--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 000-25365
------------------------
UNITED PAN-EUROPE COMMUNICATIONS N.V.
(Exact name of Registrant as specified in its charter)
THE NETHERLANDS 98-0191997
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
BOEING AVENUE 53, 1119 PE
SCHIPHOL RIJK, THE NETHERLANDS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (31) 20-778-9840
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
The number of shares outstanding of the Registrant's common stock as of
May 14, 2001 was:
441,246,729 ordinary shares A, including
shares represented by American Depository Receipts
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED PAN-EUROPE COMMUNICATIONS N.V.
TABLE OF CONTENTS
PAGE
NUMBER
--------
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
Consolidated Balance Sheets of March 31, 2001 (Unaudited)
and December 31, 2000..................................... 1
Consolidated Statements of Operations for the Three Months
Ended March 31, 2001 and 2000 (Unaudited)................. 2
Consolidated Statement of Shareholders' Equity for the
Three Months Ended March 31, 2001 (Unaudited)............. 3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2001 and 2000 (Unaudited)................. 4
Notes to Consolidated Financial Statements (Unaudited).... 6
ITEM 2-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................. 19
ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK........................................................ 34
PART II--OTHER INFORMATION
ITEM 5--OTHER INFORMATION................................... 38
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K.................... 44
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED BALANCE SHEETS
(STATED IN THOUSANDS OF EUROS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
AS OF AS OF
MARCH 31, DECEMBER 31,
-------------------------
2001 2000
---------- ------------
ASSETS:
Current assets
Cash and cash equivalents................................. 1,129,487 1,590,230
Restricted cash........................................... 2,984 421
Subscriber receivables, net of allowance for doubtful
accounts of 56,968 and 57,108, respectively............. 130,766 151,977
Costs to be reimbursed by affiliated companies............ 18,981 12,459
Other receivables, including related party receivables of
5,585 and 5,140, respectively........................... 154,717 155,212
Inventory................................................. 162,155 127,813
Prepaid expenses and other current assets................. 109,628 82,475
---------- ----------
Total current assets.................................. 1,708,718 2,120,587
Other investments........................................... 100,923 105,063
Investments in and advances to affiliated companies......... 672,783 685,288
Property, plant and equipment, net.......................... 3,656,769 3,581,539
Goodwill and other intangible assets, net................... 5,089,530 5,119,892
Deferred financing costs, net............................... 167,858 178,113
Compound swaps.............................................. 387,981 -
Other assets................................................ 13,514 11,889
---------- ----------
Total assets.......................................... 11,798,076 11,802,371
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities
Accounts payable, including related party payables of
3,470 and 762, respectively............................. 383,391 579,060
Accrued liabilities....................................... 593,528 583,351
Subscriber prepayments and deposits....................... 161,762 100,696
Short-term debt........................................... 40,119 51,860
Current portion of long-term debt......................... 20,501 17,832
---------- ----------
Total current liabilities............................. 1,199,301 1,332,799
Long-term debt.............................................. 8,729,951 8,078,269
Other long-term liabilites.................................. 53,143 46,801
---------- ----------
Total liabilites...................................... 9,982,395 9,457,869
---------- ----------
Commitments and contingencies, see Note 9.
Minority interests in subsidiaries.......................... 812,772 831,132
Shareholders' equity (As adjusted for stock split, see Note
10)
Priority stock, 1.0 par value, 300 shares authorized, 300
and 300 shares issued, respectively..................... - -
Series 1 convertible preference stock, class A common
stock, 1.0 par value, 12,400 shares, authorized, 12,400
and 12,400 shares issued and outstanding,
respectively............................................ 1,414,885 1,392,251
Ordinary stock, 1.0 par value, 600,000,000 shares
authorized, 441,246,729 and 441,246,729 shares issued
and outstanding, respectively........................... 441,247 441,247
Additional paid-in capital................................ 2,798,080 2,800,234
Deferred compensation..................................... (87,012) (87,945)
Accumulated deficit....................................... (3,696,822) (3,110,627)
Other cumulative comprehensive income..................... 132,531 78,210
---------- ----------
Total shareholders' equity............................ 1,002,909 1,513,370
---------- ----------
Total liabilities and shareholders' equity............ 11,798,076 11,802,371
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
1
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(STATED IN THOUSANDS OF EUROS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------
2001 2000
----------- -----------
Service and other revenue................................... 333,448 199,600
Operating expense........................................... (255,335) (141,882)
Selling, general and administrative expense................. (139,983) (167,161)
Depreciation and amortization............................... (245,179) (130,703)
----------- -----------
Net operating loss...................................... (307,049) (240,146)
Interest income............................................. 15,755 13,373
Interest expense............................................ (218,219) (140,393)
Foreign exchange gain (loss) and other income (expense),
net....................................................... (55,105) (79,953)
----------- -----------
Net loss before income taxes and other items............ (564,618) (447,119)
Share in results of affiliated companies.................... (46,096) (21,215)
Minority interests in subsidiaries.......................... 18,841 984
Income tax benefit (expense)................................ 90 (21)
----------- -----------
Net loss before cumulative effect of change in accounting
principle................................................. (591,783) (467,371)
Cumulative effect of change in accounting principle......... 35,349 -
----------- -----------
Net loss................................................ (556,434) (467,371)
=========== ===========
Basic net loss attributable to common shareholders (See Note
13)....................................................... (586,195) (467,371)
=========== ===========
Basic and diluted net loss per ordinary share before
cumulative effect of change in accounting principle(1).... (1.34) (1.07)
=========== ===========
Basic and diluted net loss per ordinary share(1)............ (1.33) (1.07)
=========== ===========
Weighted-average number of ordinary shares outstanding(1)... 441,246,729 435,608,107
=========== ===========
------------------------
(1) As adjusted for the stock splits. See Note 10.
The accompanying notes are an integral part of these consolidated financial
statements.
2
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(STATED IN THOUSANDS OF EUROS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
SERIES 1
CONVERTIBLE
CLASS A
PREFERENCE
PRIORITY STOCK STOCK ORDINARY STOCK ADDITIONAL
------------------- -------------------- ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
-------- -------- -------- --------- ----------- -------- ----------
Balance, December 31, 2000............. 300 - 12,400 1,392,251 441,246,729 441,247 2,800,234
Deferred compensation expense related
to stock options, net................ - - - - - - (2,154)
Amortization of deferred
compensation......................... - - - - - - -
Capital tax preference stock........... - - - (7,127) - - -
Accrual of Dividend on Series 1
Convertible Preferred Stock.......... - - - 28,385 - - -
Accretion of Discount of Series 1
Convertible Preferred Stock.......... - - - 1,376 - - -
Unrealized gain on investments......... - - - - - - -
Change in cumulative translation
adjustments.......................... - - - - - - -
Net loss............................... - - - - - - -
Total comprehensive loss............... - - - - - - -
------ ------- ------ --------- ----------- ------- ---------
Balance, March 31, 2001................ 300 - 12,400 1,414,885 441,246,729 441,247 2,798,080
====== ======= ====== ========= =========== ======= =========
OTHER CUMULATIVE
COMPREHENSIVE
DEFERRED ACCUMULATED INCOME
COMPENSATION DEFICIT (LOSS)(1) TOTAL
------------ ----------- ---------------- ---------
Balance, December 31, 2000............. (87,945) (3,110,627) 78,210 1,513,370
Deferred compensation expense related
to stock options, net................ 2,154 - - -
Amortization of deferred
compensation......................... (1,221) - - (1,221)
Capital tax preference stock........... - - - (7,127)
Accrual of Dividend on Series 1
Convertible Preferred Stock.......... - (28,385) - -
Accretion of Discount of Series 1
Convertible Preferred Stock.......... - (1,376) - -
Unrealized gain on investments......... - - 38,038 38,038
Change in cumulative translation
adjustments.......................... - - 16,283 16,283
Net loss............................... - (556,434) - (556,434)
---------
Total comprehensive loss............... - - - (502,113)
------- ---------- ------- ---------
Balance, March 31, 2001................ (87,012) (3,696,822) 132,531 1,002,909
======= ========== ======= =========
------------------------------
(1) As of December 31, 2000, Other Cumulative Comprehensive Income (Loss)
represents foreign currency translation adjustments of 59,789 and unrealized
gain on investments of 18,421.
As of March 31, 2001, Other Cumulative Comprehensive Income (Loss)
represents foreign currency translation adjustments of 76,072 and unrealized
gain on investments of 56,459.
The accompanying notes are an integral part of these consolidated financial
statements.
3
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN THOUSANDS OF EUROS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------
2001 2000
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... (556,434) (467,371)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization............................. 245,179 130,703
Amortization of deferred financing costs.................. 8,481 3,640
Accretion of interest expense............................. 62,901 52,381
Share in results of affiliated companies.................. 46,096 21,215
Compensation expense related to stock options............. 1,062 52,038
Minority interests in subsidiaries........................ (18,841) (984)
Exchange rate differences in loans........................ 112,322 91,051
Cumulative effect of change in accounting principle....... (35,349) -
Gain on compound swap..................................... (47,541) -
Other..................................................... (28,737) (9,813)
Changes in assets and liabilities:
Increase in receivables................................. (14,053) (41,737)
(Increase) decrease in inventories...................... (34,589) 6,436
Decrease (increase) in other non-current assets......... 25 (18,580)
Increase (decrease) in other current liabilities........ (141,014) 177,422
Increase in deferred taxes and other long-term
liabilities............................................ (27,879) (29,926)
--------- ----------
Net cash flows from operating actvities..................... (428,371) (33,525)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in securities, net............................... - (44,538)
Investments in and advances to affiliated companies, net of
repayments................................................ (5,940) (304,275)
Capital expenditures........................................ (177,725) (253,202)
Acquisitions, net of cash acquired.......................... (22,892) (1,347,330)
--------- ----------
Net cash flows from investing activities.................... (206,557) (1,949,345)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior notes.................................. - 1,594,161
Proceeds from short-term borrowings......................... - 267,962
Proceeds from long-term borrowings.......................... 200,000 139,491
Deferred financing costs.................................... - (31,764)
Repayments of long-term and short-term borrowings........... (26,202) (297,298)
--------- ----------
Net cash flows from financing activities.................... 173,798 1,672,552
--------- ----------
EFFECT OF EXCHANGE RATES ON CASH............................ 387 173
--------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (460,743) (310,145)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 1,590,230 1,025,460
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. 1,129,487 715,315
========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4
UNITED PAN-EUROPE COMMUNICATIONS N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS(2)
(STATED IN THOUSANDS OF EUROS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2001 2000
--------- ---------
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Unrealized (gain) loss on investments..................... (38,038) 48,762
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.................................... (189,211) (102,715)
======== ========
Cash received for interest................................ 13,171 13,739
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. In 1995, UnitedGlobalCom, Inc. (formerly 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. In December, 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). Subsequently in February 1999, UPC had its initial public
offering. As of March 31, 2001, United owns 53.3% of UPC. Through its broadband
communications networks or services in 17 countries in Europe and in Israel, UPC
currently offers communication services in many European countries through its
three primary business units, UPC Distribution, UPC Media and Priority Telecom.
UPC Distribution, which comprises the local operating systems, provides video,
telephony and internet services for residential customers. UPC Media comprises
the internet access and converging internet content and programming businesses.
The third unit, PRIORITY TELECOM, focuses on providing network solutions to the
business customer.
6
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
The following chart presents a summary of the Company's significant
investments as of March 31, 2001.
