10-Q 1 a2030722z10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to_________ Commission File No. 0-21974 UNITEDGLOBALCOM, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) STATE OF DELAWARE 84-1116217 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 4643 SOUTH ULSTER STREET, #1300 DENVER, COLORADO 80237 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (303) 770-4001 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / The number of shares outstanding of the Registrant's common stock as of October 25, 2000 was: Class A Common Stock -- 77,408,632 shares Class B Common Stock -- 19,221,940 shares UNITEDGLOBALCOM, INC. TABLE OF CONTENTS
Page Number ------ PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets as of September 30, 2000 (Unaudited) and December 31, 1999.................................................... 3 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2000 and 1999 (Unaudited)..................... 4 Condensed Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 2000 (Unaudited).............................. 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 (Unaudited).................................. 6 Notes to Condensed Consolidated Financial Statements (Unaudited)........... 9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................................. 25 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............. 38 PART II - OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K....................................... 42
2 UNITEDGLOBALCOM, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
AS OF AS OF SEPTEMBER 30, DECEMBER 31, ASSETS 2000 1999 ------------ ----------- Current assets Cash and cash equivalents ................................... $ 444,627 $ 1,925,915 Restricted cash ............................................. 16,052 18,217 Short-term liquid investments ............................... 929,105 629,689 Subscriber receivables, net of allowance for doubtful accounts of $48,671 and $27,808, respectively .... 117,436 83,388 Costs to be reimbursed by affiliated companies, net ......... 12,391 13,430 Other receivables, including related party receivables of $1,933 and $1,680, respectively ........................ 162,156 131,622 Inventory ................................................... 150,511 82,995 Deferred taxes .............................................. 2,363 2,119 Other current assets, net ................................... 138,481 98,891 ----------- ----------- Total current assets ...................................... 1,973,122 2,986,266 Investments in affiliates, accounted for under the equity method, net .......................................... 792,839 309,509 Marketable equity securities and other investments ............ 63,499 235,917 Property, plant and equipment, net of accumulated depreciation of $752,111 and $482,524, respectively ......... 2,961,687 2,379,837 Goodwill and other intangible assets, net of accumulated amortization of $350,516 and $170,133, respectively ......... 3,719,666 2,944,802 Deferred financing costs, net of accumulated amortization of $32,065 and $17,062, respectively ........................ 147,171 130,704 Deferred taxes ................................................ 14,474 3,698 Other assets, net ............................................. 41,921 12,120 ----------- ----------- Total assets .............................................. $ 9,714,379 $ 9,002,853 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable, including related party payables of $194 and $390, respectively ............................ $ 334,045 $ 306,760 Accrued liabilities ......................................... 438,629 324,431 Subscriber prepayments and deposits ......................... 65,849 41,466 Short-term debt ............................................. 737,400 173,296 Current portion of other long-term debt ..................... 185,701 52,180 Other current liabilities ................................... 9,134 10,567 ----------- ----------- Total current liabilities ................................. 1,770,758 908,700 Senior discount notes and senior notes ........................ 5,973,414 4,385,004 Other long-term debt .......................................... 1,333,457 1,604,451 Deferred compensation ......................................... 73,751 54,825 Deferred taxes ................................................ 16,639 17,074 Other long-term liabilities ................................... 33,519 23,603 ----------- ----------- Total liabilities ......................................... 9,201,538 6,993,657 ----------- ----------- Minority interests in subsidiaries ............................ 277,377 867,970 ----------- ----------- Series B Convertible Preferred Stock, stated at liquidation value, 113,983 and 116,185 shares issued and outstanding, respectively ............................... 27,719 26,920 ----------- ----------- Stockholders' equity: Class A Common Stock, $0.01 par value, 210,000,000 shares authorized, 82,970,942 and 81,574,815 shares issued and outstanding, respectively ............... 830 816 Class B Common Stock, $0.01 par value, 30,000,000 shares authorized, 19,221,940 and 19,323,940 shares issued and outstanding, respectively ...................... 192 193 Series C Convertible Preferred Stock, 425,000 shares issued and outstanding .................................... 425,000 410,125 Series D Convertible Preferred Stock, 287,500 shares issued and outstanding .................................... 283,867 268,773 Additional paid-in capital .................................. 1,549,639 1,416,635 Deferred compensation ....................................... (160,022) (119,996) Treasury stock, at cost, 5,569,240 shares of Class A Common Stock ...................................... (29,061) (29,061) Accumulated deficit ......................................... (1,544,189) (621,941) Other cumulative comprehensive loss ......................... (318,511) (211,238) ----------- ----------- Total stockholders' equity ................................ 207,745 1,114,306 ----------- ----------- Total liabilities and stockholders' equity ................ $ 9,714,379 $ 9,002,853 =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 UNITEDGLOBALCOM, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (STATED IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (UNAUDITED)
FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Revenue ........................................................ $ 316,153 $ 206,732 $ 900,560 $ 460,646 Operating expense .............................................. (229,708) (120,321) (608,410) (251,233) Selling, general and administrative expense .................... (184,110) (114,218) (523,002) (299,034) Depreciation and amortization .................................. (207,519) (127,298) (566,296) (260,375) ------------ ------------ ------------ ------------ Operating loss ............................................. (305,184) (155,105) (797,148) (349,996) Gain on issuance of common equity securities by subsidiaries ... 54,085 283,947 127,731 1,106,014 Interest income, including related party income of $142, $142, $422 and $420, respectively ................... 31,389 12,993 101,111 22,400 Interest expense ............................................... (219,654) (116,255) (637,145) (234,712) (Loss) gain on sale of investments in affiliates ............... (3,776) -- (3,776) 7,456 Foreign currency exchange loss, net ............................ (168,496) (4,629) (292,606) (24,834) Other income (expense), net .................................... 6,594 2,595 1,470 (4,554) ------------ ------------ ------------ ------------ (Loss) income before other items ........................... (605,042) 23,546 (1,500,363) 521,774 Income tax benefit, net ........................................ 4,151 2,351 6,932 2,656 Minority interests in subsidiaries ............................. 291,358 52,854 692,935 127,792 Share in results of affiliates, net ............................ (44,404) (16,758) (84,345) (48,366) ------------ ------------ ------------ ------------ Net (loss) income .......................................... $ (353,937) $ 61,993 $ (884,841) $ 603,856 ============ ============ ============ ============ Foreign currency translation adjustments ....................... $ (30,627) $ (17,924) $ (96,375) $ (104,493) Unrealized holding (losses) gains arising during period ........ (40,545) (339) (10,898) 127 ------------ ------------ ------------ ------------ Comprehensive (loss) income ................................ $ (425,109) $ 43,730 $ (992,114) $ 499,490 ============ ============ ============ ============ Basic net (loss) income attributable to common shareholders .... $ (366,851) $ 54,071 $ (923,567) $ 594,730 ============ ============ ============ ============ Diluted net (loss) income attributable to common shareholders .. $ (366,851) $ 54,556 $ (923,567) $ 603,856 ============ ============ ============ ============ Net (loss) income per common share: Basic net (loss) income .................................... $ (3.81) $ 0.66 $ (9.63) $ 7.39 ============ ============ ============ ============ Diluted net (loss) income .................................. $ (3.81) $ 0.61 $ (9.63) $ 6.53 ============ ============ ============ ============ Weighted-average number of common shares outstanding: Basic ...................................................... 96,348,642 82,545,254 95,940,658 80,502,722 ============ ============ ============ ============ Diluted .................................................... 96,348,642 89,670,968 95,940,658 92,510,702 ============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 UNITEDGLOBALCOM, INC. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (STATED IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
CLASS A CLASS B SERIES C SERIES D COMMON STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK ------------------- -------------------- ------------------- ------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------ ---------- ------ -------- -------- -------- -------- Balances, December 31, 1999 ................ 81,574,815 $ 816 19,323,940 $ 193 425,000 $410,125 287,500 $268,773 Exchange of Class B Common Stock for Class A Common Stock ........... 102,000 1 (102,000) (1) -- -- -- -- Issuance of Class A Common Stock in connection with Company's stock option plans ....................... 1,031,537 10 -- -- -- -- -- -- Issuance of Class A Common Stock in connection with Company's 401(k) plan .............................. 705 -- -- -- -- -- -- -- Conversion of Series B Convertible Preferred Stock into Class A Common Stock ................ 48,996 1 -- -- -- -- -- -- Accrual of dividends on Series B, C and D Convertible Preferred Stock ................ -- -- -- -- -- 22,313 -- 15,094 Issuance of Class A Common Stock as dividends on Series C Convertible Preferred Stock .............. 212,889 2 -- -- -- (7,438) -- -- Equity transactions of subsidiaries ........ -- -- -- -- -- -- -- -- Amortization of deferred compensation ...... -- -- -- -- -- -- -- -- Net loss ................................... -- -- -- -- -- -- -- -- Change in cumulative translation adjustments .................. -- -- -- -- -- -- -- -- Change in unrealized gain on available-for-sale securites ............. -- -- -- -- -- -- -- -- ---------- ------ ---------- ------ ------- -------- ------- -------- Balances, September 30, 2000 ............... 82,970,942 $ 830 19,221,940 $ 192 425,000 $425,000 287,500 $283,867 ========== ====== ========== ====== ======= ======== ======= ======== OTHER ADDITIONAL TREASURY STOCK CUMULATIVE PAID-IN DEFERRED ------------------- ACCUMULATED COMPREHENSIVE CAPITAL COMPENSATION SHARES AMOUNT DEFICIT LOSS TOTAL ---------- ------------ --------- -------- ----------- ------------- ----- Balances, December 31, 1999 ................ $1,416,635 $ (119,996) 5,569,240 $(29,061) $ (621,941) $(211,238) $ 1,114,306 Exchange of Class B Common Stock for Class A Common Stock ........... -- -- -- -- -- -- -- Issuance of Class A Common Stock in connection with Company's stock option plans ....................... 6,239 -- -- -- -- -- 6,249 Issuance of Class A Common Stock in connection with Company's 401(k) plan .............................. 21 -- -- -- -- -- 21 Conversion of Series B Convertible Preferred Stock into Class A Common Stock ................ 519 -- -- -- -- -- 520 Accrual of dividends on Series B, C and D Convertible Preferred Stock ................ (1,319) -- -- -- (37,407) -- (1,319) Issuance of Class A Common Stock as dividends on Series C Convertible Preferred Stock .............. 7,436 -- -- -- -- -- -- Equity transactions of subsidiaries ........ 120,108 (32,683) -- -- -- -- 87,425 Amortization of deferred compensation ...... -- (7,343) -- -- -- -- (7,343) Net loss ................................... -- -- -- -- (884,841) -- (884,841) Change in cumulative translation adjustments .................. -- -- -- -- -- (96,375) (96,375) Change in unrealized gain on available-for-sale securites ............. -- -- -- -- -- (10,898) (10,898) ---------- ----------- ---------- -------- ----------- --------- ----------- Balances, September 30, 2000 ............... $1,549,639 $ (160,022) 5,569,240 $(29,061) $(1,544,189) $(318,511) $ 207,745 ========== =========== ========== ======== =========== ========= ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 UNITEDGLOBALCOM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (STATED IN THOUSANDS) (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income ................................................. $ (884,841) $ 603,856 Adjustments to reconcile net (loss) income to net cash flows from operating activities: Gain on issuance of common equity securities by subsidiaries ............................................... (127,731) (1,106,014) Share in results of affiliates, net ............................. 79,691 42,369 Minority interests in subsidiaries .............................. (692,935) (127,792) Exchange rate differences in U.S. dollar-denominated securities ................................. 263,915 21,160 Depreciation and amortization ................................... 566,296 260,375 Accretion of interest on senior notes and amortization of deferred financing costs ...................... 334,840 152,325 Stock-based compensation expense ................................ (960) 71,702 Loss (gain) on sale of investments in affiliates ................ 3,776 (7,456) Increase in receivables, net .................................... (119,654) (29,950) Increase in other assets ........................................ (130,716) (7,067) Increase in accounts payable, accrued liabilities and other ..... 186,041 82,487 ----------- ----------- Net cash flows from operating activities ..................... (522,278) (44,005) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term liquid investments ......................... (2,734,064) (557,000) Proceeds from sale of short-term liquid investments ............... 2,344,894 89,711 Restricted cash deposited, net .................................... (5) (2,816) Investments in affiliates and other investments ................... (331,576) (144,117) Proceeds from sale of investments in affiliated companies ......... -- 18,000 New acquisitions, net of cash acquired ............................ (1,387,548) (2,103,861) Capital expenditures .............................................. (1,186,244) (444,140) Other ............................................................. 13,710 (5,638) ----------- ----------- Net cash flows from investing activities ..................... (3,280,833) (3,149,861) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock by subsidiaries .......................... 102,403 1,703,471 Issuance of Series C Convertible Preferred Stock .................. -- 381,788 Issuance of common stock in connection with Company's and subsidiary's stock option plans ............................. 11,509 24,961 Issuance of common stock in connection with exercise of warrants .. -- 15,168 Proceeds from offering of senior notes and senior discount notes .. 1,612,200 1,727,639 Retirement of existing senior notes ............................... -- (265) Proceeds from short-term and long-term borrowings ................. 1,215,360 915,186 Deferred financing costs .......................................... (56,089) (72,640) Repayments of short-term and long-term borrowings ................. (414,693) (1,137,040) Payment of sellers note ........................................... -- (18,000) Other ............................................................. -- 2,971 ----------- ----------- Net cash flows from financing activities ..................... 