press release UPC
UNITED PAN-EUROPE COMMUNICATIONS N.V. RESULTS FOR THE THREE
MONTHS ENDING JUNE 30, 2003
Amsterdam, The Netherlands - August 14, 2003: United Pan-Europe Communications
N.V. ("UPC" or the "Company") (EURONEXT Amsterdam: UPC), one of the leading
broadband communications companies in Europe, today announces its operating and
financial results for the second quarter, 2003.
o Record quarter as Adjusted EBITDA<F1> reaches EUR 120m for the three
months ended June 30, 2003
o Net income of EUR 75m generated in Q2 2003
o Continuing generation of free cashflow<F2> of EUR 8m for the second
quarter 2003.
o New UPC to be known as UGC Europe, Inc. upon successful emergence from
financial restructuring
Executive Summary
The Company is pleased to announce UPC's second quarter 2003 financial results.
Our businesses have demonstrated operational improvement and have focused on
cost control which have boosted Adjusted EBITDA to record levels reaching EUR
120m in the quarter. Net income was EUR 75m for the quarter. We continue to see
opportunities for cost savings and operational efficiencies across our network
and we will work to achieve our financial goals by realising economies of scale.
Annualising our second quarter Adjusted EBITDA of EUR 120m delivers a run-rate
figure of EUR 480m.
During the first six months of 2003 UPC has added more than 59,000 subscribers
to our new services (internet, telephony, DTH and digital), which on a run rate
basis is below guidance for the year. This shortfall is almost entirely related
to the implementation of a new subscriber management system, involving the
consolidation of a number of customer databases in the Netherlands, (as
highlighted in both our Q4 2002 and Q1 2003 results). This database
consolidation began in Q4 2002 and was substantially complete at the end of Q2
2003. This process has had and will continue to have a positive impact on UPC's
cashflow as it has enabled us to improve our cash collection. In all other
countries net sales and net subscriber gains are largely on budget.
Revenues have been negatively impacted by approximately EUR 8m in Q2 2003 due to
exchange rate movements, particularly in Poland and to a lesser extent in
Norway. Excluding the impact of exchange rate movements, total consolidated
revenues increased by 2% during the second quarter 2003 growing to EUR 367m at
Q2 2003 from EUR 359m at Q2 2002.
This quarter we were pleased to announce the commencement of the financial
restructuring of our 100% owned subsidiary, UPC Polska. This is a separate
process from the restructuring nearing
- ----------
1 Please see page three of this press release for a full definition of Adjusted
EBITDA and page five for a reconciliation to Adjusted EBITDA to Net Income
(Loss)
2 Please see pages five and six of the press release for a reconciliation of
free cashflow
completion at the UPC NV level. The successful completion of the Polish
restructuring will reduce consolidated debt at the UPC Group level by
approximately EUR 314<F4>m as at June 30, 2003. The Plan of Restructuring filed
in the US Chapter 11 proceeding contemplates that UPC will continue to hold 100%
of the equity of the restructured company. We expect the restructuring of UPC
Polska to be completed during the fourth quarter 2003.
UPC N.V. Restructuring Update
Since we updated the market with our first quarter results in May we were
pleased to announce that the Dutch Attorney General has delivered his advice to
the Dutch Supreme Court, which concluded that all of the grounds for the appeal
by InterComm Holdings L.L.C. ("ICH"), in relation to the decision of the
Amsterdam Court of March 13, 2003 to ratify the Akkoord are without merit and
that therefore the appeal should be dismissed. The Supreme Court is independent
of the Dutch Attorney General and, in most cases, reaches the same conclusion as
the Attorney General.
Following the advice received from the Attorney General, the Supreme Court is
expected to rule on the appeal expeditiously. We anticipate judgment in August
and emergence from restructuring during the third quarter 2003.
We are pleased to formally announce that on the successful completion of our
restructuring New UPC will be known as UGC Europe, Inc. ("UGC Europe") and it is
anticipated its issued common stock would trade on the NASDAQ national market in
the United States under the ticker symbol UGCE. We are also pleased to announce
that Gene Musselman will be promoted from Chief Operating Officer to President
of UPC Broadband (previously UPC Distribution).
John F. Riordan, CEO of UPC said: "I would once again like to extend my sincere
thanks to the management and staff of UPC for their hard work during the second
quarter 2003."
Group Financial Review
UPC's core operations have historically been split into four principal divisions
as follows:
1. UPC Distribution - local broadband operating systems providing video,
telephone and internet services for residential customers (Triple
Play).
2. UPC Media -broadband internet and interactive digital products and
services, transactional television services such as pay-per-view
movies, digital broadcast and post-production services and thematic
channels for distribution supporting UPC Distribution through UPC's
network, third party networks and DTH platforms.
3. Priority Telecom - providing network solutions to the business
customer.
4. Investments Division - managing our non-consolidated investment
assets. During April 2003, UPC sold its shares in SBS Broadcasting
S.A. to UnitedGlobalCom for EUR 100m, against a book value at April 9,
2003 of EUR 57m. UPC will continue to focus on rationalising its
investment portfolio to maximise value.
