may be customary or
appropriate in secondary offerings. Any Stockholder requesting pursuant to this
Section 3 to be included in a registration may elect, in writing prior to the
effective date of the registration statement filed in connection with such
registration, not to register such securities in connection with such
registration.
(b) If a registration pursuant to this Section 3 involves an
underwritten offering as to which any Stockholder has requested a Piggy-back
Registration and the managing underwriter reasonably and in good faith advises
the Company in writing that, in its opinion, the number of securities to be
included in such registration exceeds the number which can be sold in such
offering without an adverse effect on the price, timing or distribution of such
offering, then (i) first, the number of securities which the Company's security
holders other than the Requesting Holders requested to be included in such
registration shall be reduced as necessary pro rata in proportion to the
relative number of securities requested by each such holder to be included until
the number of securities to be included in such registration no longer exceeds
the number which can be sold in such offering, and (ii) second, the number of
securities which the Requesting Holders requested to be included in such
registration shall be reduced as applicable until the number of securities to be
included in such registration no longer exceeds the number which can be sold in
such offering.
4. Suspension of Registration Obligation. The Company shall not be
-------------------------------------
required to register the sale of its securities under this Agreement for any
Stockholder if there is available for such transaction an appropriate exemption
from registration under the Securities Act.
5. Limitation on Registration Rights. Each Stockholder acknowledges that
---------------------------------
the Company and certain stockholders ("Other Stockholders") are parties to
certain Registration Rights Agreements (the "Existing Agreements"), pursuant to
which the Company has granted registration rights to the Other Stockholders.
Each Stockholder hereby agrees that, notwithstanding any other provision of this
Agreement, the Stockholders shall not have any rights under this Agreement that
are inconsistent with the rights granted to the Other Stockholders under the
Existing Agreements, unless otherwise consented to by the Other Stockholders.
6. Hold-Back Agreements. Each Stockholder agrees in connection with any
--------------------
registration effected by the Company (other than an offering relating to (i) a
business combination that is to be filed on Form S-4 under the Securities Act
(or any successor form thereto) or (ii) an employee
4
<PAGE>
benefit plan) of the Company's securities not to effect any public sale or
distribution of securities of the Company the same as or similar to those being
registered, or any securities convertible into or exchangeable or exercisable
for such securities, including a sale pursuant to Rule 144 under the Securities
Act, except as part of such registration, during the 14-day period prior to, and
during the 90-day period (or, with respect to a Piggy-back Registration, such
longer period of up to 120 days as may be requested by such managing
underwriter) beginning on, the effective date of the related registration
statement, to the same extent requested by the managing underwriters and
applicable to other holders of the Company's securities subject to similar
agreements. Each Stockholder agrees to execute an undertaking in accordance with
the foregoing in the form reasonably requested by the managing underwriters.
7. Registration.
------------
(a) Whenever any Registrable Securities are to be registered pursuant
to Section 2 or 3 of this Agreement, the Company will use its best efforts to
effect the registration and the sale of such Registrable Securities under the
Securities Act in accordance with the intended method of disposition thereof.
(b) The Company may require each Stockholder requesting a registration
pursuant to Section 2 or 3 to furnish to the Company such information regarding
the distribution of such securities and such other information relating to such
Stockholder and its ownership of Registrable Securities as the Company may from
time to time reasonably request in writing. Each such Stockholder agrees to
furnish such information to the Company and to cooperate with the Company as
necessary to enable the Company to comply with the provisions of this Agreement.
(c) Upon receipt of any notice from the Company at any time when a
prospectus relating to the registration is required to be delivered under the
Securities Act of the occurrence of any event as a result of which the
prospectus included in such registration statement (as then in effect) contains
an untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, the Stockholders selling Registrable
Securities will forthwith discontinue disposition of the Registrable Securities
until receipt of copies of a supplemented or amended prospectus or until such
Stockholders are advised in writing (the "Advice") by the Company that the use
of the prospectus may be resumed, and have received copies of any additional or
supplemental filings which are incorporated by reference in the prospectus and,
if so directed by the Company, such Stockholders will, or will request the
managing underwriter or underwriters, if any, to, deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
holder's possession of the prospectus covering such Registrable Securities
current at the time of receipt of such notice.
8. Registration Expenses. Except as otherwise agreed in accordance with
---------------------
Section 2(a), all expenses incident to the Company's performance of or
compliance with this Agreement including, without limitation, all Commission and
securities exchange or National Association of
5
<PAGE>
Securities Dealers registration and filing fees, fees and expenses of compliance
with securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), rating agency fees, printing expenses, messenger and delivery
expenses, internal expenses (including, without limitation, all salaries and
expenses of the Company's officers and employees performing legal or accounting
duties), the fees and expenses incurred in connection with the listing of the
securities to be registered, if any, on each securities exchange on which
similar securities issued by the Company are then listed and reasonable fees and
disbursement of counsel for the Company and its independent certified public
accountants (including the expenses of any special audit or "cold comfort"
letters required by or incident to such performance), Securities Act liability
insurance (if the Company elects to obtain such insurance) and the reasonable
fees and expenses of any special experts retained by the Company in connection
with such registration (all such expenses being herein called "Registration
Expenses") will be borne by the Company; provided, that Registration Expenses
shall not include, and the Company shall not be responsible for any underwriting
fees, discounts or commissions attributable to the sale of Registrable
Securities or any other expenses incurred by the Stockholders in connection with
such registration, which shall be paid by the Stockholders requesting such
registration.