2,470,690 3,543,239 ----------- ----------- EFFECT OF EXCHANGE RATES ON CASH .................................. (148,867) (67,963) ----------- ----------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS .................. (1,481,288) 281,410 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .................... 1,925,915 35,608 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD .......................... $ 444,627 $ 317,018 =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 UNITEDGLOBALCOM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (STATED IN THOUSANDS) (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 2000 1999 ----------- ----------- SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid for interest ................................. $ 283,943 $ 54,920 =========== ========= Cash received for interest ............................. $ 90,767 $ 17,470 =========== ========= Acquisition of K&T Group: Property, plant and equipment .......................... $ (227,845) $ -- Investments in affiliated companies .................... (8,430) -- Goodwill ............................................... (786,436) -- Long-term liabilities .................................. 225,439 -- Net current liabilities ................................ 8,129 -- Receivables acquired ................................... (216,904) -- ----------- --------- Net cash paid ....................................... $(1,006,047) $ -- =========== ========= Acquisition of 100% of @Entertainment: Net current assets ..................................... $ -- $ (51,239) Property, plant and equipment .......................... -- (196,178) Goodwill ............................................... -- (986,814) Long-term liabilities .................................. -- 448,566 Other .................................................. -- (21,335) ----------- --------- Total cash paid ..................................... -- (807,000) Cash acquired .......................................... -- 62,507 ----------- --------- Net cash paid ....................................... $ -- $(744,493) =========== ========= Acquisition of 100% of Stjarn: Property, plant and equipment .......................... $ -- $ (43,171) Goodwill ............................................... -- (442,094) Net current liabilities ................................ -- 55,997 Long-term liabilities .................................. -- 32,268 ----------- --------- Total purchase price ................................ -- (397,000) Seller's Note .......................................... -- 100,000 ----------- --------- Total cash paid ..................................... -- (297,000) Cash acquired .......................................... -- 3,792 ----------- --------- Net cash paid ....................................... $ -- $(293,208) =========== ========= Acquisition of remaining 49.0% of Dutch joint venture: Property, plant and equipment .......................... $ -- $(210,013) Investments in affiliated companies .................... -- (46,830) Goodwill ............................................... -- (256,749) Long-term liabilities .................................. -- 242,536 Net current liabilities ................................ -- 5,384 ----------- --------- Total cash paid ..................................... -- (265,672) Cash acquired .......................................... -- 13,629 ----------- --------- Net cash paid ....................................... $ -- $(252,043) =========== =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 7 UNITEDGLOBALCOM, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (STATED IN THOUSANDS) (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 2000 1999 ----------- ----------- Acquisition of remaining 50.0% of A2000: Receivables assumed ........................................... $ -- $ (13,062) Property, plant and equipment ................................. -- (96,539) Goodwill ...................................................... -- (274,361) Net current liabilities ....................................... -- 25,044 Long-term liabilities ......................................... -- 129,918 ----- --------- Total cash paid ............................................ -- (229,000) Cash acquired ................................................. -- 521 ----- --------- Net cash paid .............................................. $ -- $(228,479) ===== ========= Acquisition of remaining interest in VTR: Working capital ............................................... $ -- $ (10,671) Property, plant and equipment ................................. -- (203,200) Goodwill and other intangible assets .......................... -- (242,131) Other long-term assets ........................................ -- (14,971) Elimination of equity investment in Chilean joint venture ..... -- 68,517 Long-term liabilities ......................................... -- 144,277 ----- --------- Total cash paid ............................................ -- (258,179) Cash acquired ................................................. -- 5,498 ----- --------- Net cash paid .............................................. $ -- $(252,681) ===== ========= Acquisition of 100% of Gelrevision: Property, plant and equipment ................................. $ -- $ (49,407) Goodwill ...................................................... -- (67,335) Net current liabilities ....................................... -- 2,682 Long-term liabilities ......................................... -- 4,236 ----- --------- Total cash paid ............................................ -- (109,824) Cash acquired ................................................. -- 136 ----- --------- Net cash paid .............................................. $ -- $(109,688) ===== =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 8 UNITEDGLOBALCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2000 (UNAUDITED) 1. ORGANIZATION AND NATURE OF OPERATIONS UnitedGlobalCom, Inc. (together with its majority-owned subsidiaries, the "Company" or "United") was formed as a Delaware corporation in May 1989, for the purpose of developing, acquiring and managing foreign multi-channel television, programming and telephone operations outside the United States. The following chart presents a summary of the Company's significant investments in telecommunications as of September 30, 2000. UNITED 100% 100% UNITED EUROPE, INC. ("UEI") UNITED INTERNATIONAL PROPERTIES, INC. ("UIPI") 52.6% 100% 100% UNITED PAN-EUROPE COMMUNICATIONS N.V. UNITED ASIA/PACIFIC UNITED LATIN AMERICA, INC. ("UPC") COMMUNICATIONS, INC. ("ULA") ("UAP") * 72.3% DISTRIBUTION AUSTAR UNITED COMMUNICATIONS, LIMITED BRAZIL: AUSTRIA: ("AUSTAR UNITED") TV Show Brasil 100.0% Telekabel Group 95.0% Jundiai 46.3% BELGIUM: CHILE: UPC Belgium 100.0% AUSTRALIA: VTR 100.0% CZECH REPUBLIC: Austar 100.0% MEXICO: Kabel Net 100.0% Austar United Broadband 100.0% Megapo 90.3% Kabel Plus 99.9% XYZ Entertainment 50.0% PERU: FRANCE: NEW ZEALAND: Cable Star 100.0% UPC France (1) 92.0% Telstra Saturn 50.0% Uruguay: GERMANY: Enalur 100.0% PrimaCom 25.1% LATIN AMERICAN PROGRAMMING: HUNGARY: MGM Networks LA 50.0% UPC Magyarorszag 100.0% * OTHER UAP Monor 98.9% ISRAEL: CHINA: Tevel 46.6% Hunan International TV 49.0% MALTA: PHILIPPINES: Melita 50.0% Pilipino Cable Corporation 19.6% THE NETHERLANDS: UPC Nederland (2) 100.0% NORWAY: UPC Norge 100.0% ROMANIA: UPC Romania 51.0% - 70.0% SLOVAK REPUBLIC: UPC Slovak 95.0% - 100.0% SWEDEN: UPC Sweden 100.0% CHELLO BROADBAND 100.0% PRIORITY TELECOM SPAIN: Munditelecom 50.1% NORWAY: El Tele Ostfold 100.0% THE NETHERLANDS: Priority Telecom 100.0% MEDIA IRELAND: Tara 80.0% POLAND: UPC Polska 100.0% SPAIN: Iberian Programming Services 50.0% UNITED KINGDOM: Xtra Music 50.0% OTHER: SBS 23.5% THE NETHERLANDS: UPCtv 100.0%
(1) The investments in Mediareseaux, Videopole, Time Warner Cable France, RCF and Intercomm are held through UPC France. (2) The investments in GelreVision, A2000, Telekabel Velp, K&T Group, Tebecai and Haarlem are held through UPC Nederland. 9 UNITEDGLOBALCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The accompanying interim condensed consolidated financial statements are unaudited and include the accounts of the Company and all subsidiaries where it exercises a controlling financial interest through the ownership of a majority voting interest. The following illustrates those subsidiaries for which the Company did not consolidate the results of operations for the entire nine months ended September 30, 2000 and/or September 30, 1999:
EFFECTIVE DATE ENTITY OF CONSOLIDATION REASON ------ ---------------- ------ UTH (UPC Nederland) (1) February 1, 1999 Acquisition of remaining 49.0% interest VTR May 1, 1999 Acquisition of remaining 66.0% interest UPC Slovensko (UPC Slovak) June 1, 1999 Acquisition GelreVision (UPC Nederland) June 1, 1999 Acquisition RCF June 1, 1999 Acquisition Saturn (2) August 1, 1999 Acquisition of remaining 35.0% interest Stjarn (UPC Sweden) August 1, 1999 Acquisition Videopole (UPC France) August 1, 1999 Acquisition @Entertainment (UPC Polska) August 1, 1999 Acquisition Time Warner Cable France (UPC France) September 1, 1999 Acquisition A2000 (UPC Nederland) September 1, 1999 Acquisition of remaining 50.0% interest Kabel Plus October 1, 1999 Acquisition Monor December 1, 1999 Acquisition Intercomm (UPC France) March 1, 2000 Acquisition of 92.0% interest Tebecai (UPC Nederland) February 1, 2000 Acquisition El Tele Ostfold March 1, 2000 Acquisition K&T Group (UPC Nederland) March 31, 2000 Acquisition
-------------------- (1) Prior to the acquisition date, the equity method of accounting was used because of certain minority shareholder's rights. (2) Saturn was deconsolidated effective April 1, 2000 in connection with the formation of the 50/50 joint venture, Telstra Saturn. In management's opinion, all adjustments (of a normal recurring nature) have been made which are necessary to present fairly the financial position of the Company as of September 30, 2000, and the results of its operations for the three and nine months ended September 30, 2000 and 1999. All significant intercompany accounts and transactions have been eliminated in consolidation. For a more complete understanding of the Company's financial position and results of operations, see the consolidated financial statements of the Company included in the Company's annual report on Form 10-K for the year ended December 31, 1999. INVESTMENTS IN AFFILIATES, ACCOUNTED FOR UNDER THE EQUITY METHOD For those investments in unconsolidated subsidiaries and companies in which the Company's voting interest is 20.0% to 50.0%, its investments are held through a combination of voting common stock, preferred stock, debentures or convertible debt and/or the Company exerts significant influence through board representation and management authority, the equity method of accounting is used. Under this method, the investment, originally recorded at cost, is adjusted to recognize the Company's proportionate share of net earnings or losses of the affiliate, limited to the extent of the Company's investment in and advances to the affiliate, including any debt guarantees or other contractual funding commitments. The Company's proportionate share of net earnings or losses of affiliates includes the amortization of the excess of its cost over its proportionate interest in each affiliate's net assets. 10 UNITEDGLOBALCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARKETABLE EQUITY SECURITIES AND OTHER INVESTMENTS The cost method of accounting is used for the Company's other investments in affiliates in which the Company's ownership interest is less than 20.0% and where the Company does not exert significant influence, except for those investments in marketable equity securities. The Company classifies its investments in marketable equity securities in which its interest is less than 20.0% and where the Company does not exert significant influence as available-for-sale and reports such investments at fair market value. Unrealized gains and losses are charged or credited to equity, and realized gains and losses and other-than-temporary declines in market value are included in operations. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost. Additions, replacements, installation costs and major improvements are capitalized, and costs for normal repair and maintenance of property, plant and equipment are charged to expense as incurred. Assets constructed include overhead expense and interest charges incurred during the period of construction; investment subsidies are deducted. Upon disconnection of a subscriber, the remaining book value of the subscriber equipment, excluding converters which are recovered upon disconnection, and the capitalized labor are written off and accounted for as an operating cost. Depreciation is calculated using the straight-line method over the economic life of the asset. The economic lives of property, plant and equipment at acquisition are as follows: Cable distribution networks ...................... 3-20 years Subscriber premises equipment and converters ..... 3-10 years MMDS/DTH distribution facilities ................. 5-20 years Office equipment, furniture and fixtures ......... 3-10 years Buildings and leasehold improvements ............. 3-33 years Other ............................................ 3-10 years
GOODWILL AND OTHER INTANGIBLE ASSETS The excess of investments in consolidated subsidiaries over the net tangible asset value at acquisition is amortized on a straight-line basis over 15 years. Licenses in newly-acquired companies are recognized at the fair market value of those licenses at the date of acquisition. Licenses in new franchise areas include the capitalization of direct costs incurred in obtaining the license. The license value is amortized on a straight-line basis over the initial license period, up to a maximum of 20 years. DEFERRED FINANCING COSTS Costs to obtain debt financings are capitalized and amortized over the life of the debt facility using the effective interest method. SUBSCRIBER PREPAYMENTS AND DEPOSITS Payments received in advance for multi-channel television service are deferred and recognized as revenue when the associated services are provided. Deposits are recorded as a liability upon receipt and refunded to the subscriber upon disconnection. REVENUE RECOGNITION Revenue is primarily derived from the sale of multi-channel television, telephone and Internet/data services to subscribers and is recognized in the period the related services are provided. Initial installation fees are recognized as revenue in the period in which the installation occurs, to the extent installation fees are equal to or less than direct selling costs, which are expensed. To the extent installation fees exceed direct selling costs, the excess fees are deferred and amortized over the average contract period. All installation fees and related costs with respect to reconnections and disconnections are recognized in the period in which the reconnection or disconnection occurs because reconnection fees are charged at a level equal to or less than related reconnection costs. 