Following our successful emergence from restructuring, UPC's core operations
will be split into two principle divisions as follows:
1. UPC Distribution - to be renamed UPC Broadband - local broadband
operating systems providing video, telephone and internet services for
residential customers (Triple Play).
2. Chello Media which would encompass:
o The UPC Media businesses of broadband internet and interactive
digital products and services, transactional television services
such as pay-per-view movies, digital broadcast and
post-production services and thematic channels, as highlighted
above
o The Investments Division highlighted above - managing our
non-consolidated investment assets and Priority Telecom -
providing network solutions to the business customer.
Revenue
UPC's consolidated revenue in the three months ending June 30, 2003 was EUR
359m. Revenues have been negatively impacted by approximately EUR 8m in Q2 2003
due to adverse exchange rate
2
movements, particularly in Poland and to a lesser extent in Norway. Excluding
the impact of exchange rate movements, total consolidated revenues increased by
2% during the second quarter 2003 growing to EUR 367m at Q2 2003 from EUR 359m
at Q2 2002. UPC Triple Play Distribution revenue from continued operations
increased 6% to EUR 331m in Q2 2003, compared to EUR 314m<F4> in Q2 2002
(including the impact of exchange rates). Revenues increased due to price rises
in the period and increasing take up of new services.
- ---------------
4 Assumes 1:1.05 USD :EUR exchange rate
Revenues (EUR `000s) Q2 2003 Q2 2002 6 months 6 months Growth rate YTD
ended June ended June June 30, 2002
30, 2003 30, 2002 to YTD June 30,
2003
-----------------------------------------------------------------------
Triple Play Distribution (1) 331,248 313,782 663,242 618,290 7%
Deconsolidated German EWT/TSS Operations 0 11,977 0 24,468
Other (2) 6,583 11,212 13,054 21,046
Total UPC Distribution 337,831 336,971 676,296 663,804 2%
Priority Telecom 27,658 30,876 54,262 62,992 -14%
UPC Media 21,581 17,860 42,252 36,375 16%
UPC Investments (3) 122 0 245 123 99%
Intercompany Eliminations(4) (27,807) (26,790) (54,570) (58,065)
UPC Consolidated Operations 359,385 358,917 718,485 705,229 2%
1. Includes basic cable, digital, telephony, internet and DTH revenues.
2. Network revenue, generated by operating, maintenance and leasing
agreements with Priority Telecom, eliminated on consolidation
3. UPC Investment Division has been formed in 2003 and manages our
non-consolidated investment assets
4. Intercompany eliminations are the eliminations of intercompany UPC
Media revenues and network revenues
Revenues at Priority Telecom decreased to EUR 28m in the second quarter 2003
from EUR 31m in the second quarter 2002 as a direct result of its revenue
rationalisation strategy whereby low margin or high price erosion and credit
risk customer contracts are reduced or even eliminated. During the second
quarter 2003, Priority has focused resources towards high margin direct business
customer contracts, adhering to Priority's internal margin and profitability
guidelines. Priority continues to refocus its product portfolio to concentrate
efforts on profitable products and services. While Priority anticipates weak
market conditions in the business telecommunications market during 2003 it is
proactively introducing initiatives that will enable it to continue to enhance
its profitability and expand the business during the remainder of the year.
UPC Media performed well in Q2 2003 and generated an increase in revenue of 21%
in Q2 2003 compared with Q2 2002 with revenues increasing from EUR 18m in Q2
2002 to EUR 22m in Q2 2003, driven by a strong performance in the internet
access business.
Use of Adjusted EBITDA and Other Financial Measures
Adjusted EBITDA is the primary measure used by our chief operating decision
makers to evaluate segment-operating performance and to decide how to allocate
resources to segments. EBITDA is an acronym for earnings before interest, taxes,
depreciation and amortisation. As we use the term, Adjusted EBITDA represents
net income before cumulative effects of accounting changes, share in results of
affiliates, minority interests in subsidiaries, income taxes, reorganization
expense, other income and expense, gain on issuance of common equity securities
by subsidiaries, provision for loss on investments, gain (loss) on sale of
investments in affiliates and other assets, foreign currency exchange gain
(loss), interest income and expense, impairment and restructuring charges,
3
depreciation, amortisation, and stock-based compensation. We believe Adjusted
EBITDA is meaningful because it provides investors a means to evaluate the
operating performance of our segments and our company on an ongoing basis using
criteria that is used by our internal decision makers. We reconcile the total of
the reportable segments' Adjusted EBITDA to our consolidated net income as
presented in the accompanying condensed consolidated statements of operations,
because we believe consolidated net income is the most directly, comparable
financial measure to total segment operating performance. Investors should view
Adjusted EBITDA as a supplement to, and not a substitute for, other GAAP
measures of income as a measure of operating performance.
Adjusted EBITDA
UPC consolidated Adjusted EBITDA continued to improve strongly during the second
quarter 2003 increasing 78% to EUR 120m, compared to EUR 67m in Q2 2002. UPC
Triple Play Distribution Adjusted EBITDA increased 64% to EUR 120m in Q2 2003
from EUR 73m in Q2 2002.