UPC'S OWNERSHIP
---------------
DISTRIBUTION:
AUSTRIA:
Telekabel Group........................................... 95.0%
BELGIUM:
UPC Belgium............................................... 100.0%
CZECH REPUBLIC:
KabelNet.................................................. 100.0%
Kabel Plus................................................ 99.9%
FRANCE:
UPC France................................................ 92.0%
GERMANY:
EWT/TSS Group............................................. 51.0%
PrimaCom AG ("Primacom").................................. 25.0%
HUNGARY:
UPC Magyarorszag.......................................... 100.0%
Monor Communications Group, Inc. ("Monor")................ 98.9%
THE NETHERLANDS:
UPC Nederland............................................. 100.0%
Alkmaar................................................... 100.0%
NORWAY:
UPC Norge AS ("UPC Norge")................................ 100.0%
SWEDEN:
UPC Sweden................................................ 100.0%
SLOVAK REPUBLIC:
Trnavatel................................................. 95.0%
Kabeltel.................................................. 100.0%
UPC Slovensko s.r.o....................................... 100.0%
ROMANIA:
Eurosat................................................... 51.0%
AST Romania............................................... 70.0%
POLAND:
UPC Polska, Inc ("UPC Polska")............................ 100.0%
MEDIA:
OTHER:
CHELLO BROADBAND N.V. ("CHELLO").......................... 100.0%
IRELAND:
Tara Televison Limited.................................... 80.0%
U.K./CENTRAL EUROPE:
UPC Broadcast Centre Ltd. ("UPC Broadcast Centre")........ 100.0%
7
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
UPC'S OWNERSHIP
---------------
SPAIN:
Iberian Programming Services ("IPS")...................... 50.0%
UNITED KINGDOM:
Xtra Music Ltd............................................ 50.0%
OTHER:
SBS Broadcasting SA ("SBS")............................... 23.5%
THE NETHERLANDS:
UPC Programming B.V. ("UPCtv")............................ 100.0%
CZECH/SLOVAK/HUNGARY:
UPC Direct Programming B.V................................ 100.0%
POLAND:
Wizja TV B.V.............................................. 100.0%
PRIORITY TELECOM:
THE NETHERLANDS:
Priority Telecom N.V. ("Priority Telecom")................ 83.4%
OTHER:
ISRAEL:
Tevel Israel International Communications Ltd.
("Tevel")................................................. 46.6%
MALTA:
Melita Cable TV P.L.C. ("Melita")......................... 50.0%
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RISKS AND UNCERTAINTIES
The Company has incurred substantial operating losses and negative cash
flows from operations which have been driven by the continuing development
efforts including the introduction of new services such as digital video,
telephone and internet. Additionally, substantial capital expenditures have been
required to deploy these services and to acquire businesses. Management expects
the Company to incur operating losses in 2001 and 2002 primarily as a result of
the continued introduction of these new services which are in the early stages
of deployment. The Company's business plan calls for substantial growth in the
number of subscribers that will use these new services. This growth requires the
availability of capital resources that are sufficient to fund expected capital
expenditures. Growth in subscribers will also be required in order for the
Company to achieve consolidated operating profitability and positive operating
cash flows. Management believes that the Company can achieve the anticipated
growth in subscribers and that the required capital resources will be available
to fund expected capital expenditures and operating losses. However, if such
subscriber growth is not achieved, management believes access to sources of
capital will be sufficient to satisfy future cash needs. Management's estimates
of the cash flows generated by these new services and the capital resources
needed and available to complete their deployment could change, and such change
could differ materially from the estimates used to evaluate the Company's
ability to realize its investments.
8
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
All amounts are stated in thousands of Euros, except where stated otherwise.
In management's opinion, all adjustments of a normal, recurring nature have
been made which are necessary to present fairly the financial position of the
Company as of March 31, 2001 and the results of its operations for the three
months ended March 31, 2001 and 2000. For a more complete understanding of the
Company's financial position and results of operations we refer to the
consolidated financial statements of the Company included in the Company's
annual report on Form 10-K for the year ended December 31, 2000.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
UPC and all subsidiaries where it exercises a controlling interest through the
ownership of a majority voting interest. All significant intercompany accounts
and transactions have been eliminated in consolidations.
ACCOUNTING CHANGE
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative and Hedging Activities"
("SFAS 133"), which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. All derivatives, whether designated
in hedging relationships or not, are required to be recorded on the balance
sheet at fair value. The adoption of SFAS 133 on January 1, 2001, resulted in a
cumulative increase to income of Euro 35.3 million and a cumulative increase to
Other Comprehensive Income ("OCI") of Euro 36.7 million. The increase to income
was attributable to a loss of approximately Euro 36.7 million reclassified from
OCI for the value of certain warrants held by the Company which are derivatives
and are not designated as a hedging instrument, and income of approximately
Euro 72.0 million related to gains associated with the cross currency swaps
which are held by the Company which do not qualify as hedging instruments as
defined by SFAS 133. The fair value of the compound swaps as of March 31, 2001
amounting to Euro 388.0 million (including both the fair value of the foreign
currency part and the interest part of the swaps) has been recorded as an asset
on the balance sheet. Of this amount Euro 268.4 has been added to the carrying
value of the related long-term debt. The Company uses derivative instruments to
manage exposures to foreign currency and interest rate risks.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified for comparability with
the March 31, 2001 presentation.
9
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS
ENECO K&T GROUP
In March 2000, UPC acquired the Eneco K&T Group ("K&T"), the cable interests
of ENECO N.V., for a consideration of 1,046.3 million, including the repayment
to ENECO N.V. and the assumption of debt from K&T to ENECO N.V. of
225.6 million. The acquisition was accounted for under purchase accounting.
Effective March 31, 2000, UPC began consolidating its investment in K&T.
PRO FORMA INFORMATION
The following unaudited pro forma condensed consolidated operating results
for the three months ended March 31, 2000 gives effect to UPC's acquisition of
K&T as if this acquisition had occurred at the beginning of the period
presented. This unaudited 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.
FOR THE THREE MONTHS ENDED
MARCH 31, 2000
---------------------------
HISTORICAL PRO FORMA
------------ ------------
Service and other revenue................................... 199,600 216,844
=========== ===========
Net loss.................................................... (467,371) (516,359)
=========== ===========
Weighted-average number of ordinary shares outstanding...... 435,608,107 435,608,107
=========== ===========
Basic and diluted net loss per ordinary share............... (1.07) (1.19)
=========== ===========
ACQUISITION OF ALKMAAR
In January 2001, UPC acquired De Alkmaarse Kabel B.V., which owns and
operates cable and broadband networks primarily in the Alkmaar region of the
Netherlands, for a purchase price of 49.2 million. The purchase price was paid
with cash of 22.9 million and an one-year note with interest of 8% per annum.
The note is payable in cash or shares of UPC, at UPC's option.
ANNOUNCEMENT OF MERGER WITH PRIMACOM
On March 29, 2001, UPC announced an agreement with PrimaCom to merge its
German assets, including EWT/TSS and the TeleColumbus option, as well as its
Alkmaar subsidiary located in the Netherlands, with those of Primacom. The
proposed transaction is subject to approval by the PrimaCom shareholders, as
well as various regulatory and other approvals. The merger is expected to close
in the third quarter of 2001.
10
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 MARCH 31, 2001
---------------------------------------------------------------------------------
INVESTMENTS IN CUMULATIVE CUMULATIVE CUMULATIVE
AND ADVANCES TO DIVIDENDS SHARE IN RESULTS OF TRANSLATION
AFFILIATED COMPANIES RECEIVED AFFILIATED COMPANIES ADJUSTMENTS TOTAL
-------------------- ---------- -------------------- ----------- --------
Tevel...................... 89,817 (5,500) (54,383) 15,564 45,498
Melita..................... 12,688 - (1,981) 814 11,521
Xtra Music................. 15,176 - (7,162) 562 8,576
IPS........................ 10,065 (2,742) 6,495 5,294 19,112
SBS........................ 261,999 - (51,121) 40,099 250,977
PrimaCom................... 345,096 - (44,482) - 300,614
Other, net................. 50,128 (707) (13,067) 131 36,485
------- ------ -------- ------ -------
Total...................... 784,969 (8,949) (165,701) 62,464 672,783
======= ====== ======== ====== =======
5. OTHER INVESTMENTS
MARKETABLE EQUITY SECURITIES OF UNITED, AT FAIR VALUE
As a result of the UPC Acquisition, a subsidiary of UPC acquired 6,338,302
of United's Class A common shares, as adjusted for United's 2:1 stock split in
November 1999, valued at fair market value of 30.3 million as of December 11,
1997. In November 1998, UPC sold 769,062 shares. As of March 31, 2001, the fair
value of the remaining 5,569,240 shares was 83.1 million resulting in a
cumulative unrealized gain of 56.5 million as of March 31, 2001.
TERAYON WARRANTS
UPC acquired warrants from Terayon Communication Systems, Inc. ("Terayon"),
a public company, for 2 million shares of Terayon's common stock as a part of a
relationship agreement entered into with Terayon in January 2000. The Company
recorded the receipt of these warrants as an asset representing the fair value
of the warrants at the date of receipt recorded in "other investments" and a
credit recorded to "other long-term liabilities" which is being amortized to
income over the term of the relationship agreement. For the three months period
ended March 31, 2001, 3.1 million was amortized and has been reflected in
"foreign exchange gain (loss) and other income (expense)" in the accompanying
statement of operations.
11
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
AS OF AS OF
MARCH 31, DECEMBER 31,
------------------------
2001 2000
--------- ------------
Cable distribution networks................................. 3,202,827 3,089,342
Subscriber premises equipment and converters................ 540,015 440,015
DTH, MMDS and distribution facilities....................... 221,541 218,568
Office equipment, furniture and fixtures.................... 267,782 250,918
Buildings and leasehold improvements........................ 134,020 132,092
Other....................................................... 86,977 61,636
--------- ---------
4,453,162 4,192,571
Accumulated depreciation.................................. (796,393) (611,032)
--------- ---------
Property, plant and equipment, net........................ 3,656,769 3,581,539
========= =========
7. GOODWILL AND OTHER INTANGIBLE ASSETS
AS OF AS OF
MARCH 31, DECEMBER 31,
------------------------
2001 2000
--------- ------------
UPC Nederland............................................... 1,375,216 1,713,365
UPC Polska.................................................. 1,090,419 1,024,469
UPC Germany................................................. 950,890 951,990
UPC Sweden.................................................. 404,325 418,828
Priority Telecom............................................ 691,347 363,215
UPC NV...................................................... 217,218 208,540
Telekabel Group............................................. 180,498 180,200
UPC France.................................................. 177,262 176,639
UPC Magyarorszag............................................ 140,372 141,264
UPC Czech Republic.......................................... 103,842 102,488
Priority Wireless Group..................................... 107,576 108,020
UPC Norge................................................... 86,544 72,427
Other....................................................... 102,823 96,838
--------- ---------
5,628,332 5,558,283
Accumulated amortization.................................. (538,802) (438,391)
--------- ---------
Goodwill and other intangible assets, net................. 5,089,530 5,119,892
========= =========
12
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT
AS OF AS OF
MARCH 31, DECEMBER 31,
------------------------
2001 2000
--------- ------------
July 1999 Notes............................................. 1,767,070 1,567,212
October 1999 Notes.......................................... 1,174,092 1,059,174
January 2000 Notes.......................................... 1,898,246 1,761,130
UPC Distribution Bank Facility.............................. 2,585,260 2,395,998
UPC Bridge Facility......................................... 750,000 750,000
@Entertainment Notes........................................ 355,954 323,275
DIC loan.................................................... 53,255 55,359
Other....................................................... 166,575 183,953
--------- ---------
8,750,452 8,096,101
Less current portion...................................... (20,501) (17,832)
--------- ---------
Total..................................................... 8,729,951 8,078,269
========= =========
The increase in the July 1999 Notes, October 1999 Notes, January 2000 Notes,
as well as the UPC Distribution Bank Facility, is partly due to the adoption of
SFAS 133 as further disclosed in Note 2. Under SFAS 133, Euro 268.4 million
attributable to the compound swaps has been added to the carrying value of the
related long-term debt, with a corresponding amount recorded as an asset on the
balance sheet. This amount had previously been netted with the underlying debt
balance.
