e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2006 |
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OR |
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
Commission file number 000-51360
Liberty Global, Inc.
(Exact name of Registrant as specified in its charter)
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State of Delaware |
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20-2197030 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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12300 Liberty Boulevard |
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80112 |
Englewood, Colorado |
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(Zip Code) |
(Address of principal executive offices) |
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Registrants telephone number, including area code:
(303) 220-6600
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 þ No o
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2 of the
Exchange Act.
Large Accelerated
Filer þ Accelerated
Filer o Non-Accelerated
Filer o
Indicate by check mark whether the Registrant is a shell company
as defined in
Rule 12b-2 of the
Exchange
Act. Yes o No þ
The number of outstanding shares of Liberty Global, Inc.s
common stock as of November 1, 2006 was:
Series A common stock 196,670,987 shares;
Series B common stock 7,282,345 shares; and
Series C common stock 197,003,046 shares.
LIBERTY GLOBAL, INC.
INDEX
1
LIBERTY GLOBAL, INC.
(See note 1)
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
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September 30, | |
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December 31, | |
|
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2006 | |
|
2005 | |
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| |
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| |
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amounts in millions | |
ASSETS |
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,324.6 |
|
|
$ |
1,202.2 |
|
|
Trade receivables, net
|
|
|
470.4 |
|
|
|
534.2 |
|
|
Other receivables, net
|
|
|
75.1 |
|
|
|
112.5 |
|
|
Current assets of discontinued operations (note 4)
|
|
|
|
|
|
|
14.7 |
|
|
Restricted cash (note 4)
|
|
|
291.6 |
|
|
|
56.8 |
|
|
Other current assets
|
|
|
409.0 |
|
|
|
342.0 |
|
|
|
|
|
|
|
|
|
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Total current assets
|
|
|
2,570.7 |
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|
|
2,262.4 |
|
Investments in affiliates, accounted for using the equity
method, and related receivables
|
|
|
803.2 |
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|
789.0 |
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Other investments
|
|
|
471.7 |
|
|
|
569.0 |
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Property and equipment, net (note 6)
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|
|
7,866.4 |
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|
7,991.3 |
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Goodwill (note 6)
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|
|
9,755.0 |
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|
|
9,020.1 |
|
Franchise rights and other intangible assets not subject to
amortization
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|
180.1 |
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|
|
218.0 |
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Intangible assets subject to amortization, net (note 6)
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|
1,416.3 |
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|
1,601.8 |
|
Long-term assets of discontinued operations (note 4)
|
|
|
|
|
|
|
329.9 |
|
Other assets, net
|
|
|
700.7 |
|
|
|
597.0 |
|
|
|
|
|
|
|
|
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Total assets
|
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$ |
23,764.1 |
|
|
$ |
23,378.5 |
|
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|
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|
|
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
LIBERTY GLOBAL, INC.
(See note 1)
CONDENSED CONSOLIDATED BALANCE SHEETS
Continued
(unaudited)
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September 30, | |
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December 31, | |
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2006 | |
|
2005 | |
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amounts in millions | |
LIABILITIES AND STOCKHOLDERS EQUITY |
Current liabilities:
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Accounts payable
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$ |
598.6 |
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$ |
715.6 |
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Accrued liabilities and other
|
|
|
708.9 |
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|
668.9 |
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Current portion of deferred revenue and advance payments from
subscribers and others
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|
434.9 |
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|
596.0 |
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Accrued interest
|
|
|
138.4 |
|
|
|
145.5 |
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Current liabilities of discontinued operations (note 4)
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|
|
|
|
|
|
35.3 |
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Current portion of debt and capital lease obligations
(note 7)
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|
878.3 |
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|
270.0 |
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|
|
|
|
|
|
|
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Total current liabilities
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2,759.1 |
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|
2,431.3 |
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Long-term debt and capital lease obligations (note 7)
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10,396.5 |
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9,845.0 |
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Deferred tax liabilities
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|
|
553.5 |
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|
546.0 |
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Long-term liabilities of discontinued operations (note 4)
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9.6 |
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Other long-term liabilities
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|
1,122.7 |
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|
933.7 |
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Total liabilities
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|
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14,831.8 |
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|
13,765.6 |
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Commitments and contingencies (note 10)
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Minority interests in subsidiaries
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1,867.2 |
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1,796.5 |
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Stockholders equity:
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Series A common stock, $.01 par value. Authorized
500,000,000 shares; issued 197,264,585 and
232,334,708 shares at September 30, 2006 and
December 31, 2005, respectively
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2.0 |
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2.3 |
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Series B common stock, $.01 par value. Authorized
50,000,000 shares; issued and outstanding 7,291,345 and
7,323,570 shares at September 30, 2006 and
December 31, 2005, respectively
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0.1 |
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0.1 |
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Series C common stock, $.01 par value. Authorized
500,000,000 shares; issued 197,583,922 and
239,820,997 shares at September 30, 2006 and
December 31, 2005, respectively
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2.0 |
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2.4 |
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Additional paid-in capital
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8,099.0 |
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9,992.2 |
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Accumulated deficit
|
|
|
(989.2 |
) |
|
|
(1,732.5 |
) |
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Accumulated other comprehensive loss, net of taxes
|
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|
(11.6 |
) |
|
|
(262.9 |
) |
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Deferred compensation (note 3)
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|
|
|
|
|
|
(15.6 |
) |
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Treasury stock, at cost
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|
|
(37.2 |
) |
|
|
(169.6 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
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|
7,065.1 |
|
|
|
7,816.4 |
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Total liabilities and stockholders equity
|
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$ |
23,764.1 |
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|
$ |
23,378.5 |
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|
|
|
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
LIBERTY GLOBAL, INC.
(See note 1)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
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Three months ended | |
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Nine months ended | |
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September 30, | |
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September 30, | |
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2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
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amounts in millions, except per share amounts | |
Revenue (note 9)
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$ |
1,622.4 |
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|
$ |
1,105.1 |
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$ |
4,697.4 |
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$ |
3,231.1 |
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Operating costs and expenses:
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Operating (other than depreciation) (including stock-based
compensation of $2.1 million, $5.9 million,
$4.2 million and $10.5 million, respectively)
(notes 3 and 9)
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|
696.4 |
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|
482.0 |
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|
2,005.4 |
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1,371.9 |
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Selling, general and administrative (SG&A) (including
stock-based compensation of $19.1 million,
$54.9 million, $52.3 million and $111.8 million,
respectively) (notes 3 and 9)
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|
347.8 |
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|
285.3 |
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|
1,043.2 |
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|
825.1 |
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|
Depreciation and amortization
|
|
|
457.7 |
|
|
|
306.0 |
|
|
|
1,338.1 |
|
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|
863.8 |
|
|
Impairment, restructuring and other operating charges
|
|
|
5.5 |
|
|
|
2.7 |
|
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|
11.7 |
|
|
|
3.5 |
|
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|
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|
|
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|
1,507.4 |
|
|
|
1,076.0 |
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|
4,398.4 |
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|
3,064.3 |
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|
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Operating income
|
|
|
115.0 |
|
|
|
29.1 |
|
|
|
299.0 |
|
|
|
166.8 |
|
|
|
|
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|
|
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|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (note 9)
|
|
|
(181.8 |
) |
|
|
(122.3 |
) |
|
|
(482.0 |
) |
|
|
(275.8 |
) |
|
Interest and dividend income
|
|
|
26.1 |
|
|
|
18.9 |
|
|
|
62.1 |
|
|
|
60.9 |
|
|
Share of results of affiliates, net
|
|
|
5.5 |
|
|
|
2.0 |
|
|
|
5.9 |
|
|
|
(14.8 |
) |
|
Realized and unrealized gains (losses) on financial and
derivative instruments, net (note 5)
|
|
|
(181.1 |
) |
|
|
(29.2 |
) |
|
|
(160.0 |
) |
|
|
126.0 |
|
|
Foreign currency transaction gains (losses), net
|
|
|
0.9 |
|
|
|
7.1 |
|
|
|
83.1 |
|
|
|
(194.1 |
) |
|
Losses on extinguishment of debt
|
|
|
(5.0 |
) |
|
|
|
|
|
|
(40.6 |
) |
|
|
(12.6 |
) |
|
Gains on disposition of non-operating assets, net (note 4)
|
|
|
52.7 |
|
|
|
0.4 |
|
|
|
100.3 |
|
|
|
25.9 |
|
|
Other income (expense), net
|
|
|
0.9 |
|
|
|
|
|
|
|
(5.3 |
) |
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(281.8 |
) |
|
|
(123.1 |
) |
|
|
(436.5 |
) |
|
|
(283.6 |
) |
|
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|
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Loss before income taxes, minority interests and discontinued
operations
|
|
|
(166.8 |
) |
|
|
(94.0 |
) |
|
|
(137.5 |
) |
|
|
(116.8 |
) |
Income tax benefit (expense)
|
|
|
22.5 |
|
|
|
(3.3 |
) |
|
|
(76.4 |
) |
|
|
(11.3 |
) |
Minority interests in earnings of subsidiaries, net
|
|
|
(28.6 |
) |
|
|
(25.7 |
) |
|
|
(88.9 |
) |
|
|
(81.7 |
) |
|
|
|
|
|
|
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|
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|
Loss from continuing operations
|
|
|
(172.9 |
) |
|
|
(123.0 |
) |
|
|
(302.8 |
) |
|
|
(209.8 |
) |
|
|
|
|
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|
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|
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|
|
|
|
Discontinued operations (note 4):
|
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Earnings (loss) from operations, including tax expense of
$0.2 million and $1.5 million during the three and
nine months ended September 30, 2005, respectively
|
|
|
(7.5 |
) |
|
|
(4.9 |
) |
|
|
6.8 |
|
|
|
(15.6 |
) |
|
Gain on disposal of discontinued operations
|
|
|
625.4 |
|
|
|
|
|
|
|
1,033.4 |
|
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|
|
|
|
|
|
|
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|
|
|
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|
|
617.9 |
|
|
|
(4.9 |
) |
|
|
1,040.2 |
|
|
|
(15.6 |
) |
|
|
|
|
|
|
|
|
|
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Net earnings (loss)
|
|
$ |
445.0 |
|
|
$ |
(127.9 |
) |
|
$ |
737.4 |
|
|
$ |
(225.4 |
) |
|
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Basic and diluted earnings (loss) per common share (note 2):
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|
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|
|
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Continuing operations
|
|
$ |
(0.40 |
) |
|
$ |
(0.26 |
) |
|
$ |
(0.67 |
) |
|
$ |
(0.53 |
) |
|
Discontinued operations
|
|
|
1.43 |
|
|
|
(0.01 |
) |
|
|
2.30 |
|
|
|
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.03 |
|
|
$ |
(0.27 |
) |
|
$ |
1.63 |
|
|
$ |
(0.57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
LIBERTY GLOBAL, INC.
(See note 1)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(LOSS)
(unaudited)
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Three months ended | |
|
Nine months ended | |
|
|
September 30, | |
|
September 30, | |
|
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| |
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| |
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|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
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| |
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| |
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| |
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amounts in millions | |
Net earnings (loss)
|
|
$ |
445.0 |
|
|
$ |
(127.9 |
) |
|
$ |
737.4 |
|
|
$ |
(225.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss), net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(93.1 |
) |
|
|
12.8 |
|
|
|
223.2 |
|
|
|
(182.9 |
) |
|
Reclassification adjustment for foreign currency translation
losses included in net earnings
|
|
|
18.5 |
|
|
|
|
|
|
|
16.2 |
|
|
|
51.7 |
|
|
Unrealized gains on available-for-sale securities
|
|
|
0.6 |
|
|
|
21.7 |
|
|
|
3.0 |
|
|
|
23.0 |
|
|
Reclassification adjustment for loss on available-for-sale
securities included in net earnings
|
|
|
1.1 |
|
|
|
|
|
|
|
10.3 |
|
|
|
|
|
|
Unrealized gain (loss) on cash flow hedges
|
|
|
(1.8 |
) |
|
|
1.3 |
|
|
|
(1.4 |
) |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
|
(74.7 |
) |
|
|
35.8 |
|
|
|
251.3 |
|
|
|
(109.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss)
|
|
$ |
370.3 |
|
|
$ |
(92.1 |
) |
|
$ |
988.7 |
|
|
$ |
(334.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
LIBERTY GLOBAL, INC.
(See note 1)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY
(unaudited)
|
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|
Accumulated | |
|
|
|
|
|
|
|
|
|
|
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|
|
other | |
|
|
|
|
|
|
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|
Common stock | |
|
Additional | |
|
|
|
comprehensive | |
|
|
|
Treasury | |
|
Total | |
|
|
| |
|
paid-in | |
|
Accumulated | |
|
loss, | |
|
Deferred | |
|
stock, | |
|
stockholders | |
|
|
Series A | |
|
Series B | |
|
Series C | |
|
capital | |
|
deficit | |
|
net of taxes | |
|
compensation | |
|
at cost | |
|
equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions | |
|
|
|
|
Balance at January 1, 2006 before effect of accounting
changes
|
|
$ |
2.3 |
|
|
$ |
0.1 |
|
|
$ |
2.4 |
|
|
$ |
9,992.2 |
|
|
$ |
(1,732.5 |
) |
|
$ |
(262.9 |
) |
|
$ |
(15.6 |
) |
|
$ |
(169.6 |
) |
|
$ |
7,816.4 |
|
|
Accounting changes (note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15.6 |
) |
|
|
5.9 |
|
|
|
|
|
|
|
15.6 |
|
|
|
|
|
|
|
5.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2006, as adjusted for accounting
changes
|
|
|
2.3 |
|
|
|
0.1 |
|
|
|
2.4 |
|
|
|
9,976.6 |
|
|
|
(1,726.6 |
) |
|
|
(262.9 |
) |
|
|
|
|
|
|
(169.6 |
) |
|
|
7,822.3 |
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
737.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
737.4 |
|
|
Other comprehensive earnings, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251.3 |
|
|
|
|
|
|
|
|
|
|
|
251.3 |
|
|
Repurchase of common stock (note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,757.2 |
) |
|
|
(1,757.2 |
) |
|
Cancellation of treasury stock
|
|
|
(0.3 |
) |
|
|
|
|
|
|
(0.4 |
) |
|
|
(1,888.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,889.6 |
|
|
|
|
|
|
Stock-based compensation, net of taxes (note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52.4 |
|
|
Minority owners share of distribution paid by Austar
United Communications Limited (note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(71.0 |
) |
|
Stock issued in connection with equity incentive plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.9 |
|
|
Adjustments due to changes in subsidiaries equity and
other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2006
|
|
$ |
2.0 |
|
|
$ |
0.1 |
|
|
$ |
2.0 |
|
|
$ |
8,099.0 |
|
|
$ |
(989.2 |
) |
|
$ |
(11.6 |
) |
|
$ |
|
|
|
$ |
(37.2 |
) |
|
$ |
7,065.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
LIBERTY GLOBAL, INC.
(See note 1)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended | |
|
|
September 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
amounts in millions | |
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$ |
737.4 |
|
|
$ |
(225.4 |
) |
|
Net loss (earnings) from discontinued operations
|
|
|
(1,040.2 |
) |
|
|
15.6 |
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(302.8 |
) |
|
|
(209.8 |
) |
|
Adjustments to reconcile loss from continuing operations to net
cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
56.5 |
|
|
|
122.3 |
|
|
|
|
Depreciation and amortization
|
|
|
1,338.1 |
|
|
|
863.8 |
|
|
|
|
Impairment, restructuring and other operating charges
|
|
|
11.7 |
|
|
|
3.5 |
|
|
|
|
Amortization of deferred financing costs and non-cash interest
|
|
|
59.9 |
|
|
|
78.9 |
|
|
|
|
Share of results of affiliates, net of dividends
|
|
|
(1.2 |
) |
|
|
14.8 |
|
|
|
|
Realized and unrealized losses (gains) on financial and
derivative instruments, net
|
|
|
160.0 |
|
|
|
(126.0 |
) |
|
|
|
Foreign currency transaction losses (gains), net
|
|
|
(83.1 |
) |
|
|
194.1 |
|
|
|
|
Losses on extinguishment of debt
|
|
|
40.6 |
|
|
|
12.6 |
|
|
|
|
Gains on disposition of non-operating assets, net
|
|
|
(100.3 |
) |
|
|
(25.9 |
) |
|
|
|
Deferred income tax expense (benefit)
|
|
|
9.2 |
|
|
|
(30.5 |
) |
|
|
|
Minority interests in earnings of subsidiaries, net
|
|
|
88.9 |
|
|
|
81.7 |
|
|
|
|
Other non-cash items
|
|
|
10.3 |
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of the effects
of acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables and other operating assets
|
|
|
65.8 |
|
|
|
82.1 |
|
|
|
|
|
Payables and accruals
|
|
|
(203.1 |
) |
|
|
(291.8 |
) |
|
|
Net cash provided by operating activities of discontinued
operations
|
|
|
74.9 |
|
|
|
246.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,225.4 |
|
|
|
1,016.6 |
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expended for property and equipment
|
|
|
(1,050.4 |
) |
|
|
(700.3 |
) |
|
Cash paid in connection with acquisitions, net of cash acquired
|
|
|
(1,134.6 |
) |
|
|
(756.9 |
) |
|
Proceeds received upon disposition of discontinued operations,
net of disposal costs
|
|
|
2,548.1 |
|
|
|
|
|
|
Proceeds received upon dispositions of assets
|
|
|
135.6 |
|
|
|
151.7 |
|
|
Net cash received to purchase and settle derivative instruments
|
|
|
18.0 |
|
|
|
77.5 |
|
|
Change in restricted cash
|
|
|
(244.2 |
) |
|
|
26.1 |
|
|
Return of cash previously paid into escrow in connection with
2004 acquisition
|
|
|
|
|
|
|
56.9 |
|
|
Investments in and loans to affiliates and others
|
|
|
(10.4 |
) |
|
|
(20.2 |
) |
|
Proceeds received from sale of short-term liquid investments
|
|
|
2.6 |
|
|
|
69.3 |
|
|
Purchases of short-term liquid investments
|
|
|
|
|
|
|
(51.8 |
) |
|
Cash paid in connection with LGI Combination
|
|
|
|
|
|
|
(703.5 |
) |
|
Payment of deposit for pending acquisition
|
|
|
|
|
|
|
(131.1 |
) |
|
Other investing activities, net
|
|
|
1.5 |
|
|
|
8.1 |
|
|
Net cash used by investing activities of discontinued operations
|
|
|
(92.5 |
) |
|
|
(134.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
$ |
173.7 |
|
|
$ |
(2,108.9 |
) |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
7
LIBERTY GLOBAL, INC.
(See note 1)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Continued
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended | |
|
|
September 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
amounts in millions | |
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Borrowings of debt
|
|
$ |
6,890.8 |
|
|
$ |
4,250.4 |
|
|
Repayments of debt and capital lease obligations
|
|
|
(6,358.7 |
) |
|
|
(3,915.8 |
) |
|
Repurchase of common stock
|
|
|
(1,757.2 |
) |
|
|
|
|
|
Payment of deferred financing costs
|
|
|
(70.5 |
) |
|
|
(62.2 |
) |
|
Proceeds from issuance of stock by subsidiaries
|
|
|
8.8 |
|
|
|
858.0 |
|
|
Cash distribution by subsidiaries to minority interest owners
|
|
|
(80.9 |
) |
|
|
|
|
|
Change in cash collateral
|
|
|
21.1 |
|
|
|
|
|
|
Other financing activities, net
|
|
|
2.4 |
|
|
|
5.7 |
|
|
Net cash used by financing activities of discontinued operations
|
|
|
|
|
|
|
(8.1 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
(1,344.2 |
) |
|
|
1,128.0 |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
67.5 |
|
|
|
(150.3 |
) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
140.0 |
|
|
|
(218.6 |
) |
|
|
Discontinued operations
|
|
|
(17.6 |
) |
|
|
104.0 |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
122.4 |
|
|
|
(114.6 |
) |
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
1,202.2 |
|
|
|
2,529.1 |
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$ |
1,324.6 |
|
|
$ |
2,414.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
410.6 |
|
|
$ |
231.5 |
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for taxes
|
|
$ |
55.7 |
|
|
$ |
29.7 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
8
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(unaudited)
|
|
(1) |
Basis of Presentation |
Liberty Global, Inc. (LGI) was formed on January 13,
2005, for the purpose of effecting the combination of Liberty
Media International, Inc. (LMI) and UnitedGlobalCom, Inc.
(UGC). LMI is the predecessor to LGI and was formed on
March 16, 2004, in contemplation of the spin off of certain
international cable television and programming subsidiaries and
assets of Liberty Media Corporation (Liberty Media), including a
majority interest in UGC, an international broadband
communications provider. On June 7, 2004, Liberty Media
distributed to its stockholders, on a pro rata basis, all of the
outstanding shares of LMIs common stock, and LMI became an
independent, publicly traded company. In the following text, the
terms we, our, our company,
and us may refer, as the context requires, to LGI
and its predecessors and subsidiaries.
On June 15, 2005, we completed certain mergers whereby LGI
acquired all of the capital stock of UGC that LMI did not
already own and LMI and UGC each became wholly owned
subsidiaries of LGI (the LGI Combination). As LMI is the
predecessor to LGI, the historical financial statements of LMI
and its predecessor became the historical financial statements
of LGI upon consummation of the LGI Combination. Unless the
context otherwise indicates, we present pre-LGI Combination
references to shares of LMI common stock or UGC common stock in
terms of the number of shares of LGI common stock issued in
exchange for such LMI or UGC shares in the LGI Combination.
LGI is an international broadband communications provider of
video, voice and Internet access services, with consolidated
broadband operations at September 30, 2006 in 17 countries
outside of the continental United States, primarily in Europe,
Japan and Chile. Through our indirect wholly owned subsidiaries
UPC Holding B.V. (UPC Holding) and Liberty Global Switzerland,
Inc. (LG Switzerland), (collectively, the UPC Broadband
Division), we provide broadband communications services in 11
European countries. LG Switzerland holds our 100% ownership
interest in Cablecom Holdings AG (Cablecom), a broadband
communications operator in Switzerland. Through our indirect
controlling ownership interest in Jupiter Telecommunications
Co., Ltd. (J:COM), we provide broadband communications services
in Japan. Through our indirect 80%-owned subsidiary VTR
GlobalCom, S.A. (VTR), we provide broadband communications
services in Chile. We also have (i) consolidated
direct-to-home
(DTH) satellite operations in Australia,
(ii) consolidated broadband communications operations in
Puerto Rico, Brazil and Peru, (iii) non-controlling
interests in broadband communications companies in Europe and
Japan, (iv) consolidated interests in certain programming
businesses in Europe and Argentina, and (v) non-controlling
interests in certain programming businesses in Europe, Japan,
Australia and the Americas. Our consolidated programming
interests in Europe are primarily held through Chellomedia B.V.
(Chellomedia), which also provides interactive digital services
and owns or manages investments in various businesses in Europe.
Certain of Chellomedias subsidiaries and affiliates
provide programming and other services to our UPC Broadband
Division.
On December 19, 2005, we reached an agreement to sell 100%
of our Norwegian broadband communications operator, UPC Norge AS
(UPC Norway), and completed the sale on January 19, 2006.
On April 4, 2006, we reached an agreement to sell 100% of
our Swedish broadband communications operator, NBS Nordic
Broadband Services AB (publ) (UPC Sweden), and completed the
sale on June 19, 2006. On June 6, 2006, we reached an
agreement to sell 100% of our French broadband communications
operator, UPC France SA (UPC France) and completed the sale on
July 19, 2006. On June 9, 2006, we sold 100% of our
Norwegian common local exchange carrier (CLEC), Priority Telecom
Norway A.S., (PT Norway). We have presented UPC Norway, UPC
Sweden, UPC France and PT Norway as discontinued operations in
our condensed consolidated financial statements. See note 4.
9
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
Our unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States (GAAP) and with the
instructions to
Form 10-Q and
Article 10 of
Regulation S-X for
interim financial information. Accordingly, these statements do
not include all of the information required by GAAP or
Securities and Exchange Commission (SEC) rules and
regulations for complete financial statements. In the opinion of
management, these statements reflect all adjustments (consisting
of normal recurring adjustments) necessary for a fair
presentation of the results for the interim periods presented.
The results of operations for any interim period are not
necessarily indicative of results for the full year. These
unaudited condensed consolidated financial statements should be
read in conjunction with our consolidated financial statements
and notes thereto included in our 2005 Annual Report on
Form 10-K/A.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Estimates and
assumptions are used in accounting for, among other things, the
valuation of acquisition-related assets and liabilities,
allowances for uncollectible accounts, deferred income taxes and
related valuation allowances, loss contingencies, fair values of
financial and derivative instruments, fair values of long-lived
assets and any related impairments, capitalization of internal
costs associated with construction and installation activities,
useful lives of long-lived assets, actuarial liabilities
associated with certain benefit plans and stock compensation.
Actual results could differ from those estimates.
We do not control the decision making process or business
management practices of our equity affiliates. Accordingly, we
rely on management of these entities to provide us with accurate
financial information prepared in accordance with GAAP. We are
not aware, however, of any errors in or possible misstatements
of the financial information provided by these entities that
would have a material effect on our unaudited condensed
consolidated financial statements.
Unless otherwise indicated, convenience translations into United
States (U.S.) dollars are calculated as of September 30,
2006.
Certain prior period amounts have been reclassified to conform
to the current year presentation.
|
|
(2) |
Earnings per Common Share (EPS) |
Basic EPS is computed by dividing net earnings (loss) by the
weighted average number of common shares outstanding for the
period. Diluted EPS presents the dilutive effect, if any, on a
per share basis of potential common shares (e.g., options,
convertible securities and other contingently issuable shares)
as if they had been exercised or converted at the beginning of
the periods presented. The details of the weighted average
shares used in our basic and diluted EPS calculations are set
forth below for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended | |
|
Nine months ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Weighted average common shares outstanding
|
|
|
430,627,900 |
|
|
|
478,291,500 |
|
|
|
452,578,000 |
|
|
|
396,434,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2006, the number of our potential common
shares that could dilute basic EPS in the future was 73,103,900.
10
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 123(R) (revised 2004), Share-Based
Payment (SFAS 123(R)). SFAS 123(R) is a revision
of SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123), and supersedes Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB No. 25), and its related
implementation guidance. SFAS 123(R) generally requires all
share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements
based on their grant-date fair values. SFAS 123(R) also
requires the fair value of outstanding options vesting after the
date of initial adoption to be recognized as a charge to
operations over the remaining vesting period.
SFAS 123(R) also requires the benefits of tax deductions in
excess of recognized compensation expense to be reported as a
financing cash flow, rather than as an operating cash flow as
prescribed by the prior accounting rules. This requirement, to
the extent applicable, will reduce net operating cash flows and
increase net financing cash flows in periods after adoption.
Total cash flow remains unchanged from what would have been
reported under prior accounting rules.
On January 1, 2006, we adopted the provisions of
SFAS 123(R) using the modified prospective adoption method.
As a result of the adoption of SFAS 123(R), we began
(i) using the fair value method to recognize share-based
compensation, (ii) estimating forfeitures for purposes of
recognizing the remaining fair value of all unvested awards, and
(iii) using the straight-line method to recognize
stock-based compensation expense for our outstanding stock
awards granted after January 1, 2006 and the accelerated
expense attribution method for our outstanding stock awards
granted prior to January 1, 2006. SFAS 123(R) also
requires recognition of the equity component of deferred
compensation as additional paid-in capital. As a result, we have
reclassified the January 1, 2006 deferred compensation
balance of $15.6 million to additional paid-in capital in
our condensed consolidated statement of stockholders
equity.
Prior to the adoption of SFAS 123(R), we accounted for
stock-based compensation awards to our employees using the
intrinsic value method and we recorded forfeitures as incurred.
Generally, under the intrinsic value method,
(i) compensation expense for fixed-plan stock options was
recognized only if the estimated fair value of the underlying
stock exceeded the exercise price on the measurement date, in
which case, compensation was recognized based on the percentage
of options that were vested until the options were exercised,
expired or were canceled, and (ii) compensation expense for
variable-plan options was recognized based upon the percentage
of the options that were vested and the difference between the
quoted market price or estimated fair value of the underlying
common stock and the exercise price of the options at the
balance sheet date, until the options were exercised, expired or
were canceled. We recorded stock-based compensation expense for
our variable-plan options and stock appreciation rights (SARs)
using the accelerated expense attribution method. We recorded
compensation expense for restricted stock awards based on the
quoted market price of our stock at the date of grant and the
vesting period. Most of the outstanding LGI and J:COM stock
options at December 31, 2005 were accounted for as
variable-plan awards.
We account for stock-based compensation awards to non-employees
and employees of non-consolidated affiliated companies using the
fair value method. Under this method, the fair value of the
stock-based award is determined using the Black-Scholes
option-pricing model and remeasured each period until a
commitment date is reached, which is generally the vesting date.
Only J:COM has such non-employee awards. At September 30,
2006, J:COM calculated the fair value of its non-employee
stock-based awards using the
11
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
Black-Scholes option-pricing model with the following
assumptions: no dividends, volatility of 40%, a risk-free rate
of 1.5% and an expected life of five years.
We have calculated the expected life of options and SARs granted
by LGI to employees during 2006 and 2005 using the
simplified method set forth in Staff Accounting
Bulletin No. 107. The expected volatility for LGI
options and SARs granted in 2006 and 2005 was based on the
historical volatilities of LGI, UGC and certain other public
companies with characteristics similar to LGI for a historical
period equal to the expected average life of the LGI awards.
Although we generally expect to issue new shares of LGI common
stock when LGI options or SARs are exercised, we may also elect
to issue shares from treasury to the extent available. Although
we repurchase shares of LGI common stock from time to time, the
parameters of our share purchase and redemption activities are
not established solely with reference to the dilutive impact of
shares issued upon the exercise of stock options and SARs.
Our stock-based compensation for fiscal 2005 has not been
restated in connection with the implementation of
SFAS 123(R). The following table illustrates the pro forma
effect on loss from continuing operations and loss from
continuing operations per share as if we had applied the fair
value method to our outstanding stock-based awards that we have
accounted for under the intrinsic value method. As the
accounting for restricted stock and SARs was the same under APB
No. 25 and SFAS 123, the pro forma adjustments
included in the following table do not include amounts related
to our calculation of compensation expense related to restricted
stock, SARs or to options granted in tandem with SARs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months | |
|
Nine months | |
|
|
ended | |
|
ended | |
|
|
| |
|
| |
|
|
September 30, 2005 | |
|
|
| |
|
|
amounts in millions, | |
|
|
except per share amounts | |
Loss from continuing operations
|
|
$ |
(123.0 |
) |
|
$ |
(209.8 |
) |
|
Add stock-based compensation charges as determined under the
intrinsic value method, net of taxes
|
|
|
21.5 |
|
|
|
39.5 |
|
|
Deduct stock compensation charges as determined under the fair
value method, net of taxes
|
|
|
(8.4 |
) |
|
|
(30.1 |
) |
|
|
|
|
|
|
|
Pro forma loss from continuing operations
|
|
$ |
(109.9 |
) |
|
$ |
(200.4 |
) |
|
|
|
|
|
|
|
Basic and diluted loss from continuing operations per share:
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
$ |
(0.26 |
) |
|
$ |
(0.53 |
) |
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$ |
(0.23 |
) |
|
$ |
(0.51 |
) |
|
|
|
|
|
|
|
12
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
The following table provides certain information regarding stock
awards made by LGI and its consolidated subsidiaries for the
nine months ended September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
dollar amounts in millions, | |
|
|
except per share amounts | |
LGI Series A, LGI Series B and LGI Series C
common stock(a):
|
|
|
|
|
|
|
|
|
Assumptions used to estimate fair value of awards:
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
4.72 5.20% |
|
|
|
3.70 4.23% |
|
|
Expected life
|
|
|
4.5 6.0 years |
|
|
|
4.0 6.0 years |
|
|
Expected volatility
|
|
|
25.50 29.60% |
|
|
|
25.25 45.60% |
|
|
Expected dividend yield
|
|
|
none |
|
|
|
none |
|
Weighted average grant-date fair value per share of awards
granted:
|
|
|
|
|
|
|
|
|
|
Options
|
|
$ |
6.51 |
|
|
$ |
7.62 |
|
|
SARs
|
|
$ |
6.36 |
|
|
$ |
5.14 |
|
|
Restricted stock
|
|
$ |
20.27 |
|
|
$ |
23.38 |
|
Total intrinsic value of awards exercised:
|
|
|
|
|
|
|
|
|
|
Options
|
|
$ |
5.0 |
|
|
$ |
13.6 |
|
|
SARs
|
|
$ |
2.3 |
|
|
$ |
23.0 |
|
Total share-based liabilities paid
|
|
$ |
|
|
|
$ |
7.5 |
|
Cash received from exercise of options
|
|
$ |
7.5 |
|
|
$ |
16.7 |
|
Income tax benefit (expense) related to exercise of options and
SARs
|
|
$ |
(1.9 |
) |
|
$ |
0.5 |
|
J:COM ordinary shares(b):
|
|
|
|
|
|
|
|
|
Cash received from exercise of options
|
|
$ |
3.0 |
|
|
$ |
4.2 |
|
|
Total share-based compensation expense:
|
|
|
|
|
|
|
|
|
LGI Series A, LGI Series B and LGI Series C
common stock(a)
|
|
$ |
46.9 |
|
|
$ |
85.4 |
|
J:COM ordinary shares(b)
|
|
|
2.5 |
|
|
|
31.8 |
|
Restricted shares of LGI and Zonemedia(c)
|
|
|
5.7 |
|
|
|
3.7 |
|
SARs on VTR common stock(d)
|
|
|
1.3 |
|
|
|
1.0 |
|
Other
|
|
|
0.1 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
$ |
56.5 |
|
|
$ |
122.3 |
|
|
|
|
|
|
|
|
13
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2006 | |
|
|
| |
|
|
LGI Series A, | |
|
|
|
|
LGI Series B and | |
|
J:COM | |
|
Restricted shares | |
|
|
|
|
LGI Series C | |
|
ordinary | |
|
of LGI | |
|
SARs on VTR | |
|
|
common stock (a) | |
|
shares (b) | |
|
and Zonemedia (c) | |
|
common stock(d) | |
|
|
| |
|
| |
|
| |
|
| |
|
|
dollar amounts in millions | |
Total compensation cost related to nonvested awards not yet
recognized
|
|
$ |
87.7 |
|
|
$ |
1.6 |
|
|
$ |
13.3 |
|
|
$ |
5.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average period remaining for expense recognition (in
years)
|
|
|
2.84 |
|
|
|
0.50 |
|
|
|
3.25 |
|
|
|
3.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Amounts relate to the LGI Incentive Plan, the LGI Directors
Incentive Plan, the Transitional Plan, the UGC Equity Incentive
Plan, the UGC Director Plan and the UGC Employee Plan, as
discussed below. |
|
(b) |
|
Amounts include compensation expense related to the J:COM Plan
in 2006 and 2005 and the Liberty Jupiter Plan in 2005, as
discussed below. |
|
(c) |
|
Amounts relate to the restricted shares of LGI and Zonemedia
Group Limited, formerly Zone Vision Networks Limited
(Zonemedia), common stock held by employees of Zonemedia. |
|
(d) |
|
Amounts relate to SARs on common stock of VTR granted to
employees of VTR in April 2006 (see below). |
|
|
|
Stock Incentive Plans LGI Common Stock |
The Liberty Global, Inc. Incentive Plan, as amended and restated
(the LGI Incentive Plan) is administered by the compensation
committee of our board of directors. The compensation committee
of our board has full power and authority to grant eligible
persons the awards described below and to determine the terms
and conditions under which any awards are made. The incentive
plan is designed to provide additional remuneration to certain
employees and independent contractors for exceptional service
and to encourage their investment in our company. The
compensation committee may grant non-qualified stock options,
SARs, restricted shares, stock units, cash awards, performance
awards or any combination of the foregoing under the incentive
plan (collectively, awards).
The maximum number of shares of LGI common stock with respect to
which awards may be issued under the incentive plan is
50 million, subject to anti-dilution and other adjustment
provisions of the LGI Incentive Plan, of which no more than
25 million shares may consist of LGI Series B common
stock. With limited exceptions, no person may be granted in any
calendar year awards covering more than 4 million shares of
our common stock, of which no more than 2 million shares
may consist of LGI Series B common stock. In addition, no
person may receive payment for cash awards during any calendar
year in excess of $10 million. Shares of our common stock
issuable pursuant to awards made under the incentive plan are
made available from either authorized but unissued shares or
shares that have been issued but reacquired by our company.
