UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 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 98-0191997
(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 November
12, 1999 was:
145,201,499 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 September
30, 1999 and December 31, 1998 (Unaudited) ............................ 2
Condensed Consolidated Statements of Operations for
the Three and Nine Months Ended September 30, 1999 and
1998 (Unaudited) ...................................................... 3
Condensed Consolidated Statement of Shareholders'
Equity (Deficit) for the Nine Months Ended September
30, 1999 (Unaudited) .................................................. 4
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1999 and 1998
(Unaudited) ........................................................... 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) ........................................................... 8
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................... 33
Item 3 - Quantitative and Qualitative Disclosure About Market Risk .......... 55
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds ......................... 59
Item 5 - Other Information .................................................. 60
Item 6 - Exhibits and Reports on Form 8-K ................................... 67
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
September 30, December 31,
ASSETS: 1999 1998
------------- ------------
Current assets
Cash and cash equivalents ....................................... 139,150 29,571
Restricted cash ................................................. 37,775 30,263
Subscriber receivables, net of allowance for doubtful accounts
of 13,509 and 9,260, respectively ............................. 92,362 12,886
Costs to be reimbursed by affiliated companies, net of allowance
for doubtful accounts of 139 and 0, respectively .............. 19,085 27,277
Other receivables ............................................... 115,346 25,845
Inventory ....................................................... 132,031 24,121
Prepaid expenses and other current assets ....................... 119,472 15,654
----------- -----------
Total current assets .......................................... 655,221 165,617
Marketable equity securities of parent, at fair value ............. 412,858 101,097
Investments in and advances to affiliated companies, accounted
for under the equity method, net ................................ 500,158 493,051
Property, plant and equipment, net of accumulated depreciation
of 285,340 and 87,708, respectively ............................. 3,512,313 602,997
Goodwill and other intangible assets, net of accumulated
amortization of 161,134 and 39,109, respectively ................ 5,446,246 680,032
Deferred financing costs, net of accumulated amortization
of 3,829 and 9,288, respectively ................................ 140,544 21,663
Other assets ...................................................... 22,928 3,322
----------- -----------
Total assets ...................................................... 10,690,268 2,067,779
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT):
Current liabilities
Accounts payable, including related party payables
of 22,975 and 15,671, respectively ............................ 351,537 141,917
Accrued liabilities ............................................. 387,354 56,840
Subscriber prepayments and deposits ............................. 119,452 45,757
Short-term debt ................................................. 356,573 63,322
Note payable to shareholder ..................................... 13,809 175,012
Current portion of long-term debt ................................. 12,430 113,519
----------- -----------
Total current liabilities ..................................... 1,241,155 596,367
Long-term debt .................................................... 6,407,013 1,174,749
Deferred taxes .................................................... 35,696 8,657
Deferred compensation ............................................. -- 327,445
Other long-term liabilities ....................................... 127,309 8,801
----------- -----------
Total liabilities ............................................. 7,811,173 2,116,019
----------- -----------
Minority interests in subsidiaries ................................ 33,002 25,934
Shareholders' equity (deficit) (As adjusted for the
3:2 stock split, see Note 11)
Priority stock, 4.40742 par value, 100 shares authorized,
100 and 0 shares issued, respectively ........................ -- --
Ordinary stock, 4.40742 par value, 200,000,000 shares authorized,
130,201,499 and 92,285,604 shares issued, respectively ........ 573,853 61,497
Additional paid-in capital ...................................... 3,518,033 672,016
Deferred compensation ........................................... (61,488) --
Treasury stock, at cost, 0 and 9,198,135 shares of ordinary
stock, respectively ........................................... -- (110,385)
Accumulated deficit ............................................. (1,403,788) (727,050)
Other cumulative comprehensive income ........................... 219,483 29,748
----------- -----------
Total shareholders' equity (deficit) .......................... 2,846,093 (74,174)
----------- -----------
Total liabilities and shareholders' equity (deficit) .......... 10,690,268 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 Nine Months
Ended September 30, Ended September 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Service and other revenue ........................ 276,604 110,945 608,558 306,215
Operating expense ................................ (165,391) (35,147) (316,481) (101,258)
Selling, general and administrative expense ...... (175,395) (74,234) (440,533) (136,608)
Depreciation and amortization .................... (192,097) (42,889) (340,501) (137,842)
------------ ------------ ------------ ------------
Net operating loss ............................. (256,279) (41,325) (488,957) (69,493)
Interest income .................................. 9,299 2,604 22,819 4,621
Interest expense ................................. (125,643) (24,982) (187,750) (73,137)
Gain on sale of assets ........................... -- -- 14,625 --
Foreign exchange gain (loss) and other income
(expense) net .................................. 12,641 14,843 10,046 6,609
------------ ------------ ------------ ------------
Net loss before income taxes and other items ... (359,982) (48,860) (629,217) (131,400)
Share in results of affiliated companies, net .... (22,689) (15,170) (55,857) (46,789)
Minority interests in subsidiaries ............... 1,185 (3,652) 1,300 (1,930)
Income tax benefit (expense) ..................... 5,918 (701) 7,036 413
------------ ------------ ------------ ------------
Net loss ....................................... (375,568) (68,383) (676,738) (179,706)
============ ============ ============ ============
Basic and diluted net loss per ordinary share(1) . (2.89) (0.83) (5.61) (2.17)
============ ============ ============ ============
Weighted-average number of ordinary shares
outstanding(1) ................................. 129,851,194 82,864,454 120,586,863 82,864,454
============ ============ ============ ============
(1) As adjusted for the 3:2 stock split (Note 11).
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
Shares Amount Shares (2) Amount Capital
------ ------ ---------- ------ -------
Balances, December 31, 1998 -- -- 92,285,604 61,497 672,016
Change in par value of
ordinary shares .......... -- -- -- 345,244 (345,244)
Issuance of priority shares 100 -- -- -- --
Issuance of ordinary shares
in public offering, net of
offering costs ........... -- -- 35,401,865 156,031 2,393,263
Issuance of convertible debt -- -- -- -- 29,006
Issuance of ordinary shares
upon exercise of DIC
option ................... -- -- 1,558,654 6,870 82,779
Issuance of ordinary
shares for acquisition
of Videopole ............. -- -- 955,376 4,211 130,575
Issuance of warrants ....... -- -- -- -- 64,400
Change in stock option
plan due to public
offering ................. -- -- -- -- 310,099
Deferred compensation
expense related to
stock options, net ....... -- -- -- -- 181,139
Amortization of deferred
compensation ............. -- -- -- -- --
Unrealized gain on
investment ............... -- -- -- -- --
Change in cumulative
translation adjustments .. -- -- -- -- --
Net loss ................... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balances, September 30, 1999 100 -- 130,201,499 573,853 3,518,033
=========== =========== =========== =========== ===========
Cumulative
Treasury Comprehensive
Deferred -------------------------- Accumulated Income
Compensation Shares (2) Amount Deficit (Loss) (1) Total
------------ ---------- ------ ------- ---------- -----
Balances, December 31, 1998 -- (9,198,135) (110,385) (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 ........... -- 9,198,135 110,385 -- -- 2,659,679
Issuance of convertible debt -- -- -- -- -- 29,006
Issuance of ordinary shares
upon exercise of DIC
option ................... -- -- -- -- -- 89,649
Issuance of ordinary
shares for acquisition
of Videopole ............. -- -- -- -- -- 134,786
Issuance of warrants ....... -- -- -- -- -- 64,400
Change in stock option
plan due to public
offering ................. (31,772) -- -- -- -- 278,327
Deferred compensation
expense related to
stock options, net ....... (127,531) -- -- -- -- 53,608
Amortization of deferred
compensation ............. 97,815 -- -- -- -- 97,815
Unrealized gain on
investment ............... -- -- -- -- 310,759 310,759
Change in cumulative
translation adjustments .. -- -- -- -- (121,024) (121,024)
Net loss ................... -- -- -- (676,738) -- (676,738)
----------- ----------- ----------- ----------- ----------- -----------
Balances, September 30, 1999 (61,488) -- -- (1,403,788) 219,483 2,846,093
=========== =========== =========== =========== =========== ===========
(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 September 30, 1999, Other Cumulative
Comprehensive Income represents foreign currency translation adjustments
of (133,673) and unrealized gain on investment of 353,156.
(2) As adjusted for the 3:2 stock split (Note 11).
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 Nine Months
Ended September 30,
---------------------------
1999 1998
---------- ----------
Cash flows from operating activities:
Net loss ............................................... (676,738) (179,706)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization ........................ 340,501 137,842
Amortization of deferred financing costs ............. 19,418 6,653
Accretion of interest ................................ 33,474 --
Share in results of affiliated companies, net ........ 55,857 46,789
Compensation expense related to stock options ........ 109,485 32,493
Minority interests in subsidiaries ................... (1,300) 1,930
Exchange rate differences in loans ................... (4,508) (12,615)
Gain on sale of investment ........................... (14,625) --
Loss on repayment of DIC loan ........................ 5,012 --
Other ................................................ 536 3,083
Changes in assets and liabilities:
Increase in receivables ............................ (50,436) (21,401)
Increase in inventories ............................ (49,053) (4,160)
Decrease (increase) in other non-current assets .... 8,616 (1,631)
Increase in other current liabilities .............. 134,708 48,682
Decrease in deferred taxes and other
long-term liabilities ............................ (483) (6,601)
---------- ----------
Net cash flows from operating activities ............... (89,536) 51,358
---------- ----------
Cash flows from investing activities:
Restricted cash (deposited) released, net .............. (7,512) 12,955
Investment in bonds .................................... (34,493) --
Investments in and advances to affiliated companies, net (265,422) (13,766)
Capital expenditures ................................... (650,628) (170,170)
New acquisitions, net of cash acquired ................. (3,810,987) (210,272)
Sale of affiliated companies ........................... 36,687 --
---------- ----------
Net cash flows from investing activities ............... (4,732,355) (381,253)
---------- ----------
Cash flows from financing activities:
Proceeds from initial public offering, net ............. 2,659,679 --
Proceeds from senior notes ............................. 3,150,092 --
Proceeds from exercise of DIC option ................... 89,649 --
Proceeds from short-term borrowings .................... 28,829 --
Proceeds from long-term borrowings ..................... 1,347,542 337,969
Deferred financing costs ............................... (118,843) (8,016)
Repayments of long and short-term borrowings ........... (2,031,901) (215,447)
(Repayments) borrowings on note payable to shareholder . (157,437) 161,925
Dividends paid to minority shareholder ................. -- (521)
Repayments on short-term note .......................... (36,358) --
---------- ----------
Net cash flows from financing activities ............... 4,931,252 275,910
---------- ----------
Effect of exchange rates on cash ....................... 218 (1,703)
---------- ----------
Net increase (decrease) in cash and cash equivalents ... 109,579 (55,688)
Cash and cash equivalents at beginning of period ....... 29,571 100,144
---------- ----------
Cash and cash equivalents at end of period ............. 139,150 44,456
========== ==========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
-5-
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 Nine Months
Ended September 30,
-----------------------
1999 1998
-------- --------
Non-cash investing and financing activities:
Unrealized gain (loss) on investment ............. 310,759 (8,784)
======== ========
Issuance of warrants ............................. 64,400 --
======== ========
Purchase Money Note Payable to Sellers ........... -- 36,720
======== ========
Stjarn Seller's Note ............................. 206,000 --
======== ========
Contribution of net assets of Dutch cable systems
to new joint venture ............................. -- 259,153
======== ========
Supplemental cash flow disclosures:
Cash paid for interest ........................... (100,525) (60,766)
======== ========
Cash received for interest ....................... 21,458 3,539
======== ========
Acquisition of 49% of United Telekabel Holding N.V.:
Property, plant and equipment .................... (409,526) --
Investments in affiliated companies .............. (91,319) --
Goodwill ......................................... (500,660) --
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 Stjarn:
Property, plant and equipment .................... (88,933) --
Goodwill ......................................... (910,713) --
Long-term liabilities ............................ 66,473 --
Net current liabilities .......................... 115,353 --
-------- --------
Total purchase price ............................. (817,820) --
Seller's Note .................................... 206,000 --
-------- --------
Total cash paid .................................. (611,820) --
Cash acquired .................................... 7,811 --
-------- --------
(604,009) --
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
-6-
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 Nine Months
Ended September 30,
-----------------------------
1999 1998
---------- ----------
Acquisition of 100% of @Entertainment, Inc.:
Property, plant and equipment ................. (402,165) --
Goodwill ...................................... (2,022,969) --
Other assets .................................. (43,737) --
Net current assets ............................ (105,040) --
Long-term liabilities ......................... 919,561 --
---------- ----------
Total cash paid ........................... (1,654,350) --
Cash acquired ............................. 128,139 --
---------- ----------
(1,526,211) --
========== ==========
Acquisition of 50% of A2000:
Property, plant and equipment ................. (198,870) --
Goodwill ...................................... (565,183) --
Net current liabilities ....................... 51,630 --
Long-term liabilities ......................... 267,632 --
---------- ----------
(444,791) --
Receivables assumed ......................... (26,909)
---------- ----------
Total cash paid ............................. (471,700)
Cash acquired ............................... 1,074 --
---------- ----------
(470,626) --
========== ==========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
-7-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
(Monetary amounts 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, 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 12 countries in Europe and in Israel and Internet/data and telephony
in 6 and 6 European countries, respectively.
The following chart presents a summary of the Company's significant
investments in multi-channel television, DTH and programming, Internet/data and
telephony operations as of September 30, 1999:
-8-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Austria:
Telekabel Group ................................................ 95.0%
Belgium:
UPC Belgium (formerly Radio Public N.V./S.A.) .................. 100.0%
Czech Republic:
KabelNet ....................................................... 100.0%
France:
Mediareseaux Marne S.A. ("Mediareseaux") (1) ................... 99.6%
Reseaux Cables de France ("RCF") (2) ........................... 95.3%
Time Warner Cable France(2) .................................... 99.6%
Videopole(2) ................................................... 99.6%
Hungary:
UPC Magyarorszag (formerly 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:
UPC Nederland (formerly United Telekabel Holding N.V.("UTH")) .. 100.0%
GelreVision (3) ................................................ 100.0%
A2000 Holding N.V. ("A2000") (3) ............................... 100.0%
Priority Telecom N.V ........................................... 100.0%
chello Broadband N.V. ("chello") ............................... 100.0%
UPC Programming B.V. ("UPCtv") ................................. 100.0%
Norway:
UPC Norge AS ("UPC Norge") (formerly Janco Multicom ) .......... 100.0%
Poland:
@Entertainment, Inc. ("@Entertainment") ........................ 100.0%
Romania:
Eurosat ........................................................ 51.0%
Multicanal Holdings ............................................ 100.0%
Control Cable Ventures ......................................... 100.0%
Diplomatic International, srl .................................. 100.0%
Selektronic .................................................... 100.0%
Slovak Republic:
Trnavatel ...................................................... 95.0%
Kabeltel ....................................................... 100.0%
UPC Slovensko s r.o. (formerly SKT spol s r.o.) ................ 100.0%
Spain:
Iberian Programming Services ("IPS") ........................... 50.0%
Sweden:
StjarnTVnatet AB ("Stjarn") .................................... 100.0%
United Kingdom:
Xtra Music Ltd. ................................................ 41.0%
Other:
SBS Broadcasting SA ("SBS") .................................... 13.3%
(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, UPC has a 95% economic interest in
Mediareseaux.
(2) Our investment in RCF, Time Warner Cable France and Videopole is held
through Mediareseaux.
(3) Our investments in GelreVision and A2000 are held through UPC Nederland.
-9-
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 September 30, 1999 and the results of its operations for the
nine and three months ended September 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 (August 6, 1998) 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. 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,
-10-
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
United Telekabel Holding N.V.
On August 6, 1998, UPC merged its Dutch cable television systems with
those of NUON, forming a new company, United Telekabel Holding N.V. ("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 23, 1998, owed by UTH to NUON. The purchase of NUON's
interest and payment of the loan were funded with proceeds from UPC's initial
public offering. Effective February 1, 1999, UPC began consolidating 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 ..... 409,526
Investments in affiliated companies 91,319
Goodwill .......................... 500,660
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
nine months ended September 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 Nine Months Ended For the Nine Months Ended
September 30, 1999 September 30, 1998
------------------------------ -----------------------------
Historical Pro Forma Historical Pro Forma
------------ ------------ ------------ ------------
Service and other revenue ... 608,558 628,402 306,215 429,632
============ ============ ============ ============
Net loss .................... (676,738) (683,577) (179,706) (214,123)
============ ============ ============ ============
Weighted-average number of
ordinary shares outstanding 120,586,863 129,176,492 82,864,454 127,464,454
============ ============ ============ ============
Basic and diluted net loss
per ordinary share ........ (5.61) (5.29) (2.17) (1.68)
============ ============ ============ ============
-11-
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 spol s r.o.
In June 1999, UPC completed the acquisition of SKT 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.
Acquisition of GelreVision
In June 1999, UPC acquired, through UPC Nederland, 100% of the GelreVision
multi-channel television systems in The Netherlands. 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 nine months
ended September 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 Nine Months Ended For the Nine Months Ended
September 30, 1999 September 30, 1998
--------------------------------- -------------------------------
Historical Pro Forma Historical Pro Forma
---------------- --------------- --------------- --------------
Service and other revenue ...... 608,558 620,959 306,215 325,973
================ =============== =============== ==============
Net loss ....................... (676,738) (685,481) (179,706) (192,057)
================ =============== =============== ==============
Weighted-average number of
ordinary shares outstanding .. 120,586,863 129,176,492 82,864,454 127,464,454
================ =============== =============== ==============
Basic and diluted net loss
per ordinary share ........... (5.61) (5.31) (2.17) (1.51)
================ =============== =============== ==============
-12-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Acquisition of Reseaux Cables de France
In June 1999, UPC acquired through Mediareseaux, 95.7% of Reseaux Cables
de France, which operates cable television systems throughout France. The
purchase price was approximately FFR172.0 million (57.8 million) and was
accounted for under purchase accounting. At closing UPC began consolidating RCF,
including its debt, which was 83.0 million.