Adjusted EBITDA (EUR `000s) Q2 2003 Q2 2002 6 months 6 months Growth rate YTD
ended June ended June June 30, 2002 to
30, 2003 30, 2002 YTD June 30, 2003
---------------------------------------------------------------------------
Triple Play Distribution (1) 119,763 72,946 234,077 141,019 66%
Deconsolidated German EWT/TSS Operations 0 6,691 0 12,212
Other (2) 4,622 4,853 9,761 10,680
Corporate Office (3) (12,532) (16,085) (30,393) (30,339)
Total UPC Distribution 111,853 68,405 213,445 121,360 76%
Priority Telecom (4) 3,130 (1,473) 5,731 (6,149) 193%
UPC Media 5,559 (112) 8,024 (5,687) 241%
UPC Investments (5) (516) 674 (686) 572
UPC Consolidated 120,026 67,494 226,514 122,308 85%
1. Includes basic cable, digital, telephony, internet and DTH Adjusted
EBITDA.
2. Other includes network revenue and costs and administrative costs not
attributable to a specific business line
3. Corporate office includes operational overhead and head office
activities
4. Since Priority Telecom's listing, its results are separately announced
in Dutch GAAP, and presented in US GAAP in our financial statements.
Differences may occur as a result of this.
5. UPC Investment Division has been formed in 2003 and manages our
non-consolidated investment assets
Q2 2002 Adjusted EBITDA has been restated in the table above following the
reallocation of previously centralised costs including Information Technology
and Other (including marketing) costs to cost centers in the relevant countries.
Priority Telecom and UPC Media all demonstrated significant continued operating
improvements in Q2 2003. For the second quarter 2003, Priority Telecom improved
its Adjusted EBITDA loss from EUR (1.5)m in the second quarter 2002 to positive
EUR 3m in Q2 2003. UPC Media improved its Adjusted EBITDA loss from EUR (0.1)m
in Q2 2002 to positive EUR 6m Q2 in 2003.
The table below highlights the reconciliation of Adjusted EBITDA to the most
closely comparable US GAAP measure Net income (loss).
4
Reconciliation of Adjusted EBITDA to Income (loss) before 6 months 6 months
cumulative effect of change in accounting principle(EUR `000s) ended June ended June
Q2 2003 Q2 2002 Q1 2003 30, 2003 30, 2002
Adjusted EBITDA 120,026 67,494 106,488 226,514 122,308
Depreciation and amortisation (170,651) (172,268) (166,616) (337,267) (344,900)
Impairment and restructuring charges 963 (21,105) 0 963 (25,048)
Stock-based compensation and retention bonuses (5,762) (7,093) (3,893) (9,655) (13,883)
Loss on disposal of Poland DTH (6,856) 0 0 (6,856)
Operating Income (Loss) (62,280) (132,972) (64,021) (126,301) (261,523)
Interest Income 1,152 10,727 3,569 4,721 16,712
Interest Expense (78,035) (224,936) (82,377) (160,412) (455,141)
Foreign exchange gain (loss) 201,250 577,315 133,355 334,605 521,258
Gain on extinguishment of debt 0 347,207 69,364 69,364 471,718
Gain on sale of investment in affiliate to related third party 25,518 0 0 25,518 0
Other income (expense) (11,394) 10,274 (2,878) (14,272) (176,666)
Net Loss before income taxes and other items 76,211 587,615 57,012 133,223 116,358
Reorganization expenses, net (4,852) 0 (7,641) (12,493) 0
Income tax benefit (expense) (703) (2,851) (488) (1,191) (1,607)
Minority interests in subsidiaries (10) 126 (65) (75) (64)
Share in results of affiliates, net 4,509 (18,389) (2,495) 2,014 (39,692)
Income (loss) before cumulative effect of change in
accounting principle 75,155 566,501 46,323 121,478 74,995
Cumulative effect of change in accounting principle 0 0 0 0 (1,498,871)
Net Income (loss) 75,155 566,501 46,323 121,478 (1,423,876)
Net Results
UPC generated net income of EUR 75m, during Q2 2003 compared with a net income
of EUR 567m for Q2 2002. Net income includes currency gains of EUR 201m in the
second quarter 2003 and EUR 577m in Q2 2002.
Free Cashflow Reconciliation, and Capital Expenditures Update
As previously highlighted, UPC is focused on improving underlying cashflow
generation. The table below demonstrates the positive Free Cashflow of EUR 8m
achieved during the second quarter 2003. In addition, UPC repaid EUR 177m of
debt in the quarter.
5
Free Cashflow is not a GAAP measure of liquidity. We define free cashflow as
cashflow from operating activities less capital expenditures. We believe our
presentation of free cashflow provides useful information to our investors
because it can be used to gauge our ability to service debt and fund new
investment opportunities. Investors should view free cashflow as a supplement
to, and not a substitute for, GAAP cash flows from operating, investing and
financing activities as a measure of liquidity. We continue to target tighter
working capital management during the year and recurring free cashflow. We
continue to target tighter working capital management during the year and
recurring free cashflow.
