UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
the quarter ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to_________
Commission File No. 000-25365
United Pan-Europe Communications N.V.
(Exact name of Registrant as specified in its charter)
The Netherlands 84-1116217
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Fred. Roeskestraat 123, P.O. Box 74763
1070 BT Amsterdam, The Netherlands 1070 BT
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (31) 20-778-9840
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
The number of shares outstanding of the Registrant's common stock as of August
13, 1999 was:
130,201,499 ordinary shares A, including shares represented by American
Depository Receipts
UNITED PAN-EUROPE COMMUNICATIONS N.V.
TABLE OF CONTENTS
Page
Number
------
PART 1 - FINANCIAL INFORMATION
------------------------------
Item 1 - Financial Statements
- ------
Condensed Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 (Unaudited)....... 2
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1999
and 1998 (Unaudited).............................................................................. 3
Condensed Consolidated Statement of Shareholders' Equity (Deficit) for the Six Months Ended
June 30, 1999 (Unaudited)......................................................................... 4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999
and 1998 (Unaudited).............................................................................. 5
Notes to Condensed Consolidated Financial Statements (Unaudited).................................. 7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations...... 25
- ------
Item 3 - Quantitative and Qualitative Disclosure About Market Risk.................................. 44
- ------
PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings.......................................................................... 47
- ------
Item 2 - Change in Securities and Use of Proceeds................................................... 47
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Item 5 - Other Information.......................................................................... 48
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Item 6 - Exhibits and Reports on Form 8-K........................................................... 55
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UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in thousands of Dutch guilders, except share and per share amounts)
(Unaudited)
As of As of
June 30, December 31,
1999 1998
----------- -------------
ASSETS:
Current assets
Cash and cash equivalents......................................................................... 446,084 29,571
Restricted cash................................................................................... 10,650 30,263
Subscriber receivables, net of allowance for doubtful accounts of 6,938 and 9,260, respectively... 45,315 12,886
Costs to be reimbursed by affiliated companies, net of allowance for doubtful accounts of 139
and 0, respectively............................................................................. 20,638 27,277
Other receivables................................................................................. 54,179 25,845
Inventory......................................................................................... 71,078 24,121
Prepaid expenses and other current assets......................................................... 72,477 15,654
----------- -------------
Total current assets......................................................................... 720,421 165,617
Marketable equity securities of parent, at fair value............................................... 401,100 101,097
Investments in and advances to affiliated companies, accounted for under the equity method, net..... 436,225 493,051
Property, plant and equipment, net of accumulated depreciation of 266,097 and 87,708,
respectively...................................................................................... 1,930,525 602,997
Goodwill and other intangible assets, net of accumulated amortization of 88,354 and 39,109,
respectively...................................................................................... 1,603,904 680,032
Deferred financing costs, net of accumulated amortization of 5,072 and 9,288, respectively.......... 38,854 21,663
Other assets........................................................................................ 83,934 3,322
----------- -------------
Total assets................................................................................. 5,214,963 2,067,779
=========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT):
Current liabilities
Accounts payable, including related party payables of 9,477 and 15,671, respectively.............. 168,778 141,917
Accrued liabilities............................................................................... 126,884 56,840
Subscriber prepayments and deposits............................................................... 126,375 45,757
Short-term debt................................................................................... 8,112 63,322
Note payable to shareholder....................................................................... 13,872 175,012
Current portion of long-term debt................................................................. 12,971 113,519
----------- -------------
Total current liabilities.................................................................... 456,992 596,367
Long-term debt...................................................................................... 1,479,739 1,174,749
Deferred taxes...................................................................................... 39,618 8,657
Deferred compensation............................................................................... 3,673 327,445
Other long-term liabilities......................................................................... 8,075 8,801
----------- -------------
Total liabilities............................................................................ 1,988,097 2,116,019
----------- -------------
Minority interests in subsidiaries.................................................................. 26,729 25,934
Shareholders' equity (deficit) (As adjusted for the 3:2 stock split, see Note 10)
Priority stock, 0.661113 par value, 100 shares authorized, 100 and 0 shares issued,
respectively.................................................................................... - -
Ordinary stock, 0.661113 par value, 200,000,000 shares authorized, 129,246,123 and 92,285,604
shares issued, respectively..................................................................... 85,446 61,497
Additional paid-in capital........................................................................ 3,875,548 672,016
Deferred compensation............................................................................. (70,791) -
Treasury stock, at cost, 0 and 9,198,135 shares of ordinary stock, respectively................... - (110,385)
Accumulated deficit............................................................................... (1,028,220) (727,050)
Other cumulative comprehensive income ............................................................ 338,154 29,748
----------- -------------
Total shareholders' equity (deficit)......................................................... 3,200,137 (74,174)
----------- -------------
Total liabilities and shareholders' equity (deficit)......................................... 5,214,963 2,067,779
=========== =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-2-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of Dutch guilders, except share and per share amounts)
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
----------- ---------- ----------- ----------
Service and other revenue............................. 183,134 100,265 331,954 195,270
Operating expense..................................... (84,023) (35,212) (151,090) (66,111)
Selling, general and administrative expense........... (160,805) (34,823) (265,138) (62,374)
Depreciation and amortization......................... (85,206) (46,496) (148,404) (94,953)
----------- ---------- ----------- ----------
Net operating (loss) income..................... (146,900) (16,266) (232,678) (28,168)
Interest income....................................... 8,609 1,203 13,520 2,017
Interest expense...................................... (23,862) (25,421) (62,107) (48,155)
Gain on sale of assets................................ - - 14,625 -
Foreign exchange (loss) gain and other expense........ 12,740 (3,340) (2,595) (8,234)
----------- ---------- ----------- ----------
Net loss before income taxes and other items.... (149,413) (43,824) (269,235) (82,540)
Share in results of affiliated companies, net......... (12,896) (17,480) (33,168) (31,619)
Minority interests in subsidiaries.................... 192 1,481 115 1,722
Income tax benefit.................................... 1,486 395 1,118 1,114
----------- ---------- ----------- ----------
Net loss........................................ (160,631) (59,428) (301,170) (111,323)
=========== ========== =========== ==========
Basic and diluted net loss per ordinary share(1)...... (1.24) (0.72) (2.60) (1.34)
=========== ========== =========== ==========
Weighted-average number of ordinary shares
outstanding(1)...................................... 129,246,123 82,864,454 115,954,697 82,864,454
=========== ========== =========== ==========
(1) As adjusted for the 3:2 stock split (Note 10).
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-3-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)(2)
(Stated in thousands of Dutch guilders, except share and per share amounts)
(Unaudited)
Priority Stock Ordinary Stock Additional
----------------- --------------------- Paid-In Deferred Treasury
Shares Amount Shares (2) Amount Capital Compensation Shares (2) Amount
-------- -------- ------------ -------- ----------- ------------- ----------- --------
Balances, December 31, 1998.......... - - 92,285,604 61,497 672,016 - (9,198,135) (110,385)
Change in par value of
ordinary shares ................. - - - (486) 486 - - -
Issuance of priority shares ........ 100 - - - - - - -
Issuance of ordinary shares
in public offering, net of
offering costs................... - - 35,401,865 23,405 2,526,270 - 9,198,135 110,385
Issuance of convertible debt ....... - - - - 29,006 - - -
Issuance of ordinary shares
upon exercise of DIC
option .......................... - - 1,558,654 1,030 88,619 - - -
Issuance of warrants ............... - - - - 64,400 - - -
Change in stock option
plan due to public
offering ........................ - - - - 310,099 (31,772) - -
Deferred compensation
expense related to
stock options, net .............. - - - - 184,652 (132,276) - -
Amortization of deferred
compensation .................... - - - - - 93,257 - -
Unrealized gain on
investment....................... - - - - - - - -
Change in cumulative
translation adjustments ........ - - - - - - - -
Net loss .......................... - - - - - - - -
----- ------ ------------ -------- ----------- ------------ ----------- --------
Balances, June 30, 1999 ............. 100 - 129,246,123 85,446 3,875,548 (70,791) - -
===== ====== ============ ======== =========== ============ =========== ========
Cumulative
Comprehensive
Accumulated Income
Deficit (Loss) (1) Total
----------- ------------- ---------
Balances, December 31, 1998.......... (727,050) 29,748 (74,174)
Change in par value of
ordinary shares ................. - - -
Issuance of priority shares ........ - - -
Issuance of ordinary shares
in public offering, net of
offering costs................... - - 2,660,060
Issuance of convertible debt ....... - - 29,006
Issuance of ordinary shares
upon exercise of DIC
option .......................... - - 89,649
Issuance of warrants ............... - - 64,400
Change in stock option
plan due to public
offering ........................ - - 278,327
Deferred compensation
expense related to
stock options, net .............. - - 52,376
Amortization of deferred
compensation .................... - - 93,257
Unrealized gain on
investment....................... - 300,003 300,003
Change in cumulative
translation adjustments ........ - 8,403 8,403
Net loss .......................... (301,170) - (301,170)
---------- --------- ----------
Balances, June 30, 1999 ............. (1,028,220) 338,154 3,200,137
========== ========= ==========
(1) As of December 31, 1998, Other Cumulative Comprehensive Income represents
foreign currency translation adjustments of (12,649) and unrealized gain on
investment of 42,397. As of June 30, 1999, Other Cumulative Comprehensive Income
represents foreign currency translation adjustments of (4,246) and unrealized
gain on investment of 342,400.
(2) As adjusted for the 3:2 stock split (Note 10).
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-4-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of Dutch guilders, except share and per share amounts)
(Unaudited)
For the Six Months
Ended June 30,
--------------------------
1999 1998
---------- ----------
Cash flows from operating activities:
Net loss................................................. (301,170) (111,323)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization........................ 148,404 94,953
Amortization of deferred financing costs............. 2,043 4,299
Accretion of DIC Loan................................ 10,111 -
Share in results of affiliated companies, net........ 33,168 31,619
Compensation expense related to stock options........ 100,186 406
Minority interests in subsidiaries................... (115) (1,722)
Exchange rate differences in loans................... 442 (1,405)
Gain on sale of investment........................... (14,625) -
Loss on repayment of loan............................ 5,012 -
Other................................................ (884) 1,667
Changes in assets and liabilities:
Increase in receivables........................... (42,017) (11,150)
Increase in inventories........................... (37,277) (4,392)
Increase in other non-current assets.............. (27,288) (845)
Increase in other current liabilities............. 56,125 52,701
Increase (decrease) in deferred taxes and other
long-term liabilities........................... 6,098 (4,095)
---------- ----------
Net cash flows from operating activities................. (61,787) 50,713
---------- ----------
Cash flows from investing activities:
Restricted cash (deposited) released, net................ 19,613 9,010
Investment in bonds...................................... (34,493) -
Investments in and advances to affiliated companies, net. (50,985) (486)
Capital expenditures..................................... (315,377) (97,545)
New acquisitions, net of cash acquired................... (871,161) (190,505)
Sale of affiliated companies............................. 36,687 -
---------- ----------
Net cash flows from investing activities................. (1,215,716) (279,526)
---------- ----------
Cash flows from financing activities:
Proceeds from initial public offering, net............... 2,660,060 -
Proceeds from exercise of option......................... 89,649 -
Proceeds from short-term borrowings...................... 15,394 -
Proceeds from long-term borrowings....................... 682,260 270,889
Deferred financing costs................................. (10,598) (3,074)
Repayments of long and short-term borrowings............. (1,549,273) (205,993)
(Repayments) borrowings on note payable to shareholder... (157,437) 129,925
Repayments on short-term note............................ (36,358) -
---------- ----------
Net cash flows from financing activities................. 1,693,697 191,747
---------- ----------
Effect of exchange rates on cash......................... 319 (910)
---------- ----------
Net increase (decrease) in cash and cash equivalents..... 416,513 (37,976)
Cash and cash equivalents at beginning of period......... 29,571 100,144
---------- ----------
Cash and cash equivalents at end of period............... 446,084 62,168
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-5-
For the Six Months
Ended June 30,
--------------------------
1999 1998
--------- --------
Non-cash investing and financing activities:
Unrealized gain on investment................... 300,003 36,632
========= ========
Issuance of warrants............................ 64,400 -
========= ========
Purchase Money Note Payable to Sellers........... - 36,720
========= ========
Supplemental cash flow disclosures:
Cash paid for interest.......................... (75,050) (34,816)
========= ========
Cash received for interest...................... 12,638 1,030
========= ========
Acquisition of 49% of UTH:
Property, plant and equipment................... (349,306) -
Investments in affiliated companies............. (91,319) -
Goodwill........................................ (560,880) -
Long-term liabilities........................... 472,945 -
Net current liabilities......................... 10,499 -
--------- --------
Total cash paid............................. (518,061) -
Cash acquired............................... 26,576 -
--------- --------
(491,485) -
========= ========
Acquisition of Dutch Cable assets:
Property, plant and equipment and other assets..... - (106,000)
Goodwill........................................... - (74,762)
--------- --------
Total cash paid................................ - (180,762)
========= ========
Acquisition of 100% of GelreVision:
Property, plant and equipment...................... (105,237) -
Goodwill........................................... (143,423) -
Long-term liabilities.............................. 9,023 -
Net current liabilities............................ 5,712 -
--------- --------
Total cash paid................................ (233,925) -
Cash acquired.................................. 290 -
--------- --------
(233,635) -
========= ========
Acquisition of 100% of SKT:
Property, plant and equipment...................... (42,003) -
Goodwill........................................... (42,127) -
Net current assests................................ (6,520) -
--------- --------
Total cash paid................................ (90,650) -
Cash acquired.................................. 2,449 -
--------- --------
(88,201) -
========= ========
Acquisition of 95.7% of RCF:
Property, plant and equipment...................... (113,417) -
Goodwill........................................... (13,633) -
Net current assets................................. (12,241) -
Long-term liabilities.............................. 81,382 -
--------- --------
Total cash paid................................ (57,909) -
Cash acquired.................................. 69 -
--------- --------
(57,840) -
========= ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-6-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999
(Monetary amunts stated in thousands of Dutch guilders,
except share and per share amounts)
(Unaudited)
1. Organization and Nature of Operations
United Pan-Europe Communications N.V. (''UPC'' or the ''Company'') was
established as a joint venture for the purpose of acquiring and developing
multi-channel television and telecommunications systems in Europe. On July 13,
1995, UnitedGlobalCom, Inc. (''United''), a United States of America
corporation, and Philips Electronics N.V. (''Philips''), contributed their
respective ownership interests in European and Israeli multi-channel television
systems to UPC. As a result of this transaction, United and Philips each owned
a 50% economic and voting interest in UPC. On December 11, 1997, United
acquired Philips' 50% interest in UPC (the ''UPC Acquisition''), thereby making
it an effectively wholly-owned subsidiary of United (subject to certain employee
equity incentive compensation arrangements). In February 1999, UPC concluded an
initial public offering. Through its broadband cable-based communications
networks, UPC offers cable television services in 10 countries in Europe and in
Israel and Internet/data and voice services in 3 and 6 European countries,
respectively.
The following chart presents a summary of the Company's significant
investments in multi-channel television, programming, Internet/data and
telephony operations as of June 30, 1999:
Austria:
Telekabel Group ("Telekabel Group")...................... 95.0%
Belgium:
Radio Public N.V./S.A. ("TVD")........................... 100.0%
Czech Republic:
KabelNet................................................. 100.0%
France:
Mediareseaux Marne S.A. ("Mediareseaux") (1)............. 99.6%
Reseaux Cables de France ("RCF")......................... 95.7%
Hungary:
Telekabel Hungary ("Telekabel Hungary").................. 79.25%
Monor Communications Group, Inc. ("Monor")............... 47.54%
Ireland:
Tara Televison Limited ("Tara").......................... 80.0%
Israel:
Tevel Israel International Communications Ltd. ("Tevel"). 46.6%
Malta:
Melita Cable TV P.L.C. ("Melita")........................ 50.0%
The Netherlands:
United Telekabel Holding N.V. ("UTH").................... 100.0%
A2000 Holding N.V. ("A2000") (2)......................... 50.0%
Priority Telecom N.V. ................................... 100.0%
chello Broadband N.V. ("chello")......................... 100.0%
UPC Programming B.V. ("UPCtv")........................... 100.0%
Norway:
Janco Multicom ("Janco Multicom")........................ 100.0%
Romania:
Multicanal Holdings...................................... 100.0%
Control Cable Ventures................................... 100.0%
Eurosat.................................................. 51.0%
Diplomatic International srl............................. 100.0%
Slovak Republic:
Trnavatel................................................ 75.0%
Kabeltel................................................. 100.0%
S.K.T. spol s.r.o. ("SKT")............................... 100.0%
Spain:
Ibercom, Inc. ("IPS").................................... 50.0%
United Kingdom:
Xtra Music Ltd. ....................................... 41.0%
(1) The minority shareholder holds warrants giving it the right to
purchase for a nominal amount new shares corresponding to 4.6%
of Mediareseaux's share capital. Accordingly, we have a 95%
economic interest in Mediareseaux.
(2) Our investment in A2000 is held through UTH.
-7-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company
have been prepared in accordance with United States generally accepted
accounting principles. The preparation of financial statements in conformity
with United States generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
In February 1999, UPC acquired programming assets from United through the
issuance of new shares (see Note 3). As this acquisition was between entities
under common control, the transaction was accounted for at historical cost,
similar to pooling-of-interests accounting. It is generally accepted that,
consistent with pooling-of-interests accounting, prior period financial
statements of the transferee are restated for all periods in which the
transferred operations were part of the parent's consolidated financial
statements. Accordingly, we have restated all periods presented as if UPC had
acquired the programming assets from United as of the date of United's initial
investment.