Acquisition of 13.3% of SBS Broadcasting SA
In July 1999, UPC closed the purchase of approximately 4.8% of SBS for
cash of USD24.3 million (50.1 million). In August 1999, UPC acquired an
additional 8.5% of SBS for USD75.9 million (154.8 million), increasing its
ownership to 13.3%. UPC's investment in SBS is accounted for under the equity
method of accounting.
Acquisition of StjarnTVnatet AB
In July 1999, UPC acquired Stjarn, which operates cable television systems
serving the greater Stockholm area, for a purchase price of USD397.0 million
(817.8 million). USD100.0 million (206.0 million) of the purchase price was paid
in the form of a one year note with interest at 8% per year and the balance of
the purchase price was paid in cash. Upon maturity of the note, UPC will have
the option to pay the note in either cash or its shares. The Stjarn acquisition
was structured as a purchase of shares of Stjarn's parent holding company, NBS
Nordic Broadband Services AB ("NBS Nordic"). The acquisition was accounted for
under purchase accounting. At closing UPC began consolidating Stjarn, including
its debt, which was 172.7 million.
Effective August 1, 1999, UPC began consolidating its investment in
Stjarn. Details of the net assets acquired, based on preliminary purchase price
allocations using information currently available, were as follows:
Property, plant and equipment ........ 88,933
Goodwill ............................. 910,713
Long-term liabilities ................ (66,473)
Net current liabilities .............. (115,353)
--------
Total purchase price ............... 817,820
Seller's note ...................... (206,000)
========
Total cash paid .................... 611,820
========
The following pro forma condensed consolidated results for the nine months
ended September 30, 1999 and 1998 give effect to the acquisition of Stjarn 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.
NBS Nordic acquired Stjarn on May 6, 1998. As NBS Nordic had no
substantial operations of its own prior to the acquisition of Stjarn, Stjarn is
deemed to be the predecessor to NBS Nordic. The pro forma condensed consolidated
results for the nine months ended September 30, 1998 include Stjarn, as if NBS
Nordic had acquired Stjarn on January 1, 1998.
-13-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Nine Months Ended For the Nine Months Ended
September 30, 1999 September 30, 1998
--------------------------------- -------------------------------
Historical Pro Forma Historical Pro Forma
---------------- --------------- --------------- --------------
Service and other revenue ...... 608,558 647,621 306,215 353,585
================ =============== =============== ==============
Net loss ....................... (676,738) (772,819) (179,706) (270,296)
================ =============== =============== ==============
Weighted-average number of
ordinary shares outstanding .. 120,586,863 120,586,863 82,864,454 82,864,454
================ =============== =============== ==============
Basic and diluted net loss
per ordinary share ........... (5.61) (6.41) (2.17) (3.26)
================ =============== =============== ==============
Acquisition of @Entertainment
In August 1999, UPC acquired 100% of @Entertainment for USD807.0 million
(1,654.4 million). The @Entertainment acquisition was accounted for under
purchase accounting. At closing UPC began consolidating @Entertainment,
including its debt, which was 924.0 million.
Effective August 1, 1999, UPC began consolidating its investment in
@Entertainment. Details of the net assets acquired, based on preliminary
purchase price allocations using information currently available, were as
follows:
Property, plant and equipment ....... 402,165
Goodwill ............................ 2,022,969
Other assets ........................ 43,737
Net current assets .................. 105,040
Long-term liabilities ............... (919,561)
==========
Total cash paid ........... 1,654,350
==========
The following pro forma condensed consolidated results for the nine months
ended September 30, 1999 and 1998 give effect to the acquisition of
@Entertainment 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 Nine Months Ended For the Nine Months Ended
September 30, 1999 September 30, 1998
--------------------------------- -------------------------------
Historical Pro Forma Historical Pro Forma
---------------- --------------- --------------- --------------
Service and other revenue ...... 608,558 704,269 306,215 384,902
================ =============== =============== ==============
Net loss ....................... (676,738) (1,068,245) (179,706) (499,673)
================ =============== =============== ==============
Weighted-average number of
ordinary shares outstanding .. 120,586,863 120,586,863 82,864,454 82,864,454
================ =============== =============== ==============
Basic and diluted net loss
per ordinary share .......... (5.61) (8.86) (2.17) (6.03)
================ =============== =============== ==============
The consummation of the Company's tender offer of @Entertainment resulted
in a change of control, and as a result, @Entertainment was obligated to offer
to repurchase any @Entertainment senior notes that the note holders put to it at
101% of their principal amount, plus accrued and unpaid interest. See Note 14.
-14-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Acquisition of Videopole
In August 1999, UPC acquired, through Mediareseaux, 100% of Videopole,
which operates cable television systems in France. The purchase price of
USD135.1 million (279.4 million) was paid with cash of USD69.9 million (144.6
million) and 955,376 of UPC's ordinary A shares. The share price was based on
20-average stock price through August 2, 1999. The acquisition was accounted
for under purchase accounting. Effective August 1, 1999, UPC began consolidating
its investment in Videopole, including its debt, which was 41.8 million.
Acquisition of Time Warner Cable France
In August 1999, UPC acquired, through Mediareseaux, 100% of Time Warner
Cable France, a company that controls and operates three cable television
systems in the suburbs of Paris and Lyon and in the city of Limoges. The
purchase price was USD71.1 million (146.9 million). Simultaneously with the
acquisition of Time Warner Cable France, UPC acquired an additional 47.62%
interest of one of its operating systems, Rhone Vision Cable, in which Time
Warner France had a 49.88% interest, for FFR89.3 million (30.0 million),
increasing UPC's ownership in this operating system to 97.5%. The acquisition
was accounted for under purchase accounting. Effective September 1, 1999, UPC
began consolidating its investment in Time Warner Cable France, including its
debt, which was 100.8 million.
Acquisition of 50% of A2000
In September 1999, UPC acquired, through UPC Nederland, the remaining 50%
of A2000 that it did not already own for USD 229.0 million (471.7 million),
including the assumption of receivables from A2000 of approximately 27.0
million. The acquisition was accounted for under purchase accounting. At closing
UPC began consolidating A2000, including its debt, which was 523.5 million.
As of September 1, 1999, UPC began consolidating its investment in A2000.
Details of the net assets acquired, based on preliminary purchase price
allocations using information currently available, were as follows:
Property, plant and equipment ........ 198,870
Goodwill ............................. 565,183
Net current liabilities .............. (51,630)
Long-term liabilities ................ (267,632)
--------
444,791
Receivables assumed .................. 26,909
--------
Total cash paid ...................... 471,700
========
The following pro forma condensed consolidated results for the nine months
ended September 30, 1999 and 1998 give effect to the acquisition of A2000 as if
it had occurred at the beginning of the periods presented. The following pro
formas reflect UPC's 100% ownership in A2000 for 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.
-15-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the Nine Months Ended For the Nine Months Ended
September 30, 1999 September 30, 1998
--------------------------------- -------------------------------
Historical Pro Forma Historical Pro Forma
---------------- --------------- --------------- --------------
Service and other revenue ....... 608,558 725,472 306,215 396,449
================ =============== =============== ==============
Net loss ........................ (676,738) (762,634) (179,706) (251,857)
================ =============== =============== ==============
Weighted-average number of
ordinary shares outstanding ... 120,586,863 120,586,863 82,864,454 82,864,454
================ =============== =============== ==============
Basic and diluted net loss
per ordinary share ............ (5.61) (6.32) (2.17) (3.04)
================ =============== =============== ==============
Agreement to Acquire Kabel Plus
In June 1999, UPC agreed to acquire a 94.6% interest in Kabel Plus, which
owns and operates cable television systems in the Czech and Slovak Republics.
The purchase price was USD150.0 million (312.7 million). The Kabel Plus
acquisition closed on October 27, 1999. See Note 14.
Agreement to Acquire Kabel Haarlem B.V.
In August 1999, UPC won a bid to purchase Kabel Haarlem B.V., the
municipality-owned cable television network in Haarlem, for approximately 134.0
million. Kabel Haarlem B.V.'s system is located near Amsterdam. The acquisition
is expected to close during the first quarter of 2000.
Agreement to Acquire 47.5% of Monor
In September 1999, UPC agreed to acquire an additional 47.5% in Monor for
approximately USD45.0 million (93.2 million). The acquisition will increase
UPC's ownership in Monor to approximately 95.1%. The acquisition is expected to
close in December 1999.
Agreement to Form a Joint Venture with Microsoft and Liberty Media
In September 1999, UPC agreed to form a joint venture with Microsoft and
Liberty Media Corporation. UPC will contribute the 2.8 million Class A shares of
United that it owns and the other parties will contribute 4.9 million Class B
shares of United. UPC will have a 50% interest in the new joint venture and
Liberty and Microsoft will share the other 50% and a USD287.0 million (594.1
million) redeemable preferred interest in the joint venture to balance out the
parties' ownership interests. UPC, together with Liberty and Microsoft, will
evaluate content and distribution opportunities in Europe.
The joint venture will hold approximately 14.5% of United's common stock
on a fully diluted basis. The joint venture and its members will be bound by
voting and standstill agreements with United and certain of its controlling
shareholders.
-16-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Investments in and Advances to Affiliated Companies, Accounted for Under
the Equity Method
As of September 30, 1999
------------------------------------------------------------------------------------------
Investments in Cumulative Cumulative Cumulative
and Advances to Dividends Share in Results of Translation
Affiliated Companies Received Affiliated Companies Adjustments Total
-------------------- ------------ -------------------- ------------- ----------
Tevel ............................... 197,644 (12,121) (10,814) 2,631 177,340
Melita .............................. 27,984 -- (195) 778 28,567
Monor ............................... 9,890 -- (2,851) (14,910) (7,871)
Xtra Music .......................... 20,097 -- (4,781) 389 15,705
IPS ................................. 26,694 -- 2,263 3,231 32,188
SBS ................................. 208,921 -- (7,784) 2,539 203,676
Fox Kids Poland ..................... 15,474 -- -- -- 15,474
Twoj Styl ........................... 21,288 -- -- 1,002 22,290
Other, net .......................... 12,895 -- (263) 157 12,789
------- ------- ------- ------- --------
Total ............................... 540,887 (12,121) (24,425) (4,183) 500,158
======= ======= ======= ======= ========
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.
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)
=======
-17-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Marketable Equity Securities of Parent
As of September 30, 1999, a subsidiary of UPC owned 2,784,620 shares of
United's Class A Common shares, valued at fair market value of 412,858. The fair
market value of the shares at December 31, 1998 was 101,097, resulting in an
unrealized gain of 311,761 for the nine months ended September 30, 1999. See
Note 3.
-18-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Property, Plant and Equipment
As of As of
September 30, December 31,
1999 1998
------------- ------------
Cable distribution networks ................ 3,103,670 466,087
Subscriber premises equipment and converters 287,170 134,527
MMDS distribution facilities ............... 16,234 13,873
Office equipment, furniture and fixtures ... 83,196 35,294
Buildings and leasehold improvements ....... 69,939 12,754
DTH ........................................ 109,004 --
Other ...................................... 128,440 28,170
---------- --------
3,797,653 690,705
Accumulated depreciation .......... (285,340) (87,708)
---------- --------
Net property, plant and equipment . 3,512,313 602,997
========== ========
7. Goodwill and Other Intangible Assets
As of As of
September 30, December 31,
1999 1998
------------- ------------
@Entertainment ............................. 1,950,320 --
UPC Nederland .............................. 1,661,966 --
Stjarn ..................................... 917,612 --
Telekabel Group ............................ 389,382 389,513
Mediareseaux ............................... 226,743 --
UPC Norge .................................. 179,149 165,494
Telekabel Hungary .......................... 108,399 97,429
UPC ........................................ 64,400 --
UPC Belgium ................................ 45,457 42,189
UPC Slovensko s r.o ........................ 44,382 --
Other ...................................... 21,570 24,516
--------- -------
5,609,380 719,141
Accumulated amortization .......... (163,134) (39,109)
--------- -------
Net goodwill and other
intangible assets .............. 5,446,246 680,032
========= =======
8. Short-Term Debt
Stjarn Credit Facility
In December 1998, Stjarn's parent company entered into a SEK521.0 million (131.7
million) loan agreement with Nordbanken AB to refinance certain debt. The loan
consists of an A facility, a medium term loan in the amount of SEK371.0 million
(93.8 million), and a B facility, a short term loan in the amount of SEK150.0
million (37.9 million). These facilities are secured by pledges of shares in
Stjarn and bear interest at the Stockholm Interbank Offered Rate ("STIBOR") plus
between 0.75% and 1.25%. Originally, the A facility was to be repaid in eleven
semi-annual installments of between SEK25.0 million (6.3 million) and SEK41.0
million (10.4 million) beginning in May 1999 until November 2004. The B facility
has been fully repaid and replaced by a revolving credit facility in the amount
of SEK150.0 million (37.9 million). Stjarn pays a commitment fee for the
revolving facility which amounts to 0.30% of the difference between the
committed credit amount and the utilized amount. Interest is paid quarterly at a
rate of NBU + 0.60%. The A facility restricts Stjarn's ability to encumber its
presents or future assets and to enter into sale-leaseback agreements. As a
result of UPC's acquisition of Stjarn, both the A facility and the revolving
facility will mature on March 31, 2000. As of September 30, 1999, the balance
outstanding on these facilities was 84.6 million.
Stjarn Seller's Note
In connection with the acquisition of Stjarn in July 1999, UPC paid
USD100.0 million (207.0 million) in the form of a one year note ("Stjarn
Seller's Note") with interest at 8% per annum. Upon maturity of the note, UPC
will have the option to pay the note in either cash or UPC share's.
-19-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-Term Debt
As of As of
September 30, December 31,
1999 1998
------------- ------------
UPC Euro Senior Notes due 2009 .......... 1,663,177 --
UPC Euro Senior Notes due 2009 .......... 661,113 --
UPC USD Senior Discount Notes due 2009 .. 847,085 --
UPC Senior Credit Facility .............. 618,298
UPC Senior Revolving Credit Facility .... -- 968,018
UPC Bridge Bank Facility ................ -- 113,519
PCI Notes ............................... 271,812 --
@Entertainment1998 Senior Discount Notes 283,912 --
@Entertainment 1999 Senior Discount Notes 318,919 --
@Entertainment 1999 Series C Senior
Discount Notes ........................ 23,490 --
New Telekabel Facility .................. 562,571 --
CNBH Facility ........................... 252,221 --
A2000 Facilities ........................ 458,000 --
Mediareseaux Facility ................... 86,195 40,344
RCF Facility ............................ 81,382 --
Rhone Vision Cable Credit Facility ...... 100,785 --
Videopole Facility ...................... 8,156 --
Bank and other loans .................... 182,327 166,387
--------- ---------
6,419,443 1,288,268
Less current portion ........... (12,430) (113,519)
--------- ---------
Total .......................... 6,407,013 1,174,749
========= =========
UPC Senior Notes and Senior Discount Notes due 2009
On July 27, 1999, UPC completed a private placement bond offering,
consisting 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 ("UPC 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 indentures governing the UPC Notes due 2009 place
certain limitations on UPC's ability, and the ability of its subsidiaries, to
borrow money, issue capital stock, pay dividends in stock or repurchase stock,
make investments, create certain liens, engage in certain transactions with
affiliates, and sell certain assets or merge with or into other companies.
Concurrent with the closing of the UPC Notes due 2009, UPC entered into a
cross-currency swap, swapping the USD800.0 million, 10 7/8% fixed rate senior
notes into fixed and variable rate Euro notes with a notional amount totaling
Euro 754.7 million. One half of the Euro notes (Euro 377.35) have a fixed
interest rate of 8.54% through August 1, 2004, thereafter switching to a
variable interest rate of the Euro Interbank Offered Rate ("EURIBOR") + 4.15%.
The remaining Euro 377.35 million have a variable interest rate of EURIBOR +
4.15% through August 1, 2009. The cross-currency swaps provide the bank with the
right to terminate the swap at fair value commencing August 1, 2004 with the
payment of a call premium equal to the call premium which would be paid by UPC
to the USD800.0 million senior note holders if the notes are called on or after
August 1, 2004. The Company accounted for the cross-currency swap by bifurcating
the instrument into two components, (1) the swap of USD fixed rate debt for Euro
variable and fixed rate debt through August 1, 2004 (the earliest call date) and
(2) the residual portion of the cross-currency swap. The swap of USD fixed rate
debt for Euro variable and fixed rate debt is accounted for as a hedge, and
accordingly the Company carries the Euro denominated debt on the balance sheet
and recognizes interest expense according to the provisions of the Euro debt.
The residual portion of the cross-currency swap is marked to fair value at each
reporting period through the statement of operations.
Subsequent to September 30, 1999, UPC completed a private placement bond
offering. See Note 14.
-20-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
PCI Notes
Poland Communications, Inc. ("PCI"), @Entertainment's major operating
subsidiary sold USD130.0 million aggregate principal amount of senior notes
("PCI Notes") in October 1996. The PCI Notes bear interest at 9 7/8%, payable on
May 1 and November 1 of each year. The PCI Notes mature on November 1, 2003.
The indenture governing the PCI Notes contains covenants limiting, among
other things, @Entertainment's ability to incur additional indebtedness, make
certain payments and distributions, including dividends, issue and sell capital
stock of @Entertainment's subsidiaries, create certain liens, enter into
transactions with its affiliates, invest in non-controlled entities, guarantee
indebtedness by subsidiaries, purchase the notes upon a change of control, pay
dividends and make other payments affecting @Entertainment's subsidiaries,
effect certain consolidations, mergers, and sale of assets and pursue certain
lines of business.