Reconciliation of cash provided by operating activities to Free Cashflow
Reconciliation of cash provided by operating
activities to Free Cashflow (EUR 000's) Q2 2003
Net cash provided by operating activities 68,338
Capital expenditure (60,170)
Free Cashflow 8,168
Capital Expenditure
Capital expenditure was EUR 60m for the second quarter 2003 from EUR 71m in Q2
2002. This reduction in capital expenditure reflects both the variable nature of
UPC's capital expenditure requirements - impacted by the subscriber growth
achieved in the quarter and the company's ongoing focused investment in new
build and upgrade; ensuring this investment generates a NPV (net present value)
positive return.
The table below highlights our capital expenditure for the second quarter 2003,
classified in accordance with NCTA cable industry guidelines.
Capital expenditures (EUR '000s)
Q2 2003
Customer premise equipment 19,248
Commercial spending 0
Scalable infrastructure 3,669
Line extensions 15,258
Upgrade / Rebuild 5,861
Support capital 12,048
Intangibles 100
Priority Telecom capital expenditure 3,986
Total Capital Expenditures 60,170
Update Quarter 2, 2003 compared with Quarter 1, 2003
In the three months ended June 30, 2003, total consolidated revenues remained in
line with the first quarter of 2003. Our revenues have been negatively impacted
in the second quarter 2003 by approximately EUR 8m due to exchange rate
movements, particularly in Poland and to a lesser extent in Norway. Excluding
the impact of exchange rate movements total consolidated revenues increased by
2% during the second quarter 2003 to EUR 367m in Q2 2003 from EUR 359m in Q1
2003.
Total consolidated Adjusted EBITDA increased 14% to EUR 120m in Q2 2003 compared
with EUR 106m in Q1 2003. Net income improved from EUR 46m in Q1 2003 to EUR 75m
in Q2 2003.
6
Consolidated Operating Statistics
The table below shows operating statistics for UPC on a consolidated basis:
During the first six months of 2003 UPC has added more than 59,000 subscribers
to our new services (internet, telephony, DTH and digital), which on a run rate
basis is below guidance for the year. This shortfall is almost entirely related
to the implementation of a new subscriber management system, involving the
consolidation of a number of customer databases in the Netherlands, (as
highlighted in both our Q4 2002 and Q1 2003 results). This database
consolidation began in Q4 2002 and was substantially complete at the end of Q2
2003. This process has had and will continue to have a positive impact on UPC's
cashflow as it has enabled us to improve our cash collection. In all other
countries net sales and net subscriber gains are largely on budget.
In July 2003 UPC announced it had secured the exclusive pay television rights to
the UEFA champions league football for a three-year period in the Netherlands
and Belgium. We expect that offering these premier football channels in the
Netherlands, coupled with the expansion of the digital basic package to more
than 60 channels, will boost demand for UPC's digital product.
UPC has added close to 50,000 internet subscribers during the first six months
of 2003. In July 2003 UPC announced the extension of its chello internet product
range, offering subscribers a choice of products with different connection
speeds and price points in the Netherlands, France and Austria. We expect these
product launches will further boost demand for the chello product across our
footprint.
Consolidated Operating Statistics
Q2 2003 Q2 2002
(all figures in '000s)
Total Homes Passed (1) 10,295 10,212
Two-way Homes Passed (1) 5,593 5,343
Basic Cable Subscribers 6,609 6,612
Digital Subscribers 129 126
Telephony Subscribers (2) 459 465
Internet Subscribers (3) 723 593
Net Service Subscribers 1,312 1,183
DTH Subscribers 154 114
Total Residential RGUs (4) 8,074 7,909
Disposed operations
Germany (EWT / TSS) 0 584
Total disposed operations 0 584
Total consolidated RGUs 8,074 8,493
1) Excludes Germany EWT / TSS which was deconsolidated on August 1, 2002
2) Includes residential cable and non-cable telephony subscribers.
3) Includes residential and third party ISP subscribers
4) Sum of basic cable, digital, Internet, telephony and DTH subscribers
The table below highlights UPC's average revenue per subscriber per month
("ARPU"). These subscriber statistics have historically been calculated
excluding Germany (the EWT / TSS Group), which was deconsolidated on August 1,
2002. However, for completeness the table below highlights ARPU both with and
without our German operations during Q2 2002.
7
Average Revenue per Subscriber Q2 2003 Q2 2002
(figures in EUR per month)
Excluding Germany
ARPU per RGU (1) 13.68 13.27
ARPU per basic West European cable subscriber (2) 20.91 19.88
ARPU per basic East European cable subscriber (2) 8.99 8.71
Including Germany
ARPU per RGU (3) 13.68 12.74
ARPU per basic West European cable subscriber (4) 20.91 18.25
ARPU per basic East European cable subscriber (4) 8.99 8.71
1) ARPU calculations exclude Germany but include DTH. In EUR per month,
calculated as straight line average: quarterly triple play revenues divided
by average of opening and closing triple play subscribers in the quarter
2) Basic cable, Internet, telephony, digital revenue (excludes DTH) divided by
basic cable subscribers (excluding Germany)
3) ARPU calculations include Germany and DTH. In EUR per month, calculated as
straight line average: quarterly triple play revenues divided by average of
opening and closing triple play subscribers in the quarter
4) Basic cable, Internet, telephony, digital revenue (excludes DTH) divided by
basic cable subscribers (includes Germany)
2003 Outlook
The Company continues to prioritise Adjusted EBITDA and free cashflow
generation. A key variable for UPC's 2003 financial results continues to be the
resolution of the Europe Movieco Partners court case regarding minimum programme
guarantees which may negatively impact UPC's consolidated Adjusted EBITDA by up
to EUR 25m in 2003 and for each of the next two years. In addition, the
Company's financial results will be impacted by its success in reaching its
targeted net additions of 430,000 subscribers during the year.