UPC DISTRIBUTION BANK FACILITY
In October 2000, UPC closed a Euro 4.0 billion operating and term loan
facility ("UPC Distribution Bank Facility"). The facility is guaranteed by
existing cable operating companies, excluding Polish and German assets. The UPC
Bank Facilities bear interest at EURIBOR +0.75%-4.0% depending on certain
leverage ratios, and an annual commitment fee of 0.5% over the undrawn amount is
applicable. The facility was widely syndicated to a group of more than 50
European and American (Banking) institutions. A first drawing was made in
October 2000, to refinance existing operating company bank debt totaling
Euro 2.0 billion. The purpose of the UPC Distribution Bank Facility is to
finance further digital rollout and triple play by UPC's existing cable
companies, excluding Polish and German operations. Additional availability is
linked to certain performance tests. Management expects the additional borrowing
availability under this facility to increase throughout 2001. As customary for a
financing of this nature, certain financial covenants and restrictions on UPC's
cable companies' ability to make dividends and/or other payments to UPC, incur
indebtedness, dispose of assets, merge and enter into affiliate transactions.
UPC was in compliance with these covenants at March 31, 2001. Principal
repayment will begin in 2004. The facility reaches final maturity in 2009. At
March 31, 2001, Euro 2.6 billion was outstanding under this facility. The
facility is structured in different tranches, with one tranche denominated in
dollars for the amount of USD 347.5 million. Concurrent with the closing, UPC
entered into a cross currency swap to predominantly hedge currency risk.
13
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
LEASES
UPC has entered into various short- and long-term agreements with third
parties, varying in term from 3 to 15 years, for indefeasible rights of use
("IRU's") on fiber optic cable as well as for operational leases. Under these
agreements UPC has commitments for discounted future minimum lease payments, and
for operation and maintenance charges, which total approximately 27.9 million as
of March 31, 2001.
A subsidiary of UPC leases DTH technical equipment, conduit and satellite
transponder capacity, as well as several offices and warehouses. At March 2001,
these leases had an aggregate maximum commitment of approximately USD
220.5 million (250.7 million) over the next seven years.
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 USD 107.9 million (122.7 million) payable in monthly
installments based on capacity used.
PROGRAMMING, BROADCAST AND EXHIBITION RIGHTS
A subsidiary of UPC 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 March 31, 2001, these agreements had an aggregate minimum
commitment of approximately USD 264.5 million (300.7 million) over the next
seven 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.
10. SHAREHOLDERS' EQUITY
At an extraordinary general meeting of shareholders in March 2000, the
shareholders approved the amendment of UPC's Articles of Association to
(i) split each ordinary share A, priority share, preference share A and
preferred share B (as of December 31, 1999, with a nominal value of Euro 2.00
each) into three shares with a nominal value of Euro 1.00 each, (ii) split each
ordinary share B (as of December 31, 1999, with a nominal value of Euro 0.02
each) into three shares with a nominal value of Euro 0.01 each and (iii) pay up
an amount of Euro 145.2 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 3 for 1 share split.
11. SEGMENT AND GEOGRAPHIC INFORMATION
The Company's business has historically been derived from cable television.
Commencing in 1998, the Company began launching telephony and internet services
over parts of its upgraded network. The Company is managed internally as three
primary businesses, UPC Distribution, UPC Media and PRIORITY TELECOM. In
addition, Corporate, IT and Other is a separate reporting segment. UPC
Distribution
14
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
focuses on providing cable television, DTH, internet and telephony services to
residential customers and is comprised of the local operating systems. cHELLO
BROADBAND serves as the internet access provider, and was recently combined with
the programming businesses led by UPCtv under one management team as UPC Media.
PRIORITY TELECOM is focused on providing services to business customers. Amounts
included in Corporate, IT and Other relate primarily to centralized activities
which support multiple platforms/services.
The Company evaluates performance and allocates resources based on the
results of these business units. The key operating performance criteria used in
this evaluation includes revenue growth and net operating loss before
depreciation, amortization and stock-based compensation expense ("Adjusted
EBITDA"). Industry analysts generally consider 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 operations from period to period and thus value the Company's
business. Adjusted EBITDA should not, however, be considered a replacement for
net income, cash flows or any other measure of performance or liquidity under
generally accepted accounting principles, or as an indicator of a company's
operating performance. The presentation of Adjusted EBITDA may not be comparable
to statistics with a similar name reported by other companies. Not all companies
and analysts calculate Adjusted EBITDA in the same manner. As the Company
increases its bundling of products, the allocation of indirect operating and
SG&A expenses between individual products will become increasingly difficult and
may not represent the actual Adjusted EBITDA for individual products.
A summary of the segment information by geographic area is as follows:
REVENUE FOR THE THREE MONTHS ENDED MARCH 31, 2001
----------------------------------------------------------------------------------------------
CABLE INTERNET/ CORPORATE, INTER-
TELEVISION TELEPHONY DATA DTH PROGRAMMING IT & OTHER COMPANY TOTAL
---------- --------- --------- -------- ----------- ---------- -------- --------
Corporate.................. - - - - - 905 - 905
UPCtv...................... - - - - 3,144 - (1,436) 1,708
CHELLO BROADBAND........... - - 13,209 - - - (12,671) 538
PRIORITY TELECOM........... - 58,910 - - - - (11,692) 47,218
Distribution:
The Netherlands.......... 61,358 15,696 15,469 - - 10,064 (9,560) 93,027
Austria.................. 20,845 10,618 11,066 - - 2,779 (2,710) 42,598
Belgium.................. 3,904 - 2,203 - - - - 6,107
Czech Republic........... 8,159 215 214 1,767 820 431 (820) 10,786
Norway................... 12,351 1,654 1,825 - - 523 (523) 15,830
Hungary.................. 14,463 5,802 476 1,851 2,402 - (2,402) 22,592
France................... 14,882 4,384 1,449 - - - - 20,715
Poland................... 20,356 - 223 17,581 17,453 - (17,025) 38,588
Sweden................... 8,439 - 2,415 - - - - 10,854
Germany.................. 12,330 11 15 - - 731 - 13,087
Other.................... 8,218 - 157 516 1,698 4 (1,698) 8,895
------- ------ ------ ------ ------ ------ ------- -------
Total...................... 185,305 97,290 48,721 21,715 25,517 15,437 (60,537) 333,448
======= ====== ====== ====== ====== ====== ======= =======
15
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
REVENUE FOR THE THREE MONTHS ENDED MARCH 31, 2000
----------------------------------------------------------------------------------------------
CABLE INTERNET/ CORPORATE, INTER-
TELEVISION TELEPHONY DATA DTH PROGRAMMING IT & OTHER COMPANY TOTAL
---------- --------- --------- -------- ----------- ---------- -------- --------
Corporate................... - - - - - - - -
UPCtv....................... - - - - 511 - - 511
CHELLO BROADBAND............ - - 5,431 - - - (5,381) 50
PRIORITY TELECOM............ - 9,552 - - - - - 9,552
Distribution:
The Netherlands........... 43,290 9,469 5,254 - - - - 58,013
Austria................... 20,697 5,754 5,597 - - - - 32,048
Belgium................... 3,644 278 812 - - - - 4,734
Czech Republic............ 6,278 258 - - - 1,035 - 7,571
Norway.................... 12,263 403 404 - - - - 13,070
Hungary................... 11,766 5,299 58 - - - - 17,123
France.................... 14,080 1,875 409 - - - - 16,364
Poland.................... 17,258 - - 9,610 13,014 - (12,566) 27,316
Sweden.................... 8,220 - 845 - - - - 9,065
Germany................... - - - - - - - -
Other..................... 3,937 - - - - 246 - 4,183
------- ------ ------ ----- ------ ----- ------- -------
Total....................... 141,433 32,888 18,810 9,610 13,525 1,281 (17,947) 199,600
======= ====== ====== ===== ====== ===== ======= =======
ADJUSTED EBITDA FOR THE THREE MONTHS ENDED MARCH 31, 2001
-----------------------------------------------------------------------------------
CABLE INTERNET/ CORPORATE,
TELEVISION TELEPHONY DATA DTH PROGRAMMING IT & OTHER TOTAL
---------- --------- --------- -------- ----------- ---------- --------
Corporate....................... - - - - - (22,690) (22,690)
UPCtv........................... - - - - (15,364) - (15,364)
CHELLO BROADBAND................ - - (20,197) - - - (20,197)
PRIORITY TELECOM................ - (21,552) - - - - (21,552)
Distribution:
The Netherlands............... 29,820 (4,323) (4,343) - - (14,099) 7,055
Austria....................... 8,603 1,278 2,356 - - 2,084 14,321
Belgium....................... 1,572 - (493) - - - 1,079
Czech Republic................ 2,684 (29) (297) (1,415) (487) 182 638
Norway........................ 4,220 (1,393) (842) - - 523 2,508
Hungary....................... 5,036 3,177 (398) (1,338) (1,339) - 5,138
France........................ 60 (4,550) (1,952) - - - (6,442)
Poland........................ 443 - (1,308) (1,982) (9,375) (587) (12,809)
Sweden........................ 1,990 - (938) - - (100) 952
Germany....................... 6,215 (10) (164) - - (584) 5,457
Other......................... 3,224 - 142 (790) (974) (504) 1,098
------ ------- ------- ------ ------- ------- -------
Total........................... 63,867 (27,402) (28,434) (5,525) (27,539) (35,775) (60,808)
====== ======= ======= ====== ======= ======= =======
16
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
ADJUSTED EBITDA FOR THE THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------------------------------------------------
CABLE INTERNET/ CORPORATE,
TELEVISION TELEPHONY DATA DTH PROGRAMMING IT & OTHER TOTAL
---------- --------- --------- -------- ----------- ---------- --------
Corporate....................... - - - - - (22,701) (22,701)
UPCtv........................... - - - - (7,647) - (7,647)
CHELLO BROADBAND................ - - (27,149) - - - (27,149)
PRIORITY TELECOM................ - (2,649) - - - - (2,649)
Distribution:
The Netherlands............... 21,472 (11,939) (5,279) - - - 4,254
Austria....................... 11,244 (1,126) 168 - - - 10,286
Belgium....................... 1,461 (141) (1,134) - - - 186
Czech Republic................ 928 23 - - - 416 1,367
Norway........................ 4,905 (1,863) (849) - - - 2,193
Hungary....................... 3,644 2,940 (1,069) - - - 5,515
France........................ 1,517 (2,746) (986) - - - (2,215)
Poland........................ 1,072 - - (4,343) (14,609) (324) (18,204)
Sweden........................ 3,736 (705) (2,086) - - - 945
Germany....................... - - - - - - -
Other......................... 1,667 (180) (1,699) - (64) (1,310) (1,586)
------ ------- ------- ------ ------- ------- -------
Total........................... 51,646 (18,386) (40,083) (4,343) (22,320) (23,919) (57,405)
====== ======= ======= ====== ======= ======= =======
Following is a reconciliation of Adjusted EBITDA to UPC's net loss before
income taxes:
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2001 2000
--------- ---------
Adjusted EBITDA............................................. (60,808) (57,405)
Depreciation and amortization............................... (245,179) (130,703)
Stock-based compensation.................................... (1,062) (52,038)
-------- --------
Net operating loss........................................ (307,049) (240,146)
Interest income............................................. 15,755 13,373
Interest expense............................................ (218,219) (140,393)
Foreign exchange gain (loss) and other income (expense),
net....................................................... (55,105) (79,953)
-------- --------
Net loss before income taxes and other items.............. (564,618) (447,119)
Share in results of affiliated companies, net............... (46,096) (21,215)
Minority interests in subsidiaries.......................... 18,841 984
-------- --------
Net loss before income tax benefit (expense) and
cumulative effect of change in accounting principle..... (591,873) (467,350)
======== ========
17
UNITED PAN-EUROPE COMMUNICATIONS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
TOTAL ASSETS
-------------------------
AS OF AS OF
MARCH 31, DECEMBER 31,
-------------------------
2001 2000
---------- ------------
Corporate................................................... 2,759,338 2,775,411
UPCtv....................................................... 80,939 70,043
CHELLO BROADBAND............................................ 108,891 118,746
PRIORITY TELECOM............................................ 1,055,322 630,418
Distribution:
The Netherlands........................................... 2,487,544 2,929,364
Austria................................................... 471,578 464,174
Belgium................................................... 46,619 46,463
Czech Republic............................................ 232,968 231,122
Norway.................................................... 322,400 319,324
Hungary................................................... 370,037 376,722
France.................................................... 923,998 914,385
Poland.................................................... 1,346,925 1,316,945
Sweden.................................................... 432,794 453,231
Germany................................................... 1,030,272 1,044,344
Other..................................................... 128,451 111,679
---------- ----------
Total....................................................... 11,798,076 11,802,371
========== ==========
The total assets of Priority Wireless are included in PRIORITY TELECOM, as
historically Priority Wireless was included in PRIORITY TELECOM as an out-reach
technology.