9. Term. The registration rights set forth in Sections 2 and 3 hereof
----
shall not be available to any Stockholder if, in the opinion of counsel to the
Company, all of the Registrable Securities then owned by such Stockholder could
be sold in any 90-day period pursuant to Rule 144.
10. Underwritten Offerings.
----------------------
(a) Stockholders may request that any registration pursuant to Section
2 of Registrable Securities be an underwritten registration. In the event such
a registration is an underwritten offering, the Company will enter into an
underwriting agreement with the managing underwriter or underwriters for such
offering (which managing underwriter or underwriters shall be an investment
banking firm or firms of national reputation designated by the Company and
satisfactory to the Stockholders holding a majority of the Registrable
Securities to be included in such registration), such agreement to contain such
terms as are customarily contained in agreements of such type. Stockholders
selling Registrable Securities in such offering shall be party to such
underwriting agreement.
(b) No Person may participate in any registration hereunder that is
underwritten unless such Person (i) agrees to sell such Person's securities on
the basis provided in any underwriting arrangements approved by the Person or
Persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
6
<PAGE>
11. Indemnification.
---------------
(a) In connection with any offering of Registrable Securities pursuant
to Section 2 or 3 hereof, the Company agrees to indemnify, to the fullest extent
permitted by law, each Stockholder whose Registrable Securities are sold in such
offering, each of their officers and directors and each Person who controls such
Stockholder (within the meaning of the Securities Act) against all losses,
claims, damages, liabilities and expenses (including attorney's fees) arising
out of or based upon any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto under which such Registrable
Securities were registered under the Securities Act (the "Registration
Materials") or any omission or alleged omission of a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such untrue statement or alleged untrue statement or omission
or alleged omission was made in such Registration Materials upon any written
information furnished in writing to the Company by such Stockholder.
(b) Each Stockholder whose Registrable Securities are sold in any
offering pursuant to Section 2 or 3 hereof, severally but not jointly agrees to
indemnify, to the fullest extent permitted by law, the Company, the other
Stockholders whose Registrable Securities are sold in such offering, their
respective officers and directors and each other Person, if any, who controls
the Company or such other Stockholders (within the meaning of the Securities
Act) against all losses, claims, damages, liabilities and expenses (including
attorney's fees) caused by any untrue or alleged untrue statement of a material
fact contained in any Registration Materials or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in such Registration Materials in reliance upon any
written information furnished in writing to the Company by the Stockholder. In
no event shall the liability of any Stockholder hereunder be an amount greater
than the dollar amount of the proceeds received by such Stockholder upon the
sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action threatened or commenced against it in respect
of which indemnity may be sought hereunder. In case of any notice under this
indemnity agreement with respect to any loss, liability, claim, damage or
expense with respect to any claim made against an indemnified Person, the
indemnifying party shall be entitled to participate at its own expense in the
defense and such defense shall be conducted by counsel chosen by the
indemnifying party. In no event shall an indemnifying party be liable for the
fees and expenses of more than one counsel for an indemnified party (in addition
to local counsel) in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances.
12. Transferees. Any Person acquiring from the Stockholder or an
-----------
Affiliate any Registrable Securities, except for transferees acquiring
Registrable Securities in an offering registered under the Securities Act or in
a sale made pursuant to Rule 144 under the Securities Act,
7
<PAGE>
may elect, within 30 days of the date of the transfer to it of such Registrable
Securities, to sign the signature page attached hereto as Annex A and delivering
an executed original copy of such signature page to the Company and thereby
become a party to this Agreement and be deemed a Stockholder under this
Agreement. Each such Stockholder shall be bound by the terms of this Agreement
and shall hold such Registrable Securities with all the rights conferred, and
subject to all obligations and restrictions imposed, hereby.
13. Miscellaneous.
-------------
(a) This Agreement contains the entire understanding of the parties
hereto with respect to its subject matter. This Agreement supersedes all prior
agreements and understandings between the parties with respect to its subject
matter. This Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) only by a written instrument duly executed by
the Company and Stockholders holding a majority of the Registrable Securities;
provided, that, in the case of any waiver, such waiver need only be executed by
any Stockholders affected by such waiver. Each Stockholder shall be bound by an
amendment or waiver authorized by this Section 13(a), whether or not any
Registrable Securities shall have been marked to indicate such consent.
(b) All covenants and agreements in this Agreement by or on behalf of
any of the parties hereto will bind and inure to the benefit of the respective
successors and permitted assigns of the parties hereto whether so expressed or
not.
(c) Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
(d) This Agreement may be executed in two or more counterparts, any
one of which need not contain the signatures of more than one party, but all
such counterparts taken together will constitute one and the same Agreement.
(e) The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
(f) The interpretation and construction of this Agreement and all
matters relating hereto, shall be governed by the law of the State of Colorado
without regard to the conflicts of laws provisions of such state.
(g) All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, by
facsimile or mailed by certified or registered mail, return receipt requested
and postage prepaid, or by courier guaranteeing overnight delivery as follows:
8
<PAGE>
(i) If to any other Stockholder, at the most current address
given by such Stockholder to the Company; and
(ii) If to the Company, at:
United International Holdings, Inc.