11 UNITEDGLOBALCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) STAFF ACCOUNTING BULLETIN NO. 51 ("SAB 51") ACCOUNTING POLICY Gains realized as a result of stock sales by the Company's subsidiaries are recorded in the statement of operations, except for any transactions which must be credited directly to equity in accordance with the provisions of SAB 51. STOCK-BASED COMPENSATION Stock-based compensation is recognized using the intrinsic value method for the Company's stock option plans, which results in compensation expense for the difference between the grant price and the fair market value of vested options at each new measurement date. In addition to the Company's stock option plans, UPC, chello broadband, ULA, VTR and Austar United have also adopted stock-based compensation plans for their employees. With respect to these plans, the rights conveyed to employees are the substantive equivalents to stock appreciation rights. Accordingly, compensation expense is recognized at each financial statement date based on the difference between the grant price and the estimated fair value of the respective subsidiary's common stock. Subsequent decreases in the estimated fair value result in a credit to the statement of operations, until the options are exercised or expire. BASIC AND DILUTED NET (LOSS) INCOME PER SHARE "Basic net (loss) income per share" is determined by dividing net (loss) income available to common stockholders by the weighted-average number of common shares outstanding during each period. Net (loss) income available to common stockholders includes the accrual of dividends on convertible preferred stock which is charged directly to additional paid-in capital and/or accumulated deficit. "Diluted net (loss) income per share" includes the effects of potentially issuable common stock, but only if dilutive. On November 11, 1999, the Board of Directors authorized a two-for-one stock split effected in the form of a stock dividend distributed on November 30, 1999 to stockholders of record on November 22, 1999. All historical weighted average share and per share amounts have been restated to reflect the stock split. FOREIGN OPERATIONS AND FOREIGN EXCHANGE RATE RISK The functional currency for the Company's foreign operations is the applicable local currency for each affiliate company, except for countries which have experienced hyper-inflationary economies. For countries which have hyper-inflationary economies, the financial statements are prepared in U.S. dollars. Assets and liabilities of foreign subsidiaries for which the functional currency is the local currency are translated at exchange rates in effect at period-end, and the statements of operations are translated at the average exchange rates during the period. Exchange rate fluctuations on translating foreign currency financial statements into U.S. dollars that result in unrealized gains or losses are referred to as translation adjustments. Cumulative translation adjustments are recorded as a separate component of stockholders' equity and are included in Other Cumulative Comprehensive Loss. Transactions denominated in currencies other than the local currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and losses which are reflected in income as unrealized (based on period-end translations) or realized upon settlement of the transactions. Cash flows from the Company's operations in foreign countries are translated at the average rate for the period. As a result, amounts related to assets and liabilities reported in the consolidated statements of cash flows will not agree to changes in the corresponding balances in the consolidated balance sheets. The effects of exchange rate changes on cash balances held in foreign currencies are reported as a separate line below cash flows from financing activities. Certain of the Company's foreign operating companies have notes payable and notes receivable that are denominated in a currency other than their own functional currency. Accordingly, the Company may experience economic loss and a negative impact on earnings and equity with respect to its holdings solely as a result of foreign currency exchange rate fluctuations. NEW ACCOUNTING PRINCIPLES The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), which requires that companies recognize all derivatives as either assets or liabilities in the balance sheet at fair value. Under SFAS 133, accounting for changes in fair market value of a derivative depends on its intended use and designation. In June 1999, the FASB approved Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133 ("SFAS 137"). SFAS 137 amends the effective date of SFAS 133, which will now be effective for the Company's first quarter 2001. UPC has entered into cross-currency swaps related to $1.55 billion of dollar-denominated senior notes. Under SFAS 133 these cross-currency swaps will not qualify for hedge accounting, and therefore the cross-currency swaps, as well as the senior notes which they relate to, must be presented separately on the balance sheet. The senior notes must be revalued at spot rates based on the USD/euro exchange rate at each balance sheet date, with changes recorded as foreign exchange gains/losses in the statement of operations. The cross-currency swaps likewise must be marked to market at each balance sheet date with changes 12 UNITEDGLOBALCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) recorded in the statement of operations. If the Company were to implement SFAS 133 to cross-currency swaps in place at September 30, 2000, the impact for the nine months ended September 30, 2000 would be a gain of between $35.2 and $61.6 million. In addition to cross-currency swaps, UPC is also a party to a number of other derivative arrangements, primarily through call arrangements embedded in its outstanding senior notes. These calls are embedded derivatives under SFAS 133 and for purposes of implementing SFAS 133 will need to be bifurcated and accounted for separate and apart from the underlying debt. The impact of adopting SFAS 133 on these embedded derivatives is still being evaluated. In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"), which provides interpretive guidance on the recognition, presentation and disclosure of revenue in financial statements. Implementation of SAB 101 is required for the fourth quarter of 2000. The Company has assessed the effect of this new standard and does not expect it will have a material effect on its financial position or results of operations. 13 UNITEDGLOBALCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENTS IN AFFILIATES, ACCOUNTED FOR UNDER THE EQUITY METHOD
AS OF SEPTEMBER 30, 2000 -------------------------------------------------------------------------------------------- CUMULATIVE CUMULATIVE INVESTMENTS IN DIVIDENDS SHARE IN RESULTS TRANSLATION AFFILIATES RECEIVED OF AFFILIATES ADJUSTMENTS TOTAL -------------- ---------- -------------- ----------- ---------- Europe: (IN THOUSANDS) SBS ............................. $ 264,675 $ -- $ (26,069) $ 5,302 $ 243,908 Tevel ........................... 99,385 (6,180) (32,595) 5,122 65,732 Melita .......................... 14,062 -- 1,324 (3,760) 11,626 Iberian Programming ............. 11,947 (2,560) 4,677 1,430 15,494 Xtra Music ...................... 14,491 -- (5,587) (754) 8,150 PrimaCom ........................ 341,017 -- (17,669) (36,352) 286,996 Other ........................... 39,553 (2,060) (3,315) (8,017) 26,161 Asia/Pacific: XYZ Entertainment ............... 44,306 (3,197) (13,206) (2,515) 25,388 Telstra Saturn .................. 66,624 -- (14,257) (6,116) 46,251 Pilipino Cable Corporation ...... 17,170 -- (3,130) (2,588) 11,452 Hunan International TV .......... 6,061 -- (2,133) 16 3,944 Other ........................... 2,879 -- (120) (454) 2,305 Latin America: Megapo .......................... 75,420 (20,862) (3,184) (9,193) 42,181 MGM Networks LA (1) ............. 13,774 -- (13,774) -- -- Jundiai ......................... 6,032 (1,572) 221 (1,430) 3,251 ---------- ---------- ---------- ---------- ---------- Total ......................... $1,017,396 $ (36,431) $ (128,817) $ (59,309) $ 792,839 ========== ========== ========== ========== ==========
AS OF DECEMBER 31, 1999 ---------------------------------------------------------------------- CUMULATIVE CUMULATIVE INVESTMENTS IN DIVIDENDS SHARE IN RESULTS TRANSLATION AFFILIATES RECEIVED OF AFFILIATES ADJUSTMENTS TOTAL -------------- --------- ---------------- ----------- -------- (IN THOUSANDS) Europe: SBS .......................... $ 99,621 $ -- $ (5,421) $ 2,858 $ 97,058 Tevel ........................ 100,679 (6,180) (12,108) 3,761 86,152 Melita ....................... 14,062 -- 2,066 (2,417) 13,711 Iberian Programming .......... 11,947 -- (460) 2,828 14,315 Xtra Music ................... 9,913 -- (2,476) (640) 6,797 Other ........................ 27,447 -- (65) (1,048) 26,334 Asia/Pacific: XYZ Entertainment ............ 44,306 -- (18,564) 2,804 28,546 Pilipino Cable Corporation ... 14,950 -- (3,004) (2,588) 9,358 Hunan International TV ....... 6,061 -- (2,477) 16 3,600 Other ........................ 350 -- -- -- 350 Latin America: Megapo ....................... 32,496 (1,408) (1,618) (9,382) 20,088 MGM Networks LA (1) .......... 11,988 -- (11,988) -- -- Jundiai ...................... 6,032 (1,572) 72 (1,334) 3,198 Other ........................ 2 -- -- -- 2 -------- -------- -------- -------- -------- Total ..................... $379,854 $ (9,160) $(56,043) $ (5,142) $309,509 ======== ======== ======== ======== ========
(1) Includes an accrued funding obligation of $2.8 and $3.0 million at September 30, 2000 and December 31, 1999, respectively. The Company would face significant and punitive dilution if it did not make the requested fundings. 14 UNITEDGLOBALCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. PROPERTY, PLANT AND EQUIPMENT
AS OF AS OF SEPTEMBER 30, DECEMBER 31, 2000 1999 ----------- ----------- (IN THOUSANDS) Cable distribution networks ...................... $ 2,508,055 $ 1,826,781 Subscriber premises equipment and converters ..... 581,598 451,505 MMDS/DTH distribution facilities ................. 210,177 144,593 Office equipment, furniture and fixtures ......... 211,484 103,869 Buildings and leasehold improvements ............. 109,859 162,522 Other ............................................ 92,625 173,091 ----------- ----------- 3,713,798 2,862,361 Accumulated depreciation ....................... (752,111) (482,524) ----------- ----------- Net property, plant and equipment .............. $ 2,961,687 $ 2,379,837 =========== ===========
5. GOODWILL AND OTHER INTANGIBLE ASSETS
AS OF AS OF SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------ ----------- Europe: (IN THOUSANDS) UPC Nederland .............................. $ 1,464,669 $ 763,714 UPC Polska ................................. 890,618 935,867 UPC Sweden ................................. 378,101 430,606 UPC N.V .................................... 184,495 29,406 Telekabel Group ............................ 158,244 177,800 UPC France ................................. 153,022 117,787 UPC Magyarorszag ........................... 106,720 55,068 Kabel Plus ................................. 99,077 85,330 Priority Telecom ........................... 94,554 -- UPC Norge .................................. 68,693 85,405 El Tele Ostfold ............................ 24,374 -- Monor ...................................... 19,820 24,420 UPC Belgium ................................ 19,748 20,994 UPC Slovak ................................. 19,494 23,026 Other ...................................... 66,159 12,932 Asia/Pacific: Austar United .............................. 93,357 114,882 Latin America: VTR ........................................ 213,261 223,484 TV Show Brasil ............................. 8,129 8,298 Cable Star ................................. 7,138 5,916 Enalur ..................................... 509 -- ----------- ----------- 4,070,182 3,114,935 Accumulated amortization ................... (350,516) (170,133) ----------- ----------- Net goodwill and other intangible assets ... $ 3,719,666 $ 2,944,802 =========== ===========
6. SHORT-TERM DEBT
AS OF AS OF SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------ ------------ (IN THOUSANDS) UPC facilities ............... $732,017 $164,263 Other ULA and UAP ............ 5,383 9,033 -------- -------- Total short-term debt ...... $737,400 $173,296 ======== ========
15 UNITEDGLOBALCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. SENIOR DISCOUNT NOTES AND SENIOR NOTES
AS OF AS OF SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------ ------------ (IN THOUSANDS) United 1998 Notes ..................................... $1,072,571 $ 991,568 United 1999 Notes ..................................... 242,948 224,426 UPC Senior Notes July 1999 Offering: UPC 10.875% USD Senior Notes due 2009 ............... 663,838 759,442 UPC 10.875% Euro Senior Notes due 2009 .............. 263,875 301,878 UPC 12.5% USD Senior Discount Notes due 2009 ........ 461,953 421,747 UPC Senior Notes October 1999 Offering: UPC 10.875% USD Senior Notes due 2007 ............... 167,700 191,852 UPC 10.875% Euro Senior Notes due 2007 .............. 87,958 100,625 UPC 11.25% USD Senior Notes due 2009 ................ 209,612 239,905 UPC 11.25% Euro Senior Notes due 2009 ............... 88,242 100,894 UPC 13.375% USD Senior Discount Notes due 2009 ...... 281,807 255,786 UPC 13.375% Euro Senior Discount Notes due 2009 ..... 99,049 102,847 UPC Senior Notes January 2000 Offering: UPC 11.25% USD Senior Notes due 2010 ................ 595,971 -- UPC 11.25% Euro Senior Notes due 2010 ............... 174,692 -- UPC 11.5% USD Senior Notes due 2010 ................. 259,193 -- UPC 13.75% Senior Discount Notes due 2010 ........... 562,334 -- @Entertainment Senior Discount Notes .................. 290,403 286,089 United A/P Notes ...................................... 451,268 407,945 ---------- ---------- Total senior discount notes and senior notes ...... $5,973,414 $4,385,004 ========== ==========
8. OTHER LONG-TERM DEBT
AS OF AS OF SEPTEMBER 30, DECEMBER 31, 2000 1999 ----------- ----------- (IN THOUSANDS) UPC Senior Credit Facility ........ $ 561,946 $ 359,720 UPC Nederland Facilities .......... 319,504 588,310 UPC France Facilities ............. 185,688 146,157 Other UPC ......................... 55,930 123,199 VTR Bank Facility ................. 176,000 176,000 New Austar Bank Facility .......... 217,096 202,703 Other UAP ......................... 2,437 59,948 Other ULA ......................... 557 594 ----------- ----------- 1,519,158 1,656,631 Less current portion .......... (185,701) (52,180) ----------- ----------- Total other long-term debt .... $ 1,333,457 $ 1,604,451 =========== ===========
16 UNITEDGLOBALCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. STOCKHOLDERS' EQUITY COMMON STOCK In April 1993, the Company adopted a Restated Certificate of Incorporation pursuant to which the Company authorized the issuance of two classes of common stock, Class A Common Stock and Class B Common Stock. Each share of Class A Common Stock is entitled to one vote per share while each share of Class B Common Stock is entitled to ten votes per share. Each share of Class B Common Stock is convertible at any time at the option of the holder into one share of Class A Common Stock. The two classes of common stock are identical in all other respects. COMMON STOCK SPLIT On November 11, 1999, the Board of Directors authorized a two-for-one stock split effected in the form of a stock dividend distributed on November 30, 1999, to shareholders of record on November 22, 1999. The effect of the stock split has been recognized retroactively in all share and per share amounts in the accompanying condensed consolidated financial statements and notes. EQUITY TRANSACTIONS OF SUBSIDIARIES The issuance of warrants, the issuance of convertible debt with an equity component, variable plan accounting for stock options and the recognition of deferred compensation expense by the Company's subsidiaries affects the equity accounts of the Company. The following represents the effect on additional paid-in capital and deferred compensation as a result of these equity transactions:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 ------------------------------------------- AUSTAR UPC UNITED TOTAL -------- -------- -------- (IN THOUSANDS) Variable plan accounting for stock options .. $ 32,683 $ -- $ 32,683 Deferred compensation expense ............... (32,683) -- (32,683) Amortization of deferred compensation ....... (12,252) 4,909 (7,343) Issuance of warrants by UPC ................. 59,912 -- 59,912 Issuance of shares by subsidiary of UPC ..... 27,513 -- 27,513 -------- -------- -------- Total .................................... $ 75,173 $ 4,909 $ 80,082 ======== ======== ========
OTHER CUMULATIVE COMPREHENSIVE LOSS
AS OF AS OF SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------ ------------ (IN THOUSANDS) Foreign currency translation adjustments ............ $(314,317) $(217,942) Unrealized gain on available-for-sale securities .... (4,194) 6,704 --------- --------- Total ............................................ $(318,511) $(211,238) ========= =========