Options and SARs under the LGI Incentive Plan issued prior to
the LGI Combination generally vest at the rate of 20% per
year on each anniversary of the grant date and expire
10 years after the grant date. Options and SARs under the
LGI Incentive Plan issued after the LGI Combination generally
(i) vest 12.5% on the six month anniversary of the grant
date and then vest at a rate of 6.25% each quarter thereafter,
and (ii) expire 7 years after the grant date. The LGI
Incentive Plan had 35,069,861 shares available for grant as
of
14
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
September 30, 2006. These shares may be awarded at or above
fair value in any series of stock, except that no more than
23,372,168 shares may be awarded in LGI Series B
common stock.
|
|
|
The LGI Directors Incentive Plan |
The Liberty Global, Inc. Director Incentive Plan, as amended and
restated (the LGI Directors Incentive Plan) is designed to
provide a method whereby non-employee directors may be awarded
additional remuneration for the services they render on our
board and committees of our board, and to encourage their
investment in capital stock of our company. The LGI Directors
Incentive Plan is administered by our full board of directors.
Our board has the full power and authority to grant eligible
non-employee directors the awards described below and to
determine the terms and conditions under which any awards are
made, and may delegate certain administrative duties to our
employees.
Our board may grant non-qualified stock options, stock
appreciation rights, restricted shares, stock units or any
combination of the foregoing under the LGI Directors Incentive
Plan (collectively, awards). Only non-employee members of our
board of directors are eligible to receive awards under the LGI
Directors Incentive Plan. The maximum number of shares of our
common stock with respect to which awards may be issued under
the LGI Directors Incentive Plan is 10 million, subject to
anti-dilution and other adjustment provisions, of which no more
than 5 million shares may consist of LGI Series B
common stock. Shares of our common stock issuable pursuant to
awards made under the LGI Directors Incentive Plan will be made
available from either authorized but unissued shares or shares
that have been issued but reacquired by our company. Options
issued prior to the LGI Combination under the LGI Directors
Incentive Plan vest on the first anniversary of the grant date
and expire 10 years after the grant date. Options issued
after the LGI Combination under the LGI Directors Incentive Plan
will vest as to one-third on the date of the first annual
meeting of stockholders following the grant date and as to an
additional one-third on the date of the second and third annual
meetings of stockholders following the grant date, provided the
director continues to serve as director on such date. The LGI
Directors Incentive Plan had 9,699,740 shares available for
grant as of September 30, 2006. These shares may be awarded
at or above fair value in any series of stock, except that no
more than 5 million shares may be awarded in LGI
Series B common stock.
As a result of the spin off and related adjustments to Liberty
Medias outstanding stock incentive awards, options to
acquire shares of LGI Series A, B and C common stock were
issued to LMIs directors and employees, Liberty
Medias directors and certain of its employees pursuant to
the LMI Transitional Stock Adjustment Plan (the Transitional
Plan). Such options have remaining terms and vesting provisions
equivalent to those of the respective Liberty Media stock
incentive awards that were adjusted. No new grants will be made
under the Transitional Plan.
|
|
|
UGC Equity Incentive Plan, UGC Director Plans and UGC
Employee Plan |
Options, restricted stock and SARs were granted to employees and
directors of UGC prior to the LGI Combination under these plans.
No new grants will be made under these plans.
|
|
|
Stock Award Activity LGI Common Stock |
Summaries of stock option, SARs and restricted stock activity
under the LGI Incentive Plan, the LGI Directors Incentive Plan,
the Transitional Plan, the UGC Equity Incentive Plan, the UGC
Director Plan, the
15
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
UGC Employee Plan and activity for the restricted shares held by
employees of Zonemedia during the nine months ended
September 30, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average | |
|
|
|
|
Number of | |
|
Weighted average | |
|
remaining | |
|
Aggregate | |
Options LGI Series A common stock: |
|
shares | |
|
exercise price | |
|
contractual term | |
|
intrinsic value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
in years | |
|
in millions | |
Outstanding at January 1, 2006
|
|
|
6,532,038 |
|
|
$ |
19.95 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
878,375 |
|
|
$ |
20.66 |
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
(4,144 |
) |
|
$ |
79.16 |
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(26,203 |
) |
|
$ |
21.55 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(254,263 |
) |
|
$ |
14.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006
|
|
|
7,125,803 |
|
|
$ |
20.21 |
|
|
|
5.88 |
|
|
$ |
54.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2006
|
|
|
3,953,136 |
|
|
$ |
19.23 |
|
|
|
5.22 |
|
|
$ |
41.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average | |
|
|
|
|
Number of | |
|
Weighted average | |
|
remaining | |
|
Aggregate | |
Options LGI Series B common stock: |
|
shares | |
|
exercise price | |
|
contractual term | |
|
intrinsic value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
in years | |
|
in millions | |
Outstanding at January 1, 2006
|
|
|
3,066,716 |
|
|
$ |
20.01 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006
|
|
|
3,066,716 |
|
|
$ |
20.01 |
|
|
|
6.09 |
|
|
$ |
17.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2006
|
|
|
3,066,716 |
|
|
$ |
20.01 |
|
|
|
6.09 |
|
|
$ |
17.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average | |
|
|
|
|
Number of | |
|
Weighted average | |
|
remaining | |
|
Aggregate | |
Options LGI Series C common stock: |
|
shares | |
|
exercise price | |
|
contractual term | |
|
intrinsic value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
in years | |
|
in millions | |
Outstanding at January 1, 2006
|
|
|
9,449,833 |
|
|
$ |
18.80 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
878,375 |
|
|
$ |
20.09 |
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
(4,144 |
) |
|
$ |
74.93 |
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(26,203 |
) |
|
$ |
20.43 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(311,194 |
) |
|
$ |
12.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006
|
|
|
9,986,667 |
|
|
$ |
19.08 |
|
|
|
5.95 |
|
|
$ |
73.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2006
|
|
|
6,814,000 |
|
|
$ |
18.46 |
|
|
|
5.61 |
|
|
$ |
59.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average | |
|
|
|
|
Number of | |
|
Weighted average | |
|
remaining | |
|
Aggregate | |
SARs LGI Series A common stock: |
|
shares | |
|
base price | |
|
contractual term | |
|
intrinsic value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
in years | |
|
in millions | |
Outstanding at January 1, 2006
|
|
|
6,267,624 |
|
|
$ |
14.00 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
809,625 |
|
|
$ |
20.49 |
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
(3,126 |
) |
|
$ |
24.02 |
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(162,228 |
) |
|
$ |
17.10 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(145,096 |
) |
|
$ |
12.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006
|
|
|
6,766,799 |
|
|
$ |
14.72 |
|
|
|
6.85 |
|
|
$ |
49.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2006
|
|
|
991,730 |
|
|
$ |
17.03 |
|
|
|
6.86 |
|
|
$ |
6.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average | |
|
|
|
|
Number of | |
|
Weighted average | |
|
remaining | |
|
Aggregate | |
SARs LGI Series C common stock: |
|
shares | |
|
base price | |
|
contractual term | |
|
intrinsic value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
in years | |
|
in millions | |
Outstanding at January 1, 2006
|
|
|
6,257,092 |
|
|
$ |
13.25 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
809,625 |
|
|
$ |
19.92 |
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
(3,126 |
) |
|
$ |
22.73 |
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(162,228 |
) |
|
$ |
16.23 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(150,268 |
) |
|
$ |
12.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006
|
|
|
6,751,095 |
|
|
$ |
14.00 |
|
|
|
6.85 |
|
|
$ |
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2006
|
|
|
976,026 |
|
|
$ |
16.18 |
|
|
|
6.85 |
|
|
$ |
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average | |
|
Weighted average | |
|
|
|
|
Number of | |
|
grant-date fair | |
|
remaining | |
|
|
Restricted stock LGI Series A common stock: |
|
shares | |
|
value per share | |
|
contractual term | |
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
in years | |
|
|
Outstanding at January 1, 2006
|
|
|
269,426 |
|
|
$ |
23.07 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
586,226 |
|
|
$ |
20.56 |
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(4,450 |
) |
|
$ |
20.48 |
|
|
|
|
|
|
|
|
|
|
Released from restrictions
|
|
|
(60,368 |
) |
|
$ |
23.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006
|
|
|
790,834 |
|
|
$ |
21.21 |
|
|
|
3.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average | |
|
Weighted average | |
|
|
|
|
Number of | |
|
grant-date fair | |
|
remaining | |
|
|
Restricted stock LGI Series B common stock: |
|
shares | |
|
value per share | |
|
contractual term | |
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
in years | |
|
|
Outstanding at January 1, 2006
|
|
|
59,270 |
|
|
$ |
22.23 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
Released from restrictions
|
|
|
(23,708 |
) |
|
$ |
22.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006
|
|
|
35,562 |
|
|
$ |
22.23 |
|
|
|
3.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average | |
|
Weighted average | |
|
|
|
|
Number of | |
|
grant-date fair | |
|
remaining | |
|
|
Restricted stock LGI Series C common stock: |
|
shares | |
|
value per share | |
|
contractual term | |
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
in years | |
|
|
Outstanding at January 1, 2006
|
|
|
327,793 |
|
|
$ |
21.63 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
586,230 |
|
|
$ |
19.99 |
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(4,450 |
) |
|
$ |
19.92 |
|
|
|
|
|
|
|
|
|
|
Released from restrictions
|
|
|
(83,693 |
) |
|
$ |
21.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006
|
|
|
825,880 |
|
|
$ |
20.48 |
|
|
|
3.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM has granted options and stock purchase warrants under
various plans for certain directors and employees of J:COM and
its consolidated subsidiaries and managed affiliates, and
certain non-employees. Options or warrants granted to
non-management employees vest two years from the date of grant,
unless their individual grant agreements provide otherwise.
Options or warrants granted to management employees and
non-employees vest in four equal installments from date of
grant, unless their individual grant agreements provide
otherwise. These options generally expire 10 years from
date of grant, currently ranging from August 23, 2010 to
August 23, 2012. As of September 30, 2006, J:COM has
granted the maximum number of options under existing authorized
plans.
A summary of the J:COM Stock Option Plan activity during the
nine months ended September 30, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average | |
|
|
|
|
Number of | |
|
Weighted average | |
|
remaining | |
|
Aggregate | |
Options J:COM ordinary shares: |
|
shares | |
|
exercise price | |
|
contractual term | |
|
intrinsic value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
in years | |
|
in millions | |
Outstanding at January 1, 2006
|
|
|
177,504 |
|
|
¥ |
80,141 |
|
|
|
|
|
|
|
|
|
|
Granted(a)
|
|
|
304 |
|
|
¥ |
1 |
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
(2,040 |
) |
|
¥ |
80,000 |
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(624 |
) |
|
¥ |
80,000 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(4,358 |
) |
|
¥ |
80,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006
|
|
|
170,786 |
|
|
¥ |
80,004 |
|
|
|
5.13 |
|
|
¥ |
1,553.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2006
|
|
|
151,968 |
|
|
¥ |
80,085 |
|
|
|
4.91 |
|
|
¥ |
1,370.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
The exercise price of these options was significantly below the
market price of J:COM common stock on the date of grant. |
|
|
|
Austar Stock Option Plans |
At September 30, 2006 and December 31, 2005, our
majority-owned subsidiary, Austar United Communications Limited
(Austar), had 50,000 options outstanding to purchase ordinary
shares at an exercise price of $4.70. All options outstanding at
September 30, 2006 and December 31, 2005 were fully
vested and exercisable and expire in 2009. No additional options
are expected to be issued pursuant to this plan.
18
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
Prior to our acquisition of a controlling interest in Austar on
December 14, 2005, Austar had implemented compensatory
plans that provided for the purchase of Austar Class A and
Class B shares by senior management at various prices and
the conversion of the purchased shares into Austar ordinary
shares, subject to vesting schedules. At December 31, 2005,
Austar senior management held Class A and Class B
shares that had not been converted into ordinary shares
aggregating 20,840,817 and 54,025,795, respectively. As of
September 30, 2006, none of the 54,025,795 Class B
shares have been converted into ordinary shares, as they have
not vested. During the nine months ended September 30,
2006, all of the remaining 20,840,817 Class A shares were
converted into ordinary shares.
|
|
|
Liberty Jupiter Stock Plan |
Four individuals, including one of our executive officers, an
officer of one of our subsidiaries and one of LMIs former
directors (who ceased being a director effective with the LGI
Combination) own an 18.75% common stock interest in Liberty
Jupiter, Inc. (Liberty Jupiter), which owned an approximate 4.3%
indirect interest in J:COM. Prior to the adoption of
SFAS 123(R), we recorded stock-based compensation pursuant
to this plan based on changes in the market price of J:COM
common stock. As a result of our January 1, 2006 adoption
of SFAS 123(R), we no longer account for this arrangement
as a compensatory plan and have reclassified the liability as of
January 1, 2006 to minority interests in consolidated
subsidiaries in our condensed consolidated balance sheet. See
note 10.
In April 2006, VTRs board of directors adopted a phantom
SARs plan with respect to 1,000,000 shares of VTRs
common stock (the VTR Plan). SARs granted under the VTR Plan
vest in equal semi-annual installments over a four-year period
and expire no later than July 1, 2010. Vested SARs are
exercisable within 60 days of receipt of an annual
valuation report as defined in the VTR Plan. Upon exercise, the
SARs are payable in cash or, for any such time as VTR is
publicly traded, cash or shares of VTR or any combination
thereof, in each case at the election of the committee that
administers the VTR Plan (the VTR Committee). On April 12,
2006, the VTR Committee granted a total of 945,000 SARs, each
with a base price of Chilean peso (CLP) 10,440 and a
vesting commencement date of January 1, 2006. The remaining
SARs with respect to 55,000 shares available for grant may
be awarded at a price to be determined by the VTR Committee. We
use the liability method to account for the VTR phantom SARs.
19
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
A summary of the VTR Plan activity during the nine months ended
September 30, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average | |
|
|
|
|
Number of | |
|
Weighted average | |
|
remaining | |
|
Aggregate | |
SARs VTR common stock: |
|
shares | |
|
base price | |
|
contractual term | |
|
intrinsic value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
in years | |
|
in millions | |
Outstanding at January 1, 2006
|
|
|
|
|
|
|
CLP |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
945,000 |
|
|
|
CLP 10,440 |
|
|
|
|
|
|
|
|
|
|
Expired or canceled
|
|
|
(31,000 |
) |
|
|
CLP 10,440 |
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
CLP |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
CLP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2006(a)
|
|
|
914,000 |
|
|
|
CLP 10,440 |
|
|
|
3.75 |
|
|
|
CLP 1,683.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2006
|
|
|
|
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
The fair value of these awards at September 30, 2006 was
calculated using an expected volatility of 23.4%, an expected
life of 3.25 years and a risk-free return of 5.79%. In
addition, we were required to estimate the fair value of VTR
common stock at September 30, 2006. As the outstanding SARs
under this plan currently must be settled in cash, we are
treating these SARs as liability-based awards. Accordingly, the
fair value of these awards is remeasured each reporting period,
and compensation expense is adjusted to reflect the updated fair
value. |
Prior to May, 2006, certain of our directors, executive officers
and officers, and one of our consultants, held phantom options
based on shares of United Latin America, Inc. (ULA), one of our
wholly owned subsidiaries that owns our broadband operations in
Brazil and Peru, as well as our 50% interest in MGM Networks
Latin America, LLC. ULA also owned an 80% interest in VTR
through May 6, 2006, when the VTR interest was transferred
to another LGI subsidiary in exchange for an intercompany note
in connection with an internal corporate restructuring. The ULA
phantom options were granted pursuant to the UIH Latin America,
Inc. Stock Option Plan (ULA Phantom Plan). The transfer of the
VTR interest in May 2006 resulted in the deemed exercise and
resulting termination of the outstanding ULA phantom options
without any payment to the holders, which was inadvertent.
Accordingly, we currently intend to reconstitute the ULA Phantom
Plan and renew the cancelled options with substantially the same
terms, including exercise prices and expiration dates. For
purposes of the reconstituted ULA Phantom Plan, (i) ULA
will be deemed to continue to be the owner of the 80% interest
in VTR for so long as the interest continues to be owned by LGI
or one of its subsidiaries, (ii) the value of the
intercompany note received by ULA in May 2006 will be
disregarded, and (iii) the existing ULA intercompany
indebtedness will be deemed to continue to be outstanding. No
new grants of options may be made under the ULA Phantom Plan.
Prior to May 2006, phantom options were outstanding under the
ULA Phantom Plan with respect to 574,843 shares of ULA
common stock. These outstanding ULA phantom options had exercise
prices ranging from $8.81 to $19.23 and expired on various dates
from 2009 through 2011. All of the phantom options with respect
to ULA common stock that were outstanding prior to May 2006 were
fully vested and upon exercise could be paid, at our sole
election, in cash, shares of LGI common stock, or, if publicly
traded, shares of ULA. The ULA phantom options had no intrinsic
and minimal fair value at April 30, 2006, prior to their
cancellation. The aggregate options outstanding at
April 30, 2006 represented a 2.8% fully diluted equity
20
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
interest in ULA. We own all of the outstanding common stock and
hold 100% of the outstanding debt of ULA.
On February 16, 2006, the FASB issued
SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments, an Amendment of FASB Statements
No. 133 and 140 (SFAS 155). Among other matters,
SFAS 155 allows financial instruments that have embedded
derivatives that otherwise would require bifurcation from the
host to be accounted for as a whole, if the holder irrevocably
elects to account for the whole instrument on a fair value
basis. If elected, subsequent changes in the fair value of the
instrument are recognized in earnings. SFAS 155 is
effective for all financial instruments acquired or issued after
the beginning of an entitys first fiscal year that begins
after September 15, 2006. Earlier adoption is permitted as
of the beginning of an entitys fiscal year, provided the
entity has not yet issued financial statements, including
financial statements for any interim period for that fiscal
year. Effective January 1, 2006, we adopted SFAS 155
and elected to account for the UGC Convertible Notes (see
note 7) on a fair value basis. In accordance with the
provisions of SFAS 155, we have accounted for the
$9.3 million cumulative impact of this change, before
deducting applicable deferred income taxes of $3.4 million,
as a $5.9 million net decrease to our January 1, 2006
accumulated deficit. This adjustment represents the difference
between the total carrying value of the individual components of
the UGC Convertible Notes under our former method of accounting
and the fair value of the UGC Convertible Notes as of
January 1, 2006. Pursuant to the provisions of
SFAS 155, we have not restated our results for periods
prior to January 1, 2006 to reflect this accounting change.
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109 (FIN 48),
which clarifies the accounting for uncertainty in income taxes
recognized in the financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes.
FIN 48 provides guidance on the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. FIN 48 also provides guidance
on derecognition, classification, interest and penalties,
accounting in interim periods, disclosures, and transition.
FIN 48 is effective for fiscal years beginning after
December 15, 2006. We have not completed our evaluation of
the impact of this standard on our consolidated financial
statements.
In September 2006, the SEC issued Staff Accounting
Bulletin No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements (SAB 108). SAB 108
provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement.
SAB 108 is effective for fiscal years ending after
November 15, 2006. We have not completed our evaluation of
the impact of this standard on our consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements(SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair
value under generally accepted accounting principles, and
expands disclosures about fair value measurements. SFAS 157
is effective for financial
21
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
statements issued for fiscal years and interim periods beginning
after November 15, 2007. We have not completed our
evaluation of the impact of this standard on our consolidated
financial statements.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an Amendment of FASB
Statements No. 87, 88, 106 and 132(R) (SFAS 158).
SFAS 158 requires an employer to recognize the overfunded
or underfunded status of a defined benefit postretirement plan
as an asset or liability in its statement of financial position
and recognize changes in the funded status in the year in which
the changes occur. SFAS 158 is effective for fiscal years
ending after December 15, 2006. We have not completed our
evaluation of the impact of this standard on our consolidated
financial statements.
|
|
(4) |
Acquisitions and Dispositions |
|
|
|
Consolidation of Super Media/ J:COM |
On December 28, 2004, our 45.45% ownership interest in
J:COM, and a 19.78% interest in J:COM owned by Sumitomo
Corporation (Sumitomo) were combined in LGI/Sumisho Super Media
LLC (Super Media). Super Medias investment in J:COM was
recorded at the respective historical cost bases of our company
and Sumitomo on the date that our respective J:COM interests
were combined in Super Media. As a result of these transactions,
we held a 69.68% noncontrolling interest in Super Media, and
Super Media held a 65.23% controlling interest in J:COM at
December 31, 2004.
As a result of a February 2005 change in the governance of Super
Media, we obtained control over the financial and operating
policies of Super Media and began accounting for Super Media and
J:COM as consolidated subsidiaries effective January 1,
2005. As we paid no monetary consideration to Sumitomo in
connection with this change in corporate governance, we have
recorded the consolidation of Super Media/J:COM at historical
cost. Super Media will be dissolved in February 2010 unless we
and Sumitomo mutually agree to extend the term.
On March 23, 2005, J:COM received net proceeds of
¥82,043 million ($774.3 million at the
transaction date) in connection with an initial public offering
(IPO) of its common shares, and on April 20, 2005,
J:COM received additional net proceeds of
¥8,445 million ($79.1 million at the transaction
date) in connection with the sale of additional common shares
upon the April 15, 2005 exercise of the underwriters
over-allotment option.
At September 30, 2006, Super Media owned 3,987,238 or
62.61% of the issued and outstanding shares of J:COM, and
LGIs ownership interest in Super Media was 58.66%.
On August 9, 2006, we announced that (i) our indirect
subsidiary, Liberty Global Europe B.V. (Liberty Global Europe),
had signed a total return swap agreement with each of
Aldermanbury Investments Limited (AIL), an affiliate of JP
Morgan, and Deutsche Bank AG, London Branch (Deutsche), to
acquire Unite Holdco III B.V. (Unite Holdco), subject to
regulatory approvals, and (ii) Unite Holdco had entered
into a share purchase agreement to acquire for
322.5 million
($409.2 million), subject to closing and post-closing
adjustments, all interests in Karneval Media s.r.o. and
Forecable s.r.o. (together Karneval) from ICZ Holding
22
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
B.V. On September 18, 2006, Unite Holdco acquired Karneval
for aggregate cash consideration of
331.1 million
($420.1 million) before direct acquisition costs, including
8.6 million
($10.9 million) of net cash and working capital
adjustments. Karneval provides cable television and broadband
Internet services to residential customers and managed network
services to corporate customers in the Czech Republic.
As stated above, Liberty Global Europes acquisition of
Unite Holdco from Unite Holdcos parent companies, AIL and
Deutsche, is subject to receipt of applicable regulatory
approvals.
Pursuant to the total return swap agreements, if the relevant
regulatory approvals are obtained prior to May 7, 2007,
Liberty Global Europe will transfer to each of AIL and Deutsche
an amount equal to AILs and Deutsches respective
invested capital in Unite Holdco, plus interest at a margin of
0.70% over a specified EURIBOR-based rate, in exchange for all
of the outstanding share capital of Unite Holdco and
(indirectly) Karneval. At September 30, 2006,
AILs and Deutsches invested capital in Unite Holdco
aggregated
336.1 million
($426.4 million). Liberty Global Europes obligations
under each of the swap agreements are fully secured by cash
collateral deposited for the benefit of each of AIL and
Deutsche, to be repaid to Liberty Global Europe upon settlement
of the swap agreement. AIL and Deutsche have agreed to pay
Liberty Global Europe interest on the amount of the cash
collateral at agreed upon rates, which following Unite
Holdcos acquisition of Karneval will be the specified
EURIBOR-based rate. The aggregate amount of the cash collateral
provided by Liberty Global Europe equals the sum of the
331.1 million
($420.1 million) cash consideration paid by Unite Holdco
for Karneval plus
5.0 million
($6.3 million) to provide for Unite Holdcos working
capital requirements.
If regulatory approval for Liberty Global Europes
acquisition of Unite Holdco and (indirectly) Karneval is not
received by May 7, 2007 or, if prior to that date, the
appropriate authorities have expressly and conclusively refused
to grant the necessary approval, AIL and Deutsche may sell their
direct or indirect interest in Unite Holdco and Karneval to any
third party for such consideration and on such terms and
conditions as AIL and Deutsche determine in their sole
discretion. Liberty Global Europe has agreed to indemnify each
of AIL and Deutsche and their affiliates with respect to any
losses, liabilities and taxes incurred in connection with the
acquisition, ownership and subsequent transfer of the Unite
Holdco and Karneval interests.
In connection with the transaction, Liberty Global Europe agreed
to pay each of AIL and Deutsche an arrangement fee of
1.75 million
($2.2 million), in addition to the interest referred to
above, and to reimburse AIL and Deutsche for their reasonable
costs and expenses associated with the transaction.
As mentioned above, Liberty Global Europe has agreed to
indemnify AIL and Deutsche and its affiliates with respect to
any losses, liabilities and taxes incurred in connection with
the transaction. Liberty Global Europes indemnity
agreement with AIL and Deutsche is considered to be a variable
interest in Unite Holdco, which is a variable interest entity
under the provisions of FASB Interpretation No. 46(R),
Consolidation of Variable interest Entities
(FIN 46(R)). As we are responsible for all losses to be
incurred by AIL and Deutsche in connection with the acquisition,
ownership and ultimate disposition of Unite Holdco, we are the
primary beneficiary, as defined by FIN 46(R), and are
therefore required to consolidate Unite Holdco and its
subsidiary Karneval, as of the closing date of Unite
Holdcos acquisition of Karneval. As each of AIL and
Deutsche do not have equity at risk in Unite Holdco, the full
amount of Unite Holdcos net earnings (loss) will be
allocated to Liberty Global Europe. For financial reporting
purposes, we began consolidating Unite Holdco effective
September 30, 2006.
Unite Holdcos acquisition of Karneval has been accounted
for using the purchase method of accounting. The total purchase
price has been allocated to the acquired identifiable net assets
of Karneval based on
23
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
preliminary assessments of their respective fair values, and the
excess of the purchase price over the preliminary fair values of
such identifiable net assets was allocated to goodwill.
On September 28, 2006, J:COM paid aggregate cash
consideration of ¥55.8 billion ($472.5 million)
before direct acquisition costs to increase its ownership
interest in Cable West Inc. (Cable West) from an 8.58%
non-controlling interest to an 84.94% controlling interest.
Cable West is a broadband communications provider in Japan. For
financial reporting purposes, J:COM began consolidating Cable
West effective September 30, 2006. In connection with the
acquisition of Cable West, J:COM entered into new term loan
agreements in September 2006. See note 7.
The Cable West acquisition has been accounted for using the
purchase method of accounting. The total purchase price has been
allocated to the acquired identifiable net assets of Cable West
based on preliminary assessments of their respective fair
values, and the excess of the purchase price over the
preliminary fair values of such identifiable net assets was
allocated to goodwill.
During 2005, we completed the following significant
acquisitions, which are collectively referred to herein as the
Significant 2005 Acquisitions:
(i) The June 15, 2005 LGI Combination;
(ii) The October 24, 2005 acquisition by LG
Switzerland of the issued share capital of Cablecom, the parent
company of a Swiss broadband communications company;
(iii) The October 14, 2005 acquisition of Astral
Telecom SA (Astral), a broadband communications operator in
Romania;
(iv) The May 9, 2005 consolidation and
December 12, 2005 acquisition of NTL Communications
(Ireland) Limited, NTL Irish Networks Limited and certain
related assets (together NTL Ireland);
(v) The December 14, 2005 acquisition of a controlling
interest in Austar; and
(vi) VTRs April 13, 2005 acquisition of a
controlling interest in Metrópolis-Intercom S.A.
(Metrópolis), a Chilean broadband communications company.
Prior to the combination, LMI owned a 50% interest in
Metrópolis, with the remaining 50% interest owned by
Cristalerías de Chile S.A. (CCC).
24
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
A summary of the purchase prices and the effective acquisition
and consolidation dates for financial reporting purposes of
Karneval, Cable West and the Significant 2005 Acquisitions is
presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NTL | |
|
LGI | |
|
|
|
|
|
|
|
|
|
|
|
|
Metrópolis | |
|
Ireland | |
|
Combination | |
|
Astral | |
|
Cablecom | |
|
Austar | |
|
Karneval | |
|
Cable West | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Effective acquisition date for financial |
|
April 1, | |
|
May 1, | |
|
June 15, | |
|
October 1, | |
|
October 31, | |
|
December 31, | |
|
September 30, | |
|
September 30, | |
reporting purposes |
|
2005 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions, except % amounts | |
LGIs ownership at September 30, 2006
|
|
|
80.0 |
% |
|
|
100 |
% |
|
|
(a |
) |
|
|
100 |
% |
|
|
100 |
% |
|
|
(b |
) |
|
|
(c |
) |
|
|
84.94 |
% |
Purchase price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash consideration
|
|
$ |
|
|
|
$ |
428.2 |
|
|
$ |
694.5 |
|
|
$ |
407.1 |
|
|
$ |
2,212.3 |
|
|
$ |
155.0 |
|
|
$ |
420.1 |
|
|
$ |
472.5 |
|
|
Direct acquisition costs
|
|
|
3.4 |
|
|
|
20.6 |
|
|
|
9.0 |
|
|
|
3.1 |
|
|
|
13.6 |
|
|
|
0.5 |
|
|
|
6.2 |
|
|
|
1.8 |
|
|
Issuance of derivative instrument
|
|
|
11.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of LGI stock
|
|
|
|
|
|
|
|
|
|
|
2,787.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of subsidiary stock
|
|
|
180.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
195.1 |
|
|
$ |
448.8 |
|
|
$ |
3,491.1 |
|
|
$ |
410.2 |
|
|
$ |
2,225.9 |
|
|
$ |
155.5 |
|
|
$ |
426.3 |
|
|
$ |
474.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
As a result of the LGI Combination, our interest in UGC
increased from 53.4% to 100%. |
|
(b) |
|
On December 14, 2005, we completed a transaction that
increased our ownership of Austar from a 36.7% non-controlling
ownership interest to a 55.2% controlling interest. At
September 30, 2006, we owned 670,018,242 shares or
53.18% of Austars outstanding ordinary shares. |
|
(c) |
|
At September 30, 2006, we did not have any direct or
indirect equity ownership interest in Karneval or its parent,
Unite Holdco. Unite Holdco is a variable interest entity that we
are consolidating pursuant to the requirements of FIN 46(R). |
The following unaudited pro forma condensed consolidated
operating results for the nine months ended September 30,
2006 give effect to the Karneval and Cable West acquisitions as
if they had been completed as of January 1, 2006. The
following unaudited pro forma condensed consolidated operating
results for the nine months ended September 30, 2005 give
effect to the Significant 2005 Acquisitions, the Karneval and
the Cable West acquisitions as if they had been completed as of
January 1, 2005. These pro forma amounts are not
necessarily indicative of the operating results that would have
occurred if these transactions had occurred on such dates. The
pro forma adjustments are based upon currently available
information and upon certain assumptions that we believe are
reasonable.
|
|
|
|
|
|
|
|
|
|
|
Nine months ended | |
|
|
September 30, | |
|
|
| |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
amounts in millions, except | |
|
|
per share amounts | |
Revenue
|
|
$ |
4,883.8 |
|
|
$ |
4,323.4 |
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(301.2 |
) |
|
$ |
(453.5 |
) |
|
|
|
|
|
|
|
Loss per share from continuing operations
|
|
$ |
(0.67 |
) |
|
$ |
(0.85 |
) |
|
|
|
|
|
|
|
25
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
During 2005 and 2006 we completed the following acquisitions,
which, when considered individually, would not have had a
material impact on our results of operations if such
acquisitions had occurred on January 1, 2005:
|
|
|
(i) The March 2, 2006 acquisition of INODE
Telekommunikationsdienstleistungs GmbH (INODE), an unbundled
Digital Subscriber Line (DSL) provider in Austria, for cash
consideration before direct acquisition costs of approximately
93 million
($111 million at the transaction date); |
|
|
(ii) The November 2005 purchase by Plator Holdings B.V.
(Plator Holdings), an indirect subsidiary of Chellomedia, of
interests that it did not already own in certain businesses that
provide thematic television channels in Spain and Portugal (IPS); |
|
|
(iii) The September 2005 purchase by J:COM of J:COM
Setamachi Co. Ltd. (J:COM Setamachi), a broadband communications
provider in Japan; |
|
|
(iv) The April 2005 acquisition of the remaining 19.9%
minority interest in UPC France; |
|
|
(v) The February 2005, purchase of the shares in Telemach
d.o.o. (Telemach), a broadband communications provider in
Slovenia; |
|
|
(vi) The February 2005 purchase by J:COM of a controlling
interest in J:COM Chofu Cable, Inc. (J:COM Chofu Cable), a
broadband communications provider in Japan; |
|
|
(vii) The January 2005 purchase by Chellomedia of the
Class A shares of Zonemedia, a programming company focused
on the ownership, management and distribution of pay television
channels; and |
|
|
(viii) Other less significant transactions. |
In accordance with the purchase method of accounting, the
purchase price of each acquisition was allocated to the acquired
identifiable tangible and intangible assets and liabilities
based upon their respective fair values, and the excess of the
purchase price over the fair value of such net identifiable
assets was allocated to goodwill. The purchase accounting for
the Cablecom, Astral, Austar, INODE, Karneval and Cable West
acquisitions, as reflected in our condensed consolidated
financial statements, is preliminary and subject to adjustment
based upon our final assessment of the fair values of the
identifiable tangible and intangible assets and liabilities of
each acquired entity. As the open items in the valuation
processes generally relate to property and equipment and
intangible assets, we would expect that the primary effects of
any potential adjustments to the preliminary purchase price
allocation would be changes to the values assigned to these
asset categories and to the related depreciation and
amortization expense. In addition, our final assessment of the
purchase price allocation could lead to adjustments to the
amount of acquired deferred tax assets or assumed deferred tax
liabilities.
UPC Norway On December 19, 2005, we
reached an agreement to sell 100% of UPC Norway to an unrelated
third party. On January 19, 2006, we sold UPC Norway for
cash proceeds of approximately
444.8 million
($536.7 million at the transaction date). On
January 24, 2006,
175 million
($214 million at the transaction date) of the proceeds from
the sale of UPC Norway were applied toward the prepayment of
borrowings under Facility I of the UPC Broadband Holding Bank
Facility (see note 7). The amounts repaid may be reborrowed
subject to covenant compliance. In accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144), we have
presented UPC Norway as a
26
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
discontinued operation in our condensed consolidated financial
statements effective December 31, 2005. UPC Norways
net results for the 2006 period through the date of sale were
not significant. In connection with the January 19, 2006
disposal of UPC Norway, we recognized a net gain of
$223.1 million that includes realized cumulative foreign
currency translation losses of $1.7 million. No income
taxes were required to be provided on this gain. This net gain
is reflected in discontinued operations in our condensed
consolidated statement of operations.
UPC Sweden On April 4, 2006, we reached
an agreement to sell 100% of UPC Sweden to a consortium of
unrelated third parties. On June 19, 2006, we sold UPC
Sweden for cash proceeds of Swedish krona
(SEK) 2,984 million ($403.9 million at the
transaction date) and the assumption by the buyer of capital
lease obligations with an aggregate balance of approximately
SEK251 million ($34.0 million at the transaction
date). We were required to use
150 million
($188.6 million at the transaction date) of the UPC Sweden
sales proceeds to prepay Facility I under the UPC Broadband
Holding Bank Facility. The amounts repaid may be reborrowed
subject to covenant compliance. Effective March 31, 2006,
we began accounting for UPC Sweden as a discontinued operation
in our condensed consolidated financial statements in accordance
with SFAS 144. In connection with the June 19, 2006
disposal of UPC Sweden, we recognized a net gain of
$155.2 million that includes realized cumulative foreign
currency translation gains of $4.4 million. No income taxes
were required to be provided on this gain. This net gain is
reflected in discontinued operations in our condensed
consolidated statement of operations.