4643 South Ulster Street, Suite 1300
Denver, Colorado 80237
Attention: General Counsel
Telephone No.: (303) 770-4001
Facsimile No.: (303) 770-4207
with a copy to:
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203
Attention: W. Dean Salter, Esq.
Telephone No.: (303) 861-7000
Facsimile No.: (303) 866-0200
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; four business
days after being deposited in the mail, postage prepaid, if mailed; upon
confirmation of transmission, if by facsimile transmission; and on the next
business day if timely delivered to a courier guaranteeing' overnight delivery.
IN WITNESS WHEREOF, the parties have duly signed this Agreement as of the
day and year first above written.
UNITED INTERNATIONAL HOLDINGS, INC.
-----------------------------------
By: /s/ Ellen P. Spangler
---------------------
Name: Ellen P. Spangler
Title: Senior Vice President
9
<PAGE>
RIORDAN COMMUNICATIONS LIMITED
------------------------------
By: /s/ John F. Riordan
--------------------
Name: J.F. Riordan
Title: Director
10
<PAGE>
ANNEX A
-------
THE UNDERSIGNED hereby elects to become a party to the Registration Rights
Agreement dated as of April 8, 1999 initially between United International
Holdings, Inc. and the Stockholder named therein pursuant to Section 12 of such
Agreement.
[Name of Transferee]
By:
---------------------------------
Name:
Title:
Date:
--------------------
A-1
<PAGE>
Exhibit 12.1
Ratio of Combined Fixed Charges and Preferred Stock Dividends (000's)
<TABLE>
<CAPTION>
For the Year Ended For the Ten For the Year
------------------------------------------- Months Ended Ended
February 29, February 28, February 28, December 31, December 31,
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing operations before
other items ....................................... (43,757) (95,608) (196,364) (492,166) 331,179
Fixed charges and preferred stock dividends:
Interest, whether expensed or capitalized ......... 36,045 79,659 124,288 163,227 399,999
Preferred stock dividend requirements ............. 232 1,221 1,271 1,623 18,392
------------ ------------ ------------ ------------ -------------
Total fixed charges and preferred stock dividends ... 36,277 80,880 125,559 164,850 418,391
Adjusted earnings (losses) .......................... (7,480) (14,728) (70,805) (327,316) 749,570
Fixed charges and preferred stock dividends ......... 36,277 80,880 125,559 164,850 418,391
------------ ------------ ------------ ------------ -------------
Ratio of earnings to fixed charges and preferred
stock dividends ................................... - - - - 1.79
Dollar amount of coverage deficiency ................ (43,757) (95,608) (196,364) (492,166) -
------------ ------------ ------------ ------------ -------------
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES AND RESTRICTED AFFILIATES OF THE COMPANY
<TABLE>
<CAPTION>
A. Subsidiaries
<S> <C>
@ Entertainment, Inc. acq. 8/99
@ Entertainment Programming, Inc. acq. 8/99
@ Entertainment Services Ltd. acq. 8/99
A2000 Hilversum BV UPC 100%
A2000 Holding N.V. UPC 100%
A.C.Associes S.A. (f/k/a A.C.A. SA) UPC 99%
Ain Videopole S.A. UPC acq. 8/99-99%
Algemene Kabel Exploitatie Maatschappij B.V. UPC 100%
Analog Seltron Comm. AST S.A. UPC org. '99-70%
Aorta SA UPC 99%
Aparatura Electronica Seltron SRL UPC org. '99-70%
Ardenne Videopole S.A. UPC acq. 8/99-99%
At Media SP zo.o UPC acq. 8/99
Atlantique Videopole S.A. UPC acq. 8/99-99%
Auldana Beach Pty Ltd. 2/5/98 Ind.
Austar Entertainment Pty Ltd. 2/5/98 Ind.
Austar Retail Pty Ltd. 2/5/98 Ind.
Austar Satellite Pty Ltd. 2/5/98 Ind.
Austar Satellite Ventures Pty Ltd. reorg. 6/99
Austar Services Pty Ltd. 2/5/98 Ind.
Austar United Broadband Pty Ltd. org. 8/99
Austar United Communications Limited org. 6/99
Aveyron Videopole S.A. UPC acq. 8/99-99%
Beam Bigore Videopole S.A. UPC acq. 8/99-55%
Belmarken Holding B.V. 2/5/98 Ind.
BESY Praha sro UPC org. `99-97%
Bicatobe Investments B.V. UPC 100%
Binan Investments B.V. 11/3/98 Reso.
Bourgogne Videopole S.A. UPC acq. 8/99-99%
Cablage Videopole S.A. UPC acq. 8/99-99%
Cable Network Brabant Holding B.V. 2/5/98 Ind.
Cable Network Holding B.V. 11/3/98 Reso.
Cable Network Zuid-Oost Brabant Holding B.V. 11/3/98 Reso.
Cable Networks Austria Holding B.V. 2/5/98 Ind.
Cable Networks Netherlands Holding B.V. 2/5/98 Ind.
Cable Star S.A. 2/5/98 Ind.
Cablevision S.A. acq. 4/29/99
Carryton Pty Ltd. 2/5/98 Ind.