17 UNITEDGLOBALCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. BASIC AND DILUTED NET (LOSS) INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- BASIC: (IN THOUSANDS) (IN THOUSANDS) Net (loss) income .................................................. $(353,937) $ 61,993 $(884,841) $ 603,856 Accrual of dividends on Series A Convertible Preferred Stock ....... -- (6) -- (220) Accrual of dividends on Series B Convertible Preferred Stock ....... (444) (479) (1,319) (1,469) Accrual of dividends on Series C Convertible Preferred Stock ....... (7,438) (7,437) (22,313) (7,437) Accrual of dividends on Series D Convertible Preferred Stock ....... (5,032) -- (15,094) -- --------- --------- --------- --------- Basic net (loss) income attributable to common shareholders ...... (366,851) 54,071 (923,567) 594,730 --------- --------- --------- --------- DILUTED: Accrual of dividends on Series A Convertible Preferred Stock ....... -- 6 -- 220 Accrual of dividends on Series B Convertible Preferred Stock ....... -- (1) 479 -- (1) 1,469 Accrual of dividends on Series C Convertible Preferred Stock ....... -- (1) -- (1) -- (1) 7,437 Accrual of dividends on Series D Convertible Preferred Stock ....... -- (1) -- -- (1) -- --------- --------- --------- --------- Diluted net (loss) income attributable to common shareholders .... $(366,851) $ 54,556 $(923,567) $ 603,856 ========= ========= ========= =========
------------------ (1) Excluded from the calculation of diluted net (loss) income attributable to common shareholders because the effect would be anti-dilutive. 18 UNITEDGLOBALCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. SEGMENT INFORMATION
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 ---------------------------------------------------------------------------------------- INTERNET/ VIDEO TELEPHONE DATA PROGRAMMING OTHER TOTAL --------- --------- --------- ----------- --------- --------- REVENUE: (IN THOUSANDS) Europe: The Netherlands ......... $ 52,090 $ 29,509 $ 10,414 $ 1,685 $ 210 $ 93,908 Austria ................. 19,104 7,678 6,545 -- -- 33,327 Belgium ................. 3,894 357 1,115 -- -- 5,366 Czech Republic .......... 6,018 234 86 -- 526 6,864 France .................. 13,118 2,282 625 -- -- 16,025 Hungary ................. 10,818 5,034 98 168 3 16,121 Norway .................. 11,035 915 736 -- -- 12,686 Poland .................. 17,003 -- -- 14,570 -- 31,573 Sweden .................. 7,423 57 1,563 -- -- 9,043 Corporate and Other ..... 7,403 -- -- 37 1,104 8,544 --------- --------- --------- --------- --------- --------- Total Europe .......... 147,906 46,066 21,182 16,460 1,843 233,457 --------- --------- --------- --------- --------- --------- Asia/Pacific: Australia ............... 41,859 -- 1,225 -- 829 43,913 Corporate and Other ..... -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- Total Asia/Pacific .... 41,859 -- 1,225 -- 829 43,913 --------- --------- --------- --------- --------- --------- Latin America: Chile ................... 27,534 9,157 269 -- -- 36,960 Brazil .................. 1,333 -- -- -- -- 1,333 Corporate and Other ..... 463 -- -- -- 1 464 --------- --------- --------- --------- --------- --------- Total Latin America ... 29,330 9,157 269 -- 1 38,757 --------- --------- --------- --------- --------- --------- Corporate & Other .......... -- -- -- -- 26 26 --------- --------- --------- --------- --------- --------- Total Company ......... $ 219,095 $ 55,223 $ 22,676 $ 16,460 $ 2,699 $ 316,153 ========= ========= ========= ========= ========= ========= ADJUSTED EBITDA: (1) Europe: The Netherlands ......... $ 25,725 $ (21,105) $ (37,897) $ (14,034) $ (4,079) $ (51,390) Austria ................. 9,389 (1,167) 464 -- -- 8,686 Belgium ................. 1,140 87 (1,573) -- -- (346) Czech Republic .......... 640 11 55 (3,881) 227 (2,948) France .................. 3,485 (5,693) (2,252) -- 7 (4,453) Hungary ................. 3,656 2,791 (545) (3,129) 3 2,776 Norway .................. 4,234 (2,492) (576) -- (96) 1,070 Poland .................. 362 -- (269) (11,170) (161) (11,238) Sweden .................. 2,496 (925) (1,616) -- (90) (135) Corporate and Other ..... 4,011 (591) 1,792 (311) (33,464) (28,563) --------- --------- --------- --------- --------- --------- Total Europe .......... 55,138 (29,084) (42,417) (32,525) (37,653) (86,541) --------- --------- --------- --------- --------- --------- Asia/Pacific: Australia ............... 608 (777) (12,829) -- 611 (12,387) New Zealand ............. -- -- -- -- -- -- Corporate and Other ..... -- -- -- -- 678 678 --------- --------- --------- --------- --------- --------- Total Asia/Pacific .... 608 (777) (12,829) -- 1,289 (11,709) --------- --------- --------- --------- --------- --------- Latin America: Chile ................... 9,439 (2,842) (1,299) -- (2,416) 2,882 Brazil .................. 82 -- -- -- -- 82 Corporate and Other ..... (265) -- -- -- 984 719 --------- --------- --------- --------- --------- --------- Total Latin America ... 9,256 (2,842) (1,299) -- (1,432) 3,683 --------- --------- --------- --------- --------- --------- Corporate & Other .......... -- -- -- -- (3,372) (3,372) --------- --------- --------- --------- --------- --------- Total Company ......... $ 65,002 $ (32,703) $ (56,545) $ (32,525) $ (41,168) $ (97,939) ========= ========= ========= ========= ========= =========
19 UNITEDGLOBALCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 ---------------------------------------------------------------------------------------- INTERNET/ VIDEO TELEPHONE DATA PROGRAMMING OTHER TOTAL --------- --------- --------- ----------- --------- --------- REVENUE: (IN THOUSANDS) Europe: The Netherlands ......... $ 148,119 $ 71,861 $ 24,048 $ 2,830 $ 549 $ 247,407 Austria ................. 58,719 22,021 18,091 -- -- 98,831 Belgium ................. 11,260 958 2,935 -- -- 15,153 Czech Republic .......... 17,854 713 86 -- 2,235 20,888 France .................. 41,078 6,304 1,630 -- -- 49,012 Hungary ................. 33,182 15,242 220 168 10 48,822 Norway .................. 34,451 2,112 1,671 -- -- 38,234 Poland .................. 51,235 -- -- 37,420 -- 88,655 Sweden .................. 23,277 275 3,879 -- -- 27,431 Corporate and Other ..... 15,066 1,391 -- 37 1,969 18,463 --------- --------- --------- --------- --------- --------- Total Europe .......... 434,241 120,877 52,560 40,455 4,763 652,896 --------- --------- --------- --------- --------- --------- Asia/Pacific: Australia ............... 124,396 -- 1,654 -- 1,866 127,916 New Zealand ............. 844 3,166 878 -- -- 4,888 Corporate and Other ..... -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- Total Asia/Pacific .... 125,240 3,166 2,532 -- 1,866 132,804 --------- --------- --------- --------- --------- --------- Latin America: Chile ................... 85,722 22,970 511 -- -- 109,203 Brazil .................. 4,062 -- -- -- -- 4,062 Corporate and Other ..... 1,512 -- -- -- 5 1,517 --------- --------- --------- --------- --------- --------- Total Latin America ... 91,296 22,970 511 -- 5 114,782 --------- --------- --------- --------- --------- --------- Corporate & Other .......... -- -- -- -- 78 78 --------- --------- --------- --------- --------- --------- Total Company ......... $ 650,777 $ 147,013 $ 55,603 $ 40,455 $ 6,712 $ 900,560 ========= ========= ========= ========= ========= ========= ADJUSTED EBITDA: (1) Europe: The Netherlands ......... $ 73,222 $ (54,316) $(107,455) $ (33,510) $ (9,647) (131,706) Austria ................. 30,692 (4,442) 955 -- -- 27,205 Belgium ................. 3,972 (159) (3,999) -- -- (186) Czech Republic .......... 2,804 45 57 (4,073) 828 (339) France .................. 9,891 (14,851) (6,150) -- (284) (11,394) Hungary ................. 11,127 8,381 (2,563) (3,319) 9 13,635 Norway .................. 13,131 (8,419) (2,290) -- (219) 2,203 Poland .................. 1,788 -- (279) (42,429) (1,292) (42,212) Sweden .................. 8,706 (2,632) (5,904) -- (93) 77 Corporate and Other ..... 7,064 (1,490) (1,510) (565) (75,069) (71,570) --------- --------- --------- --------- --------- --------- Total Europe .......... 162,397 (77,883) (129,138) (83,896) (85,767) (214,287) --------- --------- --------- --------- --------- --------- Asia/Pacific: Australia ............... 3,830 (903) (23,190) -- (949) (21,212) New Zealand ............. (253) (357) 248 -- (1,344) (1,706) Corporate and Other ..... -- -- -- -- 1,626 1,626 --------- --------- --------- --------- --------- --------- Total Asia/Pacific .... 3,577 (1,260) (22,942) -- (667) (21,292) --------- --------- --------- --------- --------- --------- Latin America: Chile ................... 29,326 (8,534) (2,228) -- (6,944) 11,620 Brazil .................. (68) -- -- -- -- (68) Corporate and Other ..... (672) -- -- -- 2,950 2,278 --------- --------- --------- --------- --------- --------- Total Latin America ... 28,586 (8,534) (2,228) -- (3,994) 13,830 --------- --------- --------- --------- --------- --------- Corporate & Other .......... -- -- -- -- (10,063) (10,063) --------- --------- --------- --------- --------- --------- Total Company ......... $ 194,560 $ (87,677) $(154,308) $ (83,896) $(100,491) $(231,812) ========= ========= ========= ========= ========= =========
20 UNITEDGLOBALCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 ---------------------------------------------------------------------------------------- INTERNET/ VIDEO TELEPHONE DATA PROGRAMMING OTHER TOTAL --------- --------- --------- ----------- --------- --------- REVENUE: (IN THOUSANDS) Europe: The Netherlands ......... $ 32,024 $ 7,439 $ 2,010 $ 40 $ 74 $ 41,587 Austria ................. 20,868 2,128 3,720 -- -- 26,716 Belgium ................. 3,735 -- 608 -- -- 4,343 Czech Republic .......... 1,313 -- -- -- -- 1,313 France .................. 9,970 795 182 -- -- 10,947 Hungary ................. 8,783 -- 21 -- -- 8,804 Norway .................. 12,334 95 132 -- -- 12,561 Poland .................. 10,532 -- -- 3,997 -- 14,529 Sweden .................. 5,067 -- 145 -- -- 5,212 Corporate and Other ..... 2,307 -- -- 188 3,184 5,679 --------- --------- --------- --------- --------- --------- Total Europe .......... 106,933 10,457 6,818 4,225 3,258 131,691 --------- --------- --------- --------- --------- --------- Asia/Pacific: Australia ............... 39,596 -- -- -- -- 39,596 New Zealand ............. 350 1,569 230 -- -- 2,149 Corporate and Other ..... -- -- -- -- (508) (508) --------- --------- --------- --------- --------- --------- Total Asia/Pacific .... 39,946 1,569 230 -- (508) 41,237 --------- --------- --------- --------- --------- --------- Latin America: Chile ................... 27,811 3,902 32 -- -- 31,745 Brazil .................. 1,182 -- -- -- -- 1,182 Corporate and Other ..... 406 -- -- -- 222 628 --------- --------- --------- --------- --------- --------- Total Latin America ... 29,399 3,902 32 -- 222 33,555 --------- --------- --------- --------- --------- --------- Corporate & Other .......... -- -- -- -- 249 249 --------- --------- --------- --------- --------- --------- Total Company ......... $ 176,278 $ 15,928 $ 7,080 $ 4,225 $ 3,221 $ 206,732 ========= ========= ========= ========= ========= ========= ADJUSTED EBITDA: (1) Europe: The Netherlands ......... $ 14,223 $ (4,759) $ (20,821) $ (2,860) $ 764 $ (13,453) Austria ................. 11,683 (2,001) 361 -- -- 10,043 Belgium ................. 1,177 (3) (452) -- -- 722 Czech Republic .......... (75) -- -- -- -- (75) France .................. 3,112 (1,187) (479) -- (1,366) 80 Hungary ................. 3,299 -- (8) -- -- 3,291 Norway .................. 5,102 (2,031) (1,407) -- -- 1,664 Poland .................. (980) -- -- (13,594) (1,741) (16,315) Sweden .................. 2,710 (27) (1,006) -- -- 1,677 Corporate and Other ..... 907 12 57 (1,020) (13,456) (13,500) --------- --------- --------- --------- --------- --------- Total Europe .......... 41,158 (9,996) (23,755) (17,474) (15,799) (25,866) --------- --------- --------- --------- --------- --------- Asia/Pacific: Australia ............... 814 -- -- -- (111) 703 New Zealand ............. (562) (246) (24) -- -- (832) Corporate and Other ..... -- -- -- -- (1,582) (1,582) --------- --------- --------- --------- --------- --------- Total Asia/Pacific .... 252 (246) (24) -- (1,693) (1,711) --------- --------- --------- --------- --------- --------- Latin America: Chile ................... 7,542 2,321 -- -- (2,168) 7,695 Brazil .................. (216) -- -- -- (46) (262) Corporate and Other ..... (336) -- -- -- (1,723) (2,059) --------- --------- --------- --------- --------- --------- Total Latin America ... 6,990 2,321 -- -- (3,937) 5,374 --------- --------- --------- --------- --------- --------- Corporate & Other .......... -- -- -- -- (253) (253) --------- --------- --------- --------- --------- --------- Total Company ......... $ 48,400 $ (7,921) $ (23,779) $ (17,474) $ (21,682) $ (22,456) ========= ========= ========= ========= ========= =========
21 UNITEDGLOBALCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMER 30, 1999 ---------------------------------------------------------------------------------------- INTERNET/ VIDEO TELEPHONE DATA PROGRAMMING OTHER TOTAL --------- --------- --------- ----------- --------- --------- REVENUE: (IN THOUSANDS) Europe: The Netherlands ......... $ 74,637 $ 17,135 $ 3,236 $ 52 $ 74 $ 95,134 Austria ................. 63,674 3,241 8,859 -- -- 75,774 Belgium ................. 11,724 -- 1,620 -- -- 13,344 Czech Republic .......... 3,641 -- -- -- -- 3,641 France .................. 13,037 1,143 318 -- -- 14,498 Hungary ................. 26,041 -- 71 -- -- 26,112 Norway .................. 36,703 128 327 -- -- 37,158 Poland .................. 10,532 -- -- 3,997 -- 14,529 Sweden .................. 5,067 -- 145 -- -- 5,212 Corporate and Other ..... 4,611 -- -- 1,341 4,071 10,023 --------- --------- --------- --------- --------- --------- Total Europe .......... 249,667 21,647 14,576 5,390 4,145 295,425 --------- --------- --------- --------- --------- --------- Asia/Pacific: Australia ............... 104,416 -- -- -- -- 104,416 New Zealand ............. 350 1,569 230 -- -- 2,149 Corporate and Other ..... -- -- -- -- 313 313 --------- --------- --------- --------- --------- --------- Total Asia/Pacific .... 104,766 1,569 230 -- 313 106,878 --------- --------- --------- --------- --------- --------- Latin America: Chile ................... 46,717 6,010 32 -- -- 52,759 Brazil .................. 3,290 -- -- -- -- 3,290 Corporate and Other ..... 1,823 -- -- -- 222 2,045 --------- --------- --------- --------- --------- --------- Total Latin America ... 51,830 6,010 32 -- 222 58,094 --------- --------- --------- --------- --------- --------- Corporate & Other .......... -- -- -- -- 249 249 --------- --------- --------- --------- --------- --------- Total Company ......... $ 406,263 $ 29,226 $ 14,838 $ 5,390 $ 4,929 $ 460,646 ========= ========= ========= ========= ========= ========= ADJUSTED EBITDA: (1) Europe: The Netherlands ......... $ 35,265 $ (8,360) $ (41,648) $ (5,926) $ 445 $ (20,224) Austria ................. 35,146 (7,131) 214 -- -- 28,229 Belgium ................. 3,673 (3) (1,594) -- -- 2,076 Czech Republic .......... (350) -- -- -- -- (350) France .................. 2,997 (3,484) (1,379) -- (1,389) (3,255) Hungary ................. 8,817 -- (21) -- -- 8,796 Norway .................. 15,801 (4,741) (3,555) -- -- 7,505 Poland .................. (996) -- -- (13,819) (1,769) (16,584) Sweden .................. 2,755 (27) (1,023) -- -- 1,705 Corporate and Other ..... 1,583 13 (28) (3,436) (23,841) (25,709) --------- --------- --------- --------- --------- --------- Total Europe .......... 104,691 (23,733) (49,034) (23,181) (26,554) (17,811) --------- --------- --------- --------- --------- --------- Asia/Pacific: Australia ............... (627) -- -- -- (3,636) (4,263) New Zealand ............. (562) (246) (24) -- -- (832) Corporate and Other ..... -- -- -- -- 196 196 --------- --------- --------- --------- --------- --------- Total Asia/Pacific .... (1,189) (246) (24) -- (3,440) (4,899) --------- --------- --------- --------- --------- --------- Latin America: Chile ................... 11,941 2,972 -- -- (3,192) 11,721 Brazil .................. (1,617) -- -- -- (46) (1,663) Corporate and Other ..... (562) -- -- -- (4,496) (5,058) --------- --------- --------- --------- --------- --------- Total Latin America ... 9,762 2,972 -- -- (7,734) 5,000 --------- --------- --------- --------- --------- --------- Corporate & Other .......... -- -- -- -- (209) (209) --------- --------- --------- --------- --------- --------- Total Company ......... $ 113,264 $ (21,007) $ (49,058) $ (23,181) $ (37,937) $ (17,919) ========= ========= ========= ========= ========= =========