Given our Q1 and Q2 2003 financial results and in particular the net subscriber
shortfall compared to guidance, we are forecasting full year 2003 Adjusted EUR
500m and reducing capital expenditure guidance to EUR 300m for the full year
2003.
We are unable to provide a reconciliation of forecasted Adjusted EBITDA to the
most directly comparable GAAP measure, net income, because certain items are out
of our control and/or cannot be reasonably predicted. For example, it is
impractical to: (1) estimate future fluctuations in interest rates on our
variable-rate debt facilities; (2) estimate the fluctuations in exchange rates
relative to our U.S. dollar denominated debt; (3) estimate the financial results
of our non-consolidated affiliates; and (4) estimate changes in circumstances
that lead to gains and/or losses such as our restructuring and the restructuring
of UPC Polska and/or sales of investments in affiliates and other assets. Any
and/or all of these items could be significant to our financial results.
8
Following the successful completion of the restructuring at both UPC Polska and
UPC N.V., UPC forecasts total year-end net debt of less than EUR 3.1 billion,
significantly reducing UPC's leverage to less than 6.5x using Q2 annualised
Adjusted EBITDA of EUR 480m, and approaching levels achieved by comparable US
cable operators.
This press release should be read in conjunction with the Company's financial
statements and notes, which will be filed on Form 10Q with the SEC on August 14,
2003. This filing will be found on the UPC website at www.upccorp.com.
United Pan-Europe Communications N.V. is one of the leading broadband
communications and entertainment companies in Europe. Through its broadband
networks, UPC provides television, Internet access, telephony and programming
services. UPC's shares are traded on Euronext Amsterdam Exchange (UPC) and in
the United States on the Over The Counter Bulletin Board (UPCOY). UPC is
majority owned by UnitedGlobalCom, Inc. (NASDAQ: UCOMA).
NOTE: Except for historical information contained herein, this release contains
forward-looking statements, which involve certain risks, and uncertainties that
could cause actual results to differ materially from those expressed or implied
by these statements. These risks and uncertainties include the company's ability
to restructure its outstanding indebtedness on a satisfactory and timely basis,
the ramifications of any restructuring, the acceptance and continued use by
subscribers and potential subscribers of the Company's services, changes in the
technology and competition, our ability to achieve expected operational
efficiencies and economies of scale, our ability to generate expected revenue
and achieve assumed margins, as well as other factors detailed from time to time
in the Company's filings with the Securities and Exchange Commission.
For further information please contact:
Claire Appleby Bert Holtkamp
Director of Investor Relations Director of Corporate Communications
0044 (0) 207 838 2004 0031 20 778 9447 or 0031 655 38 0594
Email:ir@upccorp.com Email: corpcomms@upccorp.com
Also, please visit www.upccorp.com for further information about UPC
9
June 30, December 31,
2003 2002
-------- ------------
ASSETS
Current assets
Cash and cash equivalents........................................................... 178,499 255,062
Restricted cash..................................................................... 35,471 18,352
Subscriber receivables, net of allowance for doubtful accounts of
35,875 and 52,232, respectively..................................................... 69,601 95,526
Costs to be reimbursed by affiliated companies...................................... 2,955 4,054
Other receivables................................................................... 30,298 40,588
Deferred financing costs, net....................................................... 46,746 59,375
Prepaid expenses and other current assets........................................... 67,147 79,345
------------ -------------
Total current assets............................................................. 430,717 552,302
Marketable debt and equity securities, at fair value................................... 31,704 12,760
Investments in and advances to affiliated companies.................................... 44,825 114,680
Property, plant and equipment, net..................................................... 2,884,090 3,175,363
Goodwill, net.......................................................................... 988,208 944,670
Other intangible assets, net........................................................... 70,384 77,607
Other assets........................................................................... 2,407 3,635
------------ -------------
Total assets.................................................................. 4,452,335 4,931,017
============ =============
June 30, December 31,
2003 2002
-------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT):
Current liabilities
Not subject to compromise:
Accounts payable, including related party payables of 4,821 and 5,189
respectively........................................................................ 158,367 166,679
Accrued liabilities................................................................. 248,971 281,211
Subscriber prepayments and deposits................................................. 137,703 121,749
Derivative liabilities.............................................................. 4,089 10,133
Short-term debt..................................................................... 5,243 58,363
Current portion of long-term debt................................................... 3,357,791 3,212,302
------------ -------------
Total current liabilities not subject to compromise........................... 3,912,164 3,850,437
------------ -------------
Subject to compromise:
Accounts payable.................................................................... 36,889 36,889
Accrued liabilities................................................................. 329,013 351,500
Current portion of long-term debt, including related party debt of 2,180,560
and 2,358,380 respectively.......................................................... 4,672,594 5,043,346
------------ -------------
Total current liabilities subject to compromise............................... 5,038,496 5,431,735
------------ -------------
Long-term liabilities
Not subject to compromise:
Long term debt...................................................................... 60,209 427,444
Deferred gain on sale of assets..................................................... 150,321 150,321
Other long-term liabilities......................................................... 85,605 83,999
------------ -------------
Total long-term liabilities not subject to compromise......................... 296,135 661,764
============ =============
Commitments and contingencies (Note 8)
Minority interests in subsidiaries 1,504 1,660