In management's opinion, all adjustments of a normal, recurring nature have
been made which are necessary to present fairly the financial position of the
Company as of June 30, 1999 and the results of its operations for the six and
three months ended June 30, 1999 and 1998. For a more complete understanding of
the Company's financial position and results of operations see the consolidated
financial statements of the Company included in the Company's annual report on
Form 10-K for the year ended December 31, 1998.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of UPC and all subsidiaries where it exercises a controlling financial
interest through the ownership of a majority voting interest, except for UTH
from inception through February 1, 1999, where because of certain minority
shareholder's rights the Company accounted for its investment in UTH using the
equity method of accounting. On February 17, 1999, UPC acquired the minority
shareholder's interest in UTH and began consolidating UTH effective February 1,
1999. All significant intercompany accounts and transactions have been
eliminated in consolidation.
New Accounting Principles
In March 1998, the American Institute of Certified Public Accountants
("AICPA") 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. The Company adopted SOP 98-1 effective January 1,
1999 with no material effect on its financial statements.
The AICPA recently issued Statement of Position 98-5, ''Reporting on the
Costs of Start-Up Activities'' (''SOP 98-5''). 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.
The Company adopted SOP 98-5 effective January 1, 1999 with no material effect
on its financial statements.
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. In June 1999, the FASB
approved Statement of Financial Accounting Standards No. 137,
-8-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 amends the
effective date of SFAS 133. SFAS 133 will now be effective for fiscal quarters
of all fiscal years beginning after June 15, 2000. The Company currently is
assessing the effect of this new standard.
3. Acquisitions and Dispositions
UTH
On August 6, 1998, UPC merged its Dutch cable television systems with those
of NUON, forming a new company, UTH (the ''UTH Transaction''), which was
accounted for as the formation of a joint venture with NUON's and UPC's net
assets recorded at their historical carrying values. Following the merger, UPC
held 51% of UTH. The agreement provided UPC with a call option to acquire an
additional interest in UTH and NUON a put option to require UPC to purchase part
of NUON's interest in UTH. The UTH shareholder agreement provided for
essentially joint governance by NUON and UPC on almost all significant
participating and protective type rights, accordingly, 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, the Company acquired the remaining 49% of UTH from NUON
(the "NUON Transaction") for 518.1 million. In addition, UPC repaid NUON and
assumed from NUON a 33.3 million subordinated loan, including accrued interest,
dated December 31, 1998, owed by UTH to NUON. The purchase of NUON's interest
and payment of the loan were funded with proceeds from UPC's initial public
offering. Effective February 1, 1999, UPC began consolidating its investment in
UTH. Details of the net assets acquired, based on preliminary purchase price
allocations using information currently available, were as follows:
Property, plant and equipment ...................... 349,306
Investments in affiliated companies................. 91,319
Goodwill............................................ 560,880
Long-term liabilities............................... (472,945)
Net current liabilities............................. (10,499)
-----------
Total cash paid..................... 518,061
===========
The following pro forma condensed consolidated operating results for the six
months ended June 30, 1999 and 1998 give effect to the UTH Transaction and the
NUON Transaction as if they both 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 date. The pro forma
adjustments are based upon currently available information and upon certain
assumptions that management believes are reasonable.
For the Six Months Ended For the Six Months Ended
June 30, 1999 June 30, 1998
---------------------------- -----------------------------
Historical Pro Forma Historical Pro Forma
----------- ------------ ------------ -------------
Service and other revenue.......... 331,954 351,798 195,270 269,598
=========== ============ ============ =============
Net loss........................... (301,170) (308,009) (111,323) (129,928)
=========== ============ ============ =============
Weighted-average number of
ordinary shares outstanding.... 115,954,697 115,954,697 82,864,454 82,864,454
=========== ============ ============ =============
Basic and diluted net loss
per ordinary share............ (2.60) (2.66) (1.34) (1.57)
=========== ============ ============ =============
-9-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Purchase of Programming Assets from United
In February 1999, in exchange for 4,955,264 newly-issued ordinary shares,
United sold to the Company their approximately 33.5% interest in IPS, a group of
programming entities focusing on the Spanish and Portuguese-speaking markets.
Because this was an exchange between entities under common control, the Company
has restated its financial statements for all periods in which the operations of
IPS were part of United's consolidated financial statements (see Note 2). In
May 1999, the Company acquired a further 16.5% interest in IPS from an
unaffiliated party for approximately USD7.6 million (15.6 million), increasing
its ownership to 50%.
Acquisition of SKT
In June 1999, UPC completed the acquisition of S.K.T. spol s.r.o., which
operates a cable television system in Bratislava, the capital of the Slovak
Republic. The purchase price was USD43.25 million (90.7 million) and was
accounted for under purchase accounting. This system passed approximately
168,000 homes and had approximately 158,000 subscribers as June 30, 1999.
Acquisition of GelreVision
In June 1999, UPC acquired through UTH 100% of the GelreVision multi-channel
television systems in The Netherlands. The acquisition increased UPC's homes
passed by 145,000 and its subscribers base by 132,000, based on June 30, 1999
data. The Company paid 233.9 million for GelreVision. These systems are
contiguous to UPC's A2000 and TeleKabel Beheer operations. The acquisition was
accounted for under purchase accounting.
Effective June 1, 1999, UPC began consolidating its investment in
GelreVision. Details of the net assets acquired, based on preliminary purchase
price allocations using information currently available, were as follows:
Property, plant and equipment..................... 105,237
Goodwill.......................................... 143,423
Long-term liabilities............................. (9,023)
Net current liabilities........................... (5,712)
--------
Total cash paid........................... 233,925
========
The following pro forma condensed consolidated results for the six months
ended June 30, 1999 and 1998 give effect to the acquisition of GelreVision as if
it 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 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.
For the Six Months Ended For the Six Months Ended
June 30, 1999 June 30, 1998
---------------------------- ---------------------------
Historical Pro Forma Historical Pro Forma
----------- ------------ ----------- -----------
Service and other revenue.......... 331,954 344,355 195,270 208,364
=========== ============ =========== ============
Net loss........................... (301,170) (309,918) (111,323) (119,088)
=========== ============ =========== ============
Weighted-average number of
ordinary shares outstanding.... 115,954,697 115,954,697 82,864,454 82,864,454
=========== ============ =========== ============
Basic and diluted net loss
per ordinary share............ (2.60) (2.67) (1.34) (1.44)
=========== ============ =========== ============
-10-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Agreement for the Acquisition of Time Warner Cable France
In March 1999, UPC and Time Warner Entertainment reached a definitive
agreement for the purchase by UPC of 100% of Time Warner Cable France, a company
which controls and operates three cable TV systems in the suburbs of Paris and
Lyon and the city of Limoges. Completion of the purchase, which is subject to
regulatory approval, is expected to take place in the third quarter of 1999.
The systems passed approximately 232,000 homes and had approximately 69,000
subscribers as of June 30, 1999. The purchase price for Time Warner Cable
France is approximately USD71.0 million (151.2 million).
Acquisition of Reseaux Cables de France
In June 1999, UPC acquired 95.7% of Reseaux Cables de France, the fifth
largest cable television operation in France, which operates cable television
systems throughout France. These systems passed approximately 202,000 homes and
had an aggregate of approximately 74,000 subscribers as of June 30, 1999. The
purchase price was approximately FFR172.0 million (57.8 million) and was
accounted for under purchase accounting. This acquisition is currently subject
to pending arbitration proceedings between the seller and a third party and
UPC's purchase of RCF may be challenged following the conclusion of this
arbitration.
Agreement for the Acquisition of A2000
In June 1999, UPC agreed to acquire the 50% interest in A2000 that it did not
already own for USD229.0 million (487.8 million). A2000 operates systems serving
Amsterdam and its surrounding communities of Landsmeer, Purmerend, Zaanstad,
Ouder-Amstel and Hilversum. A2000 systems passed 580,000 homes and had
approximately 532,000 cable subscribers, 26,000 cable telephone subscribers and
14,400 high-speed Internet subscribers as of June 30, 1999.
Agreement for the Acquisition of Kabel Plus
In June 1999, UPC agreed to acquire MediaOne's interest in Kabel Plus, which
currently is approximately 94.6%. Kabel Plus owns and operates cable television
and telephony systems in the Czech and Slovak Republics. The systems of Kabel
Plus passed approximately 620,000 homes and had an aggregate of approximately
359,000 subscribers as of June 30, 1999. The purchase price is USD150.0 million
(319.5 million).
-11-
4. Investments in and Advances to Affiliated Companies, Accounted for Under the
Equity Method
As of June 30, 1999
--------------------------------------------------------------------------------------------------
Investments in Cumulative Cumulative Cumulative
and Advances to Dividends Share in Results of Translation
Affiliated Companies Received Affiliated Companies Adjustments Total
-------------------- ---------- --------------------- ------------- ----------
A2000................... 192,822 - (26,078) - 166,744
Tevel................... 197,644 (12,121) (4,334) 13,047 194,236
Melita.................. 27,984 - 1,638 859 30,481
Monor................... 9,890 - (3,123) (14,909) (8,142)
Xtra Music.............. 20,097 - (3,402) 606 17,301
IPS..................... 26,709 - 386 3,704 30,799
Other, net.............. 4,938 - (137) 5 4,806
-------------------- ---------- --------------------- ------------- ----------
Total................... 480,084 (12,121) (35,050) 3,312 436,225
==================== ========== ===================== ============= ==========
As of December 31, 1998
-------------------------------------------------------------------------------------------------
Investments in Cumulative Cumulative Cumulative
and Advances to Dividends Share in Results of Translation
Affiliated Companies Received Affiliated Companies Adjustments Total
-------------------- ---------- -------------------- ------------ ----------
UTH (1)................. 272,508 - (22,780) - 249,728
Tevel................... 191,716 (12,121) (777) (9,562) 169,256
Melita.................. 28,018 - 1,985 (141) 29,862
Telekabel Hungary
Programming (2)..... 24,404 - (7,723) (787) 15,894
Monor................... 21,358 - (4,916) (14,835) 1,607
Xtra Music.............. 10,598 - (1,067) - 9,531
IPS..................... 10,419 - (337) 2,514 12,596
Other, net.............. 4,568 - 9 - 4,577
--------------------- ---------- --------------------- ------------ ----------
Total................... 563,589 (12,121) (35,606) (22,811) 493,051
===================== ========== ===================== ============ ==========
(1) In February 1999, the Company acquired the remaining 49% of UTH and began
consolidating UTH as of February 1, 1999 (See Note 3).
(2) Represents the Company's remaining investment in Telekabel Hungary
Programming after the transaction with TWE.
In March 1999, UPC sold the remaining investment in Telekabel Hungary
Programming.
- 12-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summary financial information for UTH is as follows:
For the
One Month
Ended
January 31,
1999
--------------
Revenue........................................ 19,844
Costs.......................................... (12,629)
Depreciation and amortization.................. (8,246)
--------------
Net operating loss..................... (1,031)
Share in results of affiliated companies....... (5,022)
Financial charges and other.................... (4,768)
Income tax (provision) benefit................. 242
--------------
Net loss............................... (10,579)
==============
5. Marketable Equity Securities of Parent
As of June 30, 1999, a subsidiary of UPC owned 2,784,620 shares of United's
Class A Common shares, valued at fair market value of 401,100. The fair market
value of the shares at December 31, 1998 was 101,097, resulting in an unrealized
gain of 300,003 for the six months ended June 30, 1999.
6. Property, Plant and Equipment
As of As of
June 30, December 31,
1999 1998
----------- ------------
Cable distribution networks................... 1,897,643 466,087
Subscriber premises equipment and converters.. 131,783 134,527
MMDS distribution facilities.................. 15,284 13,873
Office equipment, furniture and fixtures...... 28,354 35,294
Buildings and leasehold improvements.......... 32,834 12,754
Other......................................... 90,724 28,170
----------- ------------
2,196,622 690,705
Accumulated depreciation............. (266,097) (87,708)
----------- ------------
Net property, plant and equipment.... 1,930,525 602,997
=========== ============
-13-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Goodwill and Other Intangible Assets
As of As of
June 30, December 31,
1999 1998
------------ ------------
UTH......................................... 847,369 -
Telekabel Group............................. 389,382 389,513
Janco Multicom.............................. 185,221 165,494
Telekabel Hungary........................... 95,139 97,429
TVD......................................... 44,928 42,189
UPC ........................................ 64,400 -
SKT Bratislava.............................. 42,301 -
RCF......................................... 13,633 -
Other....................................... 9,885 24,516
---------- ----------
1,692,258 719,141
Accumulated amortization........... (88,354) (39,109)
---------- ----------
Net goodwill and other intangible
assets........................... 1,603,904 680,032
========== ==========
8. Short-Term Debt
Time Warner Note
Short-term debt as of December 31, 1998 includes the USD18.0 million (34,020)
non-interest bearing Time Warner Note. In March 1999, the Time Warner Note was
repaid as TWE exercised its option to acquire UPC's 50% interest in HBO Hungary
and 100% interest in TV Max.
Telekabel Hungary Facility
In October 1998, Telekabel Hungary entered into a DM65.6 million (74.0
million) six-month secured bridge facility. As of December 31, 1998, the amount
outstanding under this facility totaled DM26.0 million (29.3 million). In
April 1999, a subsidiary of UPC repaid the balance of the Telekabel Hungary
Facility.
9. Long-Term Debt
As of As of
June 30, December 31,
1999 1998
----------- ------------
Senior Revolving Credit Facility.... 458,024 968,018
New Telekabel Facility.............. 539,909 -
CNBH Facility....................... 239,495 -
Bridge Bank Facility................ - 113,519
Mediareseaux Facility............... 69,495 40,344
RCF Facility........................ 81,382 -
Bank and other loans................ 104,405 166,387
---------- -----------
1,492,710 1,288,268
Less current portion....... (12,971) (113,519)
---------- -----------
Total...................... 1,479,739 1,174,749
========== ===========
-14-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Senior Revolving Credit Facility
In October 1997, UPC and Norkabel as borrowers entered into a 1,100,000
multi-currency revolving credit facility ("Senior Revolving Credit Facility")
with a syndicate of banks. In December 1997, Telekabel Wien and the other
members of the Telekabel Group also became borrowers under the Senior Revolving
Credit Facility. Although not a borrower, TVD is a guarantor under the Senior
Revolving Credit Facility. Norkabel was succeeded as a borrower by Janco
Multicom after the merger of Janco and Norkabel. In February 1999, the facility
amount was reduced from 1,100,000 to 1,000,000. As of June 30, 1999, the amount
outstanding under the Senior Revolving Credit Facility for UPC, Telekabel Wien
and Janco Multicom was 0, 256,403 and 201,621 respectively. Amounts advanced
under the Senior Revolving Credit Facility bear interest at the London interbank
offered rate (''LIBOR'') plus a margin ranging from 0.5% to 2.0% per annum. The
aggregate amount available for borrowing under the facility is reduced
automatically by 5.0% per quarter beginning December 31, 2001. The borrowings of
the Company and its subsidiaries in Austria, Belgium and Norway are limited by
financial covenants under the Senior Revolving Credit Facility. The principal
amount of all borrowings by the Company and such subsidiaries may not exceed
certain multiples of total annualized net operating cash flow for the Company
and such subsidiaries. In addition, the principal amount of all borrowings of
the Company and such subsidiaries may not exceed certain multiples of their
cable television net operating cash flow. The Senior Revolving Credit Facility
generally prohibits dividends and other distributions to shareholders of the
Company unless, among other things, the Company achieves for at least two
consecutive quarters certain financial ratios. The Senior Revolving Credit
Facility also includes financial covenants relating to interest and debt service
coverage and application of proceeds from asset sales and securities offerings.
In July 1999, the outstanding debt under this facility was refinanced with a new
Senior Credit Facility. See Note 13.
New Telekabel Facility
In March 1999, UTH replaced their existing 690.0 million facility with a
senior facility ("New Telekabel Facility") and additional shareholder loans. The
New Telekabel Facility consists of a Euro340.0 million (750 million) revolving
facility to N.V. Telekabel Beheer that will convert to a term facility on
December 31, 2001. Euro5.0 million of this facility will be in the form of an
overdraft facility that will be available until December 31, 2007. The New
Telekabel Facility was used to repay a portion of the UTH facility and for
capital expenditures. The facility bears interest at the Euro Interbank Offered
Rate ("EURIBOR") plus a margin between 0.75% and 2.00% based on leverage
multiples tied to N.V. Telekabel's operating cash flow. The New Telekabel
Facility is secured, among other things, by a pledge over shares held by the
borrower and will restrict N.V. Telekabel Beheer's ability to incur additional
debt.
CNBH Facility
In February 1998, CNBH entered into a secured 250.0 million ten-year term
facility with a syndicate of banks led by Rabobank. In August 1998, this
facility was increased to 266.0 million. Most of the proceeds were used to repay
in full a Combivisie bridge facility entered into in connection with the
acquisition of Combivisie (122.0 million) and a KTE bank facility (65.0
million). The remaining amount under this facility is available to finance
certain capital expenditures. Beginning in 2001, CNBH will be required to apply
50% of its excess cash flow to prepayment of its facility. The facility
restricts the payment of dividends and distributions and limits the amount of
payments to us under our general services agreement. In January 1999, this
facility was increased to 274.0 million. In connection with this facility, we
entered into a project support agreement providing, among other things, for us
to retain majority ownership of CNBH. In connection with this facility, CNBH
also entered into a 5.0 million ten-year term working capital facility with
Rabobank.
Bridge Bank Facility
In connection with the UPC Acquisition, the Company entered into the
consolidated USD125.0 million term bridge bank facility ("Bridge Bank Facility")
with a syndicate of banks. In February 1999, UPC repaid the Bridge Bank
Facility with proceeds from the initial public offering.
-15-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Mediareseaux Facility
In July 1998, Mediareseaux entered into an 9.5 year term facility with a
bank for an amount of FFR680.0 million ("Mediareseaux Facility"). The purpose
of the facility is to finance on-going capital expenditures, working capital and
acquisitions with a limit of FFR120.0 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% of its excess cash flow in prepaying the facility.