22 UNITEDGLOBALCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TOTAL ASSETS AS OF ------------------------------- SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------ ------------ Europe: (IN THOUSANDS) The Netherlands ......... $2,649,563 $3,157,285 Austria ................. 384,799 356,337 Belgium ................. 42,194 47,826 Czech Republic .......... 186,066 159,806 France .................. 691,615 498,776 Hungary ................. 310,129 215,448 Norway .................. 254,832 244,975 Poland .................. 1,147,975 1,218,956 Sweden .................. 411,165 474,899 Corporate and Other ..... 1,447,275 77,219 ---------- ---------- Total Europe .......... 7,525,613 6,451,527 ---------- ---------- Asia/Pacific: Australia ............... 508,900 563,627 Corporate and Other ..... 54,964 128,580 ---------- ---------- Total Asia/Pacific .... 563,864 692,207 ---------- ---------- Latin America: Chile ................... 516,728 489,638 Brazil .................. 17,491 17,172 Corporate and Other ..... 68,464 71,379 ---------- ---------- Total Latin America ... 602,683 578,189 ---------- ---------- Corporate & Other ............ 1,022,219 1,280,930 ---------- ---------- Total Company ......... $9,714,379 $9,002,853 ========== ==========
------------------- (1) "Adjusted EBITDA" represents net operating earnings before depreciation, amortization and stock-based compensation charges. Stock-based compensation charges result from variable plan accounting for our subsidiaries' phantom stock option plans and are generally non-cash charges. Industry analysts generally consider Adjusted EBITDA to be a helpful way to measure the performance of cable television operations and communications companies. Adjusted EBITDA should not, however, be considered a replacement for net income, cash flows or for any other measure of performance or liquidity under generally accepted accounting principles, or as an indicator of a company's operating performance. Our presentation of Adjusted EBITDA may not be comparable to statistics with a similar name reported by other companies. Not all companies and analysts calculate Adjusted EBITDA in the same manner. The Company's consolidated Adjusted EBITDA reconciles to the consolidated statement of operations as follows:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- --------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- (IN THOUSANDS) (IN THOUSANDS) Operating loss ....................... $(305,184) $(155,105) $(797,148) $(349,996) Depreciation and amortization ........ 207,519 127,298 566,296 260,375 Stock-based compensation expense ..... (274) 5,351 (960) 71,702 --------- --------- --------- --------- Consolidated Adjusted EBITDA ...... $ (97,939) $ (22,456) $(231,812) $ (17,919) ========= ========= ========= =========
23 UNITEDGLOBALCOM, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. SUBSEQUENT EVENTS UPC BANK FACILITY In October 2000, UPC closed a Euro4.0 ($3.5) billion operating and term loan facility with a group of banks (the "UPC Bank Facility"). The UPC Bank Facility is guaranteed by existing cable operating companies, excluding Polish and German assets. The UPC Bank Facility bears interest at EURIBOR +0.75% - 4.0% depending on certain ratios, and UPC pays an annual commitment fee of 0.5% over the undrawn amount. The UPC Bank Facility refinanced existing operating company bank debt totaling Euro2.0 billion and will finance further digital rollout and triple play by UPC's existing cable companies excluding Polish and German operations. Beginning in 2004, the available amount will decrease until final maturity in 2009. EWT/TSS GROUP ACQUISITION In October 2000, UPC acquired EWT/TSS Group for Euro238.4 ($209.7) million in cash and a 49.0% interest in UPC Germany. The cash portion was funded with a draw on the UPC Senior Credit Facility. 24 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. These forward-looking statements may include, among other things, statements concerning our plans, objectives and future economic prospects, expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from what we say or imply with such forward-looking statements. These factors include, among other things, changes in television viewing preferences and habits by our subscribers and potential subscribers, their acceptance of new technology, programming alternatives and new video services we may offer. They also include subscribers' acceptance of our newer telephone and Internet/data services, our ability to manage and grow our newer telephone and Internet/data services, our ability to secure adequate capital to fund other system growth and development and our planned acquisitions, our ability to successfully close proposed transactions, risks inherent in investment and operations in foreign countries, changes in government regulation and changes in the nature of key strategic relationships with joint ventures. We and our subsidiaries have announced many potential acquisitions, many of which are subject to various conditions, some of which may not occur. These forward-looking statements apply only as of the time of this report, and we have no obligation or plans to provide updates or revisions to these forward-looking statements or any other changes in events, conditions or circumstances on which these statements are based. The following discussion and analysis of financial condition and results of operations covers the three and nine months ended September 30, 2000 and 1999, and should be read together with our consolidated financial statements and related notes included elsewhere herein. These consolidated financial statements provide additional information regarding our financial activities and condition. SUMMARY OPERATING DATA The following comparative operating data reflects video subscribers, telephone lines, programming and data subscribers, as well as selected financial statistics of the operating systems in which we had an ownership interest as of September 30, 2000. In addition, the following proportionate data represents certain operating and financial results for us, multiplied by our applicable ownership percentage. 25 GROSS OPERATING SYSTEM DATA
AS OF SEPTEMBER 30, 2000 ---------------------------------------------------------------------------------- HOMES IN TWO-WAY BASIC UNITED SYSTEM SERVICE HOMES HOMES SUBSCRIBERS/ BASIC OWNERSHIP OWNERSHIP AREA PASSED PASSED LINES PENETRATION ----------- --------- --------- --------- -------- ------------ ----------- UPC (EUROPE) VIDEO SUBSCRIBERS: The Netherlands ....... 52.6% 100.0% 2,552,120 2,440,632 1,963,202 2,257,508 92.5% Poland ................ 52.6% 100.0% 1,950,000 1,811,297 84,000 1,425,720 78.7% Germany ............... 13.2% 25.1% 1,422,826 1,422,826 30,456 919,641 64.6% Hungary (UPC Magyarorszag) ....... 52.6% 100.0% 915,500 753,739 164,912 580,536 77.0% Austria ............... 50.0% 95.0% 1,080,960 913,750 904,310 474,029 51.9% Israel ................ 24.5% 46.6% 660,000 631,420 393,187 447,092 70.8% France ................ 48.4% 92.0% 2,518,283 1,124,583 343,746 382,133 34.0% Czech Republic ........ 52.6% 100.0% 894,320 775,167 72,000 409,727 52.9% Norway ................ 52.6% 100.0% 529,000 473,740 99,466 331,370 69.9% Slovak Republic ....... 50.0-52.6% 95.0-100.0% 417,813 296,529 -- 245,320 82.7% Sweden ................ 52.6% 100.0% 770,000 424,624 230,851 250,489 59.0% Belgium ............... 52.6% 100.0% 530,000 152,052 152,052 123,973 81.5% Romania ............... 26.8-36.8% 51.0-70.0% 668,519 460,016 -- 282,577 61.4% Malta ................. 26.3% 50.0% 181,534 177,054 -- 81,577 46.1% Hungary (Monor) ....... 52.0% 98.9% 85,561 70,587 84,916 34,200 48.5% ---------- --------- --------- ---------- Total .............. 15,176,436 11,928,016 4,523,098 8,245,892 ---------- --------- --------- ----------- TELEPHONE LINES: The Netherlands ....... 52.6% 100.0% 2,552,120 N/A N/A 201,316 N/A Hungary (Monor) ....... 52.0% 98.9% 85,561 N/A N/A 74,361 N/A Austria ............... 50.0% 95.0% 1,080,960 N/A N/A 85,284 N/A France ................ 48.4% 92.0% 2,518,283 N/A N/A 31,049 N/A Norway ................ 52.6% 100.0% 529,000 N/A N/A 14,776 N/A Czech Republic ........ 52.6% 100.0% 894,320 N/A N/A 3,553 N/A Spain ................. 26.4% 50.1% N/A N/A N/A 7,333 N/A ---------- --------- --------- ----------- Total .............. 7,660,244 N/A N/A 417,672 ---------- --------- --------- ----------- DATA SUBSCRIBERS: Internet .............. 13.2-52.6% 25.1-100.0% 11,213,009 N/A N/A 278,176 N/A ---------- --------- --------- ----------- PROGRAMMING SUBSCRIBERS: Ireland ............... 42.1% 80.0% N/A N/A N/A 3,894,000 N/A Spain/Portugal ........ 26.3% 50.0% N/A N/A N/A 1,494,000 N/A ---------- --------- --------- ----------- Total .............. N/A N/A N/A 5,388,000 ---------- --------- --------- ----------- AUSTAR UNITED (AUSTRALIA/NEW ZEALAND) VIDEO SUBSCRIBERS: Australia ............. 72.3% 100.0% 2,085,000 2,083,108 517,266 427,012 20.5% New Zealand ........... 36.2% 50.0% 141,000 94,484 94,484 20,079 21.3% ---------- --------- --------- ----------- Total .............. 2,226,000 2,177,592 611,750 447,091 ---------- --------- --------- ----------- TELEPHONE LINES: New Zealand ........... 36.2% 50.0% 141,000 N/A N/A 34,268 N/A ---------- --------- --------- ----------- DATA SUBSCRIBERS: New Zealand ........... 36.2% 50.0% 141,000 N/A N/A 40,863 N/A Australia ............. 72.3% 100.0% N/A N/A N/A 24,859 N/A ---------- --------- --------- ----------- Total .............. 141,000 N/A N/A 65,722 ---------- --------- --------- ----------- PROGRAMMING SUBSCRIBERS: Australia ............. 36.2% 50.0% N/A N/A N/A 1,056,465 N/A ---------- --------- --------- ----------- OTHER ASIA/PACIFIC VIDEO SUBSCRIBERS: Philippines ........... 19.6% 19.6% 600,000 483,444 -- 193,682 40.1% ---------- --------- --------- ----------- LATIN AMERICA VIDEO SUBSCRIBERS: Chile ................. 100.0% 100.0% 2,350,000 1,611,140 545,501 408,491 25.4% Mexico ................ 90.3% 90.3% 341,600 242,354 -- 65,643 27.1% Brazil (Jundiai) ...... 46.3% 46.3% 70,200 67,527 -- 17,477 25.9% Brazil (TV Show Brasil) ............. 100.0% 100.0% 437,000 276,900 -- 15,309 5.5% Peru .................. 100.0% 100.0% 140,000 63,932 -- 7,597 11.9% ---------- --------- --------- ----------- Total .............. 3,338,800 2,261,853 545,501 514,517 ---------- --------- --------- ----------- TELEPHONE LINES: Chile ................. 100.0% 100.0% 2,350,000 N/A N/A 112,807 N/A ---------- --------- --------- ----------- DATA SUBSCRIBERS: Chile ................. 100.0% 100.0% 2,350,000 N/A N/A 5,033 N/A ---------- --------- --------- ----------- PROGRAMMING SUBSCRIBERS: Latin America ......... 50.0% 50.0% N/A N/A N/A 6,240,434 N/A ---------- --------- --------- -----------
26 GROSS OPERATING SYSTEM DATA
AS OF SEPTEMBER 30, 1999 -------------------------------------------------------------------------------------- HOMES IN TWO-WAY BASIC UNITED SYSTEM SERVICE HOMES HOMES SUBSCRIBERS/ BASIC OWNERSHIP OWNERSHIP AREA PASSED PASSED LINES PENETRATION --------- --------- --------- --------- --------- ----------- ----------- UPC (EUROPE) VIDEO SUBSCRIBERS: The Netherlands ................... 61.5% 100.0% 1,710,192 1,652,887 1,311,887 1,515,802 91.7% Poland ............................ 61.5% 100.0% 1,950,000 1,705,569 -- 1,165,504 68.3% Hungary (UPC Magyarorszag) ........ 48.7% 79.3% 901,500 624,898 -- 498,325 79.7% Austria ........................... 58.4% 95.0% 1,081,710 908,030 734,440 461,589 50.8% Israel ............................ 28.7% 46.6% 610,500 599,443 377,234 415,754 69.4% Czech Republic .................... 61.5% 100.0% 239,484 160,558 -- 56,638 35.3% France ............................ 58.6%-61.3% 95.6-99.6% 1,265,827 900,020 238,309 331,029 36.8% Norway ............................ 61.5% 100.0% 529,000 466,742 44,492 324,469 69.5% Sweden ............................ 61.5% 100.0% 770,000 421,624 72,679 241,359 57.2% Slovak Republic ................... 58.4-61.5% 95.0-100.0% 344,343 220,399 -- 191,592 86.9% Belgium ........................... 61.5% 100.0% 133,090 133,090 131,816 123,952 93.1% Romania ........................... 31.4-61.5% 51.0-100.0% 240,000 143,274 -- 94,234 65.8% Malta ............................. 30.8% 50.0% 175,000 167,744 -- 75,000 44.7% Hungary (Monor) ................... 29.2% 47.5% 85,000 70,061 -- 32,011 45.7% ---------- --------- --------- ---------- Total .......................... 10,035,646 8,174,339 2,910,857 5,527,258 ---------- --------- --------- ---------- TELEPHONE LINES: Hungary (Monor) ................... 29.2% 47.5% 85,000 N/A N/A 72,880 N/A The Netherlands ................... 61.5% 100.0% 1,710,192 N/A N/A 67,156 N/A Austria ........................... 58.4% 95.0% 1,081,710 N/A N/A 17,551 N/A France ............................ 58.6-61.3% 95.6-99.6% 1,265,827 N/A N/A 8,593 N/A Norway ............................ 61.5% 100.0% 529,000 N/A N/A 1,928 N/A ---------- --------- --------- ---------- Total .......................... 4,671,729 N/A N/A 168,108 ---------- --------- --------- ---------- DATA SUBSCRIBERS: Internet .......................... 48.7-61.5% 79.3-100.0% N/A N/A N/A 79,039 N/A ---------- --------- --------- ---------- PROGRAMMING SUBSCRIBERS: Ireland ........................... 49.2% 80.0% N/A N/A N/A 1,168,548 N/A Spain/Portugal .................... 30.8% 50.0% N/A N/A N/A 1,085,000 N/A ---------- --------- --------- ---------- Total .......................... N/A N/A N/A 2,253,548 ---------- --------- --------- ---------- AUSTAR UNITED (AUSTRALIA/NEW ZEALAND) VIDEO SUBSCRIBERS: Australia ......................... 75.5% 100.0% 2,085,000 2,083,108 -- 360,708 17.3% New Zealand ....................... 75.5% 100.0% 141,000 83,582 83,071 13,907 16.6% ---------- --------- --------- ---------- Total .......................... 2,226,000 2,166,690 83,071 374,615 ---------- --------- --------- ---------- TELEPHONE LINES: New Zealand ....................... 75.5% 100.0% 141,000 N/A N/A 20,547 N/A ---------- --------- --------- ---------- DATA SUBSCRIBERS: New Zealand ....................... 75.5% 100.0% N/A N/A N/A 4,826 N/A ---------- --------- --------- ---------- PROGRAMMING SUBSCRIBERS: Australia ......................... 37.8% 50.0% N/A N/A N/A 870,972 N/A ---------- --------- --------- ---------- OTHER ASIA/PACIFIC VIDEO SUBSCRIBERS: Philippines ....................... 19.6% 19.6% 600,000 425,239 -- 178,153 41.9% ---------- --------- --------- ---------- LATIN AMERICA VIDEO SUBSCRIBERS: Chile ............................. 100.0% 100.0% 2,350,000 1,609,461 327,212 389,858 24.2% Mexico ............................ 49.0% 49.0% 341,600 229,451 -- 57,441 25.0% Brazil (Jundiai) .................. 46.3% 46.3% 70,200 66,563 -- 17,877 26.9% Brazil (TV Show Brasil) ........... 100.0% 100.0% 437,000 306,000 -- 15,107 4.9% Peru .............................. 62.2% 62.2% 140,000 61,268 -- 8,733 14.3% ---------- --------- --------- ---------- Total .......................... 3,338,800 2,272,743 327,212 489,016 ---------- --------- --------- ---------- TELEPHONE LINES: Chile ............................. 100.0% 100.0% 2,350,000 N/A N/A 56,623 N/A ---------- --------- --------- ---------- DATA SUBSCRIBERS: Chile ............................. 100.0% 100.0% N/A N/A N/A 706 N/A ---------- --------- --------- ---------- PROGRAMMING SUBSCRIBERS: Latin America ..................... 50.0% 50.0% N/A N/A N/A 4,775,465 N/A ---------- --------- --------- ----------
27
AS OF SEPTEMBER 30, 2000 ----------------------------------------------------- HOMES IN TWO-WAY BASIC SERVICE HOMES HOMES SUBSCRIBERS/ AREA PASSED PASSED LINES ---------- ------ ------- ----------- TOTAL COMPANY BASED ON GROSS DATA (1): Video Subscribers ........... 21,341,236 16,850,905 5,680,349 9,401,182 Telephone Lines ............. 10,151,244 N/A N/A 564,747 Data Subscribers ............ 13,704,009 N/A N/A 348,931 Programming Subscribers ..... N/A N/A N/A 12,684,899 TOTAL COMPANY BASED ON CONSOLIDATED SYSTEMS (2): Video Subscribers ........... 17,924,076 13,731,796 5,162,222 7,655,991 Telephone Lines ............. 10,010,244 N/A N/A 530,479 Data Subscribers ............ 12,140,183 N/A N/A 307,918 Programming Subscribers ..... N/A N/A N/A 3,894,000 TOTAL COMPANY BASED ON PROPORTIONATE DATA (3): Video Subscribers ........... 11,892,166 9,184,840 3,171,611 4,608,304 Telephone Lines ............. 6,295,367 N/A N/A 334,360 Data Subscribers ............ 7,604,060 N/A N/A 181,570 Programming Subscribers ..... N/A N/A N/A 5,533,646
AS OF SEPTEMBER 30, 1999 --------------------------------------------------- HOMES IN TWO-WAY BASIC SERVICE HOMES HOMES SUBSCRIBERS/ AREA PASSED PASSED LINES ---------- ---------- --------- --------- TOTAL COMPANY BASED ON GROSS DATA (1): Video Subscribers .......... 16,200,446 13,039,011 3,321,140 6,569,042 Telephone Lines ............ 7,162,729 N/A N/A 245,278 Data Subscribers ........... N/A N/A N/A 84,571 Programming Subscribers .... N/A N/A N/A 7,899,985 TOTAL COMPANY BASED ON CONSOLIDATED SYSTEMS (2): Video Subscribers .......... 14,318,146 11,480,510 2,943,906 5,792,806 Telephone Lines ............ 7,077,729 N/A N/A 172,398 Data Subscribers ........... N/A N/A N/A 84,571 Programming Subscribers .... N/A N/A N/A 1,168,548 TOTAL COMPANY BASED ON PROPORTIONATE DATA (3): Video Subscribers .......... 10,595,393 8,447,497 2,033,039 3,905,627 Telephone Lines ............ 5,259,882 N/A N/A 151,448 Data Subscribers ........... N/A N/A N/A 52,041 Programming Subscribers .... N/A N/A N/A 3,625,088