Pursuant to the terms of the PCI indenture, @Entertainment has offered to
repurchase all of the PCI Notes as a result of UPC's acquisition of
@Entertainment. The repurchase offer expired on November 2, 1999. See Note 14.
@Entertainment 1998 Senior Discount Notes
On July 14, 1998, @Entertainment sold 252,000 units, consisting of 14 1/2%
senior discount notes due 2008 and warrants entitling the warrant holders to
purchase 1,824,514 shares of @Entertainment common stock. This 1998 offering
generated approximately USD125.1 million gross proceeds to @Entertainment. The
senior discount notes are unsubordianted and unsecured obligations of
@Entertainment. Cash interest on the senior discount notes will not accrue prior
to July 15, 2003. After that, cash interest will accrue at a rate of 14 1/2% per
annum and will be payable semi-annually in arrears on January 15 and July 15 of
each year, beginning January 15, 2004. The senior discount notes will mature on
July 15, 2008. Subsequent to the initial private placement of these notes,
@Entertainment made a registered offer to exchange these notes for its 1998
senior discount notes ("1998 Senior Discount Notes"). The 1998 Senior Discount
Notes have the same terms as the notes for which they were exchanged (except for
certain registration rights), were issued under the same indenture, and are
treated as one series with such notes. @Entertainment has also offered to
repurchase these notes pursuant to the terms of the @Entertainment indenture.
See Note 14.
The indenture governing the 1998 Senior Discount Notes has covenants
substantially similar to the PCI indenture.
In connection with the acquisition of @Entertainment, UPC acquired all of
the existing warrants held in connection with the @Entertainment 1998 Senior
Discount Notes.
@Entertainment 1999 Senior Discount Notes
In January 1999, @Entertainment sold 256,800 units consisting of senior
discount notes due 2009 and warrants to purchase 1,813,665 shares of
@Entertainment's common stock. The senior discount notes were issued at a
discount to their aggregate principal amount at maturity yielding gross proceeds
of approximately USD100.0 million. Cash interest on the senior discount notes
will not accrue prior to February 1, 2004. Thereafter, cash interest will accrue
at a rate of 14 1/2% per annum, payable semi-annually in arrears on August 1 and
February 1 of each year, commencing August 1, 2004. Subsequent to the initial
private placement of these notes, @Entertainment made a registered offer to
exchange these notes for its 1999 senior discount notes ("1999 Senior Discount
Notes"). The 1999 Senior Discount Notes have the same terms as the notes for
which they were exchanged (except for certain registration rights), were issued
under the same indenture, and are treated as one series with such notes.
@Entertainment has also offered to repurchase these notes pursuant to the terms
of the @Entertainment indenture. See Note 14.
The indenture governing the 1999 Senior Discount Notes has covenants
substantially similar to the PCI indenture.
-21-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In connection with the acquisition of @Entertainment, UPC acquired all of
the existing warrants held in connection with the @Entertainment 1999 Senior
Discount Notes.
@Entertainment 1999 Series C Senior Discount Notes
On January 20, 1999, @Entertainment sold USD36.0 million aggregate
principal amount at maturity of series C senior discount notes ("Series C Senior
Discount Notes") generating approximately USD9.8 million of gross proceeds. The
Series C Senior Discount Notes are senior unsecured obligations of
@Entertainment. The Series C Senior Discount Notes were issued at a discount to
their aggregate amount. Original issue discount will accrete from January
20,1999, until July 15, 2008, the date of maturity of the Series C Senior
Discount Notes. Cash interest on the Series C Senior Discount Notes will accrue
from July 15, 2004 at a rate of 7.0% per annum on the principal amount at
maturity, and will be payable semi-annually in arrears, on July 15 and January
15 of each year beginning January 15, 2005. Before January 15, 2004, cash
interest on the Series C Senior Discount Notes will not accrue. @Entertainment
has also offered to repurchase these notes pursuant to the terms of the
@Entertainment indenture. See Note 14.
The indenture governing the Series C Senior Discount Notes has covenants
substantially similar to the PCI indenture.
UPC Senior Revolving Credit Facility
In July 1999, the outstanding debt under this facility was refinanced with
the new UPC Senior Credit Facility.
UPC Senior Credit Facility
On July 27, 1999, a newly formed subsidiary of UPC, Facility B.V.,
Telekabel Wien and UPC Norge , as borrowers, and a syndicate of banks executed a
Loan and Note Issuance Agreement for a Euro1.0 billion (2.2 billion)
multicurrency senior secured credit facility (the "UPC Senior Credit Facility").
The UPC Senior Credit Facility matures on July 27, 2006 and is comprised
of two tranches. Tranche A is a Euro750.0 million reducing revolving credit
facility. Tranche B is a Euro250.0 million term loan credit facility. The Senior
Credit Facility bears interest at the EURIBOR (for borrowings in euro) and at
the London Interbank Offered Rate ("LIBOR") (for all other borrowings) plus a
margin of between 0.75% and 2.0% (which margin is at least 1.5% for the first
six months following closing) plus an additional cost of funding calculation. In
addition to repaying the UPC Senior Revolving Credit Facility, proceeds from the
UPC Senior Credit Facility are to be used for general corporate purposes, inter
alia, to fund certain acquisitions (see below), and certain permitted
distributions, including the payment of interest on funds downstreamed from the
proceeds of high yield issues, and capital expenditures. Borrowings under the
UPC Senior Credit Facility are limited by financial ratio tests. The UPC Senior
Credit Facility contains provisions that require its immediate prepaymentt, at
the option of the majority banks, if (1) UPC ceases to own more than 50% of, or
loses its ability to exercise control over, UPC Facility B.V., of (2) United
ceases to own more than 50% and loses its ability to control UPC. In addition,
the UPC Senior Credit Facility limits UPC Facility B.V.'s and its subsidiaries'
ability to make acquisitions funded by loan proceeds with the UPC Senior Credit
Facility to Euro400.0 million over the life of the UPC Senior Credit Facility,
with a further limitation on new Eastern European acquisitions. Furthermore, the
UPC Senior Credit Facility contains certain financial covenants and restrictions
on UPC Facility B.V. and most of subsidiaries' ability to make dividends or
other payments to UPC, incur indebtedness, dispose of assets, merge and enter
into affiliate transactions. Net proceeds of certain disposals (including sales
by UPC of less than 50% of its current interest in UPC Facility B.V.) are
required to be used to prepay the UPC Senior Credit Facility. The UPC Senior
Credit Facility does, however, permit UPC Facility B.V. to upstream payments to
UPC after April 1, 2002 for the purpose of servicing interest on the UPC Notes
due 2009 if UPC Facility B.V.'s ratio of senior debt to annualized net operating
cash flows is less than or equal to 4.5:10.
The UPC Senior Credit Facility is secured by, among other things, pledge
of the shares of UPC Facility B.V., UPC Norge, UPC Belgium, Cable-Network
Austria Holding B.V. ("CNAH"), Stipdon and Telekabel Hungary. UPC Facility B.V.,
UPC Belgium, CNAH, Stipdon and Telekabel Hungary are guarantors under the UPC
Senior Credit Facility. The collateral and guarantees under the UPC Senior
Credit Facility also secure UPC's liability under any currency and/or interest
rate hedging arrangements entered into in connection with the UPC Notes due
2009, although only Euro100.0 million of the indebtedness represented by such
arrangements is pari passu with the indebtedness under the UPC Senior Credit
Facility.
-22-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CNBH Facility
In February 1998, CNBH, a subsidiary of UPC Nederland, 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 UPC under our general services agreement. In January 1999,
this facility was increased to 274.0 million. In connection with this facility,
UPC entered into a project support agreement providing, among other things, for
UPC 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.
A2000 Facilities
In January 1996, A2000 and its wholly-owned subsidiary Kabeltelevisie
Amsterdam entered into bank facilities of 90.0 million and 375.0 million,
respectively. In October 1996, A2000 Hilversum, a wholly-owned subsidiary of
A2000, entered into a bank facility of 45.0 million. These facilities have
between nine- and ten-year terms and interest rates of AIBOR + 0.75% or AIBOR +
0.7% or fixed -rate (fixed prior to each advance) increased by 0.7% or 0.75% per
annum. The facilities also restrict the borrowers from incurring additional
indebtedness and from paying dividends and distributions, subject to certain
exceptions. The A2000 facilities are secured by mortgages and pledges, including
pledges on Kabeltelevisie Amsterdam and A2000 Hilversum and assets. A2000 is
currently negotiating a credit facility of up to 620.0 million to replace these
facilities.
RCF Credit Facility
In 1990, RCF and six of its subsidiaries entered into a FFR160.0 million
(53.8 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 (84.8 million) to refinance three further credit facilities
entered into by other subsidiaries of RCF. The loan bears an interest rate of
PIBOR (the French interbank offer rate) + 1.5%, payable in arrears quarterly.
The loan has to be repaid in yearly installments of FFR34.6 million (11.6
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.
-23-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Rhone Vision Cable Credit Facility
In July 1996, Rhone Vision Cable, a subsidiary of Time Warner Cable
France, entered into a FFR680.0 million (228.4 million) credit facility to
finance construction and installation of Rhone Vision Cable networks. The
facility bears interest of LIBOR plus 1%, payable quarterly. The repayment of
the facility commences on June 30, 2002, or either on June 30 or December 31
following at least six months after network completion. The facility is secured
by pledges of all the shares and the most important assets of Rhone Vision Cable
and by a guarantee given by the Department du Rhone (for up to 50% of any sum
due under the facility). The facility restricts Rhone Vision Cable's ability to
secure additional financing, incur additional debt or transfer shares. A change
of control is deemed an event of default under the facility.
10. Commitments and Contingencies
Satellite Transponder Capacity
UPC has entered into an agreement for the long term lease of
satellitetransponder capacity providing service from Europe to Europe, North
America and South America. The term of the agreement is 156 months, with a
minimum aggregate total cost of approximately USD114.0 million (236.0 million)
payable in monthly installments based on capacity used.
Programming, Broadcast and Exhibition Rights
@Entertainment has entered into long-term programming agreements and
agreements for the purchase of certain exhibition or broadcast rights with a
number of third party content providers for its digital direct-to-home ("DTH")
and cable systems. The agreements have terms which range from one to seven years
and require that the license fees be paid either at a fixed amount payable at
the time of execution or based upon a guaranteed minimum number of subscribers
connected to the system each month. At September 30, 1999, @Entertianment had an
aggregate minimum commitment in relation to these agreements of approximately
USD238.8 million (494.3 million) over the next seven years, approximating
USD15.6 million (32.3 million) for the remainder of 1999, USD58.8 million (121.7
million) in 2000, USD57.4 million (118.8 million) in 2001, USD47.9 million (99.2
million) in 2002, USD30.7 million (63.5 million) in 2003 and USD28.5 million
(59.0 million) in 2004 and thereafter.
Purchase Commitments
As of September 30, 1999, @Entertainment had an aggregate minimum
commitment toward the purchase of the DTH reception systems from Philips
Business Electronics B.V. of approximately USD 88.6 million (183.4 million) by
June 30, 2000.
Litigation and Claims
From time to time, the Company is subject to various claims and suits
arising out of the ordinary course of business. While the ultimate result of all
such matters is not presently determinable, based upon current knowledge and
facts, management does not expect that their resolution will have a material
adverse effect on the Company's consolidated financial position or results of
operations.
On or about July 8, 1999, certain minority shareholders ("the Minority
Shareholders") of Poland Cablevision (Netherlands) B.V. ("PCBV"), an indirect
subsidiary of @Entertainment, filed a lawsuit against @Entertainment, Poland
Communications, Inc. ("PCI") and certain other defendants, in United States
District Court, Southern District of Ohio, Eastern Division, Civil Action No.
C2-99-621.
The relief sought by the Minority Shareholders includes: (1) unspecified
damages in excess of $75,000, (2) an order lifting the restrictions against
transfer of shares set forth in the Shareholders' Agreement among PCBV's
shareholders, as amended ("the Shareholders' Agreement") so that the minority
shareholders can liquidate their shares in PCBV, (3) damages in the amount of
1.7 percent of the payment made by UPC for
-24-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the shares of @Entertainment as set forth in the Agreement and Plan of Merger
between @Entertainment and UPC dated June 2, 1999, and (4) attorneys' fees and
costs incurred in prosecuting the lawsuit.
The amended complaint sets forth eight claims for relief based on
allegations that the defendants, including @Entertainment and PCI, committed the
following wrongful acts: (1) breached a covenant not to compete contained in the
Shareholders' Agreement relating to the shareholders of PCBV, (2) breached a
covenant in the Shareholders' Agreement requiring that any contract entered into
by PCBV with any other party affiliated with PCI be commercially reasonable or
be approved by certain of the minority shareholders, (3) breached a provision in
the Shareholders' Agreement that allegedly required co-defendant Chase
International Corp. ("CIC") to offer the Minority Shareholders the right to
participate in certain sales of PCBV shares and that required CIC to give
written notice of any offer to purchase the Minority Shareholders' shares in
PCBV, (4) breached their fiduciary duties to the Minority Shareholders, (5)
breached the agreement between PCBV and CIC, which allegedly limited the amount
of management fees that could be paid annually by PCBV, (6) made false and
misleading statements in various documents filed with the Securities and
Exchange Commission, (7) colluded to defraud the Minority Shareholders by
failing to make reference in certain Forms 8-K, 8-KA and 14D-1 to the Minority
Shareholders or their alleged rights and claims, (8) colluded to divert assets
of PCBV to affiliates of PCI and PCBV, including @Entertainment, that allegedly
compete with PCI and PCBV.
The Minority Shareholders also seek damages in the amount of 1.7 percent
of the payment made by UPC for the shares of @Entertainment, although the
amended complaint does not contain a separate claim for relief seeking that
amount.
@Entertainment intends to defend the lawsuit vigorously. The time for
@Entertainment and PCI to respond to the amended complaint has not yet expired.
Discovery has not yet commenced. @Entertaiment has also conducted negotiations
to purchase the Minority Shareholders' outstanding shares in PCBV. If the
negotiations produce a sale by the Minority Shareholders of their shares in PCBV
to @Entertainment, the lawsuit would most likely be terminated. The Company is
unable to predict the outcome of those negotiations.
At this early stage of the proceedings, the Company is unable to predict
the probable outcome of the lawsuit or the Company's ultimate exposure in
connection therewith.
In addition to the Ohio lawsuit, the other minority shareholders of PCBV
(representing an additional 6% of PCBV) have asserted similar claims for
compensation, but have not yet filed suit.
11. 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. The par value of all shares was set at
(Euro)0.30 per share.
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
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 2,659,679 respectively.
-25-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Secondary Public Offering
Subsequent to September 30, 1999, UPC completed a secondary public
offering selling 15.0 million ordinary shares A. See Note 14.
12. Segment and Geographic Information
The Company's business has historically been derived from its video
entertainment segment. This service has been provided in various 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 and began to develop its content and
programming business. In August 1999, the Company acquired @Entertainment, which
has a DTH business.