The Mediareseaux Facility generally restricts the payment of dividends and
distributions. This facility also restricts Mediareseaux from incurring
additional indebtedness, subject to certain exceptions. In July 1998,
Mediareseaux secured a 9.5 year FFR20.0 million overdraft facility, subject to
the same terms and conditions as the Mediareseaux Facility except that the
availability tests are not applicable.
RCF Credit Facility
In 1990, RCF and six of its subsidiaries entered into a FFR160.0 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 million
to refinance three further credit facilities entered into by other subsidiaries
of RCF with a consortium of banks in an aggregate amount of FFR108.0 million in
1993. The loan bears an interest rate of PIBOR (the French interbank offer
rate) plus 1.5%, payable in arrears quarterly. The loan has to be repaid in
yearly installments of FFR34.6 million beginning at the end of 1999 until
December 31, 2005. Subject to certain exceptions, the loan restricts RCF and
certain of its subsidiaries from incurring certain additional indebtedness, from
having liens on or disposing of certain assets, from merging or consolidating
and from dividend payments.
DIC Loan
In November 1998, a subsidiary of Discount Investment Corporation ("DIC")
loaned the Company a total of USD90.0 million ("DIC Loan") to acquire the
additional interests in Tevel and Melita. The DIC Loan matures in November 2000
and is secured by the Company's pledge of its ownership interest in Tevel. The
DIC Loan bears interest at 8% and is payable, together with 106% of the
principal amount, on maturity. The DIC Loan may be repaid on quarterly
prepayment dates with three months' prior notice by the Company. In connection
with the DIC Loan, UPC granted to an affiliate of DIC an option to acquire a
total of USD90.0 million, plus accrued interest, of ordinary shares of UPC at a
price equal to 90% of the initial public offering price. UPC allocated the
USD90.0 million in loan proceeds between the debt instrument and the equity
option element on the basis of relative fair values. Accordingly, the effective
interest rate on the debt instrument exceeds the stated rate as set forth above.
In February 1999, the option agreement was amended, resulting in a grant of two
options of USD45.0 million each. In February 1999, DIC exercised the first
option for USD45.0 million and received 1,558,654 ordinary shares. UPC repaid
USD45.0 million of the DIC Loan and accrued interest with the proceeds received
from the option exercise. The remaining option to acquire USD45.0 million,
plus accrued interest, of ordinary shares is at a price equal to the 30 day
average closing price of our shares on the Amsterdam Stock Exchange, or the
initial public offering price, whichever is higher. The remaining option is
exercisable until September 30, 2000.
10. Shareholders' Equity
In February 1999, the Company's shareholders approved an amendment and
restatement of the Company's Articles of Association to effect a 3 for 2 stock
split and an increase in the number of authorized ordinary shares to
200,000,000, which was legally effected before the Company's initial public
offering. Therefore, all share and per share amounts in the accompanying
condensed consolidated financial statements and notes thereto have been
retroactively restated to reflect this event. The Company's shareholders also
approved the issuance of 100 priority shares, which have special approval and
other rights, to United. In addition, the Company's Articles of Association were
amended and restated to provide for the issuance of 49,999,900 preference shares
A and 200,000,000 preference shares B. All shares have a par value of Euro 0.30
(0.661113) per share. Subsequent to June 30, 1999, the Company's shareholders
approved an amendment to the Company's Articles of Incorporation. See Note 13.
-16-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Initial Public Offering
During February 1999, the Company successfully completed an initial public
offering selling 44.6 million shares on the Amsterdam Stock Exchange and Nasdaq
National Market System and raising gross and net proceeds from the offering of
approximately 2,852,902 and 2,660,060, respectively. Also concurrent with the
offering, proceeds were used to reduce the Senior Revolving Credit Facility
(635,791, including accrued interest of 15,791), repay in its entirety the
Bridge Bank Facility (110,021, net of the interest reserve account), acquire
NUON's 49% interest in UTH (518,061), and the purchase from NUON of a 33,000
subordinated loan from UTH, including accrued interest (33,279). Subsequent to
the offering, we also repaid USD80.0 million (157,437) of the note payable to
United.
Relationship with Microsoft
On January 25, 1999, UPC and Microsoft Corporation ("Microsoft") signed a
letter of intent providing for the establishment of a technical services
relationship. In connection with this letter of intent, UPC agreed to grant
Microsoft warrants to purchase up to 3,800,000 shares or ADSs at Microsoft's
option, at an exercise price of USD28.00. Half of these warrants are expected to
be formally issued in the second half of 1999. These warrants will be
exercisable after one year from issuance for a period of three years. The other
half of the warrants will be issued upon the signing of the first definitive
agreement. This half of the warrants will vest and become exercisable based on
performance criteria to be established in the definitive agreements, although
they also will not be exercisable until at least one year after the date of the
closing of UPC's initial public offering. The first half of the warrants are for
the right to negotiate to license technology from Microsoft under definitive
agreements to be negotiated in the future. Concurrent with the initial public
offering, UPC recorded as contract acquisition rights approximately 64.4 million
associated with the first half of the warrants. Such costs will be amortized on
a straight-line basis over the expected contract life, which is yet to be
determined. The accounting for the cost associated with the second half of the
warrants will depend on the ultimate nature of the performance criteria giving
rise to the earn-out of these warrants. These warrants will be recorded as such
at fair value when it is probable the performance criteria will be met in
accordance with EITF Issue No. 96-18.
11. Segment and Geographic Information
The Company's business has historically been derived from our video
entertainment segment. This service has been provided in various European
countries where the Company owns and operates its systems. During 1997, the
Company introduced Internet/data and during 1999 the Company introduced
telephony in several of its systems.
The Company evaluates performance and allocates resources at the geographic
country level and by business line. The key operating performance criteria used
in this evaluation includes revenue growth and operating income before
depreciation, amortization and stock-based compensation expense ("Adjusted
EBITDA"). Management generally considers 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 the Company's operations from period to period and thus to value
its business. Adjusted EBITDA should not, however, be considered a replacement
for net income, cash flows or for any other measure of performance or liquidity
under generally accepted accounting principles, or as an indicator of a
company's operating performance. The Company is not entirely free to use the
cash represented by its Adjusted EBITDA as it pleases. Several of the Company's
consolidated operating companies are restricted by the terms of their debt
arrangements. Each company has its own operating expenses and capital
expenditure requirements, which can limit the Company's use of cash. The
Company's presentation of Adjusted EBITDA may not be comparable to statistics
with a similar name reported by other companies. Not all companies and analysts
calculate EBITDA in the same manner.
A summary of the segment information by geographic area is as follows:
-17-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenue for the Three Months Ended June 30, 1999
------------------------------------------------------------------------------
Cable Internet/ Programming
Television Telephony Data & Other Intercompany Total
---------- --------- --------- ----------- ------------ ---------
The Netherlands:
Corporate............ - - - 1,517 - 1,517
UPCtv................ - - - 26 - 26
chello............... - - 2,879 - (2,879) -
Priority Telecom..... - - - - - -
Operating companies.. 54,033 12,735 1,851 - - 68,619
Austria................ 42,864 2,059 5,774 - - 50,697
Belgium................ 8,263 - 1,156 - - 9,419
Czech Republic......... 2,472 - - - - 2,472
Norway................. 25,203 63 209 - - 25,475
Hungary ............... 17,518 - 37 - - 17,555
France................. 3,071 706 264 - - 4,041
Other ................. 2,841 - - 472 - 3,313
---------- --------- --------- ----------- ------------ ---------
Total ............... 156,265 15,563 12,170 2,015 (2,879) 183,134
========== ========= ========= =========== ============ =========
Revenue for the Three Months Ended June 30, 1998
------------------------------------------------------------------
Cable Internet/ Programming
Television Telephony Data & Other Total
---------- --------- --------- ----------- -----------
The Netherlands:
Corporate............. - - - 3,431 3,431
UPCtv................. - - - - -
chello................ - - - - -
Priority Telecom...... - - - - -
Operating companies... 13,363 241 - - 13,604
Austria................. 42,519 14 1,656 - 44,189
Belgium................. 7,612 - 326 648 8,586
Czech Republic.......... 2,240 - - - 2,240
Norway.................. 23,572 - 84 - 23,656
Hungary ................ - - - - -
France.................. 1,803 - - - 1,803
Other .................. 2,214 - - 542 2,756
------ --- ----- ----- -------
Total ................ 93,323 255 2,066 4,621 100,265
====== === ===== ===== =======
-18-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenue for the Six Months Ended June 30, 1999
----------------------------------------------------------------------------
Cable Internet/ Programming
Television Telephony Data & Other Intercompany Total
---------- --------- --------- ----------- ------------ -------
The Netherlands:
Corporate............. - - - 3,257 - 3,257
UPCtv................ - - 26 - 26
chello................ - - 3,743 - (3,743) -
Priority Telecom...... - - - - - -
Operating companies... 86,768 19,769 2,514 - - 109,051
Austria................. 86,489 2,304 10,421 - - 99,214
Belgium................. 16,158 - 2,052 - - 18,210
Czech Republic.......... 4,712 - - - - 4,712
Norway.................. 49,283 69 396 - - 49,748
Hungary ................ 34,885 - 99 - - 34,984
France.................. 6,197 724 282 - - 7,203
Other .................. 4,686 - - 863 - 5,549
---------- ---------- --------- ------------ ----------- -------
Total ................ 289,178 22,866 19,507 4,146 (3,743) 331,954
========== ========== ========= ============ =========== =======
Revenue for the Six Months Ended June 30, 1998
------------------------------------------------------------------
Cable Internet/ Programming
Television Telephony Data & Other Total
---------- --------- --------- ----------- -------
The Netherlands:
Corporate............. - - - 6,008 6,008
UPCtv................ - - - - -
chello................ - - - - -
Priority Telecom...... - - - - -
Operating companies... 26,523 361 - - 26,884
Austria................. 84,846 14 2,442 - 87,302
Belgium................. 16,543 - 503 648 17,694
Czech Republic.......... 4,238 - - - 4,238
Norway.................. 46,451 - 124 - 46,575
Hungary ................ - - - - -
France.................. 3,114 - - - 3,114
Other .................. 2,863 - - 592 3,455
---------- --------- --------- ----------- -------
Total ................ 184,578 375 3,069 7,248 195,270
========== ========= ========= =========== =======
-19-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Adjusted EBITDA for the Three Months Ended June 30, 1999
------------------------------------------------------------------
Cable Internet/ Programming
Television Telephony Data & Other Total
---------- --------- --------- ----------- ---------
The Netherlands:
Corporate............. - - - (12,371) (12,371)
UPCtv................ - - - (5,052) (5,052)
chello................ - - (26,857) - (26,857)
Priority Telecom...... - (1,197) - - (1,197)
Operating companies... 26,067 (3,723) (2,331) (685) 19,328
Austria................. 23,244 (6,081) 32 - 17,195
Belgium................. 2,942 - (988) - 1,954
Czech Republic.......... (84) - - - (84)
Norway.................. 11,807 (2,335) (1,934) - 7,538
Hungary ................ 5,347 - (21) - 5,326
France.................. (332) (2,590) (838) - (3,760)
Other .................. 950 - (176) (862) (88)
---------- --------- --------- ----------- ---------
Total ................ 69,941 (15,926) (33,113) (18,970) 1,932
========== ========= ========= =========== =========
Adjusted EBITDA for the Three Months Ended June 30, 1998
------------------------------------------------------------------
Cable Internet/ Programming
Television Telephony Data & Other Total
---------- --------- --------- ----------- ---------
The Netherlands:
Corporate............. - - - (3,952) (3,952)
UPCtv................ - - - (300) (300)
chello................ - - (642) - (642)
Priority Telecom...... - - - - -
Operating companies... 8,693 92 (51) - 8,734
Austria................. 21,986 (520) (1,261) - 20,205
Belgium................. 4,359 - (461) (189) 3,709
Czech Republic.......... (509) - - - (509)
Norway.................. 8,549 (65) (431) - 8,053
Hungary ................ - - - - -
France.................. (626) (372) (20) - (1,018)
Other .................. 40 - - (4,090) (4,050)
---------- --------- --------- ----------- ---------
Total ................ 42,492 (865) (2,866) (8,531) 30,230
========== ========= ========= =========== =========
-20-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Adjusted EBITDA for the Six Months Ended June 30, 1999
------------------------------------------------------------------
Cable Internet/ Programming
Television Telephony Data & Other Total
---------- --------- --------- ----------- ---------
The Netherlands:
Corporate............. - - - (22,615) (22,615)
UPCtv................ - - (6,237) (6,237)
chello................ - - (38,911) - (38,911)
Priority Telecom...... - (1,525) - (1,525)
Operating companies... 42,990 (5,753) (3,409) (685) 33,143
Austria................. 48,080 (10,532) (317) - 37,231
Belgium................. 5,118 - (2,344) - 2,774
Czech Republic.......... (565) - - - (565)
Norway.................. 21,932 (5,529) (4,389) - 12,014
Hungary ................ 11,289 - (26) - 11,263
France.................. (344) (4,704) (1,844) - (6,892)
Other .................. 1,365 - (176) (4,957) (3,768)
---------- --------- --------- ----------- ---------
Total ................ 129,865 (28,043) (51,416) (34,494) 15,912
========== ========= ========= =========== =========
Adjusted EBITDA for the Six Months Ended June 30, 1998
------------------------------------------------------------------
Cable Internet/ Programming
Television Telephony Data & Other Total
---------- --------- --------- ----------- ---------
The Netherlands:
Corporate............. - - - (8,091) (8,091)
UPCtv................ - - - (300) (300)
chello................ - - (868) - (868)
Priority Telecom...... - - - - -
Operating companies... 17,403 130 (51) - 17,482
Austria................. 46,231 (755) (2,524) - 42,952
Belgium................. 8,080 - (1,426) (189) 6,465
Czech Republic.......... (1,427) - - - (1,427)
Norway.................. 17,963 (130) (617) - 17,216
Hungary ................ - - - - -
France.................. (1,447) (372) (20) - (1,839)
Other .................. 502 - - (4,901) (4,399)
---------- --------- --------- ----------- ---------
Total ................ 87,305 (1,127) (5,506) (13,481) 67,191
========== ========= ========= =========== =========
-21-
Following is a reconciliation of Adjusted EBITDA to UPC's net loss before income
taxes:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------- --------------------------
1999 1998 1999 1998
------------- ----------- ----------- ------------
Adjusted EBITDA................................ 1,932 30,230 15,912 67,191
Depreciation and amortization.................. (85,206) (46,496) (148,404) (94,953)
Stock-based compensation ...................... (63,626) - (100,186) (406)
------------- ----------- ----------- ------------
Net operationg (loss) income................ (146,900) (16,266) (232,678) (28,168)
Interest income................................ 8,609 1,203 13,520 2,017
Interest expense............................... (23,862) (25,421) (62,107) (48,155)
Gain on sale of assets......................... - - 14,625 -
Foreign exchange (loss) gain and other expense. 12,740 (3,340) (2,595) (8,234)
------------- ----------- ----------- ------------
Net loss before income taxes and other items (149,413) (43,824) (269,235) (82,540)
Share in results of affiliated companies, net.. (12,896) (17,480) (33,168) (31,619)
Minority interests in subsidiaries............. 192 1,481 115 1,722
------------- ----------- ----------- ------------
Net loss before income tax benefit (expense) (162,117) (59,823) (302,288) (112,437)
============= =========== =========== ============
Total Assets
--------------------------------
As of As of
June 30, December 31,
1999 1998
------------- --------------
The Netherlands:
Corporate............. 1,347,911 567,264
UPCtv................. 3,941 106
chello................ 17,532 6,617
Priority Telecom...... 594 174
Operating companies... 1,952,274 -
Austria................. 692,183 644,791
Belgium................. 97,381 109,331
Czech Republic.......... 23,882 21,730
Norway.................. 488,197 414,038
Hungary ................ 210,169 164,280
France.................. 305,260 96,563
Other .................. 75,639 42,885
------------- --------------
Total ................ 5,214,963 2,067,779
============= ==============
12. Comprehensive Income (Loss)
The components of total comprehensive income (loss) are as follows:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
1999 1998 1999 1998
----------- ----------- ---------- ----------
Net loss.......................................... (160,631) (59,428) (301,170) (111,323)
Other comprehensive loss:
Change in cumulative translation adjustments.. (1,778) (1,201) 8,403 (7,419)
Change in unrealized gain on investments...... 152,781 (6,972) 300,003 36,632
----------- ----------- ---------- ----------
Total comprehensive income (loss)....... (9,628) (67,601) 7,236 (82,110)
=========== =========== ========== ==========
-22-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Subsequent Events
144A Offering of Senior Notes
On July 27, 1999, UPC completed a USD1.5 billion bond offering. The
offering consists of three tranches: USD800.0 million of ten-year senior notes
due 2009 with a 10 7/8% coupon; Euro 300.0 million of ten-year senior notes due
2009 with a coupon of 10 7/8%; and USD735.0 million aggregate principal amount
of ten-year 12 1/2% senior discount notes due 2009. The senior discount notes
were sold at 54.521% of face value amount yielding gross proceeds of
approximately USD400.0 million and will accrue interest, but no interest is
payable until 2004. The USD800.0 million of senior notes was swapped into Euros
to minimize UPC's currency and interest rate exposure. The swap will yield an
initial average interest rate on the swap portion of 7.8% and an initial
weighted average rate on the total USD1.5 billion offering of 9.7%.