UPC France On July 19, 2006, we sold our
100% interest in UPC France to a consortium of unrelated third
parties for cash proceeds of
1,253.2 million
($1,578.4 million at the transaction date), subject to
post-closing adjustments. Effective June 1, 2006, we began
accounting for UPC France as a discontinued operation in our
condensed consolidated financial statements in accordance with
SFAS 144. Other than severance and bonus payments that were
paid in connection with the disposition, UPC Frances net
results from July 1, 2006 through the date of sale were not
significant. Pursuant to the terms of the UPC Broadband Holding
Bank Facility, we are required to use
290.0 million
($365.3 million at the transaction date) of the cash
proceeds from the UPC France sale to prepay or otherwise provide
for the prepayment of a portion of the amounts outstanding under
the UPC Broadband Holding Bank Facility. As permitted by the UPC
Broadband Holding Bank Facility, we initially placed cash
proceeds equal to the
290.0 million
required prepayment in a restricted account that is reserved for
the prepayment of amounts outstanding under the UPC Broadband
Holding Bank Facility. In September 2006, we used
105.0 million
($133.2 million) of the amounts held in the UPC Holding
restricted account, together with available cash of
25.0 million
($31.7 million), to repay amounts outstanding under the UPC
Broadband Holding Bank Facility. We are seeking a waiver that
would eliminate the requirement to use the remaining
185.0 million
($234.7 million) held in the restricted account to repay
amounts outstanding under the UPC Broadband Holding Bank
Facility. In connection with the July 19, 2006 disposal of
UPC France, we recognized a net gain of $625.4 million that
includes realized cumulative foreign currency translation losses
of $18.6 million. No income taxes were required to be
provided on this gain. This net gain is reflected in
discontinued operations in our condensed consolidated statements
of operations.
PT Norway On June 9, 2006, our
subsidiary, Priority Telecom NV (Priority Telecom), disposed of
its 100% interest in PT Norway. In connection with the
June 9, 2006 disposal of PT Norway, we recognized a net
gain of $29.7 million that includes realized cumulative
foreign currency translation losses of $0.4 million. No
income taxes were required to be provided on this gain. This net
gain is reflected in discontinued operations in our condensed
consolidated statement of operations.
27
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
UPC Norway and UPC Sweden were included in our Other Western
Europe reportable segment, UPC France was presented as a
separate reportable segment, and PT Norway was included in our
corporate and other category.
The major assets and liabilities of UPC Norway, which are
classified as discontinued operations in our condensed
consolidated balance sheet at December 31, 2005, are as
follows (amounts in millions):
|
|
|
|
|
|
Current assets
|
|
$ |
14.7 |
|
Property and equipment, net
|
|
|
162.9 |
|
Intangible and other assets, net
|
|
|
167.0 |
|
|
|
|
|
|
Total assets
|
|
$ |
344.6 |
|
|
|
|
|
Current liabilities
|
|
$ |
35.3 |
|
Other long-term liabilities
|
|
|
9.6 |
|
|
|
|
|
|
Total liabilities
|
|
$ |
44.9 |
|
|
|
|
|
The operating results of UPC Norway, UPC Sweden, UPC France and
PT Norway that are classified as discontinued operations in our
condensed consolidated statements of operations are summarized
in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended | |
|
Nine months ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
UPC France | |
|
(UPC Norway, | |
|
(UPC Sweden, | |
|
(UPC Norway, | |
|
|
|
|
UPC Sweden, | |
|
UPC France and | |
|
UPC Sweden, | |
|
|
|
|
UPC France and | |
|
PT Norway) | |
|
UPC France and | |
|
|
|
|
PT Norway) | |
|
|
|
PT Norway) | |
|
|
amounts in millions | |
Revenue
|
|
$ |
|
|
|
$ |
190.7 |
|
|
$ |
325.4 |
|
|
$ |
576.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$ |
(7.5 |
) |
|
$ |
7.4 |
|
|
$ |
25.1 |
|
|
$ |
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and minority interests
|
|
$ |
(7.5 |
) |
|
$ |
(4.7 |
) |
|
$ |
7.0 |
|
|
$ |
(26.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) from discontinued operations
|
|
$ |
(7.5 |
) |
|
$ |
(4.9 |
) |
|
$ |
6.8 |
|
|
$ |
(15.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
As noted above, we were required to use certain proceeds from
the UPC Norway, UPC Sweden and UPC France dispositions to prepay
or otherwise provide for the prepayment of amounts outstanding
under the UPC Broadband Holding Bank Facility. Interest expense
related to such required debt repayments of $10.8 million
for the three months ended September 30, 2005 and
$17.9 million and $32.4 million for the nine months
ended September 30, 2006 and 2005, respectively, is
included in discontinued operations in the accompanying
condensed consolidated statements of operations.
On February 16, 2006, we received $88.0 million in
cash upon the sale of our cost investment in a DTH satellite
provider that operates in Mexico (Sky Mexico). We recognized a
$45.3 million pre-tax gain in connection with this
transaction.
28
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
On August 23, 2006, following receipt of the necessary
regulatory approvals, we completed the sale of our investment in
a DTH satellite provider that operates in Brazil (Sky Brasil).
Upon the completion of this transaction, the contingent
obligation to refund the $60.0 million of cash
consideration that we received for our Sky Brasil interest in
October 2004 was eliminated. We recognized a $16.9 million
pre-tax gain in connection with this transaction.
On August 10, 2006, we sold our investment in Primacom AG
(Primacom). We recognized a $35.8 million pre-tax gain in
connection with this transaction.
|
|
(5) |
Derivative Instruments |
Through our subsidiaries, we have entered into various
derivative instruments to manage interest rate and foreign
currency exposure. With the exception of J:COMs interest
rate swaps, which are accounted for as cash flow hedges, we do
not apply hedge accounting to our derivative instruments.
Accordingly, changes in the fair values of all other derivative
instruments are recorded in realized and unrealized gains
(losses) on financial and derivative instruments in our
condensed consolidated statements of operations. The following
table provides details of the fair value of our derivative
instrument assets (liabilities), net:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
amounts in millions | |
Cross-currency and interest rate exchange contracts
|
|
$ |
40.1 |
|
|
$ |
174.6 |
|
Embedded derivatives(a)
|
|
|
(0.2 |
) |
|
|
1.0 |
|
Foreign exchange contracts
|
|
|
21.8 |
|
|
|
6.3 |
|
Call and put contracts
|
|
|
34.9 |
|
|
|
12.9 |
|
Other
|
|
|
(0.8 |
) |
|
|
0.8 |
|
|
|
|
|
|
|
|
|
Total(a)
|
|
$ |
95.8 |
|
|
$ |
195.6 |
|
|
|
|
|
|
|
|
Current asset
|
|
$ |
38.5 |
|
|
$ |
7.3 |
|
Long-term asset
|
|
|
197.4 |
|
|
|
227.9 |
|
Current liability
|
|
|
(27.8 |
) |
|
|
(22.4 |
) |
Long-term liability
|
|
|
(112.3 |
) |
|
|
(17.2 |
) |
|
|
|
|
|
|
|
|
Total(a)
|
|
$ |
95.8 |
|
|
$ |
195.6 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Excludes embedded derivative components of the UGC Convertible
Notes at December 31, 2005 and the prepaid forward sale of
News Corporation Class A common stock at September 30,
2006 and December 31, 2005, as all amounts related to these
items are included in long-term debt and capital lease
obligations in our condensed consolidated balance sheets. As
discussed in note 3, we changed our method of accounting
for the UGC Convertible Notes effective January 1, 2006. |
29
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
Realized and unrealized gains (losses) on financial and
derivative instruments are comprised of the following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended | |
|
Nine months ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions | |
Cross-currency and interest rate exchange contracts
|
|
$ |
(132.6 |
) |
|
$ |
27.3 |
|
|
$ |
(146.8 |
) |
|
$ |
123.1 |
|
Embedded derivatives(a)
|
|
|
1.0 |
|
|
|
(57.7 |
) |
|
|
(17.3 |
) |
|
|
(10.1 |
) |
UGC Convertible Notes(b)
|
|
|
(81.3 |
) |
|
|
|
|
|
|
(45.2 |
) |
|
|
|
|
Foreign exchange contracts
|
|
|
22.7 |
|
|
|
(0.9 |
) |
|
|
28.5 |
|
|
|
8.6 |
|
Call and put contracts
|
|
|
9.1 |
|
|
|
2.1 |
|
|
|
20.8 |
|
|
|
0.9 |
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(181.1 |
) |
|
$ |
(29.2 |
) |
|
$ |
(160.0 |
) |
|
$ |
126.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes gains and losses associated with the embedded
derivative component of the UGC Convertible Notes during the
2005 periods and the forward sale of the News Corp. Class A
common stock during the 2006 and 2005 periods. As discussed in
note 3, we changed our method of accounting for the UGC
Convertible Notes effective January 1, 2006. |
|
(b) |
|
Represents the change in the fair value of the UGC Convertible
Notes during the 2006 periods that is not attributable to
changes in foreign currency exchange rates. See notes 3 and
7. |
30
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
|
|
|
Cross-currency and Interest Rate Exchange Contracts |
The terms of significant outstanding contracts at
September 30, 2006, were as follows:
|
|
|
Cross-currency Interest Rate Swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional | |
|
|
|
|
|
|
|
|
amount | |
|
Notional | |
|
Interest rate | |
|
Interest rate | |
|
|
due from | |
|
amount due to | |
|
(on notional amount) | |
|
(on notional amount) | |
Maturity date |
|
counterparty | |
|
counterparty | |
|
due from counterparty | |
|
due to counterparty | |
|
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions | |
|
|
|
|
UPC Broadband Holding: B.V.(UPC Broadband Holding), a subsidiary
of UPC Holding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2013(a)
|
|
$ |
525.0 |
|
|
|
393.5 |
|
|
|
LIBOR + 2.0% |
|
|
|
EURIBOR + 2.18% |
|
|
March 2013(b)
|
|
|
360.0 |
|
|
|
272.3 |
|
|
|
LIBOR + 2.0% |
|
|
|
5.70% |
|
|
December 2013(b)
|
|
|
890.0 |
|
|
|
671.7 |
|
|
|
LIBOR + 2.0% |
|
|
|
5.77% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,775.0 |
|
|
|
1,337.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2009(c)
|
|
|
60.0 |
|
|
CZK |
1,703.1 |
|
|
|
5.50% |
|
|
|
5.15% |
|
|
September 2012(c)
|
|
|
200.0 |
|
|
|
5,800.0 |
|
|
|
5.46% |
|
|
|
5.30% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
260.0 |
|
|
CZK |
7,503.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2009(d)
|
|
|
25.0 |
|
|
SKK |
951.1 |
|
|
|
5.50% |
|
|
|
5.68% |
|
|
September 2012(d)
|
|
|
50.0 |
|
|
|
1,900.0 |
|
|
|
5.46% |
|
|
|
6.04% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75.0 |
|
|
SKK |
2,851.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2009(e)
|
|
|
410.0 |
|
|
HUF |
118,937.9 |
|
|
|
5.50% |
|
|
|
8.75% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2009(f)
|
|
|
245.0 |
|
|
PLN |
1,000.6 |
|
|
|
5.50% |
|
|
|
7.00% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2009(g)
|
|
|
200.0 |
|
|
RON |
709.1 |
|
|
|
5.50% |
|
|
|
10.98% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cablecom GmbH, a subsidiary of Cablecom Luxembourg S.C.A.
(Cablecom Luxembourg)(h):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 2007
|
|
|
193.3 |
|
|
CHF |
299.8 |
|
|
|
9.74% |
|
|
|
8.33% |
|
|
April 2007
|
|
|
96.7 |
|
|
|
149.9 |
|
|
|
9.74% |
|
|
|
8.41% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
290.0 |
|
|
CHF |
449.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional | |
|
|
|
|
|
|
|
|
amount | |
|
Notional | |
|
Interest rate | |
|
Interest rate | |
|
|
due from | |
|
amount due to | |
|
(on notional amount) | |
|
(on notional amount) | |
Maturity date |
|
counterparty | |
|
counterparty | |
|
due from counterparty | |
|
due to counterparty | |
|
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions | |
|
|
|
|
Cablecom Luxembourg, a subsidiary of Cablecom and the parent of
Cablecom GmbH:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2012(i)
|
|
|
229.1 |
|
|
CHF |
335.8 |
|
|
|
EURIBOR + 2.50% |
|
|
|
CHF LIBOR + 2.46% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VTR(j):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2014
|
|
$ |
145.0 |
|
|
CLP |
80,257.5 |
|
|
|
LIBOR + 3.0% |
|
|
|
11.32% |
|
|
July 2014
|
|
|
145.0 |
|
|
|
80,257.5 |
|
|
|
LIBOR + 3.0% |
|
|
|
11.04% |
|
|
July 2014
|
|
|
185.0 |
|
|
|
102,397.5 |
|
|
|
LIBOR + 3.0% |
|
|
|
11.07% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
475.0 |
|
|
CLP |
262,912.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Swap contract effectively converts the underlying principal
amount of UPC Broadband Holdings
U.S. dollar-denominated LIBOR (London Interbank Offered
Rate)-indexed floating rate debt to euro-denominated EURIBOR
(Euro Interbank Offered Rate)-indexed floating rate debt. |
|
(b) |
|
Swap contract effectively converts the underlying principal
amount of UPC Broadband Holdings
U.S. dollar-denominated LIBOR-indexed floating rate debt to
euro-denominated fixed rate debt. |
|
(c) |
|
Swap contract effectively converts the underlying principal
amount of UPC Broadband Holdings euro-denominated
fixed-rate debt to Czech koruna (CZK)-denominated fixed rate
debt for the indicated period. |
|
(d) |
|
Swap contract effectively converts the underlying principal
amount of UPC Broadband Holdings euro-denominated
fixed-rate debt to Slovakian koruna (SKK)-denominated fixed rate
debt for the indicated period. |
|
(e) |
|
Swap contract effectively converts the underlying principal
amount of UPC Broadband Holdings euro-denominated
fixed-rate debt to Hungarian forint (HUF)-denominated fixed rate
debt for the indicated period. |
|
(f) |
|
Swap contract effectively converts the underlying principal
amount of UPC Broadband Holdings euro-denominated
fixed-rate debt to Polish zloty (PLN)-denominated fixed rate
debt for the indicated period. |
|
(g) |
|
Swap contract effectively converts the underlying principal
amount of UPC Broadband Holdings euro-denominated
fixed-rate debt to Romanian lei (RON)-denominated fixed rate
debt for the indicated period. |
|
(h) |
|
Each swap contract effectively converts the underlying principal
amount of Cablecom GmbHs euro-denominated fixed-rate debt
to Swiss franc (CHF)-denominated fixed-rate debt. |
|
(i) |
|
Swap contract effectively converts the underlying principal
amount of Cablecom Luxembourgs euro-denominated
EURIBOR-indexed floating rate debt to CHF-denominated
LIBOR-indexed floating rate debt for the indicated period. |
|
(j) |
|
Each swap contract effectively converts the indicated notional
amount from a U.S. dollar-denominated floating rate
instrument to a CLP-denominated fixed rate instrument for the
indicated period. |
32
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate |
|
Interest rate | |
|
|
|
|
due from |
|
due to | |
Maturity date |
|
Notional amount | |
|
counterparty |
|
counterparty | |
|
|
| |
|
|
|
| |
|
|
amounts in | |
|
|
|
|
|
|
millions | |
|
|
|
|
UPC Broadband Holding(a):
|
|
|
|
|
|
|
|
|
|
|
|
January 2007
|
|
|
583.0 |
|
|
EURIBOR |
|
|
2.93% |
|
|
July 2008
|
|
|
393.5 |
|
|
3 month EURIBOR |
|
|
6 month EURIBOR+0.01% |
|
|
January 2009
|
|
|
210.0 |
|
|
EURIBOR |
|
|
3.58% |
|
|
April 2010
|
|
|
1,000.0 |
|
|
EURIBOR |
|
|
3.28% |
|
|
January 2011
|
|
|
193.5 |
|
|
EURIBOR |
|
|
3.83% |
|
|
September 2012
|
|
|
500.0 |
|
|
EURIBOR |
|
|
2.96% |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,880.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LG Switzerland(b)
|
|
|
|
|
|
|
|
|
|
|
|
April 2007
|
|
|
578.6 |
|
|
EURIBOR |
|
|
2.82% |
|
|
|
|
|
|
|
|
|
|
Cablecom Luxembourg(c):
|
|
|
|
|
|
|
|
|
|
|
|
December 2010
|
|
CHF |
618.5 |
|
|
CHF LIBOR |
|
|
2.19% |
|
|
September 2012
|
|
|
711.5 |
|
|
CHF LIBOR |
|
|
2.33% |
|
|
|
|
|
|
|
|
|
|
|
|
CHF |
1,330.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Austar(d):
|
|
|
|
|
|
|
|
|
|
|
|
December 2006
|
|
AUD |
141.0 |
|
|
AUD BBSY |
|
|
5.67% |
|
|
August 2011
|
|
|
100.0 |
|
|
AUD BBSY |
|
|
6.38% |
|
|
August 2011
|
|
|
175.0 |
|
|
AUD BBSY |
|
|
6.14% |
|
|
August 2013
|
|
|
130.0 |
|
|
AUD BBSY |
|
|
6.34% |
|
|
August 2013
|
|
|
100.0 |
|
|
AUD BBSY |
|
|
6.38% |
|
|
|
|
|
|
|
|
|
|
|
|
AUD |
646.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puerto Rico subsidiary(e):
|
|
|
|
|
|
|
|
|
|
|
|
June 2013
|
|
$ |
149.3 |
|
|
LIBOR |
|
|
5.06% |
|
|
|
|
|
|
|
|
|
|
VTR(f):
|
|
|
|
|
|
|
|
|
|
|
|
July 2007 July 2014
|
|
CLP |
55,350.0 |
|
|
TAB |
|
|
7.75% |
|
|
July 2008 July 2014
|
|
|
55,350.0 |
|
|
TAB |
|
|
7.80% |
|
|
|
|
|
|
|
|
|
|
|
|
CLP |
110,700.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM(g):
|
|
|
|
|
|
|
|
|
|
|
|
June 2009
|
|
¥ |
30,495.6 |
|
|
TIBOR |
|
|
0.52% |
|
|
December 2009
|
|
|
6,500.0 |
|
|
TIBOR |
|
|
0.55% |
|
|
December 2009
|
|
|
1,500.0 |
|
|
TIBOR |
|
|
0.69% |
|
|
December 2009
|
|
|
3,000.0 |
|
|
TIBOR |
|
|
0.70% |
|
|
September 2010
|
|
|
3,000.0 |
|
|
TIBOR |
|
|
1.46% |
|
|
September 2011
|
|
|
2,000.0 |
|
|
TIBOR |
|
|
1.37% |
|
|
April 2013
|
|
|
10,000.0 |
|
|
¥ LIBOR |
|
|
1.75% |
|
|
April 2013
|
|
|
5,000.0 |
|
|
¥ LIBOR |
|
|
1.71% |
|
|
April 2013
|
|
|
5,000.0 |
|
|
¥ LIBOR |
|
|
1.81% |
|
|
|
|
|
|
|
|
|
|
|
|
¥ |
66,495.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plator Holding B.V.(Plator Holding)(h):
|
|
|
|
|
|
|
|
|
|
|
|
November 2010
|
|
|
53.2 |
|
|
EURIBOR |
|
|
3.09% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Each contract effectively fixes the EURIBOR on the underlying
principal amount of UPC Broadband Holdings
euro-denominated debt. |
33
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
|
|
|
(b) |
|
At September 30, 2006, this contract effectively fixes the
EURIBOR rate on the underlying principal amount of LG
Switzerlands euro-denominated debt. The notional amount of
this contract increases ratably through January 2007 to a
maximum amount of
597.8 million
($758.4 million) and remains at that level through the
maturity date of the contract. |
|
(c) |
|
Each contract effectively fixes the CHF LIBOR on the underlying
principal amount of Cablecom Luxembourgs CHF-denominated
debt. |
|
(d) |
|
Each contract effectively fixes the Australian dollar
(AUD) BBSY (Australian Bank Bill Swap Rate) on the
underlying principal amount of Austars AUD-denominated
debt. |
|
(e) |
|
Each contract effectively fixes the LIBOR on the underlying
principal amount of the U.S. dollar-denominated debt of our
Puerto Rico subsidiary. |
|
(f) |
|
For the periods indicated in the table, the swap contract
effectively fixes the
180-day CLP-denominated
Tasa Activa Bancaria (TAB) on the underlying principal
amount of VTRs CLP-denominated debt. |
|
(g) |
|
These swap agreements effectively fix the TIBOR (Tokyo Interbank
Offered Rate) or Japanese yen LIBOR component of the interest
rates on borrowings pursuant to J:COMs Credit Facility and
other J:COM debt (see note 7). J:COM accounts for these
derivative instruments as cash flow hedging instruments.
Accordingly, the effective component of the change in the fair
value of these instruments is reflected in other comprehensive
earnings (loss), net. |
|
(h) |
|
Swap contract effectively fixes EURIBOR on the underlying
principal amount of Plator Holdings euro-denominated debt
for the indicated period. |
Each contract caps the EURIBOR rate on the underlying principal
amount of UPC Broadband Holdings euro-denominated debt, as
detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Start date |
|
Maturity date | |
|
Notional amount | |
|
Cap level | |
|
|
| |
|
| |
|
| |
|
|
amounts in millions | |
January 2006
|
|
|
January 2007 |
|
|
|
600.0 |
|
|
|
4.0 |
% |
July 2006
|
|
|
January 2007 |
|
|
|
400.0 |
|
|
|
4.0 |
% |
January 2007
|
|
|
January 2008 |
|
|
|
750.0 |
|
|
|
3.5 |
% |
|
|
|
Foreign Exchange Contracts |
Several of our subsidiaries have outstanding foreign currency
forward contracts. Changes in the fair value of these contracts
are recorded in realized and unrealized gains (losses) on
financial and derivative instruments in our condensed
consolidated statements of operations. The following table
summarizes our outstanding foreign currency forward contracts at
September 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
Currency sold |
|
|
|
|
purchased forward |
|
forward |
|
Maturity dates |
|
|
|
|
|
|
|
|
|
amounts in millions |
|
|
UPC Broadband Holding
|
|
|
164.7 |
|
|
CZK |
4,700.0 |
|
|
|
November 2006 |
|
J:COM
|
|
$ |
16.6 |
|
|
¥ |
1,899.8 |
|
|
|
October 2006 February 2007 |
|
VTR
|
|
$ |
34.8 |
|
|
CLP |
18,502.6 |
|
|
|
October 2006 September 2007 |
|
LG Switzerland
|
|
|
606.4 |
|
|
CHF |
925.1 |
|
|
|
April 2007 |
|
Austar
|
|
$ |
32.0 |
|
|
AUD |
43.4 |
|
|
|
October 2006 April 2008 |
|
34
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
|
|
|
Property and equipment, net |
The details of property and equipment and the related
accumulated depreciation are set forth below:
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
amounts in millions | |
Cable distribution systems
|
|
$ |
9,255.1 |
|
|
$ |
8,442.9 |
|
Support capital and other
|
|
|
1,292.4 |
|
|
|
1,278.6 |
|
|
|
|
|
|
|
|
|
|
|
10,547.5 |
|
|
|
9,721.5 |
|
Accumulated depreciation
|
|
|
(2,681.1 |
) |
|
|
(1,730.2 |
) |
|
|
|
|
|
|
|
Property and equipment, net
|
|
$ |
7,866.4 |
|
|
$ |
7,991.3 |
|
|
|
|
|
|
|
|
|
|
|
Intangible assets subject to amortization |
The details of our intangible assets that are subject to
amortization are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, | |
|
December 31, | |
|
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
|
amounts in millions | |
Gross carrying amount:
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$ |
1,550.2 |
|
|
$ |
1,600.3 |
|
|
Other
|
|
|
112.8 |
|
|
|
75.2 |
|
|
|
|
|
|
|
|
|
|
$ |
1,663.0 |
|
|
$ |
1,675.5 |
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$ |
(224.7 |
) |
|
$ |
(65.2 |
) |
|
Other
|
|
|
(22.0 |
) |
|
|
(8.5 |
) |
|
|
|
|
|
|
|
|
|
$ |
(246.7 |
) |
|
$ |
(73.7 |
) |
|
|
|
|
|
|
|
Net carrying amount:
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$ |
1,325.5 |
|
|
$ |
1,535.1 |
|
|
Other
|
|
|
90.8 |
|
|
|
66.7 |
|
|
|
|
|
|
|
|
|
|
$ |
1,416.3 |
|
|
$ |
1,601.8 |
|
|
|
|
|
|
|
|
35
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
Changes in the carrying amount of goodwill for the nine months
ended September 30, 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign | |
|
|
|
|
|
|
|
|
Reclassified | |
|
Release of | |
|
currency | |
|
|
|
|
|
|
Acquisition | |
|
to | |
|
pre-acquisition | |
|
translation | |
|
|
|
|
January 1, | |
|
related | |
|
discontinued | |
|
valuation | |
|
adjustments | |
|
September 30, | |
|
|
2006 | |
|
adjustments | |
|
operations | |
|
allowance | |
|
and other | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions | |
Europe (UPC Broadband Division):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
1,270.9 |
|
|
$ |
7.0 |
|
|
$ |
|
|
|
$ |
(40.1 |
) |
|
$ |
95.0 |
|
|
$ |
1,332.8 |
|
|
|
Switzerland (Cablecom)
|
|
|
2,165.4 |
|
|
|
(19.4 |
) |
|
|
|
|
|
|
|
|
|
|
74.3 |
|
|
|
2,220.3 |
|
|
|
France
|
|
|
94.4 |
|
|
|
0.8 |
|
|
|
(96.9 |
) |
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
Austria
|
|
|
646.1 |
|
|
|
62.6 |
|
|
|
|
|
|
|
|
|
|
|
49.6 |
|
|
|
758.3 |
|
|
|
Other Western Europe
|
|
|
492.0 |
|
|
|
(23.6 |
) |
|
|
(159.6 |
) |
|
|
|
|
|
|
21.2 |
|
|
|
330.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
4,668.8 |
|
|
|
27.4 |
|
|
|
(256.5 |
) |
|
|
(40.1 |
) |
|
|
241.8 |
|
|
|
4,641.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
352.3 |
|
|
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
(9.1 |
) |
|
|
351.4 |
|
|
|
Other Central and Eastern Europe
|
|
|
613.4 |
|
|
|
319.5 |
|
|
|
|
|
|
|
(5.6 |
) |
|
|
67.7 |
|
|
|
995.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
965.7 |
|
|
|
327.7 |
|
|
|
|
|
|
|
(5.6 |
) |
|
|
58.6 |
|
|
|
1,346.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (UPC Broadband Division)
|
|
|
5,634.5 |
|
|
|
355.1 |
|
|
|
(256.5 |
) |
|
|
(45.7 |
) |
|
|
300.4 |
|
|
|
5,987.8 |
|
Japan (J:COM)
|
|
|
2,006.3 |
|
|
|
481.7 |
|
|
|
|
|
|
|
|
|
|
|
(68.0 |
) |
|
|
2,420.0 |
|
Chile (VTR)
|
|
|
569.9 |
|
|
|
(1.2 |
) |
|
|
|
|
|
|
(13.6 |
) |
|
|
(22.2 |
) |
|
|
532.9 |
|
Corporate and other
|
|
|
809.4 |
|
|
|
2.5 |
|
|
|
|
|
|
|
(12.7 |
) |
|
|
15.1 |
|
|
|
814.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$ |
9,020.1 |
|
|
$ |
838.1 |
|
|
$ |
(256.5 |
) |
|
$ |
(72.0 |
) |
|
$ |
225.3 |
|
|
$ |
9,755.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
|
|
(7) |
Debt and Capital Lease Obligations |
The U.S. dollar equivalents of the components of our
consolidated debt and capital lease obligations are set forth in
the following table. As described in note 5, our
subsidiaries have entered into various derivative instruments to
manage interest rate and foreign currency exposure. The terms of
the various debt agreements described below do not give effect
to any such instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006 | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Unused borrowing | |
|
|
|
|
Weighted | |
|
capacity(b) | |
|
Carrying value(c) | |
|
|
average | |
|
| |
|
| |
|
|
interest | |
|
Local | |
|
|
|
September 30, | |
|
December 31, | |
|
|
rate(a) | |
|
currency | |
|
US$ | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions | |
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UPC Broadband Holding Bank Facility
|
|
|
6.47 |
% |
|
|
1,330.0 |
|
|
$ |
1,687.4 |
|
|
$ |
3,925.5 |
|
|
$ |
4,052.8 |
|
|
J:COM Credit Facility
|
|
|
0.87 |
% |
|
¥ |
16,000.0 |
|
|
|
135.6 |
|
|
|
788.5 |
|
|
|
1,059.8 |
|
|
Other J:COM debt
|
|
|
1.15 |
% |
|
¥ |
4,900.0 |
|
|
|
41.5 |
|
|
|
723.5 |
|
|
|
183.2 |
|
|
Cablecom Luxembourg Bank Facility and Cablecom GmbH Revolving
Facility
|
|
|
4.12 |
% |
|
CHF |
150.0 |
|
|
|
120.0 |
|
|
|
1,069.8 |
|
|
|
204.3 |
|
|
UPC Holding Senior Notes 7.75%
|
|
|
7.75 |
% |
|
|
|
|
|
|
|
|
|
|
634.4 |
|
|
|
591.6 |
|
|
UPC Holding Senior Notes 8.63%
|
|
|
8.63 |
% |
|
|
|
|
|
|
|
|
|
|
380.6 |
|
|
|
355.0 |
|
|
LG Switzerland PIK Loan
|
|
|
11.34 |
% |
|
|
|
|
|
|
|
|
|
|
734.1 |
|
|
|
650.8 |
|
|
UGC Convertible Notes
|
|
|
1.75 |
% |
|
|
|
|
|
|
|
|
|
|
639.1 |
|
|
|
565.5 |
|
|
Cablecom Luxembourg Fixed Rate Notes
|
|
|
9.38 |
% |
|
|
|
|
|
|
|
|
|
|
408.4 |
|
|
|
384.7 |
|
|
VTR Bank Facility
|
|
|
8.37 |
% |
|
CLP |
136,391.6 |
|
|
|
254.3 |
|
|
|
475.0 |
|
|
|
341.4 |
|
|
Secured Borrowing on ABC Family preferred stock
|
|
|
7.47 |
% |
|
|
|
|
|
|
|
|
|
|
345.0 |
|
|
|
|
|
|
Austar Bank Facility
|
|
|
7.70 |
% |
|
AUD |
215.0 |
|
|
|
160.5 |
|
|
|
286.4 |
|
|
|
139.4 |
|
|
Puerto Rico subsidiary bank facility
|
|
|
7.48 |
% |
|
$ |
10.0 |
|
|
|
10.0 |
|
|
|
149.3 |
|
|
|
127.5 |
|
|
Cablecom Luxembourg Floating Rate Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
789.3 |
|
|
Other
|
|
|
6.40 |
% |
|
|
|
|
|
|
|
|
|
|
292.5 |
|
|
|
280.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
5.95 |
% |
|
|
|
|
|
$ |
2,409.3 |
|
|
|
10,852.1 |
|
|
|
9,726.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM |
|
|
397.2 |
|
|
|
326.6 |
|
Other subsidiaries |
|
|
25.5 |
|
|
|
62.2 |
|
|
|
|
|
|
|
|
Total capital lease obligations |
|
|
422.7 |
|
|
|
388.8 |
|
|
|
|
|
|
|
|
Total debt and capital lease obligations |
|
|
11,274.8 |
|
|
|
10,115.0 |
|
Current maturities |
|
|
(878.3 |
) |
|
|
(270.0 |
) |
|
|
|
|
|
|
|
Long-term debt and capital lease obligations |
|
$ |
10,396.5 |
|
|
$ |
9,845.0 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the weighted average interest rate in effect at
September 30, 2006 for all borrowings outstanding pursuant
to each debt instrument including the applicable margin. The
interest rates presented do not include the impact of our
interest rate exchange agreements. See note 5. |
37
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
|
|
|
(b) |
|
Unused borrowing capacity represents the maximum availability
under the applicable facility at September 30, 2006 without
regard to covenant compliance calculations. At
September 30, 2006, the full amount of unused borrowing
capacity was available to be borrowed under each of the
respective facilities except as indicated below. At
September 30, 2006, the availability of the unused
borrowing capacity of the UPC Broadband Holding Bank Facility
and the Austar Bank Facility was limited by covenant compliance
calculations. Based on the September 30, 2006 covenant
compliance calculations, the aggregate amount that will be
available for borrowing when the September 30, 2006 bank
reporting requirements have been completed is
71.4 million
($90.6 million) under the UPC Broadband Holding Bank
Facility and AUD 100 million ($74.6 million) under the
Austar Bank Facility. |
|
(c) |
|
Includes unamortized debt discount or premium, if applicable. |
|
|
|
UPC Broadband Holding Bank Facility |
On July 3, 2006, UPC Broadband Holding entered into an
Additional Facility Accession Agreement with a selected
syndicate of relationship banks. The Additional Facility
Accession Agreement added a new
830 million
multicurrency repayable and redrawable term loan facility
(Facility L) to UPC Broadband Holdings Senior Secured
Credit Facility Agreement dated January 16, 2004 (as
previously amended and restated through May 10, 2006, the
UPC Broadband Holding Bank Facility). Borrowings under Facility
L will bear interest at the applicable reference rate plus
225 basis points and will mature in full in July 2012.
Facility L replaces the
500 million
($634.4 million) multicurrency revolving credit facility
(Facility A) that was due to mature in June 2008. Facility A was
the last remaining facility under UPC Broadband Holdings
Senior Secured Credit Facility Agreement dated October 26,
2000 (as previously amended and restated through May 10,
2006, the 2000 Credit Agreement). As a condition to the
effectiveness of the Additional Facility Accession Agreement,
the 2000 Credit Agreement was canceled.
On May 10, 2006 (the Effective Date), the UPC Broadband
Holding Bank Facility was amended and the Facility F, G and H
term loans thereof were refinanced with a portion of the
borrowings under new Facility J and K term loans of the amended
UPC Broadband Holding Bank Facility. The amounts borrowed under
Facilities J and K aggregated
1.8 billion
($2.284 billion) and $1.775 billion, with each
denomination split evenly between Facilities J and K. Borrowings
denominated in euros under Facility J and K bear interest at an
initial margin of 2.25% above EURIBOR. Borrowings denominated in
U.S. dollars under Facilities J and K bear interest at an
initial margin of 2.00% above LIBOR. Both facilities are to be
repaid in one installment with the outstanding borrowings under
Facilities J and K due and payable on March 31, 2013 and
December 31, 2013, respectively. As a result of this
refinancing, UPC Broadband Holding reduced its cost of borrowing
and extended its debt maturities such that no term loans under
the amended UPC Broadband Holding Bank Facility mature prior to
2013. The U.S. dollar facilities include call protection
for 12 months from signing such that any amounts
voluntarily prepaid during that period will need to include an
additional 1% on the aggregate amount repaid.
The amended UPC Broadband Holding Bank Facility also introduces
a mandatory prepayment requirement of four times Annualized
EBITDA, as defined in the amended UPC Broadband Holding Bank
Facility, of disposed assets. The prepayment amount may be
allocated to one or more of the facilities at the
borrowers discretion and then applied to the loans under
the relevant facility on a pro-rata basis. A prepayment may be
waived by the majority lenders subject to the requirement to
maintain pro forma covenant compliance. If the mandatory
prepayment amount is less than
100 million,
then no prepayment is required (subject to pro forma covenant
compliance).
The basket for permitted disposals of assets has been increased
from an aggregate of 5% of assets, revenues or EBITDA of the
borrower group to allow for disposals of assets, the Annualized
EBITDA of which
38
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
does not exceed the Remaining Percentage of the Annualized
EBITDA of the borrower group, with each capitalized term having
the meaning set forth in the amended UPC Broadband Holding Bank
Facility. The Remaining Percentage is (i) the greater of
(A) 17.5% and (B) the percentage of Annualized EBITDA
of the borrower group represented by the Annualized EBITDA of
UPC France Holding B.V. and its subsidiaries; (ii) less the
aggregate percentage value of all previous disposals made after
the Effective Date; (iii) plus the aggregate amount of
certain reinvestments made after the Effective Date. The amended
UPC Broadband Holding Bank Facility introduces a recrediting
mechanism, in relation to the permitted disposals basket, based
on the proportion of net sales proceeds that are (i) used
to prepay facilities and (ii) reinvested in the borrower
group.
The amended UPC Broadband Holding Bank Facility also permits the
payment by members of the borrower group of dividends,
distributions and other payments where the Senior Leverage Ratio
of the borrower group, as defined in the amended UPC Broadband
Holding Bank Facility, is 4 to 1 or less prior to and after
making the payment and provided that no default is outstanding
or will result from the relevant payment being made.