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, stock-based compensation expense and
management fees ("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:
-26-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenue for the Three Months Ended September 30, 1999
----------------------------------------------------------------------------------------
Cable Internet/ DTH and
Television Telephony Data Programming Other Intercompany Total
------------ ----------- -------- ------------- ------- -------------- -------
The Netherlands:
Corporate ........................ -- -- -- -- 6,689 -- 6,689
UPCtv ............................ -- -- -- 83 -- -- 83
chello ........................... -- -- 3,882 -- -- (3,882) --
Priority Telecom ................. -- -- -- -- -- -- --
Operating companies .............. 67,266 15,624 4,221 -- 155 -- 87,266
Austria .............................. 43,831 4,469 7,814 -- -- -- 56,114
Belgium .............................. 7,844 -- 1,278 -- -- -- 9,122
Czech Republic ....................... 2,757 -- -- -- -- -- 2,757
Norway ............................... 25,907 199 278 -- -- -- 26,384
Hungary .............................. 18,447 -- 44 -- -- -- 18,491
France ............................... 20,942 1,669 383 -- -- -- 22,994
Poland ............................... 22,122 -- -- 15,605 -- (7,211) 30,516
Sweden ............................... 10,643 -- 304 -- -- -- 10,947
Other ................................ 4,846 -- -- 395 -- -- 5,241
------- ------ ------ ------ ----- ------- -------
Total .............................. 224,605 21,961 18,204 16,083 6,844 (11,093) 276,604
======= ====== ====== ====== ===== ======= =======
Revenue for the Three Months Ended September 30, 1998
---------------------------------------------------------------------------
Cable Internet/ DTH and
Television Telephony Data Programming Other Total
------------ ----------- -------- ------------- ------- -------
The Netherlands:
Corporate ........................ -- -- -- -- 4,899 4,899
UPCtv ............................ -- -- -- -- -- --
chello ........................... -- -- -- -- -- --
Priority Telecom ................. -- -- -- -- -- --
Operating companies .............. 6,364 25 -- -- -- 6,389
Austria .............................. 41,262 36 1,689 -- -- 42,987
Belgium .............................. 8,125 -- 410 -- 717 9,252
Czech Republic ....................... 2,380 -- -- -- -- 2,380
Norway ............................... 22,353 -- 106 -- -- 22,459
Hungary .............................. 13,777 -- -- -- -- 13,777
France ............................... 2,075 -- -- -- -- 2,075
Poland ............................... -- -- -- -- -- --
Sweden ............................... -- -- -- -- -- --
Other ................................ 6,342 -- -- 385 -- 6,727
------- ---- ----- ---- ----- -------
Total .............................. 102,678 61 2,205 385 5,616 110,945
======= ==== ===== ==== ===== =======
-27-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenue for the Nine Months Ended September 30, 1999
----------------------------------------------------------------------------------------
Cable Internet/ DTH and
Television Telephony Data Programming Other Intercompany Total
------------ ----------- -------- ------------- ------- -------------- -------
The Netherlands:
Corporate ........................ -- -- -- -- 9,946 -- 9,946
UPCtv ............................ -- -- -- 109 -- -- 109
chello ........................... -- -- 7,625 -- -- (7,625) --
Priority Telecom ................. -- -- -- -- -- -- --
Operating companies .............. 154,034 35,393 6,735 -- 155 -- 196,317
Austria .............................. 130,321 6,773 18,235 -- -- -- 155,329
Belgium .............................. 24,001 -- 3,330 -- -- -- 27,331
Czech Republic ....................... 7,469 -- -- -- -- -- 7,469
Norway ............................... 75,191 268 674 -- -- -- 76,133
Hungary .............................. 53,331 -- 143 -- -- -- 53,474
France ............................... 27,139 2,393 665 -- -- -- 30,197
Poland ............................... 22,122 -- -- 15,605 -- (7,211) 30,516
Sweden ............................... 10,643 -- 304 -- -- -- 10,947
Other ................................ -- -- -- 1,258 -- -- 10,790
------- ------ ------ ------ ------ ------- -------
Total .............................. 513,783 44,827 37,711 16,972 10,101 (14,836) 608,558
======= ====== ====== ====== ====== ======= =======
Revenue for the Nine Months Ended September 30, 1998
----------------------------------------------------------------------------
Cable Internet/ DTH and
Television Telephony Data Programming Other Total
------------ ----------- -------- ------------- ------- ---------
The Netherlands:
Corporate ........................ -- -- -- -- 10,907 10,907
UPCtv ............................ -- -- -- -- -- --
chello ........................... -- -- -- -- -- --
Priority Telecom ................. -- -- -- -- -- --
Operating companies .............. 32,887 386 -- -- -- 33,273
Austria .............................. 126,107 50 4,131 -- -- 130,288
Belgium .............................. 24,668 -- 913 -- 1,364 26,945
Czech Republic ....................... 6,618 -- -- -- -- 6,618
Norway ............................... 68,804 -- 230 -- -- 69,034
Hungary .............................. 13,777 -- -- -- -- 13,777
France ............................... 5,189 -- -- -- -- 5,189
Poland ............................... -- -- -- -- -- --
Sweden ............................... -- -- -- -- -- --
Other ................................ 9,206 -- -- 978 -- 10,184
------- ---- ----- ---- ------ -------
Total .............................. 287,256 436 5,274 978 12,271 306,215
======= ==== ===== ==== ====== =======
-28-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Adjusted EBITDA for the Three Months Ended September 30, 1999
----------------------------------------------------------------------------
Cable Internet/ DTH and
Television Telephony Data Programming Other Total
------------ ----------- -------- ------------- ------- ---------
The Netherlands:
Corporate ........................ -- -- -- -- (25,771) (25,771)
UPCtv ............................ -- -- -- (6,007) -- (6,007)
chello ........................... -- -- (38,103) -- -- (38,103)
Priority Telecom ................. -- (1,613) -- -- -- (1,613)
Operating companies .............. 29,875 (8,382) (5,630) -- 1,605 17,468
Austria .............................. 24,539 (4,202) 759 -- -- 21,096
Belgium .............................. 2,472 (7) (950) -- -- 1,515
Czech Republic ....................... (158) -- -- -- -- (158)
Norway ............................... 10,717 (4,266) (2,956) -- -- 3,495
Hungary .............................. 6,929 -- (17) -- -- 6,912
France ............................... 6,537 (2,494) (1,006) -- (2,870) 167
Poland ............................... (2,058) -- -- (28,552) (3,656) (34,266)
Sweden ............................... 5,692 (56) (2,113) -- -- 3,523
Other ................................ 1,906 26 119 (2,142) (3,050) (3,141)
------- ------- ------- ------- ------- -------
Total .............................. 86,451 (20,994) (49,897) (36,701) (33,742) (54,883)
======= ======= ======= ======= ======= =======
Adjusted EBITDA for the Three Months Ended September 30, 1998
----------------------------------------------------------------------------
Cable Internet/ DTH and
Television Telephony Data Programming Other Total
------------ ----------- -------- ------------- ------- ---------
The Netherlands:
Corporate ........................ -- -- -- -- 4,191 4,191
UPCtv ............................ -- -- -- (543) -- (543)
chello ........................... -- -- (5,469) -- -- (5,469)
Priority Telecom ................. -- (2,593) -- -- -- (2,593)
Operating companies .............. 4,686 (22) (58) -- -- 4,606
Austria .............................. 23,042 (2,000) (1,233) -- -- 19,809
Belgium .............................. 3,566 -- (346) -- 21 3,241
Czech Republic ....................... (391) -- -- -- -- (391)
Norway ............................... 8,928 (199) (286) -- -- 8,443
Hungary .............................. 5,439 -- -- -- -- 5,439
France ............................... (484) (599) (40) -- -- (1,123)
Poland ............................... -- -- -- -- -- --
Sweden ............................... -- -- -- -- -- --
Other ................................ (1,982) (970) (59) (2,049) 3,101 (1,959)
------- ------ ------ ------ ----- ------
Total .............................. 42,804 (6,383) (7,491) (2,592) 7,313 33,651
======= ====== ====== ====== ===== ======
-29-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Adjusted EBITDA for the Nine Months Ended September 30, 1999
------------------------------------------------------------------------
Cable Internet/ DTH and
Television Telephony Data Programming Other Total
------------ ----------- -------- ------------- ------- -------
The Netherlands:
Corporate .................... -- -- -- -- (48,386) (48,386)
UPCtv ........................ -- -- -- (12,244) -- (12,244)
chello ....................... -- -- (77,014) -- -- (77,014)
Priority Telecom ............. -- (3,138) -- -- -- (3,138)
Operating companies .......... 72,865 (14,135) (9,039) -- 920 50,611
Austria .......................... 72,619 (14,734) 442 -- -- 58,327
Belgium .......................... 7,590 (7) (3,294) -- -- 4,289
Czech Republic ................... (723) -- -- -- -- (723)
Norway ........................... 32,649 (9,795) (7,345) -- -- 15,509
Hungary .......................... 18,218 -- (43) -- -- 18,175
France ........................... 6,193 (7,198) (2,850) -- (2,870) (6,725)
Poland ........................... (2,058) -- -- (28,552) (3,656) (34,266)
Sweden ........................... 5,692 (56) (2,113) -- -- 3,523
Other ............................ 3,271 26 (57) (7,099) (3,050) (6,909)
-------- -------- --------- ------- ------- -------
Total .......................... 216,316 (49,037) (101,313) (47,895) (57,042) (38,971)
======== ======= ======== ======= ======= =======
Adjusted EBITDA for the Nine Months Ended September 30, 1998
----------------------------------------------------------------------------
Cable Internet/ DTH and
Television Telephony Data Programming Other Total
------------ ----------- -------- ------------- ------- ---------
The Netherlands:
Corporate ....................... -- -- -- -- (3,900) (3,900)
UPCtv ........................... -- -- -- (843) -- (843)
chello .......................... -- -- (6,337) -- -- (6,337)
Priority Telecom ................ -- (2,593) -- -- -- (2,593)
Operating companies ............. 22,089 108 (109) -- -- 22,088
Austria ............................. 69,273 (2,755) (3,757) -- -- 62,761
Belgium ............................. 11,646 -- (1,772) -- (168) 9,706
Czech Republic ...................... (1,818) -- -- -- -- (1,818)
Norway .............................. 26,891 (329) (903) -- -- 25,659
Hungary ............................. 5,439 -- -- -- -- 5,439
France .............................. (1,931) (971) (60) -- -- (2,962)
Poland .............................. -- -- -- -- -- --
Sweden .............................. -- -- -- -- -- --
Other ............................... (1,480) (970) (59) (6,950) 3,101 (6,358)
-------- ------ ------- ------ ------ -------
Total ............................. 130,109 (7,510) (12,997) (7,793) (967) 100,842
======== ====== ======= ====== ====== =======
-30-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Following is a reconciliation of Adjusted EBITDA to UPC's net loss before
income taxes:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------- --------------------------
1999 1998 1999 1998
-------- ------- -------- --------
Adjusted EBITDA ............................................. (54,883) 33,651 (38,971) 100,842
Depreciation and amortization ............................... (192,097) (42,889) (340,501) (137,842)
Stock-based compensation .................................... (9,299) (32,087) (109,485) (32,493)
-------- ------- -------- --------
Net operating loss .................................... (256,279) (41,325) (488,957) (69,493)
Interest income ............................................. 9,299 2,604 22,819 4,621
Interest expense ............................................ (125,643) (24,982) (187,750) (73,137)
Gain on sale of assets ...................................... -- -- 14,625 --
Foreign exchange gain (loss) and other expense, net ......... 12,641 14,843 10,046 6,609
-------- ------- -------- --------
Net loss before income taxes and other items .......... (359,982) (48,860) (629,217) (131,400)
Share in results of affiliated companies, net ............... (22,689) (15,170) (55,857) (46,789)
Minority interests in subsidiaries .......................... 1,185 (3,652) 1,300 (1,930)
-------- ------- -------- --------
Net loss before income tax benefit (expense) .......... (381,486) (67,682) (683,774) (180,119)
======== ======= ======== ========
Total Assets
------------------------------
As of As of
September 30, December 31,
1999 1998
-------------- --------------
The Netherlands:
Corporate ........... 1,156,755 567,264
UPCtv ............... 12,252 106
chello .............. 48,741 6,617
Priority Telecom .... 1,399 174
Operating companies . 3,221,349 --
Austria ................. 715,600 644,791
Belgium ................. 101,504 109,331
Czech Republic .......... 18,405 21,730
Norway .................. 496,746 414,038
Hungary ................. 239,415 164,280
France .................. 1,068,073 96,563
Poland .................. 2,501,365 --
Sweden .................. 1,020,313 --
Other ................... 88,351 42,885
---------- ---------
Total ................. 10,690,268 2,067,779
========== =========
13. Comprehensive Loss
The components of total comprehensive loss are as follows:
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1999 1998 1999 1998
---------- --------- ----------- ---------
Net loss .......................................... (375,568) (68,383) (676,738) (179,706)
Other comprehensive loss:
Change in cumulative translation adjustments .. (129,427) (13,256) (121,024) (20,675)
Change in unrealized gain (loss) on investments 10,756 (45,416) 310,759 (8,784)
-------- ------- -------- --------
Total comprehensive loss ................ (494,239) (127,055) (487,003) (209,165)
======== ======= ======== ========
-31-
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Subsequent Events
Secondary Offering of Ordinary Shares A
In October 1999, UPC closed the offering of 15,000,0000 of its ordinary
shares A. The price was set at Euro59.75 per share, for gross proceeds of
approximately Euro896.2 million.
Rule 144A Senior Notes and Senior Discounts Notes Offering
In October 1999, UPC closed a private placement bond offering consisting
of six tranches: USD252 million and Euro 101.0 million of ten year Senior Notes
due 2009 with a 11 1/4% coupon; USD200.0 million and Euro100.0 million of eight
year Senior Notes due 2007 with a coupon of 10 7/8%; and USD478.0 million and
Euro191.0 million aggregate principal amount of ten year 13 3/8% Senior Discount
Notes due 2009. The Senior Discount Notes were sold at 52.306% of the face
amount yielding gross proceeds of USD250.0 million and Euro100.0 million and
will accrue but not pay interest until 2004. UPC has entered into cross-currency
swaps, swapping the USD252.0 million, 11 1/4% coupon into fixed and variable
rate Euro notes with a notional amount totaling Euro240.2 million, and swapping
the USD200.0 million, 10 7/8% coupon into fixed and variable rate Euro notes
with a notional amount totaling Euro109.7 million.
Expiration of @Entertainment and PCI Offers to Repurchase Notes
@Entertainment and a wholly-owned subsidiary of @Entertainment, Poland
Communications, Inc. ("PCI") made offers to repurchase from the holders of
@Entertainment's 14 1/2% Series B Senior Discount Notes due 2008, 14 1/2% Senior
Discount Notes due 2008, Series C Senior Discount Notes due 2008, 14 1/2% Series
B Senior Discount Notes due 2009, and 14 1/2% Senior Discount Notes due 2009
(collectively, the "@Entertainment Notes") and PCI's 9 7/8% Series B Senior
Notes Due 2003 and 9 7/8% Senior Notes Due 2003 (collectively, the "PCI Notes").
The offers to repurchase were made in accordance with the terms of the
@Entertainment Notes indentures and PCI Notes indentures, which provided that,
following a change in control, each holder of @Entertainment Notes and PCI Notes
had the right, at such holder's option, to require @Entertainment and PCI,
respectively to repurchase all or a portion of such holder's @Entertainment
Notes and PCI Notes at the repurchase price.
The offers for the repurchase of the @Entertainment Notes and the PCI
Notes, which were made pursuant to the terms of the indentures covering each of
the @Entertainment Notes and the PCI Notes, expired at 12:01 PM, New York City
time, on November 2, 1999. Pursuant to its repurchase offer, @Entertainment has
purchased USD49.1 million aggregate pr
@Entertainment Notes for an aggregate price of USD26.5 million and PCI has
purchased USD113.2 million aggregate principal amount of PCI Notes for an
aggregate price of USD114.4 million.
Exchange Offering for UPC Senior Notes and Senior Discount Notes due 2009
In November 1999, UPC commenced a registered exchange offering for its USD
and Euro Senior Notes and USD Senior Discount Notes initially sold under Rule
144A in July 1999 as a private placement.
Kabel Plus Closing
On October 27, 1999, UPC completed the acquisition of a 94.6% interest in
Kabel Plus and took control of the Kabel Plus cable television systems, which
operate in the Czech and Slovak Republics. The purchase price of USD150.0
million (312.7 million) is in escrow pending registration of the ownership
change, which is expected by the end of November 1999. At closing UPC began
consolidating Kabel Plus, including its debt, which was 48.4 million.
Eastern European Transaction
UPC has agreed to sell 3% of its interest in its Eastern European
operations (other than @Entertainment) to Nimrod Kovacs for a purchase price
based on its investment in these interest at historical cost plus 12% interest
thereon from the time of investment throught the date of closing. This is
approximately 7,995,000, assuming completion of expected financing in Eastern
Europe. Mr. Kovacs is a member of UPC's Board of Management, and UPC's Executive
Chairman, UPC Central Europe.
Agreement by Tevel to Acquire 35% in Golden Channels
In November 1999, Tevel, a 46.6% investment of UPC, agreed to purchase a
35% economic interest in Golden Channels for USD183.5 million (379.8 million).
Golden Channels is a competitor of Tevel in the Israel market. Its systems,
including Idan, passed approximately 461,347 homes and had approximately 322,945
basic subscribers at December 31, 1998. Close of the acquisition is subject to
regulatory approval.
-32-
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 nine months ended September 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 provide communications
services in many European countries through our business lines: cable
television, telephone, Internet/data services and DTH and programming. We own
and operate broadband communications networks in 12 countries in Europe and in
Israel and provide Internet/data and telephony in 6 and 6 European countries,
respectively. 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 branded
package of video, voice and Internet/data product offerings in systems we
acquire. We and Microsoft signed a letter of intent in 1999 to establish a
relationship to work jointly on Internet, telephone and video projects.
1999 Acquisitions
February 1999/May 1999 In February 1999, United sold to us, in
Purchase of IPS exchange for 4,955,264 of our ordinary shares,
From United United's approximately 33.5% interest in Ibercom,
Inc. ("IPS"), a group of programming entities
focusing on the Spanish- and Portuguese-speaking
markets.
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, we acquired NUON's 49%
Purchase of UTH ownership interest in UTH for NLG518.1 million. In
Minority Interest addition, we purchased from NUON a NLG33.3 million
subordinated loan, 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.
-33-
June 1999 In June 1999, we acquired 100% of the
Acquisition of GelreVision multi-channel television systems in
GelreVision The Netherlands. The acquisition increased our
homes passed by 146,000 and our subscriber base by
132,000, based on September 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
Acquisition of of SKT spol s r.o., which operates a cable
SKT spol s r.o television system in Bratislava, the capital of
the Slovak Republic. The purchase price was
USD43.25 million (NLG90.7 million). This system
passed approximately 173,000 homes and had
approximately 161,000 subscribers as of September
30, 1999.
June 1999
Acquisition of Reseaux In June 1999, we acquired 95.7% of Reseaux
Cables de France Cables de France ("RCF"), the fifth largest cable
television operation in France, which operates
cable television systems throughout France, for
FFR172.0 million (NLG57.8 million). These systems
passed approximately 202,000 homes and had an
aggregate of approximately 74,000 subscribers as
of September 30, 1999. At closing we began
consolidating RCF, including its debt, which was
NLG83.0 million.
July 1999 In July 1999, we acquired Stjarn. Stjarn
Acquisition of operates cable television systems serving the
Stjarn greater Stockholm area and leases its fiber optic
network, which has access to 770,000 homes and
8,000 businesses. Stjarn systems passed
approximately 422,000 homes and had approximately
241,000 subscribers as of September 30, 1999. The
purchase price was USD397.0 million (NLG817.8
million), USD100.0 million (NLG206.0 million) of
which was paid in the form of a one year note with
interest at 8% per year. The balance of the
purchase price was paid in cash. Upon maturity of
the note, we will have the option to pay the note
in either cash or our shares. At closing we began
consolidating Stjarn, including its debt, which
was NLG172.7 million.
July/August 1999 In July 1999, we closed the purchase of
Acquisition of an approximately 4.8% of SBS for cash of
Interest in SBS approximately USD24.3 million (NLG50.1 million).
In August 1999, we acquired an additional 8.5%
interest for USD75.9 (NLG154.8 million),
increasing our interest to 13.3%.