(1) Summation of the gross operating system data on the previous page. (2) Summation of the gross operating system data on the previous page, for those systems that we consolidate in our financial statements due to majority ownership and control. (3) Summation of the gross operating system data on the previous page, multiplied by our ownership percentage for each respective system. 28 RESULTS OF OPERATIONS The following table sets forth information from our major consolidated operating systems (in thousands of U.S. dollars):
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ------------------------- 2000 1999 2000 1999 --------- --------- --------- --------- (IN THOUSANDS) (IN THOUSANDS) UPC Revenue: Video .......................................... $ 147,906 $ 106,933 $ 434,241 $ 249,667 Telephone ...................................... 46,066 10,457 120,877 21,647 Internet/data .................................. 21,182 6,818 52,560 14,576 Programming and DTH ............................ 16,460 4,225 40,455 5,390 Other .......................................... 1,843 3,258 4,763 4,145 --------- --------- --------- --------- Total UPC Revenue ........................... $ 233,457 $ 131,691 $ 652,896 $ 295,425 ========= ========= ========= ========= UPC Adjusted EBITDA: Video .......................................... $ 55,138 $ 41,158 $ 162,397 $ 104,691 Telephone ...................................... (29,084) (9,996) (77,883) (23,733) Internet/data .................................. (42,417) (23,755) (129,138) (49,034) Programming and DTH ............................ (32,525) (17,474) (83,896) (23,181) Other .......................................... (38,525) (16,065) (89,221) (27,607) --------- --------- --------- --------- Total UPC Adjusted EBITDA (1) ............... $ (87,413) $ (26,132) $(217,741) $ (18,864) ========= ========= ========= ========= Austar United Revenue (2): Video .......................................... $ 41,859 $ 39,596 $ 124,396 $ 104,416 Telephone ...................................... -- -- -- -- Internet/data .................................. 1,225 -- 1,654 -- Other .......................................... 829 -- 1,866 -- --------- --------- --------- --------- Total Austar United Revenue ................. $ 43,913 $ 39,596 $ 127,916 $ 104,416 ========= ========= ========= ========= Austar United Adjusted EBITDA: Video .......................................... $ 608 $ 814 $ 3,830 $ (627) Telephone ...................................... (777) -- (903) -- Internet/data .................................. (12,829) -- (23,190) -- Other .......................................... 611 (111) (949) (3,636) --------- --------- --------- --------- Total Austar United Adjusted EBITDA (1) ..... $ (12,387) $ 703 $ (21,212) $ (4,263) ========= ========= ========= ========= VTR Revenue: Video .......................................... $ 27,534 $ 27,811 $ 85,722 $ 76,742 Telephone ...................................... 9,157 3,902 22,970 16,012 Internet/data .................................. 269 32 511 32 --------- --------- --------- --------- Total VTR Revenue ........................... $ 36,960 $ 31,745 $ 109,203 $ 92,786 ========= ========= ========= ========= VTR Adjusted EBITDA: Video .......................................... $ 9,439 $ 7,542 $ 29,326 $ 17,522 Telephone ...................................... (2,842) 2,321 (8,534) 2,171 Internet/data .................................. (1,299) -- (2,228) -- Other .......................................... (2,416) (2,168) (6,944) (3,192) --------- --------- --------- --------- Total VTR Adjusted EBITDA (1) ............... $ 2,882 $ 7,695 $ 11,620 $ 16,501 ========= ========= ========= =========
------------------- (1) "Adjusted EBITDA" represents net operating earnings before depreciation, amortization and stock-based compensation charges. Stock-based compensation charges result from variable plan accounting for our subsidiaries' phantom stock option plans and are generally non-cash charges. Industry analysts generally consider Adjusted EBITDA to be a helpful way to measure the performance of cable television operations and communications companies. Adjusted EBITDA should not, however, be considered a replacement for net income, cash flows or for any other measure of performance or liquidity under generally accepted accounting principles, or as an indicator of a company's operating performance. Our presentation of Adjusted EBITDA may not be comparable to statistics with a similar name reported by other companies. Not all companies and analysts calculate Adjusted EBITDA in the same manner. (2) Not including the results of operations of Saturn, which was consolidated from August 1, 1999 until March 31, 2000. 29 The following rates for the primary currencies that impact our financial statements are shown below per one U.S. dollar:
AUSTRALIAN CHILEAN EURO DOLLAR PESO ------ ---------- -------- Average rate three months ended September 30, 2000 .... 1.1046 1.7408 552.9413 Average rate three months ended September 30, 1999 .... 0.9531 1.5399 517.5685 Average rate nine months ended September 30, 2000 ..... 1.0654 1.6822 528.7113 Average rate nine months ended September 30, 1999 ..... 0.9376 1.5336 497.5459
REVENUE. Revenue increased $109.5 million, or 53.0%, from $206.7 million for the three months ended September 30, 1999 to $316.2 million for the three months ended September 30, 2000. Revenue increased $440.0 million, or 95.5%, from $460.6 million for the nine months ended September 30, 1999 to $900.6 million for the nine months ended September 30, 2000. EUROPE. Revenue for UPC in U.S. dollar terms increased $101.8 million, or 77.3%, from $131.7 million for the three months ended September 30, 1999 to $233.5 million for the three months ended September 30, 2000, despite a 15.9% devaluation of the Euro to the U.S. dollar from period to period. Revenue for UPC in U.S. dollar terms increased $357.5 million, or 121.0%, from $295.4 million for the nine months ended September 30, 1999 to $652.9 million for the nine months ended September 30, 2000, despite a 13.6% devaluation of the Euro to the U.S. dollar from period to period. Video revenue for UPC increased primarily due to acquisitions. Video revenue for the three months ended September 30, 2000 compared to the same period in 1999 attributable to acquisitions is 66.7% of the total increase. Of this, acquisitions in The Netherlands represent 56.4%, the acquisition in Poland represents 21.7%, the acquisition in the Czech Republic represents 13.6% and the acquisition in Sweden represents 8.3%. Video revenue for the nine months ended September 30, 2000 compared to the same period in 1999 attributable to acquisitions totaled 67.5% of the total increase. Of this increase, acquisitions in The Netherlands represent 46.0%, the acquisition in Poland represents 28.8%, the acquisition in Sweden represents 12.9% and the acquisition in the Czech Republic represents 12.3%. The remaining increase in video revenue came from organic subscriber growth and increased revenue per subscriber. The increase in UPC's telephone revenue for both the three and nine months ended September 30, 2000 compared to the prior periods in 1999 is primarily due to the launch of local telephone services, under the brand name priority telecom, in UPC's Austrian, Dutch, French and Norwegian systems in 1999 and Sweden in 2000. In addition, UPC began consolidating telephone revenue from its acquisitions of A2000 (September 1999), Kabel Plus (November 1999) and Monor (December 1999). The increase in UPC's Internet/data revenue for both the three and nine months ended September 30, 2000 compared to the prior periods in 1999 is primarily due to the launch of residential and business cable-modem high-speed Internet access services, branded chello broadband, in April 1999. During the second quarter of 1999, UPC launched chello broadband on the upgraded portion of its networks in Austria, Belgium, France, The Netherlands (with the exception of A2000) and Norway. UPC launched chello broadband in A2000 and Sweden in the fourth quarter of 1999. The increase in UPC's Programming and DTH revenue from period to period is primarily due to the acquisition of @Entertainment in August 1999. Through this acquisition, UPC obtained both a DTH platform serving the Polish marketplace and a Polish-language programming business under the brand name Wizja TV, subsequently rebranded UPC Broadcast Centre. ASIA/PACIFIC. Revenue for Austar United increased $4.3 million, or 10.9%, from $39.6 million for the three months ended September 30, 1999 to $43.9 million for the three months ended September 30, 2000, despite a 13.0% devaluation of the Australian dollar to the U.S. dollar from period to period. Austar United's revenue increased $23.5 million, or 22.5%, from $104.4 million for the nine months ended September 30, 1999 to $127.9 million for the nine months ended September 30, 2000, despite a 9.7% devaluation of the Australian dollar to the U.S. dollar from period to period. The increase in revenue from period to period was primarily due to Austar's video subscriber growth (427,012 at September 30, 2000 compared to 360,708 at September 30, 1999) as well as growth in premium tiers, resulting in an average revenue per subscriber of A$56.58 and A$55.78 for the three and nine months ended September 30, 2000, respectively, compared to A$53.50 and A$51.45 for the same periods in the prior year. LATIN AMERICA. We began consolidating the results of operations of VTR effective May 1, 1999. Revenue for VTR in U.S. dollar terms increased $5.3 million, or 16.7%, from $31.7 million for the three months ended September 30, 1999 to $37.0 million for the three months ended September 30, 2000, despite a 6.8% devaluation of the Chilean peso to the U.S. dollar from period to period. Revenue for VTR in U.S. dollar terms increased $16.4 million, or 17.7%, from $92.8 million for the nine months ended September 30 30, 1999 to $109.2 million for the nine months ended September 30, 2000, despite a 6.3% devaluation of the Chilean peso to the U.S. dollar from period to period. Video revenue increased $9.0 million, or 11.7%, for the nine months ended September 30, 2000 compared to the same period in the prior year, despite the devaluation of the Chilean Peso and economic recession in Chile. The number of subscribers increased from 389,858 as of September 30, 1999 to 408,491 as of September 30, 2000. The average monthly revenue per subscriber for video was $24.33 for the nine months ended September 30, 2000, compared to $21.86 for the nine months ended September 30, 1999. The increase in telephone revenue of $5.3 and $7.0 million for the three and nine months ended September 30, 2000 compared to the prior periods resulted primarily from telephone subscriber growth (112,807 at September 30, 2000 compared to 56,623 at September 30, 1999). ADJUSTED EBITDA. Adjusted EBITDA decreased $75.5 million during the three months ended September 30, 2000 compared to the three months ended September 30, 1999. Adjusted EBITDA decreased $213.9 million during the nine months ended September 30, 2000 compared to the nine months ended September 30, 1999. EUROPE. Adjusted EBITDA for UPC in U.S. dollar terms decreased $61.3 million, from a negative $26.1 million for the three months ended September 30, 1999 to negative $87.4 million for the three months ended September 30, 2000. Adjusted EBITDA for UPC in U.S. dollar terms decreased $198.8 million, from a negative $18.9 million for the nine months ended September 30, 1999 to negative $217.7 million for the nine months ended September 30, 2000. Video Adjusted EBITDA increased 34.0% and 55.1% for the three and nine months ended September 30, 2000 compared to the same periods in the prior year, while video revenue increased 38.3% and 73.9%, respectively. As a percentage of revenue, video operating expense increased 3.6% from 38.7% for the three months ended September 30, 1999 to 42.3% for the three months ended September 30, 2000, and increased 5.6% from 34.6% for the nine months ended September 30, 1999 to 40.2% for the nine months ended September 30, 2000. These increases were primarily due to higher operating costs as a percentage of revenue for systems UPC acquired during 1999. UPC expects to reduce this percentage in future years as the new acquisitions are integrated and through other operating efficiencies. The increase in UPC's negative Adjusted EBITDA from its local telephone service for both the three and nine months ended September 30, 2000 compared to the prior periods in 1999 was due to the recent launch of priority telecom in its Austrian, Dutch, French and Norwegian systems in 1999 and Sweden in 2000. In order to achieve high growth from early market entry, UPC prices its telephone service at a discount compared to services offered by incumbent telecommunications operators. UPC may also waive or discount installation fees. UPC is also continuing to incur increased costs related to the development of the priority telecom brand. The increase in UPC's negative Adjusted EBITDA from its Internet/data service for both the three and nine months ended September 30, 2000 compared to the prior periods in 1999 was due to the launch of chello broadband on the upgraded portion of its networks in Austria, Belgium, France, The Netherlands (with the exception of A2000) and Norway in the second quarter of 1999. UPC launched chello broadband in A2000 and Sweden in the fourth quarter of 1999. Subsequent to UPC's acquisition of @Entertainment in August 1999, UPC began to restructure the Polish DTH and programming businesses by separating them into two business lines. UPC has incurred significant start-up and restructuring costs related to this endeavor. UPC expects to incur additional operating losses related to its programming and DTH businesses for the next two years, while UPC develops and expands its subscriber base. ASIA/PACIFIC. Austar United's Adjusted EBITDA decreased by $13.1 million, from $0.7 million for the three months ended September 30, 1999 to negative $12.4 million for the three months ended September 30, 2000. Austar United's Adjusted EBITDA decreased by $16.9 million, from negative $4.3 million for the nine months ended September 30, 1999 to negative $21.2 million for the nine months ended September 30, 2000. These decreases are primarily due to the increased expenses associated with the launch of Austar United Broadband's Internet business. Video Adjusted EBITDA improved for the nine months ended September 30, 2000, compared to the same period in the prior year. Austar's incremental sales growth was partially offset by increased programming costs as subscribers increased and the Australian dollar weakened against the U.S. dollar. 31 LATIN AMERICA. We began consolidating the results of operations of VTR effective May 1, 1999. VTR's Adjusted EBITDA in U.S. dollar terms decreased $4.8 million, or 62.3%, from $7.7 million for the three months ended September 30, 1999 to $2.9 million for the three months ended September 30, 2000. VTR's Adjusted EBITDA in U.S. dollar terms decreased $4.9 million, or 29.7% from $16.5 million for the nine months ended September 30, 1999 to $11.6 million for the nine months ended September 30, 2000. VTR's Adjusted EBITDA from its video business increased for the three and nine months ended September 30, 2000 compared to the prior periods as modest price increases exceeded expenses. Although revenues from telephone services increased significantly from the comparable period in 1999, development expenses of this new business continue to exist. VTR expects these operating and selling, general and administrative expenses as a percentage of telephone revenue to decline in future periods because development costs in general will taper off and certain costs have already been incurred and are fixed in relation to subscriber volumes. CORPORATE. Stock-based compensation expense decreased for the three and nine months ended September 30, 2000 compared to the same periods in the prior year, due to a credit of $0.3 million and $1.0 million for the three and nine months ended September 30, 2000, respectively, compared to a charge of $5.4 million and $71.7 million for the same periods in 1999. These plans include the UPC phantom stock option plan, the chello phantom stock option plan, the Austar United stock option plan, the ULA phantom stock option plan and the VTR phantom stock option plan, which continue to require variable plan accounting. Under this method of accounting, increases in the fair market value of these vested options result in non-cash compensation charges to the statement of operations, while decreases in the fair market value of these vested options will cause a reversal of previous charges taken. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased $80.2 million and $305.9 million during the three and nine months ended September 30, 2000 compared to the three and nine months ended September 30, 1999, respectively, as follows:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ---------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (IN THOUSANDS) (IN THOUSANDS) Europe ......................................... $169,651 $ 91,457 $447,386 $164,556 Asia/Pacific ................................... 24,844 25,086 79,642 75,031 Latin America .................................. 12,644 10,370 38,136 19,781 Corporate and other ............................ 380 385 1,132 1,007 -------- -------- -------- -------- Total depreciation and amortization expense .... $207,519 $127,298 $566,296 $260,375 ======== ======== ======== ========