In December 2005, J:COM entered into a credit facility agreement
with a syndicate of banks (the J:COM Credit Facility). The J:COM
Credit Facility originally consisted of three facilities: a
¥30 billion ($254.2 million) five-year revolving
credit loan (the J:COM Revolving Loan); an ¥85 billion
($720.3 million) five-year amortizing term loan (the J:COM
Tranche A Term Loan); and a ¥40 billion
($339.0 million) seven-year amortizing term loan (the J:COM
Tranche B Term Loan). Borrowings may be made under the
J:COM Credit Facility on a senior, unsecured basis. On
December 21, 2005, J:COM borrowed ¥85 billion of
the J:COM Tranche A Term Loan and ¥40 billion of
the J:COM Tranche B Term Loan to repay its then-existing
credit facility. As discussed below, J:COM has refinanced the
J:COM Tranche B Term Loan. Amounts repaid under the J:COM
Tranche A and B Term Loans may not be reborrowed.
During April and May of 2006, J:COM refinanced
¥38 billion ($323 million at the transaction
date) and ¥2 billion ($18 million at the
transaction date), respectively, of the J:COM Tranche B
Term Loan with ¥20 billion of new fixed-interest rate
loans and ¥20 billion of new variable-interest rate
loans. At September 30, 2006, the fixed-interest rate loans
had a weighted average interest rate of 2.08%, while the new
variable-interest rate loans had a weighted average interest
rate of Japanese yen LIBOR plus 0.30% (0.47% as of
September 30, 2006 including margin). The new loans, which
contain covenants similar to those of the J:COM Credit Facility,
mature in 2013 and are each to be repaid in one installment on
their respective maturity dates.
In connection with the September 2006 acquisition of Cable West,
J:COM entered into (i) a ¥2 billion
($16.9 million at the transaction date) variable-interest
rate term loan agreement, (ii) a ¥20 billion
($169.5 million at the transaction date) seven-year
fixed-interest rate term loan agreement, and (iii) a
¥30 billion ($254.2 million) syndicated term loan
agreement. The ¥2 billion and ¥20 billion
term loans were fully drawn prior to September 30, 2006.
The full amount of the ¥30 billion syndicated term
loan agreement was drawn on October 27, 2006 and a portion
of the proceeds were used to repay the then outstanding balance
of the J:COM Revolving Loan (¥14 billion or
$117.9 million at October 27, 2006). The new term
loans mature between 2011 and 2013. The interest rate on the
¥2 billion term loan is based on the six-month TIBOR
plus a margin of 0.25% (0.757% as of September 30, 2006
including margin). The ¥20 billion term
39
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
loan bears interest as to ¥10 billion of the
outstanding principal amount at a fixed interest rate of 1.72%
and as to the remaining ¥10 billion principal amount
at a fixed interest rate of 1.90%. The ¥30 billion
syndicated term loan bears interest at (i) Japanese yen
LIBOR plus a margin of 0.25% as to the ¥10 billion
($84.7 million) principal amount that is due in September
2011, (ii) Japanese yen LIBOR plus a margin of 0.35% as to
¥19.5 billion ($165.2 million) principal amount
that is due in October 2013, and (iii) a fixed rate of
2.05% as to ¥0.5 billion ($4.2 million) principal
amount that is due in October 2013. These new loans contain
covenants similar to those of J:COM Credit Facility.
Through December 31, 2005, we accounted for the UGC
Convertible Notes as compound financial instruments that
contained a foreign currency debt component and an equity
component that was indexed to LGI Series A common stock,
LGI Series C common stock and to currency exchange rates
(euro to U.S. dollar). Effective January 1, 2006, we
began accounting for the UGC Convertible Notes at fair value.
See note 3.
|
|
|
Cablecom Luxembourg Refinancing |
On December 5, 2005, Cablecom Luxembourg and Cablecom GmbH
entered into a secured facilities agreement (the Cablecom
Luxembourg Bank Facility) with certain banks and financial
institutions as lenders. On January 20, 2006, Cablecom
Luxembourg used the remaining available proceeds under the
Cablecom Luxembourg Bank Facility term loans of
(i) CHF350 million ($273 million at the
transaction date) from the Facility A term loan,
(ii) CHF356 million ($277 million at the
transaction date) from the Facility B term loan, and
(iii) 229 million
($277 million at the transaction date) from the Facility B
term loan, to fund the redemption (the Redemption) of all of
Cablecom Luxembourgs senior secured floating rate notes
(the Cablecom Luxembourg Floating Rate Notes) that were not
tendered in the change in control offer that Cablecom Luxembourg
was required to effect in connection with the Cablecom
Acquisition. The redemption price paid was 102% of the
respective principal amounts of the Cablecom Floating Rate
Notes, plus accrued and unpaid interest through the Redemption
date.
The Cablecom Luxembourg Bank Facility provides the structure for
a CHF 150 million ($120.0 million) revolving credit
facility to be available to replace an existing CHF
150 million ($120.0 million) revolving credit facility
of Cablecom GmbH (the Cablecom GmbH Revolving Facility). To
date, the Cablecom GmbH Revolving Facility remains in place and
there are no commitments to fund the revolving credit facility
of the Cablecom Luxembourg Bank Facility.
On September 20, 2006, VTR consummated a new senior secured
credit agreement consisting of (i) a $475 million
U.S. dollar-denominated eight-year term loan due in 2014
(the VTR Tranche B Bank Facility), which bears interest at
LIBOR plus 3.0% (8.37% at September 30, 2006 including
margin); (ii) a CLP 122.6 billion
($228.6 million) Chilean peso-denominated seven-year
amortizing term loan (the VTR Tranche A Bank Facility),
which would bear interest, if and when drawn, at TAB plus 2.5%
(8.62% at September 30, 2006 including margin) and has a
three-year availability period; and (iii) a CLP
13.8 billion ($25.7 million) Chilean peso-denominated
six and a half-year revolving loan (the VTR Tranche C
Revolver), which would bear interest, if and when drawn, at TAB
plus 2.5% (8.26% at September 30, 2006 including margin).
We refer to these facilities collectively as the VTR Bank
Facility. The VTR Tranche A Bank Facility has a commitment
fee on undrawn balances of 0.825% in the first year and 1.375%
in the second and third year
40
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
of the availability period. The VTR Tranche C Revolver has
a commitment fee on undrawn balances of 0.50% per year.
At closing on September 20, 2006, the full
$475 million of the VTR Tranche B Bank Facility was
drawn. Proceeds were used to (i) repay the CLP
175.5 billion ($326.7 million on the transaction date)
outstanding balance of the existing VTR Bank Facility,
(ii) repay an intercompany loan payable to one of our
subsidiaries ($50.7 million principal amount outstanding on
the transaction date), (iii) pay financing fees and other
transaction costs, and (iv) fund an increase in cash and
cash equivalents to be used for capital expenditures and other
general corporate uses.
|
|
|
Borrowing Secured by ABC Family Preferred Stock |
We own a 99.9% beneficial interest in Liberty Family Preferred,
LLC (LFP LLC), an entity that owns 345,000 shares of the 9%
Series A preferred stock of ABC Family Worldwide, Inc. (ABC
Family) with an aggregate liquidation value of
$345.0 million. The issuer is required to redeem the ABC
Family preferred stock at its liquidation value on
August 1, 2027, and has the option to redeem the ABC Family
preferred stock at its liquidation value at any time after
August 1, 2007. We have the right to require the issuer to
redeem the ABC Family preferred stock at its liquidation value
during the 30 day periods commencing upon August 2 of the
years 2017 and 2022. The carrying value of the ABC Family
preferred stock was $354.6 million and $365.1 million
at September 30, 2006 and December 31, 2005,
respectively, and is included in other investments in our
condensed consolidated balance sheets.
On March 23, 2006, LFP LLC entered into a Loan and Pledge
Agreement with Deutsche Bank AG, which allowed LFP LLC to borrow
up to $345.0 million. On March 29, 2006, LFP LLC
borrowed the full available amount and received net proceeds of
$338.9 million ($345.0 million less prepaid interest
of $6.1 million). The net proceeds received by LFP LLC were
then loaned to LGI. The borrowing bears interest at three-month
LIBOR plus 2.1% and matures on August 1, 2007. LFP LLC has
pledged all 345,000 shares of the ABC Family preferred
stock as security for the borrowing. The borrowing is
non-recourse to LFP LLC and LGI, except for the collateral and
except for LGIs conditional limited guarantee of any and
all amounts due under the Loan and Pledge Agreement. We believe
that the likelihood of having to honor this guarantee is remote.
On August 3, 2006, Austar entered into a new senior secured
debt facility (the Austar Bank Facility) with a selected
syndicate of local and international banks. The Austar Bank
Facility allows Austar to borrow up to AUD 600.0 million
($447.9 million). The Austar Bank Facility is comprised of
(i) Tranche A, an AUD-denominated, five-year term loan
due in 2011 for AUD 275.0 million ($205.3 million),
which bears interest at BBSY plus margins ranging from 0.9% to
1.4%; (ii) Tranche B, an AUD-denominated, seven-year
term loan due in 2013 for AUD 300.0 million
($223.9 million), which bears interest at BBSY plus margins
ranging from 1.3% to 1.7%; and (iii) an AUD-denominated,
six-year revolving loan for approximately AUD 25.0 million
($18.7 million) (the Austar Revolver), which bears interest
at BBSY plus margins ranging from 0.9% to 1.4%. Borrowings under
the Austar Bank Facility mature between 2011 and 2013. As of
September 30, 2006, AUD 275.0 million
($205.3 million), AUD 85.0 million
($63.4 million), and AUD 23.7 million
($17.7 million) of Tranche A, Tranche B and the
Austar Revolver, respectively, were outstanding under the Austar
Bank Facility at a 7.70% weighted average rate (including
margin). Austar used the borrowings under the Austar Bank
Facility, together with available cash, (i) to repay all
amounts outstanding under its old bank facility of AUD
190.0 million ($141.8 million) and (ii) to fund a
AUD 201.6 million ($151.7 million at the
41
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
transaction date) capital distribution to Austars
shareholders on September 20, 2006, including an AUD
107.2 million ($80.7 million at the transaction date)
distribution to our company. The AUD 94.4 million
($71.0 million) capital distribution that was paid to
Austars minority interest owners has been reflected as a
reduction of our additional paid-in capital due to the fact that
the minority interests share of Austars deficit at
the acquisition date was charged to our additional paid-in
capital.
|
|
|
Refinancing of Puerto Rico subsidiarys bank
debt |
On March 1, 2006, our Puerto Rico subsidiary refinanced its
existing bank facility with a portion of the proceeds from a
$150 million seven-year amortizing term loan under an
amended and restated senior secured bank credit facility. The
new bank credit facility also provides for a $10 million
seven-year revolving loan. Borrowings under the new facilities
have a final maturity in 2013 and bear interest at a margin of
2.25% over LIBOR. The $10 million revolving loan has a
commitment fee on undrawn balances of 0.50% per year.
On June 20, 2005, we announced the authorization of a stock
repurchase program. Under this program, we effected purchases
through the first quarter of 2006 that resulted in our
acquisition of $200 million in LGI Series A common
stock and LGI Series C common stock. In addition, on
March 8, 2006, our board of directors approved a new stock
repurchase program under which we may acquire an additional
$250 million in LGI Series A common stock and LGI
Series C common stock. This stock repurchase program may be
effected through open market transactions or privately
negotiated transactions, which may include derivative
transactions. The timing of the repurchase of shares pursuant to
this program will depend on a variety of factors, including
market conditions. This program may be suspended or discontinued
at any time.
In January 2006, we paid $10.7 million to enter into a call
option contract pursuant to which we contemporaneously
(i) sold call options on 500,000 shares of LGI
Series A common stock at an exercise price of $21.80 and
(ii) purchased call options on an equivalent number of
shares of LGI Series A common stock with an exercise price
of zero. In connection with the February 2006 expiration of this
agreement, we exercised our call options and acquired
500,000 shares of LGI Series A common stock.
In April 2006, we repurchased 5,000,000 shares of LGI
Series C common stock from a financial institution pursuant
to a collared accelerated stock repurchase transaction for an
initial price (subject to adjustment) of $100.7 million. In
May 2006, the contract was settled with a payment to LGI, the
amount of which was not significant.
In May 2006, our board of directors authorized two cash
self-tender offers to purchase up to 10,000,000 shares of
LGI Series A common stock and up to 10,288,066 shares
of LGI Series C common stock at a purchase price of $25.00
and $24.30 per share, respectively, or up to an aggregate
for both tender offers of $500.0 million. The self tender
offers commenced on May 18, 2006 and expired on
June 15, 2006. On or about June 21, 2006, we, through
our depository agent, purchased 10,000,000 shares of LGI
Series A common stock and 10,288,066 shares of LGI
Series C common stock for an aggregate price of
$500.0 million and returned all other shares tendered but
not accepted for purchase. Shares purchased pursuant to the
tender offers did not reduce our previously announced stock
repurchase program.
In August 2006, our board of directors authorized two cash
modified Dutch auction self-tender offers to purchase up to
$500.0 million of each of LGI Series A common stock
and LGI Series C common stock at ranges of $22.00 to $25.00
for LGI Series A shares and $21.43 to $24.35 for LGI
Series C shares. These self tender offers expired on
September 8, 2006. Based on the final tabulation by the
depositary for the tender
42
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
offers, the purchase price for the LGI Series A tender
offer was $25.00 per share and the purchase price for the
LGI Series C tender offer was $24.35 per share. On or
about September 14, 2006, we, through our depository agent,
purchased 20,000,000 shares of LGI Series A common
stock and 20,534,000 shares of LGI Series C common
stock for an aggregate price of $1,001.6 million and
returned all other shares tendered but not accepted for
purchase. Shares purchased pursuant to the tender offers did not
reduce our previously announced stock repurchase program.
Including the foregoing transactions, we repurchased during the
nine months ended September 30, 2006 a total of
32,698,558 shares and 40,528,748 shares of LGI
Series A common stock and LGI Series C common stock,
respectively, for aggregate cash consideration of
$1,757.2 million. At September 30, 2006, we were
authorized under the March 8, 2006 stock repurchase plan to
acquire an additional $117.6 million of LGI Series A
common stock and LGI Series C common stock.
|
|
(9) |
Related Party Transactions |
Our related party transactions during the three and nine months
ended September 30, 2006 and 2005 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months | |
|
Nine months | |
|
|
ended | |
|
ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions | |
Revenue earned from related parties of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM(a)
|
|
$ |
16.3 |
|
|
$ |
13.9 |
|
|
$ |
38.2 |
|
|
$ |
37.3 |
|
|
LGI and consolidated subsidiaries other than J:COM(b)
|
|
|
2.5 |
|
|
|
3.7 |
|
|
|
10.2 |
|
|
|
7.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$ |
18.8 |
|
|
$ |
17.6 |
|
|
$ |
48.4 |
|
|
$ |
44.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses charged by related parties of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM(c)
|
|
$ |
16.5 |
|
|
$ |
16.5 |
|
|
$ |
40.3 |
|
|
$ |
54.1 |
|
|
LGI and consolidated subsidiaries other than J:COM(d)
|
|
|
6.1 |
|
|
|
4.4 |
|
|
|
23.7 |
|
|
|
11.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$ |
22.6 |
|
|
$ |
20.9 |
|
|
$ |
64.0 |
|
|
$ |
65.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A expenses charged by related parties of J:COM(e)
|
|
$ |
1.5 |
|
|
$ |
2.8 |
|
|
$ |
7.6 |
|
|
$ |
9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense charged by related parties of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J:COM(f)
|
|
$ |
2.6 |
|
|
$ |
2.4 |
|
|
$ |
7.4 |
|
|
$ |
7.2 |
|
|
LGI and consolidated subsidiaries other than J:COM
|
|
|
0.2 |
|
|
|
2.4 |
|
|
|
0.2 |
|
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total LGI
|
|
$ |
2.8 |
|
|
$ |
4.8 |
|
|
$ |
7.6 |
|
|
$ |
11.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease additions related parties of J:COM(g)
|
|
$ |
45.8 |
|
|
$ |
34.6 |
|
|
$ |
98.5 |
|
|
$ |
104.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
J:COM provides programming, construction, management and
distribution services to its managed affiliates. In addition,
J:COM sells construction materials to such affiliates, provides
distribution services to other LGI affiliates and receives
distribution fees from Jupiter TV Co., Ltd. (Jupiter TV), a 50%
joint venture owned by our company and Sumitomo. |
|
(b) |
|
Amounts consist primarily of management, advisory and
programming license fees, call center charges and fees for
uplink services charged to our equity method affiliates. |
43
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
|
|
|
(c) |
|
J:COM (i) purchases certain cable television programming
from Jupiter TV and other affiliates, (ii) incurs rental
expense for the use of certain vehicles and equipment under
operating leases with two Sumitomo subsidiaries and an affiliate
of Sumitomo, and (iii) paid monthly fees to an equity
method affiliate during the 2005 periods for Internet
provisioning services based on an agreed-upon percentage of
subscription revenue collected by J:COM. |
|
(d) |
|
Amounts consist primarily of programming costs and interconnect
fees charged by equity method affiliates. |
|
(e) |
|
J:COM has management service agreements with Sumitomo under
which officers and management level employees are seconded from
Sumitomo to J:COM, whose services are charged as service fees to
J:COM based on their payroll costs. Amounts also include rental
expense paid to the Sumitomo entities, as described in
(c) above. |
|
(f) |
|
Amounts consist of net related party interest expense, primarily
related to assets leased from the aforementioned Sumitomo
entities. |
|
(g) |
|
J:COM leases, in the form of capital leases, customer premise
equipment, various office equipment and vehicles from the
aforementioned Sumitomo entities. At September 30, 2006,
capital lease obligations of J:COM aggregating
¥38,993 million ($330.4 million) were owed to
these Sumitomo entities. |
|
|
(10) |
Commitments and Contingencies |
In the normal course of business, we have entered into
agreements that commit our company to make cash payments in
future periods with respect to non-cancelable leases,
programming contracts, satellite carriage commitments, purchases
of customer premise equipment, construction activities, network
maintenance, and upgrade and other commitments arising from our
agreements with local franchise authorities. We expect that in
the normal course of business, operating leases that expire
generally will be renewed or replaced by similar leases.
Our equity method investment in Mediatti is owned by our
consolidated subsidiary, Liberty Japan MC, LLC (Liberty Japan
MC). Another shareholder of Mediatti, Olympus Capital Holdings
Asia I, L.P. and its affiliates who own Mediatti shares
(Olympus), has a put right that is first exercisable during July
2008 to require Liberty Japan MC to purchase all of its Mediatti
shares at fair value. If Olympus exercises such right, the two
minority shareholders who are party to the shareholders
agreement may also require Liberty Japan MC to purchase their
Mediatti shares at fair value. If Olympus does not exercise such
right, Liberty Japan MC has a call right that is first
exercisable during July 2009 to require Olympus and the minority
shareholders to sell their Mediatti shares to Liberty Japan MC
at the then fair value. If both the Olympus put right and the
Liberty Japan MC call right expire without being exercised
during the first exercise period, either may thereafter exercise
its put or call right, as applicable, until October 2010. Upon
Olympus exercise of its put right, or our exercise of our
call right, we have the option to use cash, or subject to
certain conditions being met, marketable securities, including
LGI common stock, to acquire Olympus interest in Mediatti.
Belgian Cable Holdings (BCH), an indirect wholly owned
subsidiary of Chellomedia, and Cable Partners Belgium LLC (CBP),
an unrelated third party, each own 78.4% and 21.6%,
respectively, of the common interests in Belgian Cable Investors
Delaware GP (Belgian Cable Investors). At September 30,
2006, Belgian Cable Investors and another subsidiary of
Chellomedia collectively owned a 19.88% economic interest in
Telenet Group Holding N.V., a broadband communications operator
in Belgium (Telenet). CBP has the right
44
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
to require BCH to purchase all of CBPs interest in Belgian
Cable Investors for the then appraised fair value of such
interest during the first 30 days of every six-month period
beginning in December 2007. BCH has the corresponding right to
require CBP to sell all of its interest in Belgian Cable
Investors to BCH for appraised fair value during the first
30 days of every six-month period following December 2009.
At September 30, 2006, the accreted value of our preferred
interest in Belgian Cable Investors was $208.4 million.
Upon CBPs exercise of its put right, we have the option to
use cash, or subject to certain conditions being met, marketable
securities, including LGI common stock, to acquire CBPs
interest in Belgium Cable Investors.
Zonemedias Class B1 shareholders have the right,
subject to vesting, to put 60% and 100% of their
Class B1 shares to Chellomedia on January 7, 2008
and January 7, 2010, respectively. Chellomedia has a
corresponding call right. The put and call rights are to be
settled in cash.
In connection with the April 13, 2005 combination of VTR
and Metrópolis, CCC acquired an option to require UGC to
purchase CCCs equity interest in VTR at fair value,
subject to a $140 million floor price. This option is
exercisable by CCC beginning on April 13, 2006 and expires
on April 13, 2015. Upon the exercise of this put right by
CCC, we have the option to use cash or shares of LGI common
stock to acquire CCCs interest in VTR. We have reflected
the $8.8 million fair value of this put obligation at
September 30, 2006 in other current liabilities in our
condensed consolidated balance sheet.
The minority interest owner of Sport1
Müsorszolgáltató Zrt (Sport1), one of our
European programming subsidiaries, has the right to put all (but
not part) of its stake to one of our subsidiaries each year
between January 1 and January 31, commencing 2009.
This put option lapses if not exercised by February 1,
2011. Sport1 has a corresponding call right. The price payable
upon exercise of the put or call right will be the then fair
value. The fair value to settle the put is limited to an amount
equal to ten times EBITDA, as defined in the applicable
agreement, calculated as the average annualized EBITDA for the
six full calendar months immediately prior to the date of the
relevant put exercise. The put and call rights are to be settled
in cash.
As described in note 3, four individuals own an 18.75%
common stock interest in Liberty Jupiter, which owned an
approximate 4.3% indirect interest in J:COM at
September 30, 2006. Under the amended and restated
shareholders agreement, the individuals can require us to
purchase all of their Liberty Jupiter common stock interest, and
we can require them to sell us all or part of their Liberty
Jupiter common stock interest, in exchange for LGI common stock
with an aggregate market value equal to the fair market value of
the Liberty Jupiter shares so exchanged, as determined by
agreement of the parties or independent appraisal.
|
|
|
Guarantees and Other Credit Enhancements |
At September 30, 2006, J:COM guaranteed
¥9,160 million ($77.6 million) of debt of certain
of its non-consolidated affiliates. The debt maturities range
from 2007 to 2017.
In the ordinary course of business, we have provided
indemnifications to (i) purchasers of certain of our
assets, (ii) our lenders, (iii) our vendors and
(iv) other parties. In addition, we have provided
performance and/or financial guarantees to local municipalities,
our customers and vendors. Historically, these arrangements have
not resulted in our company making any material payments and we
do not believe that they will result in material payments in the
future.
|
|
|
Legal Proceedings and Other Contingencies |
Cignal On April 26, 2002, Liberty Global
Europe N.V., previously known as United Pan Europe
Communications, N.V. (Liberty Global Europe) and the indirect
parent of UPC Holding, received a notice that certain former
shareholders of Cignal Global Communications (Cignal) filed a
lawsuit against Liberty
45
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
Global Europe in the District Court of Amsterdam, The
Netherlands, claiming $200 million on the basis that
Liberty Global Europe failed to honor certain option rights that
were granted to those shareholders in connection with the
acquisition of Cignal by Priority Telecom. Liberty Global Europe
believes that it has complied in full with its obligations to
these shareholders through the successful completion of the IPO
of Priority Telecom on September 27, 2001. Accordingly,
Liberty Global Europe believes that the Cignal
shareholders claims are without merit and intends to
defend this suit vigorously. On May 4, 2005, the court
rendered its decision, dismissing all claims of the former
Cignal shareholders. On August 2, 2005, an appeal against
the district court decision was filed. Subsequently, when the
grounds of appeal were filed in November 2005, only damages
suffered by nine individual plaintiffs, rather than all former
Cignal shareholders, continued to be claimed. Based on the share
ownership information provided by the plaintiffs, the damage
claims remaining subject to the litigation are approximately
$28 million in the aggregate before statutory interest.
On June 13, 2006, Liberty Global Europe, Priority Telecom,
Euronext NV and Euronext Amsterdam NV were each served with a
summons for a new action purportedly on behalf of all former
Cignal shareholders. The new action claims, among other things,
that the listing of Priority Telecom on Euronext Amsterdam in
September 2001 did not meet the requirements of the applicable
listing rules and, accordingly, the IPO was not valid and did
not satisfy Liberty Global Europes obligations to the
Cignal shareholders. Damages of $200 million, plus
statutory interest are claimed in this new action. The nine
individual plaintiffs involved in the appeal proceedings
referred to above, conditionally claim compensation from Liberty
Global Europe in this new action in the event that the court of
appeals determines their claims inadmissible in the appeal
proceedings.
We cannot estimate the amount of loss, if any, that we will
incur upon the ultimate resolution of this matter. However, we
do not anticipate that the outcome of this case will result in a
material adverse effect on our financial position or results of
operations.
Class Action Lawsuits Relating to the LGI
Combination Since January 18, 2005, 21
lawsuits have been filed in the Delaware Court of Chancery and
one lawsuit in the Denver District Court, State of Colorado, all
purportedly on behalf of UGCs public stockholders,
regarding the announcement on January 18, 2005 of the
execution by UGC and LMI of the agreement and plan of merger for
the combination of the two companies under LGI. The defendants
named in these actions include UGC, former directors of UGC and
LMI. The allegations in each of the complaints, which are
substantially similar, assert that the defendants have breached
their fiduciary duties of loyalty, care, good faith and candor
and that various defendants have engaged in self-dealing and
unjust enrichment, approved an unfair price, and impeded or
discouraged other offers for UGC or its assets in bad faith and
for improper motives. The complaints seek various remedies,
including damages for the public holders of UGCs stock and
an award of attorneys fees to plaintiffs counsel. On
February 11, 2005, the Delaware Court of Chancery
consolidated all 21 Delaware lawsuits into a single action.
Also, on April 20, 2005, the Denver District Court, State
of Colorado, issued an order granting a joint stipulation for
stay of the action filed in this court pending the final
resolution of the consolidated action in Delaware. On
May 5, 2005, the plaintiffs in the Delaware action filed a
consolidated amended complaint containing allegations
substantially similar to those found in and naming the same
defendants named in the original complaints. The defendants
filed their answers to the consolidated amended complaint on
September 30, 2005. The parties are proceeding with
pre-trial discovery activity. The defendants believe that a fair
process was followed and a fair price was paid to the public
stockholders of UGC in connection with the LGI Combination and
intend to vigorously defend this action. We cannot estimate the
amount of loss, if any, that we will incur upon the ultimate
resolution of this matter. However, we do not anticipate that
the outcome of this case will result in a material adverse
effect on our financial position or results of operations.
46
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
The Netherlands Regulatory Developments On
September 28, 2005, the Dutch competition authority, NMA,
informed UPC Nederland B.V. (UPC NL), our Dutch subsidiary, that
it had closed its investigation with respect to the price
increases for UPC NLs analog video services in 2003-2005.
The NMA concluded that the price increases were not excessive
and therefore UPC NL did not abuse what NMA views as UPC
NLs dominant position in the analog video services market.
KPN, the incumbent telecommunications operator in The
Netherlands, submitted an appeal of the NMA decision. The NMA
rejected the appeal of KPN by declaring the appeal inadmissible
on April 7, 2006. On May 3, 2006, UPC NL was informed
that KPN had filed an appeal against the NMA decision with the
administrative District Court (of Rotterdam). A court hearing is
scheduled to be held on November 15, 2006.
As part of the process of implementing certain directives
promulgated by the European Union in 2003, the Dutch national
regulatory authority (OPTA) has been analyzing eighteen
markets predefined in the directives to determine if any
operator or service provider has significant market
power within the meaning of the EU directives. In relation
to video services, OPTA has analyzed market 18 (wholesale market
for video services) and an additional nineteenth market relating
to the retail delivery of radio and television packages (retail
market). On March 17, 2006 OPTA announced that UPC NL has
significant market power in the distribution of both
free-to-air and pay
television programming on a wholesale and retail level. The OPTA
decision in relation to market 18 (wholesale market for video
services) includes the obligation to provide access to content
providers and packagers that seek to distribute content over UPC
NLs network using their own conditional access platforms.
This access must be offered on a non-discriminatory and
transparent basis at cost oriented prices regulated by OPTA.
Further, the decision requires UPC NL to grant program providers
access to its basic tier offering in certain circumstances in
line with current laws and regulations. UPC NL will have to
reply within 15 days after a request for access. OPTA has
stated that requests for access must be reasonable and has given
some broad guidelines filling in this concept. Examples of
requests that will not be deemed to be reasonable are: requests
by third parties who have an alternative infrastructure;
requests that would hamper the development of innovative
services; or requests that would result in disproportionate use
of available network capacity due to the duplication of already
existing offerings of UPC NL. It is expected that the concept of
reasonableness will develop by the creation of guidelines by
OPTA and/or by the development of case law.
On the same date OPTA also announced its decision on the market
relating to the retail delivery of radio and television packages
(retail market). The decision is limited to one year
(2006) and OPTA will not intervene in UPC NLs retail
prices as long as UPC NL does not increase its basic analog
subscription fee by more than the CPI increase (which UPC NL did
not do). Furthermore, the decision includes two additional
obligations: (i) to continue to offer the analog video
services on a standalone basis without requiring customers to
buy other services and (ii) to publish on the website of
UPC NL which part of the monthly subscription fees relates to
programming costs.
UPC NL appealed both decisions on April 28, 2006 with the
highest administrative court and substantiated its grounds of
appeal on July 28, 2006. The court hearing is scheduled to
take place on February 1, 2007.
We do not anticipate that the outcome of these proceedings will
result in a material adverse effect on our financial position or
results of operations.
Teleclub Litigation and Swiss Regulatory
Developments Cablecom is involved in proceedings
before the Competition Commission which were originally
initiated by Teleclub AG (Teleclub) in 2002. Teleclub has
exclusive rights to a significant portion of the premium and
sports content distributed in Switzerland. Swisscom AG, the
incumbent telecommunications operator, holds an indirect
interest in Teleclub. Teleclub
47
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
initially sought to compel Cablecom to distribute
Teleclubs digital programs over a set-top box of its own
choosing and to allow Teleclub to provide a pay-per-view service
over Cablecoms network alleging that Cablecom holds and
abuses a dominant position in the market. The dispute with
Teleclub on the terms and conditions for the distribution of
their digital programs was settled on October 11, 2006 and
consequently Cablecom and Teleclub have jointly requested the
Competition Commission to cease its investigation. Although
Cablecom believes that the Competition Commission will not take
any further action, Cablecom cannot exclude that the Competition
Commission might continue its investigation and impose a fine
against Cablecom.
In October 2002, the Competition Commission investigated whether
the encryption of the digital channels offered as part of
Cablecoms basic digital package constitutes an abuse of a
dominant position under the Cartels Act, as Cablecoms
encryption would prevent reception of these channels through any
alternative set-top box. The Competition Commission had
suspended its investigation, intending to wait until a final
determination in the Teleclub litigation had been made, but, as
mentioned above, now Cablecom and Teleclub have jointly
requested it to cease the investigation in its entirety. For the
time being, the Competition Commission has also not taken any
further action based on a request of the Swiss Price Regulator
to intervene against Cablecom with an order to cease encrypting
Cablecoms digital signal and allow use of third-party
set-top boxes on Cablecoms network and to prohibit
bundling of set-top box rental and content subscription.
In April 2005, the Swiss Federal Office of Communications
(OfCom) instituted a supervisory proceeding regarding
Cablecoms compliance with certain conditions of
Cablecoms programming licenses. Pursuant to the licenses,
the rental or purchase of Cablecoms set-top box shall not
be bundled with the subscription of certain Cablecom premium
services and Cablecom shall allow access of third parties to its
set-top boxes through an open interface enabling them to
independently manage their services. If OfCom concludes that
Cablecom has violated its license obligations, the Federal
Council may withdraw the programming license or require Cablecom
to allow third parties access to its set-top boxes through an
open interface enabling them to independently manage their
services and Cablecom may face damages claims, all of which may
have an adverse effect on Cablecoms business.
Although an unfavorable outcome from regulatory developments in
Switzerland could result in an adverse effect on Cablecoms
business, we cannot currently estimate the loss that Cablecom
would incur in the event of an unfavorable outcome.
Income Taxes We operate in numerous countries
around the world and accordingly we are subject to, and pay
annual income taxes under, the various income tax regimes in the
countries in which we operate. The tax rules and regulations in
many countries are highly complex and subject to interpretation.
In the normal course of business, we may be subject to a review
of our income tax filings by various taxing authorities. In
connection with such reviews, disputes could arise with the
taxing authorities over the interpretation or application of
certain income tax rules related to our business in that tax
jurisdiction. Such disputes may result in future tax and
interest assessments by these taxing authorities. We have
recorded an estimated liability in our consolidated tax
provision for any such amount that we do not have a probable
position of sustaining upon review of the taxing authorities. We
adjust our estimates periodically because of ongoing
examinations by and settlements with the various taxing
authorities, as well as changes in tax laws, regulations,
interpretations, and precedent. We believe that adequate
accruals have been made for contingencies related to income
taxes, and have classified these in long-term liabilities based
upon our estimate of when the ultimate resolution of the
contingent liability will occur. The ultimate resolution of the
contingent liabilities will take place upon the earlier of
(i) the settlement date with the applicable taxing
authorities or (ii) the date when the tax authorities are
statutorily prohibited from adjusting the companys tax
computations. Any difference between the amount
48
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
accrued and the ultimate settlement amount, if any, will be
released to income or recorded as a reduction of goodwill
depending upon whether the liability was initially recorded in
purchase accounting.
Regulatory Issues Video distribution,
Internet, telephony and content businesses are regulated in each
of the countries in which we operate. The scope of regulation
varies from country to country, although in some significant
respects regulation in European markets is harmonized under the
regulatory structure of the European Union. Adverse regulatory
developments could subject our businesses to a number of risks.
Regulation could limit growth, revenue and the number and types
of services offered. In addition, regulation may restrict our
operations and subject them to further competitive pressure,
including pricing restrictions, interconnect and other access
obligations, and restrictions or controls on content, including
content provided by third parties. Failure to comply with
current or future regulation could expose our businesses to
various penalties.
In addition to the foregoing items, we have contingent
liabilities related to (i) legal proceedings,
(ii) wage, property and sales tax issues, and
(iii) other matters arising in the ordinary course of
business. Although it is reasonably possible we may incur losses
upon conclusion of such matters, an estimate of any loss or
range of loss cannot be made. However, it is expected that the
amounts, if any, which may be required to satisfy such
contingencies will not be material in relation to our financial
position or results of operations.
We own a variety of international subsidiaries and investments
that provide broadband communications services, and to a lesser
extent, video programming services. We identify our reportable
segments as (i) those consolidated subsidiaries that
represent 10% or more of our revenue, operating cash flow (as
defined below), or total assets, and (ii) those equity
method affiliates where our investment or share of operating
cash flow represents 10% or more of our total assets or
operating cash flow, respectively. In certain cases, we may
elect to include an operating segment in our segment disclosure
that does not meet the above-described criteria for a reportable
segment. We evaluate performance and make decisions about
allocating resources to our operating segments based on
financial measures such as revenue and operating cash flow. In
addition, we review non-financial measures such as subscriber
growth and penetration, as appropriate.
Operating cash flow is the primary measure used by our chief
operating decision maker to evaluate segment operating
performance and to decide how to allocate resources to segments.
As we use the term, operating cash flow is defined as revenue
less operating and SG&A expenses (excluding stock-based
compensation, depreciation and amortization, and impairment,
restructuring and other operating charges or credits). We
believe operating cash flow is meaningful because it provides
investors a means to evaluate the operating performance of our
segments and our company on an ongoing basis using criteria that
is used by our internal decision makers. Our internal decision
makers believe operating cash flow is a meaningful measure and
is superior to other available GAAP measures because it
represents a transparent view of our recurring operating
performance and allows management to readily view operating
trends, perform analytical comparisons and benchmarking between
segments in the different countries in which we operate and
identify strategies to improve operating performance. For
example, our internal decision makers believe that the inclusion
of impairment and restructuring charges within operating cash
flow would distort the ability to efficiently assess and view
the core operating trends in our segments. A reconciliation of
total segment operating cash flow to our consolidated loss
before income taxes, minority interests and discontinued
operations is presented below. Investors should view operating
cash flow as a measure of operating performance that is a
supplement to, and not a substitute for, operating income, net
earnings, cash flow from operating activities and other GAAP
measures of income.