Senior Credit Facility
On July 27, 1999, UPC and a syndicate of banks entered into a Euro1.0
billion multi-currency senior secured credit facility (the "Senior Credit
Facility"). Until the earlier of October 31, 1999 and the completion of the
syndication of the Senior Credit Facility, availability under the Senior Credit
Facility is limited to Euro 500.0 million and such amount may not be used to
fund any acquisitions. The Senior Credit Facility matures on July 26, 2006 and
is comprised of two tranches. The Euro 750.0 million Tranche A is a senior
secured reducing revolving credit facility. The Tranche B is a Euro 250.0
million term loan credit facility. The Senior Credit Facility bears interest at
the EURIBOR (for borrowings in Euros) and at the LIBOR (for all other
borrowings) plus a margin between 0.75% and 2.0%, plus an additional cost of
funding. The Senior Revolving Credit Facility was refinanced with funds from the
Senior Credit Facility.
Acquisition of Stjarn
On July 30, 1999, UPC acquired the stock of NBS Nordic Broadband Services
AB, whose primary asset is the operating company StjarnTVnatet AB ("Stjarn")for
a purchase price of USD397.0 million (817.8 million). USD100.0 million (206.0
million) of the purchase price will be paid in the form of a one year note with
interest at 8% per year and the balance of the purchase price will be paid in
cash. The note will automatically convert into UPC's equity in the event of a
public equity offering of its new ordinary shares B. If no public equity
offering occurs, UPC will have the option, at maturity of the note, to pay the
note in either cash or its stock. Stjarn operates cable television systems
serving the greater Stockholm area and leases its fiber cable network which has
access to 770,000 homes and 30,000 businesses. Stjarn systems passed
approximately 422,000 homes and had approximately 240,000 subscribers as of June
30, 1999.
Amendment to the Articles of Association
In July 1999, at the annual shareholders' meeting, the shareholders
approved the amendment of UPC's Articles of Association to authorize 100 million
ordinary shares B with the right to cast 1 vote per share and to increase the
voting rights of the newly re-named ordinary shares A (formerly the ordinary
shares), the priority shares, the preference shares A and the preference shares
B to 100 votes per share. The shareholders also approved an increase in the
nominal value of each issued and outstanding ordinary share A and each priority
share from Euro 0.30 to Euro 2.0.
S-1 Offering
On August 3, 1999, UPC filed a Form S-1 registration statement with the
United States Securities and Exchange Commission in connection with a proposed
global offering of UPC's newly created ordinary shares B.
Acquisition of an Interest in SBS Broadcasting S.A.
In July 1999, UPC closed the purchase of approximately 4.8% of SBS
Broadcasting S.A. ("SBS") for cash of approximately USD24.3 million (50.1
million). In August 1999, UPC acquired an additional 8.6% for USD75.9 million
(154.8 milliion), increasing its ownership to 13.4% of SBS. SBS owns and
operates television and radio stations across nine countries in Europe.
Acquisition of @Entertainment, Inc.
On August 6, 1999, UPC completed its tender offer for all outstanding
shares of @Entertainment at a price of USD19.00 per share in cash. Subsequently
all remaining outstanding common stock, preferred stock, stock options and stock
warrants were purchased by UPC. The purchase price for @Entertainment is
USD807.0 million (1,654.4 million). @Entertainment provides cable television,
DTH satellite television services and related programming in Poland. These
systems had approximately 1,669,000 homes passed, 967,000 cable subscribers and
130,000 DTH subscribers as of June 30, 1999.
The consummation of the Company's tender offer of @Entertainment resulted
in a change of control, and as a result, @Entertainment will be obligated to
offer to repurchase any notes that the note holders put to it at 101% of their
principal amount, plus accrued and unpaid interest. The Company expects that the
holders of the @Entertainment PCI notes and the Series C Senior Discount Notes
may exercise their rights to require the purchase of their notes following the
change of control triggered by our acquisition of @Entertainment. If the holders
of those notes exercised their rights to put all of their notes, this would
require @Entertainment to repay approximately USD140.3 million (NLG298.9
million) of debt. The @Entertainment 1999 Series B 14 1/2% Senior Discount Notes
and the @Entertainment 14 1/2% 1998 Senior Discount Notes of which USD233.9
million (NLG498.3 million) was outstanding at June 30, 1999, contain a similar
provision enabling holders to require @Entertainment to purchase the notes
following a change of control. Given the coupon on those notes, however, the
Company does not expect any significant number of holders of those notes to
exercise their put rights. The actual amount exercised may differ significantly
from the Company's expectations.
-23-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Acquisition of Videopole
In August 1999, UPC completed the acquisition of Videopole for a total
purchase price of USD135.1 million (279.4 million). The purchase price was paid
with cash of USD65.2 million (134.8 million) and 955,376 ordinary shares A,
which are registered on the Amsterdam Stock Exchange only. The share price was
based on a 20-day average stock price through August 2, 1999.
-24-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
The following discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. These forward-
looking statements may include statements concerning our plans, objectives and
future economic prospects, expectations, beliefs, anticipated events or trends
and similar expressions about matters that are not historical facts. These
forward-looking statements involve both known and unanticipated risks,
uncertainties and other factors that may cause our actual results, performance
or achievements, or industry results, to be materially different from what we
say or imply with the forward-looking statements. These factors include 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 our ability to manage and
grow our newer telephone and Internet/data services. 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 or circumstances on which these forward-looking
statements are based. Our statements in this Management's Discussion and
Analysis of Financial Condition and Results of Operations section that relate to
the Year 2000 issues are hereby denominated as "Year 2000 Statements" within the
meaning of the Year 2000 Information and Readiness Disclosure Act. The following
discussion and analysis of financial condition and results of operations covers
the three and six months ended June 30, 1999 and 1998, as restated to include
Monor Communications Group, Inc., Tara Television Limited, and Ibercom, Inc. for
all periods in which their operations were part of United's consolidated
results, and should be read together with our condensed consolidated financial
statements and related notes included elsewhere herein. These condensed
consolidated financial statements provide additional information regarding our
financial activities and condition.
Introduction
We commenced our present business in July 1995. We own and operate broadband
communications networks in 10 countries in Europe and in Israel. We provide
communications services in many European countries through our three business
lines: cable television, telephone and Internet/data services. Our subscriber
base is one of the largest of any group of broadband communications networks
operated across Europe. We intend to continue to increase our presence in the
European market through acquisitions as the European telecommunications market
consolidates, and to implement our bandend package of video, voice and
Internet/data product offerings in systems we acquire. We and Microsoft
recently signed a letter of intent to establish a relationship to work jointly
on Internet, telephone and video projects.
History of UPC
Since formation, we have developed largely through acquisitions. The most
recent acquisitions have resulted in significant growth in consolidated revenues
and expenditures.
January 1998 Effective January 1, 1998, we acquired the Combivisie cable television systems in the
CNBH Formation and region surrounding our KTE system in The Netherlands for a purchase price of NLG180.8
Combivisie Acquisition million. Effective January 1, 1998, we combined the Combivisie and KTE systems to form
CNBH and consolidated the results of CNBH through July 31, 1998 (see UTH Formation).
June 1998 On June 29, 1998, we acquired from Time Warner Entertainment Company L.P. ("TWE") 50% of
Eastern Europe Kabelkom, the Hungarian cable television system holding company, increasing our ownership
Transactions to 100%. The purchase price was approximately USD27.5 million, USD9.5 million of which
was payable in cash and USD18.0 million by delivery of a non-interest bearing note. We
gave TWE the option, exercisable until March 26, 1999, to purchase 50% of the Hungarian
programming businesses formerly held by Kabelkom, including HBO Hungary, and 100% of TV
Max, a Czech and Slovak Republic programming business, for approximately USD18.25
million. Effective June 30, 1998, we combined our interest in Kabelkom with Kabeltel, a
group of Hungarian cable television systems located in Budapest and other large Hungarian
cities, forming Telekabel Hungary. We own 79.25% of Telekabel Hungary, Hungary's largest
cable television operator, and started consolidating its results as of such date. In
March 1999, TWE exercised its option to purchase our Hungarian programming business and
TV Max.
-25-
August 1998 In August 1998, UPC and NUON combined all of our Dutch broadband cable
UTH Formation television and telecommunications businesses to form UTH. We contributed 100% of
CNBH and 50% of A2000 for our 51% interest in UTH. NUON contributed 100% of Telekabel
Beheer. UPC and NUON agreed on the relative values of the respective assets and NUON
made a small balancing payment of approximately NLG2.0 million for its 49% interest.
As a result of the creation of UTH, effective August 1, 1998, we did not consolidate
the results of CNBH and accounted for UTH using the equity method of accounting. As
described below, however, we purchased the other 49% of UTH in February 1999 and began
consolidating UTH effective February 1, 1999.
November 1998 We held our interest in the Israeli, Maltese and Irish operating systems through a
Increase in Israeli and partnership with a subsidiary of Tele-Communications International, Inc. In November
Maltese Systems Ownership 1998, we acquired Tele-Communications International's indirect 23.3% and 25.0% interests
in the Israeli and Maltese systems for approximately USD88.5 million, net of closing
adjustments, doubling our respective interests in these systems to 46.6% and 50%,
respectively. We financed this acquisition through a loan from our primary partners in
the Israeli operating system.
November 1998 As part of the Israeli and Maltese transaction described above, in November 1998, we
Sale of Irish System purchased from Riordan Communications Ltd., an indirect 5% interest in an Irish
multi-channel television system and 5% of Tara Television Limited, a company providing
Irish programming to the U.K. markets. The purchase price was settled using 384,531
shares of United we indirectly held. In November 1998, we sold the newly-acquired 5%
interest in the Irish multi-channel television system, together with our previously-
held 20% interest in this system, to Tele-Communications International, Inc. The
purchase price for this transaction was USD20.5 million, offsetting part of the
purchase price payable for the Israeli and Maltese systems.
December 1998 In December 1998, United sold to us in exchange for 6,330,340 of our ordinary shares
Purchase of Monor and United's:
Tara from United
. 44.75% economic interest in Monor Communications Group Inc., ("Monor") a company
that operates a traditional telephone system in the Monor region of Hungary.
. 75% interest in Tara Television Limited ("Tara"), a company with revenues of
approximately NLG1.3 million for the year ended December 31, 1998.
Because this was an exchange between companies under common control, we have restated our
financial statements for all periods in which the operations of these companies were part
of United's consolidated financial statements.
February 1999/May 1999 In February 1999, United sold to us, in exchange for 4,955,264 of our ordinary shares,
Purchase of IPS United's approximately 33.5% interest in Ibercom, Inc. ("IPS"), a group of programming
From United entities focusing on the Spanish- and Portuguese-speaking markets. IPS had revenues of
approximately NLG34.0 million for the year ended December 31, 1998.
Because this was an exchange between companies under common control, we have restated our
financial statements for all periods in which the operations of IPS were part of United's
consolidated financial statements.
In May 1999, we acquired a further 16.5% interest in IPS from an unaffiliated party for
approximately USD7.6 million (NLG15.6 million), increasing our ownership to 50%.
February 1999 On February 17, 1999, UPC acquired NUON's 49% ownership interest in UTH for NLG518.1
Purchase of UTH million. In addition, UPC purchased from NUON a NLG33.3 million subordinated loan,
Minority Interest including interest, dated December 23, 1998 owed by UTH to NUON. We paid for the entire
purchase price and loan totaling NLG551.4 million in cash on closing. Effective February
17, 1999, we own 100% of UTH and began consolidating UTH as of February 1, 1999.
-26-
March 1999 On March 29, 1999, UPC reached a definitive agreement with Time Warner
Agreement to purchase Entertainment for the purchase by us of 100% of Time Warner Cable France, a company which
Time Warner Cable controls and operates three cable TV systems with homes passed of approximately 232,000 and
France subscribers of approximately 69,000 in the suburbs of Paris and Lyon and the city of
Limoges as of June 30, 1999. Completion of the purchase, which is subject to regulatory
approval, is expected to take place in the third quarter of 1999. The purchase price is
approximately USD71.0 million (NLG151.2 million).
June 1999 In June 1999, we acquired 100% of the GelreVision multi-channel television systems in The
Acquisition of Netherlands. The acquisition increased our homes passed by 145,000 and our subscriber
GelreVision base by 132,000, based on June 30, 1999 data. We paid NLG233.9 million for GelreVision.
These systems are contiguous to our A2000 and TeleKabel Beheer operations.
June 1999 In June 1999, we completed the acquisition of S.K.T. spol s.r.o., which operates a cable
Acquisition of SKT television system in Bratislava, the capital of the Slovak Republic. The purchase price
was USD43.25 million (NLG90.7 million). This system passed approximately 168,000 homes
and had approximately 158,000 subscribers as June 30, 1999.
June 1999 In June 1999, we acquired 95.7% of Reseaux Cables de France ("RCF"), the fifth largest cable television
Acquisition of Reseaux operation in France, which operates cable television systems throughout France, for FFR172.0 million
Cables de France (NLG57.8 million). These systems passed approximately 202,000 homes and had an aggregate of
approximately 74,000 subscribers as of June 30, 1999. This acquisition is currently subject to pending
arbitration proceedings between the seller and a third party and our purchase of RCF may be
challenged following the conclusion of this arbitration.
June 1999 In June 1999, we agreed to acquire the 50% interest in A2000 that we did not already own
Agreement to for USD229.0 million (NLG487.8 million). A2000 operates systems serving Amsterdam and
Acquire A2000 its surrounding communities of Landsmeer, Purmerend, Zaanstad, Ouder-Amstel and
Hilversum. A2000 systems passed 580,000 homes and had approximately 532,000 cable
subscribers, 26,000 cable telephone subscribers and 14,400 high-speed Internet
subscribers as of June 30, 1999. The A2000 acquisition is expected to close in August,
1999 or later upon the receipt of the necessary cable regulatory authority approval.
June 1999 In June 1999, we agreed to acquire MediaOne's 94.6% interest in Kabel Plus, which owns
Agreement to and operates cable television and telephony systems in the Czech and Slovak Republics.
Acquire Kabel Plus The systems of Kabel Plus passed approximately 620,000 homes and had an aggregate of
approximately 359,000 subscribers as of June 30, 1999. The purchase price is USD150.0
million (NLG319.5 million). The Kabel Plus acquisition is expected to close in October
1999, following the receipt of the necessary cable regulatory authority approval and
anti-monopoly authority approval.
July 1999 In July 1999, we acquired the stock of NBS Nordic Broadband Services AB, whose primary
Acquisition of asset is the operating company StjarnTVnatet AB ("Stjarn") for a purchase price of
Stjarn approximately USD397.0 million (NLG817.8 million). USD100.0 million (NLG206.0 million)
of the purchase price will be paid in the form of a one year note with interest at 8% per
year and the balance of the purchase price will be paid in cash. The note will
-27-
automatically convert into our equity in the event of a public equity offering of our new ordinary
shares B. If no public equity offering occurs, we will have the option, at maturity of the note, to pay
the note in either cash or our stock. Stjarn operates cable television systems serving the greater
Stockholm area and leases its fiber optic network which has access to 770,000 homes and 30,000
businesses. Stjarn systems passed approximately 422,000 homes and had approximately 240,000 subscribers
as of June 30, 1999.
July/August 1999 In July 1999, we closed the purchase of approximately 4.8% of SBS for cash of approximately USD24.3
Acquisition of an million (NLG50.1 million). In August 1999, we acquired an additional 8.6% interest for USD75.9 million
Interest in SBS (NLG154.8 million), increasing our interest to 13.4%. This investment will align us with one of the
leading European broadcasting companies with which we intend jointly to develop and purchase new
programming services.
August 1999 In August 1999, we acquired 100% of Videopole, the fourth largest cable television
Acquisition of operation in France. The Videopole systems passed approximately 359,000 homes and had
Videopole approximately 141,000 subscribers as of June 30, 1999. The purchase price is USD135.1
million (NLG279.4 million). The purchase price was paid with cash of USD65.2 million (NLG134.8
million) and 955,376 ordinary shares A, which are registered on the Amsterdam Stock Exchange only.
The share price was based on a 20-day average stock price through August 2, 1999.
August 1999 In August 1999, we acquired @Entertainment, which provides cable television, DTH
Acquisition of satellite television services and related programming services in Poland. These systems
@Entertainment had approximately 1,669,000 homes passed, 967,000 cable subscribers and 130,000 DTH
subscribers as of June 30, 1999. The purchase price is USD807.0 million (NLG1,654.4
million). The acquisition adds a significant number of cable subscribers, valuable
programming and DTH operations to our existing service.
-28-
Results of Operations
The following table sets forth information from, or derived from, our
condensed consolidated statements of operations for the three and six months
ended June 30, 1999 and 1998.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------------- ------------------------------
1999 1998 1999 1998
--------------- ------------ --------------- -------------
(Dutch guilders, in thousands) (Dutch guilders, in thousands)
Service and other revenue....................... 183,134 100,265 331,954 195,270
Operating expense............................... (84,023) (35,212) (151,090) (66,111)
Selling, general and administrative expense..... (160,805) (34,823) (265,138) (62,374)
Depreciation and amortization................... (85,206) (46,496) (148,404) (94,953)
-------------- ----------- -------------- -----------
Net operating income (loss)............... (146,900) (16,266) (232,678) (28,168)
Interest income................................. 8,609 1,203 13,520 2,017
Interest expense................................ (23,862) (25,421) (62,107) (48,155)
Gain on sale of assets.......................... - - 14,625 -
Foreign exchange gain (loss) and other expense.. 12,740 (3,340) (2,595) (8,234)
-------------- ----------- -------------- -----------
Net loss before income taxes and other
items................................... (149,413) (43,824) (269,235) (82,540)
Share in results of affiliated companies, net... (12,896) (17,480) (33,168) (31,619)
Minority interests in subsidiaries.............. 192 1,481 115 1,722
Income tax benefit (expense).................... 1,486 395 1,118 1,114
-------------- ----------- -------------- -----------
Net loss........................................ (160,631) (59,428) (301,170) (111,323)
============== =========== ============== ===========
Other information:
Adjusted EBITDA:
Net operating income (loss)..................... (146,900) (16,266) (232,678) (28,168)
Depreciation and amortization................... 85,206 46,496 148,404 94,953
Stock based compensation........................ 63,626 - 100,186 406
-------------- ----------- -------------- -----------
Consolidated Adjusted EBITDA (1)................ 1,932 30,230 15,912 67,191
============== =========== ============== ============
As a Percentage of Revenue:
Operating expense................................ (45.9%) (35.1%) (45.5%) (33.9%)
Selling, general and administrative expense...... (87.8%) (34.7%) (79.9%) (31.9%)
Adjusted EBITDA (1).............................. 1.1% 30.2% 4.8% 34.4%
Depreciation and amortization.................... (46.5%) (46.4%) (44.7%) (48.6%)
Net operating (loss) income...................... (80.2%) (16.2%) (70.1%) (14.4%)
Net loss......................................... (87.7%) (59.3%) (90.7%( (57.0%)
(1) Adjusted EBITDA represents earnings before net interest expense, income
tax expense, depreciation, amortization, stock-based compensation charges,
minority interest, share in results of affiliated companies (net), currency
exchange gains (losses) and other non-operating income (expense) items.
