|
UGC EUROPE INC - 10-K405 - 20000330 - LIQUIDITY_CAPITAL
Liquidity and Capital Resources
Historically, we have financed our operations and acquisitions primarily
from:
. cash contributed by United upon our formation,
. debt financed at the UPC corporate level and project debt financed at
the operating company level,
. equity raised in our initial public offering and secondary offering,
debt raised in our July 1999, October 1999 and January 2000 offering of
senior notes and senior discount notes, and
. operating cash flow.
We have both well-established and developing systems. In general, we have
used the cash contributed by United upon formation and debt and equity raised at
the UPC corporate level to fund acquisitions, developing systems and corporate
overhead. We have financed our well-established systems and, when possible, our
developing systems, with project debt and operating cash flow. Well-established
systems generally have stable positive cable cash flows that are used to
partially offset funding necessary for new product offerings, including
telephony and Internet/data. Developing systems are at various stages of
construction and development and generally depend on us for some of the funding
for their operating needs until project financing can be secured.
We and our consolidated and unconsolidated affiliates had the following
principal long-term and short-term debt facilities outstanding as of December
31, 1999. Debt denominated in currencies other than Euros has been translated to
Euros for the outstanding balance at of December 31, 1999. Several of the debt
facilities listed below have financial covenants and other restrictions which
could limit access to funds. See our notes to consolidated financial statements
for additional detail.
52
Facility Size or Outstanding
Final Principal At December 31,
Description (Borrower) Maturity Interest Rate Amount 1999
--------------------- -------- ------------- ------ ----
(in millions) (in millions Euro)
UPC and Consolidated Subsidiaries:
Long-Term Debt
Senior Notes 2007 EURIBOR + 4.80% and 9.92% Euro190.7 190.7
2007 10.875% Euro100.0 100.0
2009 EURIBOR + 4.80% and 9.92% Euro240.2 238.4
2009 11.25% Euro101.0 100.3
2009 EURIBOR + 4.15% and 8.54% Euro754.7 754.7
2009 10.875% Euro300.0 300.0
Senior Discount Notes 2009 12.50% USD735.0 (2) 419.1
2009 13.375% USD478.0(2) 254.2
2009 13.375% Euro191.0(2) 102.2
PCI Notes 2003 9.875% per annum USD130.0(2) 16.4
@Entertainment 1998 Senior Discount Notes 2008 14.5% per annum USD224.2(2) 115.3
@Entertainment 1999 Senior Discount Notes 2009 14.5% per annum USD235.5(2) 140.9
@Entertainment 1999 Series C 2008 7% per annum on USD36.0(2) 11.8
Senior Discount Notes principal at maturity
UPC Senior Credit Facility 2006 EURIBOR/LIBOR + 0.75% to Euro1,000.0 357.5
2.0% per annum
New TeleKabel Facility 2007 EURIBOR + 0.75% to 2.0% per Euro340.0 255.3
annum
CNBH Facility 2008 AIBOR + 0.6% to 1.6% per NLG274.0 121.6
annum
A2000 Group Facilities (1) 2005-2006 AIBOR + 0.7/0.75% or a fixed NLG458.0 207.8
rate advance + 0.7/0.75%
Mediareseaux Facility 2007 LIBOR + 0.75% to 2.0% FFR680.0 44.9
RCF Credit Facility Dec 2005 PIBOR +1.5% FFR252.4 31.7
Rhone Vision Cable Facility June 2002 LIBOR + 1% FFR680.0 61.0
Videopole Facility 2006 6.60% per annum FFR65.0 7.7
DIC Loan 2000 8.0% per annum + 6.0% of USD45.0 39.1
principal amount at maturity
Monor Facility 2006 6.66% / 7.79% USD42.0 33.3
Short-Term Debt
Stjarn Facilities March 2000 NBU + 0.60% / STIBOR + 1.25% SEK521.0 39.1
Stjarn Seller's Note August 2000 8.0% per annum USD 100.0 99.4
A2000 Working Capital Facility (1) 2000 4.85% per annum NLG52.0 20.5
Unconsolidated Affliates:
Tevel Facilities 2007-2010 Fixed rate ranging from NIS977.5 205.8
-5.5% 6.00%
Melita Facility 2007 6.75% - 7.50% Lm14.0 27.5
|
(1) Subsequent to December 31, 1999 A2000 replaced these facilities by a new
credit facility. See Note 15.
(2) At maturity.
53
Restrictions under our July and October Indentures
Our activities are restricted by the covenants of our indentures dated July
30, October 29, 1999 and January 20, 2000, under which senior notes and senior
discount notes were issued. Among other things, our indentures place certain
limitations on its ability, and the ability of its subsidiaries, to borrow
money, issue capital stock, pay dividends in stock or repurchase stock, make
investments, create certain liens, engage in certain transactions with
affiliates, and sell certain assets or merge with or into other companies.
Under the terms of our July and October indentures, if we raise additional
equity, UPC will be permitted to incur additional debt.
Restrictions under United Indentures
As a subsidiary of United, our activities are restricted by the covenants
in United's indenture dated February 5, 1998 and April 29, 1999. The United
indentures generally limit the additional amount of debt that we or our
subsidiaries or controlled affiliates may borrow, or preferred shares that we or
they may issue.
Sources of Capital
We had approximately 1,025.5 million of unrestricted cash and cash
equivalents on hand as of December 31, 1999. In addition, we had additional
borrowing capacity at the corporate and project debt level. In 1999 we raised
over Euro 5.0 billion from a combination of banks, bonds, and equity markets. We
intend to continue accessing these sources of capital, as well as other less
traditional sources including vendor financing, equity partners, and leasing
structures.
On January 20, 2000, we closed an offering of our 11 1/2% senior notes due
2010, our 11 1/4% senior notes due 2010 and our 13 3/4% senior discount notes
due 2010. The offering generated gross proceeds of approximately USD1.6 billion
(Euro1.6 billion). Proceeds from the bond offering will be used for working
capital and other general corporate purposes, including future acquisitions of
businesses and other possible investments, including our acquisition of K&T
Group.
Certain Dutch Property Tax Issues
One of our Dutch systems was assessed for a transfer tax on
immovable property in the amount of 0.8 million for the purchase of a cable
network. We have always regarded our cable networks as movable property and not
subject to such transfer tax. We are appealing this tax assessment. Should we be
unsuccessful, our Dutch systems may be assessed for taxes on similar
transactions. We cannot predict the extent to which the taxes could be assessed
retroactively or the amount of tax that our systems may be assessed for,
although it may be substantial, being 6% of the value attributable to our
systems at the date of transfer. Because we own 100% of UPC Nederland, any tax
liabilities assessed against our Dutch systems will be consolidated with our
results. We believe that, if our appeal is unsuccessful, most cable television
companies and other utilities in The Netherlands would become subject to similar
tax liabilities. If this happens, we expect these entities would lobby the Dutch
tax authorities with us against such tax assessments. We cannot assure that such
lobbying would be successful. In October 1999, the Dutch tax authorities issued
an assessment on the 1995 tax return of one of our subsidiaries. The assessment,
on a taxable amount of approximately 36.3 million, resulted in a tax payable of
approximately 12.7 million. The Dutch tax authorities indicated that this
assessment was issued to reserve the rights of the Dutch tax authorities pending
expiration of time under the statute of limitations. The assessment does not
express an opinion of the Dutch tax authorities on the taxes due and is still
subject to discussion. We filed an appeal against the assessment, to defend our
tax filing position, if necessary.
54
Inflation and Foreign Currency Exchange Rate Losses
To date, we have not been impacted materially by inflation.
The value of our monetary assets and liabilities is affected by
fluctuations in foreign currency exchange rates as accounts payable for certain
equipment purchases and certain operating expenses, such as DTH and programming
expenses, are denominated in currencies other than the functional currency of
the entity making such payments. We and some of our operating companies have
notes payable and notes receivable that are denominated in, and loans payable
that are linked to, a currency other than their own functional currency,
exposing us to foreign currency exchange risks on these monetary assets and
liabilities. Historically, we and our operating companies have not hedged our
exposure to foreign currency exchange rate operating risks. Accordingly, we may
experience economic loss and a negative impact on earnings and equity with
respect to our holdings solely as a result of foreign currency exchange rate
fluctuations. In connection with our offerings of senior notes in July 1999,
October 1999 and January 2000 we entered into cross-currency swap agreements,
exchanging dollar denominated notes for Euro denominated notes.
The functional currency for our operations generally is the applicable
local currency for each operating company. We have consolidated operations in
countries outside of the European Monetary Union including Norway, Sweden,
Poland, Ireland, Hungary, Romania, Slovak Republic and operations which report
in US dollars. Assets and liabilities of foreign subsidiaries are translated at
the exchange rates in effect at period-end, and the statements of operations are
translated at the average exchange rates during the period. Exchange rate
fluctuations on translating foreign currency financial statements into Euros
result in unrealized gains or losses referred to as translation adjustments.
Cumulative translation adjustments are recorded as a separate component of
shareholders' equity. Transactions denominated in currencies other than the
local currency are recorded based on exchange rates at the time such
transactions arise. Subsequent changes in exchange rates result in transaction
gains and losses which are reflected in income as unrealized, based on period-
end translations, or realized upon settlement of the transactions.
Cash flows from our operations in foreign countries are translated based on
their reporting currencies. As a result, amounts related to assets and
liabilities reported on the condensed consolidated statements of cash flows will
not agree to changes in the corresponding balances on the condensed consolidated
balance sheets. The effects of exchange rate changes on cash balances held in
foreign currencies are reported as a separate line below cash flows from
financing activities.
New Accounting Principles
The Financial Accounting Standards Board ("FASB") recently issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which requires that companies
recognize all derivatives as either assets or liabilities in the balance sheet
at fair value. Under this statement, accounting for changes in fair value of a
derivative depends on its intended use and designation. In June 1999, the FASB
approved Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of Effective Date of
FASB Statement No. 133" ("SFAS 137"). SFAS 137 amends the effective date of SFAS
133, which will now be effective for our first quarter 2001. We are currently
assessing the effect of this new standard.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 ("SAB 101") "Views on Selected Revenue
Recognition Issues" which provides the staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. SAB 101
is effective second quarter of 2000. We have evaluated SAB 101 and believe there
is no effect on our revenue recognition policies currently in place.
European Economic and Monetary Union
On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the Euro. The participating countries adopted the Euro as their
common legal currency on that day. The Euro trades on currency exchanges and is
available for non-cash transactions during the transition period between January
1, 1999 and January 1, 2002. During this transition period, the existing
currencies are scheduled to remain legal tender in the participating countries
as denominations of the Euro and public and private parties may pay for goods
and services using either the Euro or the participating countries' existing
currencies.
During the transition period, all operating companies' billing systems will
include amounts in Euro as well as the respective country's existing currency.
All of our accounting and management reporting systems currently are multi-
currency.
We do not expect the introduction of the Euro to affect materially our
operations. However, we do believe the introduction of the Euro will reduce our
exposure to risk from foreign currency and interest rate fluctuations.
Year 2000 Conversion
Our cable television operation is heavily dependent upon computer systems and
other technological devices with embedded chips. Such computer systems and other
technological devices did not experience any problems related to recognizing
dates of January 2000 and thereafter. In all material respects, our multi-
channel television and telephony systems or programming services continued to
operate during the period December 31, 1999 to March 30, 2000.
Year 2000 Program
In response to possible Year 2000 problems, the Board of Directors of United
established a task force to assess the impact that potential Year
2000 problems might have on company-wide operations, including us and our
operating companies, and to implement necessary changes to address such
problems. The task force reported directly to the United Board. In creating a
program to minimize Year 2000 problems, the task force identified certain
critical operations of our business. These critical operations were identified
as service delivery systems, field and headend devices, customer service and
billing systems and corporate management and administrative operations (e.g.,
cash flow, accounts payable and accounts receivable, payroll and building
operations).
The Task Force established a three-phase program to address potential Year
2000 problems:
(a) Identification Phase: identify and evaluate computer systems and
other devices (e.g., headend devices, switches and set top boxes)
on a system by system basis for Year 2000 compliance.
(b) Implementation Phase: establish a database and evaluate the
information obtained in the Identification Phase, determine
priorities, implement corrective procedures, define costs and
ensure adequate funding.
(c) Testing Phase: test the corrective procedures to verify that all
material compliance problems will operate on and after January 1,
2000, and develop, as necessary, contingency plans for material
operations.
The task force completed these Phases on substantially all critical operations
prior to year-end 1999. As a result, we believe all material corporate
operations are in compliance for Year 2000 and do not require material
remediation or replacement. During the period December 31, 1999 to March 30,
2000, our operations continue to function in the ordinary course in all material
respects. We experienced no material business interruptions or material
problems, with respect to our operations arising from Year 2000 issues. We know
of no remaining contingencies.
Third Party Dependencies
Although we believed our largest Year 2000 risk was our dependency upon third-
party products, we experienced no Year 2000 issues as a result of such
dependency. To our knowledge, no further significant contingencies exist based
on our dependency upon third party products. We cannot, however, give any
assurance concerning compliance of our equipment because our responses from
third-party vendors have been limited and cannot be independently verified.
Costs of Compliance
The task force is not able to determine the full cost of its Year 2000 program
and its related impact on our financial condition. In the course of our
business, we have made substantial capital adjustments over the past few years
in improving our systems, primarily for reasons other than Year 2000. Because
these upgrades also resulted in Year 2000 compliance, replacement and
remediation costs have been low. Therefore, the task force's estimate of the
cost of the Year 2000 program at Euro4.0 million remains unchanged. Included in
such costs is approximately Euro2.0 million spent on billing systems for Year
2000. The task force accelerated these expenditures to 1999 to insure Year 2000
compliance; otherwise these costs would have been incurred over approximately
two to three years. Such costs do not, however, include internal costs because
we did not separately track the internal costs incurred for the Year 2000
program. The costs incurred for Year 2000 compliance issues did not have a
material financial impact on the Company. We anticipate no additinal significant
expenditures for the Year 2000 program.
55
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Investment Portfolio
As of December 31, 1999, UPC has cash and cash equivalents of approximately
1,025.5 million. UPC has invested this cash in highly liquid instruments which
meet high credit quality standards with original maturities at the date of
purchase of less than three months. These investments will be subject to
interest rate risk and foreign exchange fluctations (with respect to amounts
invested in currencies outside the European Monetary Union), however, the
Company does not expect any material losses with respect to its investment
portfolio.
Impact of Foreign Currency Rate Changes
We are exposed to foreign exchange rate fluctuations related to our
monetary assets and liabilities, including those of our operating subsidiaries,
which are denominated in currencies outside of the European Monetary Union. Our
exposure to foreign exchange rate fluctuations also arises from intercompany
charges.
The tables below provides information about UPC's and its consolidated
subsidiaries' foreign currency exchange risk for cash and debt which is
denominated in foreign currencies outside of the European Monetary Union as of
December 31,1999, including cash flows based on the expected repayment date and
related weighted-average interest rates for debt. The information is presented
in Euro equivalents, which is the Company's reporting currency. The
instruments' actual cash flows are denominated in US Dollars, Polish Zloty and
British Pounds.
Amount Outstanding
as of December 31, 1999
---------------------------
Book Value Fair Value
------------ -----------
Cash and Cash Equivalents
-------------------------
US Dollar 28,623 28,623
Polish Zloty 4,388 4,388
British Pound 2,000 2,000
|
56
Amount Outstanding Expected Repayment
as of December 31, 1999 as of December 31,
---------------------------- ----------------------------------------
Book Value Fair Value 2000 2001 2002 2003 2004
---------- ----------- ------ ----- ------ ------- -----
Dollar Denominated Facilities
DIC Loan 39,121 39,121 39,121 - - - -
8.0% per annum + 6.0% of
principal at maturity
Stjarn Seller's Note 99,378 99,378 99,378 - - - -
8.0% per annum
UPC USD Senior Discount Notes, 2009 419,123 412,691 - - - - -
12.5 % per annum
UPC USD Senior Discount Notes, 2009 254,195 270,765 - - - - -
13.375 % per annum
PCI Notes 16,355 16,355 - - - 16,355 -
9.875% per annum
@Entertainment 115,263 115,263 - - - - -
1998 Senior Discount Notes
14.5% per annum
@Entertainment 140,925 140,925 - - - - -
1999 Senior Discount Notes
14.5% per annum
@Entertainment 11,767 11,767 - - - - -
1999 Series C Senior Discount Notes
7.0% per annum on the principal
amount at maturity
Monor Facility 33,280 33,280 33,280 - - - -
6.6% per annum
|
Historically, we and our operating companies have not executed hedge
transactions to reduce the Company's exposure to foreign currency exchange rate
risk related to our. Accordingly, the Company may experience economic loss and
a negative impact on earnings and equity with respect to its holdings solely as
a result of foreign currency exchange rate fluctuations. In connection with our
offering of senior notes in July 1999 and October 1999, we entered into cross-
currency swap agreements, exchanging dollar denominated notes for Euro
denominated notes.
Interest Rate Sensitivity
The table below provides information about the our financial instruments
that are sensitive to changes in interest rates as of December 31,1999,
including cash flows based on the expected repayment dates and the related
weighted-average interest rates. The information is presented in Euro
equivalents, which is the Company's reporting currency.
57
Amount Outstanding Expected Repayment
as of December 31, 1999 as of December 31,
--------------------------------------------------------------------------
Book Value Fair Value 2000 2001 2002 2003 2004
---------- ---------- ----- ------ ----- ----- ------
Variable Rate Facilities
------------------------
UPC Euro Senior Notes, 2009 754,717 771,141 - - - - -
EURIBOR+4.15% and 8.54%,
average rate in 1999 of 7.15% and 8.54%
UPC 10 7/8% USD Senior Notes due 2007 190,658 205,240 - - - - -
EURIBOR+4.8% and 9.92%,
average rate in 1999 of 8.3% and 9.92%
UPC USD Senior Notes due 2009 238,412 260,450 - - - - -
EURIBOR+4.8% and 9.92%,
average rate in 1999 of 8.3% and 9.92%
UPC Senior Credit Facility 357,482 357,482 - - 58,604 73,256 91,569
EURIBOR/LIBOR + 0.75% to 2.0%,
average rate in 1999 of 5.67%
New Telekabel Facility 255,263 255,263 - - 12,750 25,500 51,000
EURIBOR + 0.75% to 2.0%,
average rate in 1999 of 4.9%
CNBH Facility 121,556 121,556 1,029 8,400 15,600 21,600 22,800
AIBOR + 0.6% to 1.6%
average rate in 1999 of 4.5%
Gelrevision Facility 3,345 3,345 3,345 - - - -
EURIBOR+1.5%,
average rate in 1999 of 6.0%
Mediareseaux Facility 44,912 44,912 - 44,912 - - -
LIBOR +0.75% to 2.0%,
average rate in 1999 of 4.88%
RCF Facility 31,654 31,654 31,654 - - - -
PIBOR + 1.5%,
average rate in 1999 of 4.35%
RVC Facility 60,979 60,979 - 60,979 - - -
LIBOR + 1.0%,
average rate in 1999 of 3.72%
A2000 Facility (1) 207,831 207,831 207,831 - - - -
AIBOR + 0.7% to 0.75%, or
fixed rate advance + 0.7% to 0.75%,
average rate in 1999 of 5.9%
|
(1) A2000 replaced these facilities by a new credit facility. See Note 9.
58
Amount Outstanding Expected Repayment
as of December 31, 1999 as of December 31,
------------------------- -----------------------------------------------
Book Value Fair Value 2000 2001 2002 2003 2004
----------- ----------- -------- --------- ------- ------- -------
Fixed Rate Facilities
---------------------
DIC Loan 39,121 39,121 39,121 - - - -
8.0% per annum + 6.0% of
principal at maturity
Videopole Facility 7,704 7,704 7,704 - - - -
6.60% per annum
UPC Euro Senior Notes, 2009 300,000 303,750 - - - - -
10.875% per annum
UPC USD Senior Discount Notes, 2009 419,123 412,691 - - - - -
12.5 % per annum
UPC USD Senior Discount Notes, 2009 254,195 270,765 - - - - -
13.375 % per annum
UPC Euro Senior Discount Notes, 2009 102,207 106,005 - - - - -
13.375 % per annum
UPC Euro Senior Notes, 2007 100,000 102,000 - - - - -
10.875 % per annum
UPC Euro Senior Notes, 2007 100,267 103,020 - - - - -
11.25 % per annum
PCI Notes 16,355 16,355 - - - 16,355 -
9.875% per annum
@Entertainment 1998 Senior Discount Notes 115,263 147,028 - - - - -
14.5% per annum
@Entertainment 1999 Senior Discount Notes 140,925 145,099 - - - - -
14.5% per annum
@Entertainment 1999 Series C Senior Discount Notes 11,767 11,767 - - - - -
7.0% per annum on the principal
amount at maturity
Stjarn Seller's Note 99,378 99,378 99,378 - - - -
8.0% per annum
Monor Loan DEM 59 & USD 6.3 33,280 33,280 33,280 - - - -
6.66% per annum
|
Equity Prices
As of December 31, 1999, we are exposed to equity price fluctuations
related to our investments in United and Primacom stock, which are classified as
an investments available for sale. Changes in the price of the stock are
reflected as unrealized gains (losses) in our statement of shareholders' equity,
until such time as the stock is sold and any unrealized gain (loss) will be
reflected in the statement of operations.
Fair Value as of
Number of Shares December 31, 1999
----------------------------------------------------
(Stated in thousands of Euros, except share amounts)
United 5,569,240 390,881
Primacom AG 3,599,858 230,441
|
59
As of December 31, 1999, we are also exposed to equity price fluctuations
related to our debt which is convertible into our ordinary shares. The table
below provides information about our convertible debt, including expected cash
flows and related weighted-average interest rates.
Amount Outstanding Expected Repayment
as of December 31, 1999 as of December 31,
------------------------ ------------------
Convertible Debt Book Value Fair Value 2000 2001
---------------- ---------- ---------- ------ -------
DIC Loan 39,121 39,121 39,121 -
8.0% per annum + 6.0% of
principal at maturity
Stjarn Seller's Note 99,378 99,378 99,378 -
8.0% per annum
|
Cross-Currency Swap
Concurrent with the closing of our senior notes offering in July 1999, we
entered into a cross-currency swap, swapping the USD800.0 million, 10 7/8% fixed
rate senior notes into fixed and variable rate Euro notes with a notional amount
totaling Euro754.7 million. One half of the Euro notes (Euro377.35 million) have
a fixed interest rate of 8.54% through August 1, 2004, thereafter switching to a
variable interest rate of EURIBOR + 4.15%. The remaining Euro377.35 million have
a variable interest rate of EURIBOR + 4.15% through August 1, 2009. The cross-
currency swap provides the bank with the right to terminate the swap at fair
value commencing August 1, 2004 with the payment of a call premium equal to the
call premium which we would pay to the USD800.0 million senior note holders if
the notes are called on or after August 1, 2004. We accounted for the cross-
currency swap by bifurcating the instrument into two components, (1) the swap of
USD fixed rate debt for Euro variable and fixed rate debt through August 1, 2004
(the earliest call date) and (2) the residual portion of the cross-currency
swap. The swap of USD fixed rate debt for Euro variable and fixed rate debt is
accounted for as a hedge, and accordingly we carry the Euro denominated debt on
the balance sheet and recognize interest expense according to the provisions of
the Euro debt. The residual portion of the cross-currency swap is marked to fair
value at each reporting period through the statement of operations. The fair
value of the Euro debt at December 31, 1999 is equal to the fair value of the
USD800.0 million senior notes adjusted for the fair value of the swap component,
which was a gain of Euro35.8 million at December 31, 1999. The fair value of the
residual portion of the cross-currency swap was a loss of Euro3.6 million at
December 31, 1999.
October 1999 Senior Notes Offering
Concurrent with the closing of our senior notes in October 1999, we entered
into a cross-currency swap, swapping the USD252.0 million, 11 1/4% fixed rate
senior notes into fixed and variable rate Euro notes with a notional amount
totaling Euro240.2 million. One half of the Euro notes (Euro120.1 million) have
a fixed interest rate of 9.92% through November 1, 2004, thereafter switching to
a variable interest rate of EURIBOR + 4.80%. The remaining Euro120.1 million
have a variable interest rate of EURIBOR + 4.80% through November 1, 2009. The
cross-currency swap provides the bank with the right to terminate the swap at
fair value commencing November 1, 2004 with the payment of a call premium equal
to the call premium which we would pay to the USD252.0 million senior note
holders if the notes are called on or after November 1, 2004. We accounted for
the swap as described above. The fair value of the Euro debt at December 31,
1999 is equal to the fair value of the USD252. million senior notes adjusted for
the fair value of the swap component, which was a gain of Euro1.7 million at
December 31, 1999. The fair value of the residual portion of the cross-currency
swap was a gain of Euro0.5 million at December 31, 1999.
January 2000 Senior Notes Offering
In January 2000, we closed a bond offering consisting of four tranches:
USD300.0 million of senior notes due 2010 with a 11 1/2% coupon; USD600.0
million and Euro200.0 million of senior notes due 2010 with a 11 1/4% coupon;
and USD1,000.0 million aggregate principal amount of ten year 13 3/4% senior
discount notes due 2010. The USD300.0 million of senior notes were swapped into
euro notes with a fixed rate below 10%.
60
Item 8. Financial Statements and Supplementary Data
The financial statement schedules and separate financial statements of
significant equity investees required by regulation S-X are filed under Item 14
"Exhibits, Financial Statement Schedules and Reports on Form 8-K".
61
Report of Independent Public Accountants
To the Shareholders of United Pan-Europe Communications N.V.:
We have audited the accompanying consolidated balance sheets of United
Pan-Europe Communications N.V. (a N.V. registered in The Netherlands) and
subsidiaries as of December 31, 1999 and December 31, 1998 (post acquisition -
see Note 1) and the related consolidated statements of operations, shareholders'
equity (deficit) and cash flows for the years ended December 31, 1999, December
31, 1998 (post acquisition - see Note 1) and December 31, 1997 (pre-acquisition
- see Note 1). These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, the Company's
parent company (United International Holdings, Inc.) acquired the remaining 50%
interest in the Company effective December 11, 1997. Accordingly, the assets,
liabilities and shareholders' equity acquired have been adjusted to reflect its
parent's basis in the underlying net assets of the Company as of December 11,
1997. The proportional assets and liabilities acquired were recorded based upon
their relative fair market values at the date of acquisition. Accordingly, the
pre-acquisition and post-acquisition consolidated financial statements are not
comparable in certain significant respects since these consolidated financial
statements report the financial position, results of operations and cash flows
on two separate accounting bases.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of United Pan-Europe
Communications N.V. as of December 31, 1999 and December 31, 1998 (post-
acquisition - see Note 1) and the results of its operations and its cash flows
for the years ended December 31, 1999, December 31, 1998 (post-acquisition - see
Note 1) and December 31, 1997 (pre-acquisition - see Note 1) in conformity with
accounting principles generally accepted in the United States of America.
ARTHUR ANDERSEN
Amstelveen, The Netherlands,
March 28, 2000.
62
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED BALANCE SHEETS
(Stated in thousands of Euros, except share and per share amounts)
As of As of
December 31, December 31,
1999 1998
------------ ------------
ASSETS:
Current assets
Cash and cash equivalents........................................................................... 1,025,460 13,419
Restricted cash..................................................................................... 17,135 13,733
Subscriber receivables, net of allowance for doubtful accounts of 16,754 and 4,202, respectively.... 59,860 5,847
Costs to be reimbursed by affiliated companies, net of allowance for doubtful accounts of 63
and 0, respectively........................................................................ 10,500 12,378
Other receivables................................................................................... 84,379 11,728
Inventory........................................................................................... 66,403 10,946
Prepaid expenses and other current assets........................................................... 72,925 7,103
--------- -------
Total current assets.............................................................................. 1,336,662 75,154
Other Investments..................................................................................... 623,341 45,876
Investments in and advances to affiliated companies, accounted for under the equity method, net....... 242,847 223,737
Property, plant and equipment, net of accumulated depreciation of 194,205 and 39,800, respectively.... 1,908,414 273,628
Goodwill and other intangible assets, net of accumulated amortization of 133,667 and 17,747,
respectively...................................................................................... 2,611,413 308,585
Deferred financing costs, net of accumulated amortization of 5,937 and 4,215, respectively............ 77,861 9,830
Other assets.......................................................................................... 1,734 1,507
--------- -------
Total assets....................................................................................... 6,802,272 938,317
========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT):
Current liabilities
Accounts payable, including related party payables of 2,785 and 7,111, respectively................. 250,858 64,399
Accrued liabilities................................................................................. 273,141 25,793
Subscriber prepayments and deposits................................................................. 41,208 20,764
Short-term debt..................................................................................... 163,241 28,734
Note payable to shareholder......................................................................... - 79,417
Current portion of long-term debt................................................................... 50,291 51,513
--------- -------
Total current liabilities......................................................................... 778,739 270,620
Long-term debt........................................................................................ 3,903,410 533,078
Deferred taxes........................................................................................ 15,961 3,928
Deferred compensation................................................................................. 52,702 148,588
Other long-term liabilities........................................................................... 19,365 3,994
--------- -------
Total liabilities................................................................................. 4,770,177 960,208
--------- -------
Minority interests in subsidiaries.................................................................... 11,895 11,768
Shareholders' equity (deficit) (As adjusted for stock splits, see Note 10)
Priority stock, 1.0 par value,300 shares authorized, 300 and 0 shares issued, respectively........ - -
Ordinary stock, 1.0 par value,600,000,000 shares authorized, 435,604,497 and 276,856,812
shares issued, respectively...................................................................... 435,605 83,057
Additional paid-in capital.......................................................................... 2,371,951 249,797
Deferred compensation............................................................................... (47,425) -
Treasury stock, at cost, 0 and 27,594,405 shares of ordinary stock, respectively.................... - (50,091)
Accumulated deficit................................................................................. (1,114,219) (329,921)
Other cumulative comprehensive income............................................................... 374,288 13,499
--------- -------
Total shareholders' equity (deficit).............................................................. 2,020,200 (33,659)
--------- -------
Total liabilities and shareholders' equity (deficit).............................................. 6,802,272 938,317
========= =======
|
The conversion of Dutch Guilder amounts into Euros related to the financial
information presented prior to the creation of the Euro, was calculated using
the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch
Guilders.
The accompanying notes are an integral part of these consolidated financial
statements.
63
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of Euros, except share and per share amounts)
For the Years Ended December 31,
------------------------------------------------------------
1999 1998 1997
----------------- ------------------ -----------------
(Post-Acquisition) (Post-Acquisition) (Pre-Acquisition)
Service and other revenue......................................... 447,501 185,582 153,040
Operating expense................................................. (293,778) (62,830) (53,777)
Selling, general and administrative expense....................... (466,260) (218,587) (54,030)
Depreciation and amortization..................................... (266,070) (85,150) (60,302)
----------- -------- -------
Net operating loss.......................................... (578,607) (180,985) (15,069)
Interest income................................................... 28,064 3,357 2,955
Interest expense.................................................. (185,220) (41,888) (19,057)
Interest expense related party.................................... (1,188) (5,467) (13,043)
Gain on sale of assets............................................ 1,501 - -
Provision for loss on investment related costs.................... - (2,827) (8,571)
Foreign exchange gain (loss) and other income (expense), net...... (22,561) 1,221 (18,634)
----------- ----------- -----------
Net loss before income taxes and other items................ (758,011) (226,589) (71,419)
Share in results of affiliated companies, net..................... (29,760) (28,962) (11,552)
Minority interests in subsidiaries................................ 1,651 523 69
Income tax benefit (expense)...................................... 1,822 (551) 748
----------- ----------- -----------
Net loss.................................................... (784,298) (255,579) (82,154)
=========== =========== ===========
Basic and diluted net loss per ordinary share(1).................. (2.08) (1.03) (0.30)
=========== =========== ===========
Weighted-average number of ordinary shares
outstanding(1).................................................. 377,969,829 247,915,834 275,421,933
=========== =========== ===========
|
(1) As adjusted for the stock splits. See Note 10.
The conversion of Dutch Guilder amounts into Euros related to the financial
information presented prior to the creation of the Euro, was calculated using
the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch
Guilders.
The accompanying notes are an integral part of these consolidated financial
statements.