49
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
We have identified the following consolidated operating segments
as our reportable segments:
|
|
|
|
|
Europe (UPC Broadband Division) |
|
|
|
|
|
The Netherlands |
|
|
|
Switzerland (Cablecom) |
|
|
|
Austria |
|
|
|
Other Western Europe |
|
|
|
Hungary |
|
|
|
Other Central and Eastern Europe |
|
|
|
|
|
Japan (J:COM) |
|
|
|
Chile (VTR) |
All of the reportable segments set forth above provide broadband
communications services, including video, voice and Internet
access services and, to a lesser extent, CLEC services. At
September 30, 2006, our operating segments in the UPC
Broadband Division provided services in 11 European countries.
Other Western Europe includes our operating segments in Ireland
and Belgium. Other Central and Eastern Europe includes our
operating segments in Poland, Czech Republic, Slovak Republic,
Romania and Slovenia. Our corporate and other category includes
(i) certain less significant consolidated operating
segments that provide DTH satellite services in Australia,
broadband communications services in Puerto Rico, Brazil and
Peru and video programming and other services in Europe and
Argentina, and (ii) our corporate segment. Intersegment
eliminations primarily represent the elimination of intercompany
transactions between our UPC Broadband Division and Chellomedia.
J:COM provides broadband communications services in Japan. VTR
is an 80%-owned subsidiary that provides broadband
communications services in Chile.
During the second quarter of 2006, we changed our reporting such
that we no longer allocate the central and corporate costs of
the UPC Broadband Division to the individual operating segments
within the UPC Broadband Division. Instead, we present these
costs as a separate category within the UPC Broadband Division.
The UPC Broadband Divisions central and corporate costs
include billing, programming, network operations, technology,
marketing, facilities, finance, legal and other administrative
costs. Prior to July 1, 2006, our CLEC operations in The
Netherlands and Austria were owned and managed by our indirect
subsidiary, Priority Telecom and were included in our corporate
and other category for purposes of segment reporting. Effective
July 1, 2006, we integrated the Priority Telecom CLEC
operations in The Netherlands and Austria with our existing
operations in each country and began reporting these CLEC
operations as components of our reportable segments in The
Netherlands and Austria, respectively. Segment information for
all periods presented has been restated to reflect the
above-described changes and to present UPC Norway, UPC Sweden,
UPC France and PT Norway as discontinued operations. Previously,
UPC Norway and UPC Sweden were included in our Other Western
Europe reportable segment, UPC France was presented as a
separate reportable segment, and PT Norway was included in our
corporate and other category. We present only the reportable
segments of our continuing operations in the following tables.
See note 4.
Both Cablecom and UPC Broadband Holding have separate financial
reporting requirements in connection with their separate
financing arrangements. For purposes of these separate reporting
requirements, certain of UPC Broadband Holdings central
and corporate costs are charged to Cablecom. Consistent with how
we present Cablecoms performance measures to our chief
operating decision maker, the segment
50
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
information presented for Cablecom in the following tables does
not reflect intersegment charges made for separate reporting
purposes.
|
|
|
Performance Measures of Our Reportable Segments |
The amounts presented below represent 100% of each
businesss revenue and operating cash flow. As we control
VTR, Super Media/ J:COM and Austar (which we report in our
corporate and other category), GAAP requires that we consolidate
100% of the revenue and expenses of these entities in our
condensed consolidated statements of operations. The minority
owners interests in the operating results of VTR, J:COM
and other less significant majority owned subsidiaries are
reflected in minority interests in earnings of subsidiaries, net
in our condensed consolidated statements of operations. In the
case of Austar, the minority interests share of
Austars net earnings are currently charged to additional
paid-in capital due to the fact that the minority
interests share of Austars deficit at the
acquisition date was charged to our additional paid-in capital.
It should be noted that our ability to consolidate J:COM is
dependent on our ability to continue to control Super Media,
which will be dissolved in February 2010 unless we and Sumitomo
mutually agree to extend the term. If Super Media is dissolved
and we do not otherwise control J:COM at the time of any such
dissolution, we will no longer be in a position to consolidate
J:COM. When reviewing and analyzing our operating results, it is
important to keep in mind that other third party entities own
significant interests in J:COM, VTR and Austar and that Sumitomo
effectively has the ability to prevent our company from
consolidating J:COM after February 2010.
51
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Revenue | |
|
|
| |
|
|
Three months ended | |
|
Nine months ended | |
|
|
September 30 | |
|
September 30 | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions | |
Europe (UPC Broadband Division):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands(a)
|
|
$ |
237.9 |
|
|
$ |
211.8 |
|
|
$ |
677.3 |
|
|
$ |
647.9 |
|
|
Switzerland (Cablecom)
|
|
|
192.3 |
|
|
|
|
|
|
|
564.6 |
|
|
|
|
|
|
Austria(b)
|
|
|
109.1 |
|
|
|
80.1 |
|
|
|
305.9 |
|
|
|
250.5 |
|
|
Other Western Europe
|
|
|
77.5 |
|
|
|
68.4 |
|
|
|
224.8 |
|
|
|
158.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
616.8 |
|
|
|
360.3 |
|
|
|
1,772.6 |
|
|
|
1,056.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
73.3 |
|
|
|
70.4 |
|
|
|
224.2 |
|
|
|
213.6 |
|
|
Other Central and Eastern Europe
|
|
|
141.3 |
|
|
|
83.8 |
|
|
|
408.1 |
|
|
|
252.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
214.6 |
|
|
|
154.2 |
|
|
|
632.3 |
|
|
|
465.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations of UPC Broadband Division
|
|
|
7.8 |
|
|
|
0.7 |
|
|
|
10.6 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (UPC Broadband Division)
|
|
|
839.2 |
|
|
|
515.2 |
|
|
|
2,415.5 |
|
|
|
1,524.7 |
|
Japan (J:COM)
|
|
|
469.5 |
|
|
|
418.8 |
|
|
|
1,362.7 |
|
|
|
1,237.8 |
|
Chile (VTR)
|
|
|
137.6 |
|
|
|
119.2 |
|
|
|
411.6 |
|
|
|
313.3 |
|
Corporate and other
|
|
|
192.2 |
|
|
|
63.5 |
|
|
|
558.3 |
|
|
|
187.0 |
|
Intersegment eliminations
|
|
|
(16.1 |
) |
|
|
(11.6 |
) |
|
|
(50.7 |
) |
|
|
(31.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
1,622.4 |
|
|
$ |
1,105.1 |
|
|
$ |
4,697.4 |
|
|
$ |
3,231.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Includes revenue from Priority Telecoms CLEC operations of
$22.1 million, $19.0 million, $63.5 million and
$55.5 million, respectively, after giving effect to
adjustments to related intercompany eliminations. |
|
|
|
(b) |
|
Includes revenue from Priority Telecoms CLEC operations of
$2.0 million, $1.6 million, $5.9 million and
$5.3 million, respectively, after giving effect to
adjustments to related intercompany eliminations. |
52
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flow | |
|
|
| |
|
|
Three months ended | |
|
Nine months ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions | |
Europe (UPC Broadband Division):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands(a)
|
|
$ |
118.3 |
|
|
$ |
111.0 |
|
|
$ |
327.5 |
|
|
$ |
341.7 |
|
|
Switzerland (Cablecom)
|
|
|
96.1 |
|
|
|
|
|
|
|
260.5 |
|
|
|
|
|
|
Austria(b)
|
|
|
52.3 |
|
|
|
42.6 |
|
|
|
146.6 |
|
|
|
127.6 |
|
|
Other Western Europe
|
|
|
24.0 |
|
|
|
24.1 |
|
|
|
74.5 |
|
|
|
56.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
290.7 |
|
|
|
177.7 |
|
|
|
809.1 |
|
|
|
526.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
33.5 |
|
|
|
30.9 |
|
|
|
104.9 |
|
|
|
93.6 |
|
|
Other Central and Eastern Europe
|
|
|
67.3 |
|
|
|
36.8 |
|
|
|
193.7 |
|
|
|
115.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
100.8 |
|
|
|
67.7 |
|
|
|
298.6 |
|
|
|
208.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations of UPC Broadband Division
|
|
|
(51.1 |
) |
|
|
(48.9 |
) |
|
|
(151.8 |
) |
|
|
(149.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (UPC Broadband Division)
|
|
|
340.4 |
|
|
|
196.5 |
|
|
|
955.9 |
|
|
|
585.5 |
|
Japan (J:COM)
|
|
|
187.4 |
|
|
|
165.6 |
|
|
|
537.6 |
|
|
|
481.2 |
|
Chile (VTR)
|
|
|
49.7 |
|
|
|
38.3 |
|
|
|
144.1 |
|
|
|
104.2 |
|
Corporate and other
|
|
|
21.9 |
|
|
|
(1.8 |
) |
|
|
67.7 |
|
|
|
(14.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
599.4 |
|
|
$ |
398.6 |
|
|
$ |
1,705.3 |
|
|
$ |
1,156.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Includes operating cash flow from Priority Telecoms CLEC
operations of $4.7 million, $4.7 million,
$12.3 million and $12.5 million, respectively. |
|
|
|
(b) |
|
Includes operating cash flow from Priority Telecoms CLEC
operations of $0.8 million, $0.5 million,
$2.5 million and $1.9 million, respectively. |
53
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
The following table provides a reconciliation of total segment
operating cash flow to loss before income taxes, minority
interests and discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended | |
|
Nine months ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions | |
Total segment operating cash flow
|
|
$ |
599.4 |
|
|
$ |
398.6 |
|
|
$ |
1,705.3 |
|
|
$ |
1,156.4 |
|
Stock-based compensation expense
|
|
|
(21.2 |
) |
|
|
(60.8 |
) |
|
|
(56.5 |
) |
|
|
(122.3 |
) |
Depreciation and amortization
|
|
|
(457.7 |
) |
|
|
(306.0 |
) |
|
|
(1,338.1 |
) |
|
|
(863.8 |
) |
Impairment, restructuring and other operating charges
|
|
|
(5.5 |
) |
|
|
(2.7 |
) |
|
|
(11.7 |
) |
|
|
(3.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
115.0 |
|
|
|
29.1 |
|
|
|
299.0 |
|
|
|
166.8 |
|
Interest expense
|
|
|
(181.8 |
) |
|
|
(122.3 |
) |
|
|
(482.0 |
) |
|
|
(275.8 |
) |
Interest and dividend income
|
|
|
26.1 |
|
|
|
18.9 |
|
|
|
62.1 |
|
|
|
60.9 |
|
Share of results of affiliates, net
|
|
|
5.5 |
|
|
|
2.0 |
|
|
|
5.9 |
|
|
|
(14.8 |
) |
Realized and unrealized gains (losses) on financial and
derivative instruments, net
|
|
|
(181.1 |
) |
|
|
(29.2 |
) |
|
|
(160.0 |
) |
|
|
126.0 |
|
Foreign currency transaction gains (losses), net
|
|
|
0.9 |
|
|
|
7.1 |
|
|
|
83.1 |
|
|
|
(194.1 |
) |
Losses on extinguishment of debt
|
|
|
(5.0 |
) |
|
|
|
|
|
|
(40.6 |
) |
|
|
(12.6 |
) |
Gains on disposition of non-operating assets, net
|
|
|
52.7 |
|
|
|
0.4 |
|
|
|
100.3 |
|
|
|
25.9 |
|
Other income (expense), net
|
|
|
0.9 |
|
|
|
|
|
|
|
(5.3 |
) |
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, minority interests and discontinued
operations
|
|
$ |
(166.8 |
) |
|
$ |
(94.0 |
) |
|
$ |
(137.5 |
) |
|
$ |
(116.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
54
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
The revenue of our geographic segments is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended | |
|
Nine months ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions | |
Europe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe (UPC Broadband Division):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
237.9 |
|
|
$ |
211.8 |
|
|
$ |
677.3 |
|
|
$ |
647.9 |
|
|
|
Switzerland (Cablecom)
|
|
|
192.3 |
|
|
|
|
|
|
|
564.6 |
|
|
|
|
|
|
|
Austria
|
|
|
109.1 |
|
|
|
80.1 |
|
|
|
305.9 |
|
|
|
250.5 |
|
|
|
Ireland
|
|
|
66.6 |
|
|
|
58.4 |
|
|
|
193.1 |
|
|
|
128.2 |
|
|
|
Belgium
|
|
|
10.9 |
|
|
|
10.0 |
|
|
|
31.7 |
|
|
|
30.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
616.8 |
|
|
|
360.3 |
|
|
|
1,772.6 |
|
|
|
1,056.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
73.3 |
|
|
|
70.4 |
|
|
|
224.2 |
|
|
|
213.6 |
|
|
|
Romania
|
|
|
47.2 |
|
|
|
9.2 |
|
|
|
135.9 |
|
|
|
27.4 |
|
|
|
Poland
|
|
|
43.6 |
|
|
|
33.3 |
|
|
|
125.2 |
|
|
|
102.1 |
|
|
|
Czech Republic
|
|
|
30.6 |
|
|
|
24.8 |
|
|
|
89.0 |
|
|
|
75.5 |
|
|
|
Slovak Republic
|
|
|
12.1 |
|
|
|
9.8 |
|
|
|
35.7 |
|
|
|
29.5 |
|
|
|
Slovenia
|
|
|
7.8 |
|
|
|
6.7 |
|
|
|
22.3 |
|
|
|
17.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
214.6 |
|
|
|
154.2 |
|
|
|
632.3 |
|
|
|
465.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations of UPC Broadband Division
|
|
|
7.8 |
|
|
|
0.7 |
|
|
|
10.6 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (UPC Broadband Division)
|
|
|
839.2 |
|
|
|
515.2 |
|
|
|
2,415.5 |
|
|
|
1,524.7 |
|
|
Chellomedia(a)
|
|
|
60.1 |
|
|
|
31.3 |
|
|
|
178.0 |
|
|
|
85.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe
|
|
|
899.3 |
|
|
|
546.5 |
|
|
|
2,593.5 |
|
|
|
1,610.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan (J:COM)
|
|
|
469.5 |
|
|
|
418.8 |
|
|
|
1,362.7 |
|
|
|
1,237.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chile (VTR)
|
|
|
137.6 |
|
|
|
119.2 |
|
|
|
411.6 |
|
|
|
313.3 |
|
|
Other(b)
|
|
|
34.9 |
|
|
|
32.2 |
|
|
|
103.5 |
|
|
|
101.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total The Americas
|
|
|
172.5 |
|
|
|
151.4 |
|
|
|
515.1 |
|
|
|
414.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia
|
|
|
97.2 |
|
|
|
|
|
|
|
276.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment eliminations
|
|
|
(16.1 |
) |
|
|
(11.6 |
) |
|
|
(50.7 |
) |
|
|
(31.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
1,622.4 |
|
|
$ |
1,105.1 |
|
|
$ |
4,697.4 |
|
|
$ |
3,231.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Chellomedias geographic segments are located primarily in
the United Kingdom, The Netherlands and other European countries. |
|
|
|
(b) |
|
Includes certain less significant operating segments that
provide broadband services in Puerto Rico, Brazil and Peru and
video programming services in Argentina. |
55
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
|
|
|
Cablecom Luxembourg Senior Notes |
On October 26, 2006, Cablecom Luxembourg and UPC Holding,
each an indirect subsidiary of LGI, entered into a purchase
agreement with J.P. Morgan Securities Ltd. and Deutsche
Bank AG, London Branch (collectively, the initial purchasers)
pursuant to which the initial purchasers agreed to purchase from
Cablecom Luxembourg
300.0 million
($377.2 million on October 26, 2006) principal amount
of 8.0% Senior Notes due 2016 (the New Cablecom Luxembourg
Notes). The New Cablecom Luxembourg Notes were issued on
October 31, 2006 and the net proceeds from the sale of the
New Cablecom Luxembourg Notes, together with available cash,
were placed into an escrow account (the Cablecom Luxembourg
Defeasance Account) for the benefit of the holders of Cablecom
Luxembourgs 9.375% Senior Notes due 2014 (the Old
Cablecom Luxembourg Notes) in connection with the discharge and
defeasance of such Notes. This discharge and defeasance
eliminated substantially all of the covenants and other
obligations of Cablecom Luxembourg contained in the Old Cablecom
Luxembourg Notes and the relevant indenture until redemption of
the Old Cablecom Luxembourg Notes on April 15, 2007. The
cash deposited into the Cablecom Luxembourg Defeasance Account
(approximately
330.7 million
or $420.7 million at October 31, 2006) is reserved for
the payment of the principal, accrued interest and a call
premium that will be due in connection with the April 15,
2007 redemption of the Old Cablecom Luxembourg Notes. In
addition, pursuant to the terms of the LG Switzerland PIK Loan,
the redemption of the Old Cablecom Luxembourg Notes will require
the repayment of the LG Switzerland PIK Loan.
The indenture for the New Cablecom Luxembourg Notes provides
that, on or after April 15, 2007, Cablecom Luxembourg and
UPC Holding may, at their option, effect a series of
transactions (the Cablecom Fold-In) under which Cablecom
Holdings, the indirect parent company of Cablecom Luxembourg,
and its subsidiaries would become indirect subsidiaries of UPC
Holding. In the event that the Cablecom Fold-In occurs, Cablecom
Luxembourg and UPC Holding may, at their sole option, assign (or
otherwise transfer) Cablecom Luxembourgs obligations under
the New Cablecom Luxembourg Notes to UPC Holding, at which time
the terms (other than interest, maturity and redemption
provisions) of such Notes, including the covenants, will be
modified to become substantially identical to the terms of the
existing senior notes of UPC Holding outstanding on the issue
date of the New Cablecom Luxembourg Notes. Similarly, the
Cablecom Luxembourg Bank Facility contains an accession
mechanism under which the term loan lenders have agreed to roll
their participations in the term loans into the UPC Broadband
Holding Bank Facility at the election of Cablecom Luxembourg,
subject to certain conditions.
|
|
|
Approval of Performance Plan |
On October 31, 2006 and November 1, 2006, the
compensation committee of our board of directors and our board,
respectively, authorized the implementation of a new
performance-based incentive plan (the Performance Plan) pursuant
to the LGI Incentive Plan. The participants in the Performance
Plan will include our President and Chief Executive Officer,
certain of our other executive officers and certain key
employees. The aggregate amount of the maximum awards under the
Performance Plan is $320 million.
The Performance Plan is a five-year plan, with a two-year
performance period, beginning January 1, 2007, and a
three-year service period beginning January 1, 2009. During
the two-year performance period, each participant may earn
varying percentages of a maximum award specified for such
participant based on achievement of specified compound annual
growth rates in consolidated operating cash flow, adjusted for
events such as acquisitions, dispositions and changes in foreign
currency exchange rates that affect comparability. The
performance period will be followed by a three-year service
period over which the earned
56
LIBERTY GLOBAL, INC.
(See note 1)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS Continued
September 30, 2006
(unaudited)
amount of the award will be paid or will vest, subject to
forfeiture or, in certain circumstances, acceleration. Payment
to each participant of the amount of his or her earned award may
be in cash, restricted or unrestricted shares of LGI
Series A common stock and LGI Series C common stock,
or any combination of the foregoing, at the discretion of the
compensation committee of our board of directors. Payments in
cash or unrestricted shares will be made in equal semi-annual
installments and vesting of restricted shares will occur in
equal quarterly installments.
The compensation committee has not yet determined the allocation
of awards under the Performance Plan. Participants in the
Performance Plan will not be eligible to receive any equity
incentive awards that would otherwise be granted in 2007
and 2008.
57
|
|
Item 2. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
The following discussion and analysis is intended to assist in
providing an understanding of our financial condition, changes
in financial condition and results of operations. This
discussion is organized as follows:
|
|
|
|
|
Forward Looking Statements. This section provides a
description of certain of the factors that could cause actual
results or events to differ materially from anticipated results
or events. |
|
|
|
Overview. This section provides a general description of
our business and recent events. |
|
|
|
Material Changes in Results of Operations. This section
provides an analysis of our results of operations for the three
and nine months ended September 30, 2006 and 2005. |
|
|
|
Material Changes in Financial Condition. This section
provides an analysis of our corporate and subsidiary liquidity,
condensed consolidated cash flow statements and our off balance
sheet arrangements. |
|
|
|
Quantitative and Qualitative Disclosures about Market
Risk. This section provides discussion and analysis of the
foreign currency, interest rate and other market risk that our
company faces. |
The capitalized terms used below have been defined in the notes
to our condensed consolidated financial statements. In the
following text, the terms, we, our,
our company and us may refer, as the
context requires, to LGI and its predecessors and subsidiaries.
Unless otherwise indicated, convenience translations into
U.S. dollars are calculated as of September 30, 2006.
Forward Looking Statements
Certain statements in this Quarterly Report on
Form 10-Q
constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. To the extent
that statements in this Quarterly Report are not recitations of
historical fact, such statements constitute forward-looking
statements, which, by definition, involve risks and
uncertainties that could cause actual results to differ
materially from those expressed or implied by such statements.
In particular, statements under Item 2.
Managements Discussion and Analysis of Financial Condition
and Results of Operations and Item 3. Quantitative
and Qualitative Disclosures About Market Risk contain
forward-looking statements, including statements regarding
business, product, acquisition, disposition and finance
strategies, our capital expenditure priorities, anticipated cost
increases and target leverage levels. Where, in any
forward-looking statement, we express an expectation or belief
as to future results or events, such expectation or belief is
expressed in good faith and believed to have a reasonable basis,
but there can be no assurance that the expectation or belief
will result or be achieved or accomplished. In addition to the
risk factors described in our 2005 Annual Report on
Form 10-K/A, the
following are some but not all of the factors that could cause
actual results or events to differ materially from anticipated
results or events:
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economic and business conditions and industry trends in the
countries in which we operate; |
|
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|
currency exchange risks; |
|
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|
consumer disposable income and spending levels, including the
availability and amount of individual consumer debt; |
|
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|
changes in television viewing preferences and habits by our
subscribers and potential subscribers; |
|
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|
consumer acceptance of existing service offerings, including our
newer digital video, voice and Internet access services; |
|
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|
consumer acceptance of new technology, programming alternatives
and broadband services that we may offer such as our digital
video migration project in The Netherlands; |
|
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|
our ability to manage rapid technological changes and grow our
digital video, voice and Internet access services; |
58
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the regulatory and competitive environment of the broadband
communications and programming industries in the countries in
which we, and the entities in which we have interests, operate; |
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competitor responses to our products and services, and the
products and services of the entities in which we have interests; |
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continued consolidation of the foreign broadband distribution
industry; |
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uncertainties inherent in the development and integration of new
business lines and business strategies; |
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spending on foreign television advertising; |
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capital spending for the acquisition and/or development of
telecommunications networks and services; |
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our ability to successfully integrate and recognize anticipated
efficiencies from the businesses we acquire; |
|
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problems we may discover post-closing with the operations,
internal controls and financial statements of businesses we
acquire; |
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future financial performance, including availability, terms and
deployment of capital; |
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the ability of suppliers and vendors to deliver products,
equipment, software and services; |
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the outcome of any pending or threatened litigation; |
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availability of qualified personnel; |
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changes in, or failure or inability to comply with, government
regulations in the countries in which we operate and adverse
outcomes from regulatory proceedings, including regulatory
initiatives in The Netherlands and Switzerland; |
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our ability to obtain regulatory approval and satisfaction of
other conditions necessary to close announced transactions,
including our proposed acquisition of Karnevals parent,
Unite Holdco; |
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government intervention that opens our broadband distribution
networks to competitors; |
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our ability to successfully negotiate rate increases with local
authorities; |
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changes in the nature of key strategic relationships with
partners and joint venturers; |
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uncertainties associated with our ability to satisfy conditions
imposed by competition and other regulatory authorities in
connection with acquisitions; and |
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|
events that are outside of our control, such as political unrest
in international markets, terrorist attacks, natural disasters,
pandemics and other similar events. |
You should be aware that the broadband communications services
industries are changing rapidly, and, therefore, the
forward-looking statements of expectations, plans and intent in
this Quarterly Report are subject to a greater degree of risk
than similar statements regarding many other industries.
These forward-looking statements and such risks, uncertainties
and other factors speak only as of the date of this Quarterly
Report, and we expressly disclaim any obligation or undertaking
to disseminate any updates or revisions to any forward-looking
statement contained herein, to reflect any change in our
expectations with regard thereto, or any other change in events,
conditions or circumstances on which any such statement is based.
Overview
We are an international broadband communications provider of
video, voice and Internet access services with consolidated
broadband operations at September 30, 2006 in 17 countries
outside of the continental United States, primarily in Europe,
Japan and Chile. Through our UPC Broadband Division, we provide
broadband communications services in 11 European countries.
LG Switzerland holds our 100% ownership in
59
Cablecom, a broadband communications operator in Switzerland.
Through our indirect controlling ownership interest in J:COM, we
provide broadband communications services in Japan. Through our
indirect 80%-owned subsidiary VTR, we provide broadband
communications services in Chile. We also have
(i) consolidated DTH satellite operations in Australia,
(ii) consolidated broadband communications operations in
Puerto Rico, Brazil and Peru, (iii) non-controlling
interests in broadband communications companies in Europe and
Japan, (iv) consolidated interests in certain programming
businesses in Europe and Argentina, and (v) non-controlling
interests in certain programming businesses in Europe, Japan,
Australia and the Americas. Our consolidated programming
interests in Europe are primarily held through Chellomedia,
which also provides interactive digital services and owns or
manages investments in various businesses in Europe. Certain of
Chellomedias subsidiaries and affiliates provide
programming and other services to our UPC Broadband Division.
As a result of the June 15, 2005 consummation of the LGI
Combination, our ownership interest in UGC, the ultimate parent
of UPC Holding and VTR prior to the LGI Combination, increased
from 53.4% to 100%. However, in connection with VTRs
April 13, 2005 acquisition of a controlling interest in
Metrópolis, a broadband communications provider in Chile,
UGCs ownership interest in VTR decreased from 100% to 80%.
At September 30, 2006, we owned an indirect 36.73% interest
in J:COM through our 58.66% controlling interest in Super Media
and Super Medias 62.61% controlling interest in J:COM. We
began consolidating Super Media and J:COM on January 1,
2005. Prior to that date we used the equity method to account
for our investment in Super Media/ J:COM.
In addition to the LGI Combination and the consolidation of
Super Media/ J:COM, we have completed a number of acquisitions
since the beginning of 2005 that have expanded our footprint and
the scope of our business. In Europe, we acquired (i) a
controlling interest in Zonemedia, a video programming company
in Europe, on January 7, 2005, (ii) Telemach, a
broadband communications provider in Slovenia, on
February 10, 2005, (iii) Astral, a broadband
communications provider in Romania, on October 14, 2005,
(iv) Cablecom, a broadband communications provider in
Switzerland, on October 24, 2005, (v) IPS, an indirect
subsidiary of Chellomedia that provides thematic television
channels in Spain and Portugal, on November 23, 2005, and
(vi) INODE, an unbundled DSL provider in Austria, on
March 2, 2006. In addition, in connection with Unite
Holdcos September 18, 2006 acquisition of Karneval, a
broadband communications provider in the Czech Republic, Liberty
Global Europe, through its August 9, 2006 agreements with
AIL and Deutsche, began consolidating Unite Holdco effective
September 30, 2006 for financial reporting purposes. In
another transaction in Europe, our indirect subsidiary, UPC
Ireland B.V. (UPC Ireland), through its May 9, 2005
agreements with Morgan Stanley Dean Witter Equity Funding, Inc.
(MSDW Equity) and its affiliate, MS Irish Cable Holdings B.V.
(MS Irish Cable), began on May 1, 2005 consolidating NTL
Ireland, a broadband communications provider in Ireland, and on
December 12, 2005, UPC Ireland acquired a 100% interest in
NTL Ireland through its acquisition of MS Irish Cable from MSDW
Equity. In the following discussion and analysis of our results
of operations, we collectively refer to the May 9, 2005
consolidation, and the December 12, 2005 acquisition of NTL
Ireland as the acquisition of NTL Ireland, with such
acquisition considered to be effective as of May 1, 2005
for purposes of comparing our 2006 and 2005 operating results.
We have also completed a number of less significant acquisitions
in Europe during this period. In Japan, J:COM acquired an
approximate 92% ownership interest in J:COM Chofu Cable on
February 25, 2005, a 100% interest in J:COM Setamachi on
September 30, 2005, and a controlling interest in Cable
West on September 28, 2006. J:COM Chofu Cable, J:COM
Setamachi and Cable West are broadband communications providers
in Japan. During the fourth quarter of 2005 and the first nine
months of 2006, J:COM also acquired controlling interests in
certain less significant entities in Japan. As noted above, VTR
acquired a controlling interest in Metrópolis on
April 13, 2005. In addition, on December 14, 2005 we
completed a transaction that increased our indirect ownership of
Austar, a DTH provider in Australia, from a 36.7%
non-controlling ownership interest to a 55.2% controlling
interest. Prior to this transaction, we accounted for our
investment in Austar using the equity method of accounting.
For additional information concerning our closed acquisitions,
see note 4 to our condensed consolidated financial
statements.
60
As further discussed in note 4 to our condensed
consolidated financial statements, our condensed consolidated
financial statements have been reclassified to present UPC
Norway, UPC Sweden, UPC France and PT Norway as discontinued
operations. Accordingly, in the following discussion and
analysis, the operating statistics, results of operations and
financial condition that we present and discuss are those of our
continuing operations.
In general, we are seeking to build broadband and video
programming businesses that have strong prospects for future
growth in revenue and operating cash flow (as defined below and
in note 11 to our condensed consolidated financial
statements). Therefore, we seek to acquire entities that have
strong growth potential at prudent prices and sell businesses
that we believe do not meet this profile. In this regard, we
sold UPC Norway in January 2006, UPC Sweden and PT Norway in
June 2006 and UPC France in July 2006. As discussed further
under Material Changes in Financial Condition
Capitalization below, we also seek to maintain our debt at
levels that provide for attractive equity returns without
assuming undue risk.
Through our subsidiaries and affiliates, we are the largest
broadband communications operator outside the United States in
terms of subscribers. At September 30, 2006, our
consolidated subsidiaries owned and operated networks that
passed approximately 25.6 million homes and served
approximately 18.2 million revenue generating units (RGUs),
consisting of approximately 12.3 million video subscribers,
3.4 million broadband Internet subscribers and
2.5 million telephony subscribers.
In general, we are focused on growing our subscriber base and
subscription revenue by launching bundled entertainment,
information and communications services, upgrading the quality
of our networks where appropriate, leveraging the reach of our
broadband distribution systems to create new content
opportunities and entering into strategic alliances and
acquisitions in order to increase our distribution presence and
maximize operating efficiencies.
Including the effects of acquisitions during 2006, our
continuing operations added a total of 413,900 and 1,257,000
RGUs during the three and nine months ended September 30,
2006, respectively. The foregoing RGU addition amounts exclude
(i) Karneval, which we consolidate but do not manage and
(ii) Cable West, which we have not yet conformed to our
subscriber counting policies as we did not begin consolidating
Cable West until September 30, 2006. Excluding the effects
of acquisitions (RGUs added on the acquisition date), but
including post-acquisition RGU additions, our continuing
operations added total RGUs of 356,600 and 1,091,500 during the
three and nine months ended September 30, 2006,
respectively. Most of our internal RGU growth is attributable to
the growth of our Internet access services and digital telephony
(primarily through Voice over Internet Protocol or VoIP), as
significant increases in digital video RGUs were largely offset
by declines in analog video RGUs. We also focus on increasing
the average revenue we receive from each household by increasing
the penetration of new services through product bundling,
upselling or other means.
Our analog video service offerings include basic programming and
expanded basic programming in some markets. We tailor both our
basic channel line-up
and our additional channel offerings to each system according to
culture, demographics, programming preferences and local
regulation. Our digital video service offerings include basic
programming, premium services and pay-per-view programming,
including near
video-on-demand (NVOD)
and video-on-demand (VOD) in some markets. We offer broadband
Internet access services in all of our markets. Our residential
subscribers can access the Internet via cable modems connected
to their personal computers at faster speeds than that of
conventional dial-up
modems. We determine pricing for each different tier of Internet
access service through analysis of speed, data limits, market
conditions and other factors.
We offer telephony services in The Netherlands, Switzerland,
Austria, Ireland, Hungary, Poland, Romania, Czech Republic,
Slovak Republic, Japan, Chile and Puerto Rico, primarily over
our broadband networks. We also have begun offering VoIP
telephony services in each of these segments.
The video, telephony and Internet access businesses in which we
operate are capital intensive. Significant capital expenditures
are required to add customers to our networks, including
expenditures for equipment and labor costs. As video, telephony
and Internet access technology changes and competition
increases, we may
61
need to increase our capital expenditures to further upgrade our
systems to remain competitive in markets that might be impacted
by the introduction of new technology. No assurance can be given
that any such future upgrades could be expected to generate a
positive return or that we would have adequate capital available
to finance such future upgrades. If we are unable to, or elect
not to, pay for costs associated with adding new customers,
expanding or upgrading our networks or making our other planned
or unplanned capital expenditures, our growth could be limited
and our competitive position could be harmed.
Material Changes in Results of Operations
The comparability of our operating results during the 2006 and
2005 interim periods is affected by our acquisitions of
Cablecom, NTL Ireland, Astral, Austar, IPS, Telemach and
Metrópolis, and J:COMs acquisition of J:COM Chofu
Cable and J:COM Setamachi during 2005, and our acquisition of
INODE during 2006. As we have consolidated UGC since
January 1, 2004, the primary effect of the LGI Combination
for periods following the June 15, 2005 transaction date
has been an increase in depreciation and amortization expense as
a result of the application of purchase accounting. J:COMs
acquisition of a controlling interest in Cable West and our
consolidation of Karneval have not impacted comparisons of our
operating results as we did not begin consolidating either
entity until September 30, 2006. In the following
discussion, we quantify the impact of acquisitions on our
results of operations. The acquisition impact is calculated as
the difference between current and prior year amounts that is
attributable to the timing of an acquisition.
Changes in foreign currency exchange rates have a significant
impact on our operating results as all of our operating
segments, except for Puerto Rico, have functional currencies
other than the U.S. dollar. Our primary exposure is
currently to the euro and the Japanese yen. In this regard,
29.4% and 28.9% of our U.S. dollar revenue during the three
months ended September 30, 2006, and 28.7% and 29.0% of our
U.S. dollar revenue during the nine months ended
September 30, 2006, was derived from subsidiaries whose
functional currency is the euro and Japanese yen, respectively.
In addition, our operating results are impacted by changes in
the exchange rates for the Swiss franc, the Chilean peso, the
Hungarian forint, the Australian dollar and other local
currencies in Europe.
At September 30, 2006, we owned an 80% interest in VTR, a
53.18% interest in Austar (which we report in our corporate and
other category for segment reporting purposes) and, through our
interest in Super Media, an indirect 36.73% interest in J:COM.
However, as we control VTR, Austar and Super Media/ J:COM, GAAP
requires that we consolidate 100% of the revenue and expenses of
these entities in our condensed consolidated statements of
operations. The minority owners interests in the operating
results of J:COM, VTR and other less significant majority owned
subsidiaries are reflected in minority interests in earnings of
subsidiaries, net in our condensed consolidated statements of
operations. In the case of Austar, the minority interests
share of Austars net earnings are currently charged to
additional paid-in capital due to the fact that the minority
interests share of Austars deficit at the
acquisition date was charged to our additional paid-in capital.
It should be noted that our ability to consolidate J:COM is
dependent on our ability to continue to control Super Media,
which will be dissolved in February 2010 unless we and Sumitomo
mutually agree to extend the term. If Super Media is dissolved
and we do not otherwise control J:COM at the time of any such
dissolution, we will no longer be in a position to consolidate
J:COM. When reviewing and analyzing our operating results, it is
important to keep in mind that other third party entities own
significant interests in J:COM, VTR and Austar and that Sumitomo
effectively has the ability to prevent our company from
consolidating J:COM after February 2010.
|
|
|
Discussion and Analysis of our Reportable
Segments |
All of the reportable segments set forth below provide broadband
communications services, including video, voice and Internet
access services and, to a lesser extent, CLEC services. At
September 30, 2006, our operating segments in the UPC
Broadband Division provided services in 11 European countries.