Management generally considers Adjusted EBITDA to be a helpful way to measure
the performance of cable television operations and communications companies. We
believe Adjusted EBITDA helps investors to assess the cash flow from our
operations from period to period and thus to value our business. Adjusted EBITDA
should not, however, be considered a replacement for net income, cash flows or
for any other measure of performance or liquidity under generally accepted
accounting principles, or as an indicator of a company's operating performance.
We are not entirely free to use the cash represented by our Adjusted EBITDA as
we please. Several of our consolidated operating companies are restricted by the
terms of their debt arrangements. Each company has its own operating expenses
and capital expenditure requirements, which can limit our use of cash. Our
presentation of Adjusted EBITDA may not be comparable to statistics with a
similar name reported by other companies. Not all companies and analysts
calculate EBITDA in the same manner.
-29-
Revenue
During the six months ended June 30, 1999, our revenue increased NLG136.7
million to NLG332.0 million from NLG195.3 million for the six months ended June
30, 1998, a 70.0% increase. Of this increase, approximately NLG104.6 resulted
from increased cable television revenue, NLG22.5 million resulted from increased
telephony revenue and NLG12.7 million resulted from increased Internet/data
revenue. Revenue from programming and other services decreased NLG3.1 million.
The increase in cable television revenue primarily results from increased
revenues due to the consolidation of UTH effective February 1, 1999. For the
period from February 1, 1999 through June 30, 1999, cable television revenue
from UTH totaled NLG86.8 million, as compared to cable television revenue from
CNBH, our only consolidated Dutch system for the six months ended June 30, 1998,
of NLG26.5 million. We also began consolidation of Telekabel Hungary upon its
formation in July 1998, resulting in cable television revenue for the six months
ended June 30, 1999 of NLG34.9 million. The remaining increase in cable
television revenue primarily came from subscriber growth. The increase in
telephony revenue is primarily a result of the consolidation of UTH, as well as
increased telephony revenue from the launch of telephony services in Austria,
France and Norway in the first half of 1999. The increase in Internet/data
services revenue is primarily due to increased revenue from Austria and Belgium
due to subscriber growth, and the launch of Internet/data services in France,
The Netherlands and Norway in the first half of 1999.
During the three months ended June 30, 1999, our revenue increased NLG82.8
million to NLG183.1 million from NLG100.3 million for the three months ended
June 30, 1998, a 82.6% increase. Of this increase, approximately NLG62.9
million resulted from increased cable television revenue, NLG15.3 million
resulted from increased telephony revenue and NLG7.2 million resulted from
increased Internet/data revenue. Revenue from programming and other services
decreased NLG2.6 million. The increase in cable television revenue primarily
results from the consolidation of UTH effective February 1, 1999. For the three
months ended June 30, 1999, cable television revenue from UTH totaled NLG54.0
million, as compared to cable television revenue from CNBH, our only
consolidated Dutch system for the three months ended June 30, 1998, of NLG13.4
million. We also began consolidation of Telekabel Hungary upon its formation in
July 1998, resulting in cable television revenue for the three months ended June
30, 1999 of NLG17.5 million. The remaining increase in cable television revenue
primarily came from subscriber growth. The increase in telephony revenue is
primarily a result of the consolidation of UTH, as well as increased telephony
revenue from the launch of telephony services in Austria, France and Norway in
the first half of 1999. The increase in Internet/data services revenue is
primarily due to increased revenue from Austria and Belgium due to subscriber
growth, and the launch of Internet/data services in France, The Netherlands and
Norway in the first half of 1999.
Operating Expense
During the six months ended June 30, 1999, our operating expense increased
NLG85.0 million to NLG151.1 million from NLG66.1 million, an increase of 128.6%.
Of this increase, approximately NLG32.0 million resulted from increased cable
television operating costs, NLG21.7 million resulted from increased telephony
operating costs, NLG28.7 million resulted from increased Internet/data operating
costs, and NLG2.6 million resulting from increased operating costs for other
services. The increase in cable television operating costs primarily resulted
from the consolidation of UTH effective February 1, 1999 and the consolidation
of Telekabel Hungary effective July 1, 1998. For the period from February 1,
1999 through June 30, 1999 consolidated cable operating expense from UTH totaled
NLG20.6 million, as compared to cable television operating costs of CNBH, UPC's
only consolidated Dutch system for the six months ended June 30, 1998 of NLG5.4
million. Total cable television operating costs of Telekabel Hungary were
NLG11.3 million for the six months ended June 30, 1999. The balance of the
increase in cable television operating costs relates to subscriber growth. The
increase in telephony operating costs is primarily a result of the consolidation
of UTH, as well as increased telephony operating costs from the launch of
telephony services in Austria, France and Norway in the first half of 1999.
The increase in Internet/data services operating costs is primarily due to
increased operating costs in Austria and Belgium due to subscriber growth, and
the launch of Internet/data services in France, The Netherlands and Norway in
the first half of 1999.
During the three months ended June 30, 1999, our operating costs increased
NLG48.8 million to NLG84.0 million from NLG35.2 million for the three months
ended June 30, 1998, a 138.6% increase. Of this increase, approximately
NLG16.7 resulted from increased cable television operating costs, NLG13.4
million resulted from increased telephony operating costs and NLG19.5 million
resulted from increased Internet/data operating costs. Operating costs from
programming and other services decreased NLG0.8 million. The increase in cable
television revenue primarily results from the consolidation of UTH effective
February 1, 1999. For the
-30-
three months ended June 30, 1999, cable television operating expense from UTH
totaled NLG12.9 million, as compared to cable television operating expense from
CNBH, our only consolidated Dutch system for the three months ended June 30,
1998, of NLG2.7 million. We also began consolidation of Telekabel Hungary upon
its formation in July 1998, resulting in cable television operating expense for
the three months ended June 30, 1999 of NLG5.3 million. The remaining increase
in cable television operating costs came primarily came from subscriber growth.
The increase in telephony operating costs is primarily a result of the
consolidation of UTH, as well as increased telephony operating costs from the
launch of telephony services in Austria, France and Norway in the first half of
1999. The increase in Internet/data services operating costs is primarily due to
increased operating costs from Austria and Belgium due to subscriber growth, and
the launch of Internet/data services in France, The Netherlands and Norway in
the first half of 1999.
Selling, General and Administrative Expense
During the six months ended June 30, 1999, our selling, general and
administrative expense increased NLG202.7 million to NLG265.1 million from
NLG62.4 million, an increase of 324.8%. A substantial portion of this
increase, and the increase as a percentage of revenue, results from a stock-
based compensation charge of NLG100.2 million attributable to our stock-option
plans for the six months ended June 30, 1999, compared to NLG0.4 million for the
six months ended June 30, 1998. Of the remaining increase in selling, general
and administrative expense, NLG30.1 million is an increase in cable television
selling, general and administrative expense, NLG27.7 million is an increase in
telephony selling, general and administrative expense, NLG29.9 million is an
increase in Internet/data selling, general and administrative expense (excluding
stock-based compensation expense of NLG1.5 million for the chello option plan)
and NLG14.9 million is programming, corporate and other selling, general and
administrative costs. The increase in cable television selling, general and
administrative costs primarily resulted from the consolidation of UTH effective
February 1, 1999 and the consolidation of Telekabel Hungary effective July 1,
1998. For the period from February 1, 1999 through June 30, 1999 consolidated
cable selling, general and administrative expense from UTH totaled NLG20.1
million, as compared to cable television selling, general and administrative
expense of CNBH, UPC's only consolidated Dutch system for the six months ended
June 30, 1998 of NLG4.0 million. Total cable television selling, general and
administrative costs of Telekabel Hungary were NLG10.8 million for the six
months ended June 30, 1999. The balance of the increase in cable television
selling, general and administrative costs relates to subscriber growth. The
increase in telephony selling, general and administrative costs is primarily a
result of the consolidation of UTH, as well as increased development and the
launch of telephony services in Austria, France and Norway in the first half of
1999. The increase in Internet/data services selling, general and
administrative costs is also primarily attributable to the further development
and launch preparation costs.
During the three months ended June 30, 1999, our selling, general and
administrative expense increased NLG126.0 million to NLG160.8 million from
NLG34.8 million, an increase of 362.1%. A substantial portion of this increase,
and the increase as a percentage of revenue, results from a stock-based
compensation charge of NLG63.6 million attributable to our stock-option plans
for the three months ended June 30, 1999, compared to no charge for the three
months ended June 30, 1998. Of the remaining increase in selling, general and
administrative expense, NLG18.8 million is an increase in cable television
selling, general and administrative expense, NLG17.0 million is an increase in
telephony selling, general and administrative expense, NLG18.0 million is an
increase in Internet/data selling, general and administrative expense (excluding
stock-based compensation expense of NLG0.8 million for the chello option plan)
and NLG8.6 million is programming, corporate and other selling, general and
administrative costs. The increase in cable television selling, general and
administrative costs primarily resulted from the consolidation of UTH effective
February 1, 1999 and the consolidation of Telekabel Hungary effective July 1,
1998. For the three months ended June 30, 1999 consolidated cable selling,
general and administrative expense from UTH totaled NLG12.0 million, as compared
to cable television selling, general and administrative expense of CNBH, UPC's
only consolidated Dutch system for the three months ended June 30, 1998 of
NLG2.2 million. Total cable television selling, general and administrative costs
of Telekabel Hungary were NLG5.4 million for three months ended June 30, 1999.
The balance of the increase in cable television selling, general and
administrative costs relates to subscriber growth. The increase in telephony
selling, general and administrative costs is primarily a result of the
consolidation of UTH, as well as increased development and the launch of
telephony services in Austria, France and Norway in the first half of 1999. The
increase in Internet/data services selling, general and administrative costs is
also primarily attributable to the further development and launch preparation
costs. We expect selling, general and administrative costs as a percentage of
revenue to decrease in the future as the new video, telephone and Internet/data
services mature.
-31-
Depreciation and Amortization
During the six months ended June 30, 1999, our depreciation and
amortization expense increased NLG53.4 million to NLG148.4 million from
NLG95.0 million for the six months ended June 30, 1999, a 56.2% increase. The
increase is primarily due to additional depreciation and amortization from the
consolidation of UTH effective February 1, 1999 and the consolidation of
Telekabel Hungary effective July 1, 1998. The remaining increase comprised
additional depreciation related to additional capital expenditures to upgrade
the network in our Western European systems and new-build for developing
systems.
During the three months ended June 30, 1999, our depreciation and
amortization expense increased NLG38.7 million to NLG85.2 million from NLG46.5
million for the three months ended June 30, 1998, a 83.2% increase. The increase
is primarily due to additional depreciation and amortization from the
consolidation of UTH effective February 1, 1999 and the consolidation of
Telekabel Hungary effective July 1, 1998. The remaining increase comprised
additional depreciation related to additional capital expenditures to upgrade
the network in our Western European systems and new-build for developing
systems.
On January 25, 1999 UPC and Microsoft Corporation ("Microsoft") entered into
a letter of intent providing for the establishment of a technical services
relationship. In connection with this letter of intent, we have agreed to grant
Microsoft warrants to purchase up to 3,800,000 ADSs or ordinary shares, at
Microsoft's option, at an exercise price of USD28.00 per ordinary share or ADS.
Half of these warrants are expected to be formally issued in the second half of
1999. These warrants will be exercisable after one year from issuance for a
period of three years. The other half of the warrants will be issued upon the
signing of the first definitive agreement. This half of the warrants will vest
and become exercisable based on performance criteria to be established in the
definitive agreements, although they also will not be exercisable until at least
one year after the date of the closing of UPC's initial public offering. The
first half of the warrants are for the right to negotiate to license technology
from Microsoft under definitive agreements to be negotiated in the future.
Concurrent with our initial public offering, we recorded as contract acquisition
rights approximately NLG64.4 million associated with the first half of the
warrants. Such costs will be amortized on a straight-line basis over the
expected contract life, which is yet to be determined. The accounting for the
cost associated with the second half of the warrants will depend upon the
ultimate nature of the performance criteria giving rise to the earn-out of these
warrants. These warrants will be recorded as such at fair value when it is
probable the performance criteria will be met, in accordance with EITF Issue No.
96-18.
Operating Income (Loss)
During the six months ended June 30, 1999, operating loss increased
NLG204.5 million to NLG232.7 million from NLG28.2 million, a 725.2% increase.
Approximately 48.8% of this increase resulted from the stock-based compensation
charge of NLG100.2 million related to our stock option plans for the six months
ended June 30, 1999. A substantial portion of the remaining increase in net
operating loss is due to the focus on the continued development of our telephony
and Internet/data services.
During the three months ended June 30, 1999, operating loss increased
NLG130.6 million to NLG146.9 million from NLG16.3 million, a 801.2% increase.
Approximately 48.7% of this increase resulted from the stock-based compensation
charge of NLG63.6 million related to our stock option plans for the three months
ended June 30, 1999. A substantial portion of the remaining increase in net
operating loss is due to the focus on the continued development of our telephony
and Internet/data services.
We believe the introduction of telephone services and Internet/data
services will have a significant negative impact on operating income (loss)
during 1999. Thereafter, this negative impact is expected to decline. The
financial effect of the development of our video programming businesses and the
construction of our digital distribution platform will depend upon our ability
to find joint venture partners for these new investments. If we are unable to
find joint venture partners for these new investments, we will be required to
consolidate all of the losses of these new investments. During the six and three
months ended June 30, 1999, such losses were consolidated.
-32-
Interest Expense
During the three months ended June 30, 1999, interest expense increased
NLG13.9 million to NLG62.1 million from NLG48.2 million during the same period
in 1998, a 28.8% increase. This increase was due primarily to increases in
interest cost related to the DIC Loan, consolidation of the NUON Facility and
the acquisition of Telekabel Hungary in June 1998.
During the three months ended June 30, 1999, interest expense decreased
NLG1.5 million to NLG23.9 million from NLG25.4 million during the same period in
1998, a 5.9% decrease. This decrease is primarily due to the paydown of debt
with proceeds from our IPO at the end of the first quarter of 1999, which was
partially offset by increases in interest cost related to the DIC Loan,
consolidation of the NUON Facility and the acquisition of Telekabel Hungary in
June 1998.
Foreign Exchange Gain (Loss) and Other Expense
Foreign exchange gain (loss) and other expense reflected a loss of NLG2.6
million for the six months ended June 30, 1999 as compared to a loss of NLG8.2
million for the same period in 1998. The foreign exchange loss during the six
months ended June 30, 1999 was due primarily to a decrease in the value of the
Dutch guilder in relation to the U.S. dollar as compared to December 31, 1998,
which was partially offset by an increase in the value of the Dutch guilder to
the Norwegian Kroner in the second quarter of 1999 as compared to December 31,
1998. Subsequent to December 31, 1998, we repaid a significant portion of our
remaining U.S. dollar-denominated indebtedness with proceeds from our initial
public offering.
Foreign exchange gain (loss) and other expense reflected a gain of NLG12.7
million for the three months ended June 30, 1999 as compared to a loss of NLG3.3
million for the same period in 1998. The foreign exchange gain during the three
months ended June 30, 1999 was due primarily to an increase in the value of the
Dutch guilder to the Norwegian Kroner in the second quarter of 1999.
Share in Results of Affiliated Companies, Net
The table below sets forth our share in results of affiliated companies for
the applicable periods.
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------ ------------------------------
1999 1998 1999 1998
--------------- ------------- --------------- -------------
(Dutch Guilders, in thousands) (Dutch Guilders, in thousands)
A2000......................................... (16,097) (11,795) (26,078) (23,182)
UTH........................................... - - (5,407) -
Hungary (Kabelkom, programming and
cable television)....................... - (4,863) (219) (5,719)
UII Partnership (Israel, Ireland, Malta) (2).. - 1,302 - 861
Tevel (2)..................................... 559 - (3,557) -
Melita (2).................................... (358) - (348) -
Monor......................................... 2,093 (1,510) 1,793 (2,122)
Xtra Music.................................... (1,900) - (2,335) -
Other (1)..................................... 2,807 (614) 2,983 (1,457)
----------- -------- ----------- --------
Total......................................... (12,896) (17,480) (33,168) (31,619)
=========== ======== =========== ========
(1) "Other" shows in 1998, our share in results from Spain, France and
Germany, in 1999 our share in results from Spain and a Czech and Slovak
Republic programming business.
(2) Historically, we held our interests in Israel, Ireland and Malta in UII,
a general partnership. In November 1998, we acquired our partner's
interest in Tevel and Melita and sold our interest in PHL.