64
PAGE>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT)
(Stated in thousands of Euros, except share amounts)
Additional
Priority Stock Ordinary Stock Paid-In Deferred
------------------ ------------------------- ----------- -------------
Shares Amount Shares (2) Amount Capital Compensation
-------- -------- ------------- --------- ----------- -------------
Balances, December 31, 1996 (Pre-Acquisition)....... - - 276,187,767 82,856 75,577
Contribution by United of additional investment
affiliate....................................... - - - - 5,446 -
Gain on sale of stock by subsidiary................. - - - - 1,486 -
Change in cumulative translation adjustments........ - - - - - -
Net loss for the period from January 1, 1997 to
December 10, 1997............................... - - - - - -
Total comprehensive (loss).......................... - - - - - -
-------- -------- ------------- --------- ----------- -------------
Balances, December 10, 1997 (Pre-Acquisition)....... - - 276,187,767 82,856 82,509
Buyout of shareholder's interest.................... - - - - - -
Reissuance of shares upon conversion of PIK........ -
Notes........................................... - - - - (5,571) -
Application of push-down accounting and............ -
step-up in basis................................ - - - - 233,587 -
Elimination of historical accumulated deficit of
UPC attributable to Philips..................... - - - - (70,193) -
Net loss for the period from December 11, 1997
to December 31, 1997........................... - - - - - -
Total comprehensive income (loss)................... - - - - - -
-------- -------- ------------- --------- ----------- -------------
Balances, December 31, 1997 (Post-Acquistion)....... - - 276,187,767 82,856 240,332
Issuance of shares for acquisition of receivable.... - - 669,045 201 973 -
Contribution by United of additional investment
in affiliate.................................... - - - - 3,530 -
Issuance of convertible debt........................ - - - - 4,962 -
Unrealized gain on investment....................... - - - - - -
Gain on sale of investment.......................... - - - - - -
Change in cumulative translation adjustments........ - - - - - -
Net loss............................................ - - - - - -
Total comprehensive income (loss)................... - - - - - -
-------- -------- ------------- --------- ----------- -------------
Balances, December 31, 1998 (Post-Acquisition)...... - - 276,856,812 83,057 249,797 -
======== ======== ============= ========= =========== =============
Other
Cumulative
Comprehensive
Treasury Stock Accumulated Income
---------------------------
Shares (2) Amount Deficit (Loss)(1) Total
------------ ---------- ------------- -------------- ----------
Balances, December 31, 1996 (Pre-Acquisition)....... - - (62,382) 1,030 97,081
Contribution by United of additional investment
affiliate....................................... - - - - 5,446
Gain on sale of stock by subsidiary................. - - - - 1,486
Change in cumulative translation adjustments........ - - - (210) (210)
Net loss for the period from January 1, 1997 to
December 10, 1997............................... - - (78,004) - (78,004)
----------
Total comprehensive (loss).......................... - - - - (78,214)
------------ ----------- ------------- -------------- ==========
Balances, December 10, 1997 (Pre-Acquisition)....... - - (140,386) 820 25,799
Buyout of shareholder's interest.................... (73,135,188) (132,759) - - (132,759)
Reissuance of shares upon conversion of PIK
Notes........................................... 45,540,783 82,668 - - 77,097
Application of push-down accounting and
step-up in basis................................ - - - - 233,587
Elimination of historical accumulated deficit of
UPC attributable to Philips..................... - - 70,193 - -
Net loss for the period from December 11, 1997
to December 31, 1997........................... - - (4,149) - (4,149)
----------
Total comprehensive income (loss)................... - - - - (4,149)
------------ ----------- ------------- -------------- ==========
Balances, December 31, 1997 (Post-Acquistion)....... (27,594,405) (50,091) (74,342) 820 199,575
Issuance of shares for acquisition of receivable.... - - - - 1,174
Contribution by United of additional investment
in affiliate.................................... - - - - 3,530
Issuance of convertible debt........................ - - - - 4,962
Unrealized gain on investment....................... - - - 20,068 20,068
Gain on sale of investment.......................... - - - (829) (829)
Change in cumulative translation adjustments........ - - - (6,560) (6,560)
Net loss............................................ - - (255,579) - (255,579)
----------
Total comprehensive income (loss)................... - - - - (242,900)
------------ ----------- ------------- -------------- ==========
Balances, December 31, 1998 (Post-Acquisition)...... (27,594,405) (50,091) (329,921) 13,499 (33,659)
============ =========== ============= ============== ==========
|
The conversion of Dutch Guilder amounts into Euros related to the financial
information presented prior to the creation of the Euro, was calculated using
the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch
Guilders.
The accompanying notes are an integral part of these consolidated financial
statements.
65
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Stated in thousands of Euros, except share amounts)
Priority Stock Ordinary Stock Additional
----------------- --------------------- Paid-In Deferred
Shares Amount Shares (2) Amount Capital Compensation
------ ------ ---------- ------ ---------- ------------
Balances, December 31, 1998.................. - - 276,856,812 83,057 249,797 -
Change in par value of
ordinary shares.......................... - - - 193,800 (193,800) -
Issuance of priority shares................. 300 - - - - -
Issuance of ordinary shares
in public offering, net of
offering costs........................... - - 106,205,595 106,206 1,050,462 -
Issuance of ordinary shares
in public offering, net of
offering costs........................... - - 45,000,000 45,000 806,457 -
Issuance of convertible debt................ - - - - 13,162 -
Issuance of ordinary shares
upon exercise of DIC
option................................... - - 4,675,962 4,676 36,005 -
Issuance of ordinary
shares for acquisition
of Videopole............................. - - 2,866,128 2,866 58,298 -
Conversion of United Loan to equity......... - - - - 6,559 -
Issuance of warrants........................ - - - - 29,223 -
Change in stock option
plan due to public
offering................................. - - - - 140,717 (14,418)
Deferred compensation
expense related to
stock options, net....................... - - - - 175,071 (154,598)
Amortization of deferred
compensation............................. - - - - - 121,591
Unrealized gain on
investment............................... - - - - - -
Change in cumulative
translation adjustments................. - - - - - -
Net loss................................... - - - - - -
Total comprehensive income (loss).......... - - - - - -
------ ------- ------------ ------- --------- -------
Balances, December 31, 1999.................. 300 - 435,604,497 435,605 2,371,951 (47,425)
====== ======= ============ ======= ========= =======
Cumulative
Comprehensive
Treasury Accumulated Income
--------------------
Shares (2) Amount Deficit (Loss) (1) Total
----------- ------ ----------- ------------- --------------
Balances, December 31, 1998.................. (27,594,405) (50,091) (329,921) 13,499 (33,659)
Change in par value of
ordinary shares.......................... - - - - -
Issuance of priority shares................. - - - - -
Issuance of ordinary shares
in public offering, net of
offering costs........................... 27,594,405 50,091 - - 1,206,759
Issuance of ordinary shares
in public offering, net of
offering costs........................... - - - - 851,457
Issuance of convertible debt................ - - - - 13,162
Issuance of ordinary shares
upon exercise of DIC
option................................... - - - - 40,681
Issuance of ordinary
shares for acquisition - - - - 61,164
of Videopole.............................
Conversion of United Loan to equity......... - - - - 6,559
Issuance of warrants........................ - - - - 29,223
Change in stock option
plan due to public
offering................................. - - - - 126,299
Deferred compensation
expense related to
stock options, net....................... - - - - 20,473
Amortization of deferred
compensation............................. - - - - 121,591
Unrealized gain on
investment............................... - - - 351,026 351,026
Change in cumulative
translation adjustments................. - - - 9,763 9,763
Net loss................................... - - (784,298) - (784,298)
---------
Total comprehensive income (loss).......... - - - - (423,509)
----------- ------- ---------- ------- =========
Balances, December 31, 1999.................. - - (1,114,219) 374,288 2,020,200
=========== ======= ========== ======= =========
|
(1) As of December 31, 1997, Other Cumulative Comprehensive Income (Loss)
represents foreign currency translation adjustments. As of December 31, 1998,
Other Cumulative Comprehensive Income represents foreign currency translation
adjustments of (5,740) and unrealized gain on investment of 19,239. As of
December 31, 1999, Other Cumulative Comprehensive Income represents foreign
currency translation adjustments of 4,023 and unrealized gain on investment of
370,265.
(2) As adjusted for the stock splits. The change in nominal value is reflected
in the year ended December 31, 1999. See Note 10.
The conversion of Dutch Guilder amounts into Euros related to the financial
information presented prior to the creation of the Euro, was calculated using
the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch
Guilders.
The accompanying notes are an integral part of these consolidated
financial statements.
66
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of Euros)
For the Years Ended December 31,
1999 1998 1997
----------------- ------------------ -----------------
(Post-Acquisition) (Post-Acquisition) (Pre-Acquisition)
Cash flows from operating activities:
Net loss....................................................... (784,298) (255,579) (82,154)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization.............................. 266,070 85,150 60,302
Amortization of deferred financing costs................... 10,463 4,190 291
Accretion of interest...................................... 37,151 - -
Share in results of affiliated companies, net.............. 29,760 28,962 11,552
Compensation expense related to stock options.............. 192,710 146,402 2,186
Minority interests in subsidiaries......................... (1,651) (523) (69)
Exchange rate differences in loans......................... 41,360 (5,742) 19,713
Gain on sale of investment................................. (6,637) (829) -
Loss on repayment of DIC loan.............................. 2,274 - -
Provision for loss on investment related costs............. - 2,827 8,571
Other...................................................... (5,223) 789 444
Changes in assets and liabilities: -
Increase in receivables.................................. (75,185) (8,957) 10,937
Increase in inventories.................................. (26,260) (3,934) (1,011)
Increase in other non-current assets..................... (18,512) (909) (1,154)
Increase in other current liabilities.................... 217,844 35,028 31,561
Increase (decrease) in deferred taxes and other
long-term liabilities................................. 8,424 6,251 (1,074)
-------- -------- --------
Net cash flows from operating activities....................... (111,710) 33,126 60,095
-------- -------- --------
Cash flows from investing activities:
Restricted cash (deposited) released, net...................... (3,409) (3,650) (10,083)
Purchase of parent company's stock............................. - - (30,316)
Investment in securities, net.................................. (255,133) - -
(Investments in and advances to) repayment from ...............
affiliated companies, net.................................. (120,165) (90,903) (1,756)
Capital expenditures........................................... (583,253) (127,820) (66,084)
New acquisitions, net of cash acquired......................... (1,927,333) (95,312) (58,030)
Release to acquire minority interest in subsidiary............. - 21,328 (21,328)
Sale of affiliated companies................................... 16,648 18,032 5,023
-------- -------- --------
Net cash flows from investing activities....................... (2,872,645) (278,325) (182,574)
-------- -------- --------
Cash flows from financing activities:
Proceeds from initial public offering, net..................... 1,206,759 - -
Proceeds from secondary public offering, net................... 851,457 - -
Proceeds from senior notes..................................... 2,393,451 - -
Proceeds from exercise of DIC option........................... 40,681 - -
Proceeds from short-term borrowings............................ 13,118 13,337 118,237
Proceeds from long-term borrowings............................. 723,915 240,336 518,008
Deferred financing costs....................................... (75,154) (4,548) (11,156)
Repayments of long and short-term borrowings................... (1,069,704) (114,645) (266,791)
(Repayments) borrowings on note payable to shareholder......... (71,442) 79,901 -
Dividends paid to minority shareholder......................... - (236) (78)
Redemption of convetible loans................................. - - (77,311)
Purchase shares from shareholder............................... - - (132,758)
Repayments on short-term note.................................. (16,499) - -
--------- -------- --------
Net cash flows from financing activities....................... 3,996,582 214,145 148,151
--------- -------- --------
Effect of exchange rates on cash............................... (186) (970) (32)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents 1,012,041 (32,024) 25,640
Cash and cash equivalents at beginning of period............... 13,419 45,443 19,803
--------- -------- --------
Cash and cash equivalents at end of period..................... 1,025,460 13,419 45,443
========= ======== ========
|
The conversion of Dutch Guilder amounts into Euros related to the financial
information presented prior to the creation of the Euro, was calculated using
the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch
Guilders.
The accompanying notes are an integral part of these consolidated
financial statements.
67
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS (2)
(Stated in thousands of Euros)
For the Years Ended December 31,
---------------------------------------
1999 1998 1997
------------- ------------- ------------
Non-cash investing and financing activities:
Unrealized gain (loss) on investment.............. 351,026 19,239 -
============ ============== ===========
Issuance of warrants.............................. 29,223 - -
============ ============== ===========
Purchase Money Note Payable to Sellers............ - 16,663
============ ============== ===========
Stjarn Seller's Note.................................. 93,479 - -
============ ============== ===========
Contribution of net assets of Dutch cable systems.....
to new joint venture.............................. - 117,599 -
============ ============== ===========
Conversion of share holder loan to equity............. 6,559 - -
============ ============== ===========
Shares issued for Videopole acquisition............... 61,164 - -
============ ============== ===========
Supplemental cash flow disclosures:
Cash paid for interest............................ (79,979) (27,574) (16,640)
============ ============== ===========
Cash received for interest........................ 26,085 1,606 1,046
============ ============== ===========
Acquisition of 49% of United Telekabel Holding N.V.:
Property, plant and equipment..................... (185,835) - -
Investments in affiliated companies............... (41,439) - -
Goodwill.......................................... (227,190) - -
Long-term liabilities............................. 214,613 - -
Net current liabilities........................... 4,765 - -
------------ -------------- -----------
Total cash paid............................... (235,086) - -
Cash acquired................................. 12,060 - -
------------ -------------- -----------
(223,026) - -
============ ============== ===========
Acquisition of Dutch Cable assets:
Property, plant and equipment and other assets.... - (48,101) -
Goodwill.......................................... - (33,926) -
------------ -------------- -----------
Total cash paid............................... - (82,027) -
============ ============== ===========
Acquisition of 100% of GelreVision:
Property, plant and equipment..................... (47,754) - -
Goodwill.......................................... (65,083) - -
Long-term liabilities............................. 4,094 - -
Net current liabilities........................... 2,592 - -
------------ -------------- -----------
Total cash paid............................... (106,151) - -
Cash acquired................................. 132 - -
------------ -------------- -----------
(106,019) - -
============ ============== ===========
Acquisition of 100% of Stjarn:
Property, plant and equipment..................... (40,356) - -
Goodwill.......................................... (413,264) - -
Long-term liabilities................................. 30,164 - -
Net current liabilities........................... 52,345 - -
------------ -------------- -----------
Total purchase price.................................. (371,111) - -
Seller's Note......................................... 93,479 - -
------------ -------------- -----------
Total cash paid............................... (277,632) - -
Cash acquired................................. 3,545 - -
------------ -------------- -----------
(274,087) - -
============ ============== ===========
|
The conversion of Dutch Guilder amounts into Euros related to the financial
information presented prior to the creation of the Euro, was calculated using
the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch
Guilders.
The accompanying notes are an integral part of these consolidated
financial statements.
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENT OF CASH FLOWS (3)
(Stated in thousands of Euros)
For the Years Ended December 31,
---------------------------------------------
1999 1998 1997
-------------- --------------- ------------
Acquisition of 100% of @ Entertainment, Inc:
Property, plant and equipment.................. (182,495) - -
Goodwill....................................... (917,983) - -
Other assets................................... (19,847) - -
Net current assets............................. (47,665) - -
Long-term liabilities.......................... 417,279 - -
-------------- --------------- ------------
Total cash paid.............................. (750,711) - -
Cash acquired................................ 58,147 - -
-------------- --------------- ------------
(692,564) - -
============== =============== ============
Acquisition of 50% of A2000:
Property, plant and equipment.................. (90,243) - -
Goodwill....................................... (256,469) - -
Net current liabilities........................ 23,429 - -
Long-term liabilities.......................... 121,446 - -
-------------- ---------------- ------------
(201,837) - -
Receivables assumed.......................... (12,211) - -
Total cash paid.............................. (214.048) - -
Cash acquired................................ 487 - -
-------------- ---------------- ------------
(213.561) - -
============== =============== ============
|
The conversion of Dutch Guilder amounts into Euros related to the financial
information presented prior to the creation of the Euro, was calculated using
the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch
Guilders.
The accompanying notes are an integral part of these consolidated financial
statements.
68
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Monetary amounts stated in thousands of Euros,
except share and per share amounts)
1. Organization and Nature of Operations
United Pan-Europe Communications N.V., formerly known as United and Philips
Communications B.V. ("UPC" or the "Company"), was formed for the purpose of
acquiring and developing multi-channel television and telecommunications systems
in Europe. On July 13, 1995, UnitedGlobalCom, Inc. (formely known as United
International Holdings, Inc. ("United")), a United States of America
corporation, and Philips Electronics N.V. ("Philips"), contributed their
respective ownership interests in European and Israeli multi-channel television
systems to UPC.
On December 11, 1997, United acquired Philips' 50% interest in UPC (the
"UPC Acquisition"), thereby making it an effectively wholly-owned subsidiary of
United (subject to certain employee equity incentive compensation arrangements).
Through its broadband communications networks in 12 countries in Europe and in
Israel, UPC currently offers communication services in many European countries
through its business lines: cable television, telephone, internet/data services
and direct-to-home ("DTH") and programming.
As part of the UPC Acquisition, (i) UPC purchased the 6,338,302 shares of
Class A Common Stock of United held by Philips (30,313), (ii) United purchased
77,097 of the accreted amount of UPC's PIK Notes and redeemed them for
45,540,783 shares of UPC, (iii) UPC repaid to Philips the remaining 77,311
accreted amount of the PIK Notes (154,195), (iv) United purchased 39,364,812
shares of UPC directly from Philips, and (v) UPC repurchased Philips' remaining
equity interest in UPC (73,135,188 shares). The UPC Acquisition was financed
with proceeds from a long-term revolving credit facility through UPC with a
syndicate of banks (138,494), a bridge bank facility through a subsidiary of UPC
USD111,200 (101,647) and a cash investment by United of 148,568. Approximately
217,360 drawn on the Senior Revolving Credit Facility was used to repay existing
debt of UPC in conjunction with the UPC Acquisition.
United's acquisition of Philips' interest in UPC was accounted for as a
step acquisition under purchase accounting. As a result of UPC becoming
effectively wholly owned by United, such purchase accounting adjustments, along
with existing basis differences, were pushed down to the financial statements of
UPC and a new basis of accounting was established for the UPC net assets
acquired by United. As of December 11, 1997, the proportional net assets of UPC
acquired by United were recorded at fair market value based on the purchase
price paid by United, along with additional basis differences at the United
level existing as of that date. The total consideration paid to Philips for
their 50% interest in UPC, the resulting amount paid in excess of Philips'
proportionate share of UPC's net assets at that date, plus United's existing
basis in excess of their proportionate share of UPC's net assets is summarized
below. In addition, the table below presents how such total excess was allocated
to UPC's underlying assets as of December 11, 1997.
69
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDAzTED FINANCIAL STATEMENTS, continued
UPC's net asset value at December 10, 1997............................................ 19,758
Cash paid to Philips by UPC for 73,135,188 shares in UPC.............................. (132,758)
Conversion by United of PIK notes acquired from Philips at cost to 45,540,783 of
UPC's shares....................................................................... 77,097
--------
UPC's net asset value prior to application of push down accounting.................... (35,903)
United's proportionate share of UPC's net assets at December 10, 1997................. 9,879
United's existing basis difference related to their original interest in UPC dating
back to July 1995 formation of UPC (as adjusted through December 10, 1997)......... 39,265
Cash paid to Philips by United for 39,364,812 shares in UPC........................... 71,443
Conversion by United of PIK notes acquired from Philips at cost to 45,540,783 of
UPC's shares.......................................................................... 77,097
--------
197,684
--------
Total purchase accounting adjustment 233,587
========
The total purchase accounting adjustments were allocated to UPC's underlying assets as
follows:
Property, plant and equipment......................................................... 8,292
Investment in and advances to affiliates.............................................. 58,874
Goodwill.............................................................................. 166,421
--------
Total................................................................................. 233,587
========
|
As a result of the UPC Acquisition and the associated push-down of United
basis on December 11, 1997, the consolidated balance sheets as of December 31,
1999 and 1998 as well as the consolidated statements of operations and cash
flows subsequent to December 31, 1997 are presented on a "post-acquisition"
basis. The primary difference in the consolidated statement of operations
presented on a "post-acquisition" basis compared to a "pre-acquisition" basis
consists of additional depreciation and amortization on the above purchase
accounting adjustments. The consolidated statements of operations and cash flows
for the year ended December 31, 1997 include the post-acquisition results of the
Company for the period from December 11, 1997 through December 31, 1997, which
reflects 898 of new basis depreciation and amortization resulting from push-down
accounting as well as approximately 1,831 of interest expense from purchase
related indebtedness. Due to immateriality, the entire fiscal year ended
December 31, 1997 is presented as "pre-acquisition" in the accompanying
consolidated statements of operations and cash flows.
The following unaudited pro forma consolidated operating results for the
year ended December 31, 1997 give effect to the UPC Acquisition as if it had
occurred at the beginning of the period presented. This pro forma consolidated
financial information does not purport to represent what the Company's results
of operations would actually have been if such transaction had in fact occurred
on such date. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable.
70
UNITED PAN-EUROPE COMMUNIATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
For the Year Ended
December 31, 1997
-----------------
Historical Pro Forma (1)
---------- -------------
Service and other revenue......................................... 153,040 153,040
Operating expense................................................. (53,777) (53,777)
Selling, general and administrative expense....................... (54,030) (54,030)
Depreciation and amortization..................................... (60,302) (72,115)
----------- -----------
Net operating income (loss)....................................... (15,069) (26,882)
Interest income................................................... 2,955 2,955
Interest expense.................................................. (19,057) (37,764)
Interest expense, related party .................................. (13,043) -
Provision for loss on investment related costs.................... (8,571) (8,571)
Foreign exchange loss and other expense........................... (18,634) (14,803)
----------- -----------
Net loss before income taxes and other items...................... (71,419) (85,065)
Share in results of affiliated companies, net..................... (11,552) (15,259)
Minority interests in subsidiaries................................ 69 69
Income tax benefit (expense)...................................... 748 748
----------- -----------
Net loss.......................................................... (82,154) (99,507)
=========== ===========
Basic and diluted net loss per ordinary share..................... (0.30) (0.40)
=========== ===========
Weighted-average number of ordinary shares outstanding............ 274,600,143 248,593,362
=========== ===========
|
(1) Includes additional depreciation and amortization related to the step-up in
basis in tangible assets, investments in and advances to affiliated
companies and new goodwill, interest expense from the Senior Revolving
Credit Facility and the Bridge Bank Facility, net of elimination of
historical interest expense on the PIK Notes and refinanced credit
facilities, and foreign exchange loss on the U.S. dollar-denominated Bridge
Bank Facility, net of elimination of historical foreign exchange loss on
the PIK Notes.
71
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
The following chart presents a summary of the Company's significant
investments in multi-channel television, DTH and programming, Internet/data and
telephony operations as of December 31, 1999:
Austria:
Telekabel Group ......................................................... 95.0%
Belgium:
UPC Belgium (formerly Radio Public N.V./S.A.)............................ 100.0%
Czech Republic:
KabelNet................................................................. 100.0%
Kabel Plus............................................................... 94.6%
France:
UPC France (1)........................................................... 99.6%
Hungary:
UPC Magyarorszag (formerly Telekabel Hungary) (2)........................ 79.25%
Monor Communications Group, Inc. ("Monor")............................... 97.14%
Ireland:
Tara Televison Limited ("Tara").......................................... 80.0%
Israel:
Tevel Israel International Communications Ltd. ("Tevel")................. 46.6%
Malta:
Melita Cable TV P.L.C. ("Melita")........................................ 50.0%
The Netherlands:
UPC Nederland (formerly United Telekabel Holding N.V.) (3)............... 100.0%
Priority Telecom N.V..................................................... 100.0%
chello Broadband N.V. ("chello")......................................... 100.0%
UPC Programming B.V. ("UPCtv")........................................... 100.0%
Norway:
UPC Norge AS ("UPC Norge") (formerly Janco Multicom ).................... 100.0%
Poland:
@Entertainment, Inc. ("@Entertainment").................................. 100.0%
Romania:
Eurosat.................................................................. 51.0%
Multicanal Holdings...................................................... 100.0%
Control Cable Ventures................................................... 100.0%
Diplomatic International, srl............................................ 100.0%
Selektronic.............................................................. 100.0%
Slovak Republic:
Trnavatel................................................................ 95.0%
Kabeltel................................................................. 100.0%
UPC Slovensko s r.o. (formerly SKT spol s r.o.).......................... 100.0%
Spain:
Iberian Programming Services ("IPS")..................................... 50.0%
Sweden:
StjarnTVnatet AB ("Stjarn").............................................. 100.0%
United Kingdom:
Xtra Music Ltd........................................................... 41.0%
Other:
SBS Broadcasting SA ("SBS").............................................. 13.3%
PrimaCom................................................................. 18.2%
|
(1) The minority shareholder holds warrants giving it the right to purchase
for a nominal amount new shares corresponding to 4.6% of UPC France's
share capital. Accordingly, UPC has a 95% economic interest in UPC
France. Our investment in RCF, Time Warner Cable France and Videopole is
held through UPC France. Subsequent to December 31, 1999, UPC's interest
decreased to 92%. See Note 15.
(2) Subsequent to December 31, 1999, UPC's interest increased to 100%. See
Note 15.
(3) Our investments in GelreVision and A2000 are held through UPC Nederland.
72
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
2. Summary of Significant Accounting Policies
Change in Reporting Currency to the Euro
Effective December 31, 1999, UPC changed its reporting currency to the
Euro. Prior to December 31, 1999, UPC's reporting currency was the Dutch
guilder. As of January 1, 1999, the exchange rate between the Dutch guilder and
the Euro was fixed at 2.20371 Dutch guilders to 1 Euro. UPC has restated its
prior year consolidated financial statements by retroactively applying the fixed
exchange rate of 2.20371 to the Dutch guilder amount previously reported. The
comparative financial statements reported in Euros depict the same trends as
would have been presented if UPC had continued to present its financial
statements in Dutch guilders. The consolidated financial statements of UPC for
periods prior to January 1, 1999 will not be comparable to the financial
statements of other companies that report in Euros and restated the amounts from
a currency other than the Dutch guilder.
Basis of Presentation
The accompanying consolidated financial statements of the Company have been
prepared in accordance with United States generally accepted accounting
principles. The preparation of financial statements in conformity with United
States generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
In February 1999 and December 1998, UPC acquired telephony and programming
assets from United through the issuance of new shares (see Note 3). As the
acquisitions were between entities under common control, the transactions were
accounted for at historical cost, similar to pooling of interests accounting.
It is generally accepted that, consistent with a pooling-of-interests
accounting, prior period financial statements of the transferee are restated for
all periods in which the transferred operations were part of parent's
consolidated financial statements. Accordingly, we have restated all periods
presented as if UPC had acquired the telephony and programming assets from
United as of the date of United's initial investment.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
UPC and all subsidiaries where it exercises a controlling financial interest
through the ownership of a majority voting interest, except for UTH for the
period from August 1, 1998 through January 30, 1999, where because of certain
minority shareholders rights the Company accounts for its investment in UTH
using the equity method of accounting. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include cash and investments with original
maturities of less than three months.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is based upon the Company's assessment
of probable loss related to overdue accounts receivable. Upon disconnection of
the subscriber, the account is fully reserved. The allowance is maintained on
the books until receipt of payment, the account is deemed uncollectable or a
maximum of three years.
73
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Restricted Cash
Cash held as collateral for letters of credit and other loans is classified
based on the expected expiration of such facilities.
Costs to be Reimbursed by Affiliated Companies
The Company incurs costs on behalf of affiliated companies, such as
salaries and benefits, travel and professional services. These costs are
reimbursed by the affiliated companies.
Marketable Equity Securities
The Company classifies its investments in marketable equity securities as
available-for-sale and reports such investments at fair market value.
Unrealized gains and losses are charged or credited to equity, realized gains
and losses and other than temporary declines in market value are included in
operations.
Investments in and Advances to Affiliated Companies, Accounted for under the
Equity Method
For those investments in companies in which the Company's ownership
interest is 20% to 50%, its investments are held through a combination of voting
common stock, preferred stock, debentures or convertible debt and/or the Company
exerts significant influence through board representation and management
authority, or in which majority control is deemed to be temporary, the equity
method of accounting is used. Under this method, the investment, originally
recorded at cost, is adjusted to recognize the Company's proportionate share of
net earnings or losses of the affiliates, limited to the extent of the Company's
investment in and advances to the affiliates, 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 tangible assets or
the excess of its proportionate interest in each affiliate's net tangible assets
in excess of its cost. As of December 31, 1999, the Company accounted for its
13.3% investment in SBS under the equity method based on its influence through
board representation. Subsequent to December 31, 1999, the Company increased its
investment in SBS to 23.5%. See Note 15.
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 by subsidiaries of UPC incorporate overhead
expense and interest charges incurred during the period of construction;
investment subsidies are deducted. Depreciation is calculated using the
straight-line method over the economic life of the asset, taking into account
the residual value. The economic lives of property, plant and equipment at
acquisition are as follows:
Cable distribution networks....................... 7 - 20 years
Subscriber installation costs and converters...... 5 years
MMDS distribution facilities...................... 7 - 20 years
DTH............................................... 5 years
Office equipment, furniture and fixtures.......... 3 - 8 years
Building and leasehold improvements............... 20 - 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
74
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
fair market value of those licenses at the date of acquisition. Licenses in new
franchise areas include the capitalization of direct costs incurred in obtaining
the license. The license value is amortized on a straight-line basis over the
initial license period, up to a maximum of 20 years.
Recoverability of Tangible and Intangible Assets
The Company evaluates the carrying value of all tangible and intangible
assets whenever events or circumstances indicate the carrying value of assets
may exceed their recoverable amounts. An impairment loss is recognized when the
estimated future cash flows (undiscounted and without interest) expected to
result from the use of an asset are less than the carrying amount of the asset.
Measurement of an impairment loss is based on fair value of the asset computed
using discounted cash flows if the asset is expected to be held and used.
Measurement of an impairment loss for an asset held for sale would be based on
fair market value less estimated costs to sell.
Deferred Financing Costs
Costs to obtain debt financing are capitalized and amortized over the life
of the debt facility using the effective interest method.
Revenue Recognition
Revenue is primarily derived from the sale of cable television services to
subscribers and is recognized in the period the related services are provided.
Initial installation fees are recognized as revenue in the period in which the
installation occurs, to the extent installation fees are equal to or less than
direct selling costs, which are expensed. To the extent installation fees
exceed direct selling costs, the excess fees are deferred and amortized over the
average contract period. All installation fees and related costs with respect
to reconnections and disconnections are recognized in the period in which the
reconnection or disconnection occurs because reconnection fees are charged at a
level equal to or less than related reconnection costs.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the Company's large number of customers and their dispersion across many
different countries in Europe.
Stock-Based Compensation
In accordance with Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees", stock-based compensation is recognized using the
intrinsic value method for the Company's stock option plan and that of its
subsidiary, chello, which results in compensation expense for the difference
between the grant price and the fair market value at each new measurement date.
In addition both the Company and chello have stock-based compensation plans
which are equivalent to stock appreciation rights. Accordingly, variable plan
accounting is used, recognizing compensation expense and deferred compensation
based on the difference between the grant price and the fair market value at
each financial statement date. The Company has adopted the disclosure
requirements of Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation." See Note 10.
Income Taxes
The Company accounts for income taxes under the asset and liability method
which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of transactions which have been included
in the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statement and income tax basis of assets, liabilities and loss carry
forwards using enacted tax rates in effect for the year in which the differences
are expected to reverse. Net deferred tax assets are then reduced by a
valuation allowance if management believes it is more likely than not they will
not be realized. Withholding taxes are taken into consideration in situations
where the income of subsidiaries is to be paid out as dividends in the near
future. Such withholding taxes are generally charged to income in the year in
which the dividend income is generated.
75
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Basic and Diluted Loss Per Share
Basic loss per share is determined by dividing net loss available to
ordinary shareholders by the weighted-average number of ordinary shares
outstanding during each period. "Diluted loss per share" includes the effects of
potentially issuable common stock, but only if dilutive. Therefore, the
Company's stock option plans and convertible securities are excluded from the
Company's diluted loss per share for all periods presented because their effect
would be anti-dilutive.
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. 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 Euros that result in unrealized gains or losses are referred to as
translation adjustments. Cumulative translation adjustments are recorded as a
separate component of shareholders' equity included in Other Comprehensive
Income (Loss).
Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in income as unrealized (based on period-end translations)
or realized upon settlement of the transactions.
Cash flows from the Company's operations in foreign countries are
translated based on their functional currencies. As a result, amounts related to
assets and liabilities reported on the consolidated statements of cash flows
will not agree to changes in the corresponding balances on the consolidated
balance sheets. The effects of exchange rate changes on cash balances held in
foreign currencies are reported as a separate line below cash flows from
financing activities.
The Company and certain of its operating companies have notes payable and
notes receivable that are denominated in a currency other than their own
functional currency. In general, the Company and the operating companies do not
execute hedge transactions to reduce the Company's exposure to foreign currency
exchange rate risks. 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.
On January 1, 1999, eleven of the fifteen member countries of the European
Union fixed their conversion rates between their existing sovereign currencies
and the Euro, eliminating the foreign exchange rate fluctuation exposure of UPC
related to its operating subsidiaries in the eleven countries (includes UPC's
subsidiaries in The Netherlands, Austria, Belgium, France and Spain). UPC's
investments in countries outside the eleven countries which have adopted the
Euro include Norway, Sweden, Poland, Hungary, Romania, Slovak Republic, Czech
Republic, Ireland, Israel, Malta and operations which report in US Dollars.
New Accounting Principles
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. 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 our first quarter 2001. The Company is
currently assessing the effect of this new standard.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 ("SAB 101") "Views on Selected Revenue
Recognition Issues" which provides the staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. SAB 101
is effective second quarter of 2000. The Company has evaluated SAB 101 and
believes there is no effect on the revenue recognition policies currently in
place.
76
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
3. Acquisitions and Dispositions
Combivisie
Effective January 1, 1998, UPC acquired certain assets, including The
Netherlands cable systems of Stichting Combivisie Regio (''Combivisie''), for
82,026. The purchase was funded with a 27,227 draw on the Senior Revolving
Credit Facility and 54,799 of bank financing. Details of the net assets
acquired were as follows:
Property, plant and equipment and other assets......... 48,101
Goodwill............................................... 33,926
------
Total cash paid...................................... 82,027
======
|
The following unaudited pro forma condensed consolidated operating results
for the year ended December 31, 1997 give effect to the acquisition of
Combivisie as if it had occurred at the beginning of the period presented. This
pro forma condensed consolidated financial information does not purport to
represent what the Company's results of operations would actually have been if
such transaction had in fact occurred on such date. The pro forma adjustments
are based upon currently available information and upon certain assumptions that
management believes are reasonable.
For the Year Ended
December 31, 1997
-------------------------------
Historical Pro Forma
-------------- --------------
Service and other revenue......... 153,040 166,187
=========== ===========
Net loss.......................... (82,154) (80,384)
=========== ===========
Basic and diluted net loss per
ordinary share................. (0.30) (0.30)
=========== ===========
Weighted-average number of
ordinary shares outstanding.... 275,421,933 275,421,933
=========== ===========
|
Telekabel Hungary
On June 29, 1998, UPC acquired Time Warner Entertainment Company's ("TWE")
interest in its Hungarian multi-channel television system assets for USD9,500
(8,794) in cash and a non-interest bearing promissory note in the amount of
USD18,000 (16,663) (the ''Time Warner Note''). UPC and TWE retained their
respective percentage interests in the programming assets in Hungary. UPC has
granted TWE an option to acquire UPC's interest in such programming assets as
well as TV Max in consideration for the cancellation of the Time Warner Note.
On June 30, 1998, UPC merged its 100%-owned Hungarian multi-channel television
systems (''Kabelkom'') with Hungary's second largest multiple system operator to
form the new joint venture Telekabel Hungary. UPC retains a 79.25% ownership
interest in the new entity. In March 1999, Time Warner exercised their option
to acquire UPC's interest in the programming assets and TV Max.
United Telekabel Holding N.V.