Other Western Europe includes our operating segments in Ireland
and Belgium. Other Central and Eastern Europe includes our
operating segments in Poland, Czech Republic, Slovak Republic,
Romania and Slovenia. VTR provides broadband communications
services in Chile. J:COM provides broadband communications
services in Japan. Our corporate and other category includes
(i) certain less significant operating segments that
provide DTH satellite services in Australia, broadband
communications services in Puerto Rico, Brazil and
62
Peru and video programming and other services in Europe and
Argentina and (ii) our corporate segment. Intersegment
eliminations primarily represent the elimination of intercompany
transactions between our UPC Broadband Division and Chellomedia.
During the second quarter of 2006, we changed our reporting such
that we no longer allocate the central and corporate costs of
the UPC Broadband Division to individual operating segments
within the UPC Broadband Division. Instead, we present these
costs as a separate category within the UPC Broadband Division.
The UPC Broadband Divisions central and corporate costs
include billing, programming, network operations, technology,
marketing, facilities, finance, legal and other administrative
costs. Prior to July 1, 2006, our CLEC operations in The
Netherlands and Austria were owned and managed by our indirect
subsidiary, Priority Telecom and included in our corporate and
other category for purposes of segment reporting. Effective
July 1, 2006, we integrated the Priority Telecom CLEC
operations in The Netherlands and Austria with our existing
operations in each country and began reporting these CLEC
operations as components of our reportable segments in The
Netherlands and Austria, respectively. Segment information for
all periods presented has been restated to reflect the
above-described changes and to present UPC Norway, UPC Sweden,
UPC France and PT Norway as discontinued operations. Previously,
UPC Norway and UPC Sweden were included in our Other Western
Europe reportable segment, UPC France was presented as a
separate reportable segment, and PT Norway was included in our
corporate and other category. We present only the reportable
segments of our continuing operations in the following tables.
See note 4 to our condensed consolidated financial
statements.
Both Cablecom and UPC Broadband Holding have separate financial
reporting requirements in connection with their separate
financing arrangements. For purposes of these separate reporting
requirements, certain of UPC Broadband Holdings central
and corporate costs are charged to Cablecom. Consistent with how
we present Cablecoms performance measures to our chief
operating decision maker, the segment information presented for
Cablecom in the following tables does not reflect intersegment
charges made for separate reporting purposes.
For additional information concerning our reportable segments,
including a discussion of our performance measures and a
reconciliation of total segment operating cash flow to our
consolidated earnings before income taxes, minority interests
and discontinued operations, see note 11 to our condensed
consolidated financial statements.
The tables presented below in this section provide a separate
analysis of each of the line items that comprise operating cash
flow (revenue, operating expenses and SG&A expenses,
excluding allocable stock-based compensation expense in
accordance with our definition of operating cash flow) as well
as an analysis of operating cash flow by reportable segment for
the three and nine months ended September 30, 2006, as
compared to the corresponding prior year period. In each case,
the tables present (i) the amounts reported by each of our
reportable segments for the comparative interim periods,
(ii) the U.S. dollar change and percentage change from
period to period, and (iii) the percentage change from
period to period, after removing foreign currency effects (FX).
The comparisons that exclude FX assume that exchange rates
remained constant during the periods that are included in each
table. As discussed under Quantitative and Qualitative
Disclosures about Market Risk below, we have significant
exposure to movements in foreign currency rates.
As discussed above, acquisitions have significantly affected the
comparability of the results of operations of our reportable
segments. In this regard, the changes in the amounts reported
for our Switzerland segment are entirely attributable to the
acquisition of Cablecom in October 2005. Accordingly, we do not
separately discuss the results of our Switzerland segment below.
For additional information concerning acquisitions, see the
discussion under Overview above and note 4 to our
condensed consolidated financial statements.
Revenue derived by our broadband communications operating
segments includes amounts received from subscribers for ongoing
services, installation fees, advertising revenue, mobile
telephony revenue, channel carriage fees, telephony interconnect
fees and amounts received from CLEC and other services provided
to businesses. In the following discussion, we use the term
subscription revenue to refer to amounts received
from subscribers, excluding installation fees and mobile
telephony revenue.
63
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|
Revenue of our Reportable Segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase | |
|
|
|
|
|
|
|
|
(decrease) | |
|
|
Three months ended | |
|
|
|
excluding | |
|
|
September 30, | |
|
Increase (decrease) | |
|
FX | |
|
|
| |
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
$ | |
|
% | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions, except % amounts | |
Europe (UPC Broadband Division):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
237.9 |
|
|
$ |
211.8 |
|
|
$ |
26.1 |
|
|
|
12.3 |
|
|
|
7.5 |
|
|
Switzerland (Cablecom)
|
|
|
192.3 |
|
|
|
|
|
|
|
192.3 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
Austria
|
|
|
109.1 |
|
|
|
80.1 |
|
|
|
29.0 |
|
|
|
36.2 |
|
|
|
30.1 |
|
|
Other Western Europe
|
|
|
77.5 |
|
|
|
68.4 |
|
|
|
9.1 |
|
|
|
13.3 |
|
|
|
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
616.8 |
|
|
|
360.3 |
|
|
|
256.5 |
|
|
|
71.2 |
|
|
|
66.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
73.3 |
|
|
|
70.4 |
|
|
|
2.9 |
|
|
|
4.1 |
|
|
|
12.3 |
|
|
Other Central and Eastern Europe
|
|
|
141.3 |
|
|
|
83.8 |
|
|
|
57.5 |
|
|
|
68.6 |
|
|
|
58.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
214.6 |
|
|
|
154.2 |
|
|
|
60.4 |
|
|
|
39.2 |
|
|
|
37.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations of UPC Broadband Division
|
|
|
7.8 |
|
|
|
0.7 |
|
|
|
7.1 |
|
|
|
1,014.3 |
|
|
|
771.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (UPC Broadband Division)
|
|
|
839.2 |
|
|
|
515.2 |
|
|
|
324.0 |
|
|
|
62.9 |
|
|
|
58.4 |
|
Japan (J:COM)
|
|
|
469.5 |
|
|
|
418.8 |
|
|
|
50.7 |
|
|
|
12.1 |
|
|
|
17.2 |
|
Chile (VTR)
|
|
|
137.6 |
|
|
|
119.2 |
|
|
|
18.4 |
|
|
|
15.4 |
|
|
|
12.4 |
|
Corporate and other
|
|
|
192.2 |
|
|
|
63.5 |
|
|
|
128.7 |
|
|
|
202.7 |
|
|
|
199.2 |
|
Intersegment eliminations
|
|
|
(16.1 |
) |
|
|
(11.6 |
) |
|
|
(4.5 |
) |
|
|
(38.8 |
) |
|
|
(32.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
1,622.4 |
|
|
$ |
1,105.1 |
|
|
$ |
517.3 |
|
|
|
46.8 |
|
|
|
46.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase | |
|
|
|
|
|
|
|
|
(decrease) | |
|
|
Nine months ended | |
|
|
|
excluding | |
|
|
September 30, | |
|
Increase (decrease) | |
|
FX | |
|
|
| |
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
$ | |
|
% | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions, except % amounts | |
Europe (UPC Broadband Division):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
677.3 |
|
|
$ |
647.9 |
|
|
$ |
29.4 |
|
|
|
4.5 |
|
|
|
6.1 |
|
|
Switzerland (Cablecom)
|
|
|
564.6 |
|
|
|
|
|
|
|
564.6 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
Austria
|
|
|
305.9 |
|
|
|
250.5 |
|
|
|
55.4 |
|
|
|
22.1 |
|
|
|
23.8 |
|
|
Other Western Europe
|
|
|
224.8 |
|
|
|
158.3 |
|
|
|
66.5 |
|
|
|
42.0 |
|
|
|
42.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
1,772.6 |
|
|
|
1,056.7 |
|
|
|
715.9 |
|
|
|
67.7 |
|
|
|
69.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
224.2 |
|
|
|
213.6 |
|
|
|
10.6 |
|
|
|
5.0 |
|
|
|
14.5 |
|
|
Other Central and Eastern Europe
|
|
|
408.1 |
|
|
|
252.3 |
|
|
|
155.8 |
|
|
|
61.8 |
|
|
|
58.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
632.3 |
|
|
|
465.9 |
|
|
|
166.4 |
|
|
|
35.7 |
|
|
|
38.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations of UPC Broadband Division
|
|
|
10.6 |
|
|
|
2.1 |
|
|
|
8.5 |
|
|
|
404.8 |
|
|
|
400.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (UPC Broadband Division)
|
|
|
2,415.5 |
|
|
|
1,524.7 |
|
|
|
890.8 |
|
|
|
58.4 |
|
|
|
60.2 |
|
Japan (J:COM)
|
|
|
1,362.7 |
|
|
|
1,237.8 |
|
|
|
124.9 |
|
|
|
10.1 |
|
|
|
18.4 |
|
Chile (VTR)
|
|
|
411.6 |
|
|
|
313.3 |
|
|
|
98.3 |
|
|
|
31.4 |
|
|
|
22.4 |
|
Corporate and other
|
|
|
558.3 |
|
|
|
187.0 |
|
|
|
371.3 |
|
|
|
198.6 |
|
|
|
200.0 |
|
Intersegment eliminations
|
|
|
(50.7 |
) |
|
|
(31.7 |
) |
|
|
(19.0 |
) |
|
|
(59.9 |
) |
|
|
(62.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
4,697.4 |
|
|
$ |
3,231.1 |
|
|
$ |
1,466.3 |
|
|
|
45.4 |
|
|
|
48.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
64
The Netherlands. The Netherlands revenue increased
$26.1 million or 12.3%, and $29.4 million or 4.5%,
during the three and nine months ended September 30, 2006,
respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign exchange rate
fluctuations and an acquisition, The Netherlands revenue
increased $15.8 million or 7.5% and $36.6 million or
5.7%, respectively. Increases in subscription and
non-subscription revenue contributed somewhat equally to these
three-month and nine-month increases.
The increases in subscription revenue during the 2006 periods
that are not attributable to foreign exchange rate fluctuations
or an acquisition are due primarily to higher average RGUs, as
increases in average telephony and broadband Internet RGUs were
only partially offset by declines in average video RGUs. The
declines in average video RGUs include declines in average
analog video RGUs that were not fully offset by gains in digital
video RGUs. These declines are due largely to the effects of
competition. The average monthly subscription revenue received
per RGU (ARPU), remained relatively constant during the 2006
periods as the positive effect of a January 2006 rate increase
for analog video services was offset by the following negative
factors:
|
|
|
|
|
decreases in the average rates charged for digital video
services due to price decreases for pre-existing digital video
subscribers to harmonize rates and promotional discounts
implemented in connection with The Netherlands program to
migrate analog video subscribers to digital video services (as
discussed in the below paragraph); |
|
|
|
increases in discounting in connection with campaigns designed
to promote product bundling; |
|
|
|
decreases in ARPU from broadband Internet services due to a
higher proportion of customers selecting lower-priced tiers and
competitive factors; and |
|
|
|
decreases in ARPU from telephony services due to competitive
factors and lower call volumes. |
The decreases in ARPU from digital video services, together with
decreases in the average number of video subscribers, resulted
in slight decreases in revenue from video services during the
respective 2006 periods. As discussed in the following
paragraph, we would expect our video services revenue to be
positively impacted to the extent that new subscribers to our
digital video service are retained beyond the promotional
period. The decreases in telephony and broadband Internet ARPU
were more than offset by increases in the average number of RGUs
as The Netherlands revenue from these services increased
during each of the respective 2006 periods.
The increases in The Netherlands non-subscription revenue
during the 2006 periods that are not attributable to foreign
exchange rate fluctuations or an acquisition are due primarily
to increases in revenue from CLEC services, mobile telephony
services (including mobile handset sales) and interconnect fees,
partially offset by lower revenue from installation fees. In
addition, the increase in non-subscription revenue during the
three-month period includes $6.1 million associated with
certain accrual adjustments that were recorded during the third
quarter of 2006. Revenue from CLEC services, after taking into
account intercompany eliminations, contributed $3.1 million
and $8.0 million to the increases in The Netherlands
non-subscription revenue during the respective 2006 periods. The
lower installation fees are principally related to a higher
percentage of customers performing self-installations. Mobile
telephony services were not offered by The Netherlands during
the 2005 periods.
In October 2005, we initiated a program to migrate over time
analog video subscribers to digital video services in The
Netherlands by providing digital set-top boxes to analog video
subscribers at no charge and discounting the entry-level digital
video service for a six-month period following subscriber
acceptance of the digital set-top box (the digital migration
program). To the extent that digital video subscribers are
retained after the promotional pricing period has elapsed, we
will experience an increase in ARPU derived from video services
in The Netherlands. As of September 30, 2006, the
promotional pricing period had elapsed for over 40% of The
Netherlands digital video subscribers, with most of these
subscribers receiving their first bill during the third quarter
of 2006. Although we have had only limited experience monitoring
the disconnect patterns of this group of digital video
subscribers, we are not seeing significant increases in
subscriber disconnects in the initial weeks and months following
the date that the promotional pricing period elapses.
65
However, due to the relatively short time frame that these
digital video subscribers have been retained beyond the
promotional pricing period, these results are not necessarily an
accurate indication of future subscriber retention rates. The
Netherlands has incurred significant operating, marketing and
other costs during the 2006 periods in connection with the
digital migration program. Although a portion of these costs
vary with our subscriber migration efforts, some costs, such as
programming, vary with our digital video subscriber base and
others remain somewhat fixed relative to our digital subscriber
base. We are continually evaluating our approach to the digital
migration program in an attempt to determine the most
cost-effective way to convert analog video subscribers to
digital video subscribers. During the third quarter of 2006, we
added a lower number of digital video RGUs as compared to the
second quarter of 2006. This decline is principally associated
with the adoption of a more selective approach to distributing
digital set-top boxes to subscribers. As a result of the
adoption of this more selective approach, we expect a more
gradual pacing of our digital migration program in future
quarters. As the pace of our digital video RGU additions slows,
we expect that we will experience accompanying reductions in
certain capital expenditures and operating, marketing and other
costs. As we cannot predict with certainty (i) the
percentage of new digital video subscribers that will be
retained after the promotional period has elapsed, (ii) the
percentage of current analog subscribers that ultimately will be
successfully migrated to the digital video service, and
(iii) the amount of fixed and variable costs related to
digital video services that The Netherlands will incur over the
life of the digital migration program and in the following
periods, no assurance can be given as to the impact of this
program on The Netherlands future operating results.
On September 28, 2005, the NMA informed UPC NL that it had
closed its investigation with respect to the price increases for
UPC NLs analog video services in 2003-2005. The NMA
concluded that UPC NLs price increases were not excessive
and therefore UPC NL did not abuse what NMA views as UPC
NLs dominant position in the analog video services market.
KPN, the incumbent telecommunications operator in The
Netherlands, submitted an appeal of the NMA decision. The NMA
rejected the appeal of KPN by declaring the appeal inadmissible
on April 7, 2006. On May 3, 2006, UPC NL was informed
that KPN had filed an appeal against the NMA decision with the
administrative District Court (of Rotterdam). A court hearing is
scheduled to be held On November 15, 2006.
In another matter, OPTA, the Dutch national regulatory agency,
had proposed imposing retail price regulation on a cost oriented
basis for UPC NLs analog cable television offerings and
requiring UPC NL to continue to offer analog video on a stand
alone basis without requiring customers to buy other services.
Following consultation with the European Commission, OPTAs
proposal was approved on the basis that it would be limited to a
period of one year and that OPTA will only intervene if price
increases exceed the CPI increase. After 2006, OPTA may again
seek approval from the European Commission to maintain or expand
its regulatory powers in this retail market. UPC NL appealed
this and another OPTA decision on April 28, 2006 with the
highest administrative court and substantiated its grounds of
appeal on July 28, 2006. The court hearing is scheduled to
take place on February 1, 2007. Adverse outcomes from
future regulatory initiatives by OPTA could have a significant
negative impact on UPC NLs ability to maintain or increase
its revenue in The Netherlands. For additional information, see
note 10 to our condensed consolidated financial statements.
Austria. Austrias revenue increased
$29.0 million or 36.2%, and $55.4 million or 22.1%,
during the three and nine months ended September 30, 2006,
respectively, as compared to the corresponding prior year
periods. These increases include increases attributable to the
INODE acquisition of $22.6 million and $53.5 million,
respectively. Excluding the effects of the INODE acquisition and
foreign exchange rate fluctuations, Austrias revenue
increased $1.5 million or 1.8%, and $6.1 million or
2.4%, respectively. Most of these increases are attributable to
increases in subscription revenue as the positive effects of
higher average RGUs were only partially offset by slight
declines in ARPU. The increases in average RGUs are primarily
attributable to significant increases in the average number of
broadband Internet RGUs that were only partially offset by
slight decreases in the average number of video RGUs during the
2006 periods. The slight declines in ARPU during the 2006
periods are attributable to lower ARPU from broadband Internet
and telephony services as a result of competitive factors,
including (i) an increase in the proportion of subscribers
selecting lower tiered broadband Internet products and
(ii) lower telephony call volume resulting from increased
customer usage of off-network calling plans. These negative
factors were partially offset by the
66
positive impact of a January 2006 rate increase for analog video
services. The decreases in telephony ARPU, led to slight
decreases in total telephony revenue during the respective 2006
periods.
Other Western Europe. Other Western Europes revenue
increased $9.1 million or 13.3%, and $66.5 million or
42.0%, during the three and nine months ended September 30,
2006, respectively, as compared to the corresponding prior year
periods. The NTL Ireland acquisition accounted for
$55.1 million of the nine-month period increase. Excluding
the effects of the NTL Ireland acquisition and foreign exchange
rate fluctuations, Other Western Europes revenue increased
$5.6 million or 8.2%, and $12.4 million or 7.8%,
respectively. Most of these increases are attributable to higher
subscription revenue, as the positive effects of increases in
the average number of broadband Internet and video RGUs were
only partially offset by decreases in ARPU. The decreases in
ARPU represent the net effect of ARPU decreases in Ireland that
were only partially offset by slight ARPU increases in Belgium.
The lower ARPU in Ireland is due primarily to the negative
effect of competitive factors on prices charged for video and
broadband Internet services that more than offset the positive
impact of a January 2006 rate increase for analog video services.
Hungary. Hungarys revenue increased
$2.9 million or 4.1%, and $10.6 million or 5.0%,
during the three and nine months ended September 30, 2006,
respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign exchange rate
fluctuations, such increases were $8.6 million or 12.3%,
and $30.9 million or 14.5%, respectively. These increases
are attributable to increases in subscription revenue that were
only partially offset by decreases in telephony transit revenue,
as discussed below. The increases in subscription revenue were
driven by increases in the average number of broadband Internet,
telephony and DTH RGUs and, to a lesser extent, analog video
RGUs. ARPU increased during the respective 2006 periods as a
January 2006 rate increase for analog video services was only
partially offset by the negative impacts on ARPU of (i) an
increase in competition for video, broadband Internet and
telephony subscribers and (ii) a higher proportion of
customers selecting lower-priced broadband Internet tiers. The
increases in average telephony RGUs were primarily driven by
VoIP telephony sales. During the second and third quarters of
2006, Hungary has experienced slight declines in analog video
(exclusive of the effect of a third quarter acquisition) and DTH
RGUs due primarily to the effects of competition from an
alternative DTH provider. As noted above, Hungarys
comparatively low-margin telephony transit service revenue
decreased by $3.2 million and $10.5 million during the
respective 2006 periods. The decrease in telephony transit
service revenue is due to a lower volume of transit traffic
since late 2005, when certain alternative providers of
telecommunications services began directly interconnecting with
traditional telecommunications networks, bypassing
Hungarys broadband networks.
Other Central and Eastern Europe. Other Central and
Eastern Europes revenue increased $57.5 million or
68.6%, and $155.8 million or 61.8%, during the three and
nine months ended September 30, 2006, respectively, as
compared to the corresponding prior year periods. The effects of
the Astral and Telemach acquisitions and other less significant
acquisitions accounted for $33.5 million and
$104.1 million, respectively, of such increases. Excluding
the effects of these acquisitions and foreign exchange rate
fluctuations, Other Central and Eastern Europes revenue
increased $15.3 million or 18.2%, and $43.8 million or
17.4%, respectively. The majority of the increases are
attributable to increases in subscription revenue as a result of
growth in average RGUs. Higher ARPU also contributed to the
increases for the 2006 periods, due in part to rate increases
for video services in certain countries during the first nine
months of 2006. The growth in RGUs during the 2006 periods is
attributable to increases in the average number of broadband
Internet, telephony and video RGUs, with most of the broadband
Internet growth occurring in Poland, the Czech Republic and
Romania, most of the video growth occurring in the Czech
Republic and Romania, and most of the telephony growth
attributable to the expansion of VoIP services in Poland and
Romania. During 2006, we have experienced increased competition
for video RGUs in Central and Eastern Europe due largely to the
effects of competition from an alternative DTH provider that is
competing with us in most of our Central and Eastern European
markets. In Poland, competition and negative subscriber reaction
to an increase in Polands rates for analog video services
have resulted in slight decreases in analog video RGUs during
the second and third quarters of 2006. In the Slovak Republic,
increased competition and other factors have resulted in the
loss of a number of multi-channel multi-point distribution
system (MMDS) RGUs during 2006.
67
Japan (J:COM). J:COMs revenue increased
$50.7 million or 12.1%, and $124.9 million or 10.1%,
during the three and nine months ended September 30, 2006,
respectively, as compared to the corresponding prior year
periods. The effect of the J:COM Chofu Cable and J:COM Setamachi
acquisitions and other less significant acquisitions together
accounted for approximately $28.5 million and
$77.1 million of such increases during the respective 2006
periods. Excluding the increases associated with these
acquisitions and the effects of foreign exchange rate
fluctuations, J:COMs revenue increased $43.5 million
or 10.4%, and $150.1 million or 12.1%, respectively. Most
of these increases are attributable to increases in subscription
revenue, due primarily to increases in the average number of
telephony, broadband Internet and video RGUs during the 2006
periods. ARPU remained relatively unchanged during the 2006
periods as the positive effects of increases in the proportion
of subscribers selecting digital video services over analog
video services and the higher-speed broadband Internet services
over the lower-speed alternatives were largely offset by the
negative effects of bundling discounts and lower telephony ARPU
due to decreases in customer call volumes and minutes used.
Chile (VTR). VTRs revenue increased
$18.4 million or 15.4%, and $98.3 million or 31.4%,
during the three and nine months ended September 30, 2006,
respectively, as compared to the corresponding prior year
periods. The estimated effects of the Metrópolis
acquisition accounted for approximately $18.8 million of
the nine-month increase. Excluding the effects of the
Metrópolis acquisition and foreign exchange rate
fluctuations, VTRs revenue increased $14.8 million or
12.4%, and $51.3 million or 16.4%, respectively. Most of
these increases are attributable to increases in subscription
revenue, due primarily to growth in the average number of
VTRs broadband Internet, telephony and digital video RGUs.
ARPU declined during the 2006 periods, as the positive effects
of a January 2006 inflation adjustment to rates for video
services and an increase in the proportion of subscribers
selecting digital video services over analog video services were
more than offset by the negative impact of lower ARPU from
broadband Internet services and lower ARPU from telephony
services. The lower ARPU from broadband Internet services is
primarily attributable to an increase in the proportion of
subscribers selecting lower priced broadband Internet tiers. The
lower ARPU from telephony services is principally the result of
higher discounting and promotions, in addition to lower customer
call volumes. Higher installation fees and other
non-subscription revenue also contributed to the increase in
VTRs total revenue. The higher installation fees primarily
result from higher RGU additions during the 2006 periods.
68
|
|
|
Operating Expenses of our Reportable Segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months | |
|
|
|
Increase | |
|
|
ended | |
|
Increase | |
|
(decrease) | |
|
|
September 30, | |
|
(decrease) | |
|
excluding FX | |
|
|
| |
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
$ | |
|
% | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions, except % amounts | |
Europe (UPC Broadband Division):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
84.2 |
|
|
$ |
73.2 |
|
|
$ |
11.0 |
|
|
|
15.0 |
|
|
|
10.5 |
|
|
Switzerland (Cablecom)
|
|
|
61.5 |
|
|
|
|
|
|
|
61.5 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
Austria
|
|
|
39.6 |
|
|
|
25.9 |
|
|
|
13.7 |
|
|
|
52.9 |
|
|
|
46.0 |
|
|
Other Western Europe
|
|
|
39.0 |
|
|
|
32.6 |
|
|
|
6.4 |
|
|
|
19.6 |
|
|
|
13.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
224.3 |
|
|
|
131.7 |
|
|
|
92.6 |
|
|
|
70.3 |
|
|
|
64.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
29.7 |
|
|
|
30.5 |
|
|
|
(0.8 |
) |
|
|
(2.6 |
) |
|
|
4.6 |
|
|
Other Central and Eastern Europe
|
|
|
54.4 |
|
|
|
32.3 |
|
|
|
22.1 |
|
|
|
68.4 |
|
|
|
57.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
84.1 |
|
|
|
62.8 |
|
|
|
21.3 |
|
|
|
33.9 |
|
|
|
32.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations of UPC Broadband Division
|
|
|
20.1 |
|
|
|
16.1 |
|
|
|
4.0 |
|
|
|
24.8 |
|
|
|
18.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (UPC Broadband Division)
|
|
|
328.5 |
|
|
|
210.6 |
|
|
|
117.9 |
|
|
|
56.0 |
|
|
|
51.6 |
|
Japan (J:COM)
|
|
|
185.4 |
|
|
|
177.1 |
|
|
|
8.3 |
|
|
|
4.7 |
|
|
|
9.4 |
|
Chile (VTR)
|
|
|
59.9 |
|
|
|
53.6 |
|
|
|
6.3 |
|
|
|
11.8 |
|
|
|
8.9 |
|
Corporate and other
|
|
|
137.3 |
|
|
|
45.5 |
|
|
|
91.8 |
|
|
|
201.8 |
|
|
|
197.1 |
|
Intersegment eliminations
|
|
|
(16.8 |
) |
|
|
(10.7 |
) |
|
|
(6.1 |
) |
|
|
(57.0 |
) |
|
|
(50.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses excluding stock-based compensation
expense
|
|
|
694.3 |
|
|
|
476.1 |
|
|
|
218.2 |
|
|
|
45.8 |
|
|
|
45.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
2.1 |
|
|
|
5.9 |
|
|
|
(3.8 |
) |
|
|
(64.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
696.4 |
|
|
$ |
482.0 |
|
|
$ |
214.4 |
|
|
|
44.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase | |
|
|
Nine months ended | |
|
Increase | |
|
(decrease) | |
|
|
September 30, | |
|
(decrease) | |
|
excluding FX | |
|
|
| |
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
$ | |
|
% | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions, except % amounts | |
Europe (UPC Broadband Division):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
242.3 |
|
|
$ |
213.9 |
|
|
$ |
28.4 |
|
|
|
13.3 |
|
|
|
14.9 |
|
|
Switzerland (Cablecom)
|
|
|
196.2 |
|
|
|
|
|
|
|
196.2 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
Austria
|
|
|
110.9 |
|
|
|
85.2 |
|
|
|
25.7 |
|
|
|
30.2 |
|
|
|
31.9 |
|
|
Other Western Europe
|
|
|
111.2 |
|
|
|
74.9 |
|
|
|
36.3 |
|
|
|
48.5 |
|
|
|
48.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
660.6 |
|
|
|
374.0 |
|
|
|
286.6 |
|
|
|
76.6 |
|
|
|
78.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
87.7 |
|
|
|
92.3 |
|
|
|
(4.6 |
) |
|
|
(5.0 |
) |
|
|
3.6 |
|
|
Other Central and Eastern Europe
|
|
|
155.9 |
|
|
|
96.0 |
|
|
|
59.9 |
|
|
|
62.4 |
|
|
|
59.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
243.6 |
|
|
|
188.3 |
|
|
|
55.3 |
|
|
|
29.4 |
|
|
|
31.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations of UPC Broadband Division
|
|
|
57.7 |
|
|
|
57.9 |
|
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (UPC Broadband Division)
|
|
|
961.9 |
|
|
|
620.2 |
|
|
|
341.7 |
|
|
|
55.1 |
|
|
|
56.8 |
|
Japan (J:COM)
|
|
|
554.3 |
|
|
|
508.2 |
|
|
|
46.1 |
|
|
|
9.1 |
|
|
|
17.1 |
|
Chile (VTR)
|
|
|
176.0 |
|
|
|
136.6 |
|
|
|
39.4 |
|
|
|
28.8 |
|
|
|
20.1 |
|
Corporate and other
|
|
|
360.6 |
|
|
|
126.9 |
|
|
|
233.7 |
|
|
|
184.2 |
|
|
|
185.7 |
|
Intersegment eliminations
|
|
|
(51.6 |
) |
|
|
(30.5 |
) |
|
|
(21.1 |
) |
|
|
(69.2 |
) |
|
|
(72.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses excluding stock-based compensation
expense
|
|
|
2,001.2 |
|
|
|
1,361.4 |
|
|
|
639.8 |
|
|
|
47.0 |
|
|
|
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
4.2 |
|
|
|
10.5 |
|
|
|
(6.3 |
) |
|
|
(60.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
2,005.4 |
|
|
$ |
1,371.9 |
|
|
$ |
633.5 |
|
|
|
46.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
69
General. Operating expenses include programming, network
operations, interconnect, customer operations, customer care and
other direct costs. Programming costs, which represent a
significant portion of our operating costs, are expected to rise
in future periods as a result of the expansion of service
offerings and the potential for price increases. Any cost
increases that we are not able to pass on to our subscribers
through service rate increases would result in increased
pressure on our operating margins.
UPC Broadband Division. The UPC Broadband Divisions
operating expenses increased $117.9 million or 56.0%, and
$341.7 million or 55.1%, during the three and nine months
ended September 30, 2006, respectively, as compared to the
corresponding prior year periods. The aggregate effects of the
Cablecom, NTL Ireland, Astral, INODE, Telemach and other less
significant acquisitions accounted for $89.2 million and
$300.2 million of such increases during the respective 2006
periods. Excluding the effects of these acquisitions, foreign
exchange rate fluctuations and stock-based compensation expense,
the UPC Broadband Divisions operating expenses increased
$19.5 million or 9.3%, and $52.3 million or 8.4%,
respectively, primarily due to the net effect of the following
factors:
|
|
|
|
|
Increases in direct programming and copyright costs of
$8.4 million and $12.6 million during the respective
2006 periods, primarily due to increases related to subscriber
growth on the digital and DTH platforms, increased content, and
to a lesser extent, higher intercompany charges from Chellomedia
for programming and increases due to consumer price index rate
increases. These increases were partially offset during the
nine-month period by the favorable impact of the termination of
an unfavorable programming contract in May 2005. |
|
|
|
Increases in salaries and other staff related costs of
$1.7 million and $10.5 million during the respective
2006 periods, primarily reflecting (i) increased staffing
levels, including increased use of temporary personnel during
the nine-month period, particularly in the customer care and
customer operations areas, and (ii) annual wage increases.
Such increases were partially offset by higher levels of labor
costs allocated to certain capital projects, including projects
associated with The Netherlands digital migration program
and various corporate information technology initiatives. The
increased staffing levels are necessary to sustain the higher
levels of activity resulting from: |
|
|
|
|
|
higher subscriber numbers; |
|
|
|
the greater volume of calls received by customer care centers in
The Netherlands and elsewhere due to increases in digital video,
broadband Internet and telephony subscribers. On a per
subscriber basis, these services typically generate more calls
than our analog video service; |
|
|
|
The Netherlands digital migration program, which was
launched in October 2005; and |
|
|
|
increased customer service standard levels. |
|
|
|
|
|
Increases in network related expenses of $3.5 million and
$9.3 million during the respective 2006 periods, driven
primarily by higher costs in The Netherlands, Hungary and the
central and corporate operations of the UPC Broadband Division. |
|
|
|
Increases in outsourced labor and consulting fees of
$1.6 million and $4.2 million during the respective
2006 periods, driven by the use of third parties primarily in
The Netherlands to manage excess call center volume associated
with the growth in digital video, broadband Internet and VoIP
telephony services. These increases were partially offset by
decreases associated with the insourcing of certain customer
operations functions in The Netherlands. |
|
|
|
Increases in costs for mobile handsets sold in The Netherlands
of $1.5 million and $3.1 million during the respective
2006 periods; |
|
|
|
A decrease of $0.6 million and an increase of
$0.5 million in interconnect costs during the respective
2006 periods, as decreases in telephony transit volume in
Hungary, as discussed under Revenue of our Reportable
Segments Hungary, above, were largely offset by
the impact of increases in VoIP telephony subscribers, primarily
in The Netherlands, Hungary, Poland and Ireland. |
70
|
|
|
|
|
Individually insignificant increases during the 2006 periods in
postage, bad debt, telecommunications, vehicle and other costs
associated with the increased scope of the UPC Broadband
Divisions business. |
As discussed under Revenue of our Reportable
Segments The Netherlands above, we have incurred
significant operating costs during the 2006 periods in
connection with The Netherlands digital migration program.
Japan (J:COM). J:COMs operating expenses increased
$8.3 million or 4.7%, and $46.1 million or 9.1%,
during the three and nine months ended September 30, 2006,
respectively, as compared to the corresponding prior year
periods. The effects of the J:COM Chofu Cable and J:COM
Setamachi acquisitions and other less significant acquisitions
accounted for approximately $6.1 million and
$14.4 million of such increases during the respective 2006
periods. Excluding the effects of these acquisitions, the
effects of foreign exchange rate fluctuations and stock-based
compensation expense, J:COMs operating expenses increased
$10.6 million or 6.0%, and $72.7 million or 14.3%,
respectively. These increases primarily are due to
(i) increases of $9.7 million and $31.0 million
during the respective 2006 periods in programming and related
costs as a result of growth in the number of digital video
customers, (ii) increases in network operating expenses,
maintenance and technical support costs during the nine-month
period associated with RGU growth and the expansion of
J:COMs network, and (iii) other individually
insignificant increases during the 2006 periods.
Chile (VTR). VTRs operating expenses increased
$6.3 million or 11.8%, and $39.4 million or 28.8%,
during the three and nine months ended September 30, 2006,
respectively, as compared to the corresponding prior year
periods. The estimated effects of the Metrópolis
acquisition accounted for approximately $10.9 million of
the nine-month increase. Excluding the effects of the
Metrópolis acquisition, foreign exchange rate fluctuations
and stock-based compensation expense, VTRs operating
expenses increased $4.8 million or 8.9%, and
$16.6 million or 12.2%, respectively. These increases are
primarily attributable to growth in VTRs subscriber base,
as increases in customer care, network maintenance and technical
support, and labor costs accounted for $4.3 million and
$15.0 million, respectively, of the increases. Higher
access charges, due primarily to growth in VTRs telephony
subscribers, also contributed to the
quarter-to-date and
year-to-date increases.