12. COMPREHENSIVE INCOME (LOSS)
The components of total comprehensive income (loss) are as follows:
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2001 2000
--------- ---------
Net loss.................................................... (556,434) (467,371)
Other comprehensive income (loss):
Change in cumulative translation adjustments.............. 16,283 36,101
Change in unrealized gain (loss) on investments........... 38,038 48,762
-------- --------
Total comprehensive income (loss)....................... (502,113) (382,508)
======== ========
13. BASIC NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2001 2000
--------- ---------
Net loss.................................................... (556,434) (467,371)
Accretion of Series 1 convertible preferred stock........... (29,761) --
-------- --------
Basic net loss attributable to common shareholders.......... (586,195) (467,371)
======== ========
18
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion, contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. These
forward-looking statements may include statements concerning our plans,
objectives and future economic prospects, expectations, beliefs, future plans
and strategies, anticipated events or trends and similar expressions concerning
matters that are not historical facts. These forward-looking statements involve
both known and unanticipated risks, uncertainties and other factors that may
cause our actual results, performance or achievements, or industry results, to
be materially different from what we say or imply with the forward-looking
statements. These factors include, among other things, changes in television
viewing preferences and habits by our subscribers and potential subscribers,
their acceptance of new technology, programming alternatives and new video
services we may offer. They also include our ability to complete announced
transactions, our ability to secure adequate capital to fund system growth, new
businesses and acquisitions and to manage and grow our newer telephony, digital
and internet/data services. These forward-looking statements apply only as of
the time of this report and we have no obligation or plans to provide updates or
revisions to these forward-looking statements or any other changes in events or
circumstances on which these forward-looking statements are based. The following
discussion and analysis of financial condition and results of operations covers
the three months ended March 31, 2001 and 2000, and should be read together with
our consolidated financial statements and related notes included elsewhere
herein. These consolidated financial statements provide additional information
regarding our financial activities and condition.
INTRODUCTION
We own and operate broadband communications networks or services in 17
countries in Europe and in Israel. Our operations are organized into three
principal divisions. UPC Distribution, which comprises our local operating
systems, delivers video, telephony and internet services to our residential
customers. UPC Media comprises our internet access and converging internet
content and programming businesses, which provide their products and services to
us, as well as to third parties. PRIORITY TELECOM, which will target the
business market, is our third principal division. Our subscriber base is the
largest of any group of broadband communications networks operated across
Europe. Our goal is to enhance our position as a leading pan-European
distributor of video programming services and to become a leading pan-European
provider of telephony, internet and enhanced video services, offering a one-stop
shopping solution for residential and business communication needs. We plan to
achieve this goal by increasing the penetration of our new services, such as
digital video, telephony and internet.
Since formation, we have developed largely through acquisitions. The most
recent acquisitions have resulted in significant growth in our consolidated
revenues and expenditures.
19
The following table summarizes our larger acquisitions since January 1,
2000.
INTEREST CLOSING PURCHASE
OPERATING COMPANIES ACQUIRED LOCATION DATE PRICE
------------------- -------- ------------------------ --------------------------- ------------------
(MILLIONS OF EURO)
Primacom AG................ 25.0% Germany December 1999 - March 2000 344.2
SBS........................ 10.2% pan-European February 2000 162.5
Intercomm(5)............... 100% France February 2000 100.0
Tebecai.................... 100% The Netherlands February 2000 62.2
ElTele stfold / Vestfold... 100% Norway March 2000 39.3
Kabel Haarlem B.V.......... 100% The Netherlands March 2000 62.2
Eneco K&T Group............ 100% The Netherlands March 2000 1,046.3(2)
UPC Magyarorszag(1)........ 20.75% Hungary March 2000 63.9
DattelKabel................ 100% Czech Republic July 2000 24.5
EWT/TSS Group(3)........... 100% Germany October 2000 953.4
Cignal Global
Communications(4)........ 100% United States of America November 2000 235.7
Alkmaar.................... 100% The Netherlands January 2001 49.2
--------------------------
(1) We acquired the 20.75% of UPC Magyarorszag which we did not already own.
(2) Including acquisition of loans to former shareholder.
(3) We acquired 100% of EWT/TSS through our 51% owned subsidiary UPC Germany for
a preliminary purchase price of 238.4 million in cash and 49% of UPC
Germany.
(4) We acquired 100% of Cignal Global Communications in exchange for a 16%
interest in our subsidiary Priority Telecom in a stock-based transaction.
(5) We acquired 100% of Intercomm France Holding S.A., in exchange for a 8%
interest in UPC France and 36.0 million in cash.
ANNOUNCEMENT OF MERGER WITH PRIMACOM
On March 29, 2001, we announced an agreement with PrimaCom to merge our
German assets, including EWT/TSS and the Telecolumbus option, as well as our
Alkmaar subsidiary located in the Netherlands, with those of PrimaCom. The
proposed transaction is subject to approval by the PrimaCom shareholders, as
well as various regulatory and other approvals. The merger is expected to close
in the third quarter of 2001. If PrimaCom is deemed the "acquirer" for purposes
of accounting for this proposed transaction, our investment in the merged
companies would be required to be recorded at fair value as of the date of the
transaction. Our carrying value of EWT/TSS could be significantly higher than
the fair value of our investment in the merged companies if and when the
transaction is consummated.
SERVICES
To date, our primary source of revenue has been analog video entertainment
services to residential customers. We believe that an increasing percentage of
our future revenues will come from telephony, internet and digital video
services within the residential market, as well as expanding to the business
customer. These are forward-looking statements and will not be fulfilled unless
our new services grow dramatically. Capital constraints, technological
limitations, competition, lack of programming, loss of personnel, adverse
regulation and many other factors could prevent our new services from growing as
we expect. The introduction of telephony services and internet services had a
significant negative impact on Adjusted EBITDA during 2000 and 1999. We expected
this negative impact due to the high costs associated with obtaining
subscribers, branding and launching these new services against the incumbent
operator. This negative impact is expected to decline. We intend for these new
businesses to be Adjusted EBITDA positive after two to three years following
introduction of the service, but there can be no assurance this will occur. We
believe that our new services will continue to have a negative impact on
Adjusted EBITDA due to the one-time costs associated with obtaining customers.
20
UPC DISTRIBUTION-VIDEO. We currently offer our subscribers a wide choice of
pay-tv services. We plan to continue to improve our expanded basic tier
offerings by adding new channels and where possible, migrating popular
commercial channels into an expanded basic tier service. In addition, we plan to
offer subscribers additional choice by offering thematic groupings of tiered
video services in a variety of genres. In many systems, we have introduced
impulse pay-per view services.
We are currently launching digital services in some of our markets. The
increased channel capacity in digitalisation will enable us to offer subscribers
more choice in pay-tv services, as well as transactional television and
interactive services. We intend to offer transactional television services, such
as near-video-on-demand (``NVOD") and video-on-demand (``VOD"). We have launched
NVOD in the Netherlands. We plan to offer interactive services, such as
electronic program guides (``EPG"), walled garden, basic email functionality and
interactive television games. We also intend to provide our subscribers with
customisable programming guides that would enable them to program their favorite
channels and also allow parents to restrict their children's viewing habits. The
increased channel capacity provided by digitalisation will enable subscribers to
customer their subscriptions to our services to suit their lifestyles.
UPC DISTRIBUTION-VOICE. We provide local national and international long
distance voice telephony services to residential customers. Our operating
systems offer a full complement of telephony services to residential customers,
including caller ID, call waiting, call forwarding, call blocking, distinctive
ringing and three-way calling.
UPC DISTRIBUTION-INTERNET. We operate our internet business locally through
our operating companies. Our local operating companies provide subscribers with
high-speed internet access via their cable modem. We provide subscribers
cable-based internet access that is always-on for a flat fee. In 2001, we plan
to introduce network monitoring tools. These tools will allow us to
comprehensively monitor our stated fair-use policy, and will also enable us to
offer more sophisticated products for heavy users.
UPC MEDIA. We recently combined the management of our internet access and
content group, CHELLO BROADBAND, and our programming business led by UPCtv, to
form a new division, UPC Media. In addition to internet access and pay
television, UPC Media will develop interactive services and transactional tv for
our digital product.
CHELLO BROADBAND provides our local operating companies and non-affiliated
local operators with access to the internet gateway and additional services,
such as high speed connectivity, caching, local language broadband portals, and
marketing support, through franchise agreements. During 1999 and 2000,
substantially all of CHELLO's revenues were subscription based and derived from
our local operating companies. These intercompany revenues have been eliminated
in our consolidated operating results. We believe we have an opportunity to
increase non-affiliated revenue through the CHELLO BROADBAND service in future
years. We cannot predict whether our products and services, including broadband
internet services in general, will become accepted or profitable in these
markets. At March 31, 2001, CHELLO BROADBAND had approximately 401,400
subscribers, including 17,500 non-UPC affiliates.
We plan to deploy interactive products which will support our planned
digital roll-out across Europe, including broadband portal services,
interactive/enhanced television, walled garden, e-commerce and entertainment and
internet on the television. We also plan to deploy transactional television
services, which include NVOD and VOD. In addition, UPCtv has developed and
launched eight pay-per-view channels of various genres since May 1999. We have
constructed a pan-European digital distribution platform designed for the state
of the art production and the digital distribution of our new channels and other
signals to our upgraded networks. During 1999 and 2000, substantially all of our
programming businesses' revenues were subscription-based and derived from our
local operating companies. These intercompany revenues have been eliminated in
our consolidated operating results.
21
We believe we have an opportunity to grow non-affiliated revenue through the
media group's service in future years. We cannot predict whether our products
and services, will become accepted or profitable in these markets. We believe
these businesses will become increasingly inter-dependent and overlapping.
PRIORITY TELECOM. PRIORITY TELECOM offers telephony services to business
customers. Services vary per country, covering the range of voice, data, IP and
hosting. In the course of 2000, PRIORITY TELECOM brought together a separate
management team responsible for the provisioning of these services to business
customers. At March 31, 2001, PRIORITY TELECOM had approximately 6,000
customers.
PRICING
UPC DISTRIBUTION-VIDEO. We usually charge a one-time installation fee when
we connect video subscribers, a monthly subscription fee that depends on whether
basic or expanded basic tier service is offered, and incremental amounts for
those subscribers purchasing pay-per-view and premium programming. For our
digital set-top computer, we anticipate collecting a customer deposit as
security.
UPC DISTRIBUTION-VOICE. Revenue from residential telephony services usually
consists of a flat monthly line rental and a usage charge based upon minutes. In
order to achieve high-growth from early market entry, we price our telephony
service at a discount compared to services offered by incumbent
telecommunications operators. Initially, we will also waive or substantially
discount installation fees.
UPC DISTRIBUTION-INTERNET. To date, virtually all of our revenues have been
derived from monthly subscription fees. Most local operators have chosen to
waive installation charges, although in most instances we collect a customer
deposit. In the future, we expect to generate revenues from advertising and
e-commerce as we develop our digital set-top computer services. Currently, our
services are offered to residential subscribers at flat subscription fees.
Following the introduction of bandwidth monitoring tools, we anticipate charging
tiered pricing levels which more accurately reflect the individual consumption
of bandwidth. For business subscribers to services other than our standard
broadband internet access services, we generally agree the pricing with local
operators on a case by case basis, depending on the size and capacity
requirements of the businesses.