On August 6, 1998, UPC merged its Dutch cable television systems with those
of NUON, forming a new company, United Telekabel Holding N.V. ("UTH") (the "UTH
Transaction"), which was accounted for as the formation of a joint venture with
NUON's and UPC's net assets recorded at their historical carrying values.
Following the merger, UPC held 51% of UTH. The agreement provided UPC with a
call option to acquire an additional interest in UTH and NUON a put option to
require UPC to purchase part of NUON's interest in UTH. The UTH shareholder
agreement provided for essentially joint governance by NUON and UPC on almost
all significant participating and protective type rights, accordingly, because
of joint governance on most significant operating decisions, UPC accounted for
its investment in UTH using the equity method of accounting.
77
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
On February 17, 1999, the Company acquired the remaining 49% of UTH from
NUON (the "NUON Transaction") for 235.1 million. In addition, UPC repaid NUON
and assumed from NUON a 15.1 million subordinated loan, including accrued
interest, dated December 23, 1998, owed by UTH to NUON. The purchase of NUON's
interest and payment of the loan were funded with proceeds from UPC's initial
public offering. Effective February 1, 1999, UPC began consolidating its
investment in UTH. Details of the net assets acquired, based on preliminary
purchase price allocations using information currently available, were as
follows:
Property, plant and equipment ........ 185,835
Investments in affiliated companies... 41,439
Goodwill.............................. 227,190
Long-term liabilities................. (214,613)
Net current liabilities............... (4,765)
-----------
Total cash paid....... 235,086
===========
|
The following unaudited pro forma condensed consolidated operating results
for the years ended December 31, 1999 and 1998 give effect to the UTH
Transaction and the NUON Transaction as if they both had occurred at the
beginning of the periods presented. This pro forma condensed consolidated
financial information does not purport to represent what the Company's results
of operations would actually have been if such transactions had in fact occurred
on such date. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable.
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
----------------------------- -----------------------------
Historical Pro Forma Historical Pro Forma
------------- ------------ ------------ ----------
Service and other revenue.................... 447,501 456,506 185,582 241,587
=========== =========== ============ ===========
Net loss..................................... (784,298) (789,099) (255,579) (273,466)
=========== =========== ============ ===========
Weighted-average number of
ordinary shares outstanding.............. 377,971,563 381,313,555 247,915,834 256,448,573
=========== =========== ============ ===========
Basic and diluted net loss
per ordinary share...................... (2.08) (2.07) (1.03) (1.07)
=========== =========== ============ ===========
|
UII
In November 1998, the Company (i) acquired from TINTA its indirect 23.3%
and 25% interests in the Tevel and Melita systems for USD91.5 million (77.8
million), doubling the Company's respective ownership in these systems to 46.6%
and 50%, respectively, (ii) purchased an additional 5% interest in Princes
Holdings and 5% of Tara in consideration for 769,062 shares of United held by
UPC, and (iii) sold the 5% interest in Princes Holdings, together with its
existing 20% interest, to TINTA for USD20.5 million (17.4 million). The net
payment of USD71.0 million (60.4 million) to TINTA (USD68.0 million (57.8
million) after closing adjustments) was funded with the proceeds of a USD90.0
million (76.5 million) promissory note made by a subsidiary of the Company to
its primary partners in the Tevel system. See Note 9 - DIC Loan.
Purchase of Certain Telephony and Programming Assets from United
In December 1998, in exchange for 18,991,020 newly-issued ordinary shares
of UPC (as adjusted for UPC's 3:1 stock split in March 2000), United sold to UPC
their:
. 44.75% economic interest in Monor, a traditional telephony and cable
television system in the Monor region of Hungary;
78
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
. 75% interest in Tara, a company providing Irish programming to the U.K.
markets.
In February 1999, in exchange for 14,865,792 newly-issued ordinary shares,
United sold to the Company their approximately 33.5% interest in IPS, a group of
programming entities focusing on the Spanish and Portuguese-speaking markets.
Because these transactions represented an exchange between entities under
common control, the Company has restated its financial statements for all
periods in which the operations of Monor, Tara and IPS were part of United's
consolidated financial statements. See Note 2.
In May 1999, the Company acquired a further 16.5% interest in IPS from
an unaffiliated party for approximately USD7.6 million (7.1 million), increasing
its ownership to 50%.
Acquisition of SKT spol s r.o.
In June 1999, UPC completed the acquisition of SKT spol s r.o., which
operates a cable television system in Bratislava, the capital of the Slovak
Republic. The purchase price was USD43.25 million (41.2 million) and was
accounted for under purchase accounting.
Acquisition of GelreVision
In June 1999, UPC acquired, through UPC Nederland, 100% of the GelreVision
multi-channel television systems in The Netherlands. The Company paid 106.2
million for GelreVision. These systems are contiguous to UPC's A2000 and
TeleKabel Beheer operations. The acquisition was accounted for under purchase
accounting.
Effective June 1, 1999, UPC began consolidating its investment in
GelreVision. Details of the net assets acquired, based on preliminary purchase
price allocations using information currently available, were as follows:
Property, plant and equipment ................... 47,754
Goodwill......................................... 65,083
Long-term liabilities............................ (4,094)
Net current liabilities.......................... (2,592)
--------
Total cash paid.................. 106,151
========
|
The following unaudited pro forma condensed consolidated results for the
years ended December 31, 1999 and 1998 give effect to the acquisition of
GelreVision as if it had occurred at the beginning of the periods presented.
This pro forma condensed consolidated financial information does not purport to
represent what the Company's results of operations would actually have been if
such transaction had in fact occurred on such date. The pro forma adjustments
are based upon currently available information and upon certain assumptions that
management believes are reasonable.
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
--------------------------- ---------------------------
Historical Pro Forma Historical Pro Forma
-------------- ----------- ------------ -------------
Service and other revenue..................... 447,050 452,692 185,582 197,641
=========== =========== =========== ===========
Net loss........................................ (784,298) (787,842) (255,579) (264,511)
=========== =========== =========== ===========
Weighted-average number of
ordinary shares outstanding............. 377,969,829 379,480,605 247,915,834 251,768,703
=========== =========== =========== ===========
Basic and diluted net loss
per ordinary share............................ (2.08) (2.08) (1.03) (1.05)
=========== =========== =========== ===========
|
79
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Acquisition of Reseaux Cables de France
In June 1999, UPC acquired through UPC France, 95.7% of Reseaux Cables de
France, which operates cable television systems throughout France. The purchase
price was approximately FFR172.0 million (26.2 million) and was accounted for
under purchase accounting. At closing UPC began consolidating RCF, including
its debt, which was 37.7 million.
Acquisition of 13.3% of SBS Broadcasting SA
In July 1999, UPC closed the purchase of approximately 4.8% of SBS for cash
of USD24.3 million (22.7 million). In August 1999, UPC acquired an additional
8.5% of SBS for USD75.9 million (70.2 million), increasing its ownership to
13.3%. UPC's investment in SBS is accounted for under the equity method of
accounting. In February 2000, UPC acquired an additional 10.2% interest in SBS.
In March 2000, UPC announced an offer to tender for the remaining ownership of
SBS. See Note 15.
Acquisition of StjarnTVnatet AB
In July 1999, UPC acquired Stjarn, which operates cable television systems
serving the greater Stockholm area, for a purchase price of USD397.0 million
(371.1 million). USD100.0 million (93.5 million) of the purchase price was paid
in the form of a one year note with interest at 8% per annum and the balance of
the purchase price was paid in cash. Upon maturity of the note, UPC will have
the option to pay the note in either cash or its shares. The Stjarn acquisition
was structured as a purchase of shares of Stjarn's parent holding company, NBS
Nordic Broadband Services AB ("NBS Nordic"). The acquisition was accounted for
under purchase accounting. At closing, effective August 1, 1999, UPC began
consolidating Stjarn, including its debt, which was 78.4 million.
Details of the net assets acquired, based on preliminary purchase price
allocations using information currently available, were as follows:
Property, plant and equipment ......... 40,356
Goodwill............................... 413,264
Long-term liabilities.................. .. (30,164)
Net current liabilities................ (52,345)
-----------
Total purchase price................ 371,111
Seller's note....................... (93,479)
-----------
Total cash paid..................... 277,632
===========
|
The following unaudited pro forma condensed consolidated results for the
years ended December 31, 1999 and 1998 give effect to the acquisition of Stjarn
as if it had occurred at the beginning of the periods presented. This pro forma
condensed consolidated financial information does not purport to represent what
the Company's results of operations would actually have been if such transaction
had in fact occurred on such date. The pro forma adjustments are based upon
currently available information and upon certain assumptions that management
believes are reasonable.
NBS Nordic acquired Stjarn on May 6, 1998. As NBS Nordic had no substantial
operations of its own prior to the acquisition of Stjarn, Stjarn is deemed to be
the predecessor to NBS Nordic. The pro forma condensed consolidated results for
the years ended December 31, 1998 include Stjarn, as if NBS Nordic had acquired
Stjarn on January 1, 1998.
80
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
------------------------- ------------------------
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
Service and other revenue......... 447,501 465,227 185,582 214,243
=========== =========== =========== ===========
Net loss.......................... (784,298) (827,897) (255,579) (313,742)
=========== =========== =========== ===========
Weighted-average number of
ordinary shares outstanding... 377,969,829 377,969,829 247,915,834 247,915,834
=========== =========== =========== ===========
Basic and diluted net loss
per ordinary share........... (2.08) (2.19) (1.03) (1.27)
=========== =========== =========== ===========
|
Acquisition of @Entertainment
In August 1999, UPC acquired 100% of @Entertainment for USD807.0 million
(750.7 million). The @Entertainment acquisition was accounted for under
purchase accounting. At closing UPC began consolidating @Entertainment,
including its debt, which was 419.3 million.
Effective August 1, 1999, UPC began consolidating its investment in
@Entertainment. Details of the net assets acquired, based on preliminary
purchase price allocations using information currently available, were as
follows:
Property, plant and equipment .............. 182,495
Goodwill.................................... 917,983
Other assets................................ 19,847
Net current assets.......................... 47,665
Long-term liabilities....................... (417,279)
---------
Total cash paid............. 750,711
=========
|
The following unaudited pro forma condensed consolidated results for the
years ended December 31, 1999 and 1998 give effect to the acquisition of
@Entertainment as if it had occurred at the beginning of the periods presented.
This pro forma condensed consolidated financial information does not purport to
represent what the Company's results of operations would actually have been if
such transaction had in fact occurred on such date. The pro forma adjustments
are based upon currently available information and upon certain assumptions that
management believes are reasonable.
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
----------------------------- ---------------------------
Historical Pro Forma Historical Pro Forma
------------- -------------- -------------- -----------
Service and other revenue............ 447,501 490,933 185,582 241,471
=========== =========== =========== ===========
Net loss............................. (784,298) (961,956) (255,579) (455,122)
=========== =========== =========== ===========
Weighted-average number of
ordinary shares outstanding...... 377,969,829 377,969,829 247,915,834 247,915,834
=========== =========== =========== ===========
Basic and diluted net loss
per ordinary share.............. (2.08) (2.55) (1.03) (1.84)
=========== =========== =========== ===========
|
The consummation of the Company's tender offer of @Entertainment resulted
in a change of control, and as a result, @Entertainment was obligated to offer
to repurchase any @Entertainment senior notes that the note holders put to it at
101% of their principal amount, plus accrued and unpaid interest.
81
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Acquisition of Videopole
In August 1999, UPC acquired, through UPC France, 100% of Videopole, which
operates cable television systems in France. The purchase price of USD135.1
million (126.8 million) was paid half with cash of USD69.9 million (65.6
million) and half with 2,866,128 of UPC's ordinary A shares. The acquisition was
accounted for under purchase accounting. Effective August 1, 1999, UPC began
consolidating its investment in Videopole, including its debt, which was 19.0
million.
Acquisition of Time Warner Cable France
In August 1999, UPC acquired, through UPC France, 100% of Time Warner Cable
France, a company that controls and operates three cable television systems in
the suburbs of Paris and Lyon and in the city of Limoges. The purchase price
was USD71.1 million (66.7 million). Simultaneously with the acquisition of Time
Warner Cable France, UPC acquired an additional 47.62% interest in one of its
operating systems, Rhone Vision Cable, in which Time Warner France had a 49.88%
interest, for 13.6 million, increasing UPC's ownership in this operating system
to 97.5%. The acquisition was accounted for under purchase accounting. Effective
September 1, 1999, UPC began consolidating its investment in Time Warner Cable
France, including its debt, which was 45.7 million.
Acquisition of 50% of A2000
In September 1999, UPC acquired, through UPC Nederland, the remaining 50%
of A2000 that it did not already own for USD229.0 million (214.0 million),
including the assumption of receivables from A2000 of approximately 12.2
million. The acquisition was accounted for under purchase accounting. At closing
UPC began consolidating, A2000 including its debt, which was 237.6 million.
As of September 1, 1999, UPC began consolidating its investment in A2000.
Details of the net assets acquired, based on preliminary purchase price
allocations using information currently available, were as follows:
Property, plant and equipment........... 90,243
Goodwill................................ 256,469
Net current liabilities................. (23,429)
Long-term liabilities................... (121,446)
-----------
201,837
Receivables assumed..................... 12,211
-----------
Total cash paid......... 214,048
===========
|
The following unaudited pro forma condensed consolidated results for the
year ended December 31, 1999 and 1998 give effect to the acquisition of A2000 as
if it had occurred at the beginning of the periods presented. The following pro
formas reflect UPC's 100% ownership in A2000 for the periods presented. This pro
forma condensed consolidated financial information does not purport to represent
what the Company's results of operations would actually have been if such
transaction had in fact occurred on such date. The pro forma adjustments are
based upon currently available information and upon certain assumptions that
management believes are reasonable.
82
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
------------------------ ------------------------
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ----------
Service and other revenue....... 447,501 494,246 185,582 241,927
=========== ========== ========== ===========
Net loss........................ (784,298) (821,909) (255,579) (276,584)
=========== ========== ========== ===========
Weighted-average number of
ordinary shares outstanding. 377,969,829 377,969,829 247,915,834 247,915,834
=========== =========== =========== ============
Basic and diluted net loss
per ordinary share......... (2.08) (2.17) (1.03) (1.11)
=========== =========== =========== ============
|
Acquisition of Kabel Plus
On October 27, 1999, UPC completed the acquisition of a 94.6% interest in
Kabel Plus, which owns and operates cable television systems in the Czech and
Slovak Republics. The purchase price was USD150.0 million (141.9 million). At
closing UPC began consolidating Kabel Plus, including its debt, which was 22.0
million.
Agreement to Acquire Kabel Haarlem B.V.
In August 1999, UPC won a bid to purchase Kabel Haarlem B.V., the
municipality-owned cable television network in Haarlem, for approximately 60.8
million. Kabel Haarlem B.V.'s system is located near Amsterdam. The
acquisition is expected to close during the first quarter of 2000.
Agreement by Tevel to Acquire 35% in Golden Channels
In November 1999, Tevel, a 46.6% investment of UPC, agreed to purchase a
35% economic interest in Golden Channels for USD183.5 million (172.3 million).
Golden Channels is a competitor of Tevel in the Israel market. Its systems,
including Idan, passed approximately 461,347 homes and had approximately 322,945
basic subscribers at December 31, 1998. Close of the acquisition is subject to
regulatory approval and there can be no assurance this acquisition will close.
Acquisition of 48.03% of Monor
In December 1999, UPC acquired an additional 48.03% economic interest in
Monor from its partner, PenneCom B.V., and several small minority shareholders
for approximately USD45.0 million (44.8 million). These transactions increased
UPC's ownership from 49.11% to approximately 97.14%. As of December 31, 1999
Monor is consolidated. Monor's system is located in the Monor region, an area
which borders Budapest in Hungary.
83
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
4. Investments in and Advances to Affiliated Companies, Accounted for Under
the Equity Method
As of December 31, 1999
---------------------------------------------------------------------------------
Investments in Cumulative Cumulative Cumulative
and Advances to Dividends Share in Results of Translation
Affiliated Companies Received Affiliated Companies Adjustments Total
--------------------- ----------- --------------------- ----------- -----
Tevel................................ 91,126 (5,500) (8,188) 8,179 85,617
Melita................................ 12,699 - 260 669 13,628
Xtra Music............................ 9,120 - (2,830) 465 6,755
IPS................................... 10,065 - 2,137 2,023 14,225
SBS................................... 94,952 - (5,183) 6,685 96,454
Fox Kids Poland....................... 7,171 - - - 7,171
Twoj Styl............................. 10,023 - - - 10,023
Mazowiecki Klub Sportowy Sportow..... 1,669 - - - 1,669
Other, net............................ 7,366 - (62) 1 7,305
---------------- ----------- ------------------- ----------- --------
Total................................. 244,191 (5,500) (13,866) 18,022 242,847
================ ========== =================== ========== =======
|
As of December 31, 1998
------------------------------------------------------------------------------------
Investments in Cumulative Cumulative Cumulative
and Advances to Dividends Share in Results of Translation
Affiliated Companies Received Affiliated Companies Adjustments Total
------------------------ ------------ --------------------- ----------- -------
UTH (1)............................ 123,659 - (10,337) - 113,322
Tevel.............................. 86,997 (5,500) (353) (4,339) 76,805
Melita............................. 12,714 - 901 (64) 13,551
Telekabel Hungary..................
Programming (2)................ 11,074 - (3,505) (357) 7,212
Monor.............................. 9,692 - (2,231) (6,732) 729
Xtra Music......................... 4,809 - (484) - 4,325
IPS................................ 4,728 - (153) 1,141 5,716
Other, net......................... 2,073 - 4 - 2,077
-------------------- ---------- ------------------- ----------- ----------
Total.............................. 255,746 (5,500) (16,158) (10,351) 223,737
==================== ========== =================== =========== ==========
|
(1) In February 1999, the Company acquired the remaining 49% of UTH and began
consolidating UTH as of February 1, 1999. See Note 3.
(2) Represents the Company's remaining investment in Telekabel Hungary
Programming after the transaction with TWE. In March 1999, UPC sold the
remaining investment in Telekabel Hungary Programming.
84
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
The Company had the following differences related to the excess of cost
over the net tangible assets acquired for its equity investments. Such
differences are being amortized over 15 years:
As of December 31, 1999 As of December 31, 1998
---------------------------- --------------------------
Basis Accumulated Basis Accumulated
Difference Amortization Difference Amortization
----------- ------------- ----------- -------------
UTH................................... - - 1,262 (28)
Tevel (1)............................. 81,500 (7,898) 69,164 (2,874)
Melita (1)............................ 11,600 (1,234) 11,062 (387)
Telekabel Hungary Programming (2)..... - - 6,543 (259)
Monor................................. - - 759 (59)
Xtra Music............................ 5,477 (244) 3,075 (63)
IPS................................... 11,867 (518) 1,900 (73)
SBS................................... 108,401 (2,810) - -
------- ------- ------ ------
Total............................ 218,845 (12,704) 93,765 (3,743)
======= ======= ====== ======
|
(1) In November 1998 the Company acquired from TINTA its interests in Tevel and
Melita, and sold its interest in Princes Holdings. See Note 3.
(2) Represents the Company's remaining investment in Telekabel Hungary
Programming after the transaction with TWE. See Note 3.
Summary financial information for UTH is as follows:
For the
One Month
Ended
January 31,
1999
------------
Revenue................................... 9,005
Costs..................................... (5,731)
Depreciation and amortization............. (3,742)
------------
Net operating loss................... (468)
Share in results of affiliated companies.. (2,279)
Financial charges and other............... (2,164)
Income tax (provision) benefit............ 110
------------
Net loss............................. (4,801)
============
|
85
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Summary financial information for Tevel is as follows:
As of
December 31,
1998
------------
Cash......................................................... 27
Tangible fixed assets........................................ 53,751
Other assets................................................. 202,866
---------
Total assets............................................. 256,644
=========
Current liabilities.......................................... 19,138
Notes payable................................................ 9,259
Long-term debt............................................... 193,585
Other long-term liabilities.................................. 12,097
Shareholders' value.......................................... 22,565
---------
Total liabilities and shareholders' value............... 256,644
=========
|
For the Years Ended
December 31,
------------------------
1998 1997
---------- ----------
Revenue....................................................... 92,418 84,902
Costs......................................................... (36,492) (41,520)
Depreciation and amortization................................. (21,771) (14,007)
-------- --------
Net operating income..................................... 34,155 29,375
Financial charges, including related party interest...........
expense, and foreign exchange results........................ (29,309) (3,607)
Income taxes and other items.................................. 7,417 (2,607)
Share in results of affiliated companies...................... (5,633) 23
-------- --------
Net income .............................................. 6,630 23,184
======== ========
|
86
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Summary financial information for A2000 is as follows:
As of
July 31,
1998 (1)
-------------
Liquid assets.................................................... 1,060
Other current assets............................................. 24,131
Financial fixed assets........................................... 288
Tangible fixed assets............................................ 154,823
Intangible fixed assets.......................................... 53,454
-------------
Total assets................................................. 233,756
=============
Current liabilities.............................................. 40,101
Provisions....................................................... 684
Long-term debt................................................... 217,362
Shareholders' value.............................................. (24,391)
-------------
Total liabilities and shareholders' value................... 233,756
=============
|
For the For the
Seven Months Year
Ended Ended
July 31, December 31,
1998 (1) 1997
------------- ---------------
Revenue.................................................. 31,614 46,036
Costs.................................................... (23,746) (30,715)
Depreciation and amortization............................ (16,388) (23,073)
------------- ---------------
Net operating loss.................................. (8,520) (7,752)
Financial charges and other.............................. (6,179) (7,601)
Income tax (provision) benefit........................... - 4,459
------------- ---------------
Net income ......................................... (14,699) (10,894)
============= ===============
|
(1) Effective August 6, 1998, A2000 was contributed to UTH as part of the UTH
Transaction.
5. Other Investments
Marketable equity securities of parent, at fair value
As a result of the UPC Acquisition, a subsidiary of UPC acquired 6,338,302
United's Class A common shares, valued at fair market value of 30,317 as of
December 11, 1997. In November 1998, UPC used 769,062 shares to acquire an
additional 5% interest in each of Tara and PHL. Accordingly, unrealized gains
recorded in equity totaling approximately 829, were reversed out of equity and
recorded as a realized gain in the consolidated statement of operations. As of
December 31, 1999, the fair value of the remaining 5,569,240 shares was 390,881,
resulting in an unrealized gain of 364,272 as of December 31, 1999.
In September 1999, UPC agreed to form a joint venture with Microsoft and
Liberty Media Corporation. UPC will contribute its 9.8 million Class A common
shares of United that it owns and the other parties will contribute 4.9 million
Class B common shares of United. UPC will have a 50% interest in the new joint
venture and Liberty and Microsoft will share the other 50% and a USD287.0
million (269.6 million) redeemable preferred
87
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
interest in the joint venture to balance out the parties' ownership interests.
UPC, together with Liberty and Microsoft, will evaluate content and distribution
opportunities in Europe. Formation of the joint venture is still pending.
Marketable equity securities of Primacom AG, at fair value
In December 1999, UPC purchased an approximately 18.2% interest in PrimaCom
AG, which owns and operates cable television networks in Germany. The purchase
price for this interest was approximately 226.5 million. As of December 31,
1999, the fair value of the 18.2% interest was 230.5 million, resulting in an
unrealized gain of 4.0 million for the year ended December 31, 1999. Subsequent
to December 31, 1999, UPC increased its interest in PrimaCom AG. See Note 15.
6. Property, Plant and Equipment
As of December 31,
--------------------------------
1999 1998
--------------- ---------------
Cable distribution networks.................. 1,523,871 211,501
Subscriber premises equipment and converters. 152,713 61,046
MMDS distribution facilities................. 7,997 6,295
DTH.......................................... 70,775 -
Office equipment, furniture and fixtures..... 71,712 16,016
Buildings and leasehold improvements......... 143,868 5,788
Other........................................ 131,683 12,782
--------------- ---------------
2,102,619 313,428
Accumulated depreciation............ (194,205) (39,800)
--------------- ---------------
Net property, plant and equipment... 1,908,414 273,628
|
7. Goodwill and Other Intangible Assets
As of December 31,
-------------------------------
1999 1998
-------------- --------------
@Entertainment................................ 929,956 -
UPC Nederland................................. 758,962 -
Stjarn........................................ 427,927 -
Telekabel Group............................... 176,694 176,753
Mediareseaux.................................. 117,054 -
UPC Norge..................................... 84,874 75,098
Telekabel Hungary............................. 54,725 44,211
UPC .......................................... 29,223 -
UPC Belgium................................... 20,863 19,145
UPC Slovensko s r.o........................... 22,883 -
Kabel Plus.................................... 84,799 -
Monor......................................... 24,268 -
Other......................................... 12,852 11,125
-------------- -------------
2,745,080 326,332
Accumulated amortization................ (133,667) (17,747)
-------------- -------------
Net goodwill and other intangible assets 2,611,413 308,585
|
88
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
8. Short-Term Debt
Time Warner Note
Short-term debt as of December 31, 1998 includes the USD18.0 million (15.4
million) non-interest bearing Time Warner Note. Subsequent to December 31, 1998,
the Time Warner Note was cancelled as Time Warner exercised its option to
acquire our 50% interest in HBO Hungary and 100% interest in TV Max.
Telekabel Hungary Facility
In October 1998, Telekabel Hungary entered into a DM65.6 million (33.5
million) six-month secured bridge facility. As of December 31, 1998, the amount
outstanding under this facility totaled DM33.1 million (16.9 million). The
facility was repaid in 1999.
Stjarn Facilities
In December 1998, Stjarn's parent company, which UPC acquired in July 1999,
entered into a SEK521.0 million (59.1 million) loan agreement to refinance
certain debt. The loan consists of a facility A, a medium term loan in the
amount of SEK371.0 million (42.1 million), and a facility B, a short term loan
in the amount of SEK150.0 million (17.0 million). These facilities are secured
by pledges of shares in Stjarn's parent company's subsidary and bears interest
at the rate of STIBOR plus between 0.75% and 1.25%. Originally, the A facility
was to be repaid in eleven semi-annual installments of between SEK41.0 million
(4.7 million) and SEK25.0 million (2.8 million) beginning in May 1999 until
November 2004. The B facility has been fully repaid and replaced by a revolving
credit facility in the amount of SEK150.0 million (17.0 million). The commitment
fee for the revolving facility amounts to 0.30% and is based on the committed
credit amount. Interest on utilized funds amounts to NBU + 0.60% units. The
interest period is three months. The A facility restricts Stjarn's ability to
encumber its present or future assets and to enter into sale-leaseback
agreements. As a result of our acquisition of Stjarn, both the A facility and
the revolving facility will mature on March 31, 2000. UPC is currently in
negotiations to extend this to June 30, 2000.
Stjarn Seller's Note
In connection with the acquisition of Stjarn in July 1999, UPC paid
USD100.0 million (99.4 million) in the form of a one year note ("Stjarn Seller's
Note") with interest at 8% per annum. Upon maturity of the note, UPC will have
the option to pay the note in either cash or UPC shares.
89
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
9. Long-Term Debt
As of December 31,
--------------------
1999 1998
--------- ----------
UPC Euro Senior Notes due 2009..................... 754,717 -
UPC Euro Senior Notes due 2009..................... 300,000 -
UPC USD Senior Discount Notes due 2009............. 419,123 -
UPC 13.375% USD Senior Discount Notes due 2009..... 254,195 -
UPC 13.375% EURO Senior Discount Notes due 2009 102,207 -
UPC 10 7/8% USD Senior Notes due 2007.............. 190,658 -
UPC 10 7/8% Euro Senior Notes due 2007............. 100,000 -
UPC USD Senior Notes due 2009...................... 238,412 -
UPC 11 1/4% EURO Senior Notes due 2009............. 100,267 -
UPC Senior Credit Facility......................... 357,482 -
UPC Senior Revolving Credit Facility............... - 439,267
UPC Bridge Bank Facility........................... - 51,513
PCI Notes.......................................... 16,355 -
@Entertainment 1998 Senior Discount Notes.......... 115,263 -
@Entertainment 1999 Senior Discount Notes.......... 140,925 -
@Entertainment 1999 Series C Senior Discount Notes. 11,767 -
New Telekabel Facility............................. 255,263 -
CNBH Facility...................................... 121,556 -
A2000 Facilities................................... 207,831 -
Mediareseaux Facility.............................. 44,912 18,307
RCF Facility....................................... 31,654 -
Rhone Vision Cable Credit Facility................. 60,979 -
Videopole Facility................................. 7,704 -
Monor.............................................. 33,280 -
Bank and other loans............................... 89,151 75,504
---------- ----------
3,953,701 584,591
Less current portion...................... (50,291) (51,513)
---------- ----------
Total..................................... 3,903,410 533,078
========== ==========
|
UPC October 1999 Senior Notes Offering
In October 1999, UPC closed a private placement bond offering consisting of
six tranches: USD252 million and Euro101.0 million of 11 1/4% senior notes due
2009; USD200.0 million and Euro100.0 million of of 10 7/8% senior notes due 2007
and USD478.0 million and Euro191.0 million aggregate principal amount at
maturity of 13 3/8% senior discount notes due 2009. The senior discount notes
were sold at 52.306% of the face amount, yielding gross proceeds of USD250.0
million and Euro100.0 million. The senior discount notes will accrue, but not
pay, interest until November 2004. UPC has entered into cross-currency swaps,
swapping the USD252.0 million, 11 1/4% coupon into fixed and variable rate Euro
notes with a notional amount totaling Euro240.2 million, and swapping the
USD200.0 million, 10 7/8% coupon into fixed and variable rate Euro notes with a
notional amount totaling Euro190.7 million. Of the Euro240.2 million senior
notes, Euro120.1 million have a fixed interest rate of 9.92% through November 1,
2004, thereafter switching to a variable rate of EURIBOR + 4.80%. The remaining
Euro120.1 million have a variable interest rate of EURIBOR + 4.80%. Of the
Euro190.7 million senior notes, Euro95.35 million have a fixed interest rate of
9.92% through November 1, 2004, thereafter switching to a variable rate of
EURIBOR + 4.80%. The remaining Euro95.35 million have a variable interest of
EURIBOR + 4.80%.
UPC July 1999 Senior Notes Offering
In July 1999, UPC completed an offering of USD800.0 million 10.875% senior
notes due 2009, Euro300.0 million 10.875% senior notes due 2009 and USD735.0
million 12.5% senior discount notes due 2009. Interest payments on the senior
notes will be due semi-annually, commencing February 1, 2000. The senior
discount notes were sold at 54.521% of the face amount, yielding gross proceeds
of USD400.7 million. The senior discount notes will accrue, but not pay,
interest until February 2005. In order to minimize our currency and interest
rate exposure, the USD800.0 million 10.875% senior notes have been swapped into
senior Euro notes totaling
90
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Euro754.7 million. Of the senior Euro notes, Euro377.35 million have a fixed
interest rate of 8.54% through August 1, 2004, thereafter switching to a
variable rate of EURIBOR + 4.15%, for an initial rate of 7.093%. The remaining
Euro377.35 million have a variable interest rate of EURIBOR + 4.15%.
In December 1999, UPC completed a registered exchange offering for its USD
and Euro senior notes and USD senior discount notes initially sold under Rule
144A in July 1999 as a private placement.
PCI Notes
Poland Communications, Inc. ("PCI"), @Entertainment's major operating
subsidiary sold USD130.0 million (129.2 million) (aggregate principal amount of
senior notes ("PCI Notes")), in October 1996. The PCI Notes bear interest at 9
7/8%, payable on May 1 and November 1 of each year. The PCI Notes mature on
November 1, 2003.
The indenture governing the PCI Notes contains covenants limiting, among
other things, @Entertainment's ability to incur additional indebtedness, make
certain payments and distributions, including dividends, issue and sell capital
stock of @Entertainment's subsidiaries, create certain liens, enter into
transactions with its affiliates, invest in non-controlled entities, guarantee
indebtedness by subsidiaries, purchase the notes upon a change of control, pay
dividends and make other payments affecting @Entertainment's subsidiaries,
effect certain consolidations, mergers, and sale of assets and pursue certain
lines of business, and change in its ownership.
Pursuant to the terms of the PCI indenture and upon the change of control,
@Entertainment was required and has offered to repurchase all of the PCI Notes
as a result of UPC's acquisition of @Entertainment. Pursuant to the repurchase
offer, which expired on November 2, 1999, PCI has purchased USD113.2 million
aggregate principal amount of PCI Notes for an aggregate price of USD114.4
million. PCI may seek to repurchase additional PCI notes from time to time.
@Entertainment 1998 Senior Discount Notes
In July 1998, @Entertainment sold 252,000 units, each consisting of 14 1/2%
senior discount notes due 2008 and warrants entitling the warrant holders to
purchase 1,824,514 shares of @Entertainment common stock, generating
approximately USD125.1 million (124.3 million) gross proceeds. In connection
with the acquisition of @Entertainment, UPC acquired all of the existing
warrants. The senior discount notes are unsubordinated and unsecured obligations
of @Entertainment. The senior discount notes will accrete, but not pay, interest
until January 2004. Subsequent to the initial private placement of these notes,
@Entertainment made a registered offer to exchange these notes for its 1998
senior discount notes ("1998 Senior Discount Notes"). The 1998 Senior Discount
Notes have the same terms as the notes for which they were exchanged (except for
certain registration rights), were issued under the same indenture, and are
treated as one series with such notes.
@Entertainment offered to repurchase these notes pursuant to the terms of
the @Entertainment indenture. Pursuant to the repurchase offer, which expired on
November 2, 1999, @Entertainment purchased USD49.1 million (48.8 million)
aggregate principal amount at maturity of @Entertainment 1998 Senior Discount
Notes.
The indenture governing the 1998 Senior Discount Notes has covenants
substantially similar to the PCI indenture.
@Entertainment 1999 Senior Discount Notes
In January 1999, @Entertainment sold 256,800 units consisting of 14 1/2%
senior discount notes due 2009 and warrants to purchase 1,813,665 shares of
@Entertainment's common stock, yielding gross proceeds of approximately USD100.0
million (99.4 million). In connection with the acquisition of @Entertainment,
UPC acquired all of the existing warrants. The senior discount notes will
accrete, but not pay, interest until August 2004. Subsequent to the initial
private placement of these notes, @Entertainment made a registered offer to
exchange these notes for its 1999 senior discount notes ("1999 Senior Discount
Notes"). The 1999 Senior Discount Notes have the same terms as the notes for
which they were exchanged (except for certain registration rights), were issued
under the same indenture, and are treated as one series with such notes.