71
|
|
|
SG&A Expenses of our Reportable Segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months | |
|
|
|
Increase | |
|
|
ended | |
|
Increase | |
|
(decrease) | |
|
|
September 30, | |
|
(decrease) | |
|
excluding FX | |
|
|
| |
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
$ | |
|
% | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions, except % amounts | |
Europe (UPC Broadband Division):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
35.4 |
|
|
$ |
27.6 |
|
|
$ |
7.8 |
|
|
|
28.3 |
|
|
|
22.4 |
|
|
Switzerland (Cablecom)
|
|
|
34.7 |
|
|
|
|
|
|
|
34.7 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
Austria
|
|
|
17.2 |
|
|
|
11.6 |
|
|
|
5.6 |
|
|
|
48.3 |
|
|
|
42.1 |
|
|
Other Western Europe
|
|
|
14.5 |
|
|
|
11.7 |
|
|
|
2.8 |
|
|
|
23.9 |
|
|
|
17.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
101.8 |
|
|
|
50.9 |
|
|
|
50.9 |
|
|
|
100.0 |
|
|
|
94.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
10.1 |
|
|
|
9.0 |
|
|
|
1.1 |
|
|
|
12.2 |
|
|
|
21.2 |
|
|
Other Central and Eastern Europe
|
|
|
19.6 |
|
|
|
14.7 |
|
|
|
4.9 |
|
|
|
33.3 |
|
|
|
25.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
29.7 |
|
|
|
23.7 |
|
|
|
6.0 |
|
|
|
25.3 |
|
|
|
23.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations of UPC Broadband Division
|
|
|
38.8 |
|
|
|
33.5 |
|
|
|
5.3 |
|
|
|
15.8 |
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (UPC Broadband Division)
|
|
|
170.3 |
|
|
|
108.1 |
|
|
|
62.2 |
|
|
|
57.5 |
|
|
|
52.4 |
|
Japan (J:COM)
|
|
|
96.7 |
|
|
|
76.1 |
|
|
|
20.6 |
|
|
|
27.1 |
|
|
|
32.9 |
|
Chile (VTR)
|
|
|
28.0 |
|
|
|
27.3 |
|
|
|
0.7 |
|
|
|
2.6 |
|
|
|
(0.3 |
) |
Corporate and other
|
|
|
33.0 |
|
|
|
19.8 |
|
|
|
13.2 |
|
|
|
66.7 |
|
|
|
66.7 |
|
Inter-segment eliminations
|
|
|
0.7 |
|
|
|
(0.9 |
) |
|
|
1.6 |
|
|
|
177.8 |
|
|
|
185.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SG&A expenses excluding stock-based compensation
expense
|
|
|
328.7 |
|
|
|
230.4 |
|
|
|
98.3 |
|
|
|
42.7 |
|
|
|
41.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
19.1 |
|
|
|
54.9 |
|
|
|
(35.8 |
) |
|
|
(65.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
347.8 |
|
|
$ |
285.3 |
|
|
$ |
62.5 |
|
|
|
21.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended | |
|
Increase | |
|
Increase | |
|
|
September 30, | |
|
(decrease) | |
|
excluding FX | |
|
|
| |
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
$ | |
|
% | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions, except % amounts | |
Europe (UPC Broadband Division):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
107.5 |
|
|
$ |
92.3 |
|
|
$ |
15.2 |
|
|
|
16.5 |
|
|
|
18.0 |
|
|
Switzerland (Cablecom)
|
|
|
107.9 |
|
|
|
|
|
|
|
107.9 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
Austria
|
|
|
48.4 |
|
|
|
37.7 |
|
|
|
10.7 |
|
|
|
28.4 |
|
|
|
30.2 |
|
|
Other Western Europe
|
|
|
39.1 |
|
|
|
26.5 |
|
|
|
12.6 |
|
|
|
47.5 |
|
|
|
49.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
302.9 |
|
|
|
156.5 |
|
|
|
146.4 |
|
|
|
93.5 |
|
|
|
95.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
31.6 |
|
|
|
27.7 |
|
|
|
3.9 |
|
|
|
14.1 |
|
|
|
24.1 |
|
|
Other Central and Eastern Europe
|
|
|
58.5 |
|
|
|
41.2 |
|
|
|
17.3 |
|
|
|
42.0 |
|
|
|
40.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
90.1 |
|
|
|
68.9 |
|
|
|
21.2 |
|
|
|
30.8 |
|
|
|
33.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations of UPC Broadband Division
|
|
|
104.7 |
|
|
|
93.6 |
|
|
|
11.1 |
|
|
|
11.9 |
|
|
|
12.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (UPC Broadband Division)
|
|
|
497.7 |
|
|
|
319.0 |
|
|
|
178.7 |
|
|
|
56.0 |
|
|
|
57.4 |
|
Japan (J:COM)
|
|
|
270.8 |
|
|
|
248.4 |
|
|
|
22.4 |
|
|
|
9.0 |
|
|
|
17.4 |
|
Chile (VTR)
|
|
|
91.5 |
|
|
|
72.5 |
|
|
|
19.0 |
|
|
|
26.2 |
|
|
|
17.4 |
|
Corporate and other
|
|
|
130.0 |
|
|
|
74.6 |
|
|
|
55.4 |
|
|
|
74.3 |
|
|
|
75.5 |
|
Inter-segment eliminations
|
|
|
0.9 |
|
|
|
(1.2 |
) |
|
|
2.1 |
|
|
|
175.0 |
|
|
|
180.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total SG&A expenses excluding stock-based compensation
expense
|
|
|
990.9 |
|
|
|
713.3 |
|
|
|
277.6 |
|
|
|
38.9 |
|
|
|
41.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
52.3 |
|
|
|
111.8 |
|
|
|
(59.5 |
) |
|
|
(53.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated LGI
|
|
$ |
1,043.2 |
|
|
$ |
825.1 |
|
|
$ |
218.1 |
|
|
|
26.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
72
General. SG&A expenses include human resources,
information technology, general services, management, finance,
legal and marketing costs and other general expenses.
UPC Broadband Division. The UPC Broadband Divisions
SG&A expenses increased $62.2 million or 57.5%, and
$178.7 million or 56.0%, during the three and nine months
ended September 30, 2006, respectively, as compared to the
corresponding prior year periods. The aggregate effects of the
Cablecom, NTL Ireland, Astral, INODE, Telemach and other less
significant acquisitions accounted for $45.1 million and
$144.3 million of such increases during the respective 2006
periods. Excluding the effects of these acquisitions, foreign
exchange rate fluctuations and stock-based compensation expense,
the UPC Broadband Divisions SG&A expenses increased
$11.5 million or 10.7%, and $38.7 million or 12.2%,
respectively, primarily due to the net effect of the following
factors:
|
|
|
|
|
Increases in sales and marketing expenses and commissions of
$7.7 million and $19.1 million during the three and
nine months ended September 30, 2006, respectively, as
compared to the corresponding prior year periods, reflecting the
cost of marketing campaigns designed to promote the digital
migration program in The Netherlands, RGU growth (including
campaigns designed to promote the growth of VoIP telephony
services), product bundling and brand awareness; |
|
|
|
Increases in salaries and other staff related costs of
$6.8 million and $19.7 million during the respective
2006 periods, reflecting increased staffing levels in sales and
marketing, finance and information technology functions, as well
as annual wage increases; |
|
|
|
Decreases in outsourced labor and consulting fees of
$4.9 million during both 2006 periods, primarily due to
lower fees attributable to our internal controls attestation
process. These decreases also include the impacts of lower costs
during the three-month period, and higher costs during the
nine-month period, for outsourced labor and consulting
associated with The Netherlands digital migration
program; and |
|
|
|
Individually insignificant increases in facility and other costs
associated with the increased scope of the UPC Broadband
Divisions business. |
As discussed under Revenue of our Reportable
Segments The Netherlands above, we have incurred
significant SG&A costs during the 2006 periods in connection
with The Netherlands digital migration program.
Japan (J:COM). J:COMs SG&A expenses increased
$20.6 million or 27.1%, and $22.4 million or 9.0%,
during the three and nine months ended September 30, 2006,
respectively, as compared to the corresponding prior year
periods. The effects of the J:COM Chofu Cable and J:COM
Setamachi acquisitions and other less significant acquisitions
accounted for increases of approximately $12.4 million and
$34.7 million during the respective 2006 periods. Excluding
the effects of these acquisitions, the effects of foreign
exchange rate fluctuations and stock-based compensation expense,
J:COMs SG&A expenses increased $12.6 million or
16.6%, and $8.4 million or 3.4%, respectively. These
increases are attributable primarily to higher labor and related
overhead costs associated with increases in sales staff and
annual wage increases. The nine month increase was partially
offset by lower marketing and advertising costs during 2006 as
costs incurred in connection with a rebranding initiative
undertaken by J:COM during the first half of 2005 were not
repeated during 2006.
Chile (VTR). VTRs SG&A expenses increased
$0.7 million or 2.6%, and $19.0 million or 26.2%,
during the three and nine months ended September 30, 2006,
respectively, as compared to the corresponding prior year
periods. The estimated effects of the Metrópolis
acquisition accounted for approximately $5.5 million of the
nine-month increase. Excluding the effects of the
Metrópolis acquisition, foreign exchange rate fluctuations
and stock-based compensation expense, VTRs SG&A
expenses decreased $0.1 million or 0.3%, and increased
$7.1 million or 9.9%, respectively. The decrease for the
three-month period is primarily attributable to lower spending
on marketing and advertising activities and lower labor and
related costs, offset by an increase in sales commissions. The
increase for the nine-month period is primarily attributable to
increases in sales commissions and professional fees, offset in
part by lower labor and related costs. The lower labor and
related costs for the three-month and nine-month periods are due
largely to non-recurring labor
73
costs that were incurred during 2005 in connection with the
Metrópolis combination. The increase in professional fees
reflects amounts incurred in 2006 in connection with certain
litigation matters and strategic projects.
|
|
|
Operating Cash Flow of our Reportable Segments |
Operating cash flow is the primary measure used by our chief
operating decision maker to evaluate segment operating
performance and to decide how to allocate resources to segments.
As we use the term, operating cash flow is defined as revenue
less operating and SG&A expenses (excluding stock-based
compensation, depreciation and amortization, and impairment,
restructuring and other operating charges or credits). We
believe operating cash flow is meaningful because it provides
investors a means to evaluate the operating performance of our
segments and our company on an ongoing basis using criteria that
is used by our internal decision makers. Our internal decision
makers believe operating cash flow is a meaningful measure and
is superior to other available GAAP measures because it
represents a transparent view of our recurring operating
performance and allows management to readily view operating
trends, perform analytical comparisons and benchmarking between
segments in the different countries in which we operate and
identify strategies to improve operating performance. For
example, our internal decision makers believe that the inclusion
of impairment and restructuring charges within operating cash
flow would distort the ability to efficiently assess and view
the core operating trends in our segments. For a reconciliation
of total segment operating cash flow to our consolidated loss
before income taxes, minority interests and discontinued
operations, see note 11 to our condensed consolidated
financial statements. Investors should view operating cash flow
as a measure of operating performance that is a supplement to,
and not a substitute for, operating income, net earnings, cash
flow from operating activities and other GAAP measures of income.
74
|
|
|
Operating Cash Flow of our Reportable Segments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase | |
|
|
|
|
|
|
|
|
(decrease) | |
|
|
Three months ended | |
|
|
|
excluding | |
|
|
September 30, | |
|
Increase (decrease) | |
|
FX | |
|
|
| |
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
$ | |
|
% | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions, except % amounts | |
Europe (UPC Broadband Division):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
118.3 |
|
|
$ |
111.0 |
|
|
$ |
7.3 |
|
|
|
6.6 |
|
|
|
1.8 |
|
|
Switzerland (Cablecom)
|
|
|
96.1 |
|
|
|
|
|
|
|
96.1 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
Austria
|
|
|
52.3 |
|
|
|
42.6 |
|
|
|
9.7 |
|
|
|
22.8 |
|
|
|
17.1 |
|
|
Other Western Europe
|
|
|
24.0 |
|
|
|
24.1 |
|
|
|
(0.1 |
) |
|
|
(0.4 |
) |
|
|
(3.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
290.7 |
|
|
|
177.7 |
|
|
|
113.0 |
|
|
|
63.6 |
|
|
|
58.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
33.5 |
|
|
|
30.9 |
|
|
|
2.6 |
|
|
|
8.4 |
|
|
|
17.3 |
|
|
Other Central and Eastern Europe
|
|
|
67.3 |
|
|
|
36.8 |
|
|
|
30.5 |
|
|
|
82.9 |
|
|
|
72.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
100.8 |
|
|
|
67.7 |
|
|
|
33.1 |
|
|
|
48.9 |
|
|
|
47.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations of UPC Broadband Division
|
|
|
(51.1 |
) |
|
|
(48.9 |
) |
|
|
(2.2 |
) |
|
|
(4.5 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (UPC Broadband Division)
|
|
|
340.4 |
|
|
|
196.5 |
|
|
|
143.9 |
|
|
|
73.2 |
|
|
|
69.4 |
|
Japan (J:COM)
|
|
|
187.4 |
|
|
|
165.6 |
|
|
|
21.8 |
|
|
|
13.2 |
|
|
|
18.3 |
|
Chile (VTR)
|
|
|
49.7 |
|
|
|
38.3 |
|
|
|
11.4 |
|
|
|
29.8 |
|
|
|
26.4 |
|
Corporate and other
|
|
|
21.9 |
|
|
|
(1.8 |
) |
|
|
23.7 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
599.4 |
|
|
$ |
398.6 |
|
|
$ |
200.8 |
|
|
|
50.4 |
|
|
|
50.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase | |
|
|
|
|
|
|
|
|
(decrease) | |
|
|
Nine months ended | |
|
|
|
excluding | |
|
|
September 30, | |
|
Increase (decrease) | |
|
FX | |
|
|
| |
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
$ | |
|
% | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions, except % amounts | |
Europe (UPC Broadband Division):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Netherlands
|
|
$ |
327.5 |
|
|
$ |
341.7 |
|
|
$ |
(14.2 |
) |
|
|
(4.2 |
) |
|
|
(2.6 |
) |
|
Switzerland (Cablecom)
|
|
|
260.5 |
|
|
|
|
|
|
|
260.5 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
Austria
|
|
|
146.6 |
|
|
|
127.6 |
|
|
|
19.0 |
|
|
|
14.9 |
|
|
|
16.4 |
|
|
Other Western Europe
|
|
|
74.5 |
|
|
|
56.9 |
|
|
|
17.6 |
|
|
|
30.9 |
|
|
|
32.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Western Europe
|
|
|
809.1 |
|
|
|
526.2 |
|
|
|
282.9 |
|
|
|
53.8 |
|
|
|
55.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hungary
|
|
|
104.9 |
|
|
|
93.6 |
|
|
|
11.3 |
|
|
|
12.1 |
|
|
|
22.4 |
|
|
Other Central and Eastern Europe
|
|
|
193.7 |
|
|
|
115.1 |
|
|
|
78.6 |
|
|
|
68.3 |
|
|
|
65.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Central and Eastern Europe
|
|
|
298.6 |
|
|
|
208.7 |
|
|
|
89.9 |
|
|
|
43.1 |
|
|
|
46.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central and corporate operations of UPC Broadband Division
|
|
|
(151.8 |
) |
|
|
(149.4 |
) |
|
|
(2.4 |
) |
|
|
(1.6 |
) |
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Europe (UPC Broadband Division)
|
|
|
955.9 |
|
|
|
585.5 |
|
|
|
370.4 |
|
|
|
63.3 |
|
|
|
65.4 |
|
Japan (J:COM)
|
|
|
537.6 |
|
|
|
481.2 |
|
|
|
56.4 |
|
|
|
11.7 |
|
|
|
20.2 |
|
Chile (VTR)
|
|
|
144.1 |
|
|
|
104.2 |
|
|
|
39.9 |
|
|
|
38.3 |
|
|
|
28.7 |
|
Corporate and other
|
|
|
67.7 |
|
|
|
(14.5 |
) |
|
|
82.2 |
|
|
|
N.M. |
|
|
|
N.M. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,705.3 |
|
|
$ |
1,156.4 |
|
|
$ |
548.9 |
|
|
|
47.5 |
|
|
|
50.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N.M. Not Meaningful
75
|
|
|
Discussion and Analysis of our Historical Operating
Results |
As noted above, the effects of acquisitions have affected the
comparability of our results of operations during the 2006 and
2005 interim periods. Unless otherwise indicated in the
discussion below, the significant increases in our historical
revenue, expenses and other items during the three and nine
months ended September 30, 2006, as compared to the
respective 2005 periods, are primarily attributable to the
effects of these acquisitions. For more detailed explanations of
the changes in our revenue, operating expenses and SG&A
expenses, see the Discussion and Analysis of Reportable
Segments that appears above.
Our total consolidated revenue increased $517.3 million and
$1,466.3 million during the three and nine months ended
September 30, 2006, respectively, as compared to the
corresponding prior year periods. The effects of acquisitions
accounted for $400.0 million and $1,236.6 million of
such increases during the respective 2006 periods. Excluding the
effects of these transactions and foreign exchange rate
fluctuations, total consolidated revenue increased
$110.1 million or 10.0%, and $333.5 million or 10.3%,
respectively. As discussed in greater detail under Discussion
and Analysis of Reportable Segments above, most of these
increases are attributable to RGU growth.
Our total consolidated operating expense increased
$214.4 million and $633.5 million during the three and
nine months ended September 30, 2006, respectively, as
compared to the corresponding prior year periods. Our operating
expenses include stock-based compensation expense, which
decreased $3.8 million and $6.3 million, respectively.
For additional information, see discussion following SG&A
expense below. The effects of acquisitions accounted for
$178.6 million and $537.7 million of the increases in
our total consolidated operating expenses during the respective
2006 periods. Excluding the effects of acquisitions, foreign
exchange rate fluctuations and stock-based compensation expense,
total consolidated operating expense increased
$35.9 million or 7.5%, and $143.2 million or 10.5%,
respectively. As discussed in more detail under Discussion
and Analysis of Reportable Segments above, these increases
generally reflect increases in (i) programming costs,
(ii) labor costs, (iii) network related costs, and
(iv) less significant increases in other expense
categories. Most of these increases are a function of increased
volumes or levels of activity associated with the increase in
our customer base.
Our total consolidated SG&A expense increased
$62.5 million and $218.1 million during the three and
nine months ended September 30, 2006, respectively, as
compared to the corresponding prior year periods. Our SG&A
expense includes stock-based compensation expense, which
decreased $35.8 million and $59.5 million,
respectively. For additional information, see discussion in the
following paragraph. The effects of acquisitions accounted for
$69.1 million and $251.5 million of the SG&A
expense increases during the respective 2006 periods. Excluding
the effects of acquisitions, foreign exchange rate fluctuations
and stock based compensation expense, total consolidated
SG&A expense increased $27.4 million or 11.9%, and
$45.7 million or 6.4%, respectively. As discussed in more
detail under Discussion and Analysis of Reportable Segments
above, these increases generally reflect increases in
(i) labor costs and (ii) marketing and advertising
costs and sales commissions. The increases in our marketing and
advertising costs and sales commissions primarily are
attributable to our efforts to promote RGU growth and launch new
product offerings and initiatives. The increases in our labor
costs primarily are a function of the increased levels of
activity associated with the increase in our customer base.
|
|
|
Stock-based compensation expense (included in operating and
SG&A expenses) |
Effective January 1, 2006, we adopted SFAS 123(R) and
began using the fair value method to account for the stock
incentive awards of our company and our subsidiaries. Prior to
January 1, 2006, we used the
76
intrinsic value method prescribed by APB No. 25 to account
for stock-based incentive awards. Our stock-based compensation
expense for the three and nine months ended September 30,
2005 has not been restated to adopt the provisions of
SFAS 123(R). SFAS 123(R) requires all share-based
payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on
their grant-date fair values. SFAS 123(R) also requires the
fair value of outstanding options vesting after the date of
initial adoption to be recognized as a charge to operations over
the remaining vesting period. We record stock-based compensation
that is associated with LGI common stock, J:COM common stock and
certain other subsidiary common stock. The stock-based
compensation expense associated with J:COM common stock consists
of, during the 2006 and 2005 periods, the amounts recorded by
J:COM with respect to its stock-based compensation plans, and
during the 2005 periods, amounts recorded with respect to the
Liberty Jupiter stock plan.
A summary of the aggregate stock-based compensation expense that
is included in our SG&A and operating expenses is set forth
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months | |
|
Nine months | |
|
|
ended | |
|
ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions | |
LGI common stock(a)
|
|
$ |
16.8 |
|
|
$ |
52.7 |
|
|
$ |
46.9 |
|
|
$ |
85.4 |
|
J:COM common stock(b)
|
|
|
0.7 |
|
|
|
7.1 |
|
|
|
2.5 |
|
|
|
31.8 |
|
Other
|
|
|
3.7 |
|
|
|
1.0 |
|
|
|
7.1 |
|
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
21.2 |
|
|
$ |
60.8 |
|
|
$ |
56.5 |
|
|
$ |
122.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
$ |
2.1 |
|
|
$ |
5.9 |
|
|
$ |
4.2 |
|
|
$ |
10.5 |
|
SG&A expense
|
|
|
19.1 |
|
|
|
54.9 |
|
|
|
52.3 |
|
|
|
111.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
21.2 |
|
|
$ |
60.8 |
|
|
$ |
56.5 |
|
|
$ |
122.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
As discussed above, stock-based compensation during the 2006
periods was determined in accordance with the provisions of
SFAS 123(R). As permitted under SFAS 123(R), we use
the accelerated attribution method to amortize the fair value of
stock awards granted prior to January 1, 2006 and the
straight-line method to amortize the fair value of stock awards
granted subsequent to January 1, 2006. Most of the LGI
stock incentive awards outstanding during the 2005 periods were
accounted for as variable-plan awards under the intrinsic value
method. Accordingly, fluctuations in our stock-based
compensation expense for the three and nine months ended
September 30, 2005 were largely a function of changes in
the market price of the underlying common stock. |
|
|
|
(b) |
|
The stock-based compensation expense related to J:COM common
stock during the three and nine months ended September 30,
2005 includes (i) stock-based compensation recorded by
J:COM of $6.0 million and $24.7 million, respectively,
including amounts recorded due to adjustments to the terms of
J:COMs outstanding awards that were made in connection
with J:COMs March 23, 2005 IPO and to increases in
the market price of J:COM common stock following the IPO and
(ii) stock-based compensation expense recorded with respect
to the Liberty Jupiter stock plan of $1.1 million and
$7.1 million, respectively. Prior to the adoption of
SFAS 123(R), we recorded stock compensation pursuant to the
Liberty Jupiter stock plan based on changes in the market price
of J:COM common stock. As a result of our January 1, 2006
adoption of SFAS 123(R), we no longer account for this
arrangement as a compensatory plan and have reclassified the
liability as of January 1, 2006 to minority interests in
consolidated subsidiaries in our condensed consolidated balance
sheet. |
For additional information concerning our stock-based
compensation, see note 3 to our condensed consolidated
financial statements.
77
|
|
|
Depreciation and amortization |
Our total consolidated depreciation and amortization expense
increased $151.7 million and $474.3 million during the
three and nine months ended September 30, 2006
respectively, as compared to the corresponding prior year
periods. The effects of acquisitions accounted for
$128.1 million and $431.3 million of such increases
during the respective 2006 periods. Excluding the effect of
acquisitions and foreign exchange rate fluctuations,
depreciation and amortization expense increased
$19.3 million or 6.3%, and $67.5 million or 7.8%,
respectively. These increases are due primarily to increases
associated with capital expenditures related to the installation
of customer premise equipment, the expansion and upgrade of our
networks and other capital initiatives.
Our total consolidated interest expense increased
$59.5 million and $206.2 million during the three and
nine months ended September 30, 2006, respectively, as
compared to the corresponding prior year periods. Excluding the
effects of foreign exchange rate fluctuations, interest expense
increased $55.2 million or 45.2%, and $210.1 million
or 76.2% during the respective 2006 periods. These increases are
primarily attributable to a $3.9 billion or 52.8% increase
in our outstanding indebtedness at September 30, 2006, as
compared to September 30, 2005. The increase in debt is
primarily attributable to debt incurred or assumed in connection
with acquisitions. Increases in certain interest rates during
the 2006 periods also contributed to the overall increase in
interest expense. The effects of increased borrowings and higher
interest rates were partially offset by $38.7 million and
$38.0 million decreases, respectively, in non-cash interest
expense related to certain mandatorily redeemable securities
issued by two entities, which we refer to as the Investcos,
through which Belgian Cable Investors holds its indirect
interest in Telenet common shares. The decreases in this
non-cash interest expense primarily are attributable to a
$40.8 million increase in the estimated redemption value of
the mandatorily redeemable securities of the Investcos that we
recorded during the third quarter of 2005 in connection with
Telenets October 2005 initial public offering and the
resulting increased liquidity of the Telenet shares underlying
the mandatorily redeemable securities of the Investcos. We also
experienced decreases of $12.5 million and
$26.3 million during the respective 2006 periods in the
non-cash interest expense recorded on the UGC Convertible Notes
due to the adoption of SFAS 155 on January 1, 2006. As
a result of this change in accounting, we no longer record
non-cash interest expense with respect to the UGC Convertible
Notes. For additional information, see note 3 to our
condensed consolidated financial statements.
|
|
|
Interest and dividend income |
Our total consolidated interest and dividend income increased
$7.2 million and $1.2 million during the three and
nine months ended September 30, 2006, respectively, as
compared to the corresponding prior year periods. The increase
for the three-month period is attributable to higher average
consolidated cash and cash equivalent balances as well as an
increase in the average interest rate earned on such balances.
The increase for the nine-month period represents the net result
of an increase in the average interest rate earned on our
average consolidated cash and cash equivalent balances and a
decrease in such average balances.
78
|
|
|
Share of results of affiliates, net |
The following table reflects our share of earnings (losses), net
of affiliates including any other-than-temporary declines in
value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended | |
|
Nine months ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions | |
Jupiter TV
|
|
$ |
4.2 |
|
|
$ |
6.7 |
|
|
$ |
21.3 |
|
|
$ |
23.3 |
|
Telenet
|
|
|
(1.4 |
) |
|
|
(7.3 |
) |
|
|
(16.4 |
) |
|
|
(19.1 |
) |
Austar
|
|
|
|
|
|
|
(1.3 |
) |
|
|
|
|
|
|
3.8 |
|
Mediatti Communications, Inc.
|
|
|
(1.1 |
) |
|
|
(0.6 |
) |
|
|
(3.6 |
) |
|
|
(5.8 |
) |
Torneos y Competencias S.A. (TyC)(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18.5 |
) |
Other
|
|
|
3.8 |
|
|
|
4.5 |
|
|
|
4.6 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5.5 |
|
|
$ |
2.0 |
|
|
$ |
5.9 |
|
|
$ |
(14.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Our share of TyCs losses during the nine months ended
September 30, 2005 includes a $25.4 million impairment
charge to reflect an other-than-temporary decline in the fair
value of our investment in TyC at March 31, 2005. We sold
our investment in TyC during the second quarter of 2005. |
|
|
|
Realized and unrealized gains (losses) on financial and
derivative instruments, net |
The details of our realized and unrealized gains (losses) on
derivative instruments, net are as follows for the indicated
interim periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended | |
|
Nine months ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions | |
Cross-currency and interest rate exchange contracts(a)
|
|
$ |
(132.6 |
) |
|
$ |
27.3 |
|
|
$ |
(146.8 |
) |
|
$ |
123.1 |
|
Embedded derivatives(b)
|
|
|
1.0 |
|
|
|
(57.7 |
) |
|
|
(17.3 |
) |
|
|
(10.1 |
) |
UGC Convertible Notes(c)
|
|
|
(81.3 |
) |
|
|
|
|
|
|
(45.2 |
) |
|
|
|
|
Foreign exchange contracts
|
|
|
22.7 |
|
|
|
(0.9 |
) |
|
|
28.5 |
|
|
|
8.6 |
|
Call and put contracts(d)
|
|
|
9.1 |
|
|
|
2.1 |
|
|
|
20.8 |
|
|
|
0.9 |
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(181.1 |
) |
|
$ |
(29.2 |
) |
|
$ |
(160.0 |
) |
|
$ |
126.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
The losses on the cross-currency and interest rate exchange
contracts for the three months ended September 30, 2006 are
attributable to the net effect of (i) losses associated
with decreases in market interest rates in euro,
U.S. dollar, Swiss franc, Australian dollar and Chilean
peso markets, (ii) losses associated with an increase in
the value of the eastern European currencies relative to the
euro, (iii) gains associated with an increase in the value
of the U.S. dollar relative to the euro, (iv) gain
associated with an increase in the value of the euro relative to
the Swiss franc, and (v) losses associated with an increase
in the value of the Chilean peso relative to the
U.S. dollar. The losses on the cross-currency and interest
rate exchange contracts for the nine months ended
September 30, 2006 are attributable to the net effect of
(i) losses associated with a decrease in the value of the
U.S. dollar relative to the euro, (ii) losses
associated with decreases in market interest rates in
U.S. dollar, Australian dollar and Chilean peso markets,
(iii) gains associated with increases in market interest
rates in euro and Swiss franc markets, (iv) losses
associated with an increase in the value of the eastern European
currencies relative to the euro, (v) gains associated with
an increase in the value of the euro relative to the Swiss
franc, and (vi) losses associated with an increase in the
value of the Chilean peso relative to the U.S. dollar. The
gains on the cross-currency and interest rate exchange
agreements during the 2005 periods are |
79
|
|
|
attributable to the net effect of (i) gains associated with
an increase in the value of the U.S. dollar relative to the
euro and (ii) losses associated with decreases in market
interest rates. |
|
|
|
(b) |
|
Includes gains and losses associated with the embedded
derivative component of the UGC Convertible Notes during the
2005 periods and the forward sale of the News Corporation.
Class A common stock during the 2006 and 2005 periods. As
discussed in note 3 to our condensed consolidated financial
statements, we changed our method of accounting for the UGC
Convertible Notes effective January 1, 2006. |
|
(c) |
|
Represents the change in the fair value of the UGC Convertible
Notes during the 2006 periods that is not attributable to the
remeasurement of the UGC Convertible Notes into
U.S. dollars. Gains and losses arising from the
remeasurement of the UGC Convertible Notes into
U.S. dollars are reported as foreign currency transaction
gains (losses), net (see below). The fair value of the UGC
Convertible Notes is impacted by changes in (i) the
exchange rate for the U.S dollar and the euro, (ii) the
market price of LGI common stock, (iii) market interest
rates, and (iv) the credit rating of UGC. As further
described in note 3 to our condensed consolidated financial
statements, we changed our method of accounting for the UGC
Convertible Notes effective January 1, 2006. |
|
(d) |
|
The gains and losses on call and put options during the 2006
periods are primarily attributable to call options that we hold
with respect to Telenet ordinary shares. |
|
|
|
Foreign currency transaction gains (losses), net |
The details of our foreign currency transaction gains (losses)
are as follows for the indicated interim periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended | |
|
Nine months ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
amounts in millions | |
U.S. dollar debt issued by a European subsidiary
|
|
$ |
(12.7 |
) |
|
$ |
(9.3 |
) |
|
$ |
125.8 |
|
|
$ |
(191.5 |
) |
Euro denominated debt issued by UGC (UGC Convertible Notes)
|
|
|
4.8 |
|
|
|
2.4 |
|
|
|
(37.8 |
) |
|
|
55.8 |
|
Cash denominated in a currency other than the entities
functional currency
|
|
|
|
|
|
|
(0.8 |
) |
|
|
5.7 |
|
|
|
(51.0 |
) |
Intercompany notes denominated in a currency other than the
entities functional currency
|
|
|
(2.9 |
) |
|
|
22.3 |
|
|
|
(0.6 |
) |
|
|
(3.8 |
) |
Swiss franc debt issued by a European subsidiary
|
|
|
10.6 |
|
|
|
|
|
|
|
1.7 |
|
|
|
|
|
Other
|
|
|
1.1 |
|
|
|
(7.5 |
) |
|
|
(11.7 |
) |
|
|
(3.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.9 |
|
|
$ |
7.1 |
|
|
$ |
83.1 |
|
|
$ |
(194.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses on extinguishment of debt |
We recognized losses on extinguishment of debt of
$5.0 million and $40.6 million during the three and
nine months ended September 30, 2006, respectively. The
loss for the nine months ended September 30, 2006 includes
(i) a $22.2 million write-off of deferred financing
costs and creditor fees in connection with the May and July 2006
refinancings of the UPC Broadband Holding Bank Facility,
(ii) a $7.6 million loss associated with the first
quarter 2006 Redemption of the Cablecom Luxembourg Floating Rate
Notes, (iii) a $4.6 million loss recognized by VTR in
connection with the September 2006 refinancing of its bank debt,
and (iv) a $3.3 million loss recognized by J:COM in
connection with its refinancing activities. The Cablecom
Luxembourg loss represents the difference between the redemption
and carrying amounts of the Cablecom Luxembourg Floating Rate
Notes at the date of the Redemption. For additional information,
see note 7 to our condensed consolidated financial
statements.
We recognized losses on extinguishment of debt of
$12.6 million during the nine months ended
September 30, 2005. The loss for the nine months ended
September 30, 2005 represents a first quarter write-
80
off of deferred financing costs in connection with the March
2005 refinancing of the UPC Broadband Holding Bank Facility.
|
|
|
Gains (losses) on disposition of non-operating assets, net |
We recognized gains on disposition of non-operating assets, net
of $52.7 million and $100.3 million during the three
and nine months ended September 30, 2006, respectively. The
gain for the three months ended September 30, 2006 is
related to a $16.9 million gain on the August 2006 sale of
our investment in Sky Brasil and a $35.8 million gain on
the sale of our investment in Primacom. The gain for the nine
months ended September 30, 2006 also includes a
$45.3 million gain on the February 2006 sale of our cost
investment in Sky Mexico.
We recognized gains on disposition of non-operating assets, net
of $0.4 million and $25.9 million during the three and
nine months ended September 30, 2005, respectively. The
gain for the nine months ended September 30, 2005 includes
a $62.7 million loss resulting primarily from the
realization of cumulative foreign currency losses in connection
with the April 2005 disposition of our investment in TyC, a
$40.5 million gain recognized in connection with the
February 2005 sale of our subscription right to purchase
newly-issued Cablevisión S.A. shares in connection with its
debt restructuring, a $28.2 million gain on the January
2005 sale of UGCs investment in EWT Holding GmbH and a
$17.3 million gain on the June 2005 sale of our investment
in The Wireless Group plc.
We recognized income tax benefit (expense) of $22.5 million
and ($3.3 million) during the three months ended
September 30, 2006 and 2005, respectively.
The tax benefit amount for the three months ended
September 30, 2006 differs from the expected tax benefit of
$58.4 million (based on the U.S. federal 35% income
tax rate) due primarily to (i) the realization for
financial reporting purposes of foreign currency gains and
losses in certain jurisdictions not recognized for tax reporting
purposes, (ii) a net increase in our valuation allowance
established against currently arising deferred tax assets in
certain tax jurisdictions that is largely offset by the release
of valuation allowances in other jurisdictions, (iii) the
impact of certain permanent differences between the financial
and tax accounting treatment of interest and other items
associated with intercompany loans, investments in subsidiaries,
and other items that resulted in nondeductible expenses or
tax-exempt income in the tax jurisdiction, and (iv) the
impact of differences in the statutory and local tax rates in
certain jurisdictions in which we operate.
The tax expense amount for the three months ended
September 30, 2005 differs from the expected tax benefit of
$32.9 million (based on the U.S. federal 35% income
tax rate) due primarily to (i) a net increase in our
valuation allowance established against currently arising
deferred tax assets in certain tax jurisdictions that is largely
offset by the release of valuation allowances in other
jurisdictions, (ii) the impact of certain permanent
differences between the financial and tax accounting treatment
of interest and other items associated with cross jurisdictional
intercompany loans and investments, and (iii) the
realization of taxable foreign currency gains and losses in
certain jurisdictions not recognized for financial reporting
purposes.
We recognized income tax expense of $76.4 million and
$11.3 million during the nine months ended
September 30, 2006 and 2005, respectively.
The tax expense amount for the nine months ended
September 30, 2006 differs from the expected tax benefit of
$48.1 million (based on the U.S. federal 35% income
tax rate) due primarily to (i) the impact of certain
permanent differences between the financial and tax accounting
treatment of interest and other items associated with
intercompany loans, investments in subsidiaries, and other items
that resulted in nondeductible expenses or tax-exempt income in
the tax jurisdiction, (ii) the impact of differences in the
statutory and local tax rates in certain jurisdictions in which
we operate, (iii) the realization for financial reporting
purposes of foreign currency gains and losses in certain
jurisdictions not recognized for tax reporting purposes, and
(iv) a net increase in our valuation allowance established
against currently arising deferred tax assets in certain tax
jurisdictions that is largely offset by the release of valuation
allowances in other jurisdictions.
81
The tax expense amount for the nine months ended
September 30, 2005 differs from the expected tax benefit of
$40.9 million (based on the U.S. federal 35% income
tax rate) due primarily to (i) the impact of certain
permanent differences between the financial and tax accounting
treatment of interest and other items associated with cross
jurisdictional intercompany loans and investments, (ii) the
realization of taxable foreign currency gains and losses in
certain jurisdictions not recognized for financial reporting
purposes, (iii) the impact of differences in the statutory
and local tax rate in certain jurisdictions in which we operate,
and (iv) a net increase in our valuation allowance
established against currently arising deferred tax assets in
certain tax jurisdictions that is largely offset by the release
of valuation allowances in other jurisdictions, including a tax
benefit of $37.9 million recognized during the nine months
ended September 30, 2005 associated with the net release of
valuation allowances by J:COM.