Century Programming Ventures Corp. acq. 9/11/98
Century United Programming Ventures Pty Limited reorg. 6/99;UAC 100%
chello broadband (Australia) UPC org. 9/99-100%
chello broadband A.S (Norway) UPC 100%
chello broadband A.S. (Sweden) (f/k/a Stjarnen Multimedia Holding AB) UPC 100%
chello broadband B.V. UPC 100%
chello broadband do Brasil Ltda. UPC org. `99-100%
chello broadband GmbH (Austria) UPC 100%
chello broadband GmbH (Germany) UPC 100%
chello broadband Inc. UPC org. `99-100
</TABLE>
<PAGE>
<TABLE>
<S> <C>
chello broadband Limited UPC 100%
chello broadband N.V. UPC 100%
chello broadband Nederland B.V. UPC 100%
chello broadband S.A.R.L. UPC 100%
Chippawa Pty Ltd. AUC
Citecable Auvergne S.A. UPC acq. 8/99-99%
Citecable Caladois S.A. UPC acq. 8/99-99%
Citecable centre Bretagne S.A. UPC acq. 8/99-99%
Citecable Essone S.A. UPC acq. 8/99-99%
Citecable Est S.A. UPC acq. 8/99-99%
Citecable Goussainville S.A. UPC acq. 8/99-99%
Citecalbe Haute-Saone S.A. UPC acq. 8/99-99%
Citecable Jurassienne S.A. UPC acq. 8/99-99%
Citecable Regions S.A. UPC acq. 8/99-99%
Citecable Rhone Aspes SA UPC acq. 8/99-99%
Citecable SA UPC acq. 8/99-99.9%
Citecable Saintonges S.A. UPC acq. 8/99-99%
Citereseau SA UPC acq. 8/99-99%
Continental Century Pay TV Pty Ltd. AUC 100%
Control Cable Ventures SRL 2/5/98 Ind.
CTV Pty Ltd. 2/5/98 Ind.;12-16-94RestrAff
CV American Holdings, LLC UIPI 100%
Diplomatic International Comimpex SRL UPC 70%
Dovevale Pty Ltd. 2/5/98 Ind.
Enalur S.A. (Chile) org. 6/98
Enalur S.A. (Uruguay) org. 6/97
Est Videopole S.A. UPC acq. 8/99-99%
Eurosat S.R.L. UPC 51%
EVT SP zo.o UPC 92%
Franche Comte Videopole S.A. UPC acq. 8/99-99%
GelreVision Holding B.V. UPC 100%
Ground Zero Media SP zo.o UPC acq. 8/5/99-100%
Grovern Pty Ltd. 2/5/98 Ind.
Herault Videopole SA UPC acq. 8/99-99%
Hungary Holding Co. 10/8/98 Reso.
Ilona Investments Pty Ltd. AUC 100%
Interactive Television Network, Inc. 77.5%; aff 2/16/95 Reso.
Intercomm France Holding SA UPC acq. 2/00-100%
Inversiones UIH Latin America Limitada ULA 99.9%;aff-2/5/98 Ind.
Iroise Videopole S.A. UPC acq. 8/99-99%
Jacolyn Pty Ltd. 2/5/98 Ind.
Kabel Net Brno A.S. 2/5/98 Ind.
Kabel Net Holding A.S. 2/5/98 Ind.
Kabelkom Holding Co. 10/8/98 Reso.
Kabelkom Management Co. 10/8/98 Reso.
KabelPlus A.S. UPC org. `99-100%
KabelPlus akoiova spolocnost UPC org. `99-100%
KabelPlus Bratislava SRO UPC org. `99-100%
KabelPlus CB A.S. UPC org. `99-100%
KabelPlus Jizni Morava A.S. UPC org. `99-100%
KabelPlus Praha A.S. UPC org. '99-100%
KabelPlus-Rodina sro UPC org. `99-80%
KabelPlus Sevemi Cechy A.S. UPC org. `99-100%
</TABLE>
<PAGE>
<TABLE>
<S> <C>
KabelPlus Sevemi Morava A.S. UPC org. `99-100%
KabelPlus Stredni Morava A.S. UPC org. `99-100%
KabelPlus Tel A.S. UPC org. `99-100%
KabelPlus Vychodne Slovensko SRO UPC org. '99-100%
KabelPlus Vychodni A.S. UPC org. `99-100%
Kabeltel s.r.o. 2/5/98 Ind.
Kabeltelevisie Amsterdam BV UPC 100%
Kabeltelevisie Eindhoven N.V. 2/5/98 Ind.
Keansburg Pty Ltd. 2/5/98 Ind.
Kidillia Pty Ltd. 2/5/98 Ind.
Kiwi Cable Company Ltd. Saturn 100%
Lebesa Holding BV UPC 100%
Loire Videopole S.A. UPC acq. 8/99-99%
Lystervale Pty Ltd. 2/5/98 Ind.
Maxi-Vu Pty Ltd. 2/5/98 Ind.
Maxinetwerken B.V. UPC 100%
Media Partic SA UPC acq. 8/99-99%
MediaReseaux S.A. 2/5/98 Ind.
Melita Partnership UII mgp;2/5/98Ind.-UnresAff
Minorite Pty Ltd. 2/5/98 Ind.
Monor Telfon Tarasag Rt. UPC acq. 95%;12/16/94 Reso.
Mozaic Entertainment, Inc. UPC acq. 8/5/99-100%
Multicanal Holdings SRL 2/5/98 Ind.