UPC MEDIA. CHELLO BROADBAND provides internet access and other services for
a fee based upon a percentage of subscription revenue. For our programming
channels, including our UPCtv and some Wizja TV channels, we charge cable
operators on a per-subscriber basis. Charges for transactional television are
per transaction.
PRIORITY TELECOM. Pricing may differ per type of service rendered. Revenue
from voice services usually consist of a flat monthly fee plus a usage based
charge. Data, IP and hosting services are typically billed flat by month.
COSTS OF OPERATIONS
UPC DISTRIBUTION-VIDEO. Direct operating costs include the costs of
programming, which are variable, based on the number of subscribers. The cost
per subscriber is established by negotiation between us and the program supplier
or rates negotatiated by cable associations. Indirect operating costs include
franchise fees and operating expenses necessary to provide service to the
subscriber. Franchise fees, where applicable, are typically based upon a
percentage of revenue. Other operating expenses include personnel, service
vehicles, maintenance and facilities. Selling, general and administrative
expenses includes branding, marketing and customer acquisition costs, personnel
related costs, such as stock-based compensation expense, legal and accounting,
human resources, office facilities and other overhead costs.
22
UPC DISTRIBUTION-VOICE. Direct operating costs include interconnection
costs and number portability fees. Interconnection costs are variable based upon
usage as determined through negotiated interconnection agreements. Indirect
operating costs include network operations, customer operations and customer
care. Selling, general and administrative expenses includes branding, marketing
and customer acquisition costs, personnel related costs, such as stock-based
compensation expense, legal and accounting, human resources, office facilities
and other overhead costs.
UPC DISTRIBUTION-INTERNET. Direct operating costs for our local operating
companies include the franchise fee paid to CHELLO BROADBAND for internet
access. Indirect operating costs include personnel, service vehicles,
maintenance and facilities. Selling, general and administrative expenses include
branding, marketing, customer acquisition costs, personnel-related costs,
including stock-based compensation expenses, legal and accounting, office
facilities and other overhead.
UPC MEDIA. Operating costs for CHELLO BROADBAND'S access consist primarily
of leased-line and network related costs. Operating costs for our interactive
television, transactional services and pay television groups within UPC Media
include the costs of programming rights, portal design and development,
production costs, and distribution costs, including transponder fees and
operating costs. A significant portion of these costs are fixed in nature
through contracts commitments. Selling, general and administrative expenses
include branding, marketing, personnel-related costs, legal and accounting,
office facilities and other overhead costs.
PRIORITY TELECOM. Operating costs include costs of installation of our
customers and costs of ownership and management of our part of the network.
Selling, general and administrative expenses include branding, marketing,
customer acquisition costs, personnel-related costs, including stock-based
compensation expenses, legal and accounting, office facilities and other
overhead.
23
The following table presents an overview of our revenue and Adjusted EBITDA
by segment for the three months ended March 31, 2001 and 2000.
FOR THE THREE
MONTHS ENDED
MARCH 31,
----------------------
2001 2000
-------- --------
(IN THOUSANDS OF
EUROS)
Revenue:
UPC Distribution
Cable tv.................................................. 185,305 141,433
Telephone(2).............................................. 38,380 23,336
Internet.................................................. 35,512 13,379
DTH....................................................... 21,715 9,610
Other..................................................... 14,532 1,281
Intercompany Eliminations................................. (12,793) -
------- -------
Total Distribution.......................................... 282,651 189,039
PRIORITY TELECOM(2)......................................... 58,910 9,552
CHELLO BROADBAND............................................ 13,209 5,431
Programming................................................. 25,517 13,525
Corporate, IT and Other..................................... 905 -
Intercompany Eliminations................................... (47,744) (17,947)
------- -------
333,448 199,600
======= =======
Adjusted EBITDA(1):
UPC Distribution
Cable tv.................................................. 63,867 51,646
Telephone(2).............................................. (5,850) (15,737)
Internet.................................................. (8,237) (12,934)
DTH....................................................... (5,525) (4,343)
Other..................................................... (13,085) (1,218)
------- -------
Total Distribution.......................................... 31,170 17,414
PRIORITY TELECOM(2)......................................... (21,552) (2,649)
CHELLO BROADBAND............................................ (20,197) (27,149)
Programming................................................. (27,539) (22,320)
Corporate, IT and Other..................................... (22,690) (22,701)
------- -------
(60,808) (57,405)
======= =======
------------------------
(1) Adjusted EBITDA represents net operating loss before depreciation,
amortization and stock-based compensation charges. Industry analysts
generally consider 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
operations from period to period and thus value the Company's business.
Adjusted EBITDA should not, however, be considered a replacement for net
income, cash flows or any other measure of performance or liquidity under
generally accepted accounting principles, or as an indicator of a company's
operating performance. The presentation of Adjusted EBITDA may not be
comparable to statistics with a similar name reported by other companies.
Not all companies and analysts calculate Adjusted EBITDA in the same manner.
24
(2) For the three months ended March 31, 2000, the revenue and Adjusted EBITDA
for our CLEC activities in the Netherlands, Austria and Belgium has been
reclassified from UPC Distribution-Telephony to Priority CLEC, which is
consistent with the presentation for the three months ended March 31, 2001.
UPC DISTRIBUTION
REVENUE
For the three months ended March 31, 2001, revenue from UPC Distribution
increased 93.7 million to 282.7 million, from 189.0 million for the three months
ended March 31, 2000, a 49.6% increase. Of the increase, 43.9 million is from
cable television, 15.1 million is from telephony, 22.1 million is from internet,
12.1 million is from DTH and 0.5 million is from other, net of related
intercompany eliminations. The increase in cable television revenue of
43.9 million is primarily due to increased subscribers from our acquisition of
K&T (the Netherlands), which we include in our consolidated results effective
March 31, 2000, and our acquisition of EWT (Germany), which we include in our
consolidated results effective October 1, 2000. Cable television revenue from
K&T and EWT included in our consolidated results for the three months ended
March 31, 2001, totalled 28.4 million, compared to nil for the three months
ended March 31, 2000. The remaining increase in cable television revenue relates
to organic subscriber growth, and to a lesser extent increased rates.
The increase in telephony revenue of 15.1 million primarily relates to
organic subscriber growth. Residential telephony subscribers increased from
approximately 253,000 at March 31, 2000 to approximately 440,000 at March 31,
2001.
The increase in internet revenue of 22.1 million primarily relates to
organic subscriber growth. Internet subscribers increased from approximately
177,000 at March 31, 2000 to approximately 409,000 at March 31, 2001. We
continued to increase subscribers in systems where we had launched internet
services prior to January 1, 2000. In addition, we launched internet in the
second half of 2000, in Poland, Hungary and the Czech Republic.
The increase in DTH revenue of 12.1 million primarily relates to organic
subscriber growth. DTH subscribers increased from approximately 304,000 at
March 31, 2000 to approximately 466,000 at March 31, 2001. The majority of the
increase relates to our Polish DTH system, which we acquired and began
consolidating effective August 1, 1999. In addition, in the second half of 2000,
we launched DTH service in our systems in Hungary, the Czech Republic and the
Slovak Republic, leveraging off our existing DTH platform in Poland.
Other revenue for the three months ended March 31, 2001, is primarily
revenue recognized for the provision of network related services to PRIORITY
TELECOM. UPC Distribution and PRIORITY TELECOM have entered into agreements for
the provision by UPC Distribution of network, maintenance and operations. This
intercompany revenue eliminates in our consolidated results. For the three
months ended March 31, 2000, other revenue primarily relates to the rental of
facilities and other.
ADJUSTED EBITDA
For the three months ended March 31, 2001, Adjusted EBITDA from UPC
Distribution increased 13.8 million to 31.2 million, from 17.4 million for the
three months ended March 31, 2000, a 79.3% increase. Of the increase,
12.3 million is from cable television, 9.8 million is from telephony and
4.7 million is from internet. These increases were partially offset by decreases
of 1.2 million in DTH and 11.9 million in other. The increase in cable
television Adjusted EBITDA of 12.3 million is primarily due to our acquisition
of K&T (the Netherlands), which we include in our consolidated results effective
March 31, 2000, and our acquisition of EWT (Germany), which we include in our
consolidated results effective October 1, 2000. Cable television Adjusted EBITDA
from K&T and EWT
25
included in our consolidated results for the three months ended March 31, 2001,
totaled 16.4 million, compared to nil for the three months ended March 31, 2000.
The increase in telephony and internet Adjusted EBITDA of 9.8 million and
4.7 million, respectively primarily relates to organic subscriber growth, which
has allowed us to realize economies of scale. In addition, we have realized
costs savings from continued integration and restructuring of operations, as
well as lower start-up costs.
The decrease in DTH Adjusted EBITDA of 1.2 million primarily relates to
start-up costs for the launch of DTH in our systems in Hungary, the Czech
Republic and the Slovak Republic in the second half of 2000. The decrease in
Adjusted EBITDA for these systems was partially offset by increased Adjusted
EBITDA in our Polish system from subscriber growth, as well as a decrease in
costs.
Other Adjusted EBITDA for the three months ended March 31, 2001, is
primarily related to development and start-up costs for our digital services, as
well as regional costs. In the fourth quarter of 2000 we soft-launched our
digital product in the Netherlands. Adjusted EBITDA associated with the launch
of our digital services includes costs related to sales and marketing, training,
and customer care and totalled for the three months ended March 31, 2001, to a
negative 13.6 million. For the three months ended March 31, 2000, other Adjusted
EBITDA primarily relates to regional office cost.
PRIORITY TELECOM
REVENUE
For the three months ended March 31, 2001, revenue from PRIORITY TELECOM
increased 49.3 million to 58.9 million, from 9.6 million for the three months
ended March 31, 2000. The increase in revenue is primarily due to acquisitions.
In November 2000, we completed the acquisition of Cignal and began consolidating
its operations. In addition, UPC Distribution acquired K&T and began
consolidating its results effective March 31, 2000. The CLEC related assets of
K&T have been spun-off to PRIORITY TELECOM, and its revenue is included in
PRIORITY TELECOM's results for the three months ended March 31, 2001.
ADJUSTED EBITDA
For the three months ended March 31, 2001, Adjusted EBITDA from PRIORITY
TELECOM decreased 19.0 million to a negative 21.6 million, from a negative
2.6 million for the three months ended March 31, 2000. The decrease is primarily
due to the acquisition of Cignal and costs for the development and launch of
products within its markets. For the three months ended March 31, 2000, Adjusted
EBITDA primarily related to limited CLEC operations, as well as costs for
PRIORITY WIRELESS. Historically, PRIORITY WIRELESS was included in PRIORITY
TELECOM as an out-reach technology.
CHELLO BROADBAND
REVENUE
For the three months ended March 31, 2001, revenue from CHELLO BROADBAND
increased 7.8 million to 13.2 million, from 5.4 million for the three months
ended March 31, 2000. The increase in revenue is primarily due to increased
internet subscribers. We continued to increase internet subscribers in UPC
Distributions' systems, which have a franchise agreement with CHELLO BROADBAND.
In addition, UPC Distribution launched CHELLO BROADBAND's services in Poland and
Hungary in the second half of 2000.
In general, CHELLO BROADBAND receives 40% of subscription-based revenue for
its services from the local operator. Intercompany revenues are eliminated in
our consolidated operating results. Intercompany revenues for the three months
ended March 31, 2001 and 2000 were 12.7 million and nil million, respectively.
26
ADJUSTED EBITDA
For the three months ended March 31, 2001, Adjusted EBITDA from CHELLO
BROADBAND increased 6.9 million to a negative 20.2 million, from a negative
27.1 million for the three months ended March 31, 2000. The improvement in
Adjusted EBITDA primarily relates to continued subscriber growth, as well as
decreased start-up and development costs for launching a new service, and costs
efficiencies from the integration and restructuring of operations.
PROGRAMMING
REVENUE
For the three months ended March 31, 2001, revenue from our programming
businesses increased 12.0 million to 25.5 million, from 13.5 million for the
three months ended March 31, 2000. The increase primarily relates to increased
revenue from the launch of sports channels in Central and Eastern Europe,
increased revenue from our Polish programming, as well as increased revenue from
UPCtv. Our Central and Eastern Europe sports channels were launched in the
second half of 2000. For the three months ended March 31, 2000, programming
revenue was primarily from our Polish programming.