Material Changes in Financial Condition
Although our consolidated operating subsidiaries have generated
cash from operating activities and have borrowed funds under
their respective bank facilities, the terms of the instruments
governing the indebtedness of certain of our subsidiaries,
including UPC Broadband Holding and Cablecom Luxembourg,
restrict our ability to access the assets of these subsidiaries.
UPC Broadband Holding and Cablecom Luxembourg collectively
account for more than half of our net assets. In addition, our
ability to access the liquidity of other subsidiaries may be
limited by tax considerations, foreign currency exchange rates,
the presence of minority interest owners and other factors.
|
|
|
Cash and cash equivalents |
The details of the U.S. dollar equivalent balances of our
consolidated cash and cash equivalents at September 30,
2006 are set forth in the following table (amounts in millions):
|
|
|
|
|
|
Cash and cash equivalents held by:
|
|
|
|
|
LGI and its non-operating subsidiaries
|
|
$ |
901.5 |
|
UPC Broadband Division:
|
|
|
|
|
|
UPC Holding
|
|
|
1.0 |
|
|
UPC Broadband Holding and its unrestricted subsidiaries
|
|
|
74.6 |
|
|
Cablecom Luxembourg and its unrestricted subsidiaries
|
|
|
128.2 |
|
J:COM
|
|
|
83.9 |
|
VTR
|
|
|
84.8 |
|
Other operating subsidiaries
|
|
|
50.6 |
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$ |
1,324.6 |
|
|
|
|
|
|
|
|
LGI and its Non-operating Subsidiaries |
The cash and cash equivalent balances of $901.5 million
held by LGI and its non-operating subsidiaries represented
available liquidity at the corporate level at September 30,
2006. Our remaining cash and cash equivalents of
$423.1 million at September 30, 2006 were held by our
operating subsidiaries as set forth in the table above. As noted
above, various factors may limit our ability to access the cash
of our consolidated subsidiaries. As described in greater detail
below, our current sources of corporate liquidity include
(i) our cash and cash equivalents, (ii) our ability to
monetize certain investments, and (iii) interest and
dividend income received on our cash and cash equivalents and
investments. From time to time, we may also receive
distributions or loan repayments from our subsidiaries or
affiliates and proceeds upon the disposition of investments and
other assets or upon the exercise of stock options. In this
regard, we have received significant cash from our subsidiaries
in the form of loans and distributions during the first nine
months of 2006. Most of this cash was used to purchase LGI
common stock.
82
The ongoing cash needs of LGI and its non-operating subsidiaries
include corporate general and administrative expenses and
interest payments on the UGC Convertible Notes. From time to
time, LGI and its non-operating subsidiaries may also require
funding in connection with acquisitions, the repurchase of LGI
common stock, or other investment opportunities.
Including our cash self-tender offers and other repurchase
transactions described in note 8 to our condensed
consolidated financial statements, we repurchased during the
nine months ended September 30, 2006 a total of
32,698,558 shares and 40,528,748 shares of LGI
Series A common stock and LGI Series C common stock,
respectively, for aggregate cash consideration of
$1,757.2 million. At September 30, 2006, we were
authorized under our March 8, 2006 stock repurchase plan to
acquire an additional $117.6 million of LGI Series A
common and LGI Series C common stock.
The cash and cash equivalents of our significant subsidiaries
are detailed in the table above. In addition to cash and cash
equivalents, the primary sources of liquidity of our operating
subsidiaries are cash provided by operations and, in the case of
UPC Broadband Holding, VTR, Cablecom Luxembourg, J:COM, Austar
and our Puerto Rico subsidiary, borrowing availability under
their respective debt instruments. For the details of the
borrowing availability of such entities at September 30,
2006, see note 7 to our condensed consolidated financial
statements. Our operating subsidiaries liquidity generally
is used to fund capital expenditures and debt service
requirements. From time to time, our operating subsidiaries may
also require funding in connection with acquisitions or other
investment opportunities. For a discussion of our consolidated
capital expenditures and cash provided by operating activities,
please see the discussion under Condensed Consolidated
Cash Flow Statements below.
On January 19, 2006, we completed the sale of 100% of UPC
Norway, to an unrelated third party for cash proceeds of
approximately
444.8 million
($536.7 million at the transaction date). On
January 24, 2006,
175 million
($214 million at the transaction date) of the proceeds from
the sale of UPC Norway were applied toward the prepayment of
borrowings under Facility I of the UPC Broadband Holding
Bank Facility. The amounts repaid may be reborrowed subject to
covenant compliance. For additional information, see note 4
to our condensed consolidated financial statements.
On March 2, 2006, a subsidiary of UPC Holding acquired
INODE, an unbundled DSL provider in Austria, for cash
consideration before direct acquisition costs of approximately
93 million
($111 million at the transaction date).
On June 19, 2006 we sold UPC Sweden for cash proceeds of
SEK2,984 million ($403.9 million at the transaction
date) and the assumption by the buyer of capital lease
obligations with an aggregate balance of approximately
SEK251 million ($34.0 million at the transaction
date). We were required to use
150 million
($188.6 million at the transaction date) of the UPC Sweden
sales proceeds to prepay Facility I under the UPC Broadband
Holding Bank Facility (see note 7 to our condensed
consolidated financial statements). The amounts repaid may be
reborrowed subject to covenant compliance.
On July 19, 2006, we sold our 100% interest in UPC France
to a consortium of unrelated third parties for cash proceeds of
1,253.2 million
($1,578.4 million at the transaction date). Pursuant to the
terms of the UPC Broadband Holding Bank Facility, we are
required to use
290.0 million
($365.3 million at the transaction date) of the cash
proceeds from the UPC France sale to prepay or otherwise provide
for the prepayment of a portion of the amounts outstanding under
the UPC Broadband Holding Bank Facility. As permitted by the UPC
Broadband Holding Bank Facility, we initially placed cash
proceeds equal to the
290.0 million
required prepayment in a restricted account that is reserved for
the prepayment of amounts outstanding under the UPC Broadband
Holding Bank Facility. In September 2006, we used
105.0 million
($133.2 million) of the amounts held in the UPC Holding
restricted account, together with available cash of
25.0 million
($31.7 million), to repay amounts outstanding under the UPC
Broadband Holding Bank Facility. We are seeking a waiver that
would eliminate the requirement to use the remaining
185.0 million
($234.7 million) held in the restricted account to repay
amounts outstanding under the UPC Broadband Holding Bank
Facility.
83
On August 9, 2006, we announced that (i) our indirect
subsidiary, Liberty Global Europe, had signed a total return
swap agreement with each of AIL and Deutsche, to acquire Unite
Holdco, subject to regulatory approvals, and (ii) Unite
Holdco, an affiliate of AIL and Deutsche, had entered into a
share purchase agreement to acquire for
322.5 million
($409.2 million), subject to closing and post-closing
adjustments, all interests in Karneval Media s.r.o. and
Forecable s.r.o. (together Karneval) from ICZ Holding B.V. On
September 18, 2006, Unite Holdco acquired Karneval for
aggregate cash consideration of
331.1 million
($420.1 million) before direct acquisition costs, including
8.6 million
($10.9 million) of net cash and working capital
adjustments. Karneval provides cable television and broadband
Internet services to residential customers and managed network
services to corporate customers in the Czech Republic. As stated
above, Liberty Global Europes acquisition of Unite Holdco
from Unite Holdcos parent companies, AIL and Deutsche, is
subject to receipt of applicable regulatory approvals. Pursuant
to the total return swap agreements, if the relevant regulatory
approvals have been obtained prior to May 7, 2007, Liberty
Global Europe will transfer to each of AIL and Deutsche an
amount equal to AILs and Deutsches respective
invested capital in Unite Holdco, plus interest at a margin of
0.70% over a specified EURIBOR-based rate, in exchange for all
of the outstanding share capital of Unite Holdco and
(indirectly) Karneval. At September 30, 2006,
AILs and Deutsches invested capital in Unite Holdco
aggregated
336.1 million
($426.4 million). Liberty Global Europes obligations
under each of the swap agreements are fully secured by cash
collateral deposited for the benefit of each of AIL and
Deutsche, to be repaid to Liberty Global Europe upon settlement
of the swap agreement. AIL and Deutsche have agreed to pay
Liberty Global Europe interest on the amount of the cash
collateral at agreed upon rates, which following Unite
Holdcos acquisition of Karneval will be the specified
EURIBOR-based rate. The aggregate amount of the cash collateral
provided by Liberty Global Europe equals the sum of the
331.1 million
($420.1 million) cash consideration paid by Unite Holdco
for Karneval plus
5.0 million
($6.3 million) to provide for Unite Holdcos working
capital requirements.
On September 28, 2006, J:COM paid aggregate cash
consideration of ¥55.8 billion ($472.5 million)
before direct acquisition costs to increase its ownership
interest in Cable West from an 8.58% non-controlling interest to
an 84.94% controlling interest.
For additional information concerning our acquisitions and
dispositions, see note 4 to our condensed consolidated
financial statements.
We seek to maintain our debt at levels that provide for
attractive equity returns without assuming undue risk. In this
regard, we strive to cause our operating subsidiaries to
maintain their debt at levels that result in a consolidated debt
balance that is between four and five times of our consolidated
operating cash flow. The ratio of our September 30, 2006
consolidated debt to our annualized consolidated operating cash
flow for the quarter ended September 30, 2006 was 4.7 and
the ratio of our September 30, 2006 consolidated net debt
(debt less cash and cash equivalents and restricted cash
balances related to our debt instruments) to our annualized
consolidated operating cash flow for the quarter ended
September 30, 2006 was 4.0.
In order to mitigate risk and to obtain the most attractive
borrowing terms, we typically seek to incur debt at the
subsidiary level that is closest to the operations that are
supporting the debt financing. In addition, we generally seek to
match the denomination of the borrowings of our subsidiaries
with the functional currency of the operations that are
supporting the respective subsidiaries borrowings. As
further discussed under Quantitative and Qualitative
Disclosures about Market Risk below and in note 5 to
our condensed consolidated financial statements, we may also use
derivative instruments to mitigate currency and interest rate
risk associated with our debt instruments. Our ability to
service or refinance our debt is dependent primarily on our
ability to maintain or increase our cash provided by operations
and to achieve adequate returns on our capital expenditures and
acquisitions.
At September 30, 2006, all of our $11,274.8 million of
consolidated debt and capital lease obligations had been
borrowed by our subsidiaries. For additional information
concerning our debt balances at September 30, 2006 and
significant developments with respect to our debt instruments
during 2006, see notes 7 and 12 to our condensed
consolidated financial statements.
84
|
|
|
Condensed Consolidated Cash Flow Statements |
Our cash flows are subject to significant variations based on
foreign currency exchange rates. See related discussion under
Quantitative and Qualitative Disclosures about Market Risk
below. See also our Discussion and Analysis of Reportable
Segments above.
During the nine months ended September 30, 2006, we used
net cash provided by our operating activities of
$1,225.4 million and net cash provided by our investing
activities of $173.7 million to fund net cash used by our
financing activities of $1,344.2 million and a
$54.9 million increase in our existing cash and cash
equivalent balances (excluding a $67.5 million increase due
to changes in foreign exchange rates).
The net cash provided by our investing activities during the
nine months ended September 30, 2006 includes cash proceeds
of $2,683.7 million received upon the disposition of UPC
France, UPC Sweden, UPC Norway, Sky Mexico and certain less
significant assets, capital expenditures of
$1,050.4 million, and cash paid in connection with the
consolidation of Karneval and the acquisition of Cable West,
INODE and certain less significant entities of
$1,134.6 million.
The UPC Broadband Division and VTR accounted for
$551.3 million and $101.4 million, respectively of our
consolidated capital expenditures during the nine months ended
September 30, 2006, and $361.7 million and
$68.9 million, respectively, during the nine months ended
September 30, 2005. The increase in the capital
expenditures of the UPC Broadband Division and VTR during the
nine months ended September 30, 2006, as compared to the
corresponding prior year period, is due primarily to
(i) the effects of acquisitions, (ii) initiatives such
as The Netherlands digital migration program and our
efforts to continue the growth of our VoIP telephony services in
Europe and Chile, (iii) increased costs for the purchase
and installation of customer premise equipment as our operating
segments in Europe and Chile added more customers during the
2006 period than in the 2005 period, (iv) increased
expenditures for new build and upgrade projects to expand
services and improve our competitive position, and to meet
increased traffic and certain franchise commitments, and
(iv) other factors such as information technology upgrades
and expenditures for general support systems. We expect that the
full year 2006 capital expenditures of the UPC Broadband
Division and VTR, as a percentage of local currency revenue,
will fall within a range of 24% to 26% and 27% to 29%,
respectively.
J:COM accounted for $298.3 million and $225.6 million
of our consolidated capital expenditures during the nine months
ended September 30, 2006 and 2005, respectively. J:COM uses
capital lease arrangements to finance a significant portion of
its capital expenditures. From a financial reporting
perspective, capital expenditures that are financed by capital
lease arrangements are treated as non-cash activities and
accordingly are not included in the capital expenditure amounts
presented in our condensed consolidated statements of cash
flows. Including $71.9 million and $105.2 million of
expenditures that were financed under capital lease
arrangements, J:COMs capital expenditures aggregated
$370.2 million and $330.8 million during the nine
months ended September 30, 2006 and 2005, respectively. On
a local currency basis, J:COM management currently expects that
J:COMs aggregate full year 2006 capital expenditures
(whether financed with cash or capital lease arrangements) will
fall within a range of 29% to 31% of J:COMs 2006 revenue.
The actual amount of the 2006 capital expenditures of the UPC
Broadband Division, VTR and J:COM may vary from the expected
amounts disclosed above for a variety of reasons, including
changes in (i) the competitive or regulatory environment,
(ii) business plans, (iii) current or expected future
operating results, and (iv) the availability of capital.
Accordingly, no assurance can be given that actual capital
expenditures will not vary from the expected amounts disclosed
above.
During the nine months ended September 30, 2006, the cash
used by our financing activities was $1,344.2 million. Such
amount includes net borrowings of debt and capital lease
obligations of $532.1 million and stock repurchases of
$1,757.2 million.
|
|
|
Off Balance Sheet Arrangements |
For a description of our outstanding guarantees and other off
balance sheet arrangements at September 30, 2006, see
note 10 to our condensed consolidated financial statements.
85
|
|
|
Commitments and Contingencies |
For a description of our outstanding commitments and
contingencies at September 30, 2006, see note 10 to
our condensed consolidated financial statements.
|
|
Item 3. |
Quantitative and Qualitative Disclosures about Market
Risk. |
We are exposed to market risk in the normal course of our
business operations due to our investments in various foreign
countries and ongoing investing and financial activities. Market
risk refers to the risk of loss arising from adverse changes in
foreign currency exchange rates, interest rates and stock
prices. The risk of loss can be assessed from the perspective of
adverse changes in fair values, cash flows and future earnings.
We have established policies, procedures and internal processes
governing our management of market risks and the use of
financial instruments to manage our exposure to such risks.
We invest our cash in liquid instruments that meet high credit
quality standards and generally have maturities at the date of
purchase of less than three months. We are exposed to exchange
rate risk with respect to certain of our cash balances that are
denominated in Japanese yen, euros and, to a lesser degree,
other currencies. At September 30, 2006, J:COM held cash
balances of $83.9 million that were denominated in Japanese
yen and we held cash balances of $900.5 million that were
denominated in euros. These Japanese yen and euro cash balances
are available to be used for future acquisitions and other
liquidity requirements that may be denominated in such
currencies.
We are also exposed to market price fluctuations related to our
investments in equity securities. At September 30, 2006,
the aggregate fair value of our equity method and
available-for-sale investments that was subject to price risk
was approximately $595.8 million.
We are exposed to unfavorable and potentially volatile
fluctuations of the U.S. dollar (our functional currency)
against the currencies of our operating subsidiaries and
affiliates. Any increase (decrease) in the value of the
U.S. dollar against any foreign currency that is the
functional currency of one of our operating subsidiaries or
affiliates will cause the parent company to experience
unrealized foreign currency translation losses (gains) with
respect to amounts already invested in such foreign currencies.
In addition, we and our operating subsidiaries and affiliates
are exposed to foreign currency risk to the extent that we enter
into transactions denominated in currencies other than our
respective functional currencies, such as investments in debt
and equity securities of foreign subsidiaries, equipment
purchases, programming costs, notes payable and notes receivable
(including intercompany amounts) that are denominated in a
currency other than the applicable functional currency. Changes
in exchange rates with respect to these items will result in
unrealized (based upon period-end exchange rates) or realized
foreign currency transaction gains and losses upon settlement of
the transactions. In addition, we are exposed to foreign
exchange rate fluctuations related to our operating
subsidiaries monetary assets and liabilities and the
financial results of foreign subsidiaries and affiliates when
their respective financial statements are translated into
U.S. dollars for inclusion in our consolidated financial
statements. Cumulative translation adjustments are recorded in
accumulated other comprehensive earnings (loss) as a separate
component of equity. As a result of foreign currency risk, we
may experience economic loss and a negative impact on earnings
and equity with respect to our holdings solely as a result of
foreign currency exchange rate fluctuations. The primary
exposure to foreign currency risk for our company is to the euro
and the Japanese yen, as 29.4% and 28.9% of our U.S. dollar
revenue during the three months ended September 30, 2006,
and 28.7% and 29.0% of our U.S. dollar revenue during the
nine months ended September 30, 2006, was derived from
subsidiaries whose functional currency is the euro and the
Japanese yen, respectively. In addition, we have significant
exposure to changes in the exchange rates for the Swiss franc,
the Chilean peso, the Hungarian forint, the Australian dollar
and other local currencies in Europe.
86
The relationship between (i) the euro, the Swiss franc, the
Japanese yen, the Chilean peso, the Hungarian forint and the
Australian dollar and (ii) the U.S. dollar, which is
our reporting currency, is shown below, per one U.S. dollar:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
December 31, |
|
|
|
|
2006 |
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
Spot rates:
|
|
|
|
|
|
|
|
|
|
Euro
|
|
|
0.7882 |
|
|
|
0.8451 |
|
|
Swiss franc
|
|
|
1.2503 |
|
|
|
1.3153 |
|
|
Japanese yen
|
|
|
118.01 |
|
|
|
117.95 |
|
|
Chilean peso
|
|
|
536.34 |
|
|
|
514.01 |
|
|
Hungarian forint
|
|
|
215.24 |
|
|
|
213.52 |
|
|
Australian dollar
|
|
|
1.3396 |
|
|
|
1.3631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended | |
|
Nine months ended | |
|
|
September 30, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2006 | |
|
2005 | |
|
2006 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
Average rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
|
0.7848 |
|
|
|
0.8212 |
|
|
|
0.8040 |
|
|
|
0.7916 |
|
|
Swiss franc
|
|
|
1.2376 |
|
|
|
1.2741 |
|
|
|
1.2594 |
|
|
|
1.2278 |
|
|
Japanese yen
|
|
|
116.28 |
|
|
|
111.24 |
|
|
|
115.89 |
|
|
|
107.78 |
|
|
Chilean peso
|
|
|
539.13 |
|
|
|
551.35 |
|
|
|
530.97 |
|
|
|
570.39 |
|
|
Hungarian forint
|
|
|
216.05 |
|
|
|
202.22 |
|
|
|
213.19 |
|
|
|
195.61 |
|
|
Australian dollar
|
|
|
1.3214 |
|
|
|
1.3160 |
|
|
|
1.2594 |
|
|
|
1.3009 |
|
We are exposed to changes in interest rates primarily as a
result of our borrowing and investment activities, which include
fixed and floating rate investments and borrowings by our
operating subsidiaries that are used to maintain liquidity and
fund their respective business operations. Our primary exposure
to variable-rate debt is through the EURIBOR-indexed and
LIBOR-indexed debt of UPC Broadband Holding, Cablecom Luxembourg
and LG Switzerland, the Japanese yen LIBOR-indexed and
TIBOR-indexed debt of J:COM, the LIBOR-indexed Secured Borrowing
on ABC Family Preferred Stock, the TAB-indexed debt of VTR, the
AUD BBSY-indexed debt of Austar and the variable-rate debt of
certain of our other subsidiaries. These subsidiaries have
entered into various derivative transactions pursuant to their
policies to manage exposure to movements in interest rates. We
use interest rate exchange agreements to exchange, at specified
intervals, the difference between fixed and variable interest
amounts calculated by reference to an agreed-upon notional
principal amount. We also use interest rate cap agreements that
lock in a maximum interest rate should variable rates rise, but
which enable us to otherwise pay lower market rates. We manage
the credit risks associated with our derivative financial
instruments through the evaluation and monitoring of the
creditworthiness of the counterparties. Although the
counterparties may expose our company to losses in the event of
nonperformance, we do not expect that any such non-performance
will occur.
Weighted Average Variable Interest Rate At
September 30, 2006, our variable-rate indebtedness
(exclusive of the effects of interest rate exchange agreements)
aggregated approximately $8.2 billion and the
weighted-average interest rate (including margin) on such
variable rate indebtedness was approximately 6.2% (6.9%
exclusive of J:COM). Assuming no change in the amount
outstanding, and without giving effect to any interest rate
exchange agreements, a hypothetical 50 basis point increase
(decrease) in our weighted average variable interest rate would
increase (decrease) our annual consolidated interest expense and
cash outflows by approximately $40.9 million.
87
Through our subsidiaries, we have entered into various
derivative instruments to manage interest rate and foreign
currency exposure. For information concerning these derivative
instruments, see note 5 to our condensed consolidated
financial statements. Information concerning the sensitivity of
the fair value of certain of our derivative instruments to
changes in market conditions is set forth below.
|
|
|
UPC Broadband Holding Cross-currency and Interest Rate
Exchange Contracts |
Holding all other factors constant, (i) an instantaneous
increase (decrease) of 10% in the value of the U.S. dollar
relative to the euro at September 30, 2006 would have
increased (decreased) the aggregate fair value of the UPC
Broadband Holding cross-currency and interest rate exchange
contracts by approximately
158 million
($200 million), (ii) an instantaneous increase
(decrease) of 10% in the value of the euro relative to the Czech
koruna, the Slovakian koruna, the Hungarian forint, the Polish
zloty and the Romanian lei at September 30, 2006 would have
increased (decreased) the aggregate fair value of the UPC
Broadband Holding cross-currency and interest rate exchange
contracts by approximately
131 million
($166 million), (iii) an instantaneous increase in the
relevant base rate of 50 basis points (0.50%) at
September 30, 2006 would have increased the aggregate fair
value of the UPC Broadband Holding cross-currency and interest
rate exchange contracts and caps by approximately
54 million
($69 million), and (iv) an instantaneous decrease in
the relevant base rate of 50 basis points (0.50%) at
September 30, 2006 would have decreased the aggregate fair
value of the UPC Broadband Holding cross-currency and interest
rate exchange contracts and caps by approximately
59 million
($75 million).
|
|
|
Cablecom GmbH and Cablecom Luxembourg Cross-currency and
Interest Rate Exchange Contracts |
Holding all other factors constant, (i) an instantaneous
increase (decrease) of 10% in the value of the euro relative to
the Swiss franc at September 30, 2006 would have increased
(decreased) the aggregate fair value of the Cablecom GmbH
and Cablecom Luxembourg cross-currency and interest rate
exchange contracts by approximately CHF91 million
($73 million), (ii) an instantaneous increase in the
relevant base rate (excluding margin) of 50 basis points
(0.50%) at September 30, 2006 would have increased the
aggregate fair value of the Cablecom GmbH cross-currency and
interest rate exchange contracts by approximately
CHF32 million ($25 million), and (iii) an
instantaneous decrease in the relevant base rate of
50 basis points (0.50%) at September 30, 2006 would
have decreased the aggregate fair value of the Cablecom GmbH
cross-currency and interest rate exchange contracts by
approximately CHF35 million ($28 million).
|
|
|
VTR Cross-currency and Interest Rate Exchange Contracts |
Holding all other factors constant, (i) an instantaneous
increase (decrease) of 10% in the value of the Chilean Peso
relative to the U.S. dollar at September 30, 2006
would have decreased (increased) the aggregate fair value
of the VTR cross-currency and interest rate exchange contracts
by approximately CLP31 billion ($58 million),
(ii) an instantaneous increase in the relevant base rate
(excluding margin) of 50 basis points (0.50%) at
September 30, 2006 would have increased the aggregate fair
value of the VTR cross-currency and interest rate exchange
contracts by approximately CLP10 billion
($19 million), and (iii) an instantaneous decrease in
the relevant base rate of 50 basis points (0.50%) at
September 30, 2006 would have decreased the aggregate fair
value of the VTR cross-currency and interest rate exchange
contracts by approximately CLP10.5 billion
($20 million).
Holding all other factors constant, (i) an instantaneous
increase of 10% in the value of the euro relative to the
U.S. dollar at September 30, 2006 would have decreased
the fair value of the UGC Convertible Notes by approximately
30 million
($38 million), (ii) an instantaneous decrease of 10%
in the value of the euro relative to the U.S. dollar at
September 30, 2006 would have increased the fair value of
the UGC Convertible Notes by approximately
39 million
($49 million), (iii) an instantaneous increase
(decrease) in the risk free rate of 50 basis points (0.50%)
at September 30, 2006 would have decreased
(increased) the fair value of the
88
UGC Convertible Notes by approximately
3 million
($4 million), and (iv) an instantaneous increase
(decrease) of 10% in the combined per share market price of LGI
Series A common stock and LGI Series C common stock at
September 30, 2006 would have increased
(decreased) the fair value of the UGC Convertible Notes by
approximately
36 million
($46 million).
|
|
Item 4. |
Controls and Procedures. |
|
|
(a) |
Evaluation of disclosure controls and procedures |
In accordance with Exchange Act
Rule 13a-15, we
carried out an evaluation, under the supervision and with the
participation of management, including our chief executive
officer, principal accounting officer, and principal financial
officer (the Executives), of the effectiveness of our disclosure
controls and procedures as of September 30, 2006. In
designing and evaluating the disclosure controls and procedures,
the Executives recognize that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives, and management is necessarily required to apply
judgment in evaluating the cost-benefit relationship of possible
controls and objectives. Based on that evaluation, the
Executives concluded that our disclosure controls and procedures
are effective as of September 30, 2006, in timely making
known to them material information relating to us and our
consolidated subsidiaries required to be disclosed in our
reports filed or submitted under the Securities Exchange Act of
1934. We have investments in certain unconsolidated entities. As
we do not control these entities, our disclosure controls and
procedures with respect to such entities are necessarily
substantially more limited than those we maintain with respect
to our consolidated subsidiaries. We began consolidating the
financial results of Unite Holdco and its subsidiary, Karneval,
effective September 30, 2006, pursuant to the requirements
of FIN 46(R). Because we do not manage Unite Holdco, our
disclosure controls and procedures with respect to information
regarding Unite Holdco also are more limited than those for
consolidated subsidiaries that we actively manage.
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(c) |
Changes in internal control over financial
reporting |
There have been no changes in our internal controls over
financial reporting identified in connection with the evaluation
described above that occurred during the fiscal quarter covered
by this Quarterly Report on
Form 10-Q that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
89
PART II OTHER INFORMATION
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Item 2. |
Unregistered Sales of Equity Securities and use of
Proceeds. |
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(c) |
Issuer Purchases of Equity Securities |
The following table sets forth information concerning our
companys purchase of its own equity securities during the
three months ended September 30, 2006:
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Total number of | |
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Approximate dollar | |
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shares purchased as | |
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value of shares that | |
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part of publicly | |
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may yet be purchased | |
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Total number of | |
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Average price paid | |
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announced plans or | |
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under the plans or | |
Period |
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shares purchased | |
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per share(a) | |
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programs | |
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programs | |
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amounts in millions | |
July 1, 2006 through
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Series A: |
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Series A: |
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$ |
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Series A: |
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July 30, 2006
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Series C: |
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Series C: |
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$ |
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Series C: |
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$ |
117.6 |
(b) |
August 1, 2006 through
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Series A: |
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Series A: |
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$ |
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Series A: |
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August 31, 2006
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Series C: |
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Series C: |
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$ |
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Series C: |
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$ |
117.6 |
(b) |
September 1, 2006 through
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Series A: |
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20,000,000 |
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Series A: |
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$ |
25.04 |
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Series A: |
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20,000,000 |
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September 30, 2006
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Series C: |
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20,534,000 |
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Series C: |
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$ |
24.39 |
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Series C: |
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20,534,000 |
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$ |
117.6 |
(b) |
Total July 1, 2006 through
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Series A: |
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20,000,000 |
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Series A: |
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$ |
25.04 |
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Series A: |
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20,000,000 |
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September 30, 2006
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Series C: |
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20,534,000 |
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Series C: |
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$ |
24.39 |
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Series C: |
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20,534,000 |
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$ |
117.6 |
(b) |
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(a) |
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Average price paid per share includes direct acquisition costs
where applicable. |
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(b) |
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On June 20, 2005, we announced the authorization of a
$200 million stock repurchase program. Under this program,
we acquired $200 million in LGI Series A common stock
and LGI Series C common stock on various dates through the
first quarter of 2006. On March 8, 2006, our board of
directors approved a new stock repurchase program under which we
may acquire an additional $250 million in LGI Series A
common stock and LGI Series C common stock. Under this
program, we acquired $132.4 million in LGI Series A
common stock and LGI Series C common stock during the three
months ended June 30, 2006. This stock repurchase program
may be effected through open market transactions or privately
negotiated transactions, which may include derivative
transactions. The timing of the repurchase of shares pursuant to
this program will depend on a variety of factors, including
market conditions. This program may be suspended or discontinued
at any time. |
In May 2006, our board of directors authorized two cash
self-tender offers to purchase up to 10,000,000 shares of
LGI Series A common stock and up to 10,288,066 shares
of LGI Series C common stock at a purchase price of $25.00
and $24.30 per share, respectively, or up to an aggregate
for both tender offers of $500.0 million. These self tender
offers expired on June 15, 2006. On or about June 21,
2006, LGI, through its depository agent, purchased
10,000,000 shares of its LGI Series A common stock and
10,288,066 shares of its LGI Series C common stock for
an aggregate price of $500.0 million and returned all other
shares tendered but not accepted for purchase. Shares purchased
pursuant to the tender offers did not reduce our previously
announced stock repurchase program.
In August 2006, our board of directors authorized two cash
modified Dutch auction self-tender offers to purchase up to
$500.0 million of each of LGI Series A common stock
and LGI Series C common stock at ranges of $22.00 to $25.00
for Series A shares and $21.43 to $24.35 for Series C
shares. These self tender offers expired on September 8,
2006. Based on the final tabulation by the depositary for the
tender offers, the purchase price for the Series A tender
offer was $25.00 per share and the purchase price for the
Series C tender offer was $24.35 per share. On or
about September 14, 2006, LGI, through its depository
agent, purchased 20,000,000 shares of its LGI Series A
common stock and 20,534,000 shares of its LGI Series C
common stock for an aggregate price of $1,001.6 million and
returned all other shares tendered but not accepted for
purchase. Shares purchased pursuant to the tender offers did not
reduce our previously announced stock repurchase program.
Including our cash self-tender offers and other repurchase
transactions described in note 8 to our
90
condensed consolidated financial statements, we repurchased
during the nine months ended September 30, 2006 a total of
32,698,558 shares and 40,528,748 shares of LGI
Series A common stock and LGI Series C common stock,
respectively, for aggregate cash consideration of
$1,757.2 million. At September 30, 2006, we were
authorized under the March 8, 2006 stock repurchase plan to
acquire an additional $117.6 million of LGI Series A
common stock and LGI Series C common stock.
91
Listed below are the exhibits filed as part of this Quarterly
Report (according to the number assigned to them in
Item 601 of
Regulation S-K):
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3 |
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Articles of Incorporation; Bylaws: |
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3 |
.1 |
|
Restated Certificate of Incorporation of the Registrant, dated
June 15, 2005 (incorporated by reference to
Exhibit 3.1 to the Registrants Current Report on
Form 8-K, dated June 15, 2005 (File
No. 000-51360) (the Merger 8-K)) |
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3 |
.2 |
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Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Merger 8-K) |
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4 |
|
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Instruments Defining the Rights of Security Holders: |
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4 |
.1 |
|
Additional Facility Accession Agreement, dated July 3,
2006, among UPC Broadband Holding B.V., Toronto Dominion (Texas)
LLC, TD Bank Europe Limited and certain Additional Facility L
Lenders (incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on Form 8-K, dated
July 3, 2006 (File No. 000-51360)) |
|
10 |
|
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Material Contracts: |
|
10 |
.1 |
|
Liberty Global, Inc. 2005 Incentive Plan (As Amended and
Restated Effective October 31, 2006) (incorporated by
reference to Exhibit 99.1 to the Registrants Current
Report on Form 8-K, dated October 31, 2006 (File No.
000-51360) (the October 8-K)) |
|
10 |
.2 |
|
Liberty Global, Inc. 2005 Nonemployee Director Incentive Plan
(As Amended and Restated Effective November 1, 2006) (the
Director Plan) (incorporated by reference to Exhibit 99.2
to the October 8-K) |
|
10 |
.3 |
|
Form of Restricted Share Agreement under the Director Plan
(incorporated by reference to Exhibit 99.1 to the
Registrants Current Report on Form 8-K/A (Amendment
No. 1), dated June 6, 2006 (File No. 000-51360)) |
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31 |
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Rule 13a-14(a)/15d-14(a) Certification: |
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31 |
.1 |
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Certification of President and Chief Executive Officer* |
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31 |
.2 |
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Certification of Senior Vice President and Co-Chief Financial
Officer (Principal Financial Officer)* |
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31 |
.3 |
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Certification of Senior Vice President and Co-Chief Financial
Officer (Principal Accounting Officer)* |
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32 |
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Section 1350 Certification* |
92
SIGNATURES
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.
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Liberty Global, Inc.
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Dated: November 8, 2006
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/s/ Michael T. Fries
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Michael
T. Fries
President and Chief Executive Officer |
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Dated: November 8, 2006
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/s/ Charles H.R. Bracken
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Charles
H.R. Bracken
Senior Vice President and Co-Chief Financial Officer
(Principal Financial Officer) |
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Dated: November 8, 2006
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/s/ Bernard G. Dvorak
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Bernard
G. Dvorak
Senior Vice President and Co-Chief Financial Officer
(Principal Accounting Officer) |
93
EXHIBIT INDEX
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3 |
|
|
Articles of Incorporation; Bylaws: |
|
3 |
.1 |
|
Restated Certificate of Incorporation of the Registrant, dated
June 15, 2005 (incorporated by reference to
Exhibit 3.1 to the Registrants Current Report on
Form 8-K, dated June 15, 2005 (File No. 000-51360)
(the Merger 8-K)) |
|
3 |
.2 |
|
Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Merger 8-K) |
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4 |
|
|
Instruments Defining the Rights of Security Holders: |
|
4 |
.1 |
|
Additional Facility Accession Agreement, dated July 3,
2006, among UPC Broadband Holding B.V., Toronto Dominion (Texas)
LLC, TD Bank Europe Limited and certain Additional Facility L
Lenders (incorporated by reference to Exhibit 4.1 to the
Registrants Current Report on Form 8-K, dated
July 3, 2006 (File No. 000-51360)) |
|
10 |
|
|
Material Contracts: |
|
10 |
.1 |
|
Liberty Global, Inc. 2005 Incentive Plan (as amended and
Restated Effective October 31, 2006) (incorporated by
reference to Exhibit 99.1 to the Registrants Current
Report on Form 8-K, dated October 31, 2006 (File No.
000-51360) (the October 8-K)) |
|
10 |
.2 |
|
Liberty Global, Inc. 2005 Nonemployee Director Incentive Plan
(as Amended and Restated Effective November 1, 2006) (the
Director Plan) (incorporated by reference to Exhibit 99.2
to the October 8-K |
|
10 |
.3 |
|
Form of Restricted Share Agreement under the Director Plan
(incorporated by reference to Exhibit 99.1 to the
Registrants Current Report on Form 8-K/A
(Amendment No.1) dated June 6, 2006 (File No.
000-51360)) |
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31 |
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|
Rule 13a-14(a)/15d-14(a) Certification: |
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31 |
.1 |
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Certification of President and Chief Executive Officer* |
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31 |
.2 |
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Certification of Senior Vice President and Co-Chief Financial
Officer (Principal Financial Officer)* |
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31 |
.3 |
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Certification of Senior Vice President and Co-Chief Financial
Officer (Principal Accounting Officer)* |
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32 |
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|
Section 1350 Certification* |