91
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
@Entertainment offered to repurchase these notes pursuant to the terms of
the @Entertainment indenture. Pursuant to the repurchase offer, which expired on
November 2, 1999, @Entertainment purchased 1999 Senior Discount Notes described
above for an aggregate price of USD26.5 million (26.3 million).
The indenture governing the 1999 Senior Discount Notes has covenants
substantially similar to the PCI indenture.
@Entertainment 1999 Series C Senior Discount Notes
On January 20, 1999, @Entertainment sold USD36.0 million (35.8 million)
7.0% series C senior discount notes ("Series C Senior Discount Notes"),
generating approximately USD9.8 million (9.7 million) of gross proceeds. The
Series C Senior Discount Notes are senior unsecured obligations of
@Entertainment. The senior discount notes will accrete, but not pay, interest
until January 2004.
The indenture governing the Series C Senior Discount Notes has covenants
substantially similar to the PCI indenture.
UPC Senior Credit Facility
On July 27, 1999, a newly formed subsidiary of UPC, UPC Facility B.V.,
Telekabel Wien and UPC Norge, as borrowers, and a syndicate of banks executed a
Loan and Note Issuance Agreement for a Euro1.0 billion multi-currency senior
secured credit facility (the "UPC Senior Credit Facility").
The UPC Senior Credit Facility matures on July 27, 2006 and is comprised of
two tranches. Tranche A is a 750.0 million reducing revolving credit facility.
Tranche B is a 250.0 million term loan facility. The Senior Credit Facility
bears interest at the EURIBOR (for borrowings in Euro) and at the London
Interbank Offered Rate ("LIBOR") (for all other borrowings) plus a margin of
between 0.75% and 2.0% (which margin is at least 1.5% for the first six months
following closing) plus an additional cost of funding calculation. In addition
to repaying the UPC Senior Revolving Credit Facility, proceeds from the UPC
Senior Credit Facility are to be used for general corporate purposes, inter
alia, to fund certain acquisitions, and certain permitted distributions,
including the payment of interest on funds downstreamed from the proceeds of
high yield issues and capital expenditures. Borrowings under the UPC Senior
Credit Facility are limited by financial ratio tests. The UPC Senior Credit
Facility contains provisions that require its immediate repayment, at the option
of the majority banks, if (1) UPC ceases to own more than 50% of, or loses its
ability to exercise control over, UPC Facility B.V., or (2) United ceases to own
more than 50% and loses its ability to control UPC. In addition, the UPC Senior
Credit Facility limits UPC Facility B.V.'s and its subsidiaries' ability to make
acquisitions funded by loan proceeds with the UPC Senior Credit Facility to
400.0 million over the life of the UPC Senior Credit Facility, with a further
limitation on new Eastern European acquisitions. Furthermore, the UPC Senior
Credit Facility contains certain financial covenants and restrictions on UPC
Facility B.V. and most subsidiaries' ability to make dividends or other payments
to UPC, incur indebtedness, dispose of assets, merge and enter into affiliate
transactions. Net proceeds of certain disposals (including sales by UPC of less
than 50% of its current interest in UPC Facility B.V.) are required to be used
to repay the UPC Senior Credit Facility. The UPC Senior Credit Facility does,
however, permit UPC Facility B.V. to upstream payments to UPC after April 1,
2002 for the purpose of servicing interest on the UPC Notes due 2009, if UPC
Facility B.V.'s ratio of senior debt to annualised net operating cash flow is
less than or equal to 4.5:1.0.
The UPC Senior Credit Facility is secured by, among other things, pledges
of the shares of UPC Facility B.V., UPC Norge, UPC Belgium, Cable-Network
Austria Holding B.V. ("CNAH"), Stipdon and Telekabel Hungary. UPC Facility B.V.,
UPC Belgium, CNAH, Stipdon and Telekabel Hungary are guarantors under the UPC
Senior Credit Facility. The collateral and guarantees under the UPC Senior
Credit Facility also secure UPC's liability under any currency and/or interest
rate hedging arrangements entered into in connection with the UPC Notes due
2009, although only Euro100.0 million of the indebtedness represented by such
arrangements is pari passu with the indebtedness under the UPC Senior Credit
Facility.
New TeleKabel Facility
In March 1999, TeleKabel Beheer, a subsidiary of UPC Nederland, replaced
their existing 313.1 million facility with a senior facility and additional
shareholder loans. The senior facility
92
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
consists of a 340.0 million revolving facility to N.V. Telekabel that will
convert to a term facility on December 31, 2001. Of this facility 5.0 million is
in the form of an overdraft facility that is available until December 31, 2007.
Repayment takes place from 2002 to 2007. This facility was used, among other
things, to repay a portion of the NUON facility and for capital expenditures.
The facility bears interest at EURIBOR plus margin between 0.75% and 2.00% based
on leverage multiples tied to N.V. Telekabel's net operating income plus an
additional cost of funding calculator. The facility is secured by, among other
things, a pledge over the shares in N.V. Telekabel and by pledges over shares in
its subsidiaries as well as assets pledges. The facility restricts N.V.
Telekabel's ability to incur additional debt. This facility generally restricts
the payment of dividends and distributions, unless, among other things, we
achieve certain financial ratios. This facility also restricts the amount of
management fees that can be paid to us. The facility is immediately due and
payable if TeleKabel Beheer ceases to own 100% of N.V. TeleKabel or if we cease
to own directly or indirectly more than 50% of TeleKabel Beheer.
CNBH Facility
In February 1998, CNBH, a subsidiary of UPC Nederland, entered into a
secured 113.4 million ten-year term facility with a syndicate of banks led by
Rabobank. In August 1998, this facility was increased to 120.7 million. Most of
the proceeds were used to repay in full a Combivisie bridge facility entered
into in connection with the acquisition of Combivisie and a KTE bank facility.
The remaining amount under this facility is available to finance certain capital
expenditures. Beginning in 2001, CNBH will be required to apply 50% of its
excess cash flow to repayment of its facility. The facility restricts the
payment of dividends and distributions and limits the amount of payments to UPC
under our general services agreement. In January 1999, this facility was
increased to 124.3 million. In connection with this facility, UPC entered into a
project support agreement providing, among other things, for UPC to retain
majority ownership of CNBH. In connection with this facility, CNBH also entered
into a 2.3 million ten-year term working capital facility.
A2000 Facilities
In January 1996, A2000, a subsidiary of UPC Nederland, and its wholly-owned
subsidiary Kabeltelevisie Amsterdam entered into bank facilities of 40.8 million
and 170.2 million, respectively. In October 1996, A2000 Hilversum, a wholly-
owned subsidiary of A2000, entered into a bank facility of 20.4 million. These
facilities have between 9 and 10 year terms and interest rates of AIBOR + 0.75%
or AIBOR + 0.7% or fixed-rate (fixed prior to each advance) increased by 0.7% or
0.75% per annum. The facilities also restrict the borrowers from incurring
additional indebtedness and from paying dividends and distributions, subject to
certain exceptions. The A2000 facilities are secured by mortgages and pledges,
including pledges on Kabeltelevisie Amsterdam and A2000 Hilversum and assets.
Subsequent to December 31,1999, A2000 replaced these facilities with a new
facility (see Note 15). In connection with the refinancing, UPC placed 220.0
million cash on deposit with a bank as of December 31, 1999.
Mediareseaux Facility
In July 1998, Mediareseaux, a subsidiary of UPC France, entered into an
103.6 million term facility with Paribas to finance capital expenditures,
working capital and acquisitions. This facility is secured by the assets of
Mediareseaux and a pledge of our stock of Mediareseaux. The availability of this
facility depends on revenue generated and its debt to equity ratios. Drawings
under this facility may be made until December 31, 2002. The repayment period
runs from January 1, 2003 to final maturity in 2007. Mediareseaux may not draw
more than 18.3 million of this facility for acquisitions. This facility
generally restricts the payment of dividends and distributions. This facility
also restricts Mediareseaux from incurring additional indebtedness, subject to
certain exceptions. In July 1998, Mediareseaux also secured a 9.5 year 3.0
million overdraft facility, subject to the same terms and conditions as this
facility except for the availability for the tests which are applicable. Until
certain financial covenants are met, we must own more than 51% of Mediareseaux.
Generally, investments by Mediareseaux and its subsidiaries require approval of
the facility agent except for investments in cash and certain marketable
securities that are pledged to support the facility. This facility also
restricts the amount of management fees that Mediareseaux may pay to us. UPC
France is currently negotiating the refinancing of this facility.
93
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
RCF Credit Facility
In 1990, RCF, a subsidiary of UPC France which was acquired in July 1999,
and six of its subsidiaries entered into a 24.4 million credit facility with a
consortium of banks to finance working capital and operations. In 1995 this
facility was amended and extended to 38.5 million to refinance three further
credit facilities entered into by other subsidiaries of RCF. The loan bears an
interest rate of PIBOR (the French interbank offer rate) + 1.5%, payable in
arrears quarterly. The loan has to be repaid in yearly installments of 5.3
million beginning at the end of 1999 until December 31, 2005. Subject to certain
exceptions, the loan restricts RCF and certain of its subsidiaries from
incurring certain additional indebtedness, from having liens on or disposing of
certain assets, from merging or consolidating and from dividend payments. UPC
France is currently negotiating the refinancing of this facility.
Rhone Vision Cable Credit Facility
In July 1996, Rhone Vision Cable, a subsidiary of UPC France, which was
acquired in August 1999, entered into a 103.6 million credit facility to finance
construction and installation of Rhone Vision Cable networks. The facility bears
interest of LIBOR plus 1%, payable quarterly. The repayment of the facility
commences on June 30, 2002, or either on the June 30/th/ or December 31/st/
occurring at least six months after network completion. The facility is secured
by pledges of all the shares and certain assets of Rhone Vision Cable and by a
guarantee given by the Department du Rhone (for up to 50% of any sum due under
the facility). The facility restricts Rhone Vision Cable's ability to secure
additional financing, incur additional debt or transfer shares. Under certain
circumstances, the lenders are entitled to set up a company as successor of
Rhone Vision Cable's position. UPC France is currently negotiating the
refinancing of this facility.
Videopole Credit Facility
In October 1999, Videopole, a subsidiary of UPC France, which was acquired
in August 1999, entered into a 9.9 million credit facility with the Comptoir de
Entrepreneurs to finance the extension of existing network and working capital
operations. The facility must be repaid by December 31, 2000. The facility bears
interest of EURIBOR plus 1.25%. UPC France is currently negotiating the
refinancing of this facility.
DIC Loan
In November 1998, a subsidiary of DIC loaned UPC USD90.0 million (89.4
million). The loan from DIC was subsequently assigned to an Israeli bank. We
used the proceeds to acquire interests in the Israeli and Maltese systems. The
loan from DIC matures in November 2000 and is secured by UPC's pledge of its
ownership interest in the Israeli system. The loan from DIC bears interest at
the nominal rate of 8% per annum. This interest is payable, together with an
additional 6% of the principal amount, on maturity. The loan from DIC may be
repaid on quarterly prepayment dates with three months prior notice by us. In
connection with the loan from DIC, UPC granted the Discount Group, its partner
in the Israeli system, an option to acquire USD90.0 million (89.4 million), plus
accrued interest, of ordinary shares A at a price equal to 90.0% of the initial
public offering price, and, if this option is exercised, another option to
acquire USD45.0 million (44.7 million), plus accrued interest, of ordinary
shares A at a price equal to the 30 day average closing price of our ordinary
shares A on the Stock Market of Amsterdam Exchanges, or the initial public
offering price, whichever is higher. At UPC's initial public offering, DIC
exercised the first option and acquired 4,675,962 ordinary shares A. We repaid
USD45.0 million (44.7 million) of the loan, plus accrued interest, with proceeds
from the option exercise. The other option is exercisable until September 30,
2000.
Monor Facility
In September 1997, Monor entered into a USD42.0 million (41.7 million) term
loan facility with a syndicate of banks led by Credit Lyonnasis. The proceeds of
Monor facility were used to repay indebtedness and for capital expenditures in
the build-out of Monor's network. Monor's facility matures on December 31, 2006
and bears interest at LIBOR plus 1.5%. Monor entered into an interest rate swap
agreement with Credit Lyonnais swapping the floating rate to a fixed rate of
6.66% for German marks and 7.79% for U.S. dollars. Monor's
94
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
facility is secured by a pledge over the shares of Monor and it assets. This
facility limits Monor's ability to encumber its assets, incur indebtedness and
pay dividends.
UPC Senior Revolving Credit Facility
In October 1997, UPC and Norkabel as borrowers entered into a 499,158
multi-currency revolving credit facility with a syndicate of banks. Norkabel was
succeeded as a borrower by Janco Multicom after the merger of Janco and
Norkabel. In December 1997, Telekabel Wien and the other members of the
Telekabel Group also became borrowers under the Senior Revolving Credit
Facility. In July 1999, the outstanding debt under this facility was refinanced
with the new UPC Senior Credit Facility.
Bridge Bank Facility
In connection with the UPC Acquisition, the Company entered into the
consolidated USD125.0 million term Bridge Bank Facility with a syndicate of
banks. In February 1999, UPC repaid the Bridge Bank Facility.
Debt Maturities
The maturities of the Company's long-term debt are as follows:
12 months ended December 31, 2000............... 50,291
12 months ended December 31, 2001............... -
12 months ended December 31, 2002............... 60,979
12 months ended December 31, 2003............... 16,355
12 months ended December 31, 2004............... -
Thereafter...................................... 3,826,076
---------
Total.................................. 3,953,701
=========
|
95
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Fair Value of Financial Instruments
Fair value is based on market prices for the same or similar issues.
Carrying value is used when a market price is unavailable.
As of December 31, 1999 As of December 31, 1998
----------------------- -----------------------
Fair Market Fair Market
Book Value Value Book Value Value
---------- ----------- ---------- -----------
UPC Euro Senior Notes due 2009...................... 754,717 771,141 - -
UPC Euro Senior Notes due 2009...................... 300,000 303,750 - -
UPC USD Senior Discount Notes due 2009.............. 419,123 412,691 - -
UPC 13.375% USD Senior Discount Notes due 2009...... 254,195 270,765 - -
UPC 13.375% EURO Senior Discount Notes due 2009..... 102,207 106,005 - -
UPC 10 7/8% USD Senior Notes due 2007............... 190,658 205,450 - -
UPC 10 7/8% Euro Senior Notes due 2007.............. 100,000 102,000 - -
UPC USD Senior Notes due 2009....................... 238,412 260,450 - -
UPC 11 1/4% EURO Senior Notes due 2009.............. 100,267 103,020 - -
UPC Senior Credit Facility.......................... 357,482 357,482 - -
UPC Senior Revolving Credit Facility................ - - 439,267 439,267
UPC Bridge Bank Facility............................ - - 51,513 51,513
PCI Notes........................................... 16,355 16,355 - -
@Entertainment 1998 Senior Discount Notes........... 115,263 147,028 - -
@Entertainment 1999 Senior Discount Notes........... 140,925 145,099 - -
@Entertainment 1999 Series C Senior Discount Notes. 11,767 11,767 - -
New Telekabel Facility.............................. 255,263 255,263 - -
CNBH Facility....................................... 121,556 121,556 - -
A2000 Facilities.................................... 207,831 207,831 - -
Mediareseaux Facility............................... 44,912 44,912 18,307 18,307
RCF Facility........................................ 31,654 31,654 - -
Rhone Vision Cable Credit Facility.................. 60,979 60,979 - -
Videopole Facility.................................. 7,704 7,704 - -
Monor............................................... 33,280 33,280 - -
Bank and other loans................................ 89,151 89,152 75,584 75,584
---------- ----------- ---------- -----------
3,953,701 4,065,344 584,671 584,671
Less current portion....................... (50,291) (50,291) (51,593) (51,593)
---------- ----------- ---------- -----------
Total...................................... 3,903,410 4,015,043 533,078 533,078
========== =========== ========== ===========
|
10. Shareholders' Equity
In February 1999, the Company's shareholders approved an amendment and
restatement of the Company's Articles of Association to effect a 3:2 stock
split and an increase in the number of authorized ordinary shares to
200,000,000, which was legally effected before the Company's initial public
offering. The Company's shareholders also approved the issuance of 100 priority
shares, which have special approval and other rights, to United. In addition,
the Company's Articles of Association were amended and restated to provide for
the issuance of 49,999,900 preference shares A and 200,000,000 preference shares
B. The par value of all shares was set at Euro 0.30 per share.
In July 1999, at the annual shareholders' meeting, the shareholders
approved the amendment of UPC's Articles of Association to authorize 100 million
ordinary shares B with the right to cast 1 vote per share and to increase the
voting rights of the newly re-named ordinary shares A (formerly the ordinary
shares), the priority shares, the preference shares A and the preference shares
B to 100 votes per share. The shareholders also approved an increase in the
nominal value of each issued and outstanding ordinary share A and each priority
share from Euro0.30 to Euro2.0.
At an extraordinary general meeting of shareholders, the shareholders
approved the amendment of UPC's Articles of Association to (i) split each
ordinary share A, priority share, preference share A AND prferred share B (as of
December 31, 1999, with a nominal value of Euro2.00 each) into three shares with
a nominal value of Euro1.00 each, (ii) split each ordinary share B (as of
December 31, 1999, with a nominal value of Euro0.02 each) into three shares with
a nominal value of Euro.01 each and (iii) pay up an amount of Euro145.2 million
on account of the share premium reserve of the company. All share and per share
amounts in the accompanying consolidated financial statements and notes thereto
have been retroactively restated to reflect the share split from 3:1. The change
in nominal value has been restated in the consolidated statement of
shareholder's equity as if it occurred at the beginning of 1999.
96
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
General
The equity classifications and amounts as stated in these consolidated
financial statements do not necessarily reflect the statutory equity of the
Company, as the statutory equity is subject to Dutch generally accepted
accounting principles. The statutory equity is the basis for any distributions
to shareholders.
Initial Public Offering
During February 1999, the Company successfully completed an initial public
offering selling 133.8 million shares on the Amsterdam Stock Exchange and Nasdaq
National Market System and raising gross and net proceeds from the offering of
approximately 1,294.6 million and 1,206.8 million respectively.
Secondary Public Offering of Ordinary Shares A
In October 1999, UPC closed the offering of 45,000,000 of its ordinary
shares A. The price was set at Euro59.75 per share, raising gross and net
proceeds from the offering of approximately 896.2 million and 851.3 million
respectively.
United Indenture
As a subsidiary of United, the Company's activities are restricted by the
covenants in United's indenture dated February 5, 1998 (the ''United
Indenture''). The United Indenture generally limits the additional amount of
debt that UPC or its subsidiaries or controlled affiliates may borrow, or
preferred shares that they may issue. Generally, additional borrowings, when
added to existing indebtedness, must satisfy, among other conditions, at least
one of the following tests: (i) 7.0 times the borrower's consolidated operating
cash flow; (ii) 1.75 times its consolidated interest expense; or (iii) 225% of
the borrower's consolidated invested equity capital. In addition, there must be
no existing default under the United Indenture at the time of the borrowing.
The United Indenture also restricts UPC's ability to make certain asset sales
and certain payments. In connection with the initial public offering, UPC has
agreed with United that it will not take any action during the term of the
United Indenture that would result in a breach of the United Indenture
covenants. The maturity date of the United Indenture is February 2008 and
interest becomes payable in cash in February 2003.
Relationship with Microsoft
On January 25, 1999, UPC and Microsoft Corporation signed a letter of
intent providing for the establishment of a technical services relationship. In
connection with this letter of intent, we have agreed to grant Microsoft
warrants to purchase up to 11,400,000 shares (as adjusted for UPC's 3:1 stock
split in March 2000) or ADSs at Microsoft's option, at an exercise price of
USD9.33. Half of these warrants were to be issued at the earlier of April 25,
1999 and the signing of the first definitive agreement. These warrants are
exercisable after one year from issuance for a period of three years. The other
half of the warrants will be issued upon the signing of the first definitive
agreement. This half of the warrants will vest and become exercisable based on
performance criteria to be established in the definitive agreements, although
they also will not be exercisable until at least one year after the date of the
closing of UPC's initial public offering. The first half of the warrants are for
the right to negotiate to license technology from Microsoft under definitive
agreements to be negotiated in the future. UPC recorded as contract acquisition
rights approximately 29.2 million associated with the first half of the
warrants. Such costs are being amortized over the life of the warrants until a
contract life is determined. The accounting for the cost associated with the
second half of the warrants will depend on the ultimate nature of the
performance criteria giving rise to the earn-out of these warrants when such
criteria are established. These warrants will be
97
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
recorded as such at fair value when it is probable the performance criteria will
be met in accordance with EITF Issue No. 96-18 "Accounting for Equity
Instruments that are issued to Other than Employees, or in Conjunction with
selling Goods or Services."
Stock Option Plan
In June 1996, UPC adopted a stock option plan (the "Plan") for certain of
its employees and those of its subsidiaries. There are 18,000,000 total shares
available for the granting of options under the Plan, which are held by the
Stichting Administratiekantoor UPC (the "Foundation"), which administers the
Plan. Each option represents the right to acquire from the Foundation a
certificate representing the economic value of one share. Following consummation
of the initial public offering, any certificates issued to employees who have
exercised their options will be convertible into UPC common stock. United
appoints the board members of the Foundation and thus controls the voting of the
Foundation's common stock. The options are granted at fair market value
determined by the Company's Supervisory Board at the time of the grant. The
maximum term that the options can be exercised is five years from the date of
the grant. In order to introduce the element of "vesting" of the options, the
Plan provides that even though the options are exercisable immediately, the
shares to be issued or options granted in 1996 vest in equal monthly increments
over a three-year period from the effective date set forth in the option grant.
In March 1998, the Plan was revised to increase the vesting period for any new
grants of options to four years, vesting in equal monthly increments. Upon
termination of an employee (except in the case of death, disability or the
like),all unvested options previously exercised must be resold to the Foundation
at the original purchase price, or all vested options must be exercised, within
30 days of the termination date. The Supervisory Board may alter these vesting
schedules in its discretion. An employee has the right at any time to put his
certificates or shares from exercised vested options to the Foundation at a
price equal to the fair market value. The Company can also call such
certificates or shares for a cash payment upon termination in order to avoid
dilution, except for certain awards, which can not be called by the Company
until expiration of the underlying options. The Plan also contains anti-dilution
protection and provides that, in the case of change of control, the acquiring
company has the right to require UPC to acquire all of the options outstanding
at the per share value determined in the transaction giving rise to the change
of control.
For purposes of the proforma disclosures presented below, UPC has computed
the fair values of all options granted during the year ended December 31, 1999
using the Black-Scholes single-option pricing model and the following weighted-
average assumptions:
Risk-free interest rate..................... 5.76%
Expected life............................... 5 years
Expected volatility......................... 56.82%
Expected dividend yield..................... 0%
|
The total fair value of options granted was approximately 38.5 million for
the year ended December 31, 1999. This amount is amortized using the straight-
line method over the vesting period of the options. Cumulative compensation
expense recognized in pro forma net income, with respect to options that are
forfeited prior to vesting, is adjusted as a reduction of pro forma compensation
expense in the period of forfeiture. For the year ended December 31, 1999,
stock-based compensation, net of the effect of forfeitures and net of actual
compensation expense recorded in the statement of operations was 5.9 million.
This stock-based compensation had the following proforma effect on net income
(in thousands):
Net Loss
Net Loss Per Share
---------- ----------
As reported........................... (784,298) (2.08)
---------- ----------
Pro Froma............................. (790,198) (2.09)
========== ==========
|
98
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
A summary of stock option activity for the Plan is as follows:
For the Years Ended december 31,
-----------------------------------------------------------------------------------
1999 1998 1997
-------------------------- ------------------------- -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Number Exercise Price Number Exercise Price Number Exercise Price
---------- -------------- ---------- -------------- ---------- --------------
(Euros) (Euros) (Euros)
Outstanding at beginning of
period.................................. 12,586,500 1.72 6,724,656 1.59 6,901,251 1.59
Granted during period........................ 4,338,000 14.91 7,029,000 1.83 - -
Cancelled during period...................... (266,565) 3.44 (42,156) 1.59 (176,595) 1.59
Exercised during period...................... (5,702,256) 1.65 (1,125,000) 1.59 - -
---------- ----- ---------- ---- --------- ----
Outstanding at end of period................. 10,955,679 6.94 12,586,500 1.72 6,724,656 1.59
========== ===== ========== ==== ========= ====
Exercisable at end of period (1)............. 4,769,595 3.10 12,586,500 1.72 6,724,656 1.59
========== ===== ========== ==== ========= ====
|
(1) Includes certificate rights as well as options.
The combined weighted-average fair values and weighted-average exercise
prices of options granted are as follows:
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
------------------------------------ -----------------------------------
Fair Exercise Fair Exercise
Exercise Price Number Value Price Number Value Price
-------------- ---------- ------- -------- ---------- ------- --------
(Euros) (Euros)
Less than market price........... 375,000 8.94 16.12 - - -
Equal to market price............ 3,963,000 8.95 14.79 7,029,000 1.83 1.83
Greater than market price........ - - - - - -
---------- ------ ------- ---------- ------ -------
Total..................... 4,338,000 8.94 14.91 7,029,000 1.83 1.83
========== ======== ======= ========== ====== =======
|
The following table summarizes information about stock options outstanding,
vested and exercisable as of December 31, 1999:
Options Outstanding Options Exercisable
--------------------------------------------- ----------------------------
Weighted-Average Weighted- Weighted-
Remaining Average Average
Contractual Life Exercise Exercise
Exercise Price Range (Euros) Number (Years) Price Number Price
---------------------------- ----------- ---------------- --------- ----------- ---------
(Euros) (Euros)
1.59 - 2.05......................... 6,681,039 1.19 1.80 4,211,055 1.78
9.67 - 9.67......................... 1,212,000 3.20 9.67 231,000 9.67
11.26 - 11.40......................... 719,640 3.22 11.40 132,483 11.40
15.67 - 18.17......................... 1,171,500 3.56 17.51 130,188 17.46
20.08 - 20.08......................... 1,171,500 3.78 20.08 63,969 20.08
------------ ---------------- -------- ------------ ---------
10,955,679 2.00 6.94 4,769,595 3.10
============ ================ ======== =========== =========
|
99
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
The Plan was accounted for as a variable plan prior to the initial public
offering. Accordingly, compensation expense was recognized at each financial
statement date based on the difference between the grant price and the estimated
fair value of the Company's common stock. Thereafter, the Plan has been
accounted for as a fixed plan. Compensation expense of 6,465, 2,186 and 0 was
recognized for the years ended December 31, 1999, December 31, 1998 and December
31, 1997, respectively.
Phantom Stock Option Plan
In March 1998, the Company adopted a phantom stock option plan (the
"Phantom Plan") which permits the grant of phantom stock rights in up to
7,200,000 shares of the Company's common stock. The rights are granted at fair
market value determined by the Company's Supervisory Board at the time of grant,
and generally vest in equal monthly increments over the four-year period
following the effective date of grant and may be exercised for ten years
following the effective date of grant. The Phantom Plan gives the employee the
right to receive payment equal to the difference between the fair market value
of a share of UPC common stock and the option base price for the portion of the
rights vested. UPC, at its sole discretion, may make payment in (i) cash, (ii)
freely tradable shares of United Class A Common Stock or (iii) freely tradable
shares of its common stock. If the Company chooses to make a cash payment, even
though its stock is publicly traded, employees have the option to receive an
equivalent number of freely tradeable shares of stock instead. The Phantom Plan
contains anti-dilution protection and provides that, in certain cases of a
change of control, all phantom options outstanding become fully exercisable.
The Phantom Plan is accounted for as a variable plan in accordance with its
terms, resulting in compensation expense for the difference between the grant
price and the fair market value at each financial statement date. Compensation
expense of 117.4 million and 23.8 million was recognized for the years ended
December 31, 1999 and December 31, 1998 respectively.
A summary of stock option activity for the Phantom Plan is as follows:
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
----------------------------- -----------------------------
Weighted- Weighted-
Average Average
Number Exercise Price Number Exercise Price
------------ -------------- ------------ --------------
(Euros) (Euros)
Outstanding at beginning of period................... 6,172,500 1.91 -- --
Granted during period................................ 585,000 9.67 6,172,500 1.91
Cancelled during period.............................. (1,540,128) 2.00 -- --
Exercised during period.............................. (1,072,809) 1.89 -- --
--------- ----- --------- -----
Outstanding at end of period......................... 4,144,563 2.98 6,172,500 1.91
========= ===== ========= =====
Vested and exercisable at end of period.............. 1,554,813 2.47 1,411,407 1.84
========= ===== ========= =====
|
The combined weighted-average fair values and weighted-average exercise
prices of options are as follows:
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
----------------------------------- -----------------------------------
Fair Exercise Fair Exercise
Exercise Price Number Value Price Number Value Price
-------------- ----------- --------- --------- ----------- --------- ---------
(Euros) (Euros) (Euros) (Euros)
Equal to market price......................... 585,000 9.67 9.67 2,057,500 1.91 1.91
----------- --------- --------- ----------- --------- ---------
Total.................................... 585,000 9.67 9.67 2,057,500 1.91 1.91
=========== ========= ========= =========== ========= =========
|
100
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
The following table summarizes information about stock options outstanding
and exercisable as of December 31, 1999:
Weighted-
Average Number of
Remaining Options
Contractual Life Vested and
Exercise Price (Euros) Number (years) Exercisable
------------------ --------------- ------------------- -----------------
1.82.............. 2,606,778 7.60 1,186,092
2.05.............. 952,785 8.74 245,907
9.67.............. 585,000 9.16 122,814
--------- --------- ---------
4,144,563 8.14 1,554,813
========= ========= =========
|
Subsidiary Phantom Stock Option Plan
As of June 1998, the Company adopted a phantom stock option plan (the
"chello Phantom Plan"), which permits the grant of phantom stock rights
of chello, a wholly owned subsidiary of the Company. The rights
are granted at an option price equal to the fair market value determined by
chello's Supervisory Board at the time of grant, and generally vest in equal
monthly increments over the four-year period following the effective date of
grant and the option must be exercised, in all cases, not more than ten years
from the effective date of grant. The chello Phantom Plan gives the employee the
right to receive payment equal to the difference between the fair market value
of a share (as defined in the chello Phantom Plan) of chello and the option
price for the portion of the rights vested. The Company, at its sole discretion,
may make the required payment in cash, freely tradable shares of United Class A
Common Stock, the Common stock of UPC, which shall be valued at the closing
price on the day before the date the Company makes payment to the option holder,
or the chello's common shares, if they are publicly traded and freely tradable
ordinary shares. If the Company chooses to make a cash payment, even though its
stock is publicly traded, employees have the option to receive an equivalent
number of freely tradable shares of chello's stock instead. As of December 31,
1999, the Company had recorded a cumulative compensation expense of 70,804 for
options granted under the chello Plan.
A summary of stock option activity for the chello Phantom Plan is as
follows:
For the Year Ended For the Year Ended
December 31, 1999 December 31, 1998
--------------------------- ---------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Number Price Number Price
------------ ------------ ------------ ------------
(Euros) (Euros)
Outstanding at beginning of period................ 570,000 4.54 -- --
Granted during period............................. 235,000 4.54 570,000 4.54
Granted during period............................. 1,309,838 9.08 -- --
Granted during period............................. 355,500 --(1) -- --
Cancelled during period........................... (128,542) 4.71 -- --
Exercised during period........................... (11,667) 4.54 -- --
--------- ----- ------- -----
Outstanding at end of period...................... 2,330,129 7.54(2) 570,000 4.54
========= ===== ======= =====
Vested and exercisable at end of period........... 414,913 6.13(2) 70,625 4.54
========= ===== ======= =====
|
(1) Of the total number of options granted to date, the option price in respect
of these options in the initial public offering price ("IPO price").
(2) Excluding the shares discussed in (1) above.
The weighted-average remaining contractual life for these options is 8.93
years as of December 31, 1999 (9.47 years as of December 31, 1998).
The following table summarizes information about options rights outstanding,
vested and exercisable as of December 31, 1999 under the chello Phantom Plan:
For the Year Ended
December 31, 1999
---------------------------------------------
Weighted -
Average Number of
Remaining options
Contractual vested and
Number Life (years) Exercisable
------------ ------------ -----------
Exercise price
(Euros)
4.54 669,791 7.05 267,188
9.08 1,304,838 9.56 144,074
-(1) 355,500 9.96 3,651
--------- ----- -------
2,330,129 8.93 414,913
========= ==== =======
|
(1) The exercise price is to be determined as follows:
Of the total number of options granted to date, the option price in
respect of these options is the initial public offering ("IPO") price.
The chello Phantom Plan is accounted for as a variable plan in accordance with
its terms, resulting in compensation expense for the difference between the
grant price and the fair market value at each financial statement date.
Compensation expense of 69,831 was recognized for the year ended December 31,
1999. The Company's estimate of the fair value of its ordinary stock as of
December 31, 1999 utilized in recording compensation expense and deferred
compensation expense under the chello plan was Euro 85.00 per share. Because the
Company will account for the chello Phantom Plan as a variable plan,
compensation expense will continue to be recognized subsequent to December 31,
1999. For each Euro 1 per share increase in the estimate of the fair value per
share of its ordinary stock as of December 31, 1999, over the Euro 85.00 used to
record stock compensation expense as of December 31, 1999, additional stock
compensation expense totalling approximately Euro 904 would have been recognized
in the statement of operations and deferred compensation expense would have
increased by approximately that amount as of that date.
Subsidiary Stock option plan
In June 1999, The Company adopted a stock plan (the "chello Plan"). Under the
chello Plan, the Company's Supervisory Board's may grant stock options to the
Company's employees at fair market value determined by the Company's Supervisory
Board at the time of grant. All options are exercisable upon grant and for the
period of five years. In order to introduce the element of "vesting" of the
options, the chello Plan provides that even though the options are exercisable
immediately, the shares to be issued or options to be granted are deemed to vest
1/48th per month for a four year period from date to grant. If the employee's
employment terminates, other than in case of death, disability or the like, for
a so-called "urgent reason" under Dutch law or for documented and material non-
performance, all unvested options previously exercised must be resold to the
Company at the original purchase price, and all vested options must be
exercised, within 30 days of the termination date. The Supervisory Board may
alter these vesting schedules at its discretion. The chello plan also provides
that, in case of a change in control, the Company has the right to require a
foundation to acquire all of the options outstanding at the per share value
determined in the transaction giving rise to the change in its control.