In general, programming revenue relates to programming provided to UPC
Distribution. Intercompany revenues are eliminated in our consolidated operating
results. Intercompany revenues for the three months ended March 31, 2001 and
2000 were 23.4 million and 12.6 million, respectively.
ADJUSTED EBITDA
For the three months ended March 31, 2001, Adjusted EBITDA from our
programming business decreased 5.2 million to a negative 27.5 million, from a
negative 22.3 million for the three months ended March 31, 2000. The decrease in
Adjusted EBITDA primarily relates to costs related to the development of our
channel business, UPCtv. In addition, the launch of the sports channels in
Central and Eastern Europe in the second half of 2000 contributed to the
decrease in Adjusted EBITDA.
CORPORATE, IT AND OTHER
ADJUSTED EBITDA
For both the three months ended March 31, 2001 and the three months ended
March 31, 2000, Adjusted EBITDA from corporate, IT and other was a negative
22.7 million. Adjusted EBITDA for corporate, IT and other includes costs of our
corporate functions, such as corporate development, investor relations, finance,
legal, regulatory and marketing. Adjusted EBITDA for corporate, IT and other
also includes costs related to the development and roll-out of our pan-European
financial and customer care systems. Other costs include in corporate, IT and
other include development costs, such as costs related to the development of our
digital set-top computer, and investigation of new technologies, such as NVOD,
voice-over IP telephony and satellite.
DEPRECIATION AND AMORTIZATION
During the three months ended March 31, 2001, our depreciation and
amortization expense increased 114.5 million to 245.2 million from
130.7 million for the three months ended March 31, 2000, a 87.6% increase. Of
this increase, approximately 36.4 million, relates to increased amortization
expense for goodwill created in connection with acquisitions in 2000.
Depreciation expense also increased due to the acquisitions which closed during
2000, which we have consolidated, as well as additional depreciation expense on
capital expenditures to upgrade the network in our Western European systems and
new-build for developing systems.
27
INTEREST INCOME
During the three months ended March 31, 2001 as compared to the three months
ended March 31, 2000, interest income increased 2.4 million to 15.8 million from
13.4 million, a 17.9% increase. The increase is due to a higher average cash
balance during the three months ended March 31, 2001.
INTEREST EXPENSE
During the three months ended March 31, 2001 as compared to the three months
ended March 31, 2000, interest expense increased 77.8 million to 218.2 million
from 140.4 million, a 55.4% increase. The increase in 2001 is primarily due to
our borrowings under the UPC Distribution Bank Facility and the UPC Bridge
Facility. A significant amount of our interest expense in 2001 relates to
accretion on our discount notes, which is not currently cash pay.
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2001 2000
--------- ---------
Cash Current Pay:
Bank...................................................... (74,518) (11,786)
Senior Notes.............................................. (72,150) (71,837)
Other..................................................... - (749)
-------- --------
(146,668) (84,372)
Non-Cash Accretion:
Discount Notes............................................ (62,901) (49,289)
Redeemed DIC Loan......................................... - (3,092)
New DIC Loan.............................................. (169) -
Deferred Financing........................................ (8,481) (3,640)
-------- --------
(71,551) (56,021)
-------- --------
Total Interest Expense...................................... (218,219) (140,393)
======== ========
FOREIGN EXCHANGE GAIN (LOSS) AND OTHER INCOME (EXPENSE)
Foreign exchange gain (loss) and other income (expense), net, reflected a
loss of 55.1 million for the three months ended March 31, 2001, compared to a
loss of 80.0 million for the three months ended March 31, 2000. The decrease was
primarily due to a gain of 47.5 million relating to the valuation of the
compound swaps in connection with the adoption of SFAS 133. This gain was
partially offset by a foreign exchange loss during the three months ended
March 31, 2001 from the increased value of the US dollar against the Euro,
subsequent to December 31, 2000.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Effective January 1, 2001, we adopted SFAS 133, which establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. All
derivatives, whether designated in hedging relationships or not, are required to
be recorded on the balance sheet at fair value. The adoption of SFAS 133 on
January 1, 2001, resulted in a cumulative increase to income of 35.3 million and
a cumulative increase to other Comprehensive Income (``OCI") of 36.7 million.
The increase to income was attributable to a loss of approximately 36.7 million
reclassified from OCI for value of certain warrants held by the Company which
are derivatives which are not designated as a hedging instrument and income of
approximately 72.0 million related to gains associated with the cross currency
swaps which are held by
28
us which do not qualify as hedging instruments as defined by SFAS 133. We use
derivative instruments to manage exposures to foreign currency and interest rate
risks.
SHARE IN RESULTS OF AFFILIATED COMPANIES, NET
For the three months ended March 31, 2001, our share in net losses of
affiliated companies increased 24.9 million to 46.1 million from 21.2 million
for the three months ended March 31, 2000, a 117.5% increase. The increase was
primarily due to increased losses from SBS, Primacom and Tevel.
STATEMENTS OF CASH FLOWS
We had cash and cash equivalents of 1,129.5 million as of March 31, 2001, an
increase of 414.2 million from 715.3 million as March 31, 2000.
CASH FLOWS FROM OPERATING ACTIVITIES
During the three months ended March 31, 2001, net cash flow used in
operating activities was 428.4 million compared to a use of 33.5 million for the
comparable period in 2000. This increase was primarily related to increased
increased inventory and decreased current liabilities.
CASH FLOWS FROM INVESTING ACTIVITIES
We used 206.6 million of net cashflow in investing activities during the
three months ended March 31, 2001, compared to 1,949.3 million for the three
months ended March 31, 2000. During the period ended March 31, 2001 cash was
used to acquire Alkmaar for 22.9 million, net of cash acquired. Capital
expenditures represented 177.7 million, excluding approximately 34.6 million
relating to increased inventory, that once placed in service will be transferred
to property, plant and equipment.
During the three months ended March 31, 2000, cash was used principally for
acquisitions, including K&T, for 1,046.3 million, net of cash acquired, UPC
Magyaroszag for 63.9 million, net of cash acquired, Tebecai for 62.2 million,
net of cash acquired, Haarlem for 62.2 million, net of cash acquired and other
acquisitions totaling 112.7 million, net of cash acquired. Capital expenditures
represented 253.2 million. During this period we made a net investment in
affiliates of 304.3 million, including our acquisitions of an additional 10.5%
interest in SBS for 162.5 million, shares in Primacom AG for 123.6 million and
other investments in affiliates of 18.2 million. We also made a net investment
in @Entertainment bonds and other securities of 44.5 million.
CASH FLOWS FROM FINANCING ACTIVITIES
We had 173.8 million of cash flows from financing activities during the
three months ended March 31, 2001, compared to 1,672.6 million for three months
ended March 31, 2000. The principal source of cash was a drawdown of
200.0 million from the UPC Distribution Bank Facility. We paid down
26.2 million of various long and short-term debt facilities.
The principal source of cash for the three months ended March 31, 2000, was
net proceeds from our senior notes and discount notes offering in January 2000
of 1,594.2 million. Additional sources of cash were from long-term and
short-term borrowings of 139.5 million and 268.0 million, respectively.
Long-term borrowings included borrowings under the UPC Senior Credit Facility of
62.5 million and other borrowings of 77.0 million. We used proceeds of
231.4 million from the New A2000 Facility to pay off the existing A2000
Facilities. We had additional proceeds from short-term debt of 36.6 million,
including 32.9 million from the GelreVision facility. We paid down other
long-term and short-term loans of 297.3 million. During the three months ended
March 31, 2000 we incurred deferred financing costs of 31.8 million.
29
CONSOLIDATED CAPITAL EXPENDITURES
Since 1995, we have been upgrading our existing cable television system
infrastructure and constructing our new-build infrastructure with two-way high
capacity technology to support digital video, telephony and internet/data
services. Capital expenditures for the upgrade and new-build construction can be
reduced at our discretion, although such reductions require lead-time in order
to complete work-in-progress and can result in higher total costs of
construction.
In addition to the network infrastructure and related equipment and capital
resources described above, development of our newer businesses, CHELLO
BROADBAND, PRIORITY TELECOM, our digital distribution platform and DTH,
including expansion into Central Europe, construction and development of our
pan-European distribution and programming facilities, including our origination
facility, network operating center and related support systems and equipment
require capital expenditures.
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, secondary offering and
private offering of convertible preference shares,
- debt raised in our July 1999, October 1999 and January 2000 offering of
senior notes and senior discount notes, and
- operating cash flow.
Our distribution business has historically been funded by bank loans and
will continue to be in the future, primarily from the UPC Distribution Bank
Facility. Our service divisions, including CHELLO BROADBAND, programming and
PRIORITY TELECOM have been funded through equity and bonds.
RESTRICTIONS UNDER OUR JULY 1999, OCTOBER 1999 AND JANUARY 2000 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 our ability, and the ability of our subsidiaries, to
borrow money, pay dividends 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 indentures, if we raise additional paid-in equity, we
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 indentures dated February 5, 1998 and April 29, 1999. Among other
things, the United indentures place certain limitations on our ability, and the
ability of our subsidiaries, to borrow money, pay dividends 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. The
United indentures generally place limitations on the additional amount of debt
that we or our subsidiaries or controlled affiliates may borrow, preferred
shares that we or they may issue, and the amount and type of investments we may
make.
30
SOURCES OF CAPITAL
We had 1,129.5 million of unrestricted cash and cash equivalents on hand as
of March 31, 2001. In addition, we had borrowing capacity at the corporate and
project debt level. In 2000, we raised approximately 7.6 billion, and gained
access to an additional 2.8 billion from a combination of banks, bonds and
equity markets. We intend to continue to access these sources of capital, as
well as other less traditional sources including vendor financing, equity
partners, and leasing structures. We believe our access to sources of capital
will be sufficient to satisfy future cash requirements, although there can be no
assurance that this will be the case.
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 Euro
1.6 billion. Proceeds from the bond offering were used for working capital and
other general corporate purposes, including acquisitions of businesses and
possible investments.
In January 2000, UPC Nederland (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 of 49.9 million, subject to certain
availability covenants. In October 2000, we repaid this facility with the
proceeds from the UPC Distribution Bank Facility.
At the end of March 2000 a fully committed Euro 2 billion stand-by revolving
credit facility was provided. The facility is guaranteed by UPC and certain
subsidiaries. The facility bears interest at EURIBOR +6.0%-7.0%, stepping up
after March 31, 2001, with periodic increases capped at an annual rate of 18.0%.
An annual commitment fee of 0.5% is applicable over the undrawn amount. A
drawing fee ranging from 1.5% to 2.0% is applicable for each drawing. The
commitment terminated on December 31, 2000, and the facility reaches maturity on
March 29, 2007. We borrowed 750 million on this facility prior to December 31,
2000.
On April 7, 2000, Mediareseaux refinanced its existing debt and the existing
debt of Videopole and RCF with a Euro 250 million bridge facility. The
refinancing of the Rhone Vision Cable Credit Facility with this facility was
completed in the fourth quarter of 2000. In October 2000, we repaid this
facility with the proceeds from the UPC Distribution Bank Facility.
In connection with the Eneco K&T acquisition, UPC Nederland received a
short-term bridge loan of Euro 500 million secured with guarantees of certain of
our Dutch assets. Drawdowns of the UPC Bridge Loan refinanced certain existing
inter-company loans from UPC N.V. In October 2000, we repaid this facility with
the proceeds from the UPC Distribution Bank Facility.