------------ -------------
Convertible preferred stock subject to compromise:
Convertible preferred stock......................................................... 1,664,689 1,664,689
------------ -------------
10
June 30, December 31,
2003 2002
-------- ------------
Shareholders' equity (deficit)
Priority stock, 0.02 par value, 300 shares authorized, issued and outstanding - -
Ordinary stock, 0.02 par value, 1,000,000,000 shares authorized, 443,417,525
shares issued and outstanding....................................................... 8,868 443,418
Additional paid-in capital.......................................................... 3,192,883 2,740,586
Deferred compensation............................................................... (9,061) (16,888)
Accumulated Deficit................................................................. (9,932,152) (10,053, 630)
Accumulated other comprehensive income.............................................. 278,809 207,246
------------ -------------
Total shareholders' equity (deficit).......................................... (6,460,653) (6,679,268)
------------ -------------
Total liabilities and shareholders' equity (deficit).......................... 4,452,335 4,931,017
============ =============
11
Statements of Operations
Three Months
Ended June 30,
------------------------------
2003 2002
------------ ------------
Revenue....................................................................... 359,385 358,917
Operating expense (1)......................................................... (155,189) (192,701)
Selling, general and administrative expense................................... (96,788) (105,815)
Depreciation and amortization ................................................ (170,651) (172,268)
Impairment and restructuring charges ......................................... 963 (21,105)
------------ ------------
Operating income (loss) ................................................... (62,280) (132,972)
Interest income .............................................................. 1,152 10,727
Interest expense ............................................................. (78,035) (160,278)
Interest expense - related party ............................................. - (64,658)
Foreign currency exchange gain ............................................... 201,250 577,315
Gain on extinguishment of debt................................................ - 347,207
Gain on sale of investment in affiliate to related party...................... 25,518 -
Other income (expense), net .................................................. (11,394) 10,274
------------ ------------
Income (loss) before income taxes and other items ......................... 76,211 587,615
Reorganization expense ....................................................... (4,852) -
Income tax expense, net ...................................................... (703) (2,851)
Minority interests in subsidiaries, net ...................................... (10) 126
Share in results of affiliates, net .......................................... 4,509 (18,389)
------------ ------------
Income (loss) before cumulative effect of change in accounting principle .. 75,155 566,501
Cumulative effect of change in accounting principle .......................... - -
------------ ------------
Net income (loss) ......................................................... 75,155 566,501
============ ============
Statement of Comprehensive Income
Net income (loss)......................................................... 75,155 566,501
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments................................... 24,457 56,410
Change in fair value of derivative assets ................................. 3,731 5,210
Change in unrealized gain in available-for-sale securities ................ 14,336 (19,037)
------------ ------------
Comprehensive income (loss)............................................. 117,679 609,084
============ ===========
(1) Excluding depreciation and amortization, and impairment and restructuring charges shown separately below.
12
Statements of Operations
Six Months
Ended June 30,
------------------------------
2003 2002
------------ ------------
Revenue....................................................................... 718,485 705,229
Operating expense (1)......................................................... (313,612) (380,732)
Selling, general and administrative expense................................... (194,870) (216,072)
Depreciation and amortization ................................................ (337,267) (344,900)
Impairment and restructuring charges ......................................... 963 (25,048)
------------ ------------
Operating income (loss) ................................................... (126,301) (261,523)
Interest income .............................................................. 4,721 16,712
Interest expense ............................................................. (160,412) (332,067)
Interest expense - related party ............................................. -- (123,074)
Foreign currency exchange gain ............................................... 334,605 521,258
Gain on extinguishment of debt................................................ 69,364 471,718
Gain on sale of investment in affiliate to related party...................... 25,518 --
Other income (expense), net .................................................. (14,272) (176,666)
------------ ------------
Income (loss) before income taxes and other items ......................... 133,223 116,358
Reorganization expense ....................................................... (12,493) --
Income tax expense, net ...................................................... (1,191) (1,607)
Minority interests in subsidiaries............................................ (75) (64)
Share in results of affiliates, net .......................................... 2,014 (39,692)
------------ ------------
Income (loss) before cumulative effect of change in accounting principle .. 121,478 74,995
Cumulative effect of change in accounting principle .......................... -- (1,498,871)
------------ ------------
Net income (loss) ......................................................... 121,478 (1,423,876)
============ ============
Statement of Comprehensive Income
Net income (loss)......................................................... 121,478 (1,423,876)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments................................... 44,234 12,415
Change in fair value of derivative assets ................................. 10,133 13,212
Change in unrealized gain in available-for-sale securities ................ 17,196 (16,029)
------------ ------------
Comprehensive income (loss)............................................. 193,041 (1,414,278)
============ ===========
(1) Excluding depreciation and amortization, and impairment and restructuring charges shown separately below.