For purposes of the pro forma disclosures presented below, the Company has
computed the fair value of all options granted during the year ended December
31, 1998 and the year ended December 31, 1999, using the Black-Scholes single-
option pricing model and the following weighted average assumptions: expected
dividend yield of 0%, expected annual standard volatility of 95%, risk-free
interest rate of 3.41% and expected life of 5 years.
The total fair value of options granted under the chello plan was nil for the
year ended to December 31, 1998 and 3,707 for the ended December 31, 1999. These
pro forma amounts are amortized using the straight-line method over the vesting
period of the options. Cumulative compensation expense recognized in pro forma
net income, with respect to options that are forfeitured prior to vesting, is
adjusted as a reduction of pro forma compensation expense in the period of
forfeiture. For the year ended December 31, 1998 and December 31, 1999,
respectively, pro forma stock-based compensation, net of the effect of the
forfeitures was nil and 726, respectively. The stock-based compensation had the
following proforma effect on net income (in thousands):
Net loss
Net loss Per Share
--------- ---------
As reported (784,298) (2.08)
--------- ---------
Pro Forma (785,024) (2.08)
========= =========
|
101
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
11. Commitments and Contingencies
The Company has entered into various operating lease agreements for office
space, office furniture and equipment, and vehicles. Rental expense under these
lease agreements totaled 19,365, 3,656 and 3,114 for the years ended December
31, 1999 and, December 31, 1998 and December 31, 1997 respectively.
The Company has operating lease obligations as follows:
12 months ended December 31, 2000............................ 84,392
12 months ended December 31, 2001............................ 84,314
12 months ended December 31, 2002............................ 67,112
12 months ended December 31, 2003............................ 49,883
12 months ended December 31, 2004 and thereafter............. 188,826
-------
Total............................................... 474,527
=======
|
Satellite Transponder Capacity
UPC has entered into an agreement for the long term lease of satellite
transponder capacity providing service from Europe to Europe, North America and
South America. The term of the agreement is 156 months, with a minimum
aggregate total cost of approximately USD114.0 million (113.3 million) payable
in monthly installments based on capacity used.
Programming, Broadcast and Exhibition Rights
@Entertainment has entered into long-term programming agreements and
agreements for the purchase of certain exhibition or broadcast rights with a
number of third party content providers for its digital direct-to-home ("DTH")
and cable systems. At December 31, 1999, @Entertainment had an aggregate minimum
commitment in relation to these agreements of approximately USD214.0 million
(212.3 million) over the next seven years, approximating USD55.6 million (55.3
million in 2000, USD51.8 million (51.5 million) in 2001, USD48.1 million (47.8
million) in 2002, USD29.9 million (29.7 million) in 2003 and USD28.6 million
(28.4 million) in 2004 and thereafter.
Purchase Commitments
As of December 31, 1999, @Entertainment had an aggregate minimum commitment
toward the purchase of the DTH reception systems from Philips Business
Electronics B.V. of approximately USD60.8 million (60.4 million) over the next
two years.
Litigation and Claims
From time to time, the Company is subject to various claims and suits
arising out of the ordinary course of business. While the ultimate result of all
such matters is not presently determinable, based upon current knowledge and
facts, management does not expect that their resolution will have a material
adverse effect on the Company's consolidated financial position or results of
operations.
102
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
12. Segment and Geographic Information
The Company's business has historically been derived from its video
entertainment segment. This service has been provided in various European
countries where the Company owns and operates its systems. During 1997, the
Company introduced Internet/data and during 1999 the Company introduced
telephony in several of its systems and began to develop its content and
programming business. In August 1999, the Company acquired @Entertainment,
which has a DTH business.
The Company evaluates performance and allocates resources at the geographic
country level and by business line. The key operating performance criteria used
in this evaluation includes revenue growth and operating income before
depreciation, amortization, stock-based compensation expense and management fees
("Adjusted EBITDA"). Management generally considers Adjusted EBITDA to be a
helpful way to measure the performance of cable television operations and
communications companies. Management believes Adjusted EBITDA helps investors
to assess the cash flow from the Company's operations from period to period and
thus to value its business. Adjusted EBITDA should not, however, be considered
a replacement for net income, cash flows or for any other measure of performance
or liquidity under generally accepted accounting principles, or as an indicator
of a company's operating performance. The Company is not entirely free to use
the cash represented by its Adjusted EBITDA as it pleases. Several of the
Company's consolidated operating companies are restricted by the terms of their
debt arrangements. Each company has its own operating expenses and capital
expenditure requirements, which can limit the Company's use of cash. The
Company's presentation of
103
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Adjusted EBITDA may not be comparable to statistics with a similar name reported
by other companies. Not all companies and analysts calculate EBITDA in the same
manner.
A summary of the segment information by geographic area is as follows:
Revenue for the Year Ended December 31, 1999
------------------------------------------------------------------------------
Cable Internet/ DTH and
Television Telephony Data Programming Other Intercompany Total
----------- -------- -------- ----------- ----- ------------ -------
The Netherlands:
Corporate...................................... - - - - 6,063 - 6,063
UPCtv.......................................... - - - 1,051 - - 1,051
chello......................................... - - 7,323 - - (7,323) -
Priority Telecom............................... - - - - - - -
Operating companies............................ 110,618 30,275 8,144 - 312 - 149,349
Austria........................................... 79,151 6,920 12,865 - - - 98,936
Belgium........................................... 14,875 - 2,360 - - - 17,235
Czech Republic.................................... 7,075 171 - - 985 - 8,231
Norway............................................ 46,492 345 534 - - - 47,371
Hungary .......................................... 33,270 - 118 - - - 33,388
France............................................ 26,015 2,562 558 - - - 29,135
Poland............................................ 25,375 - - 18,637 - (8,318) 35,694
Sweden............................................ 12,605 - 476 - - - 13,081
Other ............................................ 7,872 - - - 95 - 7,967
------- ------ ------ ------ ----- ------- -------
Total ........................................ 363,348 40,273 32,378 19,688 7,455 (15,641) 447,501
======= ====== ====== ====== ===== ======= =======
|
Revenue for the Year Ended December 31, 1998
------------------------------------------------------------------------------
Cable Internet/ DTH and
Television Telephony Data Programming Other Intercompany Total
---------- -------- -------- ----------- ----- ------------ -------
The Netherlands:
Corporate....................................... - - - - 7,835 - 7,835
UPCtv........................................... - - - - - - -
Chello.......................................... - - - - - - -
Priority Telecom................................ - - - - - - -
Operating companies............................. 14,923 175 - - - - 15,099
Austria............................................ 76,906 66 3,416 - - - 80,388
Belgium............................................ 14,831 - 706 - 1,154 - 16,691
Czech Republic..................................... 4,043 - - - - - 4,043
Norway............................................. 41,879 - 173 - - - 42,052
Hungary ........................................... 12,572 - - - - - 12,572
France............................................. 3,657 - - - - - 3,657
Poland............................................. - - - - - - -
Sweden............................................. - - - - - - -
Other ............................................. 2,635 - - 611 - - 3,245
------- ---- ----- ----- ----- ----- -------
Total ........................................ 171,446 241 4,295 611 8,989 - 185,582
======= ==== ===== ===== ===== ===== =======
|
104
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Revenue for the Year Ended December 31, 1997
----------------------------------------------------------------------------
Cable Internet/ DTH and
Televising Telephony Data Programming Other Intercompany Total
------------- ----------- ---------- ------------ ---------- ----------- ---------
The Netherlands:
Corporate............. - - - - 4,149 - 4,149
UPCtv................. - - - - - - -
chello................ - - - - - - -
Priority Telecom...... - - - - - - -
Operating companies... 9,276 - 103 - - - 9,379
Austria.................. 73,681 - 187 - - - 73,868
Belgium.................. 14,432 - 57 - 3,090 - 17,579
Czech Republic........... 3,400 - - - - - 3,400
Norway................... 41,534 - - - - - 41,534
Hungary ................. - - - - - - -
France................... 1,146 - - - - - 1,146
Poland................... - - - - - - -
Sweden................... - - - - - - -
Other ................... 1,940 - - 45 - - 1,985
------------- ---------- --------- ------------ --------- ----------- ---------
Total ................. 145,409 - 347 45 7,239 - 153,040
============= ========== ========= ============ ========= =========== =========
|
Adjusted EBITDA for the Year Ended December 31, 1999
---------------------------------------------------------------------------
Cable Internet/ DTH and
Televising Telephony Data Programming Other Total
------------ ---------- --------- ------------ --------- ----------
The Netherlands:
Corporate............. - - - - (40,273) (40,273)
UPCtv................. - - - (15,694) - (15,694)
chello................ - - (58,278) - - (58,278)
Priority Telecom...... - (5,436) - - - (5,436)
Operating companies... 45,270 (13,260) (4,255) - 1,424 29,179
Austria.................. 42,226 (10,776) 220 - - 31,670
Belgium.................. 3,715 (51) (2,078) - - 1,586
Czech Republic........... (1,061) 51 - - 382 (628)
Norway................... 19,485 (6,720) (4,865) - - 7,900
Hungary ................. 11,029 - (245) - - 10,784
France................... (1,659) (5,586) (2,229) - (63) (9,537)
Poland................... (8,797) - - (60,871) (2,835) (72,503)
Sweden................... 4,305 (127) (3,847) - - 331
Other ................... 1,996 (194) (690) - (40) 1,072
------------ ---------- --------- ------------ --------- ----------
Total ................. 116,509 (42,099) (76,267) (76,565) (41,405) (119,827)
============ ========== ========= ============ ========= ==========
|
Adjusted EBITDA for the Year Ended December 31, 1998
---------------------------------------------------------------------------
Cable Internet/
Television Telephony Data Programming Other Total
------------ ----------- --------- ------------ --------- ----------
The Netherlands:
Corporate............. - - - - (5,225) (5,225)
UPCtv................. - - - (350) - (350)
chello................ - - (7,194) - - (7,194)
Priority Telecom...... - (1,595) - - - (1,595)
Operating companies... 10,024 48 (49) - - 10,023
Austria.................. 40,767 (1,941) (2,064) - - 36,762
Belgium.................. 6,830 - (947) - 136 6,019
Czech Republic........... (856) - - - - (856)
Norway................... 16,633 (680) (957) - - 14,996
Hungary ................. 4,533 - - - - 4,533
France................... (1,132) (1,081) (91) - - (2,304)
Poland................... - - - - - -
Sweden................... - - - - - -
Other ................... (199) - 21 (4,220) 156 (4,242)
------------ ----------- --------- ------------ --------- ----------
Total ................. 76,600 (5,249) (11,281) (4,570) (4,933) 50,567
============ =========== ========= ============ ========= ==========
|
105
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Adjusted EBITDA for the Year Ended December 31, 1997
---------------------------------------------------------------------------
Cable Internet/ DTH and
Television Telephony Data Programming Other Total
---------- --------- -------- ----------- ------ ------
The Netherlands:
Corporate - - - - (5,538) (5,538)
UPCtv..................................... - - - - -
chello.................................... - - - - - -
Priority Telecom.......................... - - - - - -
Operating companies....................... 5,668 - 103 - - 5,771
Austria................................... 36,518. - 15 - - 36,533
Belgium................................... 5,914. - 56 - 859 6,829
Czech Republic............................ (3,054) - - - - (3,054)
Norway.................................... 16,757 - - - - 16,757
Hungary .................................. - - - - - -
France.................................... (2,103) - - - - (2,103)
Poland.................................... - - - - - -
Sweden.................................... - - - - - -
Other .................................... 455 - - (5,233) (2,999) (7,777)
------ ---- ---- ------ ------ ------
Total .................................. 60,155 - 174 (5,233) (7,678) 47,418
====== ==== ==== ====== ====== ======
|
Following is a reconciliation of Adjusted EBITDA to UPC's net loss before
income taxes:
For the Years Ended December 31,
--------------------------------------
1999 1998 1997
--------------------------------------
Adjusted EBITDA.......................................... (119,827) 50,567 47,419
Depreciation and amortization............................ (266,070) (85,150) (60,302)
Stock-based compensation ................................ (192,710) (146,402) (2,186)
--------- --------- --------
Net operating loss................................. (578,607) (180,985) (15,069)
Interest income.......................................... 28,064 3,357 2,955
Interest expense......................................... (186,408) (47,355) (32,100)
Provision for loss on investment related costs........... - (2,827) (8,571)
Gain on sale of assets................................... 1,501 - -
Foreign exchange gain (loss) and other expense, net...... (22,561) 1,221 (18,634)
--------- --------- --------
Net loss before income taxes and other items....... (758,011) (226,589) (71,419)
Share in results of affiliated companies, net............ (29,760) (28,962) (11,552)
Minority interests in subsidiaries....................... 1,651 523 69
--------- --------- --------
Net loss before income tax benefit (expense)....... (786,120) (255,028) (82,902)
========= ========= ========
|
106
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Investments in Affiliates Long-Lived Assets Capex Total Assets
-------------------------- --------------------- ---------------------- ------------------------
December 31, December 31, December 31, December 31,
-------------------------- --------------------- ---------------------- ------------------------
1999 1998 1999 1998 1999 1998 1999 1998
------------ ------------ ---------- --------- ---------- ---------- ---------- ------------
The Netherlands:
Corporate.............. 188,930 223,737 31,612 2,346 31,758 5,788 1,932,378 257,413
UPCtv.................. 2,728 - 20,492 - 20,206 25 28,427 48
Chello................. - - 21,482 2,079 25,047 2,082 36,609 3,003
Priority Telecom....... - - 444 14 430 24 4,164 79
Operating companies.... 31,276 - 726,812 - 189,673 11,174 1,526,945 -
Austria.................... - - 178,534 120,542 89,779 39,081 354,120 292,593
Belgium.................... - - 23,042 23,635 8,047 10,162 47,528 49,612
Czech Republic............. 549 - 79,847 7,493 2,373 472 158,812 9,861
Norway..................... - - 99,691 54,319 54,403 23,332 243,451 187,882
Hungary ................... 92 - 111,997 22,974 36,876 6,537 214,108 74,547
France..................... - - 317,467 34,587 67,321 26,009 495,673 43,818
Poland..................... 19,272 - 217,423 - 40,450 - 1,211,373 -
Sweden..................... - - 47,882 - 11,903 - 471,944 -
Other ..................... - - 31,689 5,638 4,987 3,134 76,740 19,461
----------- ----------- ----------- -------- ---------- ---------- ---------- ------------
Total ................... 242,847 223,737 1,908,414 273,627 583,253 127,820 6,802,272 938,317
=========== =========== =========== ======== ========== ========== ========== ============
|
Depreciation and Amortization
-----------------------------------------
For the Years Ended December 31,
-----------------------------------------
1999 1998 1997
------------ ------------ -------------
The Netherlands:
Corporate.............. (1,542) (4,301) (1,484)
UPCtv.................. (2,435) - -
chello................. (3,678) - -
Priority Telecom....... (1,401) (10) -
Operating companies.... (86,664) (6,259) (3,799)
Austria.................... (40,035) (35,069) (22,774)
Belgium.................... (9,157) (9,296) (6,467)
Czech Republic............. (3,837) (3,495) (2,483)
Norway..................... (30,873) (20,564) (21,647)
Hungary ................... (7,999) (3,052) -
France..................... (21,071) (1,874) (643)
Poland..................... (37,731) - -
Sweden..................... (14,189) - -
Other ..................... (5,458) (1,230) (1,005)
------------ ------------ -------------
Total ................... (266,070) (85,150) (60,302)
============ ============ =============
|
107
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
13. Income Taxes
To the extent UPC qualifies as a Dutch holding company, it may benefit from
the so-called participation exemption. The participation exemption is a facility
in Dutch corporate tax law which allows a Dutch company to exempt any dividend
income and capital gains in relation with its participation in subsidiaries
which are legal entities of a foreign country. Capital losses are also exempted,
apart from liquidation losses (under stringent conditions). All costs incurred
at the UPC level which relate to an investment in a foreign subsidiary are not
tax deductible, e.g. interest expense on loans used for the financing of the
investment in the foreign subsidiary. In addition, currency exchange results on
these loans are covered by the participation exemption, e.g. gains are exempted
and losses are not tax deductible.
108
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
The significant components of the net deferred tax liability are as
follows:
As of December 31,
-------------------------------
1999 1998
--------------- --------------
Deferred Tax Assets:
Tax net operating loss carryforward...................... 275,470 62,183
Stock-based compensation................................. 35,888 6,188
Accrued interest......................................... 14,330 --
Foreign currency effects................................. 22,969 --
Other.................................................... 14,183 365
--------------- --------------
Total deferred tax assets........................... 362,840 68,736
Valuation allowance...................................... (354,236) (61,508)
--------------- --------------
Deferred tax assets, net of valuation allowance..... 8,604 7,228
--------------- --------------
Deferred Tax Liabilities:
Intangible assets........................................ (18,565) (5,019)
Property, plant and equipment, net....................... (6,000) (6,137)
--------------- --------------
Total deferred tax liabilities...................... (24,565) (11,156)
--------------- --------------
Deferred tax liabilities, net....................... (15,961) (3,928)
=============== ==============
|
The difference between income tax expense provided in the financial
statements and the expected income tax benefit at statutory rates is reconciled
as follows:
For the Years Ended December 31,
-----------------------------------
1999 1998 1997
---------- ---------- ----------
Expected income tax benefit at the
Dutch statutory rate of 35%............... (265,304) (79,306) (24,996)
Tax effect of permanent and other
differences:
Change in valuation allowance........... 244,910 23,357 12,466
Non-deductible expenses................. 65,162 53,512 8,886
International rate differences.......... 783 1,597 1,467
Provision on investment................. -- 989 3,000
Capitalized costs....................... (47,063) -- --
Other................................... (310) (700) (75)
---------- ---------- ----------
Total income tax benefit..... (1,822) (551) 748
========== ========== ==========
|
The benefit of tax loss carry forwards arise primarily in The Netherlands,
Czech Republic, Poland and Austria. The benefit of the tax loss carry forwards
of Poland and Czech Republic aggregating to 99,598 as of December 31, 1999 will
expire during the years 2000 - 2004. The benefit of the tax loss carry forwards
of The Netherlands and Austria, aggregating to 186,645 as of December 31, 1999
have no expiration date.
During 1996, the Austrian tax authorities passed legislation which had the
effect of eliminating approximately 256,000 of tax basis associated with certain
amounts of goodwill recorded at Telekabel Group effective January 1, 1997. This
change in tax law has been challenged on constitutional grounds. However, there
can be no assurance of a successful repeal of such legislation. Accordingly,
this change caused Telekabel Group's effective tax rate to increase from the
historical effective tax rate through December 31, 1996, due to the non-
deductibility of such goodwill amortization subsequent to January 1, 1997.
109
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
14. Related Party
Agreement with United
In February 1999, United and the Company became parties to a Management
Service Agreement (the "United Service Agreement"), with an initial term through
2009, pursuant to which United will provide services such as accounting,
financial reporting, investor relations, human resources, information
technology, equipment procurement and testing expenses, corporate offices lease
payments and costs associated with corporate finance activities. Under the
United Service Agreement, the Company will pay United a fixed amount each month.
After the first year of the United Service Agreement, the fixed amount may be
adjusted from time to time by United to allocate corporate level expenses among
United's operating companies, including UPC, taking into account the relative
size of the operating companies and their estimated use of United resources. In
addition, UPC will continue to reimburse United for costs incurred by United
which are directly attributable to UPC. The United Service Agreement also
specifies the basis upon which United may second certain of its employees to
UPC. The Company generally is responsible for all costs incurred by United with
respect to any seconded employee's employment and severance.
Historically, UPC has been self sufficient from a corporate operations
perspective and required nominal assistance from its shareholders, Philips and
United, and solely from United subsequent to December 11, 1997. United and
Philips did not allocate any indirect overhead type costs to the Company from
inception through December 11, 1997 and United did not allocate any such costs
subsequent to December 11, 1997 through December 31, 1998. The only costs
historically charged to UPC were direct costs incurred by Philips and United on
UPC's behalf. Such costs were charged at cost. In connection with the
Company's initial public offering, United and the Company executed the United
Service Agreement which will provide for a fixed allocation in addition to
direct out-of-pocket reimbursements.
Related Party Payables
The Company classifies any unpaid invoices related to seconded employee
expenses or other expenses incurred by United on the Company's behalf as related
party payables on the balance sheet.
Loans to Employees
In 1996, UPC loaned certain employees of the Company amounts for the
exercise of the employees' stock options, taxes on options exercised, or both.
These recourse loans bear interest at 5.0% per annum. The employees' liability
to the Company is presented in the consolidated financial statements net of the
Company's obligation to the employees under the plan. As of December 31, 1999
and 1998, the receivable from employees, including accrued interest totaled
12,115 and 8,702, respectively.
Note Payable to Shareholder
UPC entered into two promissory notes with United of USD100.0 million
(March 1998) and USD20.0 million (July 1998). UPC has borrowed USD70.0 million
and USD16.0 million, respectively, under these two notes. In 1999, UPC repaid
USD60.0 million (54.5 million) of the indebtedness outstanding under the
USD100.0 million note and all of the indebtedness outstanding under the USD20.0
million note with proceeds form the initial public offering. In December 1999,
the remaining balance, 6.8 million, including accrued interest, of the United
loan was converted into equity.
Acquisitions of Interest in PHL and TARA
In November 1998, UPC purchased from RCL, an entity owned by a
discretionary trust for the benefit of the members of the family of John
Riordan, a member of the Board of Management, (1) a 5% interest in Tara and (2)
a 5% interest in our Irish operating system. The price for these interests was
shares 769,062 of United Class A Common Stock that we acquired as part of the
UPC Acquisition.
110
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Eastern European Transaction
UPC has agreed to sell 3% of its interest in its Eastern European
operations to Nimrod Kovacs for a purchase price based on its investment in
these interest at historical cost plus 12% interest thereon from the time of
investment throught the date of closing. The amount of Mr. Kovak's required
investment is being revised due to the recent Eastern European acquisitions. Mr.
Kovacs is a member of UPC's Board of Management, and UPC's Executive Chairman,
UPC Central Europe.
15. Subsequent Events
January 2000 Offering of Senior Notes and Senior Discount Notes
On January 20, 2000, UPC closed its USD1.6 billion equivalent bond
offering. The offering consists of four tranches: USD600.0 million and 200.0
million of ten year senior notes due 2010 with a 11-1/4% coupon; USD300 million
of ten year senior notes due 2010 with a coupon of 11-1/2%; and USD1,000 million
aggregate principal amount of ten year 13-3/4% senior discount notes due 2010.
The senior discount notes were sold at 51.224% of the face amount yielding gross
proceeds of USD512 million and will accrue but not pay interest until 2005.
Total gross proceeds from the sale of the senior notes and senior discount notes
are approximately USD1.6 billion.
Refinancing of A2000 Facilities
In January 1999, A2000 refinanced its existing bank facilities with a one
year term-loan bridge facility of 231.4 million and a one year revolving credit
bridge facility 49.9 million, subjected to certain availability covenants. The
facilities are secured by mortgages and pledges, including pledges on A2000
holding, Kabeltelevisie Amsterdam and A2000 Hilversum. The borrowers are
restricted from incurring additional indebtedness and from paying dividends and
distributions, subject to certain exceptions. These facilities bear an annual
interest rate of Euribor + 1.0%. The facilities expire in December 2000.
Acquisition of Intercomm France Holding S.A.
In February 2000, UPC aquired Intercomm France Holding S.A. (a wholly owned
subsidiary of Intercomm Holdings, L.L.C.). At the time of closing Intercomm
France is expected to have around 500,000 franchise homes of which 80,000 have
been built out. Over 400,000 of Intercomm's homes are located close to a
number of the properties acquired by UPC in its recent purchase of the Reseaux
Cables de France and Videopole networks, thus facilitating the roll-out of UPC's
triple play strategy in those areas. UPC funded the acquisition with 36.0
million cash and shares in UPC France. Following the transaction, UPC controls
92% of the combined entities with Intercomm Holdings LLC owning the remaining
8%.
Acquisition of Tebecai Cable System
In February 2000, UPC acquired 100% of the shares of Tebecai, a cable
system based in the east of Holland. UPC paid 71.2 million for the shares of
Tebecai, on a debt-free basis. Tebecai owns and operates cable networks in
Zutphen, Doetinchem and the surrounding municipalities. The company has
approximately 78,000 basic cable television subscribers and 2,800 internet
subscribers. Tebecai's network is fully upgraded and 80% two-way capable.
111
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
Completion of Stock Split
On March 13, 2000, the shareholders of UPC approved a three for one stock
split. Shareholders of record at the close of business on March 13, 2000 will
be entitled to two additional Class Ordinary A shares for each A share they own
on that date.
Acquisition of ElTele Ostfold and Vestfold Systems
In March 2000, UPC acquired 100% of the equity of ElTele Ostfold and
Vestfold from the energy companies Fredrikstad Energi as, Ostfold Energiverk and
Hafslund. ElTele Ostfold and Vestfold currently have approximately 300
kilometers of fibre and approximately 125 business customers between them and
are among the leading providers of broadband services to business customers in
the Ostfold, Vestfold, Telemark and Buskerud regions of Norway. UPC paid NKR
320.0 million (39.7 million) for the companies.
Completion of MTV Networks Europe
In March 2000, UPCtv and MTV Networks Europe, formed a 50/50 joint venture
partnership which will produce and distribute two new 24-hour music channels
specifically targeted at the Polish marketplace: MTV Polska and VH1 Polska. In
addition, the company will be responsible for creation and distribution of
related MTV and VH1 branded web-sites, and will act as distribution agent in
Poland for MTV Networks Europe's digital channel portfolio, including M2, MTV
Extra, MTV Base and VH1 Classic. Both MTV Polska and VH1 Polska will be
distributed via the UPC-owned Wizja TV DTH and PTK cable platforms and via other
cable operators.
Acquisition of Additional Interest in SBS
In February 2000, UPC acquired an additional 10.2% of SBS for 162.5
million, increasing its ownership to 23.5%.
Tender Offer for SBS
On March 9, 2000, UPC announced its intention to commence a tender offer to
acquire all the shares of SBS that it does not already own. The supervisory
boards of both companies have approved the transaction. UPC has agreed to
initiate an exchange offer to acquire SBS's shares at a per share price of
USD40 in cash plus 0.57144 of a share of UPC's ordinary shares A, subject to
adjustment. UPC will adjust the stock portion of the purchase price under
certain circumstances so that SBS shareholders will receive not less than
USD77.50 and not more than USD86.00 for each SBS share exchanged, based on our
average closing share price prevailing on the trading days ending shortly prior
to making the exchange offer, UPC intends that all shares not purchased in the
exchange offer will be converted into the right to receive the same cash and
stock considerations as provided in the exchange offer, in the second step
transaction following consummation of the exchange offer. This transaction is
subject to a number of conditions, including regulatory approval.
Acquisition of Wireless Licenses
In March 2000, UPC acquired 26 GHz spectrum in Norway as a result of the
acquisition of ElTele Ostfold and ElTele Vestfold. In March 2000, UPC was
awarded a national 3.5 GHz license in Spain where it is was part of a consortium
called ALO' 2000. The consortium partners include RSL Com LTD, Dragados SA, and
Hidroelectrica Del Cantabrico SA. Also in March 2000, in an auction, UPC won a
national 3.5 GHz license in Switzerland and regional 26 GHz licenses in Geneva
and Zurich. There are additional regional 26 GHz auctions occurring in
Switzerland through April 2000. UPC has submitted applications for spectrum in
France and Finland and is registered to participate in the WLL auction in
Austria, starting April 10, 2000. Throughout the next 18 months additional WLL
spectrum is being offered. UPC plans to participate in these offerings as they
unfold.
Formation of E-Ventures Fund
UPC, together with chello broadband and United, announced their intention
in March 2000, to form an E-ventures fund. The venture will be funded equally by
the three parties and will source investment ideas primarily from the Internet
and advanced technology sectors from the United/UPC global network. UPC intends
to contribute its investment in Sorrento Networks Inc. of USD16.5 million as the
first key investment in the fund. In March 2000, UPC invested in Sorrento Series
A Convertible Preferred Stock, with the UPC investment representing 33% of the
Convertible Preferred Stock sold by Sorrento. Based in California, Sorrento
Networks is a subsidiary of Osicom Technologies Inc., a NASDAQ traded company.
Sorrento is a developer of metro optical networking systems used in both the
interoffice and access networks. The company's systems offer an all-optical
end-to-end solution that improves bandwidth utilisation, reduces network costs
and complexity and provides a scalable, efficient and dynamically manageable
platform to meet rapidly growing and changing bandwidth demands.
Acquisition of ENECO Cable System
In March 2000, UPC acquired K&T Group, the cable interests of N.V. ENECO,
for a consideration of 1.2 billion. K&T owns and operates cable networks in
Rotterdam, Dordrecht and the surrounding municipalities, with approximately
610,000 homes passed, 590,000 basic cable television subscribers and has over
6,000 broadband Internet subscribers. K&T's network is substantially upgraded
and, with 85% of the network two-way capable, the company is ready to offer most
of its customers interactive broadband services. In addition, the company has a
glass fibre network covering approximately 100 kilometers in The Hague area. In
total, the cable systems pass over 40,000 potential business customers.
112
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
113
PART III
Item 10. MANAGEMENT
In March 2000, the shareholders of the Company approved a 3:1 stock split.
All share and per share data have been restated to reflect this stock split. In
November 1999, the shareholders of United approved a 2:1 stock split. All share
and per share amounts have been restated to reflect this stock split.
United currently owns approximately 54.8% of our outstanding ordinary
shares A and all of our outstanding priority shares. Because we are a strategic
holding of United, United is likely to continue to control us for the
foreseeable future. Four of the five members of our Supervisory Board are also
directors, officers or employees of United.
Supervisory Board
Our general affairs and business, as well as our management board, are
supervised by a Supervisory Board, the members of which are proposed by United
as the holder of our priority shares and appointed by the general meeting of
shareholders. Mr. Gene Schneider, United's Chairman and Chief Executive Officer
and the former Chairman of the Supervisory Board, resigned from the Supervisory
Board in February 1999. Pursuant to the rules and procedures of the Supervisory
Board, he became a non-voting advisor to the Supervisory Board and has the right
to attend and participate in the meetings of the Supervisory Board.
The Supervisory Directors are appointed at the general meeting of
shareholders from a list proposed by United as the holder of our priority shares
or through direct appointment by Philips. Under our articles of association,
Philips may appoint and remove one of our Supervisory Directors, so long as
Philips has any liability in respect of the agreements relating to the Telekabel
Wien system, which is expected to terminate by 2006. We have agreed to
indemnify Philips against such liability. We and United have agreed to use our
reasonable best efforts to obtain the release by the City of Vienna of Philips
from such liability. Philips' representative on the Supervisory Board must
approve (1) the disposition of assets aggregating more than 30% of the
consolidated assets or generating more than 30% of the consolidated revenues of
the Telekabel Group, or (2) our merger or consolidation into any other entity
that is not wholly-owned by United. The Discount Group has a contractual right
to nominate one director and United has agreed to vote in favor of the Discount
Group's nominee subject to certain conditions. The Discount Group, our partner
in our Israeli system, has not to date exercised its contractual right to
nominate a Supervisory Director. The Discount Group's nomination may be set
aside by two-thirds of the votes cast at the general meeting of shareholders
representing more than one-half of the issued nominal capital.
The Supervisory Directors and Advisor are:
Name Age Position
Michael T. Fries.................................. 37 Chairman of the Supervisory Board
John P. Cole, Jr.................................. 70 Supervisory Director
Richard De Lange.................................. 54 Supervisory Director
Ellen P. Spangler................................. 51 Supervisory Director
Tina M. Wildes.................................... 39 Supervisory Director
Gene W. Schneider................................. 73 Advisor
|
Michael T. Fries has been a member of the Supervisory Board since September
1998 and the Chairman since February 1999. Mr. Fries became a director of United
in November 1999 and is President of United and President of United Latin
America, Inc., a wholly-owned subsidiary of United, positions he has held since
September 1998. He is also the Executive Chairman of Austar United
Communications Limited ("Austar United"), United's subsidiary, a position he has
held since June 1999. Mr. Fries also serves as President and Chief Executive
Officer of United Asia/Pacific Communications, Inc., a wholly-owned subsidiary
of United, positions he has held since June 1995 and December 1996,
respectively. In January 2000, Mr. Fries also became a member of the
Supervisory Board of chello broadband, our Internet portal and ISP. In
addition, since September 1998, Mr. Fries has served as the President of United
Latin America, Inc. a wholly owned subsidiary of United. From March 1990 to
June 1995, Mr. Fries served as United's Senior Vice President, Development, in
which capacity he was responsible for managing United's acquisitions and new
business development activities, including United's expansion into the
Asia/Pacific, Latin American and European markets.
John P. Cole Jr. became a member of the Supervisory Board in February 1999
and has been a director of United since March 1998. In January 2000, he also
became a member of chello broadband's Supervisory Board. Mr. Cole has practiced
law in Washington, D.C. since 1956 and has been counsel over the years in many
landmark proceedings before the U.S. Federal Communications Commission,
reflecting the development of the cable television industry. In 1966, he
founded the law firm of Cole, Raywid & Braverman, a firm specializing in all
aspects of communications and media law.
114
Richard De Lange has been a member of the Supervisory Board since April
1996. Since October 1998, Mr. De Lange has been Chairman of the Philips
organization in The Netherlands (Philips Nederland B.V. and Nederlandse Philips
Bedrijven B.V.). He also serves as President and Chief Executive Officer of
Philips Media B.V., which position he assumed in February 1996. From April 1995
until October 1998, Mr. De Lange was Chairman and Managing Director of Philips
Electronics UK Ltd. Previously, Mr. De Lange served since 1970 in various
capacities with subsidiaries of Philips, including as President of Philips
Lighting Europe from December 1990 until April 1995.
Ellen P. Spangler became a member of the Supervisory Board in February
1999. Ms. Spangler is the Senior Vice President of Business and Legal Affairs
and Secretary of United, positions she has held since December 1996. Ms.