Multicanal Televisao por Cabo, SGPS, Ltda UPC 100%
Multitel S.A. org. 3/98
MundiTelecom UPC acq. 2/1/00-50.003%
NBS Nordic Broadcasting Services AB UPC acq. 8/4/99-UPC 100%
NEC Carling l'Hopital S.A. UPC acq. 8/99-99%
NEC Videopole S.A. UPC acq. 8/99-99%
Newcastle Microwave Pty Ltd. AUC 100%
Newcom S.A. acq. 4/29/99
Nord Videopole S.A. UPC acq. 8/99-99%
N.V. TeleKabel UPC 100%
N.V. TeleKabel Beheer UPC 100%
Open Net S.A. org. 12/97
Orloff Pty Ltd. 2/5/98 Ind.
Ouest Videopole S.A. UPC acq. 8/99-99%
Palara Vale Pty Ltd. 2/5/98 Ind.
Paruse B.V. UPC 100%
Plator Holding B.V. UPC 100%
Poland Cablevision (NL) BV UPC acq. 8/99-92%
Poland Communications, Inc. UPC acq. 8/99-100%
Polska Telewizja Kablowa SA UPC acq. 8/99-98%
Polska Telewizja Kablowa-Krakow S.A. UPC acq. 8/99-92%
Polska Telewizja Kablowa-Warshaw S.A. UPC acq. 8/99-92%
Priority Telecom N.V. UPC 100%
Priority Telecom Netherlands B.V. UPC 100%
Priority Telecom Norway S.A. UPC org. `99-100%
Priority Wireless B.V. UPC org. `99-100%
Priority Wireless Telecommunications GmbH UPC org. `99-100%
RC Bretagne Sud S.A. (f/k/a RCBS Lorient S.A.) UPC 95%
RC Indres S.A. (f/k/a RCI Chateauroux S.A.) UPC 95%
RC Nivemais S.A. (f/k/a RCN Nevers S.A.) UPC 95%
</TABLE>
<PAGE>
<TABLE>
<S> <C>
RC Yonnais S.A. (f/k/a RCY Roches S.A.) UPC 95%
RCA Cote d'Azur S.A. UPC 94%
RCC Cholet S.A. UPC 95%
RCH Hainaut S.A. UPC 95%
RCP Perigord S.A. UPC 95%
RCR Roanne S.A. UPC 94%
Red de Television y Servicios Por Cable S.A. acq. 4/29/99
Regicom Partenariat S.A. UPC acq. 8/99-99%
Research Enterprises, Inc. UGC 100%
Reseaux Cable France S.A. (f/k/a RCF Holding S.A.) UPC 95%
SatNet spol sro UPC org. `99- 97%
Saturn Communications Limited 2/5/98 Ind.
Saturn (NZ) Holding Company Pty Ltd. org. 6/99
Savoie Videopole S.A. UPC acq. 8/99-99%
Scaninvest I B.V. UPC 70%
Scaninvest II B.V. UPC 100%
Seine et Marne S.A. UPC acq. 8/99-99%
Selasa Holding B.V. UPC 100%
Selectronic SRL UPC 70%
Sirc Holding SNC UPC 99%
SIRC SNC UPC 96%
SLC Tignes S.A. UPC acq. 8/99-99%
Somerco Sarl UPC 78%
Sopron Varosi Kft UPC 79%
SpaceNet AB UPC acq. 8/99-100%
Starport SA UPC acq. 8/99-100%
Stipdon Investments B.V. 9/18/98 Reso.
Stjarn TV AB UPC acq. 8/99-100%
Stjarn TVnatet AB UPC acq. 8/99-100%
Stjarnen Multimedia Varlden AB UPC acq. 8/99-100%
Stockholms Kabel TV AB UPC acq. 8/99-100%
Stockholms Stads Televisions AB UPC acq. 8/99-100%
STV Pty Limited 2/5/98 Ind.;12/16/94RestAff
Sud Est Videopole S.A. UPC acq. 8/99-99%
Sud Ouest Videopole S.A. UPC acq. 8/99-99%
Szabinet Kft UPC 79%
Szolnex Kft UPC 79%
Tara Television Global Ltd. 2/5/98 Ind.-UPC100%
Tara Television Limited 2/5/98 Ind.-UPC 80%
Tara Television (UK) Limited 2/5/98 Ind.-UPC 80%
Telekabel-Fernsehnetz Region Baden Betriebs-GmbH 2/5/98 Ind.
Telekabel-Fernsehnetz Wiener Neustadt Neunkirchen Betriebs-GmbH 2/5/98 Ind.
Telekabel Graz GmbH 2/5/98 Ind.
TeleKabel Hungary N.V. 10/8/98 Reso.
Telekabel Klagenfurt GmbH 2/5/98 Ind.
Telekabel Omroep Facilitair Bedrijf B.V. UPC 100%
Telekabel Wien GmbH 2/5/98 Ind.
Teleweb Ltda. org. 11/98
Teleweb S.A. org. 5/98
Tishdoret Achzakot Ltd. 11/3/98 Reso/BinanSub
Trade A Technology A.S. UPC org. `99-100%
Trnavatel s.r.o. 2/5/98 Ind.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
TV Show Brasil S.A. acq. 9/98;9/19/97 ResAff
UAP Australia Programming Pty Ltd. AUC 100%
UCOM Latin America Finance Inc. org. 6/99
U.C.T. - Netherlands B.V. 11/3/98 Reso/BinanSub
UIH Asia Investment Co. 2/5/98 Ind.