August 1999 In August 1999, we acquired 100% of
Acquisition of Videopole, the fourth largest cable television
Videopole operation in France. The Videopole systems passed
approximately 362,000 homes and had approximately
143,000 subscribers as of September 30, 1999. The
purchase price of USD135.1 million (NLG279.4
million), was paid with cash of USD69.9 million
(NLG144.6 million) and 955,376 of our 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. At closing we began consolidating Videopole,
including its debt, which was NLG41.8 million.
August 1999 In August 1999, we acquired 100% of
Acquisition of @Entertainment, which provides cable television,
@Entertainment DTH satellite television services and related
programming services in Poland. These systems had
approximately 1,706,000 homes passed, 984,000
cable subscribers and 182,000 DTH subscribers as
of September 30, 1999. The purchase price was
USD807.0 million (NLG1,662.5 million). At closing
we began consolidating @Entertainment, including
its debt, which was NLG924.0 million.
August 1999 In August 1999, we acquired 100% of Time
Acquisition of Time Warner Cable France, a company that controls and
Warner Cable France operates three cable television systems in the
suburbs of Paris and Lyon and in the city of
Limoges. The systems passed approximately 250,000
homes and approximately 80,000 subscribers as of
September 30, 1999. The purchase price was USD71.1
million (NLG146.9 million). At closing we began
consolidating Time Warner Cable France, including
its debt, which was NLG100.8 million.
Simultaneously with the acquisition of Time Warner
Cable France, we acquired an additional 47.62% in
one of the operating systems in which Time Warner
Cable France had a 49.88% interest for FFR89.3
million (NLG30.0 million), increasing our
ownership to 97.5%.
-34-
September 1999 In September 1999, we acquired the 50%
Acquisition of A2000 interest in A2000 that we did not already own for
USD229.0 million (NLG471.7 million), including our
assumption of receivables from A2000 of
approximately NLG27.0 million. At closing we began
consolidating A2000, including its debt, which was
NLG523.5 million. A2000 operates systems serving
Amsterdam and its surrounding communities of
Landsmeer, Purmerend, Zaanstad, Ouder-Amstel and
Hilversum. A2000 systems passed approximately
582,000 homes and had approximately 515,000 cable
subscribers, 30,000 cable telephone subscribers
and 19,000 high-speed Internet subscribers as of
September 30, 1999.
August 1999 In August 1999, we won a bid to purchase
Agreement to Acquire Kabel Haarlem B.V., the municipality-owned cable
Kabel Haarlem B.V. television network in Haarlem, for approximately
NLG134.0 million. Kabel Haarlem's systems are
located near Amsterdam. As of September 30, 1999,
this system passed approximately 70,000 homes and
had approximately 66,000 basic cable television
subscribers. This acquisition is expected to close
during the first quarter of 2000.
September 1999 In September 1999, we agreed to acquire an
Agreement to Acquire additional 47.5% share of Monor which will
47.5% in Monor increase our ownership from 47.5% to approximately
95.1% for approximately USD45.0 million (NLG93.2
million). As of September 30, 1999, Monor's
systems passed approximately 66,000 homes with
nearly 32,000 basic cable subscribers and had
73,000 traditional telephony lines in the Monor
region, an area which borders Budapest in Hungary.
October 1999 In October 1999, we completed the
Acquisition of acquisition of a 94.6% interest in Kabel Plus
Kabel Plus and took control of the Kabel Plus cable
television systems, which operate in the Czech and
Slovak Republics. As of September 30, 1999, Kabel
Plus passed approximately 622,000 homes and had
approximately 435,000 basic cable television
subscribers. The purchase price of USD150.0
million (NLG312.7) is in escrow pending
registration of the ownership change, which is
expected by the end of November 1999. At closing
we began cosolidating Kabel Plus, including its
debt, which was NLG48.4 million.
Agreement by Tevel to In November 1999, Tevel, a 46.6% investment
Acquire 35% in Golden of UPC, agreed to purchase a 35% economic interest
Channels in Golden Channels for USD183.5 million (NLG379.8
million). Golden Channels is a competitor of Tevel
in the Israel market. Its systems, including Idan,
passed approximately 461,347 homes and had
approximately 322,945 basic subscribers at
December 31, 1998. Close of the acquisition is
subject to regulatory approval.
-35-
Results of Operations
The following table sets forth information from, or derived from, our
condensed consolidated statements of operations for the three and nine months
ended September 30, 1999 and 1998.
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
(Dutch guilders, in thousands) (Dutch guilders, in thousands)
Service and other revenue ........................ 276,604 110,945 608,558 306,215
Operating expense ................................ (165,391) (35,147) (316,481) (101,258)
Selling, general and administrative expense ...... (175,395) (74,234) (440,533) (136,608)
Depreciation and amortization .................... (192,097) (42,889) (340,501) (137,842)
-------- -------- -------- --------
Net operating loss ............................. (256,279) (41,325) (488,957) (69,493)
Interest income .................................. 9,299 2,604 22,819 4,621
Interest expense ................................. (125,643) (24,982) (187,750) (73,137)
Gain on sale of assets ........................... -- -- 14,625 --
Foreign exchange gain (loss) and other expense,
net ............................................ 12,641 14,843 10,046 6,609
-------- -------- -------- --------
Net loss before income taxes and other items ... (359,982) (48,860) (629,217) (131,400)
Share in results of affiliated companies, net .... (22,689) (15,170) (55,857) (46,789)
Minority interests in subsidiaries ............... 1,185 (3,652) 1,300 (1,930)
Income tax benefit (expense) ..................... 5,918 (701) 7,036 413
-------- -------- -------- --------
Net loss ......................................... (375,568) (68,383) (676,738) (179,706)
======== ======== ======== ========
Other information:
Adjusted EBITDA:
Net operating loss ............................. (256,279) (41,325) (488,957) (69,493)
Depreciation and amortization .................... 192,097 42,889 340,501 137,842
Stock based compensation ......................... 9,299 32,087 109,485 32,493
-------- -------- -------- --------
Consolidated Adjusted EBITDA (1) ................. (54,883) 33,651 (38,971) 100,842
======== ======== ======== ========
As a Percentage of Revenue:
Operating expense ................................ 59.79% 31.68% 52.01% 33.07%
Selling, general and administrative expense ...... 63.41% 66.91% 72.39% 44.61%
Adjusted EBITDA (1) .............................. (19.84%) 30.33% (6.40%) 32.93%
Depreciation and amortization .................... 69.45% 38.66% 55.95% 45.01%
Net operating (loss) income ...................... (92.65%) (37.25%) (80.35%) (22.69%)
Net loss ......................................... (135.78%) (61.64%) (111.20%) (58.69%)
(1) Adjusted EBITDA represents earnings before net interest expense,
income tax expense, depreciation, amortization, stock-based compensation
charges, management fees, 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.
-36-
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 nine and three months
ended September 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.
Our consolidated operating expense and selling, general and administrative
expense has increased as a percentage of our consolidated revenue when comparing
the nine and three months ended September 30, 1999 with the comparable periods
in 1998. This increase is primarily due to the costs incurred in 1999 in our new
businesses - Internet/data services, telephony and DTH and programming.
Operating and selling, general and administrative expenses as a percent of
revenue have remained constant for our cable television business. Cable
television operating expense as a percentage of cable television revenues was
34.6% and 38.7% for the nine and three months ended September 30, 1999,
respectively, compared to 32.4% and 33.4% for the same periods in 1998.
Internet/ data operating expense as a percentage of Internet/data revenue was
190.1% and 197.2% for the nine and three months ended September 30, 1999,
respectively. Telephony operating expense as a percentage of telephony revenue
was 100.6% and 105.8% for the nine and three months ended September 30, 1999,
respectively. DTH and programming operating expense as a percentage of DTH and
programming revenue was 203.6% and 177.5% for the nine and three months ended
September 30, 1999, respectively.
Cable television selling, general and administrative expense as a
percentage of cable television revenues was 23.3% and 22.8% for the nine and
three months ended September 30, 1999, respectively, compared to 22.3% and 24.9%
for the same periods in 1998. Internet/ data selling, general and administrative
expense as a percentage of Internet/data revenue was 184.6% and 180.9% for the
nine and three months ended September 30, 1999, respectively. Telephony selling,
general and administrative expense as a percentage of telephony revenue was
108.8% and 89.8% for the nine and three months ended September 30, 1999,
respectively. DTH and programming selling, general and administrative expense as
a percentage of DTH and programming revenue was 178.6% and 150.7% for the nine
and three months ended September 30, 1999, respectively.
-37-
For the Nine Months Ended For the Three Months Ended
September 30, 1999 September 30, 1999
-------------------------------------- --------------------------------------
Operating SG&A Operating SG&A
Revenue Expense Expense Revenue Expense Expense
-------- -------- -------- -------- -------- --------
Cable Television ...... 513,783 (177,689) (119,778) 224,605 (86,839) (51,315)
Telephony:
Operating companies 44,827 (44,391) (46,335) 21,961 (22,544) (18,798)
Priority Telecom .. -- (700) (2,438) -- (700) (913)
Internet/data:
Operating companies 30,086 (29,084) (25,301) 14,322 (15,443) (10,673)
chello (1) ........ 7,625 (42,594) (44,290) 3,882 (20,449) (22,252)
Corporate and other (2) 10,101 (2,304) (172,079) 6,844 (1,962) (47,206)
DTH and programming ... 16,972 (34,555) (30,312) 16,083 (28,547) (24,238)
Intercompany .......... (14,836) 14,836 -- (11,093) 11,093 --
-------- -------- -------- -------- -------- --------
Total ................. 608,558 (316,481) (440,533) 276,604 (165,391) (175,395)
======== ======== ======== ======== ======== ========
For the Nine Months Ended For the Three Months Ended
September 30, 1998 September 30, 1998
-------------------------------------- --------------------------------------
Operating SG&A Operating SG&A
Revenue Expense Expense Revenue Expense Expense
-------- -------- -------- -------- -------- --------
Cable Television ...... 287,256 (93,125) (64,022) 102,678 (34,257) (25,617)
Telephony:
Operating companies 436 (1,069) (4,284) 61 (882) (2,969)
Priority Telecom .. -- -- (2,593) -- -- (2,593)
Internet/data:
Operating companies 5,274 (5,135) (6,799) 2,205 (1,835) (2,392)
chello (1) ........ -- -- (6,337) -- -- (5,469)
Corporate, Programming
and other (2) ....... 13,249 (1,929) (52,573) 6,001 1,827 (35,194)
Intercompany .......... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total ................. 306,215 (101,258) (136,608) 110,945 (35,147) (74,234)
======== ======== ======== ======== ======== ========
(1) Corporate overheard SG&A expense includes a stock-based compensation
charge of NLG107,240 and NLG8,583 for the nine and three months ended
September 30, 1999, respectively, compared with stock-based compensation
charges of NLG32,493 and NLG32,087 for the nine and three months ended
September 30, 1998, respectively.
(2) Chello SG&A expense includes a stock-based compensation charge of NLG2,245
and NLG716 for the nine and three months ended September 30, 1999,
respectively, as compared with no stock-based compensation charge for the
nine and three months ended September 30, 1998, respectively.
Revenue
During the nine months ended September 30, 1999, our revenue increased
NLG302.4 million to NLG608.6 million from NLG306.2 million for the nine months
ended September 30, 1998, a 98.8% increase. Of this increase, approximately
NLG226.5 million resulted from increased cable television revenue, NLG44.4
million resulted from increased telephony revenue, NLG24.8 million resulted from
increased Internet/data revenue and NLG8.8 million resulted from increased
programming revenue. Revenue from other services decreased NLG2.1 million. The
increase in cable television revenue primarily results from acquisitions
completed during 1999, which are included in our consolidated results of
operations from their respective dates of acquisition. Total cable television
revenue for the nine months ended September 30, 1999, includes cable television
revenue attributed to entities acquired during 1999 of NLG208.6 million of which
UTH represents 73.8%. We also began consolidation of Telekabel Hungary upon its
formation in July 1998, resulting in cable television revenue of NLG53.3 million
for the nine months ended September 30, 1999, compared to NLG13.8 million for
the nine months ended September 30, 1998. The remaining growth in cable
television revenue is due
-38-
to increased subscribers. 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. A substantial portion of the increase in DTH and programming
revenue is due to the acquisition of @Entertainment, which had DTH and
programming revenue of NLG8.4 million for the two months ended September 30,
1999.
During the three months ended September 30, 1999, our revenue increased
NLG165.7 million to NLG276.6 million from NLG110.9 million for the three months
ended September 30, 1998, a 149.4% increase. Of this increase, approximately
NLG121.9 million resulted from increased cable television revenue, NLG21.9
million resulted from increased telephony revenue, NLG12.1 million resulted from
increased Internet/data revenue and NLG8.5 million resulted from increased
programming revenue. Revenue from other services increased NLG1.3 million. The
increase in cable television revenue primarily results from acquisitions
completed during 1999, which are included in our consolidated results of
operations from their respective dates of acquisition. Total cable television
revenue for the three months ended September 30, 1999, includes cable television
revenue attributed to entities acquired during 1999 of NLG121.1 million, of
which UTH represents 55.5%. We also began consolidation of Telekabel Hungary
upon its formation in July 1998, resulting in cable television revenue of
NLG18.4 million for the three months ended September 30, 1999. The remaining
growth in cable television revenue is due to increased subscribers. 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. The increase in DTH and
programming revenue is due to the acquisition of @Entertainment, which had DTH
and programming revenue of NLG8.4 million for the two months ended September 30,
1999.
Operating Expense
During the nine months ended September 30, 1999, our operating expense
increased NLG215.2 million to NLG316.5 million from NLG101.3 million, an
increase of 212.4%. Of this increase, approximately NLG84.6 million resulted
from increased cable television operating expense, NLG44.0 million resulted from
increased telephony operating expense, NLG66.5 million resulted from increased
Internet/data operating expense, NLG29.9 million resulted from increased DTH and
programming operating expense and NLG5.0 million resulted from increased
operating expense for other services. The increase in cable television operating
expense primarily results from acquisitions completed during 1999, which are
included in our consolidated results of operations from their respective dates
of acquisition. Total cable television operating expense for the nine months
ended September 30, 1999, includes cable television operating expense attributed
to entities acquired during 1999 of NLG72.6 million, of which UTH represents
62.6%. We also began consolidation of Telekabel Hungary upon its formation in
July 1998, resulting in cable television operating expense of NLG19.4 million
for the nine months ended September 30, 1999, compared to NLG4.9 million for the
nine months ended September 30, 1998. The balance of the increase in cable
television operating expense relates to subscriber growth. The increase in
telephony operating expense 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 expense is primarily due to increased
operating expense 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 and the operating expense for chello, our branded internet
portal business. The increase in DTH and programming operating expense is mostly
due to the acquisition of @Entertainment, which had DTH and programming
operating expense of NLG29.7 million for the two months ended September 30,
1999.
During the three months ended September 30, 1999, our operating expense
increased NLG130.2 million to NLG165.4 million from NLG35.2 million for the
three months ended September 30, 1998, a 369.9% increase. Of this increase,
approximately NLG52.6 million resulted from increased cable television operating
expense, NLG22.4 million resulted from increased telephony operating expense,
NLG34.1 million resulted from increased Internet/data operating expense, NLG27.1
million resulted from increased DTH and programming expense, and NLG5.2 million
resulted from increased operating expense from other services. The increase in
cable television operating expense primarily results from acquisitions completed
during 1999, which are included in our consolidated results of operations from
their respective dates of acquisition. Total cable television operating expense
for the three months ended September 30, 1999, includes cable television
operating expense attributed to entities acquired during 1999 of NLG50.0
million, of which UTH represents 43.5%. We also began consolidation of Telekabel
-39-
Hungary upon its formation in July 1998, resulting in cable television operating
expense of NLG8.1 million for the three months ended September 30, 1999. The
balance of the increase in cable television operating expense relates to
subscriber growth. The increase in telephony operating expense is primarily a
result of the consolidation of UTH, as well as increased telephony operating
expense from the launch of telephony services in Austria, France and Norway in
the first half of 1999. The increase in Internet/data services operating expense
is primarily due to increased operating expense 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 and the operating expense for
chello, our branded internet portal business. The increase in DTH and
programming operating expense is mostly due to the acquisition of
@Entertainment, which had DTH and programming operating expense of NLG29.7
million for the two months ended September 30, 1999.
Selling, General and Administrative Expense
During the nine months ended September 30, 1999, our selling, general and
administrative expense increased NLG303.9 million to NLG440.5 million from
NLG136.6 million, an increase of 222.5%. A substantial portion of this increase,
and the increase as a percentage of revenue, results from a stock-based
compensation charge of NLG109.5 million attributable to our stock-option plans
for the nine months ended September 30, 1999, compared to NLG32.5 million for
the nine months ended September 30, 1998. Of the remaining increase in selling,
general and administrative expense, NLG55.8 million is an increase in cable
television selling, general and administrative expense, NLG41.9 million is an
increase in telephony selling, general and administrative expense, NLG54.2
million is an increase in Internet/data selling, general and administrative
expense (excluding stock-based compensation expense of NLG2.2 million for the
chello option plan), NLG26.2 million is an increase in DTH and programming
selling, general and adminstrative expense and NLG48.5 million is an increase in
corporate and other selling, general and administrative expense (excluding
increased stock-based compensation expense of NLG74.7 million for the corporate
option plan). The increase in cable television selling, general and
administrative expense primarily results from acquisitions completed during 1999
which are included in our consolidated results of operations from their
respective dates of acquisition. Total cable television selling, general and
administrative expense for the nine months ended September 30, 1999, includes
cable television selling, general and administrative costs attributed to
entities acquired during 1999 of NLG54.6 million, of which UTH represents 65.4%.