Spangler is responsible for the legal operations of United. Prior to assuming
her current positions, since February 1991, she served as a Vice President of
United where her responsibilities included business and legal affairs,
programming and assisting on development projects.
Tina M. Wildes became a member of the Supervisory Board in February 1999.
Ms. Wildes has been a director of United since November 1999 and the Senior Vice
President of Operations and Development Oversight since May 1998. In January
2000, she also became a member of the Supervisory Board of chello broadband.
From October 1997 until May 1998, Ms. Wildes served as Senior Vice President of
Programming for United. From 1993 to 1997, she served as Regional Vice
President of United Latin America, Inc. From 1988 to 1994, Ms. Wildes served as
either a director or vice president for development, programming and operations
for several of United's European operating companies.
Gene W. Schneider served as a member of the Supervisory Board from July
1995 until February 1999, when he became an advisor to the Supervisory Board.
Mr. Schneider is also the Chairman of the Board of Directors of United, a
position he has held since its inception in May 1989 and was a director of
United International Holdings, a Colorado general partnership, since September
1989 until its dissolution in December 1993. In addition to serving as United's
Chairman, Mr. Schneider has served as United's Chief Executive Officer since
October 1995, and served as United's President from October 1997 until he
relinquished the title in September 1998. Mr. Schneider has served as a
director of Austar United since June 1999. Mr. Schneider served as Chairman of
United Artists, then the third largest multiple system cable operator in the
United States, from May 1989 until its merger with Tele-Communications, Inc. in
November 1991. He was a founder of United Cable in the early 1950s and, as its
Chairman and Chief Executive Officer, helped build United Cable into the eighth-
largest multiple system operator in the United States prior to its merger with
United Artists in 1989. As Chairman of United Cable, he was involved in United
Cable's investment in numerous programming companies such as Discovery and
Turner Broadcasting, and served as a director on the board of Turner
Broadcasting and Chairman of C-SPAN. Mr. Schneider has been active in cable
television affairs and has served on the board of the National Cable Television
Association (the "NCTA") and on numerous committees and special projects thereof
since NCTA's inception in the early 1950s. Mr. Schneider is one of the original
inductees into NCTA's Cable Television Pioneers. Mr. Schneider is the Chairman
of the Board of Advance Display Technologies, Inc. and an advisor to the
Supervisory Board of chello broadband.
The Supervisory Board has an Audit Committee and a Compensation Committee.
The Audit Committee is comprised on Mr. Fries, Mr. Cole and Mr. De Lange. The
Compensation Committee is comprised of Mr. Fries, Ms. Spangler and Ms. Wildes.
Family Relationships
Tina M. Wildes, a member of the Supervisory Board, and Mark L. Schneider,
the Chairman of our Board of Management and our Chief Executive Officer, are
sister and brother. Gene W. Schneider is their father. No other family
relationships exist between any other members of our Supervisory Board or Board
of Management.
115
Board of Management and Other Key Employees
The members of the Board of Management are:
Name Age Position
Mark L. Schneider.......................... 44 Chairman of Board of Management and Chief Executive Officer
John F. Riordan............................ 57 President and Vice Chairman
Charles H.R. Bracken....................... 33 Board of Management Member and Chief Financial Officer
Nimrod J. Kovacs........................... 50 Board of Management Member, Managing Director, Eastern
Europe and Executive Chairman, UPC Central Europe
Anton M. Tuijten........................... 38 Board of Management Member and General Counsel
|
Other key employees include:
Name Age Position
Scott Bachman........................ 45 Managing Director, Technology and Purchasing
Andrew Barron........................ 34 Managing Director, Media
Jeroen Bergman....................... 32 Managing Director, Video and Marketing
Steven D. Butler..................... 40 Managing Director, UPC Capital Markets and Treasurer
Sudhir Ispahani...................... 39 Managing Director, Operations and Technology, chello broadband
Roger Lynch.......................... 37 President and Chief Executive officer, chello broadband
Shane O'Neill........................ 38 Managing Director, Strategy, Acquisitions and Corporate
Development
Simon Oakes.......................... 41 Managing Director, Programming
Iain Osborne......................... 42 Managing Director, Marketing, Sales and Portal, chello broadband
Ray D. Samuelson..................... 46 Managing Director, Finance and Accounting
|
Mark L. Schneider has been our Chief Executive Officer and Chairman of our
Board of Management since April 1997. Mr. Schneider has been a member of the
board of directors of United since 1993 and served as its Executive Vice
President from December 1996 to December 1999. In addition, Mr. Schneider has
been a member of the Supervisory Board and the Chairman of chello broadband
since March 1998. From April 1997 to September 1998, he served as our President
and from May 1996 to December 1996, he served as Chief of Strategic Planning and
Operational Oversight of United. He served as President of United from July
1992 until March 1995 and as Senior Vice President of United from May 1989
until July 1992. Mr. Schneider also worked as a consultant for United from June
1995 to May 1996. Mr. Schneider is a director of Advance Display Technologies,
Inc.
John F. Riordan was appointed as our President in June 1999, and has been a
member of our Board of Management since September 1998. Also in September 1998,
Mr. Riordan was appointed Vice Chairman of the Supervisory Board of chello
broadband, our Internet portal and ISP, overseeing implementation of our
Internet/data services and digital distribution platform. In June 1999, Mr.
Riordan became a director of Austar United. Mr. Riordan has also served as a
director of United since March 1998. From March 1998 to June 1999, he served as
Executive Vice President and from September 1998 to June 1999, he served as
President of Advance Communications for us. From 1992 until November 1998, Mr.
Riordan served as Chief Executive Officer of Princes Holdings Limited, the Irish
multi-channel television operating company of which we owned 20% until its sale
in November 1998.
Charles H. R. Bracken has been Chief Financial Officer since November 1999.
Prior to November 1999, Mr. Bracken served as Managing Director of Strategy,
Acquisitions and Corporate Development from March 1999. Mr. Bracken became a
member of the Board of Management in July 1999 and a member of the Supervisory
Board of chello broadband in March 1999. From 1994, he held a number of
positions at Goldman Sachs International in London, most
116
recently as Executive Director, Communications, Media and Technology. While at
Goldman Sachs, he was responsible for providing merger and corporate finance
advice to a number of communications companies, including us.
Nimrod J. Kovacs was appointed Executive Chairman, Central Europe in August
1999. He was appointed our Managing Director of Eastern Europe in March 1998
and a member of our Board of Management in September 1998. He has served in
various positions with United, including President of United Programming, Inc.
from December 1996 until August 1999, President, Eastern Europe Electronic
Distribution & Global Programming Group from January to December 1996 and Senior
Vice President, Central/Eastern Europe from March 1991 until December 1995.
Anton M. Tuijten joined our company in September 1998 as Vice President of
Legal Services and was appointed our General Counsel in May 1999. Mr. Tuijten
has been a member of our Board of Management since March 2000. Mr. Tuijten has
also served as General Counsel for and a member of the Board of Management of
chello broadband since December 1998. From 1992 until joining us, Mr. Tuijten
was General Counsel and Company Secretary of Unisource, an international
telecommunications company. Prior to that he worked as a Senior Corporate
Lawyer at KPN, the Dutch Telecom Operator.
Scott Bachman has served as our Managing Director of Technology and
Purchasing since February 1998. From March 1996 until February 1998, Mr.
Bachman was our Vice President of Engineering and the Chief Technology Officer.
From April 1991 to March 1996, Mr. Bachman was Vice President of Operations &
Technology Projects for Cable Television Laboratories, Inc.
Andrew Barron became Managing Director of Media in November 1999, a new
position created to oversee the development of our digital media strategy.
Prior to joining us, Mr. Barron served as Executive Vice President of New Media
& Business Development at Walt Disney International Europe, with responsibility
for overseeing Walt Disney's Internet businesses in Europe. Mr. Barron joined
Walt Disney in 1995. Prior to joining Walt Disney, Mr. Barron worked for
McKinsey & Co. as a management consultant specialising in international telecoms
strategy and mergers and acquisitions activity. Mr. Barron has also been a
member of the Supervisory Board of chello broadband since January 2000.
Jeroen Bergman became Managing Director of Video and Marketing in July
1999. Prior to his appointment, Mr. Bergman served as the Commercial Director
at Casema, a subsidiary of France Telecom, and the second largest cable
television operator in The Netherlands after us, a position he had held since
1996. From 1993 to 1996, Mr. Bergman worked for Optus Vision, and its
shareholder Optus Communications, a long distance and mobile communications
operator in Australia, primarily owned by Cable & Wireless Optus Limited.
Steven D. Butler became Managing Director of UPC Capital Markets and
Treasurer in February 1998. Mr. Butler is responsible for all corporate and
project/debt equity financing activities, as well as banking and investor
relations. From July 1995 until February 1998, Mr. Butler served as out Vice
President and Treasurer. Prior to July 1995, Mr. Butler served as Director of
Finance at United from May 1991.
Sudhir Ispahani has served as Chief Technology Officer and Managing
Director of Operations and Technology for chello broadband since March 1999.
His primary responsibility is developing and implementing chello's technology
architecture. Mr. Ispahani joined chello broadband as Corporate Technology
Officer in July 1998 and has been a member of chello broadband's Management
Board since November 1998. Prior to joining chello broadband in July 1998, Mr.
Ispahani spent the nine preceding years with MCI Telecommunications. While at
MCI, Mr. Ispahani's responsibilities included overseeing the design, engineering
and support of MCI's data and voice networks in the U.S.
Roger Lynch has been the President and Chief Executive Officer and Chairman
of the Board of Management of chello broadband since November 1999. Prior to
November 1999, Mr. Lynch served as President and Chief Financial Officer of
chello broadband from July 1999. Prior to joining us, Mr. Lynch spent five
years at Morgan Stanley Dean Witter where he was responsible for the bank's
Internet corporate finance activity in Europe. In addition, Mr. Lynch was
Morgan Stanley Dean Witter's Internet sector specialist and had advised us and
chello broadband during the year preceding his appointment with us.
Shane O'Neill joined us as Managing Director, Strategy, Acquisitions and
Corporate Development in November 1999. Prior to joining us, Mr. O'Neill spent
seven years at Goldman Sachs in the New York, Sydney and London offices. Most
recently, Mr. O'Neill was an Executive Director in the Advisory Group for
Goldman Sachs in London where he worked on a number of mergers and acquisitions
and corporate finance transactions for companies in the communications
117
industry, including us. Prior to joining Goldman Sachs, Mr. O'Neill spent four
years at Macquarie Bank in Sydney as well as three years at KPMG in Dublin where
he qualified as a chartered accountant.
Simon Oakes has served as our Managing Director of Programming since March
1998, where he is responsible for our programming operations and development
activities. From 1994 until joining us, Mr. Oakes independently developed and
produced feature films including Single Girls' Diary (Granada Films), The Maiden
of Buttermere (Tribeca and United Artists) and Cave (Working Title and
Polygram). From 1989 until 1994, Mr. Oakes served as co-chairman of Crossbow
Films, a film production company.
Iain Osborne has been Managing Director of Marketing Communications for
chello broadband since March 1999 and has been a member of the Board of
Management of chello broadband since January 1999. Mr. Osborne's primary
responsibility is to build the chello brand. Mr. Osborne joined us in July 1998
from Yahoo! Inc. where he served as Marketing and Communications Director,
Europe.
Ray D. Samuelson has been our Managing Director of Finance and Accounting
in February 1998, in which he is responsible for all our accounting, reporting,
budgeting and administrative activities. From our formation in July 1995 until
February 1998, Mr. Samuelson served as Vice President of Finance & Accounting.
From 1992 to 1995, he served as Vice President of Finance and Administration of
the Cable Operations Division at United. Prior to Mr. Samuelson's appointment
with United, he was employed by US WEST. While with US WEST, from 1990 to 1992,
Mr. Samuelson was seconded to United's and US WEST's Norwegian, Swedish and
Hungarian cable television partnership where he served as the Chief Financial
Officer.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the Section 16(a) of the Securities Exchange Act of 1934, as amended,
our Supervisory Directors, members of our Management Board and certain of our
officers, and persons holding more than ten percent of our ordinary shares A are
required to file forms reporting their beneficial ownership of our ordinary
shares A and subsequent changes in that ownership with the Securities and
Exchange Commission.
Based solely upon a review of copies of such forms filed on Forms 3, 4, and
5, and amendments thereto furnished to us, we believe that during the fiscal
year ended December 31, 1999, our directors, executive officers, and greater
than ten percent beneficial owners complied on a timely basis with all
Section 16(a) filing requirements, except Steve Butler and Ray Samuelson failed
to timely file their Form 3s following our initial public offering.
Item 11. Executive Compensation
The following table sets forth the 1999 compensation for our current chief
executive officer and the four other highest compensated executive officers at
fiscal year end 1999. The information in this section reflects compensation
received by the named executive officers for all services performed for us and
our affiliates.
Summary Compensation Table
Annual Compensation (1)
Long Term Compensation
----------------------
Awards
---------------
Other Annual Securities All Other
Name and Principal Compensation Underlying Compensation
Position Year Salary(Euro) Bonus (Euro) Options/SARs (Euro)
------------------- ---- -------------- --------- ---------------- ------------ ----------------
Mark L. Schneider (2).... 1997 265,461 -- -- 2,925,000(14) 430(17)
Chief Executive Officer 1998 348,014 -- 105,810(6) 258,419(15) 5,196(18)
1999 390,027 -- 106,858(7) -- 5,765(19)
John F. Riordan.... 1998 281,661 -- 37,555(8) 1,875,000(14) --
President 1999 316,024 -- 177,057(19) 300,000(16) 49,379(20)
Charles H.R. Bracken.... 1999 297,308(3) -- 12,716(10) 750,000(14) 19,812(21)
Chief Financial
Officer
Gene Musselman (4). 1997 59,559 -- -- -- 1,950(22)
Chief Operating Officer, 1998 234,718 67,761 60,948(11) -- 5,392(23)
Telekabel Wien 1999 254,939 1,572,609 52,563(12) 112,500(14) 5,779(24)
Nimrod Kovacs...... 1997 215,824 -- -- -- 4,853(25)
Managing Director, 1998 248,456(5) -- -- -- 5,089(2)
Eastern Europe 1999 280,849 -- 65,179(13) 675,000(14) 5,779(24)
|
(1) Compensation amounts for the persons identified for 1999 were converted
from U.S. dollars or British pounds to Euros using the average exchange
rate for the period, or were converted from Dutch guilders to euro using
the fixed rate of 1 Euro to 2.20371 Dutch guilders. For periods prior to
the creation of the Euro, currencies were converted first to Dutch guilders
and then to euro using the fixed rate.
(2) Mr. Schneider was appointed as our Chief Executive Officer in April 1997
and served as United's Executive Vice President until December 1999. The
salary amount shown consisted of the total salary paid to Mr. Schneider for
his duties to us and United. Other compensation consisted of amounts
related to Mr. Schneider's non-U.S. assignment.
(3) Mr. Bracken commenced his employment with us in March 1999. Accordingly,
the salary information above represents only ten months of employment
during 1999.
(4) Mr. Musselman commenced his employment with us in September 1997.
Accordingly, the salary information included above represents only four
months of employment during 1997. Mr. Musselman received a performance-
based bonus for 1998 and 1999.
(5) Mr. Kovacs was appointed as our Managing Director of Eastern Europe in
March 1998. The salary amount shown for 1998 consisted of the total salary
paid to Mr. Kovacs for his duties to us and United.
(6) Includes living expenses, including rent related to foreign assignment
(Euro105,131) and personal use of United's airplane (Euro679).
(7) Includes housing expenses in the amount of Euro102,698.
(8) Includes monthly housing allowance payments.
(9) Consisted of expenses related to housing (Euro29,113) and tax-related
reimbursements (Euro147,944).
(10) Consisted of car allowance payment.
118
(11) Consisted of housing allowance payments (Euro40,847), goods and services
allowance (Euro15,407) and moving allowance (Euro4,694).
(12) Consisted of housing allowance (Euro36,000) and a goods and services
allowance (Euro16,563).
(13) Consisted entirely of a relocation allowance payment.
(14) Represents shares underlying options to acquire our Ordinary Shares A.
(15) Includes an option to acquire 8,419 shares of United's Class A Common Stock
and an option to acquire 250,000 shares of chello broadband Ordinary Shares
A.
(16) Includes an option to acquire 300,000 Ordinary Shares A of chello
broadboard.
(17) Consisted entirely of life insurance payment.
(18) Consisted of matching employer contributions under United's 401(k) plan
(Euro4,507) and life insurance payments (Euro689).
(19) Consisted of a matching employer contribution under United's 401(k) plan
(Euro4,507) and life insurance payments (Euro1,258).
(20) Consisted entirely of a pension contribution under our pension plan.
(21) Consisted of matching employer contributions under our pension plan
(Euro 17.977) and health, life and disability insurance payments
(Euro 1.825).
(22) Consisted of matching employer contributions under United's 401(k) plan
(Euro1,787) and life insurance payments (Euro163).
(23) Consisted of a matching employer contribution under United's 401(k) plan
(Euro4,507) and life insurance payments (Euro885).
(24) Consisted of a matching employer contribution under United's 401(k) plan
(Euro4,507) and life insurance payments (Euro1,272).
(25) Consisted of a matching employer contribution under United's 401(k) plan
(Euro4,203) and life insurance payments (Euro650).
(26) Consisted of matching employer contributions under United's 401(k) plan
(Euro4,337) and health and life insurance payments (Euro752).
The following table sets forth information concerning options that were
granted by us to the executive officers listed in the Summary Compensation Table
above during the fiscal year ended December 31, 1999.
Option Grants in Last Fiscal Year (1)
Individual Grants Potential Realizable Value at Assumed Annual
Number of Percentage of Rates of Stock Price Appreciation for Option
Securities Total Options Term(2)
Underlying Granted to Exercise --------
Options Employees in Price Expiration
Granted Fiscal Year(3) (Euro/Share) Date 0% (Euro) 5% (Euro) 10% (Euro)
--------- -------------- ------------ ----------- --------- --------- ----------
Mark L. Schneider
UPC -- -- -- -- -- -- --
United 8,419 0.62% 6.5862(4) 12/17/09 392,136 673,619 1,105,469
chello 250,000 13.44% 9.076 3/26/04 -- 626,856 1,385,187
John F. Riordan
UPC -- -- -- -- -- -- --
chello 300,000 16.13% 9.076 3/26/04 -- 752,226 1,662,224
Charles H.R. Bracken
UPC 750,000 17.42% 9.67(5) 3/25/04 798,041 2,899,123 5,440,882
Gene Musselman
Phantom UPC 112,500 20.83% 9.67 2/12/04 -- 282,090 623,345
Nimrod Kovacs
Phantom UPC -- -- -- -- -- -- --
|
(1) Options granted under our Plan and chello's plan are subject to repurchase
rights of equal monthly amounts over the 48 months following the date of
grant. Options granted under our phantom plan and by United vest in 48
equal installments following the date of grant.
(2) The potential realizable value is based on assumed annual rates of stock
price appreciation from our initial public offering, at Euro29.00 (Euro9.67
post-stock split), to the end of the option term. The options gains are net
of option exercise price and do not include the effect of taxes associated
with exercise. The amounts shown are for the assumed rates of appreciation
only, do not constitute projections of future stock performance and may not
necessarily be realized. Actual gains, if any, on exercises depend on
future performance of our shares, United's stock, or the valuation of
chello, as the case may be, continued employment and other factors.
(3) Represents percentage of total options granted to employees under the
respective plans in last fiscal year.
(4) The market value of the shares on the date of grant was Euro17.722.
(5) The market value of the shares on the date of grant was Euro10.8.
The following table sets forth information with respect to the executive
officers listed in the Summary Compensation Table above holding unexercised
options as of December 31, 1999. See "--Stock Option Plans" and "Security
Ownership of Certain Beneficial Owners and Management."
119
Aggregated Fiscal Year-end Option Values
Number of
Ordinary Number of Securities
SharesA Underlying Unexercised Value of Unexercise
Acquired on Values Options at Fiscal Year-End In-the-Money Options(1)
Name Exercise Realized (Euro) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------------- ----------- ------------- ----------- -------------
Mark L. Schneider
UPC -- -- 1,950,000 975,000 74,463,060 37,231,530
United 100,000 6,277,554 270,479 30,000 16,587,163 1,800,286
chello -- -- 46,875 203,125 -- --
John F. Riordan
UPC -- -- 1,050,000 525,000 40,095,494 20,047,747
United -- -- 29,167 70,833 1,820,183 4,420,372
chello -- -- 56,250 243,750 -- --
Charles H.R. Bracken
UPC -- -- 140,625 609,375 4,326,206 18,746,895
Gene Musselman
Phantom UPC -- -- 7,813 29,688 721,080 2,739,977
Nimrod Kovacs
Phantom UPC 75,000 1,413,865 375,000 225,000 14,319,819 8,591,892
United 60,000 1,302,402 248,750 21,250 15,024,769 1,278,919
|
(1) Calculated in euro based on the following fair market values at year-end:
UPC - Euro39.902; United - Euro66.308; and chello - Euro9.076.
Agreements with Executive Officers
We and Mr. Bracken are parties to an Executive Services Agreement. In
addition, Mr. Schneider has a consulting agreement with United. Our agreement
with Mr. Bracken and United's agreement with Mr. Schneider are discussed below.
Mr. Musselman and Mr. Kovacs have employment agreements with United. We and
United are parties to a Secondment Agreement, pursuant to which Mr. Schneider,
together with all our other U.S. citizen employees, are seconded to us. See
"Certain Transactions and Relationships--Relationship with United and Related
Transactions." Pursuant to the Secondment Agreement, we reimburse United for all
expenses incurred by United in connection with the seconded employees.
Mark L. Schneider. On June 1, 1995, United entered into a Consulting
Agreement (the "Agreement") with Mark L. Schneider, who until that time had
served as United's President. Mr. Schneider's Agreement is for a term ending on
May 31, 2000. Although the Agreement provides that Mr. Schneider will be
available for up to 90 days each calendar year to serve as a consultant, Mr.
Schneider and United have agreed that Mr. Schneider will work full time for
United as our Chief Executive Officer. Until December 1, 1997, Mr. Schneider
received an annual fee of USD 300,000, thereafter United increased such fee to
USD 375,000 and in April 1999 United increased the annual fee to USD 431,200.
In addition, Mr. Schneider receives insurance and other perquisites that are
available to him in his capacity as our Chief Executive Officer or that are
otherwise made available to top executives of United.
All of Mr. Schneider's unvested United stock options vested as of the date
of the Agreement. He will be entitled to receive additional United stock
options during the consulting period, in an amount to be determined by the Board
of United upon the recommendation of the Chairman of United, but shall be
entitled to receive at least options to purchase a number of shares of United
equal to 90% of the average number of shares provided in options granted to
United's Chairman, Chief Executive Officer, Chief Operating Officer, Chief
Financial Officer and Executive Vice President. In June 1995, Mr. Schneider
received stock options to purchase 36,000 shares of United's Class A Common
Stock at an exercise price of USD 15.75 per share. In December 1996, Mr.
Schneider received stock options to purchase 60,000 shares of United's Class A
Common Stock at an exercise price of USD 12.75 per share; however, Mr.
Schneider agreed to cancel 50,000 shares thereof in connection with a grant of
options by us.
The Agreement is terminable by United or by Mr. Schneider. If it is
terminated by Mr. Schneider, benefits will terminate as of the date of
termination. If Mr. Schneider is terminated by United, or dies prior to the end
of the term of the Agreement, he or his personal representative shall receive
all payments due under the Agreement through its term.
120
Mr. Schneider has agreed that he will not enter into certain businesses
that would be competitive with United. This Agreement provides for
indemnification of Mr. Schneider by United to the full extent permitted by its
Certificate of Incorporation or Bylaws, any standard indemnity agreement between
United and its officers and directors or by applicable law. Mr. Schneider and
Untied have executed mutual releases.
Charles H.R. Bracken. On March 5, 1999, we entered into an Executive
Service Agreement with Charles H.R. Bracken in connection with Mr. Bracken
becoming our Managing Director of Development, Strategy, and Acquisitions.
Subsequently, Mr. Bracken became a member of the UPC Board of
Management and Chief Financial Officer for UPC. Mr. Bracken's Executive
Services Agreement is for a term expiring March 5, 2003. Under the Executive
Service Agreement, Mr. Bracken's initial base salary was (Pounds)250,000 per
year. Such salary is subject to periodic adjustments. In addition, to his
salary Mr. Bracken received options for 750,000 of our ordinary A shares and
participation in a pension plan. In addition to his salary, UPC provides a car
to Mr. Bracken for his use valued at (Pounds)8,400 per year.
The Executive Services Agreement may be terminated for cause by us. Also,
we may suspend Mr. Bracken's employment for any reason. If his employment is
suspended, Mr. Bracken will be entitled to receive the balance of payments due
under the Executive Service Agreement until such Agreement is terminated. In
the event Mr. Bracken becomes incapacitated, by reason of injury or ill-health
for an aggregate of 130 working days or more in any twelve month period, we
may discontinue future payments under the Agreement, in whole or in part, until
such incapacitation ceases.
Our Stock Option Plans
Equity Stock Option Plan. Under our Equity Stock Option Plan, the
Supervisory Board may grant stock options to our employees. There are
approximately 4.3 million total options outstanding under our stock option plan.
The Board of Management may from time to time increase the number of shares
available for granting under our stock option plan. Options under our stock
option plan will be granted at fair market value (as determined by the
Supervisory Board) at the time of the grant unless determined otherwise by the
Supervisory Board. The ordinary shares A available under our stock option plan
are held by Stichting Administratiekantoor UPC, a stock option foundation, which
administers our stock option plan. Each option represents the right to acquire
from the foundation a depositary receipt representing the economic value of one
share. United appoints the board members of the foundation and thus controls
the voting of the foundation's ordinary shares A. Proceeds from the exercise of
these options remain in the foundation. Upon liquidation of the foundation, any
remaining assets revert to United.
All options are exercisable upon grant and for the next five years. In
order to introduce the element of "vesting" of the options, our stock option
plan provides that even though the options are exercisable immediately, the
shares to be issued or options granted in 1996 are deemed to "vest" 1/36th each
month for a three-year period from the date of the option grant. The date of
the option grant is generally the employee's employment commencement date. For
options granted in 1998 and thereafter, the vesting period has been increased to
four years and the options vest 1/48th each month. No options were granted in
1997. If the employee's employment terminates other than in the case of death,
disability or the like, all unvested options previously exercised must be resold
to the foundation at the original purchase price and all vested options must be
exercised within 30 days of the termination date. The Supervisory Board may
alter these vesting schedules in its discretion.
Our stock option plan contains limited anti-diluion protection in the case
of stock splits, stock dividends and the like. Our stock option plan also
provides that, in the case of a change of control, the acquiring company has the
right to require us to acquire all of the options outstanding at the per share
value determined in the transaction giving rise to the change of control.
In 1998, we loaned Anton H.E. van Voskuijlen Euro18,378 to enable him to
pay the tax on exercise of stock options. This loan bears no interest. The tax
payable over the imputed interest is added to the loan. Mr. van Voskuijlen's
loan is due upon exercise of his options. Mr. van Voskuijlen served as our
General Counsel from July 1996 until May 1999, when he was appointed Senior Vice
President. He also served as a member of our Board of Management from April 1997
until his resignation in March 2000.
Through December 31, 1998, options to acquire a total of 23,305,500
ordinary shares A have been granted under the Plan. Of these, options
representing 11,762,193 ordinary shares A have been exercised and resold to the
foundation and, therefore, are available for future option grants. Options
representing 369,471 ordinary shares A have been canceled and [options
representing a further 375,000 ordinary shares A have been returned]. The
exercise prices for the options range from Euro1.59 to Euro34.87.
121
In March 1998, we granted Mark Schneider options for 2,925,000 ordinary
shares A at an exercise price of Euro1.81513, the price at which shares were
acquired by United and us from Phillips in connection with the purchase in
December 1997.
Phantom Stock Option Plan. Under our phantom stock option plan, the
Supervisory Board has granted certain employees the right to receive an amount
in cash or stock, at the Supervisory Board's option, equal to the difference
between the fair market value of the ordinary shares A and the stated grant
price for a specified number of phantom options. Through December 31, 1999,
options representing 3,845,970 phantom shares remained outstanding, 6,882,471
had been cancelled and had been exercised. The grant prices for the phantom
options range from Euro1.815 to Euro9.67. The phantom options have a four-year
vesting period and vest 1/48th each month. The phantom options may be exercised
during the period specified in the option certificate, but in no event later
than ten years following the date of the grant. Of the outstanding phantom
options, 295,083 were fully vested on December 31, 1999. Our phantom stock
option plan contains limited anti-dilution protection in the case of stock
splits, stock dividends and the like. Our phantom stock option plan also
provides that, in some cases upon a change of control, all phantom options
outstanding become fully exercisable. Upon exercise of the phantom options, we
may elect to issue such number of ordinary shares A as is equal to the value of
the cash difference in lieu of paying the cash.
Our phantom stock option plan also provides that upon the offering, an
employee holding phantom options may convert these into options for ordinary
shares A under our stock option plan. If the employee elects not to do so, upon
exercise of the phantom options we may elect to issue such number of ordinary
shares A equal to the value of the cash difference in lieu of paying cash to
such employee.
chello broadband Stock Option Plans
chello broadband has adopted a stock option plan and a phantom stock option
plan. All the shares underlying these stock option plans are held by Stichting
administratie kantoor chello broadband, a stock option foundation, which
administers chello broadband's stock option plans. Proceeds realized by the
foundation upon exercise of the options will be remitted to chello broadband.
Upon completion of an initial public offering by chello broadband, chello
broadband will establish a new stock option plan.
chello broadband Equity Option Plan. Under chello broadband's equity
option plan, the Supervisory Board may grant stock options to chello broadband
employees, on the recommendation of chello broadband's Board of Management and
subject to approval of chello broadband's priority shareholders. To date chello
broadband has granted options for 550,000 ordinary shares under its stock option
plan. Of these, options for 250,000 ordinary shares have been exercised.
Options under chello broadband's equity option plan will be granted at fair
market value (as determined by the Supervisory Board on the recommendation of
the Board of Management) at the time of grant unless determined otherwise by the
Supervisory Board.
All options are exercisable upon grant and for the next five years. Within
five days after the exercise of the option, the employee will receive the number
of shares or depositary certificates, as the case may be, in respect to the
exercised option, against payment in full of the exercise price. If the
employee's employment terminates:
. because of death, permanent disability, retirement or early retirement, any
unexercised options will expire one year from the date of such termination,
or five years after the date of grant, whichever is earlier;
. because of so called "urgent reason" under Dutch law or because of documented
and material non-performance, any certificates issued to the employee upon
exercise of his or her options must be resold to the foundation at the
original purchase price for the options and any unexercised options expire
immediately without notice; or
. for any other reason, any exercised options must be resold to the foundation
at the original purchase price and any unexercised options will expire as
follows:
. if employment terminates during the first month after the date of grant,
all unexercised options expire;
. if employment terminates during the first month after the date of grant,
all unexercised options will be deemed to vest at a rate of one-forty
eighth per month of the total number of options granted for each month the
employee is employed after the first month. All unexercised vested options
will expire at the
122
earlier of 30 days after the termination of employment if not exercised,
or five years from the date of grant. All "unvested" options expire
automatically upon termination of employment.
The chello broadband equity option plan contains limited anti-dilution
protection in the case of stock splits, stock dividends and the like. The
chello broadband equity option plan also provides that, in the case of change in
control, the acquiring company has the right to require chello broadband's stock
option foundation to acquire all of the options outstanding at the per share
value determined in the transaction giving rise to the change in control.
In 1999, we granted Mark Schneider options for 250,000 chello broadband
shares. Also during 1999, we granted John Riordan options for 300,000 chello
broadband shares. Both of these grants were at an exercise price of Euro9.076.
In 1999, we loaned Mark Schneider approximately Euro2.3 million to enable
him to exercise chello broadband stock options to acquire chello broadband
shares. The recourse loan is interest free. The tax payable on the imputed
interest is added to the principal amount of the loan. In 1999, we agreed to
loaned Mr. Riordan up to approximately Euro85,000 in connection with the grant
of his chello broadband stock options.
chello broadband Phantom Stock Option Plan. chello broadband's phantom
stock option plan is administered by its Supervisory Board, subject to prior
approval by our Supervisory Board. The exercise price of the options granted
under chello broadband's phantom stock option plan ranges from Euro4.54 to the
initial public offering price of chello broadband's ordinary shares. The
phantom stock options have a four-year vesting period and vest one-forty eighth
each month and may be exercised during the period specified in the option
certificate. All options must be exercised within 90 days after the end of
employment. If such employment continues, all options must be exercised not
more than ten years following the effective date of grant. This plan gives the
employee the right to receive payment equal to the difference between the fair
market value of a share and the exercise price for the portion of the rights
vested. chello broadband, at its sole discretion, may make the required payment
in cash, freely tradeable shares of United's class A common stock or our common
stock, or, if chello broadband's shares are publicly traded, its freely
tradeable ordinary shares. If chello broadband chooses to make a cash payment,
at a time when its stock is publicly traded, employees have the option to
receive an equivalent number of chello broadband's freely tradeable ordinary
shares instead. At December 31, 1999, options representing 2,635,000 phantom
shares had been granted. Of these, options representing 11,667 phantom shares
has been exercised and options representing 60,833 phantom shares had been
cancelled.
chello broadband's phantom stock option plan contains limited anti-dilution
protection in the case of stock splits, stock dividends, and the like. In some
cases of a change of control, including a change of control of us, chello
broadband may choose to acquire immediately all the phantom options outstanding
for a consideration equal to the excess of the fair market value of the share at
that time over the exercise price.
chello broadband's phantom stock option plan also provides that, upon the
pricing of an initial public offering, any of its employees holding phantom
options may convert these into options for ordinary shares A under its stock
option plan. If chello broadband's employee elects not to do so, upon exercise
of the phantom options chello broadband may elect to issue such number of
ordinary shares A equal to the value of the cash difference in lieu of paying
the cash.