-33-
For the six months ended June 30, 1999, our share in net losses of affiliated
companies increased to NLG33.2 million from NLG31.6 million for the six months
ended June 30, 1998, a 5.1% increase. The increase was primarily due to
increased losses from our 51% investment in UTH, accounted for as an equity
investment until February 1, 1999 when we acquired the remaining 49% and began
consolidating the investment. We also had increased losses from A2000, Tevel and
Xtra Music for the six months ended June 30, 1999. These losses were partially
offset by the sale of our Hungarian programming and cable television investment
in the first quarter of 1999, as well as a decrease in losses from Monor and
other investments for the six months ended June 30, 1999 as compared to the same
period in 1998.
For the three months ended June 30, 1999, our share in net losses of
affiliated companies decreased to NLG12.9 million from NLG17.5 million for the
three months ended June 30, 1998, a 26.3% decrease. A substantial portion of
the decrease in share in net losses was attributable to the sale of our interest
in our Hungarian programming and cable television investment in the first
quarter of 1999. Also a factor in the decrease in our losses recorded for the
three months ended June 30, 1999 was our investment in Monor, which recorded
income for the three months ended June 30, 1999. These increases were partially
offset by losses from investment in Xtra Music during the three months ended
June 30, 1999.
Statements of Cash Flows
We had cash and cash equivalents of NLG446.1 million as of June 30, 1999, an
increase of NLG416.5 million from NLG29.6 million as of December 31, 1998.
For the Six Months
Ended June 30,
------------------------------
1999 1998
--------------- -------------
(Dutch guilders, in thousands)
Cash flows from operating activities........................ (61,787) 50,713
Cash flows from investing activities........................ (1,215,716) (279,526)
Cash flows from financing activities........................ 1,693,697 191,747
Effect of exchange rates on cash............................ 319 (910)
------------ ----------
Net increase (decrease) in cash and cash equivalents........ 416,513 (37,976)
Cash and cash equivalents at beginning of period............ 29,571 100,144
------------ ----------
Cash and cash equivalents at end of period.................. 446,084 62,168
============ ==========
Cash Flows from Operating Activities
During the six months ended June 30, 1999, net cash flow from operating
activities decreased NLG112.5 million to NLG(61.8) million from NLG50.7 million
for the comparable period in 1998, a 221.9% decrease. This decrease was
primarily related to increased cash needs for working capital, start-up costs
for Internet/data and telephony and the consolidation of UTH as of February 1,
1999.
Cash Flows from Investing Activities
We used approximately NLG1,215.7 million of cash in investing activities
during the six months months ended June 30, 1999, compared to NLG279.5 million
for the six months ended June 30, 1998. During the six months ended June 30,
1999, cash was used principally for the acquisitions of UTH, which represented
NLG491.5 million, net of cash acquired, GelreVision, which represented NLG233.6
million, net of cash acquired, SKT which represented NLG88.2 million, net of
cash acquired, and RCF, which represented NLG57.8 million, net of cash acquired.
Capital expenditures for property, plant and equipment, including other tangible
assets such as system upgrade and new-build activities, represented NLG315.4
million. During the six months ended June 30, 1999, we had a net decrease in
restricted cash of NLG19.6 million from the release of NLG30.3 million of
restricted cash upon pay-off of the bridge bank facility and the deposit of
NLG10.7 million for the acquisition of Videopole. During this period we made a
net investment in affiliates of NLG51.0 million and received proceeds from the
sale of our Hungarian programming assets of NLG36.7 million. We also made an
investment in bonds of NLG34.5 million.
-34-
For the six months ended June 30, 1998, our primary use of cash for
investing activities was the acquisition of Combivisie for NLG180.8 million and
NLG9.7 million for other acquisitions. We also used cash for capital
expenditures of NLG97.5 million and investments in affiliates of NLG0.5 million,
which was partially offset by a decrease in restricted cash of NLG9.0 million.
Cash Flows from Financing Activities
We had NLG1,693.7 million of cash flows from financing activities during
the six months ended June 30, 1999, as compared to NLG191.7 million for the six
months ended June 30, 1998. Principal sources of cash include net proceeds from
our initial public offering of NLG2,660.1 million. Additional sources of cash
were from short-term borrowings of NLG15.4 million and long-term borrowings of
NLG682.3 million, which includes borrowings on the new Telekabel facility of
NLG539.9 million, borrowings under the senior credit facility of NLG110.0
million, borrowings under the Mediareseaux facility of NLG29.2 million and
other borrowings of NLG3.2 million. Concurrent with the public offering DIC
exercised its option to acquire shares for proceeds of NLG89.6 million, which we
used to pay USD45.0 million (NLG87.8) of the DIC Loan. We used proceeds from the
public offering to pay NLG620.0 million of the senior revolving credit facility,
NLG110.0 million of the bridge bank facility and the note payable to United of
NLG157.4 million. As part of the acquisition of UTH, we also paid a loan to NUON
of NLG33.0 million. In March, UTH paid off its existing credit facility of
NLG620.0 million with a new facility, plus funding from UPC. We paid down other
loans of NLG78.5 million, including NLG 41.7 million for the Telekabel Hungary
facility. We used proceeds from the sale of our programming assets in Hungary to
pay the Time Warner note totaling NLG36.4 million.
During the six months ended June 30, 1998 our primary source of cash was
borrowings from United of NLG129.9 million and from our senior revolving credit
facility and CNBH's major facility of NLG270.9. We repaid long and short-term
borrowings from our bridge bank facility and KTE facility of NLG206.0 million
and incurred financing costs of NLG3.0 million.
Consolidated Capital Expenditures
The table below sets forth our consolidated capital expenditures for the
six months ended June 30, 1999 and 1998. The historical information below does
not reflect capital expenditures by A2000, UTH (through February 1, 1999), Tevel
or other unconsolidated systems. CNBH has been deconsolidated as of August 1,
1998; its capital expenditures were included for the six months ending June
30,1998. UTH was consolidated as of February 1, 1999 and its capital
expenditures for the five months ended June 30, 1999 are included in the capital
expenditures for the six months ended June 30, 1999. SKT and GelreVision were
consolidated as of June 1, 1999, and their capital expenditures for the month of
June 1999, are included in the capital expenditures for the six months ended
June 30, 1999. RCF was consolidated as of June 30, 1999, and its capital
expenditures are not included for the six months ended June 30, 1999. The
historical information below does not include capital expenditures for the new
acquisitions, which includes Time Warner Cable France, A2000, Kabel Plus,
Stjarn, Videopole and @Entertainment.
-35-
For the Six Months
Ended June 30,
------------------------------
1999 1998
--------------- -------------
(Dutch guilders, in thousands)
Cable Network:
Upgrade................................. 104,450 37,644
New build............................... 42,614 23,146
----------- ---------
Total Cable Network............... 147,064 60,790
Master Telecom Center:
Video services.......................... 6,329 2,559
Cable telephone (Priority Telecom)...... 32,414 429
Internet/data services.................. 3,287 1,289
----------- ---------
Total Master Telecom Center....... 42,030 4,277
Customer Premise Equipment (CPE):
Video services........................... 6,065 5,676
Cable telephone (Priority Telecom)....... 13,543 4
Internet/data services................... 16,963 4,013
----------- ---------
Total CPE.......................... 36,571 9,693
Support Systems and Equipment (SSE)............ 13,849 5,862
Land, buildings, leasehold and other........... 16,534 -
----------- ---------
Total SSE and Other................ 30,383 5,862
New Businesses:
chello broadband......................... 12,071 -
Digital distribution platform............ 11,806 -
----------- ---------
Total New Businesses............... 23,877 -
Other and intangibles.......................... 35,452 16,923
----------- ---------
Total Capital Expenditures............... 315,377 97,545
=========== =========
Cable Network
Since our formation as a joint venture, we have been aggressively upgrading
our existing cable television system infrastructure and constructing our new-
build infrastructure with two-way high capacity technology to support digital
video, telephone and Internet/data services. Capital expenditures for the
upgrade and new-build construction can be reduced at our discretion, although
such reductions require lead-time in order to complete work-in-progress and can
result in higher total costs of construction.
We expect that the upgrade of the cable network and related equipment will
cause us to write-off some of our existing cable network and equipment. We do
not expect the write-off to be significant, except in certain limited
circumstances where it will be necessary to rebuild the network. While there are
some exceptions, most of the existing cable plant and related equipment has been
in service for over ten years and the remaining book value is very low. While we
believe the upgrade will extend the life of our existing plant, we do not
anticipate extending the useful life of our existing coaxial cable and equipment
for financial reporting purposes.
During the six months ended June 30, 1999, we spent approximately NLG147.1
million in cable network capital expenditures. For 1999, we have budgeted cable
network capital expenditures of approximately NLG461.5 million for our existing
systems and NLG409.2 for new acquisitions.
Master Telecom Center
The master telecom center includes the headend and all central network
equipment needed for services provided through the operating system. For cable
television, this includes satellite antennas, encryption devices and original
transmission facilities. For telephone service, this includes the central office
switch and synchronous digital hierarchy and other telephone-related equipment.
For Internet/data service, this includes servers and equipment for connection to
the Internet.
-36-
During the six months ended June 30, 1999, we spent approximately NLG42.0
million for master telecom center equipment. For 1999, we have budgeted capital
expenditures for master telecom center equipment of approximately NLG110.9
million for existing systems and NLG21.7 million for new acquisitions.
Customer Premise Equipment
Customer premise equipment includes television set-top converters for video
services, cable phone equipment for telephone and cable modems and network
interface cards for Internet/data services. Customer premise equipment is a
variable capital expenditure, except for inventory on hand, and generally will
not be incurred unless we need the equipment for a subscriber.
During the six months ended June 30, 1999, we spent approximately NLG36.6
million on customer premise equipment. For 1999, we have budgeted capital
expenditures for customer premise equipment of approximately NLG148.2 million
for existing systems and NLG75.6 million for new acquisitions. We recently
entered into agreements with Philips and General Instruments for the development
and purchase of an integrated digital set-top box for video and Internet/data
services, as well as for Internet-based telephone. A2000 has agreed with the
City of Amsterdam to deploy during the year 2000, a significant number of
digital set-top boxes to our existing customers who elect to take our expanded
tier service. Our current projection for capital expenditures related to this
digital set-top box rollout is approximately NLG332.0 million, although we do
not expect to incur the full amount in the year 2000.
Support Systems and Equipment
Support systems and equipment includes ancillary systems such as
operational and business support systems, including network management, customer
care, inventory and billing. During the six months ended June 30, 1999, we spent
NLG13.8 million in total support systems and equipment. For 1999, we have
budgeted NLG65.1 million for support systems and equipment for existing systems
and NLG191.1 million for new acquisitions.
New Businesses
In addition to the network infrastructure and related equipment and capital
resources described above, development of our newer businesses, chello broadband
and our digital distribution platform, require capital expenditures for
construction and development of our pan-European distribution and programming
facilities, including our origination facility, network operating center, near
video on demand server complex and related support systems and equipment. For
the six months ended June 30, 1999, we incurred capital expenditures of
approximately NLG12.1 million for chello broadband and NLG11.8 million for the
digital distribution platform. We have budgeted for 1999 approximately NLG42.5
million and NLG35.5 million, respectively, for capital expenditures for chello
broadband and our digital distribution platform.
New Businesses - Revenue, Operating Expenses and SG&A Expenses
During late 1997 we introduced Internet/data service as a product offering
in our consolidated systems. During 1998 we began the development of several
other new businesses including chello broadband, Priority Telecom and UPCtv.
During 1998 the Internet/data service business and telephony business were
developed at both local country operating companies and at the corporate Pan-
European level. The information provided below provides an overview of the
revenues, operating expenses and SG&A expenses for the six months ended June 30,
1999 and 1998 related to these new services in relation to our cable television
business. Historically, we did not fully allocate overhead and general and
administrative expenses to these new businesses. Full allocation began in 1999.
-37-
For the Six Months Ended June 30, 1999
----------------------------------------
Operating SG&A
Revenue Expenses (2) Expenses
------- ------------ ----------
Cable Television...................... 289,178 (90,850) (68,463)
Telephony:
Operating companies................ 22,866 (21,847) (27,537)
Priority Telecom................... - - (1,525)
Internet/data:
Operating companies................ 15,764 (13,641) (14,628)
chello (1)......................... 3,743 (22,145) (22,038)
Corporate overhead, UPCtv,
programming and other (1).......... 4,146 (6,350) (130,947)
Intercompany.......................... (3,743) 3,743 -
------- ------------ -----------
Total................................. 331,954 (151,090) (265,138)
======= ============ ===========
For the Six Months Ended June 30, 1998
----------------------------------------
Operating SG&A
Revenue Expenses (2) Expenses
------- ------------ ------------
Cable Television...................... 184,578 (58,868) (38,405)
Telephony:
Operating companies................ 375 (187) (1,315)
Priority Telecom................... - - -
Internet/data:
Operating companies................ 3,069 (3,300) (5,275)
chello (1)......................... - - -
Corporate overhead, UPCtv,
programming and other (1).......... 7,248 (3,756) (17,379)
Intercompany.......................... - - -
------- ------------ ------------
Total................................. 195,270 (66,111) (62,374)
======= ============ ============
(1) Corporate overhead SG&A expense includes a stock-based compensation charge
of NLG98,657 for the six months ended June 30, 1999, compared to a charge
of NLG406 for the six months ended June 30, 1998. chello SG&A expense
includes a stock-based compensation charge of NLG1,529 for the six months
ended June 30, 1999, compared to no charge for the six months ended June
30, 1998.
(2) Operating expenses do not include depreciation and amortization, which for
the six months ended June 30, 1999 and 1998 totaled NLG148,404 and
NLG94,953, respectively.
Liquidity and Capital Resources
Historically, we have financed our operations and acquisitions primarily
from:
. cash contributed by United upon our formation,
. debt financed at the UPC corporate level and project debt financed at the
operating company level,
. equity raised in our initial public offering,
. debt raised in our recent offering of senior notes, and
. operating cash flow.
We have both well-established and developing systems. In general, we have
used the cash contributed by United upon formation and debt financed at the UPC
corporate level to fund acquisitions, developing systems and corporate overhead.
We have financed our well-established systems and, when possible, our developing
systems, with project debt and operating cash flow. Also, well-established
systems generally have stable positive cash flows that, to the extent permitted
by applicable credit facilities, may be used to fund other operations.
Developing systems are at various stages of construction and development and
generally depend on us for some of the funding for their operating needs until
project financing can be secured.
-38-
Sources of Capital
We had approximately NLG446.1 million of unrestricted cash and cash
equivalents on hand as of June 30, 1999. In addition, we had additional
borrowing capacity at the corporate and project debt level including CNBH,
Mediareseaux and the new Telekabel facilities.
During February 1999, we successfully completed an initial public offering
selling 44.6 million shares on the Amsterdam Stock Exchange and Nasdaq National
Market System and raising gross and net proceeds from the offering of
approximately NLG2,852.9 million and NLG2,660.1 million, respectively.
Concurrent with the offering DIC exercised one of its two option agreements
acquiring approximately 1.6 million shares for NLG89.6 million. Proceeds from
the sale of the shares to DIC were used to repay USD45.0 million of the DIC Loan
and related interest. Proceeds from the offering were used to reduce the senior
revolving credit facility (NLG635.8 million, including accrued interest of
NLG15.8 million), repay in its entirety the bridge bank facility (NLG110.0
million, net of the interest reserve account), acquire NUON's 49% interest in
UTH (NLG518.1 million) and assume from NUON a NLG33.0 million subordinated loan,
including accrued interest (NLG33.3 million). Subsequent to the offering, we
also repaid USD80.0 million (NLG157.4 million) of the note payable to United and
an additional NLG191.0 of the senior revolving credit facility and completed the
acquisitions of Gelrevision (NLG243.0 million), SKT Bratislava (NLG88.7
million) and RCF (NLG57.8 million).
Subsequent to June 30, 1999, we closed an offering of our 10 7/8% senior
notes due 2009 and our 12 1/2% senior discount notes due 2009. The offering
generated gross proceeds of approximately USD1.5 billion. Proceeds from the bond
offering will primarily be used to partially fund existing and planned
acquisitions. Also, subsequent to June 30, 1999 we entered into a Euro 1.0
billion credit facility (the "Senior Credit Facility"). Until the earlier of
October 31, 1999 and the completion of the syndication of the Senior Credit
Facility, availability under the Senior Credit Facility is limited to Euro 500.0
million and such amount may not be used to finance any acquisitions. Proceeds
from the Senior Credit Facility were used to refinance the existing Senior
Revolving Credit Facility. The remaining available proceeds are expected to be
used to repay certain intercompany debts, pay interest on funds downstreamed
from the proceeds of the bond offering, general corporate purposes, capital
expenditures, pay amounts due under the Senior Credit Facility and other
permitted distributions.
While the proceeds from bond offering and the Senior Credit Facility are
adequate to meet our existing business requirements, we may need to raise
additional capital in the future to the extent we pursue new acquisition or
development opportunities or if cash flow from operations is insufficient to
satisfy our liquidity requirements.
The consummation of our tender offer of @Entertainment resulted in a change
of control, and as a result, @Entertainment will be obligated to offer to
repurchase any notes that the note holders put to it at 101% of their principal
amount, plus accrued and unpaid interest. We expect that the holders of the
@Entertainment PCI notes and the Series C Senior Discount Notes may exercise
their rights to require the purchase of their notes following the change of
control triggered by our acquisition of @Entertainment. If the holders of those
notes exercised their rights to put all of their notes, this would require
@Entertainment to repay approximately USD140.3 million (NLG298.9 million) of
debt. The @Entertainment 1999 Series B 14 1/2% Senior Discount Notes and the
@Entertainment 14 1/2% 1998 Senior Discount Notes of which USD233.9 million
(NLG498.3 million) was outstanding at June 30, 1999, contain a similar provision
enabling holders to require @Entertainment to purchase the notes following a
change of control. Given the coupon on those notes, however, we do not expect
any significant number of holders of those notes to exercise their put rights.