In October 2000, we closed a Euro 4.0 billion operating and term loan
facility ("The UPC Distribution Bank Facility"). The facility is guaranteed by
existing cable operating companies, excluding Polish and German assets. The UPC
Distribution Bank Facility bears interest at EURIBOR +0.75%-4.0% depending on
certain leverage ratios, and we pay an annual commitment fee of 0.5% over the
undrawn amount. The facility was widely syndicated to a group of more then 50
European and American (Banking) institutions. A first drawing was made in
October 2000, to refinance existing operating company bank debt totaling
Euro 2.0 billion. The UPC Distribution Bank Facility will finance further
digital rollout and triple play by our existing cable companies, excluding
Polish and German operations, subject to availability. Additional availability
is linked to certain performance tests. We believe that additional availability
by the end of 2001 will increase to a level equal to approximately one-half of
the undrawn amount under this facility at the end of 2000. The facility also
contains certain leverage and revenue covenants. Principal repayment will begin
in 2004. The facility reaches final maturity in 2009. At March 31, 2001,
Euro 2.6 billion was outstanding under this facility.
In December 2000, we sold Euro 1.43 billion worth of convertible preference
shares and warrants for cash, to a group of investors, including United.
31
RIGHTS OFFERING
On February 23, 2001, UPC announced a Euro 1.0 billion shareholder rights
offering and the Euro 1.0 billion "backstop" subscription commitment of United,
our majority shareholder. The rights offering and United's subscription
commitment are subject to completion of a separate transaction between United
and Liberty Media Corp. ("Liberty"), also announced on 23 February. UPC
understands that United and Liberty have agreed in principle to revised terms to
their planned transaction. While UPC must await disclosure of the outcome of
this agreement before providing definitive guidance on this proposed capital
raising, it remains confident that it will receive Euro 1.0 billion, or the
equivalent in another currency, of financing in connection with the
Liberty/United transaction.
CERTAIN DUTCH TAX ISSUES
One of our Dutch systems was assessed for a transfer tax on immovable
property in the amount of Euro 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.
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, from time to time, we will
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, Hungary, Romania, the Czech Republic and the Slovak
32
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 consolidated statements of cash flows will not agree
with 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.
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, within countries who have adopted the Euro,
all operating companies' billing systems will include amounts in Euro as well as
the respective country's existing currency. We do not expect the introduction of
the Euro to affect materially our cable television and other operations.
33
ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INVESTMENT PORTFOLIO
As of March 31, 2001, we have cash and cash equivalents of approximately
1,129.5 million. We have 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 fluctuations (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 table below provides information about UPC's and its consolidated
subsidiaries' foreign currency exchange risk for debt which is denominated in
foreign currencies outside of the European Monetary Union as of December 31,
2001, 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.
AMOUNT OUTSTANDING EXPECTED REPAYMENT
AS OF MARCH 31, 2001 AS OF DECEMBER 31,
----------------------- ----------------------------------------------------
BOOK VALUE FAIR VALUE 2001 2002 2003 2004 2005
---------- ---------- -------- -------- -------- -------- --------
(EUROS, IN THOUSANDS)
DOLLAR DENOMINATED FACILITIES
UPC SENIOR DISCOUNT NOTES DUE
2009.............................. 557,669 284,086 - - - - -
Average interest rate............. 12.50% 22.44%
UPC SENIOR DISCOUNT NOTES DUE
2009.............................. 341,596 179,319 - - - - -
Average interest rate............. 13.375% 22.28%
UPC SENIOR DISCOUNT NOTES DUE
2010.............................. 683,207 363,776 - - - - -
Average interest rate............. 13.750% 21.71%
UPC SENIOR NOTES DUE 2010........... 677,557 446,762 - - - - -
Average interest rate............. 11.25% 18.80%
UPC DISTRIBUTION BANK FACILITY USD
TRANCHE........................... 122,206 122,206 - - - 1,222 1,222
LIBOR +4%
Average interest rate............. 10.20% 10.20%
PCI NOTES........................... 17,138 17,138 - - 17,138 - -
Average interest rate............. 9.875% 15.6%
@ENTERTAINMENT 1998 SENIOR DISCOUNT
NOTES............................. 170,219 108,017 - - - - -
Average interest rate............. 14.50% 24.73%
@ENTERTAINMENT 1999 SENIOR DISCOUNT
NOTES............................. 151,905 91,191 - - - - -
Average interest rate............. 14.50% 24.73%
@ENTERTAINMENT 1999 SERIES C SENIOR
DISCOUNT NOTES.................... 16,692 16,692 - - - - -
Average interest rate............. 7% 14.2%
34
Occasionally we will execute hedge transactions to reduce our exposure to
foreign currency exchange rate risks. In connection with our offerings of senior
notes in July 1999, October 1999, January 2000 and the UPC Distribution Bank
Facility, we entered into cross-currency swap agreements, exchanging
dollar-denominated debt for Euro denominated debt.
INTEREST RATE SENSITIVITY
The table below provides information about our financial instruments that
are sensitive to changes in interest rates as of March 31, 2001, including cash
flows based on the expected repayment dates and the related weighted-average
interest rates. The information is presented in Euro equivalents, as the Euro is
our reporting currency.
AMOUNT OUTSTANDING EXPECTED REPAYMENT
AS OF MARCH 31, 2001 AS OF DECEMBER 31,
----------------------- ----------------------------------------------------
BOOK VALUE FAIR VALUE 2001 2002 2003 2004 2005
---------- ---------- -------- -------- -------- -------- --------
(EUROS, IN THOUSANDS)
VARIABLE RATE FACILITIES
UPC 10.875% SENIOR NOTES DUE
2009............................. 909,401 584,315 - - - - -
EURIBOR + 4.15% and 8.54%,
average rate in 2001 of 9.07%
and 8.54%
Average interest rate............ 10.875% 18.88%
UPC 10.875% SENIOR NOTES DUE
2007............................. 227,350 146,647 - - - - -
EURIBOR + 4.8% and 9.92%, average
rate in 2001 of 10% and 9.92%
Average interest rate............ 10.875% 19.77%
UPC 11.25% SENIOR NOTES DUE 2009... 284,646 184,775 - - - - -
EURIBOR + 4.8% and 9.92%, average
rate in 2001 of 10% and 9.92%
Average interest rate............ 11.25% 18.93%
UPC BRIDGE FACILITY................ 750,000 750,000 - - - - -
EURIBOR + 7%
Average interest rate............ 11.85% 11.85%
UPC DISTRIBUTION BANK FACILITY..... 2,585,260 2,585,260 - - - 348,650 697,900
EURIBOR/USD LIBOR + 0.75%-4%
Average interest rate............ 8.09% 8.09%
35
AMOUNT OUTSTANDING EXPECTED REPAYMENT
AS OF MARCH 31, 2001 AS OF DECEMBER 31,
----------------------- ----------------------------------------------------
BOOK VALUE FAIR VALUE 2001 2002 2003 2004 2005
---------- ---------- -------- -------- -------- -------- --------
(EUROS, IN THOUSANDS)
FIXED RATE FACILITIES
UPC SENIOR NOTES DUE 2009........... 300,000 195,000 - - - - -
Average interest rate............. 10.875% 19.54%
UPC SENIOR DISCOUNT NOTES DUE
2009.............................. 557,669 284,086 - - - - -
Average interest rate............. 12.5% 22.44%
UPC SENIOR DISCOUNT NOTES DUE
2009.............................. 341,596 179,319 - - - - -
Average interest rate............. 13.375% 22.28%
UPC SENIOR DISCOUNT NOTES DUE
2009.............................. 120,140 66,850 - - - - -
Average interest rate............. 13.375% 22.16%
UPC SENIOR NOTES DUE 2007........... 100,000 67,000 - - - - -
Average interest rate............. 10.875% 19.59%
UPC SENIOR NOTES DUE 2009........... 100,360 64,640 - - - - -
Average interest rate............. 11.25% 19.74%
UPC SENIOR DISCOUNT NOTES DUE
2010.............................. 683,207 363,776 - - - - -
Average interest rate............. 13.75% 21.71%
UPC SENIOR NOTES DUE 2010........... 338,800 223,381 - - - - -
Average interest rate............. 11.50% 18.82%
UPC SENIOR NOTES DUE 2010........... 677,557 446,762 - - - - -
Average interest rate............. 11.25% 18.80%
UPC SENIOR NOTES DUE 2009........... 198,682 132,000 - - - - -
Average interest rate............. 11.25% 19.12%
PCI NOTES........................... 17,138 17,138 - - 17,138 - -
Average interest rate............. 9.875% 15.6%
@ENTERTAINMENT 1998 SENIOR DISCOUNT
NOTES............................. 170,219 104,986 - - - - -
Average interest rate............. 14.5% 24.73%
@ENTERTAINMENT 1999 SENIOR DISCOUNT
NOTES............................. 151,905 104,921 - - - - -
Average interest rate............. 14.5% 24.73%
@ENTERTAINMENT 1999 SERIES C SENIOR
DISCOUNT NOTES.................... 16,692 16,692 - - - - -
Average interest rate............. 7% 14.2%
DIC LOAN............................ 53,255 53,255 - 53,255 - - -
Average interest rate............. 10.0% 10.0%
EQUITY PRICES
As of March 31, 2001, we are exposed to equity price fluctuations related to
our investment in equity securities. Our investment in United is classified as
available for sale. Changes in the price of the stock are reflected as
unrealized gains (losses) in our statement of shareholders' equity, until such
36
time as the stock is sold and any unrealized gain (loss) will be reflected in
the statement of operations. Our investments in PrimaCom and SBS are accounted
for under the equity method of accounting.
FAIR VALUE AS OF
NUMBER OF SHARES MARCH 31, 2001
---------------- ----------------
(STATED IN THOUSANDS OF EUROS,
EXCEPT SHARE AMOUNTS)
United...................................................... 5,569,240 83,097
PrimaCom AG................................................. 4,948,039 74,221
SBS......................................................... 6,000,000 132,153
Terayon(1).................................................. 2,000,000 10,373
------------------------
(1) Represents warrants to acquire shares. Fair value based on Black and Scholes
model as of March 31, 2001.
As of March 31, 2001, 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.
EXPECTED
AMOUNT OUTSTANDING REPAYMENT
AS OF MARCH 31, 2001 AS OF DECEMBER 31,
----------------------- -------------------
BOOK VALUE FAIR VALUE 2001 2002
---------- ---------- -------- --------
(EUROS, THOUSANDS)
CONVERTIBLE DEBT
DIC LOAN................................................ 53,255 53,255 - 53,255
10% per annum
37
PART II--OTHER INFORMATION
ITEM 5--OTHER INFORMATION
SUMMARY OPERATING DATA 2001
The operating data set forth below reflect the aggregate statistics of the
operating systems in which the Company has an ownership interest.