Priority Stock Ordinary Stock
-------------- --------------
Additional
Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ ----------
December 31, 2002.......... 300 - 443,417,525 443,418 2,740,586
Decrease in nominal value.. - - - (434,550) 434,550
Amortization of deferred
compensation............. - - - - -
Capital contribution
from subsidiary of
parent................... - - - - 17,747
Net income................. - - - - -
Unrealized gain on
available-for-sale
securities............... - - - - -
Change in fair value of
derivative assets........ - - - - -
Change in foreign - - -
currency translation
adjustments.............. - - - - -
----- ----- ------------ -------- ----------
June 30, 2003............ 300 - 443,417,525 8,868 3,192,883
===== ===== ============ ======== ==========
Accumulated Other
Deferred Accumulated Comprehensive
Compensation Deficit Income Total
------------ ------------ ----------------- -----
December 31, 2002.......... (16,888) (10,053,630) 207,246 (6,679,268)
Decrease in nominal value.. - - - -
Amortization of deferred
compensation............. 7,827 - - 7,827
Capital contribution
from subsidiary of
parent................... - - - 17,747
Net income................. - 121,478 - 121,478
Unrealized gain on
available-for-sale
securities............... - - 17,196 17,196
Change in fair value of
derivative assets........ - - 10,133 10,133
Change in foreign
currency translation
adjustments.............. - - 44,234 44,234
------- ----------- ------- ------------
June 30, 2003.............. (9,061) (9,932,152) 278,809 (6,460,653)
======= =========== ======= ============
13
Six Months
Ended June 30,
-----------------------
2003 2002
--------- -----------
Cash flows from operating activities:
Net income (loss) ..................................................................... 121,478 (1,423,876)
Adjustments to reconcile net income (loss) to net cash flows from operating
activities:
Depreciation and amortization ...................................................... 337,267 344,900
Impairment and restructuring charges ............................................... (963) 25,048
Stock-based compensation ........................................................... 9,655 13,883
Accretion of interest .............................................................. 25,176 181,044
Amortization of deferred financing costs ........................................... 12,588 15,576
Foreign exchange gains.............................................................. (324,042) (522,168)
Gain on extinguishment of debt...................................................... (69,364) (471,718)
Gain on sale of investment in affiliate............................................. (25,518) --
Loss on derivative assets .......................................................... 10,221 186,675
Minority interests in subsidiaries ................................................. 75 64
Share in results of affiliated companies ........................................... (2,014) 39,692
Cumulative effect of change in accounting principle................................. -- 1,498,871
Loss on sale of assets.............................................................. -- 12,092
Other............................................................................... 2,655 16,762
Decrease in restricted cash ..................................................... -- 30,314
Change in receivables ........................................................... 50,338 36,091
Change in other current liabilities ............................................. (10,278) (182,215)
Change in deferred taxes and other long-term liabilities ........................ 1,606 (47,346)
--------- -----------
Net cash flows from operating activities .............................................. 138,880 (246,311)
--------- -----------
Cash flows from investing activities:
Capital expenditures .................................................................. (103,085) (172,762)
Proceeds received from the sale of assets ............................................. 100,663 --
Restricted cash deposited, net ........................................................ (17,119) (12,038)
Purchase of derivatives ............................................................... (9,090) --
Derivative loan settlement............................................................. (50,975) --
Dividends received .................................................................... 3,745 8,031
Acquisitions, net of cash acquired .................................................... (671) (24,060)
--------- -----------
Net cash flows from investing activities .............................................. (76,532) (200,829)
--------- -----------
Cash flows from financing activities:
Proceeds from long-term and short-term borrowings...................................... -- 10,665
Repayments of long-term and short-term borrowings...................................... (128,348) (44,574)
--------- -----------
Net cash flows from financing activities............................................... (128,348) (33,909)
--------- -----------
Effect of exchange rates on cash ...................................................... (10,563) 8,823
--------- -----------
Net decrease in cash and cash equivalents ............................................. (75,563) (472,226)
Cash and cash equivalents at beginning of period....................................... 255,062 855,001
--------- -----------
Cash and cash equivalents at end of period............................................. 178,499 382,775
========= ===========
Supplemental cash flow disclosures:
Cash paid for reorganization expenses............................................... (12,511) (11,195)
========= ===========
Cash paid for interest.............................................................. (106,888) (123,063)