UIH Asia, Ltd. 2/5/98 Ind.
UIH China Holdings, Inc. 2/5/98 Ind.
UIH do Brasil Tecnologia Ltda. 2/5/98 Ind.
UIH Hunan, Inc. 2/5/98 Ind.
UIH ILO S.A. org. 1998
UIH Middle East, Inc. 2/5/98 Ind.
UIH Peru, S.A. 2/5/98 Ind.
UIH Philippines Holdings, Inc. 2/5/98 Ind.
UIH Romania Ventures, Inc. 2/5/98 Ind.
UIH-SFCC II, Inc. 2/5/98 Ind.
UIH-SFCC Holdings, L.P. 2/5/98 Ind.
UIH-SFCC L.P. 2/5/98 Ind.
UIH Taiwan Company Ltd. UGC 100%
UIH Venezuela, Inc. 2/5/98 Ind.;9/19/97Reso-Unrestr
UII Management UPC 100%
Uniport Communications B.V. UPC 80%
United Argentina, Inc. 2/5/98 Ind.
United Asia/Pacific Communications, Inc. 2/5/98 Ind.
United Austar, Inc. 2/5/98 Ind.
United Austar Transponder, Inc. (f/k/a UIH Austar Transponder, Inc.) 2/5/98 Ind.
United Australia Holdings, Inc. 2/5/98 Ind.
United Australia/Pacific, Inc. 2/5/98 Ind.
United Australia/Pacific Finance, Inc. 2/5/98 Ind.
United Brazil, Inc. 2/5/98 Ind.
United Chile, Inc. 2/5/98 Ind.
United Chile Ventures Inc. (f/k/a UIH Chile Ventures, Inc.) org. 4/99
United El Salvador, Inc. (f/k/a UIH El Salvador, Inc.) 2/5/98 Ind.
United Europe, Inc. 2/5/98 Ind.
United Hungary, Inc. (f/k/a UIH Hungary, Inc.) 2/5/98 Ind.
United International Holdings Argentina, S.A. 2/5/98 Ind.
United International Investments 11/3/98 Reso/Binan Sub;2/98Unrest
United International Properties, Inc. 2/5/98 Ind.
United Latin America, Inc. 2/5/98 Ind.
United Latin America Holdings, Inc. 2/5/98 Ind.
United Latin America Management, Inc. 2/5/98 Ind.
United Latin America Programming, Inc. (f/k/a UIH Latin 2/5/98 Ind.
America Programming, Inc.)
United Latin America Ventures Inc. (f/k/a UIHLA Ventures Inc.) 2/5/98 Ind.
United Management, Inc. 2/5/98 Ind.
United Mexico, Inc. (f/k/a UIH Mexico, Inc.) 2/5/98 Ind.
United Mexico Resources, Inc. (f/k/a UIH Mexico Resources, Inc.) 2/5/98 Ind.
United Mexico Ventures, Inc. (f/k/a UIH Mexico Ventures, Inc.) 2/5/98 Ind.
United Pan-Europe Communications N.V. 2/5/98 Ind.
United Peru, Inc. (f/k/a UIH Peru, Inc.) 2/5/98 Ind.
United Programming, Inc. 2/5/98 Ind.
United Taiwan, Inc. (f/k/a UIH Taiwan, Inc.) 2/5/98 Ind.
United UK, Inc. (f/k/a UIH UK, Inc.) 2/5/98 Ind.
United Wireless Pty Limited 2/5/98 Ind.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
United Wireless Systems Pty Ltd. AUC 81%
United Wireless (Wholesale) Pty Ltd. AUC 81%
UPC Belgium SA (f/k/a Radio Public NV/SA) 2/5/98 Ind.
UPC Czech Holding BV UPC 100%
UPC Facility B.V. UPC org. 7/20/99-100%
UPC France SA (fka Media Reseaux Marne SA) 2/5/98 Ind.
UPC Iberian Programming, Inc. (f/k/a Spanish Program Services C.V.) 2/5/98 Ind.
UPC Intermediates B.V. 9/18/98 Reso.
UPC Ireland Ltd. UPC org.8/99-100%
UPC Magyarorszag Kft. UPC 79%
UPC Nederland NV (fka United TeleKabel Holding N.V.) UPC 100%
UPC Norge AS (fka Janco Multicom A/S) 2/5/98 Ind.
UPC Programming B.V. UPC 100%
UPC Romania Holding B.V. UPC 100%
UPC Romania Holding VoF UPC org. `99-70%
UPC Romania, Inc. (fka UIH Romania, Inc.) 2/5/98 Ind.
UPC Services Ltd. UPC 100%
UPC Services Nederland BV UPC org. `99-100%
UPC Slovakia Holding BV UPC 100%
UPC Slovensko SRO (fka SKT SRO) UPC 100%
UPC Staffing, Inc. UPC org. `99-100%
UPC Switzerland AG UPC org. `99-100%
UTH II B.V. UPC org. `99-100%
Vermint Grove Pty Ltd. 2/5/98 Ind.