EUROPE. UPC's depreciation and amortization expense in U.S. dollar terms increased $78.2 million, from $91.5 million for the three months ended September 30, 1999 to $169.7 million for the three months ended September 30, 2000. UPC's depreciation and amortization expense in U.S. dollar terms increased $282.8 million, from $164.6 million for the nine months ended September 30, 1999 to $447.4 million for the nine months ended September 30, 2000. The increase resulted primarily from acquisitions completed during 1999 in The Netherlands and Poland, as well as additional depreciation related to additional capital expenditures to upgrade the network in UPC's Western European systems and new-build for developing systems. GAIN ON ISSUANCE OF COMMON EQUITY SECURITIES BY SUBSIDIARIES. During February 1999, UPC successfully completed an initial public offering selling 133.8 million shares on the Amsterdam Stock Exchange and Nasdaq, raising gross and net proceeds at $10.93 per share of $1,463.0 million and $1,364.1 million, respectively. Concurrent with the offering, a third party exercised an option and acquired approximately 4.7 million ordinary shares of UPC, resulting in proceeds to UPC of $45.0 million. Based on the carrying value of our investment in UPC as of February 11, 1999, we recognized a gain of $822.1 million from the resulting step-up in the carrying amount of our investment in UPC. In July 1999, Austar United successfully completed an initial public offering selling 103.5 million shares on the Australian Stock Exchange, raising gross and net proceeds at A$4.70 ($3.03) per share of A$486.5 ($313.6) million and A$453.6 ($292.8) million, respectively. Based on the carrying value of our investment in Austar United as of July 27, 1999, we recognized a gain of $249.0 million from the resulting step-up in the carrying amount of our investment in Austar United. In August 1999, UPC partially funded the acquisition of Videopole with 2.9 million ordinary shares of UPC. Based on the carrying value of our investment in UPC as of July 31, 1999, we recognized a gain of $34.9 million from the resulting step-up in the carrying amount of our investment in UPC. 32 In February 2000, we recorded a gain in accordance with SAB 51 of $6.8 million related to the UPC France transaction. In March 2000, Austar United sold 20.0 million shares in a second public offering on the Australian Stock Exchange, raising gross and net proceeds at $5.20 per share of $104.0 million and $102.4 million, respectively. Based on the carrying value of our investment in Austar United as of March 29, 2000, we recognized a gain of $66.8 million from the resulting step-up in the carrying amount of our investment in Austar United. In August 2000, Stjarn exercised its option to convert its $100.0 million note into 4.1 million ordinary shares of UPC. Based on the carrying value of our investment in UPC as of August 23, 2000, we recognized a gain of $54.1 million from the resulting step-up in the carrying amount of our investment in UPC. No deferred taxes were recorded related to these gains due to our intent on holding our investment in UPC and Austar United indefinitely. INTEREST INCOME. Interest income increased during the three and nine months ended September 30, 2000 compared to the corresponding periods in the prior year due to higher cash balances related to the issuance of new debt and equity in late 1999. INTEREST EXPENSE. Interest expense increased $103.4 million, from $116.3 million during the three months ended September 30, 1999 to $219.7 million during the three months ended September 30, 2000. Interest expense increased $402.4 million, from $234.7 million during the nine months ended September 30, 1999 to $637.1 million during the nine months ended September 30, 2000. These increases were primarily due to the $4.1 billion of senior notes and senior discount notes issued by UPC from July 1999 through January 2000, as well as continued accretion of interest on our $1.4 billion aggregate principal amount 1998 senior notes and our 1999 senior notes. FOREIGN CURRENCY EXCHANGE LOSS. Foreign currency exchange loss increased $163.9 million from $4.6 million for the three months ended September 30, 1999 to $168.5 million for the three months ended September 30, 2000. Foreign currency exchange loss increased $267.8 million from $24.8 million for the nine months ended September 30, 1999 to $292.6 million for the nine months ended September 30, 2000. These increases were primarily due to UPC, which has senior notes that are denominated in U.S. dollars. Of the total increase for the three and nine months ended September 30, 2000, $152.9 million and $267.2 million related to UPC, respectively, $8.7 million and a gain of $0.6 million related to VTR, respectively, and $2.3 million and $1.2 million related to other subsidiaries, respectively. MINORITY INTERESTS IN SUBSIDIARIES. The minority interests' share of losses increased $238.5 million from $52.9 million for the three months ended September 30, 1999 to $291.4 million for the three months ended September 30, 2000. Minority interests' share of losses increased $565.1 million from $127.8 million for the nine months ended September 30, 1999 to $692.9 million for the nine months ended September 30, 2000. The initial public offerings of UPC (February 1999) and Austar United (July 1999) and other share issuances have reduced our ownership from 100% and 98.0% as of December 31, 1998 to 52.6% and 72.3% as of September 30, 2000 for UPC and Austar United, respectively. For accounting purposes we continue to consolidate 100% of the results of operations of UPC and Austar United, then deduct the minority interests' share of income (loss) before arriving at net income (loss). Of the total increase for the three and nine months ended September 30, 2000, $233.4 million and $538.9 million related to UPC, respectively, and $5.4 million and $26.7 million related to Austar United, respectively. 33 SHARE IN RESULTS OF AFFILIATED COMPANIES. Our share in results of affiliates totaled losses of $44.4 million and $16.8 million for the three months ended September 30, 2000 and 1999, respectively, and losses of $84.3 million and $48.4 million for the nine months ended September 30, 2000 and 1999, respectively, as follows:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- -------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Europe: (IN THOUSANDS) (IN THOUSANDS) A2000 (1) ............................ $ -- $ (3,974) $ -- $(16,787) UTH (2) .............................. -- -- -- (2,757) Tevel ................................ (17,339) (3,085) (20,717) (4,915) Melita ............................... (261) (793) (735) (960) Monor ................................ -- 129 -- 980 Iberian Programming .................. 522 1,050 2,501 1,240 SBS .................................. (9,397) (3,706) (20,794) (3,706) PrimaCom ............................. (6,493) -- (17,486) -- Other ................................ (3,821) (422) (9,711) (420) -------- -------- -------- -------- (36,789) (10,801) (66,942) (27,325) -------- -------- -------- -------- Asia/Pacific: Saturn (3) ........................... (6,470) (2,742) (14,257) (6,324) XYZ Entertainment .................... 302 (2,138) (112) (6,531) Pilipino Cable Corporation ........... (80) (20) (24) (84) Hunan International TV ............... (143) (41) 344 160 Other ................................ (31) -- (196) -- -------- -------- -------- -------- (6,422) (4,941) (14,245) (12,779) -------- -------- -------- -------- Latin America: VTR (4) .............................. -- -- -- (3,962) Megapo ............................... (839) 103 (1,522) 341 MGM Networks LA ...................... (387) (1,155) (1,785) (4,801) Jundiai .............................. 33 36 149 160 -------- -------- -------- -------- (1,193) (1,016) (3,158) (8,262) -------- -------- -------- -------- Total share in results of affiliates ... $(44,404) $(16,758) $(84,345) $(48,366) ======== ======== ======== ========
(1) Effective September 1, 1999, we increased our ownership interest in A2000 from 50.0% to 100% and began consolidating its results of operations. (2) Effective February 1, 1999 we increased our ownership interest in UTH from 51.0% to 100% and began consolidating its results of operations. (3) Effective January 1, 1998, we discontinued consolidating the results of operations of Saturn and returned to the equity method of accounting due to certain minority shareholder's rights. Effective August 1, 1999, we increased our ownership interest in Saturn to 100% and began consolidating its results of operations. Effective April 1, 2000 we discontinued consolidating the results of operations of Saturn and returned to the equity method of accounting due to the joint venture with Telstra. (4) Effective May 1, 1999, we increased our ownership interest in VTR to 100% and began consolidating its results of operations. 34 LIQUIDITY AND CAPITAL RESOURCES SOURCES AND USES We have financed our acquisitions and funding of our video, voice and data systems in the three main regions of the world in which we operate primarily through public and private debt and equity as well as cash received from the sale of non-strategic assets by certain subsidiaries. These resources have also been used to refinance certain debt instruments and facilities as well as to cover corporate overhead. The following table outlines the sources and uses of cash, cash equivalents, restricted cash and short-term liquid investments (for purposes of this table only, "cash") for United (parent only) from inception to date:
FOR THE NINE INCEPTION TO MONTHS ENDED UNITED (PARENT ONLY) DECEMBER 31, 1999 SEPTEMBER 30, 2000 TOTAL -------------- ------------------ ---------- Financing Sources: (IN MILLIONS) Gross bond proceeds ............................ $ 1,347.0 $ -- $ 1,347.0 Gross equity proceeds .......................... 1,686.7(1) 6.1 1,692.8 Asset sales, dividends and note payments ....... 319.1 50.8 369.9 Interest income and other ...................... 95.0 56.0 151.0 ---------- ---------- ---------- Total sources .......................... 3,447.8 112.9 3,560.7 ---------- ---------- ---------- Application of Funds: Investment in: UPC ......................................... (459.1) (200.0) (659.1) UAP ......................................... (315.6)(1) (1.0) (316.6) ULA ......................................... (623.6) (140.9) (764.5) Other ....................................... (25.8) (12.0) (37.8) ---------- ---------- ---------- Total .................................. (1,424.1) (353.9) (1,778.0) Repayment of bonds ............................. (532.1)(2) -- (532.1) Offering costs ................................. (102.2) -- (102.2) Corporate equipment and development ............ (31.0) -- (31.0) Corporate overhead and other ................... (122.6) (23.9) (146.5) ---------- ---------- ---------- Total uses ............................. (2,212.0) (377.8) (2,589.8) ---------- ---------- ---------- Period change in cash .......................... 1,235.8 (264.9) 970.9 Cash, beginning of period ...................... -- 1,235.8 -- ---------- ---------- ---------- Cash, end of period ............................ $ 1,235.8 $ 970.9 970.9 ========== ========== ========== UNITED'S SUBSIDIARIES Cash, end of period: UPC ............................................ 175.1 UAP ............................................ 234.0 ULA ............................................ 4.2 Other .......................................... 5.6 ---------- Total United's subsidiaries ............ 418.9 ---------- Total consolidated cash, cash equivalents, restricted cash and short-term liquid investments .... $ 1,389.8 ==========
(1) Includes issuance/use of $29.8 million and $29.5 million in convertible preferred stock in 1995 and 1998, respectively, to acquire interests in Australia as well as $50.0 million in common stock in 1995 to acquire the initial interest in UPC. (2) Includes tender premium of $65.6 million. 35 UNITED PARENT. We had $970.9 million of cash, cash equivalents, restricted cash and short-term liquid investments on hand as of September 30, 2000. Additional sources of cash through 2000 may include the raising of additional private or public debt and/or equity and/or the receipt of sales proceeds from the disposition of non-strategic assets by certain subsidiaries. Uses of cash in the next year will include funding to UPC and continued funding to the Latin America region to meet existing growth plans of our systems. We believe that our existing capital resources will enable us to assist in satisfying the operating and development requirements of our other subsidiaries and cover corporate overhead for the remainder of the year. To the extent we pursue new acquisitions or development opportunities, we may need to raise additional capital or seek strategic partners. Because we do not currently generate positive operating cash flow, our ability to repay our long-term obligations will be dependent on developing one or more additional sources of cash. UPC. UPC had $175.1 million of cash, cash equivalents, restricted cash and short-term liquid investments on hand as of September 30, 2000. In October 2000, UPC closed a Euro4.0 ($3.5) billion operating and term loan facility with a group of banks. The UPC Bank Facility is guaranteed by existing cable operating companies, excluding Polish and German assets. The UPC Bank Facility bears interest at EURIBOR +0.75% - 4.0% depending on certain ratios, and UPC pays an annual commitment fee of 0.5% over the undrawn amount. The UPC Bank Facility refinanced existing operating company bank debt totaling Euro2.0 billion and will finance further digital rollout and triple play by UPC's existing cable companies excluding Polish and German operations, subject to availability. Beginning in 2004, the available amount will decrease until final maturity in 2009. In addition to this facility, UPC has agreed to sell $1.24 billion of convertible preferred shares to a group of investors, including us ($250.0 million). We expect the sale to close in December 2000. UAP. UAP had $234.0 million of cash, cash equivalents and short-term liquid investments on hand as of September 30, 2000. This cash will be used to expand Austar United's customer base, complete the build-out of its network and introduce new services such as telephone and Internet/data. ULA. ULA had $4.2 million of cash, cash equivalents, restricted cash and short-term liquid investments on hand as of September 30, 2000. ULA's systems, which are at various stages of construction and development, will generally depend on funding from us and project financing to meet their growth needs. To the extent ULA pursues additional acquisitions or development opportunities, ULA may need to raise additional capital or seek strategic partners. STATEMENTS OF CASH FLOWS We had cash and cash equivalents of $444.6 million as of September 30, 2000, a decrease of $1,481.3 million from $1,925.9 million as of December 31, 1999. Cash and cash equivalents of $317.0 million as of September 30, 1999 represented an increase of $281.4 million from $35.6 million as of December 31, 1998.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 2000 1999 ----------- ----------- (IN THOUSANDS) Cash flows from operating activities ..................... $ (522,278) $ (44,005) Cash flows from investing activities ..................... (3,280,833) (3,149,861) Cash flows from financing activities ..................... 2,470,690 3,543,239 Effect of exchange rates on cash ......................... (148,867) (67,963) ----------- ----------- Net (decrease) increase in cash and cash equivalents ..... (1,481,288) 281,410 Cash and cash equivalents at beginning of period ......... 1,925,915 35,608 ----------- ----------- Cash and cash equivalents at end of period ............... $ 444,627 $ 317,018 =========== ===========