========= ===========
Cash received for interest.......................................................... 3,432 12,444
========= ===========
14
June 30, 2003
------------------------------------------------------------------------------------------------------
Video
-------------------------------------
Direct to
UPC Paid Homes in Homes Two Way Basic Analog Digital Home (DTH)
in Service Passed (2) Homes Penetration Subscribers Subscribers Subscribers
Ownership Area (1) Passed (3) (4) (5) (6)
------------------------------------------------------------------------------------------------------
Norway............ 100.0% 529,000 483,800 199,400 70.0% 338,500 32,500 -
Sweden............ 100.0% 770,000 421,600 265,800 65.6% 276,700 19,900 -
Belgium........... 100.0% 530,000 153,700 153,700 85.0% 130,700 - -
France............ 92.0% 2,656,600 1,363,300 673,200 34.1% 465,500 7,100 -
The Netherlands... 100.0% 2,652,100 2,589,600 2,336,400 89.0% 2,304,200 47,500 -
Austria........... 95.0% 1,081,400 923,300 920,100 54.1% 499,400 22,200 -
---------- ---------- --------- --------- ------- -------
Total Western
Europe.......... 8,219,100 5,935,300 4,548,600 4,015,000 129,200 -
---------- ---------- --------- --------- ------- -------
Poland............ 100.0% 1,870,700 1,870,700 262,000 52.8% 987,500 - -
Hungary........... 99.8-100.0% 1,001,100 966,500 521,500 71.8% 694,200 - 85,100
Czech Republic.... 99.9-100.0% 913,000 681,400 240,200 43.5% 296,600 - 58,900
Romania........... 100.0% 659,600 458,400 - 72.1% 330,300 - -
Slovak Republic... 95.0-10 517,800 382,700 21,100 74.4% 284,900 - 10,200
---------- ---------- --------- --------- ------- -------
Total Eastern
Europe......... 4,962,200 4,359,700 1,044,800 2,593,500 - 154,200
---------- ---------- --------- --------- ------- -------
========== ========== ========= ========= ======= =======
Total.......... 13,181,300 10,295,000 5,593,400 6,608,500 129,200 154,200
========== ========== ========= ========= ======= =======
------------------------------------------------------------------------------------------
Telephony Internet
------------------------------------- --------------------------------------------------
3rd Party
Homes Residential Lines Homes Residential ISP
Serviceable Subscribers Residential Serviceable Subscribers Subscribers Total
(7) (8) (9) (10) (11) (12) RGUs (13)
------------------------------------------------------------------------------------------
Norway............ 136,300 23,400 25,800 199,400 33,400 - 427,800
Sweden............ - - - 265,800 66,100 - 362,700
Belgium........... - - - 153,700 25,300 - 156,000
France............ 673,200 56,800 58,300 673,200 23,100 - 552,500
The Netherlands... 1,597,300 160,600 188,100 2,336,400 310,900 - 2,823,200
Austria........... 899,700 150,500 152,000 920,100 191,800 - 863,900
--------- ------- ------- --------- ------- --- ---------
Total Western
Europe.......... 3,306,500 391,300 424,200 4,548,600 650,600 - 5,186,100
--------- ------- ------- --------- ------- --- ---------
Poland............ - - - 262,000 19,100 - 1,006,600
Hungary........... 84,900 64,900 71,500 461,300 33,000 500 877,700
Czech Republic.... 17,700 3,000 3,000 240,200 19,900 - 378,400
Romania........... - - - - - - 330,300
Slovak Republic... - - - 15,600 200 - 295,300
--------- ------- ------- --------- ------- --- ---------
Total Eastern
Europe......... 102,600 67,900 74,500 979,100 72,200 500 2,888,300
--------- ------- ------- --------- ------- --- ---------
========= ======= ======= ========= ======= === =========
Total.......... 3,409,100 459,200 498,700 5,527,700 722,800 500 8,074,400
========= ======= ======= ========= ======= === =========
(1) "Homes in Service Area" represents the number of homes in a certain
franchise area that can potentially be served.
(2) "Homes Passed" represents the number of homes that can be connected to our
distribution system without further extending the cable network
distribution plant.
(3) "Two-Way Homes Passed" represents the number of homes passed by our network
where customers can request and receive the installation of a two-way
addressable set-top box, cable modem and/or voice port which, in most
cases, allows for the provision of video, voice and data (broadband)
services.
(4) "Analogue Subscriber", is a home or commercial unit that receives our cable
service.
(5) "Digital Subscriber" is a home or commercial unit with one or more digital
converter boxes that receives our digital service. A Digital Subscriber is
also counted as an Analog Subscriber.
(6) "DTH Subscriber" is a home or commercial unit with one or more television
sets that receives our video programming broadcast directly to the home via
geosynchronous satellites.
(7) "Telephony Homes Serviceable" represents the number of homes that can be
connected to our cable distribution system, or our copper (twisted pair)
network in certain areas, where customers can request and receive voice
services.
(8) "Residential Telephony Subscriber" is a home with one or more voice ports
connected to our broadband network, or our copper (twisted pair) network in
certain areas, where a customer has requested and is receiving voice
services.
(9) "Telephony Lines" are the number of lines provided to our Telephony
Subscribers.
(10) "Internet Homes Serviceable" represents the number of homes that can be
connected to our cable distribution system where customers can request and
receive high-speed Internet access services.
(11) "Residential Internet Subscriber" is a home or commercial unit connected to
our broadband network, where a customer has requested and is receiving
chello broadband high-speed Internet access services.
(12) Broadband Internet subscribers who are not served by chello broadband.
(13) "Total Subscribers", or "Total RGUs" is the sum of Analogue, Digital, DTH,
Telephony and Broadband Internet Subscribers.