Videopole Assistance S.A. UPC acq. 8/99-99%
Videopole Publications S.A. UPC acq. 8/99-99%
Videopole S.A. UPC acq. 8/99-99%
Videopole Services S.A. UPC acq. 8/99-99%
VTR Cable Express S.A. acq. 4/29/99
VTR Cable Express (Chile) S.A. acq. 4/29/99
VTR Galaxy S.A. acq. 4/29/99
VTR Global Com S.A. (f/k/a VTR Hipercable, S.A.) acq. 4/29/99
VTR Net S.A. acq. 4/29/99
VTR Telefonica S.A. acq. 4/29/99
Weather 21 Pty Ltd. acq. 11/99; 9/17/99 Rest. Aff.
Windytide Pty Ltd. 2/5/98 Ind.
Wizja Television Ltd. UPC acq. 8/99
Wizja TV BV UPC acq. 8/99
Wizja TV SP zo.o UPC acq. 8/98
Wollongong Microwave Pty Ltd. AUC 100%
Xtek Bay Pty Ltd. 2/5/98 Ind.
Yanover Pty Ltd. 2/5/98 Ind.
Zeblas B.V. UPC 100%
Zomerwind Holding B.V. 10/8/98 Reso.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
B. Restricted Affiliates
<S> <C>
Construcciones Megapo de Acapulco, S.A. de C.V. acq. 1/14/00
Cuernamu, S.A. De C.V. 2/5/98 Ind.
Grupo Telecable de Mexico, S.A. de C.V. 2/5/98 Ind.
Hunan International Telecommunications Company Limited 6/16/95 Reso.
Iberian Programming Services C.V. 11/10/95 Reso;UPC 49.95%
Massive Interactive Pty Ltd. 3/24/00 Resol
Massive Media Pty Ltd. 3/24/00 Reso.
Massive Technologies Pty Ltd. 3/24/00 Resol
Mega Com-M Servicios, S.A. de C.V. 12/16/94 Reso.
Megapo Communicaciones de Mexico S.A. de C.V. 8/14/98 Reso.; 90% econ.
Melita Cable TV plc 11/3/98 Reso.
MGM Networks Latin America LLC 9/17/99
Multicanal TPS, S.A. 2/5/98 Ind.;UPC 50%
Nidlo B.V. 11/10/95 Reso.; UPC 50%
Selectra Pty Ltd. 9/17/99 Reso.; sub 2/5/98 Ind.
Societe Francaise des Communications et du Cable S.A. 12/16/94 Reso.
Telecable de Chilpancingo, S.A. de C.V. 12/16/94 Reso.
Telecable de Morelos, S.A. de C.V. 12/16/94 Reso.
Telecable Mexicano, S.A. de C.V. 12/16/94 Reso.
Telefenua S.A. 12/16/94 Reso.
Television Universidad de Talca S.A. 2/5/98 Ind.
Tevel Israel International Communications Ltd. 11/3/98 Reso.
TV Cabo e Comunicacoes de Jundiai S.A. (fka Jundiai TV Cable) 6/16/95 Reso.
United Mexico Communicaciones S.A. de C.V. 3/24/00 Reso.
Vinatech Pty Ltd. 9/17/99 Reso.; sub 2/5/98 Ind.
Vision por Cable de Oaxaca, S.A. de C.V. 12/16/94 Reso.
Xtra Music Limited 3/26/99 Reso.; UPC 41%
xyz Entertainment Pty Limited 6/16/95 Reso.
</TABLE>
<PAGE>
EXHIBIT 21.2
UNRESTRICTED SUSBIDIARIES OF THE COMPANY
<TABLE>
<S> <C>
Intercabo Atlantico - Communicacoes por Cabo S.A. 2/5/98 Ind.
Intercabo Capital - Communicacoes por Cabo S.A. 2/5/98 Ind.
Intercabo Centro - Televisao por Cabo S.A. 2/5/98 Ind.
Intercabo Norte - Communicacoes por Cabo S.A. 2/5/98 Ind.
Intercabo Sul - Communicacoes por Cabo S.A. 2/5/98 Ind.
Intercabo Televisao por Cabo S.A. 2/5/98 Ind.
UCI Enterprises, Inc. 2/5/98 Ind.
UIM Aircraft, Inc. 2/5/98 Ind.
United AML, Inc. (f/k/a UIH AML, Inc.) 2/5/98 Ind.
United Communications Finance, Inc. (f/k/a UIH Communications, Inc.) 2/5/98 Ind.
UPC Aviation Services, Inc. (fka UIH Turkey, Inc.) 2/5/98 Ind.
UPC Kft. 2/5/98 Ind.