NINE MONTHS ENDED SEPTEMBER 30, 2000 Principal sources of cash during the nine months ended September 30, 2000 included $1,612.2 million in proceeds from the issuance of senior notes and senior discount notes by UPC and $1,215.4 million of borrowings on various subsidiary facilities, including $469.3 million under a UPC bridge loan, $264.1 million under the UPC Senior Credit Facility, $138.9 million from the new UPC France facility and $217.2 million under UPC's new A2000 facility, proceeds of which were used to pay off existing A2000 facilities. Additional sources of cash included net proceeds of $102.4 million from Austar United's second public offering of common equity securities, $11.5 million from the exercise of stock options and $13.7 million from affiliate dividends and other investing and financing sources. 36 Principal uses of cash during the nine months ended September 30, 2000 included $1,006.0 million for the acquisition of the K&T Group in The Netherlands, $381.5 million for other acquisitions, $1,186.2 million of capital expenditures for system upgrade and new-build activities, $389.2 million of net cash invested in short-term liquid investments, $414.7 million for repayments of debt, $160.6 million for an additional investment in SBS, $122.1 million for shares in Primacom AG, $48.9 million of other investments in affiliates, $148.9 million negative exchange rate effect on cash, $56.1 million for deferred financing costs and $522.3 million for operating activities. NINE MONTHS ENDED SEPTEMBER 30, 1999 Principal sources of cash during the nine months ended September 30, 1999 included $1,518.7 million in proceeds from the issuance of senior notes and senior discount notes by UPC, $1,409.1 million in proceeds from UPC's initial public offering, $381.8 million in net proceeds from the issuance of United's Series C Convertible Preferred Stock, $299.2 million of borrowings on the UPC Senior Credit Facility, $294.3 million in net proceeds from the Austar United initial public offering, $261.3 million of borrowings on other UPC facilities, $208.9 million in proceeds from the issuance of the United 1999 Notes, $198.1 million of borrowings on the New Austar Bank Facility and Saturn's bank facility, $45.0 million of borrowings on the VTR Bank Facility, $111.6 million of other borrowings, $40.1 million from the issuance of our and UPC's equity securities, $18.0 million of proceeds from the sale of our Hungarian programming assets and $3.0 million from other investing and financing sources. Principal uses of cash during the nine months ended September 30, 1999 included $744.5 million for the acquisition of @Entertainment, $521.7 million for the repayment of UPC's existing senior revolving credit facility, $467.3 million of net cash invested in short-term investments, $444.1 million of capital expenditures for system upgrade and new-build activities, $306.1 million for the repayment of the existing facility at UPC Nederland, $293.2 million for the acquisition of Stjarn, $252.7 million for the acquisition of the additional 66.0% interest in VTR, $252.0 million for the acquisition of the additional 49.0% interest in UTH, $228.5 million for the acquisition of A2000, $109.7 million for the acquisition of GelreVision, $223.3 million for other acquisitions, $144.1 million of funding to our affiliates, including UPC's acquisition of an interest in SBS for $100.2 million, $129.1 million for the repayment of Austar's old bank facility, $56.1 million for the repayment of UPC's old bridge bank facility, $124.3 million for the repayment of other loans, $72.6 million for deferred financing costs, $68.0 million negative exchange rate effect on cash, $18.0 million for payment of a note, and $52.4 million for operating activities and other investing and financing uses. 37 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INVESTMENT PORTFOLIO We do not use derivative financial instruments in our non-trading investment portfolio. We place our cash and cash equivalent investments in highly liquid instruments that meet high credit quality standards with original maturities at the date of purchase of less than three months. We also place our short-term investments in liquid instruments that meet high credit quality standards with original maturities at the date of purchase of between three and twelve months. We also limit the amount of credit exposure to any one issue, issuer or type of instrument. These investments are subject to interest rate risk and will fall in value if market interest rates increase. We do not expect, however, any material loss with respect to our investment portfolio. IMPACT OF FOREIGN CURRENCY EXCHANGE RATES We are exposed to foreign exchange rate fluctuations related to our operating subsidiaries' monetary assets and liabilities and the financial results of foreign subsidiaries when their respective financial statements are translated into U.S. dollars during consolidation. Our exposure to foreign exchange rate fluctuations also arises from intercompany charges such as the cost of equipment, management fees and certain other charges that are denominated in U.S. dollars but recorded in the functional currency of the foreign subsidiary. In addition, certain of our operating companies have notes payable and notes receivable which are denominated in a currency other than their own functional currency, as follows:
AMOUNT OUTSTANDING AS OF SEPTEMBER 30, 2000 ------------------------ U.S. Dollar Denominated Facilities: (IN THOUSANDS) UPC 12.5% Senior Discount Notes due 2009 (1) ..... $ 461,953 UPC 13.375% Senior Discount Notes due 2009 (1) ... 281,807 UPC 13.75% Senior Discount Notes due 2010 (1) .... 562,334 UPC 11.25% Senior Notes due 2010 (1) ............. 595,971 @Entertainment Senior Discount Notes (1) ........ 290,403 UPC DIC Loan (1) ................................. 47,007 Intercompany Loan to UPC (1) ..................... 200,000 VTR Bank Facility (2) ............................ 176,000 Intercompany Loan to VTR (2) ..................... 181,591 ---------- $2,797,066 ==========
------------------- (1) Functional currency is Euros (2) Functional currency is Chilean Pesos. Occasionally we will execute hedge transactions to reduce our exposure to foreign currency exchange rate risk. In connection with UPC's offering of senior notes in July 1999, October 1999 and January 2000, UPC entered into cross-currency swap agreements, exchanging dollar-denominated notes into Euro denominated notes. 38 INTEREST RATE SENSITIVITY The table below provides information about our primary debt obligations. The variable rate financial instruments are sensitive to changes in interest rates. The information is presented in thousands of U.S. dollars, which is our reporting currency.
AS OF SEPTEMBER 30, 2000 EXPECTED PAYMENT AS OF DECEMBER 31, ------------------------ ----------------------------------------------------------- BOOK VALUE FAIR VALUE 2000 2001 2002 2003 2004 THEREAFTER TOTAL ---------- ---------- ---- ---- ---- ---- ---- ---------- ---------- Fixed rate United USD 1998 Notes .... $1,072,571 $941,875 $-- $-- $-- $-- $-- $1,072,571 $1,072,571 Average interest rate .......... 10.75% 12.94% Fixed rate United USD 1999 Notes .... $ 242,948 $223,410 $-- $-- $-- $-- $-- $ 242,948 $ 242,948 Average interest rate .......... 10.875% 13.34% Fixed rate UPC USD Senior Notes due 2009 .......................... $ 663,838 $685,506 $-- $-- $-- $-- $-- $ 663,838 $ 663,838 Average interest rate .......... 10.875% 13.92% Fixed rate UPC Euro Senior Notes due 2009 .......................... $ 263,875 $224,294 $-- $-- $-- $-- $-- $ 263,875 $ 263,875 Average interest rate .......... 10.875% 13.75% Fixed rate UPC USD Senior Discount Notes due 2009 .................... $ 461,953 $349,125 $-- $-- $-- $-- $-- $ 461,953 $ 461,953 Average interest rate .......... 12.50% 16.59% Fixed rate UPC USD Senior Notes due 2007 .......................... $ 167,700 $176,000 $-- $-- $-- $-- $-- $ 167,700 $ 167,700 Average interest rate .......... 10.875% 13.81% Fixed rate UPC Euro Senior Notes due 2007 .......................... $ 87,958 $ 77,184 $-- $-- $-- $-- $-- $ 87,958 $ 87,958 Average interest rate .......... 10.875% 13.68% Fixed rate UPC USD Senior Notes due 2009 .......................... $ 209,612 $218,238 $-- $-- $-- $-- $-- $ 209,612 $ 209,612 Average interest rate .......... 11.25% 14.13% Fixed rate UPC Euro Senior Notes due 2009 .......................... $ 88,242 $ 76,623 $-- $-- $-- $-- $-- $ 88,242 $ 88,242 Average interest rate .......... 11.25% 13.86% Fixed rate UPC USD Senior Discount Notes due 2009 .................... $ 281,807 $227,050 $-- $-- $-- $-- $-- $ 281,807 $ 281,807 Average interest rate .......... 13.375% 17.09% Fixed rate UPC Euro Senior Discount Notes due 2009 ........... $ 99,049 $ 80,640 $-- $-- $-- $-- $-- $ 99,049 $ 99,049 Average interest rate .......... 13.375% 16.06% Fixed rate UPC USD Senior Notes due 2010 .......................... $ 595,971 $517,500 $-- $-- $-- $-- $-- $ 595,971 $ 595,971 Average interest rate .......... 11.25% 13.76% Fixed rate UPC Euro Senior Notes due 2010 .......................... $ 174,692 $153,927 $-- $-- $-- $-- $-- $ 174,692 $ 174,692 Average interest rate .......... 11.25% 13.71% Fixed rate UPC USD Senior Notes due 2010 .......................... $ 259,193 $259,500 $-- $-- $-- $-- $-- $ 259,193 $ 259,193 Average interest rate .......... 11.50% 14.03% Fixed rate UPC USD Senior Discount Notes due 2010 .................... $ 562,334 $470,000 $-- $-- $-- $-- $-- $ 562,334 $ 562,334 Average interest rate .......... 13.75% 16.73%
39
AS OF SEPTEMBER 30, 2000 EXPECTED PAYMENT AS OF DECEMBER 31, ------------------------ ------------------------------------------------- BOOK VALUE FAIR VALUE 2000 2001 2002 2003 2004 ---------- ---------- ---- ---- ---- ---- ---- Fixed rate UPC USD DIC Loan ....... $ 47,007 $ 47,007 $ 47,007 $-- $ -- $ -- $ -- Average interest rate ........ 8.0% 8.0% Fixed rate @Entertainment Senior Discount Notes ........... $ 290,403 $ 255,901 $ -- $-- $ -- $14,509 $ -- Average interest rate ........ 7.0%-14.5% 7.0%-17.69% Fixed rate United USD A/P Notes ... $ 451,268 $ 455,902 $ -- $-- $ -- $ -- $ -- Average interest rate ........ 14.0% 13.8% Variable rate UPC Senior Credit Facility (1) ............. $ 561,946 $ 561,946 $ 561,946 $-- $ -- $ -- $ -- Average interest rate ........ 7.5% 7.5% Variable rate Telekabel Euro Facility (1) ............... $ 198,039 $ 198,039 $ 198,039 $-- $ -- $ -- $ -- Average interest rate ........ 6.0% 6.0% Variable rate CNBH NLG Facility (1) .................... $ 106,498 $ 106,498 $ 106,498 $-- $ -- $ -- $ -- Average interest rate ........ 5.4% 5.4% Variable rate New A2000 Facility (1) .................... $ 203,561 $ 203,561 $ 203,561 $-- $ -- $ -- $ -- Average interest rate ........ 4.8% 4.8% Variable rate Rhone Vision Cable FFR Credit Facility (1) ... $ 53,619 $ 53,619 $ 53,619 $-- $ -- $ -- $ -- Average interest rate ........ 5.02% 5.02% Variable rate UPC NL Bridge Loan (1) ........................ $ 439,792 $ 439,792 $ 439,792 $-- $ -- $ -- $ -- Average interest rate ........ 6.6% 6.6% Variable rate France Facility (1) . $ 130,136 $ 130,136 $ 130,136 $-- $ -- $ -- $ -- Average interest rate ........ 7.21% 7.21% Variable rate VTR USD Bank Facility ........................ $ 176,000 $ 176,000 $ -- $-- $176,000 $ -- $ -- Average interest rate ........ 11.41% 11.41% Variable rate Austar A$ New Austar Bank Facility ............ $ 217,096 $ 217,096 $ -- $-- $ 6,972 $38,343 $ 61,250 Average interest rate ........ 7.6% 7.6% ---------- ---------- ---------- --- -------- ------- ---------- $8,107,108 $7,526,369 $1,740,598 $-- $182,972 $52,852 $ 61,250 ========== ========== ========== === ======== ======= ========== EXPECTED PAYMENT AS OF DECEMBER 31, ------------------------ THEREAFTER TOTAL ---------- ---------- Fixed rate UPC USD DIC Loan ....... $ -- $ 47,007 Average interest rate ........ Fixed rate @Entertainment Senior Discount Notes ........... $ 275,894 $ 290,403 Average interest rate ........ Fixed rate United USD A/P Notes ... $ 451,268 $ 451,268 Average interest rate ........ Variable rate UPC Senior Credit Facility (1) ............. $ -- $ 561,946 Average interest rate ........ Variable rate Telekabel Euro Facility (1) ............... $ -- $ 198,039 Average interest rate ........ Variable rate CNBH NLG Facility (1) .................... $ -- $ 106,498 Average interest rate ........ Variable rate New A2000 Facility (1) .................... $ -- $ 203,561 Average interest rate ........ Variable rate Rhone Vision Cable FFR Credit Facility (1) ... $ -- $ 53,619 Average interest rate ........ Variable rate UPC NL Bridge Loan (1) ........................ $ -- $ 439,792 Average interest rate ........ Variable rate France Facility (1) . $ -- $ 130,136 Average interest rate ........ Variable rate VTR USD Bank Facility ........................ $ -- $ 176,000 Average interest rate ........ Variable rate Austar A$ New Austar Bank Facility ............ $ 110,531 $ 217,096 Average interest rate ........ ---------- ---------- $6,069,436 $8,107,108 ========== ==========
(1) Subsequent to September 30, 2000, UPC repaid this facility/loan with the proceeds from the Euro 4 billion financing. 40 We use interest rate swap agreements from time to time, to manage interest rate risk on our floating rate debt facilities. Interest rate swaps are entered into depending on our assessment of the market, and generally are used to convert the floating rate debt to fixed rate debt. Interest differentials paid or received under these swap agreements are recognized over the life of the contracts as adjustments to the effective yield of the underlying debt, and related amounts payable to, or receivable from, the counterparties are included in the consolidated balance sheet. INFLATION AND FOREIGN INVESTMENT RISK Certain of our operating companies operate in countries where the rate of inflation is extremely high relative to that in the United States. While our affiliated companies attempt to increase their subscription rates to offset increases in operating costs, there is no assurance that they will be able to do so. Therefore, operating costs may rise faster than associated revenue, resulting in a material negative impact on reported earnings. We are also impacted by inflationary increases in salaries, wages, benefits and other administrative costs, the effects of which to date have not been material. Our foreign operating companies are all directly affected by their respective countries' government, economic, fiscal and monetary policies and other political factors. We believe that our operating companies' financial conditions and results of operations have not been materially adversely affected by these factors. 41 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Euro3.5 billion facility, Euro95.0 million facility, $347.5 million facility between UPC Distribution Holding B.V., UPC Financing Partnership and TD Bank Europe Limited Toronto Dominion (Texas) Inc. as Facility Agents, dated October 26, 2000. (1) 27.1 Financial Data Schedule (b) Reports on Form 8-K filed during the quarter
DATE OF FILING DATE OF EVENT ITEM REPORTED July 31, 2000 July 18, 2000 Item 5 - Proposed merger, subject to regulatory approvals, consents and financing of UPC's chello broadband subsidiary with Excite@Home's International operations.
------------------- (1) Incorporated by reference from UPC's Form 10-Q dated November 14, 2000. 42 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 14th day of November 2000. UnitedGlobalCom, Inc. a Delaware corporation By: /s/ Valerie L. Cover -------------------------- Valerie L. Cover Controller and Vice President (a Duly Authorized Officer and Principal Financial Officer) 43