The actual amount exercised may differ significantly from our expectations.
Certain Dutch Property Tax Issues
One of our Dutch systems was recently assessed for a transfer tax on
immovable property in the amount of NLG1.8 million for the purchase of a cable
network. We have always regarded our cable networks as movable property and not
subject to such transfer tax. We are appealing this tax assessment. Should we be
unsuccessful, our Dutch systems may be assessed for taxes on similar
transactions. We cannot predict the extent to which the taxes could be assessed
retroactively or the amount of tax that our systems may be assessed for,
although it may be substantial. Because we own 100% of UTH, any tax liabilities
assessed against our Dutch systems, other than the A2000 systems, will be
consolidated with our results. We believe that, if our appeal is unsuccessful,
most cable television companies and other utilities in The Netherlands would
become subject to similar tax liabilities. If this happens, we expect these
entities would lobby with us the Dutch tax authorities against such tax
assessments.
-39-
Inflation and Foreign Currency Exchange Rate Losses
To date, we have not been impacted materially by inflation.
The value of our monetary assets and liabilities is affected by
fluctuations in foreign currency exchange rates as accounts payable for certain
equipment purchases and certain operating expenses, such as programming
expenses, are denominated in currencies other than the functional currency of
the entity making such payments. We and some of our operating companies have
notes payable and notes receivable that are denominated in, and loans payable
that are linked to, a currency other than their own functional currency,
exposing us to foreign currency exchange risks on these monetary assets and
liabilities. In general, we and our operating companies do not execute hedge
transactions to reduce our exposure to foreign currency exchange rate risks.
Accordingly, we may experience economic loss and a negative impact on earnings
and equity with respect to our holdings solely as a result of foreign currency
exchange rate fluctuations.
The functional currency for our operations generally is the applicable
local currency for each operating company. Assets and liabilities of foreign
subsidiaries are translated at the 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 Dutch guilders result in unrealized gains or losses referred to
as translation adjustments. Cumulative translation adjustments are recorded as a
separate component of shareholders' equity. Transactions denominated in
currencies other than the local currency are recorded based on exchange rates at
the time such transactions arise. Subsequent changes in exchange rates result in
transaction gains and losses which are reflected in income as unrealized, based
on period-end translations, or realized upon settlement of the transactions.
Cash flows from our operations in foreign countries are translated based on
their reporting currencies. As a result, amounts related to assets and
liabilities reported on the condensed consolidated statements of cash flows will
not agree to changes in the corresponding balances on the condensed 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.
Year 2000 Conversion
Our cable television, programming, telephone and Internet/data operations
are heavily dependent upon computer systems and other technological devices with
imbedded chips. Such computer systems and other technological devices may not be
capable of accurately recognizing dates beginning on January 1, 2000. This
problem could cause miscalculations, resulting in our cable television,
telephone and Internet/data systems or programming services malfunctioning or
failing to operate.
Year 2000 Compliance 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 may have on company-wide operations, including us and our operating
companies, and to implement necessary changes to address such problems. The task
force includes our staff, external consultants and staff from United, and
subcommittees at the operating company levels and reports directly to the United
Board. In creating a program to minimize Year 2000 problems, the task force
-40-
identified certain critical operations of our business. These critical
operations are service delivery systems, field and headend devices, customer
service and billing systems, and corporate management and administrative
operations such as cash flow, accounts payable and accounts receivable, payroll
and building operations.
The task force has established a three phase program to address potential
Year 2000 problems:
. 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.
. 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.
. 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.
All of our operating systems have completed the Identification Phase, with
the exception of acquisitions completed in the second quarter of 1999, and the
task force is working on the Implementation Phase for these systems. The task
force has researched approximately 94.0% of the items identified during the
Identification Phase as to Year 2000 compliance. Of the items researched, 75.0%
are compliant and 5.0% are not compliant but can be easily remediated without
significant cost to us. The remaining items require further research or
additional testing. Because of several acquisitions, such as GelreVision, SKT
and RCF, the research of items has expanded significantly. As a result, the
research on 85.0% of the items has been completed and research on the remaining
items is ongoing.
Subsequent to June 30, 1999, we acquired or will acquire additional
systems, which will be included in our Year 2000 program. At this time, we have
not determined whether any of these systems have their own programs in place for
Year 2000 compliance, however in most acquisitions we have received
representation and warrranties from the seller regarding Year 2000 compliance.
We are undertaking such review during the third quarter of 1999 and will
determine at what level their systems are within our Year 2000 program.
The task force commenced the Testing Phase in the first quarter of 1999.
The task force is supervising the Testing Phase of the computer systems for our
headend controllers and our customer service billing systems and routers. Based
on current data to date, we expect to complete the testing during the third
quarter of 1999. At this time we anticipate that all material aspects of the
program will be completed before January 1, 2000, and we do not anticipate any
material remediations or replacements. Testing for the customer care and billing
systems will be completed by the end of September 1999.
In general, United manages the program with its own internal task force. In
addition, United has retained independent consultants to assist with the Year
2000 program. The task force will continue to evaluate the need for external
resources to complete the Implementation Phase and implement the Testing Phase.
In the event the task force should elect to use experienced resources, such
experienced resources may not, however, be available.
In addition to its program, United is a member of a Year 2000 working
group, which has 12 cable television companies and meets under the auspices of
Cable Labs. The dialogue with the other cable operators has assisted United in
developing its Year 2000 program. Part of the agenda of the working group is to
develop test procedures and contingency plans for critical components of
operating systems for the benefit of all its members. The test procedures were
made available to members, including United, during the second quarter of 1999.
Third-Party Dependence
We believe that our largest Year 2000 risk is our dependence upon third-
party products. Two significant areas in which our systems depend upon third-
party products are programming and telephony interconnects. We do not have the
ability to control such parties in their assessment and remediation procedures
for potential Year 2000 problems. Should these parties not be prepared for Year
2000, their systems may fail and we would not be able to provide our services to
our customers. Not withstanding these limitations, the task force monitors the
websites for all vendors used by us, to the extent applicable, for information
on such vendors' Year 2000 programs. To the extent applicable, the task force
uses such information to verify Year 2000 compliance and to implement
remediation procedures. We also have requested information from various third
parties on the state of their Year 2000 compliance programs in an effort to
prevent any possible interruptions or failures. To date, responses by
programming vendors to such communications have been limited. The responses
received state only that the party is working on Year 2000 issues and does not
have a definitive position at this time. As a result, we are unable to assess
the risk posed by our dependence upon such third parties' systems. Vendors for
-41-
critical equipment components, such as the headend controllers mentioned below,
have been more responsive, and we believe substantially all of our equipment
will be Year 2000 compliant. We cannot, however, give any assurances concerning
compliance of equipment because such belief is based on information provided by
vendors, which cannot be independently verified, and because of the
uncertainties inherent in Year 2000 remediation.
The task force is working closely with the manufacturers of our headend
devices to remedy any Year 2000 problems assessed in the headend equipment.
Recent information from the two primary manufacturers of such equipment indicate
that most of the equipment used in our operating systems are not date-sensitive.
Where such equipment needs to be upgraded for Year 2000 issues, such vendors are
upgrading without charge. These upgrades are expected to be completed before
year-end 1999, but this process is not entirely within our control.
Approximately 98.0% of the headend controllers, which are considered the most
critical component of the headend devices, have been upgraded. With respect to
billing and customer care systems, we use standard billing and customer care
programs from several vendors. The task force is working with such vendors to
achieve Year 2000 compliance for all of our systems.
We have considered certain limited contingency plans, including preparing
back-up programming and stand-by power generators. Based on these
considerations, the task force has distributed a contingency plan to all of our
operating systems, which sets forth preparation procedures and recovery
solutions. With respect to other third-party systems, each of our operating
systems is responsible for inquiring of its vendors and other entities with
which it does business (e.g., utility companies, financial institutions and
facility owners) as to such entities' Year 2000 compliance programs. Each of
our operating companies has begun this process and to assist our operating
companies in this process, we have hired two Year 2000 consultants, one for
Eastern Europe and one for Western Europe, who will visit each operating company
and work with them to identify and report to us any potential Year 2000
compliance problems. These consultants will also contact third party vendors
regarding their Year 2000 compliance measures.
Minority-Held Systems
We also have non-controlling interests in cable television and telephone
operations, including A2000. MediaOne International, our partner in A2000, is
undertaking and implementing a program to ensure that the operations of A2000
will be Year 2000 compliant. We will complete the Year 2000 program
implementation at A2000 subsequent to closing our acquisition of MediaOne
International's interest in A2000. The task force is including other minority
investments in its program. Of these investments, 95.0% have completed their
Identification Phase of the program and the task force is in the process of
making recommendations to these entities as to Year 2000 compliance matters. No
assurance can be given, however, that these entities will implement the
recommendations or otherwise be Year 2000 compliant. Overall, the task force
will continue to analyze the Year 2000 program and will revise the program as
necessary throughout the remainder of 1999, including procedures to ensure third
parties' Year 2000 compliance.
Cost 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 investments over the past few years
in improving our systems, primarily for reasons other than Year 2000. Because
the systems' upgrades also result in Year 2000 compliance, replacement and
remediation costs have been low. Based on the task force review to date, we
currently estimate that these costs will not exceed NLG4.0 million, excluding
any costs associated with our interest in A2000. The cost includes certain
identified replacement and remediation procedures and external consultants.
Such estimate does not, however, include internal costs because we do not
separately track the internal costs incurred for the Year 2000 program.
Although no assurance can be made, we believe that the known Year 2000
compliance issues can be remedied without a material financial impact on us. No
assurance can be made, however, as to the total cost (excluding the internal
cost) for the Year 2000 program until all of the data has been gathered. In
addition, we cannot predict the financial impact we will experience if Year 2000
problems are caused by third parties upon which our systems are dependent or
experienced by entities in which we hold investments. The failure of any one of
these parties to implement Year 2000 procedures could have a material adverse
impact on our operations and financial condition.
-42-
European Economic and Monetary Union
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the euro. The participating countries adopted the euro as their
common legal currency on that day. The euro trades on currency exchanges and is
available for non-cash transactions during the transition period between January
1, 1999 and January 1, 2002. During this transition period, the existing
currencies are scheduled to remain legal tender in the participating countries
as denominations of the euro and public and private parties may pay for goods
and services using either the euro or the participating countries' existing
currencies.
During the transition period, all operating companies' billing systems will
include amounts in euro as well as the respective country's existing currency.
All of our accounting and management reporting systems currently are multi-
currency.
We intend to use the euro as our reporting currency by the end of 2000. We
do not expect the introduction of the euro to affect materially our cable
television and other operations. We have not yet taken steps to confirm that the
financial institutions and other third parties with whom we have financial
relationships are prepared for the use of the euro. Thus far, we have not
experienced any material problem with third parties as a result of the
introduction of the euro. We believe the introduction of the euro will not
require us to amend any of our financial instruments or loan facilities, other
than amendments that will be made automatically by operation of law. These will
include automatic replacement of the currencies of participating countries with
the euro. They will also include automatic replacement of interest rates of
participating countries with European interest rates. We believe the
introduction of the euro will reduce our exposure to risk from foreign currency
and interest rate fluctuations.
-43-
Item 3. Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
Investment Portfolio
As of June 30, 1999, UPC has cash and cash equivalents of approximately
NLG446.1 million. UPC has invested this cash in highly liquid instruments which
meet high credit quality standards with original maturities at the date of
purchase of less than three months. These investments will be subject to
interest rate risk and foreign exchange fluctations (with respect to amounts
invested in currencies outside the European Monetary Union), however, the
Company does not expect any material losses with respect to its investment
portfolio.
Impact of Foreign Currency Rate Changes
The table below provides information about UPC's and its consolidated
subsidiaries' foreign currency exchange risk for cash and debt which is
denominated in foreign currencies outside of the European Monetary Union as of
June 30, 1999, including cash flows based on the expected repayment date and
related weighted-average interest rates for debt. The information is presented
in NLG equivalents, which is the Company's reporting currency. The
instruments' actual cash flows are denominated in US Dollars.
Amount Outstanding
As of June 30, 1999
------------------------
Book Value Fair Value
---------- ----------
Dollar Denominated Investments
------------------------------
Cash Account (1) (127,000) (127,000)
(1) UPC has a cash account which is comprised of two currencies, US Dollars and
Euros. The US dollar balance was negative at June 30, 1999, however the total
balance in the account was positive.
Amount Outstanding Expected Repayment
as of June 30, 1999 as of December 31,
------------------------- -------------------
Book Value Fair Value 1999 2000
----------- ----------- -------- --------
Dollar Denominated Facilities
-----------------------------
DIC Loan 95,850 95,850 - 95,850
8.0% per annum + 6.0% of
principal at maturity
United Loan 13,872 13,872 13,872 -
10.75% per annum
Historically, the Company and its operating companies have not executed hedge
transactions to reduce the Company's exposure to foreign currency exchange rate
risk. 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. In connection with our offering of
senior discount notes in July 1999, we entered into a swap agreement.
Interest Rate Sensitivity
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates as of June 30, 1999,
including cash flows based on the expected repayment dates and the related
weighted-average interest rates. The information is presented in NLG
equivalents, which is the Company's reporting currency.
-44-
Amount Outstanding
as of June 30, 1999 Expected Repayment as of December 31,
----------------------- ---------------------------------------------------
Book Value Fair Value 1999 2000 2001 2002 2003
----------- ---------- ------- -------- -------- -------- ---------
Variable Rate Facilities
- ------------------------
Senior Revolving Credit 458,024 458,024 458,024 - - - -
Facility
LIBOR + 0.55% to 2.0%,
average rate in 1999 of 6.00%
New Telekabel Facility 539,909 539,909 - - - 26,995 53,991
EURIBOR + 0.75% to 2.0%,
average rate in 1999 of 4.90%
CNBH Facility 239,495 239,495 - - 7,020 16,398 30,454
AIBOR + 0.7% to 0.75%, or
fixed rate advance + 0.7% to 0.75%
average rate in 1999 of 3.90%
Mediareseaux 69,495 69,495 - - - - 6,949
LIBOR +0.75% to 2.0%,
average rate in 1999 of 4.90%
RCF Facility 81,382 81,382 11,600 11,600 11,600 11,600 11,600
PIBOR + 1.5%
average rate in 1999 of 4.40%
Fixed Rate Facilities
- ---------------------
DIC Loan 95,850 95,850 - 95,850 - - -
8.0% per annum + 6.0% of
principal at maturity
United Loan 13,872 13,872 13,872 - - - -
10.75% per annum
Equity Prices
As of June 30, 1999, the Company is exposed to equity price fluctuations
related to its investment in United stock, which is classified as an investment
available for sale. Changes in the price of the stock are reflected as
unrealized gains (losses) in the Company's statement of shareholders' equity
(deficit), until such time as the stock is sold and any unrealized gain (loss)
will be reflected in the statement of operations.
Fair Value as of
Number of Shares June 30, 1999
---------------- -----------------
(Stated in thousands of Dutch Guilders, except share amounts)
Investment in United Stock 2,784,620 401,100
As of June 30, 1999, the Company is also exposed to equity price fluctuations
related to its debt which is convertible into ordinary shares of the Company.
The table below provides information about UPC's convertible debt, including
expected cash flows and related weighted-average interest rates.
-45-
Amount Outstanding Expected Repayment
as of June 30, 1999 as of December 31,
------------------------ -------------------
Convertible Debt Book Value Fair Value 1999 2000
---------------- ---------- ---------- ------ ------
DIC Loan 95,850 95,850 - 95,850
8.0% per annum + 6.0% of
principal at maturity
United Loan 13,872 13,872 13,872 -
10.75% per annum
Offering of Senior Notes
In July 1999, we completed an offering of USD800.0 million 10 7/8% senior
notes due 2009, Euro 300.0 million 10 7/8% senior notes due 2009 and USD735.0
million 12 1/2% senior discount notes due 2009. Interest payments on the
senior notes will be due semi-annually, commencing February 1, 2000. The
senior discount notes will not accrue interest until August 1, 2004. Commencing
February 1, 2005, interest on the senior discount notes will be payable semi-
annually.
In order to minimize our currency and interest rate exposure, the
USD800.0 million 10 7/8% senior notes have been swapped into Euro notes
totalling Euro 754.7 million. Of the Euro notes, Euro 377.35 million have a
fixed interest rate of 8.54% through August 1, 2004; thereafter switching to a
variable rate of EURIBOR + 4.15%. The remaining Euro 377.35 million have a
variable interest rate of EURIBOR + 4.15%, for an initial interest rate of
7.093%.
-46-
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
From time to time, we and our operating companies may become involved in
litigation relating to claims arising out of its operations in the normal course
of business.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
In February 1999, we concluded an initial public offering of 44.6 million
shares, raising gross proceeds and net proceeds of approximately NLG2,852.9
million and NLG2,660.1 million, respectively. The U.S. portion of the offering
was made under a Registration Statement on Form S-1 (File No. 333-67895) that
was declared effective on February 11, 1999. The total expenses (including
underwriting discounts and commissions) of the initial public offering were NLG
192.8 million. Through June 30, 1999, we have used a total of approximately NLG
2,269.3 million of the proceeds as follows:
. NLG635.8 million to pay down the senior revolving credit facility and accrued
interest,
. NLG110.0 million to repay the bridge bank facility,
. NLG551.4 million to acquire NUON's 49% interest in UTH and repay the loan,
. NLG157.4 million to repay the note payable to United and accrued interest,
. NLG113.2 million shareholder loan to UTH,
. NLG90.7 million to acquire a 100% interest in SKT,
. NLG233.9 million to acquire a 100% interest in GelreVision,
. NLG57.9 million to acquire a 95.67% interest in RCF,
. NLG10.7 million deposit for the acquisition of Videopole,
. NLG30.0 million for acquisitions in Hungary
. NLG7.2 million to acquire Diplomatic International,
. NLG20.7 million to pay accounts payable to United,
. NLG34.4 million to purchase bonds of @Entertainment,
. NLG35.4 to fund investments accounted for under the equity method,
. NLG15.6 million to purchase an additional 16.5% interest in IPS,
. approximately NLG86.4 million for general working capital, including UPC,
chello Broadband, Priority Telecom and UPCtv,
. approximately NLG78.6 million to fund equipment, cable, installation and
other costs associated with our network upgrade.