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports, dated March 29, 2000 on UnitedGlobalCom, Inc. (f/k/a
United International Holdings, Inc.) included in this Annual Report on Form 10-
K, into the following previously filed Registration Statements of
UnitedGlobalCom, Inc.:
. Registration Statement No. 33-81876 on Form S-8, effective 7/22/94
. Registration Statement No. 333-00226 on Form S-8, effective 1/9/96
. Registration Statement No. 333-68641 on Form S-8, effective 12/9/98
. Registration Statement No. 333-71963 on Form S-8, effective 2/8/99
. Registration Statement No. 333-88085 on Form S-8, effective 9/29/99
. Registration Statement No. 333-90997 on Form S-3, effective 11/19/99
ARTHUR ANDERSEN LLP
Denver, Colorado
March 29, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report, dated March 29, 2000 on United International
Properties, Inc. included in this Annual Report on Form 10-K, into the following
previously filed Registration Statements of UnitedGlobalCom, Inc. (f/k/a United
International Holdings, Inc.):
. Registration Statement No. 33-81876 on Form S-8, effective 7/22/94
. Registration Statement No. 333-00226 on Form S-8, effective 1/9/96
. Registration Statement No. 333-68641 on Form S-8, effective 12/9/98
. Registration Statement No. 333-71963 on Form S-8, effective 2/8/99
. Registration Statement No. 333-88085 on Form S-8, effective 9/29/99
. Registration Statement No. 333-90997 on Form S-3, effective 11/19/99
ARTHUR ANDERSEN LLP
Denver, Colorado
March 29, 2000
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report, dated March 29, 2000 on United Europe, Inc. (f/k/a UIH
Europe, Inc.) included in this Annual Report on Form 10-K, into the following
previously filed Registration Statements of UnitedGlobalCom, Inc. (f/k/a United
International Holdings, Inc.):
. Registration Statement No. 33-81876 on Form S-8, effective 7/22/94
. Registration Statement No. 333-00226 on Form S-8, effective 1/9/96
. Registration Statement No. 333-68641 on Form S-8, effective 12/9/98
. Registration Statement No. 333-71963 on Form S-8, effective 2/8/99
. Registration Statement No. 333-88085 on Form S-8, effective 9/29/99
. Registration Statement No. 333-90997 on Form S-3, effective 11/19/99
ARTHUR ANDERSEN LLP
Denver, Colorado
March 29, 2000
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the incorporation by reference of
our report, dated March 19, 1999 on United Telekabel Holding, N.V. included in
this Annual Report on Form 10-K, into the following previously filed
Registration Statements of UnitedGlobalCom, Inc. (f/k/a United International
Holdings, Inc.):
. Registration Statement No. 33-81876 on Form S-8, effective 7/22/94
. Registration Statement No. 333-00226 on Form S-8, effective 1/9/96
. Registration Statement No. 333-68641 on Form S-8, effective 12/9/98
. Registration Statement No. 333-71963 on Form S-8, effective 2/8/99
. Registration Statement No. 333-88085 on Form S-8, effective 9/29/99
. Registration Statement No. 333-90997 on Form S-3, effective 11/19/99
ARTHUR ANDERSEN
Amstelveen, The Netherlands
March 29, 2000
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and Valerie L. Cover and/or Frederick G. Westerman III his
attorney-in-fact, with full power of substitution, for him in any and all
capacities, to sign the annual report on Form 10-K for the year ended December
31, 1999 of UnitedGlobalCom, Inc. (the "Company"), to be filed with the
Securities and Exchange Commission (the "Commission"), and all amendments
thereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Commission; granting unto said attorney-in-fact
full power and authority to perform any other act on behalf of the undersigned
required to be done in the premises, whereby ratifying and confirming all that
said attorney-in-fact may lawfully do or cause to be done on behalf of the
Company by virtue hereof.
March 13, 2000 /s/ Gene W. Schneider
--------------------------
Gene W. Schneider
March 13, 2000 /s/ Albert M. Carollo
--------------------------
Albert M. Carollo
March 13, 2000 /s/ John P. Cole, Jr.
--------------------------
John P. Cole, Jr.
March 13, 2000 /s/ Valerie L. Cover
--------------------------
Valerie L. Cover
March 13, 2000 /s/ Lawrence J. DeGeorge
--------------------------
Lawrence J. DeGeorge
March 13, 2000 /s/ Michael T. Fries
--------------------------
Michael T. Fries
March 13, 2000 /s/ John C. Malone
--------------------------
John C. Malone
March 13, 2000 /s/ John F. Riordan
--------------------------
John F. Riordan
March 13, 2000 /s/ Curtis W. Rochelle
--------------------------
Curtis W. Rochelle
March 13, 2000 /s/ Mark L. Schneider
--------------------------
Mark L. Schneider
March 13, 2000 /s/ Henry P. Vigil
--------------------------
Henry P. Vigil
March 13, 2000 /s/ Tina M. Wildes
--------------------------
Tina M. Wildes
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
UnitedGlobalCom, Inc.'s Forma 10-K for the year ended December 31, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,944,132
<SECURITIES> 629,689
<RECEIVABLES> 111,196
<ALLOWANCES> 27,808
<INVENTORY> 82,995
<CURRENT-ASSETS> 2,986,266
<PP&E> 2,862,361
<DEPRECIATION> 482,524
<TOTAL-ASSETS> 9,002,853
<CURRENT-LIABILITIES> 908,700
<BONDS> 5,989,455
26,920
678,898
<COMMON> 1,417,644
<OTHER-SE> (982,236)
<TOTAL-LIABILITY-AND-EQUITY> 9,002,853
<SALES> 719,524
<TOTAL-REVENUES> 719,524
<CGS> 452,515
<TOTAL-COSTS> 1,037,639
<OTHER-EXPENSES> 54,142
<LOSS-PROVISION> 7,127
<INTEREST-EXPENSE> 399,999
<INCOME-PRETAX> 331,179
<INCOME-TAX> (198)
<INCOME-CONTINUING> 636,318
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 636,318
<EPS-BASIC> 7.53
<EPS-DILUTED> 6.67
</TABLE>