Limitation of Liability and Indemnification Matters
Pursuant to Dutch law, each member of the Supervisory Board and Board of
Management is responsible to us for the proper performance of his or her
assigned duties. Our articles of association provide that the adoption by the
general meeting of shareholders of the annual accounts shall discharge the
Supervisory Board and Board of Management from liability in respect of the
exercise of their duties during the financial year concerned unless an explicit
reservation is made by the general meeting of shareholders. This discharge of
liability may also be limited by mandatory provisions of Dutch law, such as in
the case of bankruptcy, and furthermore extends only to actions or omissions not
disclosed in or apparent from the adopted annual accounts. In the event of such
actions or omissions, the members of the Supervisory Board or Board of
Management will be jointly and severally liable to third parties for any loss
sustained by such third parties as a result of such actions or omissions, unless
the Supervisory Board or Board of Management member proves that he or she is not
responsible for the actions or omissions. Generally, under Dutch law, directors
will not be held personally liable for decisions based on reasonable business
judgment.
Our articles of association provide that we must indemnify any person who:
. is or was a member of the Supervisory Board or the Board of Management;
123
. was or is a party to or is threatened to be made a party to any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative, or by or in the right of the company to
procure a judgement in its favor by reason of the fact that such person is or
was a member of our Supervisory Board or our Board of Management; and
. acted in good faith in carrying out their duties.
This indemnification will generally not apply if the person seeking
indemnification is found to have acted with gross negligence or wilful
misconduct in the performance of their duty to us, unless the court in which the
action is brought determines that indemnification is otherwise appropriate. Our
articles of association furthermore provide that a majority of the members of
the Supervisory Board (not being parties to the action) must approve any
indemnification, unless the entire Supervisory Board is named in the lawsuit, in
which case the indemnification may be approved by independent legal counsel in a
written opinion or by the general meeting of shareholders. The Supervisory
Board may extend the indemnification provisions of our articles of association
to any of our officers, employees or agents.
Compensation of Supervisory Board Members
All of the members of the Supervisory Board, other than Mr. De Lange, are
directors or employees of United. None of these members receive additional
compensation for serving on the Supervisory Board.
Compensation of Board of Management Members
The aggregate 1999 salary compensation for the entire Board of Management
is approximately Euro1.77 million. In addition, we provide our executive
officers with automobile allowances and other benefits. Expatriates also
receive housing allowances, foreign tax equalization payments and other
compensation relating to their foreign assignments.
Compensation Committee Interlocks and Insider Participation
We and United have concluded a secondment arrangement, pursuant to which
certain U.S. citizens employed by United are seconded to us. See "Certain
Transactions and Relationships--Relationship with United and Related
Transactions." Prior to our initial public offering in February 1999,
compensation for all members of our management who are employees of United was
set by the compensation committee of United and compensation for all of our
other employees was determined by the Supervisory Board. In February 1999, our
Supervisory Board established a compensation committee following the completion
of the initial public offering. The compensation committee is composed of Mr.
Fries, Ms. Spangler and Ms. Wildes, each of whom is a member of the Supervisory
Board. The members of our management who are employees of United, however, will
continue to have their compensation set by United's compensation committee.
None of the members of our compensation committee, the United compensation
committee or our Supervisory Board has served as a director or member of a
compensation committee of another company that had any executive officer that
was also one of our Supervisory Directors or a member of the compensation
committee of United.
124
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of all classes of securities as of March 18, 2000, by (1)
each shareholder who is known by us to own beneficially more than 5% of the
outstanding ordinary shares at such date; (2) each of our Supervisory Directors
and our advisor to the Supervisory Board; (3) each of our executive officers;
and (4) all of our Supervisory Directors, advisors and executive officers as a
group. Because Messrs. G. Schneider, Cole, M. Schneider and Riordan are
directors of United, they may be deemed to beneficially own our shares held by
United. They disclaim any beneficial ownership of these shares and this table
does not include those shares. Such share ownership information includes
ordinary shares A that may be acquired within 60 days of March 15, 2000, through
either our options or phantom options. Our phantom options are payable in either
cash or ordinary shares A, at our election. Shares issuable within 60 days upon
exercise of options or phantom options are deemed to be outstanding for the
purpose of computing the percentage ownership and overall voting power of the
persons beneficially owning such securities, but have not been deemed to be
outstanding for the purposes of computing the percentage ownership or overall
voting power of any other person.
Number of Ordinary Percentage of Ordinary
Shares A Shares A (1)
Beneficial Owner --------- ----------------------
---------------
UnitedGlobalCom, Inc.(2)............................................... 239,220,291 54.84
Microsoft Corporation (3).............................................. 30,473,250 6.99
Gene W. Schneider (4).................................................. 466,593 *
Michael T. Fries (5)................................................... 98,217 *
John P. Cole, Jr....................................................... 4,575 *
Richard De Lange....................................................... -- --
Ellen P. Spangler (6).................................................. 46,875 *
Tina Wildes (7)....................................................... 127,090 *
Mark L. Schneider (8).................................................. 2,284,686 *
John F. Riordan (9).................................................... 1,217,724 *
Charles H.R. Bracken (10).............................................. 218,751 *
Anton M. Tuijten (11).................................................. 53,532 *
Nimrod J. Kovacs(12)................................................... 446,688 *
All directors, director nominees and executive officers as a group (11
persons).............................................................. 4,598,263 *
|
*Less than 1%.
(1) The figures for the percent of shares are based on 436,229,439 ordinary
shares A outstanding on March 28, 2000 (after elimination of shares held by
subsidiaries).
(2) Includes 7,332,942 ordinary shares A held by the stock option foundation as
of December 31, 1999, the board members of which are appointed by United.
The address of UnitedGlobalCom, Inc. is 4643 South Ulster Street, Suite
1300, Denver, Colorado 80237, U.S.A.
(3) The address of Microsoft Corporation is One Microsoft Way, Redmond,
Washington 98052, U.S.A.
(4) Includes 30,000 ordinary shares A held by the Gene W. Schneider Family
Trust of which Mr. Schneider is a co-trustee and includes 3,000 ordinary
shares A owned by his spouse. Also includes phantom options for 562,500 of
which 433,593 are vested.
(5) Represents 9,153 ordinary shares A owned by Mr. Fries' spouse. Also
includes phantom options for 225,000 shares, of which 89,064 are vested.
(6) Includes currently exercisable options for 45,000 ordinary shares A of
which options for 32,814 ordinary shares A are subject to our repurchase
right which expires March 26, 2003. Also includes phantom options for
45,000 of which 34,689 are vested.
(7) Includes phantom options for 153,000, of which 117,937 are vested.
(8) Includes currently exercisable options for 2,925,000 ordinary shares A of
which options for 670,314 ordinary shares A are subject to our repurchase
right, which expires April 1, 2001. Also includes 30,000 ordinary shares A
held by the Gene W. Schneider Family Trust of which Mr. M. Schneider is a
co-trustee.
(9) Includes currently exercisable options for 459,375 ordinary shares A of
which options for 360,936 ordinary shares A are subject to our repurchase
right, which right expires April 1, 2001. Also includes 3,660 ordinary
shares A owned by Mr. Riordan's spouse.
(10) Mr. Bracken holds currently exercisable options for 750,000 ordinary shares
A of which options for 531,249 ordinary shares A are subject to our
repurchase right, which expires March 15, 2003.
(11) Includes currently exercisable options for 301,500 ordinary shares A, of
which options for 248,439 ordinary shares A are subject to our repurchase
right. Such repurchase right expires for 65,625 shares on September 24,
2002, for 54,688 shares on March 26, 2003 and for 128,126 shares on
September 17, 2003.
(12) Represents phantom options for 600,000 shares of which 445,314 are vested.
125
Item 13. CERTAIN TRANSACTIONS AND RELATIONSHIPS
Loans to Executive Officers
In 1999, the chello foundation loaned Mark Schneider approximately Euro2.3
million to enable him to exercise chello broadband stock options to acquire
chello broadband shares. The recourse loan is interest free. The tax payable
on the imputed interest is added to the principal amount of the loan. In 1999,
we agreed to loaned Mr. Riordan up to approximately Euro85,000 in connection
with the grant of his chello broadband stock options. See "Management--Stock
Option Plans."
In October 1999, we agreed to guarantee for a period of 60 days the bridge
loan Mr. M. Schneider obtained in connection with the purchase of his home. Our
guarantee of this Euro7.6 million bridge loan is secured by Mr. M. Schneider's
vested stock options and a right to a first mortgage on his home. If Mr. M.
Schneider defaults on this loan and the guarantee is enforced, we have a power
of attorney which allows us to exercise the relevant number of stock options and
sell the shares in satisfaction of Mr. M. Schneider's obligation. Upon an event
of default, we can also execute a first mortgage. The guarantee has been
extended by us through March 24, 2000.
Eastern European Transaction. We have agreed to sell 3% of our interest in our
Eastern European operations to Nimrod Kovacs for a purchase price based on our
investment in these interests at historical cost plus 12% interest thereon from
the time of investment through the date of closing. The amount of Mr. Kovac's
required investment is being revised due to recent Eastern European
acquisitions. Mr. Kovacs is a member of our Board of Management, and our
Executive Chairman, UPC Central Europe.
Relationship With United and Related Transactions
United is the largest broadband communications provider of video, voice and
data services outside the U.S. With operations in 23 countries, United's
networks reach more than 16 million homes and businesses and serve approximately
8 million voice and video customers. In addition, as of December 31, 1999,
United's telephony business had more than 320,000 telephony access lines and its
high speed Internet access business had more than 120,000 accounts. United's
significant operating subsidiaries include us (51% owned), the largest pan-
European broadband communications company; Austar United Communications (75%
owned), the fasted growing satellite, cable television and telecommunications
provider in Australasia; and VTR Global Com (100% owned) the largest cable
television and competitive telephony provider in Chile.
Control by United. Immediately prior to our initial public offering,
United held effectively all of the voting control over us and held all of our
issued and outstanding ordinary shares A other than approximately 7.7% of such
shares that were registered in the name of the stock option foundation to
support our stock option plan. The foundation currently has the right to shares
totaling 1.6% of our issued and outstanding ordinary shares A. United
appoints the board members of the foundation and thus controls the voting of
these shares. See "Management--Stock Option Plans." United currently owns
approximately 54.8% of our outstanding ordinary shares A and all of our
outstanding priority shares. Because we are a strategic holding of United,
United will continue to control us for the foreseeable future. Four members of
our five-member Supervisory Board are directors, officers or employees of
United.
Transactions with United. As part of the acquisition of UPC, we acquired
approximately 6.34 million shares of United's Class A common stock. We
subsequently sold 769,062 of these shares in exchange for certain interests in
the Irish system and Tara. We currently hold approximately 5.6 million shares
of United's Class A common stock, which currently represents approximately [7%]
of United's outstanding common stock. We plan to contribute these shares to a
new joint venture to which Liberty Media and Microsoft will contribute
approximately 9.8 million shares of United's Class B common stock. The joint
venture will hold approximately 17% of United's common stock. The joint venture
and its members will be bound by voting and standstill agreements with United
and certain of its controlling shareholders.
United has sold to us, in exchange for 18,991,020 of our ordinary shares A,
United's 37.5% voting and 44.75% economic interest in the telephone system
operating in the Monor region of Hungary and its interest in the Tara
programming joint venture. United has also sold to us its interest in the IPS
programming joint venture in exchange for 14,865,792 ordinary shares A.
126
Agreements with United. Subject to certain limitations, beginning one year
after the date of our initial public offering, United may require us to file a
registration statement under the Securities Act of 1933 with respect to all or a
portion of our ordinary shares A or ADSs owned by United, and we are required to
use our best efforts to effect such registration, subject to certain conditions
and limitations. We are not obligated to effect more than three of these demand
registrations using forms other than Form S-3 or F-3, as the case may be.
United may demand registration of such securities an unlimited number of times
on Form S-3 or F-3, as the case may be, except that we are not required to
register our ordinary shares A owned by United on Form S-3 more than once in any
six-month period. United also has the right to have our ordinary shares A that
it owns included in any registration statement we propose to file under the Act
except that, among other conditions, the underwriters of any such offering may
limit the number of shares included in such registration. We have also granted
United rights comparable to those described above with respect to the listing or
qualification of the ordinary shares A held by United on the Stock Market of
Amsterdam Exchanges or on any other exchange and in any other jurisdiction where
we previously have taken action to permit the public sale of our securities.
United incurs certain overhead and other expenses at the corporate level on
behalf of us and its other operating companies. These expenses include costs
not readily allocable among the operating companies, such as accounting,
financial reporting, investor relations, human resources, information
technology, equipment procurement and testing expenses, corporate offices lease
payments and costs associated with corporate finance activities. United also
incurs direct costs for its operating companies such as travel expenses and
salaries for United employees performing services on behalf of its respective
operating companies. We and United are parties to a management services
agreement, with an initial term through 2009, pursuant to which United will
continue to perform these services for us. Under the management services
agreement, we will pay United a fixed amount each month as its portion of such
unallocated expenses. For the year ended December 31, 1999, this fixed amount
was USD300,000 per month. The fixed amount may be adjusted from time to time by
United to allocate these corporate level expenses among United's operating
companies, including us, taking into account the relative size of the operating
companies and their estimated use of United resources. In addition, we will
continue to reimburse United for costs incurred by United that are directly
attributable to us.
We and United are also parties to a secondment agreement that specifies the
basis upon which United may second certain of its employees to us. United's
secondment of employees to us helps us attract and retain U.S. citizens and
other employees who want U.S. benefit plans, without creating a separate U.S.
employment subsidiary. We generally are responsible for all costs incurred by
United with respect to any seconded employee's employment and severance. United
may terminate a seconded employee's employment if the employee's conduct
constitutes willful misconduct that is materially injurious to United. During
the year ended December 31, 1999, we incurred approximately [euro4.9] million
for costs associated with the seconded employees, which costs were reimbursable
to United.
We have agreed with United that so long as United holds 50% or more of our
outstanding ordinary shares A, (1) United will not pursue any video services,
telephone or Internet access or content business opportunities specifically
directed to the European or Israeli markets, unless it has first presented such
business opportunity to us and we have elected not to pursue such business
opportunity, and (2) we will not pursue any video services, telephone or
Internet access or content business opportunities in Saudi Arabia or in other
markets outside of Europe or the Middle East, unless we have first presented
such business opportunity to United and United has elected not to pursue such
business opportunity. Either party may pursue any business in the United States
and its territories and possessions without regard to activities of the other.
We and United have agreed that we will provide audited financial statements
to United in such form and with respect to such periods as are necessary or
appropriate to permit United to comply with its reporting obligations as a
publicly-traded company and that we will not change our accounting principles
without United's prior consent. We have consented to the public disclosure by
United of all matters deemed necessary or appropriate by United, in its sole
discretion, to satisfy the disclosure obligations of United or any of its
affiliates thereof under the United States federal securities laws or to avoid
potential liability under such laws.
United Indentures. We are restricted by the covenants in United's
indentures dated February 5, 1998 and April 29, 1999. The United indentures
contain covenants that, among other things, limit the ability of United and its
subsidiaries, including us, to:
. incur indebtedness and issue certain preferred stock in amounts exceeding
that permitted based upon financial ratios and other tests;
127
. repurchase equity interests from third parties other than United;
. make investments in non-controlled entities;
. enter into agreements restricting our ability to make distributions, loans or
other payments to equity holders;
. create certain liens;
. sell assets or issue equity for consideration other than cash, replacement
assets or permitted investments or fail to invest the cash proceeds of such
sales, in replacement assets or permitted investments within 360 days of the
sale periods; and
. enter into transactions with affiliates of United.
We continue to be controlled by United and restricted by the terms of its
debt securities. We have agreed with United that, for as long as we are subject
to the provisions of United's indentures, as amended or supplemented, or any
other indenture or agreement to which United is a party governing indebtedness
of United that replaces or refinances any indebtedness governed by United's
indentures, as amended or supplemented, we will not take any action that will
result in a breach of United's indentures.
Relationship With Microsoft
We have signed a letter of intent with Microsoft to establish a technical
services relationship and, as part of this, we have agreed to set up a series of
joint projects to deliver Internet, non-traditional telephone and other
interactive video and general services to digital cable set-top devices,
personal computers and other devices within and beyond our current service
areas. The particular terms of each joint project will be negotiated by us and
Microsoft. As part of this relationship, we established a technology board to
review technology issues and develop technology specifications and directions.
In addition, we and Microsoft will be preferred suppliers to one another, with
Microsoft having the first opportunity to license technologies to us. We will be
given the opportunity to present and offer our products to Microsoft offices in
Europe. We and Microsoft will also cooperate to advocate mutually-agreed
standards and regulations to the bodies in our service territories who set
technical standards. We will also have the right to license Microsoft software
for the delivery of Internet content services over our networks.
As part of this technology relationship, we have agreed that, on the
earlier of three months from the date of the letter of intent and the signing of
the first definitive agreement with Microsoft, we will grant Microsoft warrants
to purchase up to 11,400,000 ADSs representing ordinary shares A, which would
currently represent approximately 2.6% of our outstanding share capital.
Microsoft will have the option under these warrants to purchase ordinary shares
A instead of ADSs. These warrants can be exercised at a price of USD9.334 per
ordinary share A or ADS. These warrants became exercisable on February 16, 2000
and will expire February 16, 2003. In addition, half of the warrants will not
vest until certain performance standards are met. We have agreed to grant
Microsoft certain registration rights to be negotiated with respect to the ADSs
or shares to be issued upon exercise of these warrants. In addition, we have
granted Microsoft a preemptive right to purchase up to an aggregate of 10% of
chello broadband n.v.'s aggregate ordinary share capital in any equity offering
at the initial offering price. Following an initial public offering by chello
broadband, Microsoft will be given the right in any subsequent public or private
equity offerings (except when relating to a grant of equity to cable operators
in Europe or to a wholly-owned subsidiary of us) to purchase such number of
ordinary shares as will enable it to maintain up to a 10% interest in chello
broadband's ordinary share capital.
In September 1999, we agreed to form a joint venture with Microsoft and
Liberty Media Corporation to own United securities and to evaluate content and
distribution opportunities in Europe. At formation, Liberty will contribute 9.8
million Class B shares of United and we will contribute the 5.6 million Class
A shares of United that we own. We will have a 50% interest in the new joint
venture and Liberty and Microsoft will share the other 50%. In addition to its
interest in the joint venture, Liberty will receive approximately USD287.0
million redeemable preferred interest in the joint venture to balance out the
parties' ownership positions.
128
The Discount Group's Option
In November 1998, a subsidiary of Discount Investment Corporation loaned us
USD90.0 million (the "DIC Loan") to acquire additional interests in our Israeli
operation. In connection with the DIC Loan, we granted an option to the
Discount Group, our partner in our Israeli system and an affiliate of Discount
Investment Corporation, to acquire ordinary shares A at a price equal to the
price in the initial public offering, discounted by a factor of 10%. The
Discount Group exercised its option and we issued 4,675,962 ordinary shares A to
it at the same time as the closing of our initial public offering. The
aggregate purchase price for the shares was equal to the sum of USD45 million,
plus interest thereon at the rate of 8% per annum from November 9, 1998 through
the closing of the exercise of the option. The Discount Group currently owns
about 1.1% of our outstanding ordinary shares A.
In connection with the exercise of the option, we agreed to enter into a
registration rights agreement with the Discount Group and a shareholders'
agreement with the Discount Group and United.
Under the shareholders' agreement, United agreed to vote in favor of one
supervisory board member nominated by the Discount Group for as long as the
Discount Group and its affiliates retain at least the number of ordinary shares
A originally acquired upon the exercise of the option. In addition, the
Discount Group has the right to participate on equal terms in connection with
sales of ordinary shares A by United, including the right to sell the Discount
Group's entire interest in us in connection with a sale by United of a
controlling interest in us. The Discount Group also has the right to negotiate
with United prior to certain sales of ordinary shares A by United. United has a
right of first refusal with respect to a sale of ordinary shares A by the
Discount Group and the right to require that the Discount Group agree to a
merger or sale of all of our shares if proposed by United. In addition, there
are certain limited restrictions on the entities or persons to whom the Discount
Group may transfer its ordinary shares A.
Upon the exercise of its option, the Discount Group received an additional
option to acquire ordinary shares A from us at a price per share equal to the
greater of (1) the price in our initial public offering or (2) the average sale
price of our ordinary shares A on the Stock Market of Amsterdam Exchanges for
the 30-day period immediately preceding the exercise date. The aggregate
purchase price for the ordinary shares A purchased pursuant to the additional
option would be equal to the sum of USD45.0 million, plus interest thereon at
the rate of 8% per annum from November 9, 1998 through the closing of the
additional option. The transfer rights and restrictions set forth in the
registration rights agreement and the shareholders' agreement discussed above
will be applicable with respect to the ordinary shares A acquired by the
Discount Group upon the exercise of the additional option. The additional
option will terminate if it is not exercised on or before September 30, 2000.
Relationship with chello broadband
We are currently negotiating with chello broadband regarding the terms
under which our operating companies will distribute chello broadband services.
These negotiations will not apply to our operating companies in Malta and
Israel. We expect that our final agreement will include terms relating to non-
competition and a revenue sharing structure for services provided over our
systems.
129
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Index to Financial Statements
Page
Number
---------
UNITED PAN-EUROPE COMMUNICATIONS N.V.
Independent Auditors' Report.................................................................... 62
Consolidated Balance Sheets as of December 31, 1999 and December 31, 1998 (Post-
Acquisition................................................................................... 63
Consolidated Statements of Operations for the Years Ended December 31, 1999 (Post-
Acquisition), December 31, 1998 and December 31, 1997 (Pre-Acquisition)....................... 64
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended December 31,
1999 (Post-Acquisition), December 31, 1998 and December 31, 1997 (Pre-Acquisition),........... 65
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999 (Post-
Acquisition), December 31, 1998 and December 31, 1997 (Pre-Acquisition)....................... 67
Notes to Consolidated Financial Statements...................................................... 69
UNITED TELEKABEL HOLDINGS
Report of Independent Accountants............................................................... 144
Consolidated Balance Sheet as of December 31, 1998.............................................. 146
Consolidated Statement of Operations from August 6, 1998 (commencement of operations)
until December 31, 1998....................................................................... 147
Consolidated Statement of Cash Flows from August 6, 1998 (commencement of operations)
until December 31, 1998....................................................................... 148
Notes to Consolidated Financial Statements...................................................... 149
|
130
(b) Reports on Form 8-K
Date of Report Item Reported Financial Statements Filed
-------------- ------------- --------------------------
November 2, 1999 Item 5 - @Entertainment and None
Poland Communications,
Inc. repurchase of notes
|
(c) Exhibits
3.1(a) Amended and Restated Articles of Association of UPC(1)
3.1(b) Amendment to the Articles of Association of UPC dated March 17, 2000 (2)
4.1 Indenture dated as of July 30, 1999, between UPC and Citibank N.A, as
Trustee with respect to 10 7/8% Senior Notes(3)
4.2 Indenture dated as of July 30, 1999, between UPC and Citibank N.A., as
Trustee with respect to 12 1/2% Senior Discount Notes(3)
4.3 Indenture dated as of October 29, 1999, between UPC and Citibank N.A, as
Trustee with respect to 10 7/8% Senior Notes due 2007(4)
4.4 Indenture dated as of October 29, 1999, between UPC and Citibank N.A., as
Trustee with respect to 11 1/4% Senior Notes due 2009(4)
4.5 Indenture dated as of October 29, 1999, between UPC and Citibank N.A., as
Trustee with respect to 13 3/8% Senior Discount Notes due 2009(4)
4.6 Indenture dated as of January 20, 2000, between UPC and Citibank N.A., as
Trustee with respect to 11 1/2% Senior Notes due 2010
4.7 Indenture dated as of January 20, 2000, between UPC and Citibank N.A., as
Trustee with respect to 11 1/4% Senior Notes due 2010
4.8 Indenture dated as of January 20, 2000, between UPC and Citibank N.A., as
Trustee with respect to 13 3/4% Senior Discount Notes due 2010
10.1 Amended and Restated Securities Purchase and Conversion Agreement dated
as of December 1, 1997, by and among Philip Media B.V. ("Philips Media"),
Philips Media Network B.V. ("Phillips Networks"), Joint Venture,
Inc.("JVI") and UPC(5)
131
|
10.2 Tax Liability Agreement dated October 7, 1997, between UPC, Philips
Media, Philips Coordination Center, Philips Networks, United, and JVI(6)
10.3 Indenture dated as of February 5, 1998, between United International
Holdings, Inc. ("United") and Firstar Bank of Minnesota,
N.A.("Firstar")(7)
10.4 Indenture dated as of April 29, 1999, between United and Firstar(8)
10.5 Form of Master Seconded Employee Services Agreement(9)
10.6 Form of United Registration Rights Agreement(10)
10.7 Form of United Management Services Agreement(9)
10.8 Consulting Agreement dated June 1, 1995, between United and Mark L.
Schneider(10)
10.9 Agreement dated as of February 11, 1999 between United and UPC(11)
10.10 Option Agreement dated November 5, 1998, among UPC, DIC and PEC(6)
10.11 Amendment to Option Agreement dated February 4, 1999, between UPC, DIC
and PEC(9)
10.12 Form of Registration Rights Agreement among UPC, DIC and PEC(6)
10.13 Form of Shareholders Agreement among UPC, DIC and PEC(6)
10.14 United Pan - Europe Communications N.V. Phantom Stock Option Plan, March
20, 1998(6)
10.15 Amended Stock Option Plan dated February 8, 1999, between UPC and
Stichting Administratie Kantoor UPC(11)
10.16 Agreement dated April 2, 1998, for the contribution of the Dutch Cable
Assets of UPC and NUON to UTH(12)
10.17 Share Purchase Agreement dated January 19, 1999, by and between UPC,
Belmarken Holding B.V., NUON, N.V. Kraton and UTH, as amended(10)
10.18 Final Amendment to Share Purchase Agreement dated as of February 17,
1999(13)
10.19 Share Purchase Agreement dated June 23, 1999, between UPC and MediaOne
International B.V.(14)
10.20 Investment Agreement between SBS BROADCASTING SA and Registrant dated
June 29, 1999(3)
132
|
10.21 Exchange Offer Agreement, dated as of March 9, 2000, by and between UPC
and SBS Broadcasting S.A.(15)
10.22 Share Exchange Agreement, dated as of March 9, 2000, by and between UPC
and the shareholders named therein(15)
10.23 Agreement and Plan of Merger among @Entertainment, Inc., United Pan -
Europe Communications N.V. and Bison Acquisition Corp. dated as of June
2, 1999(3)
10.24 Form of Stockholders Agreement dated as of June 2, 1999 among
@Entertainment, Inc., United Pan - Europe Communications N.V., Bison
Acquisition Corp. and the other parties signatory thereto(3)
10.25 Indenture dated as of July 14, 1998, between @Entertainment and Bankers
Trust Company relating to @Entertainment's 14 1/2% Senior Discount Notes
due 2008 and its 14 1/2% Series B Senior Discount Notes due 2008(16)
10.26 Indenture dated as of January 20, 1999, between @Entertainment and
Bankers Trust Company relating to @Entertainment's Series C Senior
Discount Notes due 2008(17)
10.27 Indenture dated as of January 27, 1999, between @Entertainment and
Bankers Trust Company relating to @Entertainment's 14 1/2% Senior
Discount Notes due 2009 and its 14 1/2% Series B Senior Discount Notes
due 2009(17)
10.28 Share Purchase Agreement between the Sellers represented by EQT
Scandinavia Limited and United Pan - Europe Communications N.V.(3)
10.29 Share Purchase Agreement, dated February 2, 2000, among Eneco
Wed-Activiteiten B.V., N.V. Eneco, UPC Nederland N.V., Belmarken Holding
B.V. and UPC(18)
10.30 Loan and Note Issuance Agreement between UPC Facility B.V., Telekabel
Wien and Janco Multicom and Bank of America International Limited, CIBC
World Markets plc, Citibank N.A., MeesPierson N.V., Paribas, The Royal
Bank of Scotland plc, Toronto Dominion Bank Europe Limited, and The
Toronto - Dominion Bank, as Facility Agent and Security Agent(3)
12.1 Computation of Earnings to Fixed Charges
21.1 Subsidiaries of UPC
133
|
27.1 Financial Data Schedules
--------------------
(1) Incorporated by reference from Amendment No. 1 to Form S-1 Registration
Statement filed by UPC on September 23, 1999 (File No. 333-84427).
(2) Incorporated by reference from Form 8-K filed by UPC, dated March 17,
2000 (File No. 000-25365).
(3) Incorporated by reference from Form 8 K filed by UPC, dated July 30, 1999
(File No. 000-25365).
(4) Incorporated by reference from Form 10 Q filed by UPC, for the quarter
ended September 30, 1999 (File No. 000-25365).
(5) Incorporated by reference from Form 8-K filed by United, dated December
11, 1997 (File No. 0-21974).
(6) Incorporated by reference from Form S-1 Registration Statement filed by
UPC on November 24, 1998 (File No. 333-67895).
(7) Incorporated by reference from Form S-4 Registration Statement filed by
United on March 3, 1998 (File No. 333-47).
(8) Incorporated by reference from Form 8-K filed by United, dated April 29,
1999 (File No. 0-21974).
134
|
(9) Incorporated by reference from Amendment No. 8 to Form S-1/A Registration
Statement filed by UPC on February 10, 1999 (File No. 333-67895).
(10) Incorporated by reference from Amendment No. 6 to Form S-1/A Registration
Statement filed by UPC on February 4, 1999 (File No. 333-67895).
(11) Incorporated by reference from Form 10 K filed by UPC for the year ended
December 31, 1998 (File No. 000-25365).
(12) Incorporated by reference from Amendment No. 4 to Form S-1/A Registration
Statement filed by UPC on January 25, 1999 (File No. 333-67895).
(13) Incorporated by reference from Form 8 K filed by UPC, dated March 4, 1999
(File No. 000-25365).
(14) Incorporated by reference from Amendment No. 2 to Form S-1 Registration
Statement filed by UPC on September 30, 1999 (File No. 333-84427).
(15) Incorporated by reference from Form 8-K filed by UPC, dated March 9, 2000
(File No. 000-25365).
(16) Incorporated by reference from Amendment No. 1 to Form S-4 filed by
@Entertainment on August 10, 1998 (File No. 333-60659).
(17) Incorporated by reference from Amendment No. 1 to Form S-4 filed by
@Entertainment on May 13, 1999 (File No. 333- 72361).
(18) Incorporated by reference from Form 8-K filed by UPC, dated February 3,
2000 (File No. 000-25365).
(d) Financial Statement Schedules
|
Page
Number
---------
UNITED PAN-EUROPE COMMUNICATIONS N.V.
Report of Independent Public Accountants on Schedules........................................... 136
Schedule I - Condensed Financial Information of Registrant (Parent Only)........................ 137
Schedule II - Valuation and Qualifying Accounts................................................. 143
|
135
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To United Pan-Europe Communications N.V.
We have audited, in accordance with auditing standards generally accepted in
the United States of America, the consolidated financial statements of United
Pan-Europe Communications N.V. included in this Form 10-K and have issued our
report thereon dated March 27, 2000. Our audit was made for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. The following schedules are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic consolidated financial
statements. These schedules have been subjected to the auditing procedures
applied in the audit of the basic consolidated financial statements as indicated
in our report with respect thereto and, in our opinion, based on our audit,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
ARTHUR ANDERSEN
Amstelveen, The Netherlands,
March 28, 2000
136
UNITED PAN-EUROPE COMMUNICATIONS N.V.
PARENT ONLY
SCHEDULE I
Condensed Information as to the Financial Condition of Registrant
(Stated in thousands of Euros, except share and per share amounts)
As of As of
December 31, December 31,
1999 1998
------------- ---------------
ASSETS:
Current assets
Cash and cash equivalents.......................................................... 950,343 3,198
Restricted cash.................................................................... 18,683 --
Related party receivables.......................................................... 780,494 52,472
Other receivables, net............................................................. 13,198 1,057
Other current assets............................................................... 20,540 3,602
---------- -----------
Total current assets........................................................ 1,783,258 60,329
Investments in, loans and other advances to affiliated companies, accounted for
under the equity method, net.................................................... 2,122,955 444,208
Property, plant and equipment, net of accumulated depreciation of 2,075 and 531,
respectively.................................................................... 28,876 446
Goodwill and other intangibles, net of accumulated amortization of 34 and 0,
respectively.................................................................... 275 -
Stocks and bonds..................................................................... 394,558 -
Other investments ................................................................... 230,411 -
Deferred financing costs, net of accumulated amortization of 1,819 and 924,
respectively..................................................................... 49,446 7,087
Other assets......................................................................... 491 295
---------- -----------
Total assets................................................................ 4,610,270 512,365
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT):
Current liabilites
Related party accounts payables.................................................... 11,111 3,957
Accrued liabilities................................................................ 98,472 25,821
Note payable to shareholder........................................................ 6,786 54,032
Short-term debt.................................................................... 99,378 15,438
Short-term debt, related party...................................................... 20,421 17,754
---------- -----------
Total current liabilites.................................................... 236,168 117,002
Long-term debt....................................................................... 2,459,579 281,344
Other related-party long-term debt................................................... - -
Loans from affiliated companies...................................................... 37,844 -
Deferred compensation................................................................ (143,434) 147,616
Deferred taxes....................................................................... (87) 62
---------- -----------
Total liabilities........................................................... 2,590,070 546,024
========== ===========
Shareholders' equity (deficit) (As adjusted for stock splits)
Priority stock, 1.0 par value, 300 shares authorized, 300 and 0 shares issued,
respectively...................................................................
Ordinary stock, 1.0 par value, 600,000,000 shares authorized, 435,604,497 and
276,856,812 shares issued, respectively........................................ 435,605 83,057
Additional paid-in capital......................................................... 2,371,951 249,797
Deferred compensation.............................................................. (47,425) -
Treasury stock, at cost 0 and 27,594,405 shares of ordinary stock, respectively.... - (50,091)
Accumulated deficit................................................................ (1,114,219) (329,921)
Other cumulative comprehensive income.............................................. 374,288 13,499
---------- -----------
Total shareholders' equity (deficit)......................................... 2,020,200 (33,659)
---------- -----------
Total liabilities and shareholders' equity (deficit)......................... 4,610,270 512,365
========== ===========
|
The conversion of Dutch Guilder amounts into Euros related to the financial
information presented prior to the creation of the Euro, was calculated using
the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch
Guilders.
137
UNITED PAN-EUROPE COMMUNICATIONS N.V.