We also began consolidation of Telekabel Hungary upon its formation in July
1998, resulting in cable television selling, general and administrative expense
of NLG15.7 million for the nine months ended September 30, 1999, compared to
NLG3.4 million for the nine months ended September 30, 1998. The balance of the
increase in cable television selling, general and administrative expense relates
to subscriber growth. The increase in telephony selling, general and
administrative expense is primarily a result of the consolidation of UTH,
increased telephony selling, general and administrative expense from the launch
of telephony services in Austria, France and Norway in the first half of 1999
and continued development costs. The increase in Internet/data services selling,
general and administrative expense is primarily due to increased selling,
general and administrative expense in Austria and Belgium due to subscriber
growth, the launch of Internet/data services in France, The Netherlands and
Norway in the first half of 1999 and continued development branding of chello,
our internet portal business. The increase in DTH and programming selling,
general and administrative expense is primarily due to the acquisition of
@Entertainment, which had DTH and programming selling, general and
administrative expense of NLG14.5 million for the two months ended September 30,
1999. The increase in corporate selling, general and administrative expense
include the Pan European branding of the UPC indentity, start up and development
costs related to our digital set top box launch in 2000 and corporate staffing
for communications, investor relations and corporate development
During the three months ended September 30, 1999, our selling, general and
administrative expense increased NLG101.2 million to NLG175.4 million from
NLG74.2 million, an increase of 136.4%. Of this increase in selling, general and
administrative expense, NLG25.7 million is an increase in cable television
selling, general and administrative expense, NLG14.1 million is an increase in
telephony selling, general and administrative expense, NLG25.1 million is an
increase in Internet/data selling, general and administrative expense, NLG22.7
million is an increase in DTH and programming, selling, general and
administrative expense and NLG13.6 million is an increase in corporate and other
selling, general and administrative expense. The increase in cable television
selling, general and administrative expense primarily results from acquisitions
completed during 1999 which are included in our consolidated results of
operations from their respective dates of acquisition. Total cable television
selling, general and administrative expense for the three months ended September
30, 1999, includes cable television selling, general and administrative expense
attributed to entities acquired during 1999 of NLG34.5 million, of which UTH
represents 45.3%. We also began consolidation of Telekabel Hungary upon its
formation in July 1998, resulting in cable television selling, general and
administrative expense of NLG10.3 million for the three months ended September
30, 1999. The balance of the increase in cable television selling, general and
administrative
-40-
expense relates to subscriber growth. The increase in telephony selling, general
and administrative expense 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 expense is also primarily
attributable to the further development and and branding of chello, our internet
portal business. We expect selling, general and administrative expense as a
percentage of revenue to decrease in the future as the new video, telephone and
Internet/data services mature. The increase in DTH and programming selling,
general and administrative expense is primarily due to the acquisition of
@Entertainment, which had DTH and programming selling, general and
administrative expense of NLG14.5 million for the two months ended September 30,
1999. Corporate selling, general and administrative expense increased NLG35.7
million, excluding a decrease in stock-based compensation charge of NLG22.1
million. The increase in corporate selling, general and administrative expense
include the Pan European branding of the UPC indentity, start up and development
costs related to our digital set top box launch in 2000 and corporate staffing
for communications, investor relations and corporate development.
-41-
Depreciation and Amortization
During the nine months ended September 30, 1999, our depreciation and
amortization expense increased NLG202.7 million to NLG340.5 million from
NLG137.8 million for the nine months ended September 30, 1998, a 147.1%
increase. The increase primarily results from acquisitions completed during
1999,which are included in our consolidated results of operations for the nine
months ended September 30, 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 September 30, 1999, our depreciation and
amortization expense increased NLG149.2 million to NLG192.1 million from NLG42.9
million for the three months ended September 30, 1998, a 347.8% increase. The
increase primarily results from acquisitions completed during 1999,which are
included in our consolidated results of operations for the three months ended
September 30, 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.
Operating Loss
During the nine months ended September 30, 1999, operating loss increased
NLG419.5 million to NLG489.0 million from NLG69.5 million for the nine months
ended September 30, 1998, a 603.6% increase. Approximately 18.4% of this
increase resulted from the stock-based compensation charge of NLG109.5 million
related to our stock option plans for the nine months ended September 30, 1999.
A substantial portion of the remaining increase in net operating loss is due to
the acquisitions completed during 1999, which are included in our consolidated
results of operations for the nine months ended September 30, 1999, and the
focus on the continued development of our telephony and Internet/data services.
During the three months ended September 30, 1999, operating loss increased
NLG215.0 million to NLG256.3 million from NLG41.3 million, a 520.6% increase. A
substantial portion of the increase in net operating loss is due to the
acquisitions completed during 1999, which are included in our consolidated
results of operations for the three months ended September 30, 1999, and 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 continue to have a significant negative impact on operating income
(loss) during the reminder of 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
nine and three months ended September 30, 1999, such losses were consolidated.
Interest Income
During the nine months ended September 30, 1999, interest income increased
NLG18.2 million to NLG22.8 million from NLG4.6 million during the same period in
1998, a 395.7% increase. This increase resulted from the interest income on the
proceeds of our initial public offering in February 1999, and the proceeds of
our Senior Notes and Senior Discount Notes, which were reissued in July 1999.
During the three months ended September 30, 1999, interest income
increased NLG6.7 million to NLG9.3 million from NLG2.6 million during the same
period in 1998, a 257.7% increase. This increase resulted from the interest
income on the proceeds of our initial public offering in February 1999, and the
proceeds of our Senior Notes and Senior Discount Notes, which were reissued in
July 1999.
Interest Expense
During the nine months ended September 30, 1999, interest expense
increased NLG114.7 million to NLG187.8 million from NLG73.1 million during the
same period in 1998, a 156.9% increase. This increase was due primarily to our
Senior Notes and Senior Discount Notes which were issued in July, 1999, and debt
-42-
consolidated as a result of acquisitions in 1999, mainly @Entertainment and UTH.
Furthermore interest expenses increased due to the interest cost related to the
DIC Loan.
During the three months ended September 30, 1999, interest expense
increased NLG100.6 million to NLG125.6 million from NLG25.0 million during the
same period in 1998, a 402.4% increase. This increase was due primarily to our
Senior Notes and Senior Discount Notes which were issued in July, 1999, and debt
consolidated as a result of acquisitions in 1999, mainly @Entertainment and UTH.
Furthermore interest expenses increased due to the interest cost related to the
DIC Loan.
Foreign Exchange Gain (Loss) and Other Income (Expense), net
Foreign exchange gain (loss) and other income (expense), net, reflected a
gain of NLG10.0 million for the nine months ended September 30, 1999 as compared
to a gain of NLG6.6 million for the same period in 1998. The foreign exchange
gain during the nine months ended September 30, 1999 was due primarily to an
increase in the value of the Dutch guilder in relation to the US Dollar as
compared to December 31, 1998.
Foreign exchange gain (loss) and other income (expense), net, reflected a
gain of NLG12.6 million for the three months ended September 30, 1999 as
compared to a gain of NLG14.8 million for the same period in 1998. The foreign
exchange gain during the three months ended September 30, 1999 was due primarily
to an increase in the value of the Dutch guilder in relation to the US Dollar as
compared to December 31, 1998.
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 Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
1999 1998 1999 1998
------- ------- ------- -------
(Dutch Guilders, in thousands) (Dutch Guilders, in thousands)
A2000 ...................................... (8,349) (3,449) (34,427) (26,631)
UTH ........................................ -- (8,325) (5,407) (8,325)
Hungary (Kabelkom, programming and
cable television) ........................ -- (1,255) (219) (6,974)
UII Partnership (Israel, Ireland,
Malta) (1) ............................... -- 2,553 -- 3,414
Tevel (1) .................................. (6,479) -- (10,036) --
Melita (1) ................................. (1,665) -- (2,013) --
Monor ...................................... 272 (1,947) 2,065 (4,069)
Xtra Music ................................. (1,092) -- (3,427) --
SBS ........................................ (7,784) -- (7,784) --
IPS ........................................ 2,205 (109) 2,600 (553)
Other ...................................... 203 (2,638) 2,791 (3,651)
------- ------- ------- -------
Total ...................................... (22,689) (15,170) (55,857) (46,789)
======= ======= ======= =======
(1) 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.
-43-
For the nine months ended September 30, 1999, our share in net losses of
affiliated companies increased to NLG55.9 million from NLG46.8 million for the
nine months ended September 30, 1998, a 19.4% increase. The increase was
primarily due to increased losses from A2000, Tevel, Melita and Xtra Music for
the nine months ended September 30, 1999. We also recognized losses on our 13.3%
investment in SBS, which we acquired in July/August of 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 gains from Monor, IPS and
other for the nine months ended September 30, 1999.
For the three months ended September 30, 1999, our share in net losses of
affiliated companies increased to NLG22.7 million from NLG15.2 million for the
three months ended September 30, 1998, a 49.3% increase. The increase was
primarily due to increased losses from A2000, Tevel, Melita and Xtra Music for
the three months ended September 30, 1999. We also recognized losses on our
13.3% investment in SBS, which we acquired in July/August of 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 gains from Monor,
IPS and Other.
Statements of Cash Flows
We had cash and cash equivalents of NLG139.2 million as of September 30,
1999, an increase of NLG109.6 million from NLG29.6 million as of December 31,
1998.
For the Nine Months
Ended September 30,
-----------------------
1999 1998
-------- --------
(Dutch guilders, in thousands)
Cash flows from operating activities ............... (89,536) 51,358
Cash flows from investing activities ............... (4,732,355) (381,253)
Cash flows from financing activities ............... 4,931,252 275,910
Effect of exchange rates on cash ................... 218 (1,703)
--------- ---------
Net increase (decrease) in cash and cash
equivalents ...................................... 109,579 (55,688)
Cash and cash equivalents at beginning of period ... 29,571 100,144
--------- ---------
Cash and cash equivalents at end of period ......... 139,150 44,456
========= =========
Cash Flows from Operating Activities
During the nine months ended September 30, 1999, net cash flow from
operating activities decreased NLG140.9 million to NLG89.5 million negative
from NLG51.4 million for the comparable period in 1998, a 274.1% 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 NLG4,732.4 million of cash in investing activities
during the nine months ended September 30, 1999, compared to NLG381.3 million
for the nine months ended September 30, 1998. During the nine months ended
September 30, 1999, cash was used principally for acquisitions, including UTH,
for NLG491.5 million, net of cash acquired, GelreVision for NLG233.6 million,
net of cash acquired, Stjarn for NLG604.0 million, net of cash acquired,
@Entertainment for NLG1,526.2 million, net of cash acquired, A2000 for NLG470.6
million, net of cash acquired and other acquisitions totaling NLG485.1 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 NLG650.6 million. During the nine months ended September 30, 1999,
we had a net increase in restricted cash of NLG7.5 million from the release of
NLG30.3 million of restricted cash upon pay-off of the bridge bank facility and
the escrow of NLG37.8 million related to the acquisition of Time Warner Cable
France. During this period we made a net investment in affiliates of NLG265.4
million, including our acquisition of an interest in SBS for NLG204.9 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.
-44-
For the nine months ended September 30, 1998, our primary use of cash for
investing activities was the acquisition of Combivisie for NLG180.8 million, net
of cash acquired and NLG29.5 million for other acquisitions, net of cash
acquired. We also used cash for capital expenditures of NLG170.2 million and
investments in affiliates of NLG13.8 million, which was partially offset by a
decrease in restricted cash of NLG13.0 million.
Cash Flows from Financing Activities
We had NLG4,931.3 million of cash flows from financing activities during
the nine months ended September 30, 1999. Principal sources of cash include net
proceeds from our initial public offering in February 1999 of NLG2,659.7 million
and gross proceeds from the offering in July 1999 of the UPC Notes due 2009 of
NLG3,150.1 million. Additional sources of cash were from long-term and short-
term borrowings of NLG1,347.5 million and NLG28.8 million, respectively. Long-
term borrowings include borrowings under the UPC Senior Revolving Credit
Facility of NLG110.0 million, borrowings under the New Telekabel Facility of
NLG539.9 million, borrowings under the Mediaresaux Facility of NLG54.3 million,
borrowings under the UPC Senior Credit Facility of NLG618.3 million and other
borrowings of NLG25.0 million. Concurrent with the initial public offering, DIC
exercised its option to acquire our shares for proceeds of NLG89.6 million,
which we used to pay NLG87.8 million of the DIC Loan. We used proceeds from the
initial public offering to pay NLG620.0 million of the UPC Senior Revolving
Credit Facility, NLG110.0 million of the UPC Bridge Bank Facility and NLG157.4
million of the United Loan. As part of the acquisition of UTH in February 1999,
we also paid a loan to NUON of NLG33.0 million. In March 1999, UTH paid off its
existing credit facility of NLG620.0 million with proceeds from the New
Telekabel Facility and funding from UPC. In July 1999, we paid off the UPC
Senior Revolving Credit Facility of NLG458.0 million with proceeds from the UPC
Senior Credit Facility. We paid down other long-term and short-term loans of
NLG103.1 million, including NLG41.7 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 nine months ended
September 30, 1999, we incurred deferred financing costs of NLG118.8 million.
During the nine months ended September 30, 1998 our primary source of cash
was gross proceeds from long-term debt, which represented NLG338.0 million,
including additional borrowings from the UPC Senior Revolving Credit Facility
and CNBH's major facility, as well as borrowings from United of NLG161.9
million. We repaid short-term debt of approximately NLG215.4 million, including
NLG131.1 million of the UPC Bridge Bank Facility and NLG65.0 million under a KTE
bank facility. We incurred deferred financing costs of NLG8.0 million.
Consolidated Capital Expenditures
The table below sets forth our consolidated capital expenditures for the
nine months ended September 30, 1999 and 1998. The historical information below
does not reflect capital expenditures by A2000 (through September 1, 1999), 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 nine months ending September 30, 1998. Capital expenditures for acquisitions
which are consolidated in our financial statements are included in the table
below from their date of consolidation.
-45-
For the Nine Months
Ended September 30,
--------------------
1999 1998
------- -------
(Dutch guilders, in thousands)
Cable Network:
Upgrade .......................... 168,897 66,744
New build ........................ 141,607 38,096
------- -------
Total Cable Network ............ 310,504 104,840
Master Telecom Center:
Video services ................... 13,087 3,343
Cable telephone (Priority Telecom) 58,219 4,444
Internet/data services ........... 5,839 357
------- -------
Total Master Telecom Center .... 77,145 8,144
Customer Premise Equipment (CPE):
Video services ................... 8,525 9,614
Cable telephone (Priority Telecom) 37,298 4
Internet/data services ........... 32,990 8,283
------- -------
Total CPE ...................... 78,813 17,901
Support Systems and Equipment (SSE) 19,145 11,521
Land, buildings, leasehold and other 28,637 11,742
------- -------
Total SSE and Other ............ 47,782 23,263
New Businesses:
chello broadband ................. 33,945 1,340
Digital distribution platform .... 14,461 --
DTH .............................. 7,692 --
------- -------
Total New Businesses ........... 56,098 1,340
Other ............................ 80,286 14,682
------- -------
Total Capital Expenditures ..... 650,628 170,170
======= =======
Cable Network
Since 1995, 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.
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.
-46-
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.
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.
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.
New Businesses
In addition to the network infrastructure and related equipment and
capital resources described above, development of our newer businesses, chello
broadband, our digital distribution platform and DTH, 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.
-47-
Liquidity and Capital Resources
Historically, we have financed our operations and acquisitions primarily
from:
o cash contributed by United upon our formation,
o debt financed at the UPC corporate level and project debt financed at the
operating company level,
o equity raised in our initial public offering,
o debt raised in our July 1999 offering of senior notes, and
o 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. Well-established systems
generally have stable positive cable cash flows that are used to fund new
product offerings, including telephony and Internet/data. 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.
We, our consolidated and unconsolidated affiliates had the following
principal long-term and short-term debt facilities outstanding as of September
30, 1999. Debt denominated in currencies other than Dutch guilders has been
translated to Dutch guilders for the outstanding balance at September 30, 1999.
Several of the debt facilities listed below have financial covenants and other
restrictions which could limit access to funds.
-48-
Facility Size or Outstanding
Final Principal At September 30,
Description (Borrower) Maturity Interest Rate Amount 1999
--------------------- -------- ------------- ------ ----
(in millions)
UPC and Consolidsolidated Subsidiaries:
Long-Term Debt
UPC Euro Senior Notes, due 2009 2009 EURIBOR + 4.15% and 8.54% Euro754.7 NLG1,663.2
UPC Euro Senior Notes, due 2009 2009 10.875% Euro300.0 NLG661.1
UPC USD Senior Discount Notes, due 2009 2009 12.50% USD735.0 NLG847.1
PCI Notes 2003 9.875% per annum USD130.0 NLG271.8
@Entertainment 1998 Senior Discount Notes 2008 14.5% per annum USD125.1 NLG309.7
@Entertainment 1999 Senior Discount Notes 2009 14.5% per annum USD100.0 NLG325.5
@Entertainment 1999 Series C Senior Discount 2008 7% per annum on principal at maturity USD9.8 NLG23.5
Notes
UPC Senior Credit Facility 2006 EURIBOR/LIBOR + 0.75% to Euro1,000.0 NLG618.3
2.0% per annum
New TeleKabel Facility 2007 EURIBOR + 0.75% to 2.0% per Euro340.0 NLG562.6
annum
CNBH Facility 2008 AIBOR + 0.7/0.75% or a fixed NLG274.0 NLG252.2
rate advance + 0.7/0.75%
A2000 Group Facilities (1) 2005-2006 AIBOR + 0.7/0.75% or a fixed NLG510.0 NLG458.0
rate advance + 0.7/0.75%
Mediareseaux Facility 2007 LIBOR + 0.75% to 2.0% FFR680.0 NLG86.2
RCF Credit Facility Dec 2005 PIBOR +1.5% FFR252.4 NLG81.4
Rhone Vision Cable Facility June 2002 LIBOR + 1% FFR680.0 NLG100.8
Videopole Facility 2006 6.60% per annum FFR65.0 NLG8.2
DIC Loan 2000 8.0% per annum + 6.0% of USD45.0 NLG93.2
principal amount at maturity
United Loan March 2001 10.75% per annum USD100.0 NLG13.8
Short-Term Debt
Stjarn Facilities March 2000 NBU + 0.60%/STIBOR +1.25% SEK521.0 NLG84.6
Stjarn Seller's Note August 2000 8.0% per annum USD 100.0 NLG207.0
A2000 Working Capital Facility (1) 2000 4.85% NLG52.0 NLG47.9
Unconsolidated Affliates:
Tevel Facilities 2007-2010 Fixed rate ranging from 5.5% - USD248.5 NLG482.8
6.00%
Melita Facility 2007 7.44% - 7.93% Lm14.0 NLG53.8
Monor Facility 2006 LIBOR + 1.5% USD50.0 NLG75.5
(1) A2000 is currently negotiating a credit facility to replace the existing
facilities.