Except for the repayment of the note payable to United, payment of accounts
payable to United and working capital to pay usual employee compensation, we
have not used these proceeds for direct or indirect payments to directors,
officers, 10% shareholders or other of our affiliates.
-47-
Item 5. Other Information
Summary Operating Data 1999
The operating data set forth below reflects the aggregate statistics of the
operating systems in which the Company has an ownership interest.
As at June 30, 1999
-----------------------------------------------------------------------
Homes in Two way
Service Homes Homes Basic Basic
Area Passed Passed Subscribers Penetration
-----------------------------------------------------------------------
Multi-channel TV:
The Netherlands (A2000)........ 580,198 580,198 386,109 532,297 91.7%
The Netherlands (UTH)(10)...... 1,132,722 1,064,942 798,227 1,006,459 94.5%
Austria........................ 1,078,980 905,430 685,520 461,018 50.9%
Hungary (Telekabel Hungary).... 901,500 550,423 - 449,337 81.6%
Israel......................... 602,000 592,326 373,312 410,380 69.3%
Norway......................... 529,900 465,951 30,022 323,265 69.4%
Belgium........................ 133,060 133,060 116,804 125,786 94.5%
Malta.......................... 179,000 166,415 - 73,051 43.9%
Romania........................ 180,000 99,274 - 61,944 62.4%
Czech Republic................. 229,531 157,586 - 54,691 34.7%
Hungary (Monor)................ 85,000 70,061 - 31,686 45.2%
France (8)..................... 412,500 287,087 85,201 108,140 37.7%
Slovak Republic (9)............ 344,343 211,295 - 185,633 87.9%
--------- --------- --------- ---------
Total..................... 6,388,734 5,284,048 2,475,195 3,823,687
========= ========= ========= =========
As at June 30, 1999
------------------------------------------------------
UPC UPC UPC
UPC Equity in Equity in Equity in
Paid-in Homes in Homes Basic
Ownership Service Area Passed Subscribers
---------- ------------ --------- -----------
Multi-channel TV:
The Netherlands (A2000)........ 50.0% 290,099 290,099 266,149
The Netherlands (UTH)(10)...... 100.0% 1,132,722 1,064,942 1,006,459
Austria........................ 95.0% 1,025,031 860,159 437,967
Hungary (Telekabel Hungary).... 79.3% 714,439 436,210 356,100
Israel......................... 46.6% 280,532 276,024 191,237
Norway......................... 100.0% 529,900 465,951 323,265
Belgium........................ 100.0% 133,060 133,060 125,786
Malta.......................... 50.0% 89,500 83,208 36,526
Romania........................ 51.0-100.0% 165,300 84,770 50,799
Czech Republic................. 100.0% 229,531 157,586 54,691
Hungary (Monor)................ 47.5% 40,412 33,310 15,065
France (8)..................... 95.7-99.6% 402,173 278,042 104,811
Slovak Republic (9)............ 75.0-100.0% 339,068 206,957 182,821
--------- --------- ---------
Total..................... 5,371,767 4,370,318 3,151,676
========= ========= =========
-48-
Summary Operating Data 1999 (continued)
As of June 30, 1999
-------------------------------------------------------------------
Subscribers Lines served UPC
----------------------- ----------------------------- Paid-in
Residential Business Residential Business Ownership
----------- -------- ----------- ----------- ---------
Telephony
The Netherlands (A2000) (1)......... 26,064 3 29,060 830 50.0%
The Netherlands (UTH) (2)........... 18,154 5,953 18,154 5,963 100.0%
Austria............................. 7,159 216 7,197 682 95.0%
Norway.............................. 364 - 451 - 100.0%
France ............................. 5,041 - 5,160 - 99.6%
Hungary (Monor) (3)................. - - 64,915 6,806 47.5%
----------- -------- ----------- -----------
Total.......................... 56,782 6,172 124,937 14,281
=========== ======== =========== ===========
Dataservices
The Netherlands (A2000)............. 13,682 740 n/a n/a 50.0%
The Netherlands (UTH)(10)........... 10,848 145 n/a n/a 100.0%
Austria............................. 20,424 914 n/a n/a 95.0%
Norway.............................. 1,062 4 n/a n/a 100.0%
Belgium............................. 3,332 469 n/a n/a 100.0%
Hungary (Telekabel Hungary)......... 60 61 n/a n/a 79.3%
France.............................. 936 - n/a n/a 99.6%
----------- -------- ----------- -----------
Total.......................... 50,344 2,333 n/a n/a
=========== ======== =========== ===========
As at June 30, 1999
--------------------------------------------------------
UPC UPC UPC UPC
Equity in Equity in Equity in Equity in
Residential Business Residential Business Lines
Subscribers Subscribers Lines Served Served
----------- ----------- ------------ --------------
Telephony
The Netherlands (A2000) (1).......... 13,032 2 14,530 415
The Netherlands (UTH) (2)............ 18,154 5,953 18,154 5,963
Austria.............................. 6,801 205 6,837 648
Norway............................... 364 - 451 -
France .............................. 5,021 - 5,139 -
Hungary (Monor) (3).................. - - 30,863 3,236
----------- ----------- ------------ --------------
Total........................... 43,372 6,160 75,974 10,262
=========== =========== ============ ==============
Dataservices
The Netherlands (A2000).............. 6,841 370 n/a n/a
The Netherlands (UTH) (10)........... 10,848 145 n/a n/a
Austria.............................. 19,403 868 n/a n/a
Norway............................... 1,062 4 n/a n/a
Belgium.............................. 3,332 469 n/a n/a
Hungary (Telekabel Hungary).......... 48 48 n/a n/a
France............................... 932 - n/a n/a
----------- ----------- ------------ --------------
Total........................... 42,466 1,904 n/a n/a
=========== =========== ============ ==============
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Summary Financial Data 1999 (4)
For the six months period ending June 30, 1999
----------------------------------------------------------
Net
Income/ Adjusted Capital
Revenue (loss) EBITDA (5) Expenditures (6)
------- -------- ---------- ----------------
(Dutch guilders, in thousands)
The Netherlands (A2000)........ 74,944 (36,749) 15,276 53,457
The Netherlands (UTH)(10)...... 128,896 (62,087) 43,217 92,944
Austria........................ 99,214 (4,443) 37,231 55,917
Hungary (Telekabel Hungary).... 34,984 1,161 11,263 22,464
Israel......................... 170,899 2,563 88,271 31,473
Norway......................... 49,748 (35,120) 12,014 42,487
Belgium........................ 18,210 (6,835) 2,774 5,891
Malta.......................... 16,196 1,104 6,864 7,594
Romania........................ 2,498 390 1,044 347
Czech Republic................. 4,712 (2,450) (565) 2,753
Hungary (Monor)................ 20,460 4,086 13,253 3,376
France (8)..................... 22,962 (17,654) (4,646) 38,086
Slovak Republic (9)............ 2,188 (1,767) 435 561
For the six months period ending
June 30, 1999
-------------------------------------- At June 30,
Cash flows from 1999
-------------------------------------- -----------
Operating Investing Financing Long-Term
Activities Activities Activities Debt (7)
---------- ---------- ---------- ----------
The Netherlands (A2000)........ 23,233 (54,226) 30,857 484,700
The Netherlands (UTH)(10)...... 39,104 (477,448) 434,560 801,055
Austria........................ 61,249 (67,243) 19,384 256,404
Hungary (Telekabel Hungary).... (16,806) (21,207) 39,902 49
Israel......................... 50,149 (30,478) (18,452) 493,178
Norway......................... 1,159 (77,387) 82,472 201,621
Belgium........................ 6,318 (5,679) (576) -
Malta.......................... 7,350 (11,983) 1,692 48,835
Romania........................ 723 194 (1,041) -
Czech Republic................. (1,591) (857) 2,358 -
Hungary (Monor)................ 7,087 (3,376) (6,735) 71,870
France (8)..................... 1,802 (109,723) 101,238 142,381
Slovak Republic (9)............ (2,697) (44,346) 49,967 -
-50-
Summary Operating Data 1998
The operating data set forth below reflects the aggregate statistics of the
operating systems in which the Company has an ownership interest.
As at June 30, 1998
-----------------------------------------------------------------
Homes in Two way
Service Homes Homes Basic Basic
Area Passed Passed Subscribers Penetration
-----------------------------------------------------------------
Multi-channel TV:
The Netherlands (A2000)............... 575,000 567,560 291,490 518,711 91.4%
The Netherlands (CNBH)................ 248,421 240,969 162,584 231,125 95.9%
Austria............................... 1,067,983 895,553 420,672 440,128 49.1%
Hungary (Kabelkom).................... 778,500 470,804 - 406,475 86.3%
Israel................................ 600,000 564,251 354,308 392,204 69.5%
Norway................................ 529,924 461,087 - 320,597 69.5%
Ireland (Princes Holdings)............ 380,000 374,217 - 141,067 37.7%
Belgium............................... 133,000 133,000 68,285 127,736 96.0%
Malta................................. 179,000 159,537 - 65,608 41.1%
Romania............................... 176,000 95,654 - 59,201 61.9%
Czech Republic........................ 271,100 147,187 - 52,150 35.4%
Hungary (Monor)....................... 85,000 62,775 - 28,310 45.1%
France................................ 86,000 47,494 47,494 18,118 38.1%
Slovak Republic....................... 67,959 22,647 - 15,175 67.0%
--------- --------- --------- ---------
Total............................ 5,177,887 4,242,735 1,344,833 2,816,605
========= ========= ========= =========
As at June 30, 1998
----------------------------------------------------
UPC UPC UPC
UPC Equity in Equity in Equity in
Paid-in Homes in Homes Basic
Ownership Service Area Passed Subscribers
--------- ------------ ---------- -----------
Multi-channel TV:
The Netherlands (A2000)............... 50.0% 287,500 283,780 259,356
The Netherlands (CNBH)................ 100.0% 248,421 240,969 231,125
Austria............................... 95.0% 1,014,584 850,775 418,122
Hungary (Kabelkom).................... 79.3% 617,351 373,348 322,335
Israel................................ 23.3% 139,800 131,470 91,384
Norway................................ 100.0% 529,924 461,087 320,597
Ireland (Princes Holdings)............ 20.0% 76,000 74,843 28,213
Belgium............................... 100.0% 133,000 133,000 127,736
Malta................................. 25.0% 44,750 39,884 16,402
Romania............................... 51.0-100.0% 156,260 80,794 48,956
Czech Republic........................ 100.0% 271,100 147,187 52,150
Hungary (Monor)....................... 46.3% 39,355 29,065 13,108
France................................ 99.6% 85,656 47,304 18,046
Slovak Republic....................... 75.0-100% 62,499 18,478 12,036
--------- --------- ---------
Total............................ 3,706,200 2,911,984 1,959,566
========= ========= =========
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Summary Operating Data 1998 (continued)
As at June 30, 1998
---------------------------------------------------------------
Subscribers Lines served UPC
----------------------- ----------------------- Paid-in
Residential Business Residential Business Ownership
----------- -------- ----------- -------- ---------
Telephony
The Netherlands (A2000) (1).............. 9,094 1 10,044 770 50.0%
Hungary (Monor) (3)...................... - - 59,754 5,793 46.3%
----------- -------- ----------- --------
Total............................... 9,094 1 69,798 6,563
=========== ======== =========== ========
Data Services
The Netherlands (A2000).................. 3,308 8 n/a n/a 50.0%
Austria.................................. 2,962 195 n/a n/a 95.0%
Norway................................... 330 - n/a n/a 100.0%
Belgium.................................. 725 140 n/a n/a 100.0%
----------- -------- ----------- --------
Total............................... 7,325 343 n/a n/a
=========== ======== =========== =========
As at June 30, 1998
--------------------------------------------------------
UPC UPC UPC UPC
Equity in Equity in Equity in Equity in
Residential Business Residential Business Lines
Subscribers Subscribers Lines Served Served
----------- ----------- ------------ --------------
Telephony
The Netherlands (A2000) (1).............. 4,547 1 5,022 385
Hungary (Monor) (3)...................... - - 27,666 2,682
----------- ----------- ------------ --------------
Total............................... 4,547 1 32,688 3,067
=========== =========== ============ ==============
Data Services
The Netherlands (A2000).................. 1,654 4 n/a n/a
Austria.................................. 2,814 185 n/a n/a
Norway................................... 330 - n/a n/a
Belgium.................................. 725 140 n/a n/a
----------- ----------- ------------ --------------
Total............................... 5,523 329 n/a n/a
=========== =========== ============ ==============
-52-
Summary Financial Data 1998 (4)
For the six months period ending June 30, 1998
--------------------------------------------------
Net
Income/ Adjusted Capital
Revenue (loss) EBITDA Expenditures
------- -------- --------- ------------
(Dutch guilders, in thousands)
The Netherlands (A2000)............... 59,558 (29,719) 13,674 53,486
The Netherlands (CNBH)................ 26,884 785 17,482 14,561
Austria............................... 87,302 5,400 42,952 26,010
Hungary (Kabelkom).................... 19,044 5,065 8,806 3,241
Israel ............................... 144,729 14,816 79,167 29,692
Norway................................ 46,575 (33,997) 17,216 15,502
Ireland (Princes Holdings)............ 38,514 376 14,985 11,390
Belgium............................... 17,694 (6,960) 6,465 10,475
Malta................................. 14,099. 1,423 6,154 6,059
Romania............................... 1,480 233 774 435
Czech Republic........................ 4,238 (3,795) (1,427) 508
France................................ 3,114 (4,507) (1,839) 14,229
Slovak Republic....................... 775 (887) (214) 3,340
Hungary (Monor)....................... 17,605 (3,188) 11,018 4,851
For the six months period ending
June 30, 1998
------------------------------------- At June 30,
Cash flows from 1998
------------------------------------- ----------
Operating Investing Financing Long-Term
Activities Activities Activities Debt (7)
---------- ---------- ---------- ----------
The Netherlands (A2000)............... (5,774) (53,486) 52,602 469,000
The Netherlands (CNBH)................ 16,450 (206,231) 193,380 211,712
Austria............................... 64,388 (28,539) (50,776) 194,224
Hungary (Kabelkom).................... 3,711 (3,200) 218 -
Israel ............................... 59,095 (576,133) 523,637 506,823
Norway................................ 13,186 (15,255) 2,543 144,011
Ireland (Princes Holdings)............ 6,600 (11,390) 150 136,454
Belgium............................... 7,572 (4,914) (1) -
Malta................................. 3,557 (5,048) 2,560 40,960
Romania............................... 612 (417) 5 -
Czech Republic........................ (6,228) (505) 6,827 2
France................................ 6,213 (15,989) 15,773 -
Slovak Republic....................... (517) (1,227) 1,893 -
Hungary (Monor)....................... 1,035 (4,851) 1,504 88,008
-53-
(1) A2000 offers cable telephony service.
(2) UTH's 80% subsidiary Uniport offers a carrier select telephony service.
(3) Our Monor service offers traditional telephone service.
(4) Financial information has been prepared in accordance with Dutch GAAP.
(5) "Adjusted EBITDA" represents earnings before net interest expense, income
tax expense, depreciation, amortization, stock based compensation
charges, minority interest, share in results of affiliated companies
(net), currency exchange gains (losses) and other non-operating income
(expense) items. Management generally considers Adjusted EBITDA to be a
helpful way to measure the performance of cable television operations and
communications companies such as us. We believe Adjusted EBITDA helps
investors to assess the cash flow from our operations from period to
period and thus to value our business. Adjusted EBITDA should not,
however, be considered a replacement for net income, cash flows or for
any other measure of performance or liquidity under generally accepted
accounting principles, or as an indicator of a company's operating
performance. We are not entirely free to use the cash represented by our
Adjusted EBITDA as we please. Several of our consolidated operating
companies are restricted by the terms of their debt arrangements. Each
company has its own operating expenses and capital expenditure
requirements, which can limit our use of cash. Our presentation of
Adjusted EBITDA may not be comparable to statistics with a similar name
reported by other companies. Not all companies and analysts calculate
EBITDA in the same manner.
(6) Tangible CAPEX only.
(7) Excludes intercompany debt.
(8) France includes balance sheet data and statistics for RCF at June 30, 1999.
As RCF was acquired June 30, 1999, its operations are not included in the
statement of operations or cash flow data.
(9) Slovak Republic includes balance sheet data and statistics for SKT at June
30, 1999. As SKT was acquired in June 1999, its operations are included
in the statement of operations and cash flow data for the month of June
1999 only.
(10) The Netherlands (UTH) includes balance sheet data and statistics for
GelreVision at June 30, 1999. As GelreVision was acquired in June 1999,
its operations are included in the statement of operations and cash flow
for the month of June 1999 only.
-54-
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during the Quarther
Date of Report Item Reported Financial Statements Filed
-------------- ------------- ---------------------------
June 2, 1999 Agreement to Acquire none
@Entertainment, Inc.
-55-
SIGNATURE
Pursuant to the requirements 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.
UNITED PAN-EUROPE COMMUNICATIONS N.V.4
Date: August 16, 1999
---------------
By: /S/ Ray D. Samuelson
--------------------
Ray D. Samuelson
Managing Director, Finance and Accounting
(A Duly Authorized Officer and Principal Financial Officer)
-56-