AS AT MARCH 31, 2001
------------------------------------------------------------------------------------------------------
UPC HOMES IN TWO WAY DIRECT
PAID-IN SERVICE HOMES HOMES BASIC BASIC TO HOME DIGITAL
OWNERSHIP AREA PASSED PASSED(1) SUBSCRIBERS PENETRATION (DTH) SUBSCRIBERS
----------- ---------- ---------- --------- ----------- ----------- -------- -----------
MULTI-CHANNEL TV:
CONSOLIDATED COMPANIES:
Norway.................. 100.0% 529,000 474,400 143,800 331,600 69.9% - -
Sweden.................. 100.0% 770,000 421,600 238,600 255,300 60.6% - -
Belgium................. 100.0% 530,000 152,100 152,100 123,800 81.4% - -
France.................. 92.0% 2,653,200 1,240,300 430,900 405,900 32.7% - 8,800
The Netherlands......... 100.0% 2,578,800 2,465,400 2,030,300 2,272,800 92.2% - 24,000
The Netherlands
(Alkmaar)............. 100.0% 47,700 44,100 44,100 40,100 90.9% - 400
Austria................. 95.0% 1,168,700 919,700 916,400 488,400 53.1% - -
Germany (EWT/TSS)....... 51.0% 781,800 781,800 9,300 575,500 73.6% - -
Poland.................. 100.0% 1,950,000 1,855,200 151,800 1,045,400 56.3% 388,800 -
Hungary................. 98.9-100.0% 1,001,100 876,800 271,800 636,900 72.6% 35,600 -
Czech Republic.......... 99.9-100.0% 913,000 786,400 179,400 379,100 48.2% 30,400 -
Romania................. 51.0-70.0% 648,500 450,700 - 287,600 63.8% - -
Slovak Republic......... 95.0-100.0% 517,800 370,800 17,300 318,600 85.9% 11,500 -
---------- ---------- --------- ---------- -------- ----------
Total consolidated.... 14,089,600 10,839,300 4,585,800 7,161,000 466,300 33,200
========== ========== ========= ========== ======== ==========
NON-CONSOLIDATED COMPANIES:
Germany (Primacom)
(2)................... 25.0% 1,916,900 1,916,900 411,000 1,301,700 67.9% - 5,400
Israel.................. 46.6% 645,300 645,300 400,500 445,000 69.0% - -
Malta................... 50.0% 179,400 179,400 - 83,800 46.7% - -
---------- ---------- --------- ---------- -------- ----------
Total
non-consolidated.... 2,741,600 2,741,600 811,500 1,830,500 - 5,400
========== ========== ========= ========== ======== ==========
Total................... 16,831,200 13,580,900 5,397,300 8,991,500 466,300 38,600
========== ========== ========= ========== ======== ==========
38
SUMMARY OPERATING DATA 2001 (CONTINUED)
AS AT MARCH 31, 2001
-----------------------------------------------------------------
UPC SUBSCRIBERS LINES
PAID-IN ------------------------ ------------------------
OWNERSHIP RESIDENTIAL BUSINESSES RESIDENTIAL BUSINESSES
----------- ----------- ---------- ----------- ----------
CABLE TELEPHONY
CONSOLIDATED COMPANIES:
Norway....................................... 100.0% 16,700 - 18,100 -
France....................................... 92.0% 47,000 - 49,600 600
The Netherlands.............................. 100.0% 145,100 - 177,100 -
Austria...................................... 95.0% 114,600 - 115,900 -
Germany-EWT/TSS.............................. 51.0% 100 - 100 -
--------- --------- --------- ---------
Total cable................................ 323,500 - 360,800 600
========= ========= ========= =========
NON-CABLE TELEPHONY
CONSOLIDATED COMPANIES:
The Netherlands (3).......................... 100.0% 44,300 8,800 - -
Czech Republic (4)........................... 99.9-100.0% 3,500 - 3,500 -
Hungary (4).................................. 98.9-100.0% 69,000 - 74,100 -
--------- --------- --------- ---------
Total non-cable............................ 116,800 8,800 77,600 -
========= ========= ========= =========
Total...................................... 440,300 8,800 438,400 600
========= ========= ========= =========
AS AT MARCH 31, 2001
--------------------------------------------------------------------
3RD PARTY DATA
ISP OVER
UPC SUBSCRIBERS SUBSCRIBERS(5) SATELLITE
PAID-IN ------------------------ -------------- -----------
OWNERSHIP RESIDENTIAL BUSINESSES RESIDENTIAL RESIDENTIAL
---------- ----------- ---------- -------------- -----------
INTERNET
CONSOLIDATED COMPANIES:
Norway...................................... 100.0% 18,600 - - -
Sweden...................................... 100.0% 37,600 - - -
Belgium..................................... 100.0% 17,100 1,100 - -
France...................................... 92.0% 16,300 - - -
The Netherlands............................. 100.0% 172,600 - 22,200 -
The Netherlands (Alkmaar)................... 100.0% - - 3,000 -
Austria..................................... 95.0% 112,200 1,700 - -
Germany (EWT/TSS)........................... 51.0% - - 100 -
Poland...................................... 100.0% 1,600 - - 200
Hungary..................................... 98.9-100.0% 5,100 - - -
Czech Republic.............................. 99.9-100.0% - - 2,600 -
------- ------ ------ ---
Total consolidated........................ 381,100 2,800 27,900 200
======= ====== ====== ===
NON-CONSOLIDATED COMPANIES:
Germany (Primacom) (2)...................... 25.0% - - 20,500
------- ------ ------ ---
Total non-consolidated.................... - - 20,500 -
======= ====== ====== ===
Total..................................... 381,100 2,800 48,400 200
======= ====== ====== ===
39
SUMMARY OPERATING DATA 2000
The operating data set forth below reflects the aggregate statistics of the
operating systems in which the Company has an ownership interest.
AS AT MARCH 31, 2000
-----------------------------------------------------------------------------------------
UPC HOMES IN TWO WAY DIRECT
PAID-IN SERVICE HOMES HOMES BASIC BASIC TO HOME
OWNERSHIP AREA PASSED PASSED(1) SUBSCRIBERS PENETRATION (DTH)
------------ ---------- ---------- --------- ----------- ----------- --------
MULTI-CHANNEL TV:
CONSOLIDATED COMPANIES:
Norway............. 100.0% 529,000 468,300 63,800 330,000 70.5% -
Sweden............. 100.0% 770,000 421,600 227,000 246,100 58.4% -
Belgium............ 100.0% 530,000 150,400 147,900 125,600 83.5% -
France............. 92.0% 2,105,500 1,081,000 120,600 375,300 34.7% -
The Netherlands.... 100.0% 2,513,700 2,421,100 1,945,200 2,255,000 93.1% -
Austria............ 95.0% 1,080,600 907,900 824,300 476,000 52.4% -
Poland............. 100.0% 1,950,000 1,769,600 - 1,023,400 57.8% 303,700
Hungary............ 98.9-100.0% 1,001,100 750,300 185,200 550,800 73.4% -
Czech Republic..... 99.9-100.0% 868,300 776,900 17,700 364,300 46.9% -
Romania............ 51.0-70.0% 509,300 391,700 - 261,600 66.8% -
Slovak Republic.... 95.0-100.0% 417,800 309,200 - 247,500 80.0% -
---------- ---------- --------- ---------- --------
Total
consolidated..... 12,275,300 9,448,000 3,531,700 6,255,600 303,700
========== ========== ========= ========== ========
NON-CONSOLIDATED COMPANIES:
Germany (Primacom)
(6).............. 25.1% 1,422,800 1,422,800 30,500 919,600 64.6% -
Israel............. 46.6% 660,000 617,000 385,400 431,400 69.9% -
Malta.............. 50.0% 177,000 175,200 - 77,300 44.1% -
---------- ---------- --------- ---------- --------
2,259,800 2,215,000 415,900 1,428,300 -
Total non-consolidated.........
========== ========== ========= ========== ========
Total............ 14,535,100 11,663,000 3,947,600 7,683,900 303,700
========== ========== ========= ========== ========
40
SUMMARY OPERATING DATA 2000 (CONTINUED)
AS AT MARCH 31, 2000
----------------------------------------------------------------
UPC SUBSCRIBERS LINES
PAID-IN ------------------------ ------------------------
OWNERSHIP RESIDENTIAL BUSINESSES RESIDENTIAL BUSINESSES
---------- ----------- ---------- ----------- ----------
CABLE TELEPHONY
CONSOLIDATED COMPANIES:
Norway...................................... 100.0% 5,300 - 6,000 200
France...................................... 92.0% 18,300 - 18,900 400
The Netherlands............................. 100.0% 82,300 100 95,400 2,600
Austria..................................... 95.0% 52,600 500 54,100 2,300
------- ------ ------- ------
Total cable............................... 158,500 600 174,400 5,500
======= ====== ======= ======
NON-CABLE TELEPHONY
CONSOLIDATED COMPANIES:
The Netherlands (3)......................... 80.0% 23,300 8,400 - -
Mundi Telecom............................... 51.0% 3,200 2,200 - -
Czech Republic (4).......................... 99.9-100.0% 3,600 - 3,600 -
Hungary (Monor) (4)......................... 97.1% 64,800 3,300 66,900 6,400
------- ------ ------- ------
Total non-cable........................... 94,900 13,900 70,500 6,400
======= ====== ======= ======
Total..................................... 253,400 14,500 244,900 11,900
======= ====== ======= ======
41
SUMMARY OPERATING DATA 2000 (CONTINUED)
AS AT MARCH 31, 2000
---------------------------------------------------------------
3RD PARTY
UPC SUBSCRIBERS ISP SUBSCRIBERS (5)
PAID-IN ------------------------ ------------------------
OWNERSHIP RESIDENTIAL BUSINESSES RESIDENTIAL BUSINESSES
--------- ----------- ---------- ----------- ----------
INTERNET
CONSOLIDATED COMPANIES:
Norway...................................... 100.0% 4,900 100 - -
Sweden...................................... 100.0% 11,500 - - -
Belgium..................................... 100.0% 8,900 800 - -
France...................................... 92.0% 5,000 - - -
The Netherlands............................. 100.0% 80,400 1,900 11,300 200
Austria..................................... 95.0% 54,500 1,300 - -
Hungary..................................... 100.0% 300 - - -
------- ----- ------ ---
Total consolidated........................ 165,500 4,100 11,300 200
======= ===== ====== ===
NON-CONSOLIDATED COMPANIES:
Germany (Primacom) (6)...................... 25.1% 200 - - -
------- ----- ------ ---
Total non-consolidated.................... 200 - - -
------- ----- ------ ---
Total..................................... 165,700 4,100 11,300 200
======= ===== ====== ===
SUMMARY OPERATING DATA 2000 AND 2001
RESIDENTIAL RGU'S (7)
The operating data set forth below reflect the aggregate statistics of the
operating systems in which the Company has an ownership interest.
AS OF MARCH 31, 2001 AS OF MARCH 31, 2000
TOTAL RGU'S TOTAL RGU'S
-------------------- --------------------
Norway...................................................... 366,900 340,200
Sweden...................................................... 292,900 257,600
Belgium..................................................... 140,900 134,500
France...................................................... 478,000 398,600
The Netherlands (8)......................................... 2,681,000 2,452,300
The Netherlands (Alkmaar)................................... 43,500 -
Austria..................................................... 715,200 583,100
Germany (EWT/TSS)........................................... 575,700 -
Poland...................................................... 1,435,800 1,327,100
Hungary..................................................... 746,600 615,900
Czech Republic.............................................. 415,600 367,900
Romania..................................................... 287,600 261,600
Slovak Republic............................................. 330,100 247,500
Mundi Telecom (9)........................................... - 3,200
--------- ---------
Total consolidated........................................ 8,509,800 6,989,500
========= =========
--------------------------
42
SUMMARY OPERATING DATA 2000 AND 2001 (CONTINUED)
(1) Two way homes passed represents the number of homes passed where customers
can request and receive an installation of a two-way addressable set top and
``normal" customer services (e.g. the service is launched, customers are
billed and normal service activity is available).
(2) Statistics of Primacom are as of December 31, 2000.
(3) UTH's 100% subsidiary Uniport was sold in April 2001. As of March 31, 2000,
UTH owned 80% of Uniport.
(4) Monor and Czech Republic offer traditional telephony service.
(5) Internet subscribers who are not served by CHELLO BROADBAND.
(6) Statistics of Primacom are as of December 31, 1999.
(7) RGU's is the sum of Basic Cable, Digital, Residential Internet, Residential
Telephony and DTH subscribers.
(8) The Netherlands RGU's include 44,300 Uniport Carrier Select Telephony
subscribers at March 31, 2001 and 23,300 at March 31, 2000. Uniport was sold
in April 2001.
(9) In 2001 Mundi Telecom subscribers are included in PRIORITY TELECOM.
43
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits--none
(b) Reports on Form 8-K filed during the Quarter
DATE FILED DATE OF EVENT ITEM REPORTED
---------- ------------- ----------------------------------------------
January 26, 2001 January 16, 2001 Item 5--Commencement of consent solicitation
by UPC Polska and Poland Communications, Inc,
with respect to their outstanding bonds.
March 5, 2001* February 23, 2001 Item 5--Amendment of United/Liberty
Transaction and Announcement of Rights
Offering.
------------------------
* As amended on March 6, 2001 to include an exhibit inadvertantly excluded
from the filing.
44
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED PAN-EUROPE COMMUNICATIONS N.V.
By: /S/ CHARLES H.R. BRACKEN
-----------------------------------------
BOARD OF MANAGEMENT MEMBER AND CHIEF
FINANCIAL OFFICER (AND PRINCIPAL
ACCOUNTING OFFICER)
Date: May 14, 2001
45