-49-
Sources of Capital
We had approximately NLG139.2 million of unrestricted cash and cash
equivalents on hand as of September 30, 1999. In addition, we had additional
borrowing capacity at the corporate and project debt level including CNBH,
M,diar,seaux 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 NLG2,659.7 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
and accrued interest related to the loan. 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).
On July 27, 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
were primarily used to fund acquisitions. Also, in July 1999 we entered into a
Euro1.0 billion credit facility (the "UPC Senior Credit Facility"). Proceeds
from the UPC Senior Credit Facility were used to refinance the existing UPC
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 UPC Senior Credit Facility and
other permitted distributions.
On October 27, 1999, UPC closed the offering of 15,000,0000 of its
ordinary shares A. The price was set at Euro59.75 per share, for gross
proceeds of approximately Euro896.2 million.
On October 29, 1999, UPC closed a USD1.03 billion equivalent bond
offering. The offering consists of six tranches: USD252 million and Euro101
million of ten year Senior Notes due 2009 with a 11 1/4% coupon; USD200 million
and Euro100 million of eight year Senior Notes due 2007 with a coupon of 10
7/8%; and USD478 million and Euro191 million aggregate principal amount of ten
year 13 3/8% Senior Discount Notes due 2009. The Senior Discount Notes were sold
at 52.306% of the face amount yielding gross proceeds of USD250 million and
Euro100 million and will accrue but not pay interest until 2004.
While the proceeds from our recent debt and equity offerings 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 was 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 offers for the repurchase expired
at 12:01 PM, New York City time, on November 2, 1999. Pursuant to its repurchase
offer, @Entertainment has purchased USD49.1 million aggregate principal amount
at maturity of @Entertainment Notes for an aggregate price of USD26.5 million
and PCI has purchased USD113.2 million aggregate principal amount of PCI Notes
for an aggregate price of USD114.4 million. Funds used to repurchase these notes
were provided to @Entertainment from UPC's recent debt offering.
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, being 6% of the value attributable to our
systems at the date of transfer. Because we own 100%
-50-
of UPC Nederland, any tax liabilities assessed against our Dutch 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 the Dutch tax authorities with us against such tax
assessments. We cannot assure that such lobbying would be successful. In October
1999, the Dutch tax authorities issued an assessment on the 1995 tax return of
one of our subsidiaries. The assessment, on a taxable amount of approximately
NLG80.1 million, resulted in a tax payable of approximately NLG28.0 million. The
Dutch tax authorities indicated that this assessment was issued to reserve the
rights of the Dutch tax authorities pending expiration of time under the statute
of limitations. The assessment does not express an opinion of the Dutch tax
authorities on the taxes due and is still subject to discussion. We intend to
file an appeal against the assessment, and furthermore, to defend our tax filing
position, if necessary.
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 DTH and 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. We have consolidated operations in
countries outside of the European Monetary Union including Norway, Sweden,
Poland, Ireland, Hungary, Romania, Slovak Republic and operations which report
in US dollars. 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, telephone, Internet/data operations and DTH and
programming, 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 DTH and 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 subcommittees at the
operating company levels, as well as staff from United that reports directly to
the United Board. In creating a program to minimize Year 2000 problems, the task
force identified certain critical operations of our business. These critical
operations are service delivery systems, field
-51-
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:
o 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.
o 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.
o 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, with the exception of acquisitions completed
in the third quarter of 1999, have concluded the Identification Phase and the
task force is working on the Implementation Phase for these systems. Excluding
recent acquisitions, the task force has researched approximately 97.0% of the
items identified during the Identification Phase as to Year 2000 compliance. Of
the items researched, 85.0% are compliant and 6.0% are not compliant but can be
easily remedied without significant cost to us. The remaining items require
further research or additional testing. Because of several acquisitions earlier
this year, such as GelreVision, SKT and RCF, the research of items has expanded
significantly. Including our recent acquisitions, research on 90.0% of the items
has been completed and remaining research is ongoing.
During the third quarter of 1999 we initiated a priority level review of
the Year 2000 programs existing in the systems we acquired subsequent to June
30, 1999. In most of these acquisitions we had received representation and
warranties from the seller regarding Year 2000 compliance, however, our
understanding of their programs was not adequate. Therefore, we have requested
our newly acquired companies to complete a Year 2000 due diligence form and are
in the process of reviewing their responses in order to establish their Year
2000 readiness. These forms, which have been completed by the responsible Y2K
managers, have provided us with a very detailed view of the Year 2000 status. We
are currently implementing the necessary steps to assure compliance of the
mission critical systems and other date related equipment, however, there can be
no assurance that we will be successful in this endeavour.
In August 1999, we completed the acquisition of @Entertainment in Poland.
Currently, the assessment of the Year 2000 program at @Entertainment is behind
schedule and incomplete. To date only approximately 45% of all equipment with
date related issues have been inventoried and research on compliance is on
going. Customer care, billing and subscriber management systems are considered
mission critical systems and have been researched with unsatisfactory results.
None of these systems are Y2K compliant. UPC is working to upgrade and patch the
systems to Y2K compliant versions. Both vendors and consultants have committed
to compliance by December 31, 1999, however we can not be sure that the
deadlines will be met. Testing of the mission critical systems will commence in
November and will be completed in December of 1999. UPC has hired several third
party Year 2000 firms to administer and assist us in the Polish project in order
to be ready for the millennium at the end of December. The Year 2000 issues in
Poland have been given our highest priority.
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 fourth
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 has been completed in several of our systems. Testing for remaining
systems is scheduled for completion during the fourth quarter of 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 the Testing Phase. UPC has
remained committed to securing the resources necessary to complete our Year 2000
program, and when necessary has hired outside experienced resources to solve
Year 2000 issues.
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
-52-
test procedures and contingency plans for critical components of operating
systems for the benefit of all its members. The test procedures and contingency
plans have been made available to members, including United.
Third-Party Dependencies
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
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 is not date-sensitive.
Where such equipment needs to be upgraded and tested as compliant 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 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. The consultants are visiting each operating company
and working with them to identify and report to us any remaining potential Year
2000 compliance problems. These consultants are also contacting third party
vendors regarding their Year 2000 compliance measures. Audit teams will be ready
to follow up on the initial research and continue to review the contingency and
year-end plans.
In addition to the statements of all third parties, UPC has organised a
European Year 2000 conference to discuss with all our managers the risks at year
end and their contingency plans. Business continuity plans have been documented
and will be discussed at the conference.
Minority-Held Systems
The task force is including 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 analyse 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
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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 reach NLG 9.0 million. The cost for
specialised test engineers for testing of billing and SMS systems has been
higher than expected due to the increased resources needed for our new
acquisitions. The total 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.
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.
-54-
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Investment Portfolio
As of September 30, 1999, UPC has cash and cash equivalents of
approximately NLG139.2 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
September 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 and Polish Zloty.
Amount Outstanding
as of September 30, 1999
---------------------------
Book Value Fair Value
------------ ------------
Dollar Denominated Investments
Cash Account 42,998 42,998
Polish Zloty Denominated Investments
Cash Account 8,671 8,671
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Amount Outstanding Expected Repayment
as of September 30, 1999 as of December 31,
--------------------------- --------------------------------------------------
Book Value Fair Value 1999 2000 2001 2002 2003
------------ ------------ ---------- ---------- -------- ------- -----------
Dollar Denominated Facilities
DIC Loan 93,150 93,150 -- 93,150 -- -- --
8.0% per annum + 6.0% of
principal at maturity
United Loan 13,809 13,809 13,809 -- -- -- --
10.75% per annum
Stjarn Seller's Note 207,000 207,000 -- 207,000 -- -- --
8.0% per annum
UPC USD Senior Discount Notes, 2009 847,085 844,405 -- -- -- -- --
12.5% per annum
PCI Notes 271,812 242,190 236,808 -- -- -- 35,004
9.875% per annum
@Entertainment 283,912 318,200 34,702 -- -- -- --
1998 Senior Discount Notes
14.5% per annum
@Entertainment 318,919 340,209 20,059 -- -- -- --
1999 Senior Discount Notes
14.5% per annum
@Entertainment 23,490 23,490 -- -- -- -- --
1999 Series C Senior Discount Notes
7.0% per annum on the principal
amount at maturity
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 notes in July 1999, we entered into a cross-currency 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 September 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.
-56-
Amount Outstanding
as of September 30, 1999 Expected Repayment as of December 31,
------------------------ -------------------------------------------------------
Book Value Fair Value 1999 2000 2001 2002 2003
----------- ------------ ---------- ---------- ---------------------- ----------
Variable Rate Facilities
UPC Euro Senior Notes, 2009
EURIBOR + 4.15% and 8.54%,
average rate in 1999 of 7.5%
and 8.54% 1,663,177 1,627,810 -- -- -- -- --
UPC Senior Credit Facility 618,298 618,298 -- -- -- -- --
EURIBOR/LIBOR + 0.75% to 2.0%,
average rate in 1999 of 6.0%
New Telekabel Facility 562,571 562,571 -- -- -- 26,995 53,991
EURIBOR + 0.75% to 2.0%,
average rate in 1999 of 4.90%
CNBH Facility 252,221 252,221 -- -- 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 Facility 86,195 86,195 -- -- -- -- 6,949
LIBOR +0.75% to 2.0%,
average rate in 1999 of 5.10%
RCF Facility 81,382 81,382 11,600 11,600 11,600 11,600 11,600
PIBOR + 1.5%,
average rate in 1999 of 4.70%
RVC Facility 100,785 100,785 -- -- 10,000 10,000 18,300
LIBOR + 1.0%,
average rate in 1999 of 4.0%
A2000 Facility(1) 458,000 458,000 458,000 -- -- -- --
AIBOR + 0.7% to 0.75%, or
fixed rate advance + 0.7% to 0.75%,
average rate in 1999 of 4.85%
Fixed Rate Facilities
DIC Loan 93,150 93,150 -- 93,150 -- -- --
8.0% per annum + 6.0% of
principal at maturity
United Loan 13,809 13,809 13,809 -- -- -- --
10.75% per annum
Videopole Facility 8,156 8,156 -- -- -- -- --
6.60% per annum
UPC Euro Senior Notes, 2009 661,113 664,419 -- -- -- -- --
10.875% per annum
UPC USD Senior Discount Notes, 2009 847,085 844,405 -- -- -- -- --
12.5 % per annum
PCI Notes 271,812 242,190 236,808 -- -- -- 35,004
9.875% per annum
@Entertainment 283,912 318,200 34,702 -- -- -- --
1998 Senior Discount Notes
14.5% per annum
@Entertainment 318,919 340,209 20,059 -- -- -- --
1999 Senior Discount Notes
14.5% per annum
@Entertainment 23,490 23,490 -- -- -- -- --
1999 Series C Senior Discount Notes
7.0% per annum on the principal
amount at maturity
Stjarn Seller's Note 207,000 207,000 -- 207,000 -- -- --
8.0% per annum
(1) A2000 is currently negotiating a credit facility to replace the existing
facilities.
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Equity Prices
As of September 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 September 30, 1999
------------------- --------------------
(Stated in thousands of Dutch Guilders, except share amounts)
Investment in United Stock 2,784,620 412,858
As of September 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.
Amount Outstanding Expected Repayment
as of September 30, 1999 as of December 31,
-------------------------- ---------------------------
Book Value Fair Value 1999 2000
------------ ------------ ------------ -------------
Convertible Debt
DIC Loan 93,150 93,150 -- 93,150
8.0% per annum + 6.0% of
principal at maturity
United Loan 13,809 13,809 13,809 --
10.75% per annum
Stjarn Seller's Note 207,000 207,000 -- 207,000
8.0% per annum
Cross-Currency Swap
Concurrent with the closing of the UPC Notes due 2009, UPC entered into a
cross-currency swap, swapping the USD800.0 million, 10 7/8% fixed rate Senior
Notes into fixed and variable rate Euro notes with a notional amount totaling
Euro 754.7 million. One half of the Euro notes (Euro 377.35) have a fixed
interest rate of 8.54% through August 1, 2004, thereafter switching to a
variable interest rate of EURIBOR + 4.15%. The remaining Euro 377.35 million
have a variable interest rate of EURIBOR + 4.15% through August 1, 2009. The
cross-currency swaps provide the bank with the right to terminate the swap at
fair value commencing August 1, 2004 with the payment of a call premium equal to
the call premium which would be paid by UPC to the USD800.0 million senior note
holders if the notes are called on or after August 1, 2004. The company
accounted for the cross-currency swap by bifurcating the instrument into two
components. (1)the swap of USD fixed rate debt for Euro variable and fixed rate
debt through August 1, 2004 (the earliest call date) and (2) the residual
portion of the cross-currency swap. The swap of USD fixed rate debt for Euro
variable and fixed rate debt is accounted for as a hedge, and accordingly the
Company carries the Euro denominated debt on the balance sheet and recognizes
interest expense according to the provisions of the Euro debt. The residual
portion of the cross-currency swap is marked to fair value at each reporting
period through the statement of operations. The fair value of the Euro debt at
September 30, 1999 is equal to the fair value of the USD800.0 million Senior
Notes adjusted for the fair value of the swap component, which was a loss of
Euro 14.2 million (NGL31. 3 million)at September 30, 1999. The fair value of the
residual portion of the cross-currency swap was a loss of Euro 1.2 million
(NGL2.6 million)at September 30, 1999.
October 1999 Senior Notes Offering
In October 1999, UPC closed a bond offering consisting of six tranches:
USD252.0 million and Euro101.0 million of ten year Senior Notes due 2009 with a
11 1/4% coupon; USD200.0 million and Euro100.0 million of eight year Senior
Notes due 2007 with a coupon of 10 7/8%; and USD478.0 million and Euro191.0
million aggregate principal amount of ten year 13 3/8% Senior Discount Notes due
2009. The Senior Discount Notes were sold at 52.306% of the face amount yielding
gross proceeds of USD250.0 million and Euro100.0 million and will accrue but
not pay interest until 2004. UPC has entered into cross-currency swaps, swapping
the USD252.0 million, 11 1/4% coupon into fixed and variable rate Euro notes
with a notional amount totaling Euro240.2 million, and swapping the USD200.0
million, 10 7/8% coupon into fixed and variable rate Euro notes with a notional
amount totaling Euro109.7 million.
-58-
PART II - OTHER INFORMATION
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 NLG2,659.7 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
NLG193.2 million. Through September 30, 1999, we have used all of the proceeds
as follows:
o NLG635.8 million to pay down the senior revolving credit facility and
accrued interest,
o NLG110.0 million to repay the bridge bank facility,
o NLG551.4 million to acquire NUON's 49% interest in UTH and repay the loan,
o NLG157.4 million to repay the note payable to United and accrued interest,
o NLG113.2 million shareholder loan to UTH,
o NLG90.7 million to acquire a 100% interest in SKT,
o NLG233.9 million to acquire a 100% interest in GelreVision,
o NLG57.9 million to acquire a 95.67% interest in RCF,
o NLG10.7 million deposit for the acquisition of Videopole,
o NLG30.0 million for acquisitions in Hungary,
o NLG7.2 million to acquire Diplomatic International,
o NLG20.7 million to pay accounts payable to United,
o NLG35.4 million to fund investments accounted for under the equity method,
o NLG15.6 million to purchase an additional 16.5% interest in IPS,
o NLG34.4 million to purchase bonds of @Entertainment,
o NLG204.9 million to purchase a 13.3% interest in SBS.
o approximately NLG167.4 million for general working capital, including UPC,
chello Broadband, Priority Telecom and UPCtv,
o approximately NLG183.1 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.
-59-
Item 5. Other Information
Summary Operating Data 1999 (5)
The operating data set forth below reflects the aggregate statistics of the
operating systems in which the Company has an ownership interest.