PARENT ONLY
SCHEDULE I
Condensed Information as to the Operations of Registrant
(Stated in thousands of Euros, except share and per share amounts)
For the Years Ended December 31,
----------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
(Post-Acquisition) (Post-Acquisition) (Pre-Acquisition)
Management fee income from related parties.................. 11,411 4,832 1,401
Corporate general and administrative expense................ (139,705) (146,711) (5,266)
Depreciation and amortization............................... (1,986) (199) (334)
-------------------- -------------------- --------------------
Net operating loss........................................ (130,280) (142,078) (4,199)
Interest income............................................. 22,758 871 1,284
Interest income, related party.............................. 27,869 28,297 20,360
Interest expense............................................ (103,130) (539) (6,872)
Interest expense, related party............................. (1,298) (26,467) (15,139)
Foreign exchange gain (loss) and other
income (expense), net..................................... 15,651 (6,596) (5,838)
-------------------- -------------------- --------------------
Net loss before income taxes and other items.............. (168,430) (146,512) (10,404)
Share in results of affiliated companies, net............... (615,865) (109,067) (72,410)
Income tax benefit (expense)................................ - - 660
-------------------- -------------------- --------------------
Net loss.................................................. (784,298) (255,579) (82,154)
==================== ==================== ====================
Basic and diluted net loss per ordinary share (1)........... (2.08) (1.03) (0.30)
==================== ==================== ====================
Weighted-average number of ordinary shares
outstanding (1)........................................... 377,969,829 247,915,834 275,421,933
==================== ==================== ====================
(1) As adjusted for the stock splits
|
The conversion of Dutch Guilder amounts into Euros related to the financial
information presented prior to the creation of the Euro, was calculated using
the exchange rate as of Jaunary 1, 1999, which was 1 Euro to 2.20371 Dutch
Guilders.
138
UNITED PAN-EUROPE COMMUNICATIONS N.V.
PARENT ONLY
SCHEDULE I
Condensed Information as to the Cash Flows of the Registrant
(Stated in thousands of Euros)
For the Years Ended December 31,
1999 1998 1997
---------------------- ---------------------- ---------------------
(Post-Acquisition) (Post-Acquisition) (Pre-Acquisition)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash flows (784,298) (255,579) (82,153)
from operating activities:
Depreciation and amortization 1,986 199 334
Amortization of deferred financing costs 10,135 - -
Accretion of interest 30,282 - -
Share in results of affiliated companies, net 615,865 109,067 72,410
Compensation expense related to stock options 101,388 145,429 2,186
Exchange rate gain, net (11,021) 6,596 5,837
Other (3,574) (2,470)
Changes in assets and liabilities: 1,670 - -
Increase in receivables (3,406) (5,585) (2,886)
Decrease (increase) in other
non-current assets (15,802) (698) (661)
Increase in other current liabilities 47,671 9,383 25,861
Decrease in deferred taxes and other - -
long-term liabilities (152) 507 1,045
---------------------- ---------------------- ---------------------
Net cash flows from operating activities (5,682) 5,745 19,503
---------------------- ---------------------- ---------------------
Cash flows from investing activities:
Restricted cash deposited (18,683) - -
Investments in, loans to and advances to
affiliated companies, net (2,830,121) (226,275) (133,652)
Investments in stocks and bonds, net (255,133) - -
Loans repaid by subsidiaries - 79,726 158,937
Capital expenditures (32,086) (2,356) (594)
Dividends received - 4,074 -
Release (deposit) to acquire minority interest
in subsidiary - 21,328 (21,328)
Sale of affiliated companies 16,648 - 5,023
---------------------- ---------------------- ---------------------
Net cash flows from investing activities (3,119,375) (123,503) 8,386
---------------------- ---------------------- ---------------------
Cash flows from financing activities:
Proceeds from initial public offering, net 1,206,910 - -
Proceeds from secondary public offering, net 851,306 - -
Proceeds from senior notes 2,393,451 - -
Proceeds from short-term borrowings 18,225 - 41,482
Proceeds from short-term borrowings, related party - 58,957 103,506
Proceeds from long-term borrowings - 59,454 226,300
Deferred financing costs (51,265) (233) (7,778)
Repayments of long and short-term borrowings (281,355) (16,873) (171,276)
(Repayments) borrowings on note payable
to shareholder (48,561) - -
Dividends paid to minority shareholder - - -
Redemption of convertible loans - - (77,220)
Purchase shares from shareholder - - (132,758)
Repayments on short-term note (16,499) - -
---------------------- ---------------------- ---------------------
Net cash flows from financing activities 4,072,212 101,305 (17,744)
---------------------- ---------------------- ---------------------
Net increase (decrease) in cash and
cash equivalents 947,155 (16,453) 10,145
Cash and cash equivalents at beginning of period 3,198 19,651 9,506
---------------------- ---------------------- ---------------------
Cash and cash equivalents at end of period 950,353 3,198 19,651
====================== ====================== =====================
|
The conversion of Dutch Guilder amounts into Euros related to the financial
information presented prior to the creation of the Euro, was calculated using
the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch
Guilders.
139
UNITED PAN-EUROPE COMMUNICATIONS N.V.
PARENT ONLY
SCHEDULE I
Condensed Information as to the Cash Flows of the Registrant
(Stated in thousands of Euros)
For the Years Ended December 31,
1999 1998 1997
------------------- ----------------- -----------------
(Post-Acquisition) (Post-Acquisition) (Pre-Acquisition)
Non-cash investing and financing activities:
Issuance of shares upon conversion of United loan 6,786 - -
=================== ================= =================
Issuance of shares upon conversion of PIK Notes - - -
=================== ================= =================
Supplemental cash flow disclosures:
Cash paid for interest (21,542) (7,515) (4,207)
=================== ================= =================
Cash received for interest 25,198 12,492 11,924
=================== ================= =================
|
The conversion of Dutch Guilder amounts into Euros related to the financial
information presented prior to the creation of the Euro, was calculated using
the exchange rate as of January 1, 1999, which was 1 Euro to 2.20371 Dutch
Guilders.
140
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTE TO PARENT ONLY
SCHEDULE I
AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998
(Monetary amounts stated in thousands of Euros,
except share and per share amounts)
1. Organization and Nature of Operations
United Pan-Europe Communications N.V., formerly known as United and Philips
Communications B.V. ("UPC") or the "Company") was formed for the purpose of
acquiring and developing multi-channel television and telecommunications systems
in Europe. On July 13, 1995, United International Holdings, Inc. ("United"), a
United States of America corporation, and Philips Electronics N.V.
("Philips"), contributed their respective ownership interests in European and
Israeli multi-channel television systems to UPC. Philips contributed to UPC its
95% interest in cable television systems in Austria, its 100% interest in cable
television systems in Belgium, and its minority interests in multi-channel
television systems in Germany, The Netherlands (KTE) and France (Citecable).
United contributed its interests in multi-channel television systems in Israel,
Ireland, the Czech Republic, Malta, Norway, Hungary, Sweden and Spain. United
also contributed United States dollars 78.2 million in cash (including accrued
interest of USD3.2 million) to UPC and issued to Philips 9,507,453 shares of its
Class A Common Stock having a value of USD50.0 million (at date of closing). In
addition, UPC issued to Philips USD133.6 million of convertible subordinated
pay-in-kind notes (the "PIK Notes"). As a result of this transaction, United and
Philips each owned a 50% economic and voting interest in UPC.
On December 11, 1997, United acquired Philips' 50% interest in UPC (the "UPC
Acquisition"), thereby making it an effectively wholly-owned subsidiary of
United (subject to certain employee equity incentive compensation arrangements)
through its wholly-owned subsidiary United Europe, Inc. ("United"). The
entity's name was changed to United Pan-Europe Communications N.V., and its
legal seat was transferred from Eindhoven to Amsterdam. Through its cable-based
communications networks in 10 countries in Europe and in Israel, UPC currently
offers cable television services and is further developing and upgrading its
network to provide digital video, voice and Internet/data services in Western
European markets.
As part of the UPC Acquisition, (i) UPC purchased the 6,338,302 shares of
Class A Common Stock of United held by Philips (30,313), (ii) United purchased
77,097 of the accreted amount of UPC's PIK Notes and redeemed them for
45,540,783 shares of UPC, (iii) UPC repaid to Philips the remaining 77,311
accreted amount of the PIK Notes (154,195), (iv) United purchased 39,364,812
shares of UPC directly from Philips, and (v) UPC repurchased Philips' remaining
equity interest in UPC (73,135,188 shares). The UPC Acquisition was financed
with proceeds from a long-term revolving credit facility through UPC with a
syndicate of banks (138,494) (the "Senior Revolving Credit Facility"), a bridge
bank facility through a subsidiary of UPC USD111,200 (101,647) and a cash
investment by United of 148,568. Approximately 217,360 drawn on the Senior
Revolving Credit Facility was used to repay existing debt of UPC in conjunction
with the UPC Acquisition.
United's acquisition of Philips' interest in UPC was accounted for as a step
acquisition under purchase accounting. As a result of UPC becoming effectively
wholly owned by United, such purchase accounting adjustments, along with
existing basis differences, were pushed down to the financial statements of UPC
and a new basis of accounting was established for the UPC net assets acquired by
United. As of December 11, 1997, the proportional net assets of UPC acquired by
United were recorded at fair market value based on the purchase price paid by
United, along with additional basis differences at the United level existing as
of that date. The total purchase accounting adjustments of 233,587 were
allocated to UPC's underlying net assets.
As a result of the UPC Acquisition and the associated push-down of United
basis on December 11, 1997, the condensed information as to financial position
of registrant as of December 31, 1997, 1999, 1998 and is presented on a
"post-acquisition" basis. The condensed information as to the operations and
the cash flows of the registrant for the year ended December 31, 1997 include
the post-acquisition results of the Company for the period from December 11,
1997 through December 31, 1997, which reflects 898 of new basis depreciation
and amortization resulting from push-down accounting as well as approximately
1,831 of interest expense from purchase related indebtedness which is included
in the
141
Parent's share in result of affiliated companies, net. Due to immateriality, the
entire fiscal year ended December 31, 1997 is presented as "pre-acquisition"
in the accompanying condensed information as to the operations and cash flows of
registrant.
2. Basis of Presentation
In December 1998 and February 1999, UPC acquired telephony and programming
assets from United through the issuance of new shares. As the acquisitions were
between entities under common control, the transactions were accounted for at
historical cost, similar to pooling of interests accounting. It is generally
accepted that, consistent with a pooling-of-interests accounting, prior period
financial statements of the transferee are restated for all periods in which the
transferred operations were part of parent's consolidated financial statements.
Accordingly, we have restated all periods presented as if UPC had acquired the
telephony and programming assets from United as of the date of United's initial
investment.
142
UNITED PAN-EUROPE COMMUNICATIONS N.V.
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
(Stated in thousands of Euros)
Additions
-------------------------
Balance at
Beginning of Charged to Balance at End
Period Expense Acquisitions Deductions(1) Of Period
------------ ---------- ------------ ------------- --------------
Allowance for doubtful accounts receivable:
Year ended December 31, 1999.................. 4,202 4,495 8,751 (693) 16,754
===== ===== ===== ====== ======
Year ended December 31, 1998.................. 2,925 917 512 (152) 4,202
===== ===== ===== ====== ======
Year ended December 31, 1997.................. 2,648 950 246 (919) 2,925
===== ===== ===== ====== ======
Year ended December 31, 1996.................. 2,424 412 379 (567) 2,648
===== ===== ===== ====== ======
Allowance for costs to be reimbursed:
Year ended December 31, 1999.................. -- 63 -- -- 63
===== ===== ===== ====== ======
Year ended December 31, 1998.................. 1,002 49 -- (1,651) --
===== ===== ===== ====== ======
Year ended December 31, 1997.................. 2,096 554 -- (1,648) 1,002
===== ===== ===== ====== ======
Year ended December 31, 1996.................. 2,406 360 -- (670) 2,096
===== ===== ===== ====== ======
Allowance for Investments Affiliated
Companies:
Year ended December 31, 1999.................. -- -- -- -- --
===== ===== ===== ====== ======
Year ended December 31, 1998.................. -- -- -- -- --
===== ===== ===== ====== ======
Year ended December 31, 1997.................. 1,900 -- -- (1,900) --
===== ===== ===== ====== ======
Year ended December 31, 1996.................. 2,245 -- -- (345) 1,900
===== ===== ===== ====== ======
|
(1) Represents uncollectible balances written off to the allowance account and
the effect of currency translation adjustment.
143
INDEPENDENT AUDITOR'S REPORT
Introduction
We have audited the consolidated financial statements of UNITED TELEKABEL
HOLDING N.V., Amsterdam, The Netherlands, for the year 1998 for purpose of
inclusion in the Form 10-K of one of its shareholders. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
Scope
We conducted our audit in accordance with auditing standards generally
accepted in The Netherlands, which are substantially the same as those generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
Opinion
In our opinion, the consolidated financial statements give a true and fair
view of the financial position of the company as at December 31, 1998 and of the
result for the period from commencement of operations at August 6, 1998 then
ended in accordance with accounting principles generally accepted in The
Netherlands.
Generally accepted accounting principles in the Netherlands vary in certain
significant respects from generally accepted accounting principles in the United
States of America. Application of generally accepted accounting principles in
the United States of America would have affected total assets, statement of
operations and shareholders' equity as at and for the period from commencement
of operations at August 6, 1998 ended December 31, 1998, to the extent
summarized in Note 18. to the consolidated financial statements.
Amstelveen, The Netherlands
March 19, 1999
144
UNITED TELEKABEL HOLDING N.V.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS (AUGUST 6, 1998) TO
DECEMBER 31, 1998
145
UNITED TELEKABEL HOLDING N.V.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
Assets
Fixed assets:
Intangible fixed assets.............................. 564,438
Tangible fixed assets................................ 847,056
Affiliated companies................................. 206,332
---------
Total fixed assets......................................... 1,617,826
---------
Current assets:
Inventories.......................................... 3,091
Receivables.......................................... 40,638
Cash and cash equivalents............................ 10,475
---------
Total current assets....................................... 54,204
---------
Total assets............................................... 1,672,030
=========
|
Shareholders' Equity and Liabilities
Shareholders' Equity................................. 635,521
Minority interest.................................... 1,104
---------
636,625
Provisions........................................... 42,054
Long-term liabilities................................ 232,727
Current liabilities.................................. 760,624
---------
Total shareholders' equity and liabilities.............. 1,672,030
=========
|
146
UNITED TELEKABEL HOLDING N.V.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
Total revenues...................................... 99,122
Direct operating expenses........................ (33,172)
Selling, general and administrative expenses..... (36,096)
Depreciation and amortization.................... (39,490)
--------
Total operating expenses............................ (108,758)
--------
Operating loss................................... (9,636)
Financial income and expense..................... (16,699)
--------
Loss before income taxes............................ (26,335)
Income taxes..................................... 1,212
--------
Loss after taxes.................................... (25,123)
Share in results of affiliated companies......... (24,486)
--------
Group loss.......................................... (49,609)
Minority interest................................ 235
--------
Net loss............................................ (49,374)
========
|
147
UNITED TELEKABEL HOLDING N.V.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(stated in thousands of Dutch guilders)
Cash flows from operating activities:
Net loss.................................................... (49,374)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization............................... 39,490
Share in results of affiliated companies, net............... 24,486
Minority interest in subsidiaries........................... (235)
Changes in assets and liabilities:
Decrease in current assets.................................. 40,098
(Decrease) in current liabilities........................... (55,186)
(Decrease) in deferred taxes and other provisions........... (1,132)
--------
Net cash flows from operating activities..................... (1,853)
--------
Cash flows from investing activities:
Capital expenditures........................................ (121,384)
Loan to affiliated companies................................ (7,120)
Acquisitions, net of cash acquired.......................... (12,588)
--------
Net cash flows from investing activities..................... (141,092)
--------
Cash flows from financing activities:
Proceeds from short-term borrowings......................... 120,705
Proceeds from long-term borrowings.......................... 9,621
--------
Net cash flows from financing activities..................... 130,326
--------
Net decrease in cash and cash equivalents................... (12,619)
Cash and cash equivalents at beginning of period............ 100
Cash and cash equivalents contributed....................... 22,994
--------
Cash and cash equivalents at end of period................... 10,475
========
|
Supplemental cash-flow disclosures:
Cash paid for interest...................................... (19,470)
========
Non-cash investing activities:
Contribution of Dutch cable systems
Working capital............................................. (73,850)
Affiliated companies........................................ 223,698
Tangible fixed assets....................................... 764,762
Intangible fixed assets..................................... 550,911
Short-term debt............................................. (544,918)
Long-term liabilities....................................... (223,106)
Provisions.................................................. (35,696)
Cash and cash equivalents................................... 22,994
--------
Equity contributed........................................... 684,795
========
|
148
UNITED TELEKABEL HOLDING N.V.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS
(AUGUST 6, 1998) TO DECEMBER 31, 1998
(Monetary amounts stated in thousands of Dutch guilders)
1. Organization and Nature of Operations
United Telekabel Holding N.V. ("UTH" or the "Company"), legally seated in
Almere, The Netherlands, was legally formed in May 1998 and commenced operations
on August 6, 1998. UTH was formed as a joint venture between United Pan-Europe
Communications N.V. ("UPC") and N.V. NUON Energie-Onderneming voor Gelderland,
Friesland en Flevoland ("NUON"). UPC became a 51% shareholder and NUON a 49%
shareholder. UTH was formed for the purpose of offering cable-based
communications through its networks in the Netherlands. UTH currently offers
cable television services and is further developing and upgrading its network to
provide digital video, voice and internet/data services in its Dutch markets.
UTH commenced operations on August 6, 1998 when both shareholders
contributed their interests in Dutch cable television operating companies to
UTH. NUON contributed its interest in N.V. Telekabel Beheer ("Telekabel") and
UPC contributed its interest in Cable Network Brabant Holding B.V. ("CNBH") and
50% of the shares in A2000 Holding N.V. ("A2000"). UTH recorded the assets
contributed at their fair market value. The table below summarizes the opening
balance sheet of UTH, based on the net assets contributed at their fair market
values by NUON and UPC as of August 6, 1998.
Cash and cash equivalents contributed................... 23,094
Other current assets.................................... 83,827
Affiliated companies.................................... 223,698
Tangible fixed assets................................... 764,762
Intangible fixed assets................................. 550,911
---------------
Total assets......................................... 1,646,292
===============
Short-term debt......................................... 544,918
Other current liabilities............................... 157,677
Provisions.............................................. 35,696
Long-term liabilities................................... 223,106
Shareholders' equity and liabilities.................... 684,895
---------------
Total shareholders' equity and liabilities........... 1,646,292
===============
|
Due to the fact that operations commenced at August 6, 1998, no
comparative financial statements have been presented. Proforma information
(unaudited) is presented in note 19.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the Netherlands for
financial statements. The accounting policies followed in the preparation for
the consolidated financial statements, differ in some respects to those
generally accepted in the United States of America (US GAAP). See note 18.
The preparation of financial statements in conformity with Dutch generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
149
during the reporting period. Actual results could differ from those estimates.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) have been made which are necessary to present fairly the financial
position of the Company as of December 31, 1998 and the results of its
operations for the period from commencement of operations (August 6, 1998) to
December 31, 1998.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
UTH and its group companies (the "UTH Group"). Group companies are companies or
other legal entities in which UTH has an ownership interest of more than 50% of
the issued share capital or that UTH otherwise controls. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The following chart presents a summary of UTH's significant investments in
multi-channel television, programming and telephony operations as of December
31, 1998:
Name City Percentage Ownership
Cable Network Brabant Holding BV Eindhoven 100
N.V. Telekabel Beheer Arnhem 100
A2000 Holding N.V. Amsterdam 50 (1)
Uniport Communications B.V. Amsterdam 80
|
(1) Not consolidated
Foreign Currencies
Assets and liabilities denominated in foreign currencies are translated into
Dutch guilders at the yearend exchange rate. Transactions in foreign currencies
are translated at the exchange rate in effect at the time of the transaction.
The exchange results are recorded under financial income and expense in the
statement of income.
Balance Sheet
(a) General
Assets and liabilities are stated at face value unless indicated otherwise.
(b) Fixed assets
Intangible fixed assets
The excess of investments in consolidated subsidiaries over the net tangible
asset value at acquisition is amortized on a straight-line basis over 15 years.
Licenses in newly acquired companies are recognized at the fair market value of
those licenses at the date of acquisition and include the development costs
incurred prior to the date a new license was acquired. The license value is
amortized on a straight-line basis over the initial license period, up to a
maximum of 20 years. Deferred financing costs are amounts spent in connection
with financing the UTH Group. The amortization period is the period relating to
the term of the financing. When assets are fully amortized, the costs and
accumulated amortization are removed from the accounts.
Tangible fixed assets
Tangible fixed assets are stated at cost. Additions, replacements,
installation costs and major improvements are capitalized, and costs for normal
repair and maintenance of tangible fixed assets are charged to expense as
incurred. Assets constructed by subsidiaries of UTH incorporate overhead
expense and interest charges incurred during the period of construction;
investment subsidies are deducted. Depreciation is calculated using the
straight-line method over the economic life of the asset, taking into account
the residual value. The economic lives of tangible fixed assets at acquisition
are as follows:
150
Networks 7-20 years
Buildings and leasehold improvements 20-33 years
Machinery & Other 3-10 years
|
Affiliated Companies
For those investments in companies in which UTH's ownership interest is 20%
to 50%, its investments are held through a combination of voting common stock,
preferred stock, debentures or convertible debt and/or UTH exerts significant
influence through board representation and management authority, or in which
majority control is deemed to be temporary, the equity method of accounting is
used. Under this method, the investment, originally recorded at fair market
value, is adjusted to recognize UTH's proportionate share of net earnings or
losses of the affiliates, limited to the extent of UTH's investment in and
advances to the affiliates, including any debt guarantees or other contractual
funding commitments. UTH's proportionate share of net earnings or losses of
affiliates includes the amortization of the excess of its cost over its
proportionate interest in each affiliate's net tangible assets or the excess of
its proportionate interest in each affiliate's net tangible assets in excess of
its cost.
(c) Receivables
Receivables are stated at face value, less an allowance for doubtfull
accounts. The allowance for doubtful accounts is based upon specific
identification of overdue accounts receivable. An allowance for a percentage of
the account is established once the receivable is overdue. Upon disconnection
of the subscriber, the account is fully reserved. The allowance is maintained
on the books until receipt of payment or for a maximum of three years.
(d) Cash and Cash Equivalents
Cash and cash equivalents include cash and investments with original
maturities of less than three months.
(e) Provisions
Deferred tax liabilities arising from temporary differences between the
financial and tax bases of assets and liabilities are included in the
provisions. The principal differences arise in connection with valuation
differences of intangible fixed assets. In calculating the provision, current
tax rates are applied.
UTH accounts for income taxes under the asset and liability method, which
requires recognition of, deferred tax assets and liabilities for the expected
future income tax consequences of transactions, which have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and income tax basis of assets, liabilities and loss carry forwards
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Net deferred tax assets are then reduced by a valuation
allowance if management believes it is more likely than not they will not be
realized.
(f) Fair value of financial instruments
SFAS Statement No. 107, "Disclosures about Fair Values of Financial
Instruments" requires the disclosure of estimated fair values for all financial
instruments, both on- and off-balance sheet, for which it is practicable to
estimate fair value. For certain instruments, including cash and cash
equivalents, receivables, current liabilities and certain provisions, it was
assumed that the carrying amount approximated fair value due to the short
maturity of those instruments. For short and long term debt, the carrying value
approximates the fair value since all debt instruments carry a variable interest
rate component except for the convertible loans which carried a fixed interest
rate. For investments in affiliated companies carried at cost, quoted market
prices for the same or similar financial instruments were used to estimate the
fair values. UTH has adopted the principles of this statement in its financial
statements. UTH did not have any material off-balance-sheet financial
instruments as of December 31, 1998.
(g) Recoverability of Tangible and Intangible fixed assets
UTH evaluates the carrying value of all tangible and intangible assets
whenever events or circumstances indicate the carrying value of assets may
exceed their recoverable amounts. An impairment loss is recognized when the
estimated
151
future cash flows (undiscounted and without interest) expected to result from
the use of an asset are less than the carrying amount of the asset. Measurement
of an impairment loss is based on the fair value of the asset computed using
discounted cash flows if the asset is expected to be held and used. Measurement
of an impairment loss for an asset held for sale would be based on fair market
value less estimated costs to sell.
(h) Concentration of Credit Risk
Financial instruments which potentially subject UTH to concentrations of
credit risk consist principally of trade receivables. Concentrations of credit
risk with respect to trade receivables are limited due to UTH's large number of
customers.
(i) Other Comprehensive Income
UTH has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which requires that an enterprise
(i) classify items of other comprehensive income by their nature in a financial
statement and (ii) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. As of December 31, 1998, UTH had
no other comprehensive income items.
Income Statement
Revenue is primarily derived from the sale of cable television services to
subscribers and is recognized in the period the related services are provided.
Initial installation fees are recognized as revenue in the period in which the
installation occurs, to the extent installation fees are equal to or less than
direct selling costs, which are expensed. To the extent installation fees
exceed direct selling costs, the excess fees are deferred and amortized over the
average contract period. All installation fees and related costs with respect
to reconnections and disconnections are recognized in the period in which the
reconnection or disconnection occurs.
New Accounting Principles
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting For the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), which provides guidance
on accounting for the costs of computer software developed or obtained for
internal use. SOP 98-1 identifies the characteristics of internal-use software
and provides examples to assist in determining when computer software is for
internal use. SOP 98-1 is effective for financial statements for fiscal years
beginning after December 15, 1998, for projects in progress and prospectively,
with earlier application encouraged. Management believes that the adoption of
SOP 98-1 will not have a material effect on the financial statements.
The American Institute of Certified Public Accountants recently issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), which is required to be adopted by affected companies for fiscal
years beginning after December 15, 1998. SOP 98-5 defines start-up and
organization costs, which must be expensed as incurred. In addition, all
deferred start-up and organization costs existing as of January 1, 1999 must be
written-off and accounted for as a cumulative effect of an accounting change.
Management believes that the adoption of SOP 98-1 will not have a material
effect on the financial statements.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. Management is currently assessing the
effect of this new standard.
152
3. Intangible fixed assets
Licenses and Deferred
Total Goodwill Financing Costs
------------- ----------------------- --------------------
Value upon contribution........................ 550,911 547,869 3,042
Investments.................................... 30,996 29,745 1,251
Amortization................................... (17,469) (17,149) (320)
------- ------- -----
Book value as of December 31,1998............. 564,438 560,465 3,973
======= ======= =====
|
Balance as of December 31, 1998
------------------------------------------------------------
Licenses and Deferred
Total Goodwill Financing Costs
------------- ----------------------- --------------------
Gross Value.................................... 581,907 577,614 4,293
Amortization................................... (17,469) (17,149) (320)
------- ------- -----
Book value as of December 31,1998............. 564,438 560,465 3,973
======= ======= =====
|
4. Tangible fixed assets
Land and Machinery
Total Buildings Network & Other
------------- ------------------ -------------- --------------
Value upon contribution...................... 764,762 6,025 745,503 13,234
Additions.................................... 104,315 130 102,023 2,162
Depreciation................................. (22,021) (182) (20,005) (1,834)
------- ----- ------- ------
Book value as of December 31,1998........... 847,056 5,973 827,521 13,562
======= ===== ======= ======
|
Balance as of December 31, 1998
-----------------------------------------------------------------
Land and Machinery
Total Buildings Network & Other
------------- ------------------ -------------- --------------
Cost......................................... 869,077 6,155 847,526 15,396
Depreciation................................. (22,021) (182) (20,005) (1,834)
------- ----- ------- ------
Book value as of December 31,1998........... 847,056 5,973 827,521 13,562
======= ===== ======= ======
|
5. Affiliated companies
Total Investments Advances
------------- ----------------------- -------------------
Balance upon contribution...................... 223,698 223,698 --
Additions...................................... 7,120 -- 7,120
Share in result................................ (24,486) (24,486) --
------- ------- -------
Balance as of December 31,1998................ 206,332 199,212 7,120
======= ======= =======
|
The investments in affiliated companies as of December 31, 1998 are:
Investments in and Cumulative Share
% Advances to In Results of
Ownership Affiliated Companies Affiliated Companies Total
------------- --------------------- ---------------------- -------------
A2000.................... 50 229,481 (24,449) 205,032
Interway................. 33 1,337 (37) 1,300
------- ------- -------
Total.................... 230,818 (24,486) 206,332
======= ======= =======
|
153
UTH had the following differences related to the excess of cost over the net
tangible assets acquired for its equity investments. Such differences are being
amortized over 12 to 15 years:
Accumulated
Basis Difference Amortization
---------------- ----------------
A2000............................................. 249,236 (8,200)
======= ======
|
These differences have been presented as affiliated companies and share in
result of affiliated companies respectively.
Subsequent to year end, UPC provided a letter of support to A2000 stating
that it would continue to provide to A2000 the funding necessary to continue
operations through at least 1999.
Summary financial information for A2000 based on Dutch generally accepted
accounting principles is as follows:
Balance sheet As of December 31,
1998
-----------------------
Intangible fixed assets............................. 113,361
Tangible fixed assets............................... 356,623
Financial fixed assets.............................. 770
Liquid assets....................................... 369
Other current assets................................ 37,482
-------
Total assets..................................... 508,605
=======
Provisions.......................................... 1,610
Long-term debt...................................... 467,430
Current liabilities................................. 125,813
-------
Total liabilities................................ 594,853
-------
Total shareholders' value........................... (86,248)
=======
Statement of income For the Five Months
Ended December 31,
1998
-------
Revenue............................................. 53,954
Costs............................................... (39,271)
Depreciation and amortization....................... (35,888)
Financial income/charges............................ (11,293)
-------
Net loss......................................... (32,498)
=======
|
6. Receivables
Receivables as presented under current assets mature within one year and are
specified as follows:
Trade accounts receivable 22,519
Receivables from affiliated companies 1,654
Prepaid expenses and accrued income 1,447
Other receivables 15,018
------
Total 40,638
======
|
A major item under "other receivables" is current reclaimable VAT 3,676. As
of December, 1998 the valuation allowance on trade receivables amounted to 538.
154
7. Cash and cash equivalents
Cash and cash equivalents include demand accounts held in a bank with a
maturity of less than three months.
8. Shareholders' Equity
UTH's issued share capital consists of 100,000 shares with a par value of
NLG 1 each. All issued shares are fully paid-in.
Ordinary Additional Accumulated
Capital Paid-in Capital Deficit Total
--------- ---------------- ----------------- ------------
Balance at inception...... 100 -- -- 100
Balances upon contribution
of properties to joint
venture, August 6, 1998. -- 684,795 -- 684,795
Net loss.................. -- -- (49,374) (49,374)
--------- ---------------- ----------------- ------------
100 684,795 (49,374) 635,521
========= ================ ================= ============
|
9. Provisions
Provisions relate mainly to deferred taxation.
10. Long-term liabilities
Average Amount
Rate of Outstanding
Range of Interest Interest December 31, 1998
----------------- ------------ ------------------
Bank loans 5-7.625% 5.2 235,947
|
Long-term liabilities at December 31, 1998 will be payable as follows:
Bank Loans
----------
1999 3,220
2000 2,353
2001 8,404
2002 16,948
2003 30,104
Thereafter 174,918
-------
Total 235,947
=======
|
On February 20, 1998 CNBH secured a 250,000 nine-year term facility, which
was amended in August 1998 to 266,000. The CNBH facility bears interest at the
applicable Amsterdam Interbank Offered Rate ("AIBOR") plus a margin ranging from
0.60% to 1.60% per annum, and is secured by, among other things, an encumbrance
over CNBH's assets and a pledge of the shares of CNBH. The facility is used to
refinance several acquisitions and will furthermore be used for the development
and exploitation of enhanced cable TV services, data services and telephony
services. As of December 31, 1998, 219,000 was outstanding on the facility.
The shares of UTH held by UPC are pledged for a certain loan of UPC.
155
11. Current Liabilities
The current liabilities relate to short-term debt and other liabilities
which are specified below:
(a) Short-term debt
Long-term debt repayable within one year 3,220
Short-term debt to shareholders 662,403
-------
Total 665,623
-------
|
Short term debt to shareholders as of December 31, 1998
NUON's contribution to UTH included an existing 690,000-debt facility with an
outstanding balance of approximately 543,000 (as of August 6, 1998). This
facility bears an interest rate of 6.65% over the reporting period up to
November 30, 1998. As of November 30, 1998 this rate was increased with 1.5%. As
of December 31, 1998, approximately 614,000 was outstanding on the facility. The
debt facility is due March 15, 1999, with an extension period of 15 days. As
security for repayment of the debt facility, NUON received a pledge over the
shares of N.V. Telekabel Beheer (the assets contributed by NUON). UTH has
negotiated with the lenders to refinance the debt facility (see Note 20.).
Subordinated loans
UTH entered into a subordinated loan agreement with NUON in December 1998 for
an amount of NLG 33.0 million. The interest payable is 5.5% on an annually
basis.This subordinated loan was entered into for purposes of continuing funding
of incurred losses and capital expenditures.UTH entered into a subordinated loan
agreement with UPC in December 1998 for an amount of NLG 15.2 million. The
interest payable is 5.5% on an annually basis. This subordinated loan was
entered into for purposes of continuing funding of incurred losses and capital
expenditures
(b) Other Liabilities
Accounts payable to trade creditors 47,459
Deposits by customers 197
Other short-term liabilities 39,855
Deferred income and accrued expenses 7,490
-------
Total 95,001
-------
Total current liabilities 760,624
=======
|
12. Information per geographical area
All operations of UTH are in The Netherlands. In addition, substantially all
operations relate to cable television services.
13. Personnel
Labour cost is specified as follows:
Salaries and wages 9,173
Pension costs 538
Social securities 1,911
------
Total 11,622
======
|
156
The information about employees by category is as follows:
Operating 160
Other 184
---
Total 344
===
14. Financial income and expenses
Interest income 14
Interest expense (16,713)
-------
Total (16,699)
========
|
Under interest expense an amount of 11,348 was accounted for as interest
related parties.
15. Income taxes
In general, a Dutch holding company may benefit from the so-called
participation exemption. The participation exemption is a facility in Dutch
corporate tax law which under certain conditions allows a Dutch co |
Next Section
Previous Section