As at September 30, 1999
-----------------------------------------------------------------------------------
Homes in Two way
Service Homes Homes Basic Basic
Area Passed Passed Subscribers Penetration
----------------- -------------- --------------- --------------- --------------
Multi-channel TV
Consolidated companies:
Norway ................................. 529,000 466,742 44,492 324,469 69.5%
Sweden ................................. 770,000 421,624 72,679 241,359 57.2%
Belgium ................................ 133,090 133,090 131,816 123,952 93.1%
France ................................. 1,265,827 900,020 238,309 331,029 36.8%
The Netherlands (UPC Nederland) ........ 1,710,192 1,652,887 1,311,887 1,515,802 91.7%
Austria ................................ 1,081,710 908,030 734,440 461,589 50.8%
Poland (4) ............................. 1,950,000 1,705,569 -- 983,947 57.7%
Hungary (Telekabel Hungary) ............ 901,500 624,898 -- 498,325 79.7%
Czech Republic ......................... 239,484 160,558 -- 56,638 35.3%
Romania ................................ 240,000 143,274 -- 94,234 65.8%
Slovak Republic ........................ 344,343 220,399 -- 191,592 86.9%
Non-consolidated companies:
Malta .................................. 175,000 167,744 -- 75,000 44.7%
Hungary (Monor) ........................ 85,000 70,061 -- 32,011 45.7%
Israel ................................. 610,500 599,443 377,234 415,754 69.4%
----------------- -------------- --------------- --------------
Total ............................... 10,035,646 8,174,339 2,910,857 5,345,701
================= ============== =============== ==============
As at September 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
Consolidated companies:
Norway ................................. 100.0% 529,000 466,742 324,469
Sweden ................................. 100.0% 770,000 421,624 241,359
Belgium ................................ 100.0% 133,090 133,090 123,952
France ................................. 95.3-99.6% 1,251,192 887,713 326,522
The Netherlands (UPC Nederland) ........ 100.0% 1,710,192 1,652,887 1,515,802
Austria ................................ 95.0% 1,027,625 862,629 438,510
Poland (4) ............................. 100.0% 1,950,000 1,705,569 983,947
Hungary (Telekabel Hungary) ............ 79.3% 714,439 495,232 394,923
Czech Republic ......................... 100.0% 239,484 160,558 56,638
Romania ................................ 51.0-100.0% 225,300 128,770 82,809
Slovak Republic ........................ 95.0-100.0% 343,288 219,529 191,033
Non-consolidated companies:
Malta .................................. 50.0% 87,500 83,872 37,500
Hungary (Monor) ........................ 47.5% 40,412 33,310 15,219
Israel ................................. 46.6% 284,493 279,340 193,741
---------------- ------------ -------------
Total ............................... 9,306,015 7,530,865 4,926,424
================ ============ =============
-60-
Summary Operating Data 1999 (continued) (5)
As at September 30, 1999
-----------------------------------------------------------------------------------
Subscribers Lines served UPC
--------------------------------- --------------------------------- Paid-in
Residential Businesses Residential Businesses Ownership
----------------- -------------- --------------- --------------- ---------------
Telephony
Consolidated companies:
Norway ................................. 1,327 1 1,573 355 100.0%
France ................................. 8,024 163 8,354 239 95.3-99.6%
The Netherlands (UPC Nederland) (1) .... 50,982 8,451 56,277 10,879 100.0%
Austria ................................ 15,377 366 16,329 1,222 95.0%
Non-consolidated companies:
Hungary (Monor) ........................ -- -- 65,936 6,944 47.5%
----------------- -------------- -------------- ----------------
Total ............................... 75,710 8,981 148,469 19,639
================= ============== ============== ================
Dataservices
Consolidated companies:
Norway ................................. 1,634 4 n/a n/a 100.0%
Sweden ................................. 2,311 -- n/a n/a 100.0%
Belgium ................................ 4,359 548 n/a n/a 100.0%
France ................................. 1,796 15 n/a n/a 95.3-99.6%
The Netherlands (UPC Nederland) ........ 37,911 1,156 n/a n/a 100.0%
Austria ................................ 28,034 1,151 n/a n/a 95.0%
Hungary (Telekabel Hungary) ............ 67 53 n/a n/a 79.3%
----------------- -------------- -------------- ----------------
Total ............................... 76,112 2,927 -- --
================= ============== ============== ================
As at September 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
Consolidated companies:
Norway ................................. 1,327 1 1,573 355
France ................................. 7,992 162 8,321 238
The Netherlands (UPC Nederland) (1) .... 48,170 6,772 53,465 9,200
Austria ................................ 14,608 348 15,513 1,161
Non-consolidated companies:
Hungary (Monor) ........................ -- -- 31,349 3,301
--------------- -------------- --------------- -------------
Total ............................... 72,097 7,283 110,221 14,255
=============== ============== =============== =============
Dataservices
Consolidated companies:
Norway ................................. 1,634 4 n/a n/a
Sweden ................................. 2,311 -- n/a n/a
Belgium ................................ 4,359 548 n/a n/a
France ................................. 1,789 15 n/a n/a
The Netherlands (UPC Nederland) ........ 37,911 1,156 n/a n/a
Austria ................................ 26,632 1,093 n/a n/a
Hungary (Telekabel Hungary) ............ 53 42 n/a n/a
--------------- -------------- --------------- -------------
Total ............................... 74,689 2,858 -- --
=============== ============== =============== =============
-61-
Summary Financial Data 1999 (5)
For the nine months period ended September 30, 1999
--------------------------------------------------------------------
Net Capital
Income/ Adjusted Expenditures
Revenue (loss) EBITDA (2)
------------------ --------------- ------------ ---------------
(Dutch guilders, in thousands)
Consolidated companies:
Norway .................................. 76,133 (55,743) 15,509 67,489
Sweden .................................. 10,947 (11,412) 3,523 7,466
Belgium ................................. 27,331 (10,025) 4,289 11,316
France .................................. 30,197 (30,927) (6,725) 73,472
The Netherlands (UPC Nederland) ......... 216,195 (119,154) 60,005 180,458
Austria ................................. 155,329 (2,054) 58,327 106,211
Poland .................................. 30,516 (100,277) (34,266) 8,183
Hungary (Telekabel Hungary) ............. 53,474 (2,436) 18,175 49,375
Czech Republic .......................... 7,469 (3,196) (723) 2,506
Romania ................................. 3,931 573 1,625 605
Slovak Republic ......................... 5,862 (3,294) 1,560 6,419
Non-consolidated companies:
The Netherlands (A2000) (6) ............. 103,013 (47,832) 20,686 80,378
Israel .................................. 259,233 (3,316) 115,649 50,400
Malta ................................... 24,501 1,557 10,044 12,256
Hungary (Monor) ......................... 30,940 4,781 20,022 4,711
Programming
Non-consolidated companies:
Spain (IPS) ............................. 43,521 10,454 19,209 2,643
As of
September
For the nine months period ended September 30, 1999 30, 1999
----------------------------------------------------------------
Cash flows from
---------------------------------------------- Long-
Operating Investing Financing Term
Activities Activities Activities Debt (3)
-------------- ------------- ------------- -------------
(Dutch guilders, in thousands)
Consolidated companies:
Norway .................................. (11,352) (95,358) 114,218 238,195
Sweden .................................. (3,349) (7,466) 9,928 --
Belgium ................................. 8,370 (8,558) (30) --
France .................................. 4,040 (434,607) 588,293 413,323
The Netherlands (UPC Nederland) ......... 76,510 (501,041) 422,806 1,280,800
Austria ................................. 68,981 (112,179) 53,914 291,473
Poland .................................. 71,924 (8,483) 302 898,133
Hungary (Telekabel Hungary) ............. (2,949) (56,403) 58,978 506
Czech Republic .......................... (620) (1,866) 2,590 --
Romania ................................. 6,895 (9,021) 2,283 --
Slovak Republic ......................... 919 (5,674) 2,738 --
Non-consolidated companies:
The Netherlands (A2000) (6) ............. 21,143 (82,641) 62,203 n/a
Israel .................................. 76,796 (57,754) (18,351) 482,846
Malta ................................... 8,556 (17,941) 6,063 53,794
Hungary (Monor) ......................... 15,602 (4,711) (10,403) 75,500
Programming
Non-consolidated companies:
Spain (IPS) ............................. 16,918 (8,880) (287) 6,521
-62-
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 September 30, 1998
--------------------------------------------------------------------------------
Homes in Two way
Service Homes Homes Basic Basic
Area Passed Passed Subscribers Penetration
-------------- --------------- --------------- --------------- ---------------
Multi-channel TV
Consolidated companies:
Norway .................................... 529,924 461,759 10,942 319,769 69.3%
Belgium ................................... 133,000 133,000 85,939 127,574 95.9%
France .................................... 86,000 60,712 60,712 20,955 34.5%
The Netherlands (UTH) (9) ................. 935,132 907,078 422,902 855,277 94.3%
Austria ................................... 1,070,640 897,938 487,055 442,596 49.3%
Hungary (Telekabel Hungary) (11) .......... 901,500 490,966 -- 413,119 84.1%
Czech Republic ............................ 229,531 148,963 -- 52,268 35.1%
Romania ................................... 180,000 95,674 -- 58,900 61.6%
Slovak Republic ........................... 67,959 26,966 -- 14,636 54.3%
Non-consolidated companies:
Malta ..................................... 179,000 161,310 -- 68,149 42.2%
The Netherlands (A2000) (7) ............... 575,000 569,459 329,101 516,729 90.7%
Hungary (Monor) ........................... 85,000 67,361 -- 29,165 45.1%
Israel .................................... 600,000 568,999 359,050 395,680 69.5%
Ireland (Princes Holdings) ................ 380,000 377,206 -- 145,251 38.5%
-------------- --------------- --------------- ---------------
Total .................................. 5,952,686 4,967,391 1,755,701 3,460,068
============== =============== =============== ===============
As at September 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
Consolidated companies:
Norway .................................... 87.3% 462,624 403,116 279,158
Belgium ................................... 100.0% 133,000 133,000 127,574
France .................................... 99.6% 85,656 60,469 20,871
The Netherlands (UTH) (9) ................. 51.0% 476,917 462,610 436,191
Austria ................................... 95.0% 1,017,108 853,041 420,466
Hungary (Telekabel Hungary) (11) .......... 79.3% 714,439 389,091 327,397
Czech Republic ............................ 100.0% 229,531 148,963 52,268
Romania ................................... 51.0-100.0% 165,300 82,934 49,410
Slovak Republic ........................... 75.0-100.0% 62,499 22,771 11,759
Non-consolidated companies:
Malta ..................................... 25.0% 44,750 40,328 17,037
The Netherlands (A2000) (7) ............... 25.5% 146,625 145,212 131,766
Hungary (Monor) ........................... 44.8% 38,038 30,144 13,051
Israel .................................... 23.3% 139,800 132,577 92,193
Ireland (Princes Holdings) ................ 20.0% 76,000 75,441 29,050
--------------- --------------- -------------------
Total .................................. 3,792,287 2,979,697 2,008,191
=============== =============== ===================
-63-
Summary Operating Data 1998 (continued)
As at September 30, 1998
--------------------------------------------------------------------------------
Subscribers Lines served UPC
------------------------------ ------------------------------- Paid-in
Residential Businesses Residential Businesses Ownership
-------------- --------------- --------------- --------------- ---------------
Telephony
Consolidated companies:
The Netherlands (UTH) (1) (9) ............. 18,183 22 18,183 22 51.0%
Non-consolidated companies:
The Netherlands (A2000) (7) ............... 13,840 9 15,237 770 25.5%
Hungary (Monor) ........................... -- -- 60,970 5,925 44.8%
-------------- --------------- --------------- ---------------
Total .................................. 32,023 31 94,390 6,717
============== =============== =============== ===============
Data Services
Consolidated companies:
Norway .................................... 471 -- n/a n/a 87.3%
Belgium ................................... 926 204 n/a n/a 100.0%
The Netherlands (UTH) (9) ................. 261 -- n/a n/a 51.0%
Austria ................................... 5,106 312 n/a n/a 95.0%
Non-consolidated companies:
The Netherlands (A2000) (7) ............... 5,370 86 n/a n/a 25.5%
-------------- --------------- --------------- ---------------
Total .................................. 12,134 602 -- --
============== =============== =============== ===============
As at September 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
Consolidated companies:
The Netherlands (UTH) (1) (9) ............. 9,273 11 9,273 11
Non-consolidated companies:
The Netherlands (A2000) (7) ............... 3,529 2 3,885 196
Hungary (Monor) ........................... -- -- 27,315 2,654
-------------- --------------- --------------- -------------------
Total .................................. 12,802 13 40,473 2,861
============== =============== =============== ===================
Data Services
Consolidated companies:
Norway .................................... 411 -- n/a n/a
Belgium ................................... 926 204 n/a n/a
The Netherlands (UTH) (9) ................. 133 -- n/a n/a
Austria ................................... 4,851 296 n/a n/a
Non-consolidated companies:
The Netherlands (A2000) (7) ............... 1,369 22 n/a n/a
-------------- --------------- --------------- -------------------
Total .................................. 7,690 522 -- --
============== =============== =============== ===================
-64-
Summary Financial Data 1998
For the nine months period ended September 30, 1998
-------------------------------------------------------------
Net Capital
Income/ Adjusted Expenditures
Revenue (loss) EBITDA (2)
-------------- --------------- --------------- --------------
(Dutch guilders, in thousands)
Consolidated companies:
Norway ...................................... 69,034 (47,970) 25,659 30,572
Belgium ..................................... 26,945 (13,115) 9,706 16,100
France ...................................... 5,189 (8,318) (2,962) 24,890
The Netherlands (CNBH) (8) .................. 33,723 644 22,088 18,560
The Netherlands (UTH) (9) ................... 36,498 (16,276) 15,318 33,351
Austria ..................................... 130,288 (2,921) 62,761 52,077
Hungary (Telekabel Hungary) (11) ............ 13,777 2,749 5,439 4,243
Hungary (Kabelkom) (10) ..................... 19,044 5,065 8,806 3,241
Czech Republic .............................. 6,618 (5,327) (1,818) 831
Romania ..................................... 2,857 436 1,382 616
Slovak Republic ............................. 1,163 (2,366) (73) 3,117
Non-consolidated companies:
Malta ....................................... 22,226 1,922 9,357 9,608
The Netherlands (A2000) (7) ................. 90,234 (46,623) 21,620 80,170
Hungary (Monor) ............................. 26,617 (6,970) 16,792 7,503
Israel ...................................... 234,272 16,685 119,812 42,436
Ireland (Princes Holdings) .................. 58,342 11 22,448 17,520
For the nine months period ended As of September
September 30, 1998 30, 1998
---------------------------------------------------------------
Cash flows from
----------------------------------------------- Long-
Operating Investing Financing Term
Activities Activities Activities Debt (3)
--------------- -------------- --------------- ---------------
(Dutch guilders, in thousands)
Consolidated companies:
Norway ...................................... 945 (30,621) 5,517 138,530
Belgium ..................................... 1,557 (2,266) -- --
France ...................................... (641) (27,614) 29,995 20,190
The Netherlands (CNBH) (8) .................. 20,645 (43,196) 202,099 n/a
The Netherlands (UTH) (9) ................... (16,903) (38,706) 35,077 224,092
Austria ..................................... 68,022 (53,065) (29,938) 213,448
Hungary (Telekabel Hungary) (11) ............ 11,234 (6,846) 41 1,705
Hungary (Kabelkom) (10) ..................... 3,711 (3,200) 218 --
Czech Republic .............................. (89) (2,167) 2,806 --
Romania ..................................... 612 (697) 215 --
Slovak Republic ............................. (2,591) (2,595) 5,258 --
Non-consolidated companies:
Malta ....................................... 9,646 (9,756) 2,551 40,400
The Netherlands (A2000) (7) ................. 16,931 (80,270) 57,000 483,000
Hungary (Monor) ............................. (1,831) (7,503) 404 82,807
Israel ...................................... 70,635 (604,523) 538,376 493,254
Ireland (Princes Holdings) .................. 10,764 (17,523) 4,959 139,720
-65-
(1) UPC Nederland's (formerly UTH) 80% subsidiary Uniport offers a carrier
select telephony service. The telephony statistics as of September 30,
1999, include 22,455 carrier select subscribers. As of September 30, 1998,
18,205 carrier select subscribers are included.
(2) Capital Expenditures includes only tangible CAPEX.
(3) Excludes intercompany debt.
(4) The subscriber statistics of Poland excludes 181,557 DTH subscribers.
(5) The in 1999 newly acquired systems are included in this table from their
date of consolidation.
(6) A2000 includes operations for the eight months period ended August 31,
1999. The long term debt as of September 30, 1999, is included in the long
term debt of UPC Nederland as of September 30, 1999, since A2000 is
consolidated as of September 1, 1999.
(7) A2000 includes operations for the nine months period ended September 30,
1998 and statistics as of September 30, 1998.
(8) CNBH includes operations for the seven months period ended July 31,1998.
The long term debt as of September 30, 1998, is included in the long term
debt of UTH as of September 30, 1998, since CNBH is consolidated as of
August 1, 1998.
(9) In August 1998, we contributed CNBH and 50% of A2000 and NUON contributed
Telekabel Beheer to form UTH. Because UTH began operations in August 1998
the financial information includes results for the two months period ended
September 30, 1998, and statistics as of September 30, 1998. The results
includes 2 months of share in result of affiliated companies from A2000.
(10) Kabelkom includes operations for the six months period ended June 30,1998.
(11) Kabelkom and Kabeltel were contributed to Telekabel Hungary on June 30,
1998. Because Telekabel Hungary began operations in July 1998 the
financial information includes results for the three months period ended
September 30, 1998, and statistics as of September 30, 1998.
-66-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Indenture dated as of October 29, 1999, between UPC and
Citibank N.A. as Trustee, with respect to UPC 10 7/8% Senior
Notes
10.2 Indenture dated as of October 29, 1999, between UPC and
Citibank N.A. as Trustee, with respect to UPC 11 1/4% Senior
Notes
10.3 Indenture dated as of October 29, 1999, between UPC and
Citibank N.A., as Trustee with respect to UPC 13 3/8% Senior
Discount Notes
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during the Quarter
Date of Report Item Reported Financial Statements Filed
-------------- ------------- --------------------------
July 30, 1999 Acquisition of NBS None
Nordic Broadband
Services AB and
@Entertainment, Inc.
September 17, 1999 Acquisition of NBS @Entertainment, Inc.
Nordic Broadband NBS Nordic Broadband
Services AB and Services AB
@Entertainment, Inc. Singapore Telecom
International Svenska
AB
November 3, 1999 @Entertainment
Notes Repurchase
Offer
-67-
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: November 15, 1999
---------------------
By: /S/ Ray D. Samuelson
---------------------
Ray D. Samuelson
Managing Director, Finance and Accounting
(A Duly Authorized Officer and Principal Financial Officer)
-68-